Parents with student debt want a fix
mall parents who have taken on college debt for their children regret the decision: Nearly 1 in 3 parents (30%) with federal PLUS loans say they would ask their children to reconsider their educational plans if they could do it again You don’t have to take out the loans.
These results, part of a July 2021 survey conducted by The Harris Poll on behalf of NerdWallet, illustrate the burden parents put on who amassed federal loans to make college easy for their children.
Parent PLUS loans do not have strict credit requirements, so they are easy for parents of undergraduate students to obtain. However, they are more expensive than other government student loans that their children take out because they carry higher interest rates and higher lending fees.
PLUS loans also don’t have the limits that apply to undergraduate loans. Parents can take out loans up to the total cost of attendance minus other financial aids such as scholarships and grants. And they can take out loans for several children.
About 1 in 5 parents borrow a loan to fund their child’s school, with 11% using PLUS loans, according to a 2021 report by Sallie Mae.
Over time, the parent’s loans add up quickly. According to Federal College Scorecard 2021 data, the median PLUS parental loan debt is $ 29,945. About 3 in 10 PLUS borrowers (27%) interviewed in the Harris survey said they wish they had a lower PLUS loan amount.
âEveryone wants to do everything they can for their children; there’s a natural tendency to give your kids what they want, âsaid Nancy Goodman, founder and executive director of College Money Matters, a nonprofit that helps families make college decisions. âMany parents have also embraced the idea that college graduation is a golden ticket. This is definitely true historically, but not for every child in every situation and in every degree program. “
Parents expect help from their children
When comparing student loan interest rates and fees, students are better off borrowing state undergraduate loans than parents taking on PLUS debt, says Sandy Baum, a non-resident senior fellow of the Center on Education Data and Policy at Urban Institute and Professor Emeritus of Economics at Skidmore College in Saratoga Springs, New York.
However, experts say parents often view loans as the only way their child can afford to study, and some parents expect their child to be responsible for the payments at some point. According to the survey, 22% of parents of PLUS borrowers said they thought their children would take over their loan payments, but they haven’t yet.
Legally speaking, parents cannot easily cede their debts to their child. The only way to do this is by refinancing with a private lender as well Transfer of ownership their child, which some lenders allow. But if the child borrows the maximum amount available, says Baum, the idea of ââbeing able to repay all this and more after graduation is “questionable”.
What is affordable now may not be in the future
Every fifth PLUS borrower (20%) says they were able to make the loan payments initially, but can no longer. Parents shoulder the student debt burden for their children without the promise of the higher income normally associated with a degree. This makes it harder to repay the debt, as the IRS data shows that after age 65, income increases.
“It’s likely unlikely that it will be much easier for you to make loan payments when your kids go to college than it will be to save before your child goes to college,” says Baum.
Parents who carry debts into their final years of employment may have greater difficulty saving for their financial future. According to the NerdWallet survey, more than 1 in 4 PLUS borrowers (26%) say they are not retiring as expected because of their PLUS loans.
More than a third of parents are not ready for a loan restart
Parents, like all borrowers of federal student loans, had the chance to take a long breath together: Since March 13, 2020, all federal loans have been suspended due to the COVID-19 pandemic.
At the time of the survey, the federal government’s payment pause had not yet been extended. The deferral should end after September 30, 2021, but will now end after January 31, 2022. At the time of the survey, nearly a quarter of PLUS borrowers (24%) said they would apply for a deferral extension after the automatic deferral period expired.
Requesting an additional deferral is an option, but unlike the current payment suspension, if you request a deferral or deferral when payment resumes, it will incur interest and increase the total amount you owe.
In contrast to federal direct borrowers, PLUS borrowers only have one income-related repayment option: income-related repayment. This will fix your payment at 20% of your disposable income (or fixed payments based on a 12 year loan period) and extend the repayment by 25 years. In order to qualify, you must first consolidate your student loans, what you are taking for free. can do studentloans.gov.
Parents shouldn’t count on forgiveness
Worryingly, the survey shows that 28% of PLUS borrowers expect widespread debt relief to pay off a large portion of their debts. But there is no guarantee or expectation among experts that student loans will be canceled.
The Democrats in Congress have urged President Joe Biden to use executive action to cancel debt, but he has made no commitments to cancel student loans and has questioned his authority to do so. No bill was introduced to Congress on this either.
There are legitimate and existing sources of Parental credit lending when they qualify, including:
- Full and permanent disability for people with disabilities.
- Public service lending to those who worked in the public service for 10 years while repaying a consolidated direct loan.
- Relief through borrower defense to repay if your child’s school is defrauded.
Only the federal government can pay off your loan debts. Student loan borrowers, including parents, often receive unsolicited messages via email, SMS, and phone stating that they are eligible for loan waiver. These are scams and you should not react. If you have any doubts about any news you have received about your loans, contact your loan service provider.
Anna Helhoski writes for NerdWallet. Email: [email protected] Twitter: @AnnaHelhoski.
The article “Parents With Student Debt Want A Fix” originally appeared on NerdWallet.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.