rmldad

I have known many families that have taken on too much debt and regret the decisions they made based on too little information. While I acknowledge that there must be families who benefitted from PP loans as a last resort, I have not met any. Based my anecdotal evidence, there is a huge problem with little potential benefit.

The arguments in favor of PP loans sound similar to those who say that "Payday Advance" loans are needed for families to buy groceries to feed their children. Do these families exist? Probably, but far more typical are ill-informed people who succumb to predatory practices.

However, PP loans are more politically acceptable simply because the main beneficiaries are well-connected colleges who can afford lobbyists and generous campaign contributions. The government's involvement in this practice introduces a moral hazard, especially since the debts cannot be discharged in bankruptcy.

cptofthehouse

I know a lot of families who have used PLUS not just as a last resort but to stretch the payment period of college from 4 years to 10 or more in the future to make up for lack of savings in the past. By a lot, I mean probably hundreds, and more if I look. Most families I know, have used them. I've used them and am using them.

I don't know what the statistics are for trouble with these loans and paying them back. There are issues, I am sure. But most of what I have read have involved these loans that students get cosigned by parents. Somehow, the parents think that they are off the hook or that the secondary hook is not so strong. There isn't the leeway or flexibility in those loans and they will go after you.

That the PLUS program looks at the credit report and does see if there are any payments on there showing two months late is an important indicator of where a family is, regardless of income, in terms of paying their bills. It says a lot when a parent with a college aged kid is in that position. I think so, anyways.

More information and warnings and clear dilineation on what the obligation is, like the dollar amount remibursent over 10 years made screaming big on the screen . I'll go for that.

These are nothing like "PayDay advance " loans for necessities. That shows a crisis. When someone is so hard up that s/he needs to borrow for food, rent,medical, that is a whole other issue with a whole other discussion. PLUS is a luxury loan, pure and simple. It is a luxury to have parents willing and able to get that loan for starters.

mom2collegekids

I know a lot of families who have used PLUS not just as a last resort but to stretch the payment period of college from 4 years to 10 or more in the future to make up for lack of savings in the past. By a lot, I mean probably hundreds, and more if I look. Most families I know, have used them. I've used them and am using them.


Yes, but you're a high income family. Again, there's nothing wrong with people using Plus loans if they would have been approved if NORMAL and responsible credit checks had been used. However, to allow some $40k per year single parent (or whatever) borrow $100k+ in Plus loans just because she's never been 60 days late on her small credit card payments is just ridiculous.

Another problem is that the payments on these loans are delayed until after graduation. So, that encourages these "back room deals" with their kids. If these low-income parents had to make payments WHILE their kids were in college, then likely their credit would take a hit by the time they were making payments on $25k+ worth of debt...and then more debt would be stopped.

Actually, if they had to make such payments before graduation, many of these loans would never occur.

cptofthehouse

It;s not the credit check that will kill low income familiies who are responsible in paying their bills. It's their income. You really think that making tese lows unavailabe to low income folks would fly? Uh Ohn, Nope. I know low income families using them too and when used wisely, with full planning on payback and being aware of what the amounts are, it's not a problem. It's the same old irresponsible people that are having this problem.

I don't know the stats, but I had heard, and it makes sense to me, that the biggest killers in the loan bubble are the outside loans where there is little flexibility and the credit of both kid and parent are hit and the loans are even given to those with bad credit but with higher interest rates. These outside companies are giving the loans purely to MAKE money and anyone taking loans from them have to be very careful. One mis step, one missed payment, anything gets them on you.

lookingforward

I don't blame the colleges as much as I blame the current culture that says everyone just "has to" go to college, has to go immediately after hs and shouldn't "settle" for a lowest cost local option- or relevant pre-professional or tech training progams. This isn't much different than the housing bubble or buying a more expensive car than you can afford payments for. If there wasn't a drive for that bigger, better house, the loans would have gone begging, no?

We see top performers on CC agonizing about getting into a top school. Likewise, I think many look at the posts about kids who did get a great job and assume our kids will be as fortunate. But, the degree doesn't guarantee anything. In many cases, many kids end up where they could have been, without the degree.

I mean, think about it- except for professions, were/are all of our coworkers degreed? Were the ones without a degree, but highly competent, always held back? How many career paths truly require higher writing skills or critical thinking (beyond what's required specifically for that job?) And, when we look at coworkers, were all the degreed ones always better than the non-degreed?


