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robert38-55
Senior MemberPosts: 3,621 Senior Member
Parent PLUS Loans Pose Hazards.
robert38-55
Senior MemberPosts: 3,621 Senior Member
We all like to help our children get a good start in life. I have a daughter in college now, and when I read this it made me wonder.
Parents can use these federal loans to pay for a child's college costs, but they come with serious risks. Borrowers, beware.
If you want your kids to attend college, be aware of a hazardous type of loan that could prevent your retirement and leave you strapped to a lifetime of debt.
We're talking about parent PLUS loans. These fixed-rate loans are offered through the federal government to parents of dependent undergraduates. But if you can't pay back what you owe, your tax refunds could be seized and your wages garnisheed. You could even lose a chunk of your Social Security checks, however meager they might be.
That's scary, but what's even scarier is that the same loans that pose these hazards also could be your best bet if you want your children to get college degrees.
Unlike federal student loans for undergraduates, there is no preset limit on parent PLUS loans. You can borrow up to the full cost of your child's education. (If your kid gets financial aid, the maximum is the full cost minus that aid.) You don't need pristine credit or any proof that you can pay the money back.
Debt consolidation: Pros and cons
Which is part of the problem.
Pauline emailed me, hoping there was some kind of escape clause she'd missed after she and her husband borrowed more than $200,000 in parent PLUS loans for their two daughters' college educations. The two girls both had medical conditions that Pauline said prevented her from working and that cost them most of their savings.
Liz Weston
.
"We were at a high income level when the loans were made," Pauline wrote, explaining that her husband's income was over $300,000 at the time. "After 25 years with his company, he lost his job as a vice president. I went back to work, but only make $35,000. His new position is $100,000."
Their income is still high by national standards, but not high enough to make much progress on their enormous debt. The daughters can't help -- both graduated from college, but one has a "not great" job and the other is unemployed.
"We are taking out of our savings, (about) $3,000 monthly to pay our bills in hopes of things getting better," Pauline wrote. "My husband handles the finances (and) says if we can get lower payments, it won't matter on the student loans, we still have to pay forever. . . . He isn't or can't think about retirement."
You don't need a high income to get over your head with parent PLUS loans. One in five parent PLUS borrowers took out a loan for a student who received a Pell Grant, according to an analysis by financial aid expert Mark Kantrowitz, the publisher of FinAid.org and FastWeb. Pell Grants are reserved for the neediest students, typically those from families who earn $50,000 or less.
Students Face Their Own Debt Bubble
Kantrowitz's analysis of 2007-08 Department of Education data, the latest available, also found that monthly payments for PLUS loans ate up an average 38% of borrowers' income among those in the bottom 10% of incomes.
"Either these parents don't know what they are getting into," Kantrowitz said, "or they expect their children to make the payments on the loans."
Kantrowitz's findings were included in a joint investigation by ProPublica and The Chronicle of Higher Education of parent PLUS loans that found many families have overburdened themselves with this debt. The investigation highlighted one single mom whose modest $25,000 income wasn't a barrier to getting $17,000 in loans for her daughter's education -- a debt that 12 years later has more than doubled, thanks to accumulated interest and fees.
The nominal interest rate of 7.9%, while relatively low for a loan that's not secured by property, is high enough that the amount owed can double within a decade if no payments are made. (There's also a 4% "loan origination fee" that's deducted from each loan disbursement.)
The federal government doesn't check incomes or employment status before approving these loans. The government also doesn't inquire about your other debts or your debt-to-income ratio. PLUS borrowers can't have an "adverse credit history," which means being currently 90 days or more late on a bill or having a bankruptcy, foreclosure or repossession within the previous five years.
"In effect, the PLUS loan credit underwriting is looking for signs that the prospective borrower is struggling to repay current debts," Kantrowitz said. "It does not evaluate whether the borrower can afford to make the payments on the new PLUS loan debt."
The government has powers that other debt collectors envy, such as the ability to:
• Seize tax refunds.
• Garnishee wages without a court order.
• Grab a portion of Social Security benefits, which are usually off-limits to collection agencies.
• Pursue the debt indefinitely, since there is no statute of limitations on student loan collection, as there is with most other debt.
