Showing posts with label Mark Kantrowitz. Show all posts
Showing posts with label Mark Kantrowitz. Show all posts

Thursday, July 12, 2018

Parents join their children in Student-Loan Siberia, taking out bigger and bigger Parent PLUS loans to finance their children's bad college choices

Remember the movie Fiddler on the Roof? Perhaps the most poignant scene is the one in which Tevye waits with his daughter Hodel for the train that will take Hodel to Siberia. As you recall, Hodel married Perchik, a Russian revolutionary, without her father's permission. Perchik then got himself arrested and exiled to the Siberian wilderness.

Did Hodel say: "Good luck, honey!" "Don't forget to write!"  Or, "I told you not to become a revolutionary, but you didn't listen!"

No, she didn't. Instead, Hodel hopped a train and joined Perchik in Siberia.

Something similar is happening with Parent PLUS loans. Students are taking out more and more federal loans to finance their college studies, and many are taking out the maximum amount they are allowed to borrow for their undergraduate education--$31,000. In fact, 40 percent of undergraduate borrowers have loans totally $31,000 before they begin their senior year.

What to do? Many are turning to their parents to fill the gap. In 2015-2016, Parent PLUS loans averaged $33,291, up 14 percent in just four years. In fact, two thirds of parents who took out Parent PLUS loans in 2015-2016 did so to finance their children's undergraduate education.

As Mark Kantrowitz explained in a New York Times interview, "Parents are a pressure-relief valve for when students hit the Stafford loan limits."

I suppose that's one way of putting it. But really, the rise in Parent PLUS loans means some parents are bearing bigger student-debt loads than their children. And remember--Parent PLUS loans are as difficult to discharge in bankruptcy as student loans. No student loan can be discharged unless the debtor can show "undue hardship," a very tough standard to meet.

Some parents who take out Parent PLUS loans will find them very difficult to repay. In fact, the lending standards for issuing these loans are very low.  Parent debtors who lose their jobs, develop serious illnesses, or have various kinds of family emergencies may find it almost impossible to make payments on their Parent PLUS loans.  And bankruptcy will probably not be an option.

And let's face facts. If students cannot finance their college choices without pushing their parents into debt, they chose the wrong college.

So Mom and Dad, think of Hodel before you take out Parent PLUS loans to finance your children's college education. If your children cannot pay back their own student loans, they may be forced into long-term income-based repayment plans that last 20 or even 25 years. In which case, your children will be entering Student-Loan Siberia--saddled by debt for most of their working lives.

And, Mom and Dad, if you take out Parent PLUS loans, you may wind up like Hodel--headed for Student-Loan Siberia as well. If that happens it will be because your darling child made a bad choice about where to go to college and you foolishly agreed to help foot the bill.

Goodbye, Dad. Perchik made a dumb decision and I'm going to join him in Siberia.

References

Tara Siegel Bernard and Karl Russell. The New Toll of Student Debt in 3 Charts. New York Times, July 11, 2018.