student debt / student loans

Beware Parent Plus education loans

 “Some of the wealthiest U.S. colleges are steering parents into no-limit federal loans to cover rising tuition, leaving many poor and middle-class families with debt they can’t repay” according to T. D. Hobbs and A. Fuller reporting for the October 14, 2021 Wall Street Journal

Unlike undergraduate loans that have limits, there is no cap on what parents can borrow through the fast-growing Parent Plus program, no matter their income. Some parents wanting the best schools available for their children sign on the dotted line unaware how the debt can burden them into retirement.” The university with the worst repayment rate for parent Plus loans is Baylor University in Waco, Texas. Baylor has increased tuition (while failing to increase student aid), built lavish facilities and “paid” for it’s growing prestige in college ranking by burdening students’ parents with unaffordable Parent Plus loans that threaten retirement security.

By the way, for many student the “best school” is not necessarily the best fit with the best outcomes. Numerous studies have shown that choice of major is a far more important factor in long term earnings outcomes than choice of college. 

A specific case reported by Hobbs and Fuller: “I will never get it all paid off,” said Trina Saverin, a 53year-old public-school administrator in Texas. She owes $231,000 in federal student loans of which at least $65,000 in Parent Plus loans came from sending her daughter to Baylor, at least $74,000 in Plus loans for her son’s college costs, and loans for her own 2015 master’s degree. 

Plus loans to parents and graduate student are “the new face of the student-debt crisis, helping drive a sea change in the student-loan marketplace. Until five years ago, undergraduates borrowed more than parents and grad students combined; now parents and grad students borrow more.” 

Who is on the hook when Plus Loans are not repaid? Taxpayers, of course. “Defaults don’t hurt colleges, which get the money upfront.”

New Plus loans had an interest rate of 6.28% as of July 1, compared with the main federal loans for students at 3.73%. New parent loans also have an origination fee quadruple that of federal student loans.”

While the front page article is a scathing indictment of Baylor University’s administration and financial aid policies, Baylor isn’t the only school to sell students and their families on a so-called “reputation” that the student cannot afford. There are so many higher education institutions that provide excellent educations at affordable prices. College-bound students and their families need to do a lot more research and/or hire competent financial advice to avoid getting caught in a debt trap they will regret. Far too many students go straight to college from high school because it is the thing to do and they don’t consider other options such as a gap year, working, going to a non-profit technical school or community college. The students who are worst off after borrowing to attend college are those who run up debts but don’t graduate. 

And taxpayers are left holding the bag for unpaid debts while colleges collect their money up front, regardless of the outcomes for students and their families.  

Source: Financial Planning for Women