You also could lose the professional or vocational license that allows you to work, since several states allow licensing boards to deny, suspend or revoke such credentials for people who default on student loans.
Parents can use these federal loans to pay for a child's college costs, but they come with serious risks. Borrowers, beware.
If you want your kids to attend college, be aware of a hazardous type of loan that could prevent your retirement and leave you strapped to a lifetime of debt.
We're talking about parent PLUS loans. These fixed-rate loans are offered through the federal government to parents of dependent undergraduates. But if you can't pay back what you owe, your tax refunds could be seized and your wages garnisheed. You could even lose a chunk of your Social Security checks, however meager they might be.
That's scary, but what's even scarier is that the same loans that pose these hazards also could be your best bet if you want your children to get college degrees.
Unlike federal student loans for undergraduates, there is no preset limit on parent PLUS loans. You can borrow up to the full cost of your child's education. (If your kid gets financial aid, the maximum is the full cost minus that aid.) You don't need pristine credit or any proof that you can pay the money back.
Debt consolidation: Pros and cons
Which is part of the problem.
Pauline emailed me, hoping there was some kind of escape clause she'd missed after she and her husband borrowed more than $200,000 in parent PLUS loans for their two daughters' college educations. The two girls both had medical conditions that Pauline said prevented her from working and that cost them most of their savings.
Liz Weston
.
"We were at a high income level when the loans were made," Pauline wrote, explaining that her husband's income was over $300,000 at the time. "After 25 years with his company, he lost his job as a vice president. I went back to work, but only make $35,000. His new position is $100,000."
Their income is still high by national standards, but not high enough to make much progress on their enormous debt. The daughters can't help -- both graduated from college, but one has a "not great" job and the other is unemployed.
"We are taking out of our savings, (about) $3,000 monthly to pay our bills in hopes of things getting better," Pauline wrote. "My husband handles the finances (and) says if we can get lower payments, it won't matter on the student loans, we still have to pay forever. . . . He isn't or can't think about retirement."
You don't need a high income to get over your head with parent PLUS loans. One in five parent PLUS borrowers took out a loan for a student who received a Pell Grant, according to an analysis by financial aid expert Mark Kantrowitz, the publisher of FinAid.org and FastWeb. Pell Grants are reserved for the neediest students, typically those from families who earn $50,000 or less.
Students Face Their Own Debt Bubble
Kantrowitz's analysis of 2007-08 Department of Education data, the latest available, also found that monthly payments for PLUS loans ate up an average 38% of borrowers' income among those in the bottom 10% of incomes.
"Either these parents don't know what they are getting into," Kantrowitz said, "or they expect their children to make the payments on the loans."
Kantrowitz's findings were included in a joint investigation by ProPublica and The Chronicle of Higher Education of parent PLUS loans that found many families have overburdened themselves with this debt. The investigation highlighted one single mom whose modest $25,000 income wasn't a barrier to getting $17,000 in loans for her daughter's education -- a debt that 12 years later has more than doubled, thanks to accumulated interest and fees.
The nominal interest rate of 7.9%, while relatively low for a loan that's not secured by property, is high enough that the amount owed can double within a decade if no payments are made. (There's also a 4% "loan origination fee" that's deducted from each loan disbursement.)
The federal government doesn't check incomes or employment status before approving these loans. The government also doesn't inquire about your other debts or your debt-to-income ratio. PLUS borrowers can't have an "adverse credit history," which means being currently 90 days or more late on a bill or having a bankruptcy, foreclosure or repossession within the previous five years.
"In effect, the PLUS loan credit underwriting is looking for signs that the prospective borrower is struggling to repay current debts," Kantrowitz said. "It does not evaluate whether the borrower can afford to make the payments on the new PLUS loan debt."
The government has powers that other debt collectors envy, such as the ability to:
• Seize tax refunds.
• Garnishee wages without a court order.
• Grab a portion of Social Security benefits, which are usually off-limits to collection agencies.
• Pursue the debt indefinitely, since there is no statute of limitations on student loan collection, as there is with most other debt.
You also could lose the professional or vocational license that allows you to work, since several states allow licensing boards to deny, suspend or revoke such credentials for people who default on student loans.
