Parent PLUS Loans Can Be A Dangerous Way To Pay For College

Posted by Richard on June 7, 2018

Parents are increasingly turning to expensive Parent PLUS loans to bridge the gap between the cost of their children attending college and the amount of money they qualify for on their own through financial aid and loans, according to U.S. News.

These loans, which have doubled in number compared with two decades ago, are structured in such a way that parents can become saddled with crushing debt long after graduation.

Typical student loans issued through federal financial aid sources carry an average interest rate of 4.5 percent along with a 1.1 percent origination fee and specific caps on the total amount. PLUS loans, on the other hand, average seven and 4.3 percent, respectively, and there is no maximum amount that a parent can borrow as long as they meet the loose standards required. As a result, the average borrower took out $15,880 in the 2016-2017 academic year alone.

Proponents of the loans say that they allow low- and middle-income families the opportunity to send their kids to schools that they might not otherwise be able to afford. Additionally, the loans are issued through the Department of Education and carry better borrower protections than those from private lenders and have seen a default rate that is only one-third that of traditional student loans.

Detractors point out that this type of loan gives universities a perverse incentive to push them onto unsuspecting parents in lieu of financial aid funded by their endowments because they receive the money up front without having to worry about parents defaulting. Many have done just that, and over forty thousand parents faced garnishments to their wages or social security payments in 2015. Unlike students, who have many options to defer or reduce their monthly payments, PLUS loans are very inflexible with their payment options.

 

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