student loan debt

Six-Figure Parent Loans and the True Cost of Parent PLUS Loans

Parents will often do anything they need to when it comes to their children, and for many parents, that means taking on student loans for them, on top of the ones they already have left over from their own college education. These loans are normally taken on in the form of Parent PLUS Loans, and can often end up being a struggle for the parent to pay off in the end.

The Parent PLUS program was introduced in the 1980s as a means of financial support for middle- and upper-income families to help pay for their children’s college expenses. Most of the time, parents in these income classes did not qualify for other financial assistance, but the Parent PLUS program allowed them to obtain financing while keeping their liquid assets. However, since that time, the program has also become more popular among lower-income families who may not be able to pay down the loans once they are taken so easily.

One of the major reasons why this situation does not always work out well is the fact that the Parent PLUS program does not check the parent’s ability to repay but only the borrower’s credit history.

The average Parent PLUS loan takes anywhere from five to 20 years to repay, which can present a problem since many of the borrowers are approaching retirement age. Parents may assume that at some point their children will take over the responsibility for paying off the PLUS loans.

However, the debt is officially on the parent’s financial record, not the child, which means it is the parent’s responsibility in the eyes of the lender. Many student borrowers may never be able to take on their parent’s loans on top of their own student loan obligations.

Federal student loans at least offer the child borrower a six-month grace period before the loans become due. Parent PLUS loans, on the other hand, require instant repayment. Parent borrowers are expected to pay on their obligations immediately, which can be quite difficult to handle.

Given the rising cost of attending a university and the limited scholarships available to most students, taking out student loans is almost a necessity. Parent borrowers often report preferring taking out the obligations themselves than forcing their children to take on student loan debt that will become due as soon as they graduate.

Many critics of the Parent PLUS program argue that the program needs major repairs, especially when it comes to lending to lower-income families or to minorities. This group of borrowers particularly struggles in paying off the loans once they are issued. Recommendations have been made to limit how much borrowers can take or to require the lender to evaluate what the borrower can pay before issuing an amount.

To avoid relying too much on Parent PLUS loans, experts advise both parents and children to pursue as many opportunities that are not loans before the student goes to college. They are also encouraged to speak directly with the college’s financial aid department regarding opportunities that are available. Parents and students could also consider community college for the first year to take the core requirement classes at a lower cost before transferring to a four-year university. Also, only take out as much as you can pay back when it comes to the Parent PLUS loan. Truly examine your financial situation to see if the loan can be paid back prior to retirement.

If a parent has already been issued a Parent PLUS loan and is worrying how he or she will pay the loan, student loan experts also recommend consolidating the Parent PLUS loan and working out an income-based repayment plan with the lender.

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For borrowers who are struggling with student loan debt, relief options are available.  Many student loan borrowers are unaware that they have rights and repayment options available to them, such as postponement of loan payments, reduction of payments or even a complete discharge of the debt. There are ways to file for bankruptcy with student loan debt.  It is important you contact an experienced Miami bankruptcy attorney who can advise you of all your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.

Source: USA Today

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