Beware of Parent Plus Loans

patsmom · 10-07-2012, 08:33 PM

Student loans, backed by government, crush many families - Bottom Line

This is a must-read for anyone planning on applying for a Parent Plus loan.

Quote:

A joint examination by ProPublica and The Chronicle of Higher Education has found that Plus loans can sometimes hurt the very families they are intended to help: The loans are both remarkably easy to get and nearly impossible to get out from under for families who've overreached. When a parent applies for a Plus loan, the government checks credit history, but it doesn't assess whether the borrower has the ability to repay the loan. It doesn't check income. It doesn't check employment status. It doesn't check how much other debt — like a mortgage, or other student-loan debt — the borrower is already on the hook for.
"Right now, the government runs the program by the seat of its pants," says Mark Kantrowitz, publisher of two authoritative financial-aid websites. "You do have some parents who are borrowing $100,000 or more for their children's college education who are getting in completely over their heads. Those parents are going to default, and their lives are going to be ruined, because they were allowed to borrow far more than is rational."

This is the next big loan crisis. Why can't parents see this?

bluebayou · 10-07-2012, 08:57 PM

A better question is why does the Government not "see this" and stop the practice for non-credit worthy borrowers? The short answer: politics.

4kidsdad · 10-07-2012, 09:05 PM

More quote from the article

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"If we leave a huge gap in the financial-aid package, families could reach the wrong conclusion that they cannot afford to send their children to this institution," says Munier, who is also chair-elect of the National Association of Student Financial Aid Administrators. "The other side," he says, "is we package in a loan they can't afford, and they make a bad judgment and put themselves into debt they can't manage. You can second-guess either decision."

I think expensive colleges such as NYU & PSU should inform parents that they cannot afford to send their children to those colleges

bluebayou · 10-07-2012, 10:19 PM

Quote:

If we leave a huge gap in the financial-aid package, families could reach the wrong conclusion that they cannot afford to send their children to this institution," says Munier, who is also chair-elect of the National Association of Student Financial Aid Administrators.

Sounds like the 'correct' conclusion to me. It is the Chair-elect is flat out wrong.

mom2collegekids · 10-08-2012, 01:00 AM

but it doesn't assess whether the borrower has the ability to repay the loan. It doesn't check income. It doesn't check employment status. It doesn't check how much other debt — like a mortgage, or other student-loan debt — the borrower is already on the hook for.

and, worse, many of these modest-income families have agreed to these large loans because they have gotten "agreements" from their children that they will pay back these loans once they graduate and have their "big job."

cptofthehouse · 10-08-2012, 09:11 AM

I don't see the problem of having these loans available. I think they have made the credit report check more stringent and anyone with late payments of 60 days on there are eliminated. That they are easy and can be done in the privacy of one's home makes it something that some parents who are gun shy about any loan prcess more amenable to doing this. If the person can afford the payback, and the term are more flexible than most any loan, it gives families who don't have the cash flow to spread school payments over a 10 year or more period rather than in real time. They have made it possible for many kids to go to college.

What I HATE abaout these loans and what should be stomped out is the way some colleges package them. They are not part of a financial aid package. A student is not GETTING anything. It is just a referral to a federal program that the school has nothing to do with other than in getting the resultant funds. It isn't even a guarantee. I don't know how many times I've seen families think that is part of the package, and not realize that you can be turned down for them. When you make that commitment in May, it's too early to apply for those loans since there is a maxium lead time and if exceeded, you have to reapply. Actually anyone considering these loans and don't have better alternatives had better see if qualification can be done. Finding out after your kid commits to a school where you need that loan, that you can't get it, is nto going to be a good thing. I have seen schools package this loan as though they are giving the kid something. I don't like the way federal/state awards that a kid would get nearly anywhere (depending on state school status/ COA working out) as though the school is giving him/her something, but this really crosses the ethical line in that it isn't giving anything to anyone, particularly the kid. The student has nothing to do with this loan; it's all on the parent.

mom2collegekids · 10-08-2012, 09:20 AM

I don't see the problem of having these loans available. I think they have made the credit report check more stringent and anyone with late payments of 60 days on there are eliminated

There is a bigger problem that a lack of 60 day late payments won't reveal. If a family that has an income of $40k has no late payments, then they can get approved for loans up to COA. That's ridiculous. They can opt to have re-payment begin after graduation, so they can keep borrowing throughout the 4 years, accumulate $200k+ in debt.....all "qualified" because they had no late payments???

Seriously???

There needs to be some kind of income/debt ratio analysis done before these loans are approved. Credit scores need to be used as well.

The idea that a low income "good credit" family can end up with $200k+ in debt is beyond silly.

cptofthehouse · 10-08-2012, 09:36 AM

I know what you are saying, and many times it is so. However, this is the way some responsible low income parents can afford to get their kids into programs where they have an excellent chance of making some good money in sure jobs. Some parents on this board have given their personal take on this, and I have to agree that to block these kinds of opportunities to responsible low income families and students is really a selfish stance to take. Would I vote to put in a program like this? No. BUt it's here and can serve as a benefit.