Mom2, we pay on the PP loans, starting about 60-90 days after the 2nd half has been disbursed. So, freshman spring, we started- and it was a lovely low amount. Each sping, it goes up, based on the addl loans. Many parents don't consider that- the initial payments can seem more reasonable than the final tally.

jnm123

What cptofthehouse said. The good part of the PP loans, something that I saw right off the bat when applying / receiving them, was the flexibility in payment terms. That *almost* makes up for the now-seemingly usurious 6.9% interest rate. But it was either the PP, the HELOC (didn't want to marry ed money and mortgage money) or private loans (high interest, no flexibility).

My kids went to OOS publics, thrived, and the PP was the right choice, and will be paid back within a few years. Just have to stay on top of it, like looking forward says.

mom2collegekids

It;s not the credit check that will kill low income familiies who are responsible in paying their bills. It's their income


I may not have been clear with my words. When I said "normal and responsible credit checks" I didn't mean just looking for credit "dings", I meant a normal procedure for checking credit worthiness....which of course included INCOME. That's been my point all along. People who don't have the INCOME or ASSETS to justify borrowing large amounts of money should not be allowed to do so. Period.....Otherwise the feds are acting like the Mafia...giving loans to people who can't afford them, and then having them "on the hook" for the rest of their lives...and not caring that these loans will likely ruin their lives.

dodgersmom

^^^ what m2ck said!

And the income guidelines don't necessarily have to be as strict as they would be with a private loan . . . there's no reason why they couldn't be significantly more lenient. But there still has to be some kind of guideline! I mean, really - do you want to give a PP loan to a family living on gov't assistance with zero earned income and a "perfect" credit history? That's INSANITY!

cptofthehouse

The loans do not require a perfect credit history even, just no outstanding debts and they do ask if the candidate has a job and where that person is working. And, no, there does not have to be "some" kind of guidline for income. I don't even know if there is.

I don't know what the default rate of these loans are and who the defaulters are. Without that info, I won't make any comments. The program will die out when there are so many defaults that the return money is not making it for the demand for the loans, which was a major reason that the burden of the loans was changed from student (as they once were) to the parent. They found that too many students could not care less about repayment and the process of getting the money back from them over many years was too costly and tiresome even for the government. Also going for the bigger bank accounts, ready income and concern about credit of the parents made it easier to increase the amounts which I personally believe has contributed to the high increases in college costs.

Kelsmom and others could probably give a better profile of who the borrowers of PLUS and the defaulters tend to be. For whatever reason, I have seen a lot of families gravitate to private loans where the parents are the cosigners rather that going PLUS even when the terms are more stingent, credit history and rating are taken into account fully and both parties are fully on the hook, sometimes on a even beyond a "till death" period.

Catria

Parent PLUS loans will not cause a bubble by itself but student loans of all types will.

cptofthehouse

Feds crackdown on Plus loans

Pertinant to this subject, I thought.

lerkin

After reading through this thread, I came to a conclusion that a quick fix should be that PP loan monthly payments are due as soon as the loan is disbursed. This fix will help both the families to avoid getting themselves too deep and the government/taxpayers to avoid approving non-solvent applicants.

cptofthehouse

Lerkin, that is an option availabe to those taking at a PP loan and one we took. I believe our first payments were due the month after funds were dispersed. I think that's a good idea as those payments become part of the consideration for whether another loan should be made the following year. It would stop the borrowing quickly when repayments and meeting other expenses start going south.

lerkin

cpt,

the problem is that it is an option, not a requirement. There is a reason why you are not in over your head with your PP loans - you have common sense, which manifested itself in you starting to make payments immediately.

For the most part people who are in trouble with student loans lack that common sense. So if we insist to have lax standards in approving the loans (i.e. no income verification), then we should at least protect the applicants and taxpayers/government by making it a requirement that PP payments start immediately. This requirement will at be a reality check for many parents. Even if those, who cannot afford those loans, proceed in acquiring them, they will realize their mistake much soon rather then later.

Alternatively, we can use M2ck suggestion that the government actually do their due diligence when they approve people for those loans. But I can only imagine the political backlash against that (in my universe sensible) idea.

cptofthehouse

I agree with you, Lerkin. By eliminating these loans or putting income requirements on them, you might as well say that they are for the well to do only. The terms of the loans can make them doable for low income families, especially if the student does also help pay them. We have a cousin who has just the one son and due to a number of issues including low income, have not saved much for college but are wiling to scrimp and what they can now. They are on time with their payments and with the kid gone for most of the year, they can be particularly frugal and are looking for a less expensive place to live. The PLUS allows them to stretch out 4 years of payments into 10 or more, which makes it doable for them. I think all of us here agree and they do as well, that would have been a lot better and probably better had they saved up front and done the stinting then, but ... that's a done deal.