“Natalie” has $ 148,851 in student loans for her child and is having a harder time getting by. (We’ve changed Natalie’s name for privacy reasons as she’s not a public figure.)
Real estate agent just outside of Nashville, Tennessee, Natalie shared student loan records with Yahoo Finance to corroborate her claims.
Unexpected medical expenses have piled up for a son diagnosed with leukemia, and his family is stranded with none of the repayment options available to regular student loan borrowers. As a result, she said she felt “stuck in no man’s land” and the financial pain intensified.
How to repay student loans: the full breakdown
The Trump administration has reportedly considered ways to help people like Natalie with their student debt, especially with their Parent PLUS loans, given the relative age of the borrowing pool.
And in a recent budget proposal this year, the administration proposed limits on PLUS loans. A separate report said he had also considered facilitating the discharge of student loans in bankruptcy.
Parent PLUS Program
The PLUS program was started in 1980 with limits on the amount parents could borrow. Congress lifted those caps a decade later, and since 1993 parents can borrow up to tuition (less assistance received by the student).
The move allowed about 3.5 million Parent PLUS borrowers to hold about $ 92.9 billion in student loans at the end of the third quarter of 2019, an average of $ 26,543 per beneficiary, according to data from the National. Student Loan Data System (NSLDS). This represents about 6% of all federal loans outstanding.
The average annual amount of borrowing increased from $ 5,200 in 1990 (adjusted for inflation) to $ 16,100 in 2014, according to Brookings in 2018.
“While we have seen student loans decline over the past eight years, Parent PLUS borrowing has increased,” Rebecca Safier, student loan expert at Student Loan Hero, told Yahoo Finance.
Many detractors of PLUS loans say the criteria for applying are too simple, too easy, and when parents are unable to repay, they sometimes see their wages or Social Security checks seized because of the debt.
Between 2005 and 2015, the number of people aged 60 and over with student debt quadrupled from 700,000 to 2.8 million, according to a 2017 Consumer Financial Protection Bureau (CFPB) report.
In 2015 alone, nearly 114,000 borrowers aged 50 and over had their Social Security benefits seized to repay federal student loans, according to a 2016 government accountability report.
At the same time, PLUS loans play an important role in helping some struggling students.
“Parent PLUS loans can fill a gap for low-income families who still have unmet higher education needs beyond their undergraduate loan allowances,” Harrington said. “In addition, many of these borrowers are also not well served by the private market. “
“You do what you have to do for your children”
Natalie, who has lived in the same house for 24 years, said she and her husband both paid off their own student loan debt years ago. Their current problems began when she took out loans for her second son to attend a private school.
When Natalie approached the financial aid office at her son’s college, according to her account, officials weren’t very informative about PLUS loans.
“They give you the impression that you have to do it and that there is no other way… it was very concrete and you had no other option,” she added. “The whole system has to be redone.
When asked why she took out the loans despite the lack of clarity and the 7.6% interest rate, Natalie explained, “You do what you have to do for your children.”
A few months after her son graduated in business and marketing in 2017, he was diagnosed with acute leukemia. He was 22 years old.
“That night was at 9:30 p.m. [PM], and I will never forget, ”she recalls receiving the doctor’s call and then saying to her son:“ You are young and you can fight this.
While their annual household income was around $ 110,000 after Natalie quit her job at the time to care for their ailing son, medical bills began to pile up. She estimated medical expenses at around $ 40,000 per month while her son needed a transplant.
Meanwhile, Nelnet, the son’s loan officer, kept urging him to pay $ 1,041 per month for the son’s student debt.
Natalie claims she tried working with Nelnet, but found it to be a Herculean task. More recently, she said the company told her she had not received the documents she sent multiple times. Nelnet did not respond to multiple requests for comment from Yahoo Finance.
The loans are “about to take us down,” she said. “We’re making too much money at their scale for assistance, but we can’t afford it … all this debt and stress is crippling.”
She detailed her options as she saw them.
“I could sell the house and cash in my pension… to pay these guys,” she said. But “we’re just stuck in no man’s land… and I don’t see anyone doing anything about it. … We’re just stuck in a situation, and it’s frustrating.
Parent PLUS loans “particularly difficult to repay”
The statistics of Parent PLUS loans as they evolve are sobering.
Brookings found that the 5-year default rate for parents with PLUS loans fell from around 7% in 2000 to 11% in 2009. Repayment also fell over the same period of time. (The 2018 Brookings analysis is the most recent complete data available to the public.)
“Parent PLUS loans can be particularly difficult to repay because they carry an interest rate above 7%,” noted Safier. In contrast, the interest rate for direct loans for graduates is only 4.53%.
Additionally, PLUS loans are not treated the same as regular student loans in that they are not eligible for normal income-based repayment plans. PLUS loans are eligible for the income-tested repayment plan, noted Safier, although “this somewhat complicated process may be enough to deter some borrowing parents from applying in the first place.”
One of the good things about this type of student loan is that if PLUS borrowers default, “they can consolidate or rehabilitate their loans,” Ashley Harrington, senior policy adviser at the Center for Responsible Lending, told Yahoo Finance. “Refinancing may be an option, but borrowers should consult an advisor and assess all of the terms, including how much they will pay over the life of each loan and the protections and flexibility of the federal plan.”
Ministry of Education recognizes problem
The Trump-era Department of Education (ED), which has come under heavy criticism for handling roughly 90% of student debt that originated or was guaranteed by the federal government, told Yahoo Finance it recognized the problems with the current system.
“Secretary [Betsy] DeVos is working with the White House and other stakeholders to fix an unsustainable system without unfairly burdening taxpayers with another bailout, ”US Department of Education Press Secretary Angela Morabito said in a statement. communicated. “Secretary DeVos focuses on transparency and accountability in higher education. “
While noting the new initiatives launched by the department, such as a new college scorecard to show median debt and income for each field of study, Morabito added that the secretary had “pioneered the idea of doing federal student aid an autonomous entity “as a possible solution to the student debt crisis.
Options for parents to consider
So what can parents do in this situation?
Student Loan Hero’s Safier offered a few routes: ask for an income-based repayment plan to reduce monthly payments, refinance PLUS loans with a private lender for a lower rate, explore the civil service loan forgiveness program ( PSLF) – which forgives student debt for public service employees after 10 years – or transfer the PLUS loan to their child’s name through refinancing.
“If their child can afford the repayment, then the parent can completely wash their hands of the debt,” she noted.
Either way, at the end of the day, real reform will be needed, the experts added.
“We need to improve our student loan system so that fewer families have to go into debt to go to college and make income-based repayment affordable and accessible to all federal education loan holders,” said Harrington.
For her part, Natalie admitted that she knew she was “an adult” and “should have read better.” She also reached out to her local MP for help. And in the midst of the financial mess she finds herself in, her son is recovering and feeling much better.
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