Interest Rates
Parents can borrow to cover tuition, room, board and books, minus grants or loans the student receives. PLUS loans also carry an origination fee of 4.3 percent. The current interest rate is 6.8 percent, and it was almost 8 percent from July 2006 to June 2013.
“When money comes from the government, a trusted source, parents do have good reason to borrow,” said Merrill, the Harvard lecturer. “But the problem is their income is not going to change based on their kids’ education.”
Parents aren’t eligible for most programs that offer reduced payments for struggling student borrowers based on income.
Onerous Burden
For older borrowers like Correa, the burden can be onerous. About 17 percent of parent loans held by borrowers 65 to 74 were in default in 2013, according to Education Department data provided for a 2014 Government Accountability Office report.
Older borrowers who default on education debt can have Social Security payments garnished. The practice is of such concern to Senators Warren and Claire McCaskill, a Missouri Democrat, that they asked the GAO in April to study the impact.
Congress doesn’t require data on parent loans to be reported annually by school, the same way it is for student borrowers. While the Obama administration has pushed for transparency by publishing data about cumulative loans and repayment rates for student borrowers, it doesn’t apply to parents. The Education Department, which said last year it would release performance measures for parent PLUS loans “where appropriate,” hasn’t made such information available.
“It’s dangerous that the program is opaque about its likely future losses,” said Deborah Lucas, a former chief economist for the Congressional Budget Office and now a professor of finance at Massachusetts Institute of Technology. “That’s a situation that really needs to change given the magnitude of the potential losses in this program.”
Parent Trap Involves $71 Billion Of Federal Education Debt
December 18, 2015
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Comments
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As Jack W pointed out, the root question is how the cost of a college education increased so much faster than the cost of everything else (except, of course, medical care). I think the answer is: Because they could get away with it. Business negotiators are taught to "not leave money on the table." It's easy to talk people into borrowing easy money for "the best investment you can make." Remember the run-up to the housing crash? The same patter was used then. The concept of maximizing revenues has taken over at "non-profit" organizations in this country--thanks in large part to the fact that they are now run by the MBA's who where trained in the ways, and the ethos, of corporate America. Neither medicine, nor education, nor the country as a whole has benefitted from this--only the highly-paid members of the "administrative class."
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This is another example of why a 529 plan funded over decades will help with the cost burden. In addition, children should be paying off the debt as they are benefitting from the education not the parents, it teaches kids fiscal responsibility. However, it is also hard to understand how the cost of a college education has gone up geometrically more than inflation when you see kids who are more skilled at video games and texting than in math and science. Bottom line, a degree only gets you a place at the starting line, it doesn't guarantee you will win or finish the race especially if you get a degree in something esoteric instead of practical.
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I sympathize with the plight of the family in the article, but am often perplexed that people can borrow money, from a government or private program, when they can't repay the loan. Isn't that what drove us into the Great Recession? I usually tell parents who defer retirement savings to pay for college, that one can borrow money for almost anything except retirement. Only you will be responsible. The struggling mother can't see retirement because of a choice. Now the daughter is a college graduate from a top university. Why isn't she paying off the loans her parents took out? Maybe she should have borrowed the money vs. mom.