"It is what it is":usa:
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Replies
Jerry
ASK-HOLE Someone who asks for advice and always does something opposite
This is the smartest and best solution for all involved. 100 hundred years ago 17 yr olds were responsible for much more than any video gaming r-tards today.
Not all kids are going to college. A vocational school is their best bet. Our oldest boy went for precision machining, now he's working and going to school one day a week for four hours for his journeymans card (in four years).
He'll be making more than any of the 17th Century Poetry majors....
But they raised a pretty smart monkey, no?
Words of wisdom from Big Chief: Flush twice, it's a long way to the Mess Hall
I'd rather have my sister work in a whorehouse than own another Taurus!
Mine too....
Ayn Rand
A lovely young woman we know went from High School to college, got a degree in Philosophy and now lives by dumpster diving...a "freegan"...while not being a burden on society she contributes nothing...
And Teach let's not forget the ole 'Underwater basket weaving' My daughter wants to be a public school teacher. That is why she is in college now. I know she will be a good one too. She holds the same beliefs that I do.
That's so sad Jayhawker!
Good point,Teach. Now I understand fully why public schools hand out condems and birth control pills!!!!!!!!!!!!!:roll2::roll2::roll2:
Not as sad as you think...her folks (both well-heeled lawyers) dumped a fortune on her education...and apart from the fact that there aren't many paying jobs for philosophers out there, she lives this way because she WANTS to - thinks there is some benefit to be had from living off other peoples leavings. It's my sincere hope that she grows out of her idealism.... though in retrospect, she probably has developed some decent survival skills whether she knows it or not....
This is all I got out of that. Lazy pieces of garbage. I guess that "Liberal Arts" major with a minor in "English Classical Music" isn't paying the dividends you thought it would... Freakin' stupid...
If it aint Math, Science or Skill Trade, it shouldn't be offered in college.
Ya make a good point Jason, exactly what Teach, and some of the others are getting at here. I know this:. If one is either going to borrow or spend a large sum of money on an education wouldn't one think, that the education the money is going to be spent on, would offer a life's return with a good job, decent wage, and a demand for what one studied? I do. I have always thought that.
I'm tempted to send her a sympathy card! Someone with common sense and conservative values is headed for a rough time in the public school system. Encourage her to find a good private school to work for, even if the salary schedule is a little less than the public schools are offering. I absolutely cannot advise any young teacher to get into the PC snake pit that the public-funded student indoctrination centers have become! The administrators of every public school system I know of have become a bunch of incompetent butt-kissers lined up at the funding trough who place next year's budget far above the education the kids are receiving! If they were any good as teachers they would still be in the classroom!
Jerry
ASK-HOLE Someone who asks for advice and always does something opposite
Point well recieved Teach, really!!!!!!!!! I will take that under active consideration!!!!!!!!!!!
Between the interns we have at work , the college kids I meet working in menial sales/service jobs , and the college age kids of friends , what the heck are they learning? Then again , there's not a lot of need for art majors!
Watch Tonite Show when Lenos does his JAYWALKING bit and interviews college kids at a campus.
We're doomed!
We have been doomed for the longest time. Jay Leno show tonight might be interesting.
I do now bream
Well, that is the hope...unfortunately for some, that isn't quite reality. If the loan is taken out with the intent of the student paying the loan back and that student somehow defaults, the parents are automatically on the hook for the entire amount. It doesn't take a CPA to see that isn't a great situation. IMO, far better for the student to take responsibilty for his/herself and take out a regular 'ol student loan. Nobody says that the parents can't help to pay off that loan if they choose, so why expose yourself to any more liability than neccessary?
Frankly, too many these days are going to school for things that will NEVER amount to a good enough paycheck to even think about paying back a student loan, let alone all the other neccessities that we all take on. Better that hangs over their head than mine.
Like Bream's folks, I told my two that if they hope to go to college, thay would have to make it happen on their own. As things sit, my daughter is a sophmore carrying straight A's and has since the grades actually meant something, along with a full extracurricular schedule. She is very excited and proud that she has been getting all sorts of 'interest' letters from various colleges. With her grades, I'm hoping there will be some sort of scholarship, but either way it's all hers to handle. The boy is following in her footsteps gradewise, but time will tell there...
George Carlin