I know a young lady who is now earning a great income in a relatively depressed area as a physical therapist. SHe could not get into a state program but was accepted at some multi year program--I don't know the details of these medical programs, at a private school that did not meet need and especailly was stingy about giving any money to these cash cow programs. She got through the program and was earning double what her peers were with no problem finding a good job and is helping her parents out with the loans they took out as well as the loans she undertook to get through the 5-6 years that this degree took. It's a stretch but one of the golden tickets out of the joblessness of that part of the country. Truly, looking at where she is and the vast majority of her peers, I have to say it was worth the opportunity. FOr nursing and other programs that are as sure as can be in terms of job availability at good salaries, it might be the way to go. The federal government is very generous in its terms of repayment and if parent or student dies, the loan is forgiven.

Where the real problem occurs is with the private loans that tether both student and parent. Some of the terms are terribly harsh with spikes in interest and penalties to the point that parties can end up owing ever so much from mistakes and very little negotiaition, leeway is given. You don't repay, you will pay. I have a friend whose family is truly wrecked from taking these loans. They still would owe the money if it had come from PLUS but the student's credit would not be ruined and saddled with the amount on the history as well as the parent, and I think some terms could have been worked out with Sally Mae. Not so with some of these banks and other private lenders.

mom2collegekids · 10-08-2012, 10:28 AM

However, this is the way some responsible low income parents can afford to get their kids into programs where they have an excellent chance of making some good money in sure jobs.

I disagree. Rarely is it EVER necessary for a low income family to borrow THAT much in order for their kids to get a good college education and get a good job.

Most low income families can have their kids either start at a CC and then commute to the local public or commute to their local public for 4 years. Those options do not require taking on substantial loans. Even if the student went to a CC for 2 years and then took out loans for a private for the last 2 years, the loan amount would be halved.

And..."responsible low income parents" is an oxymoron when used in the context of borrowing very large amounts of money for college.

cptofthehouse · 10-08-2012, 11:04 AM

I disagree. There are many low income families who "invest" in their children and it pays off. Many of the lucrative pay programs have a very low chance of achievement starting at the comm college route. Getting into one is a challenge too. MY son's girlfriend who has a 3.5+ average did not make the cut for a selective sure fire skill program at any of the state schools. She's going to one at a private school and they are charging a fortune for those seats. They don't need to give grants tfill those seats. Loans are the only way to go for her. If she completes it, it'll be worth every cent. In her case, she doesn't have her back against the wall as she has family financial support though they would have so much preferred she gotten into a state program that she tried two years in a row. It's the old bird in hand concept and if I were in a situation where I had a good student, a good worker who wanted to be a pharmacist or nurse or physical therapist and was accepted to only private programs of that sort with good completion rates, I would go for it rather than taking the chance that the comm college can preparee him/her to get into such a program later. Those stats are abysmal. I saw them already. And I live in an area where the state commuting schools options are probably the best that this country has to offer. They are fantastic. But getting it is competitve to certain programs and here is where the privates have a place. I cannot say that they are not worth the loans.

mom2collegekids · 10-08-2012, 11:44 AM

In my opinion...

responsible low income parents borrowing very large amounts makes as much sense as responsible Rx overdosing.

too risky...and lives can be easily ruined.

momtotwins · 10-08-2012, 11:52 PM

I agree that in some instances the parent plus loans could be the only way to go for some families, particularly those who didn't save much or anything before their kids reached college age. And for particularly motivated students in top programs they may work out just fine. But in many instances things don't work out as planned - the degree doesn't pan out as lucrative as expected, the kid doesn't end up finishing, there are all sorts of things that can go wrong. I met with a young family just recently. This young man still has over $100,000 in loans, despite being out of school for almost 10 years and has a job working in his major which was something like purchasing. I think families need to really understand what they are borrowing and plan out carefully their four years. I think in many instances parents do plan on having their kids pay back these loans.

lookingforward · 10-09-2012, 12:25 AM

We have PP loans and I'm often worried that the way we have managed them and the fact that we can afford the payments, even some accelerated payments, could mislead other families into assuming they can manage.

Parents lose jobs, find their funds diverted when an older relative needs attention, the car breaks or something goes awry in the house. No matter how well these loans can work out, it has to be explored as a very "calculated risk." None of us know what sorts of jobs our kids will find. The payments represent funds not invested in retirement or other things. You have to learn to love the belt-tightening.

By the time a child graduates, a family that ends up with 100k in loans, would be paying (per the info I have at hand,) $1200/month. Yikes, to the modest or lower income parents. And, that's likely on top of the kid's Staffords.

Adding: at the time the family makes the initial PP decisions, picks a college based on believing that school choice is the right way to go, for whatever various reasons, it's based on freshman financial aid. Part of the risk is that, with exceptions, families don't know their packages will continue at that level. Plus college costs increase. So, what seems a simple 10k loan, first year, will very likely add to more than $40k in principal, by the end.

emeraldkity4 · 10-09-2012, 12:34 AM

Don't you need a Dpt to be licensed as a PT?

bluebayou · 10-09-2012, 11:02 AM

Quote:

If she completes it, it'll be worth every cent. In her case, she doesn't have her back against the wall as she has family financial support...

Are they "low income" or can the family afford the loan payments? If the latter, then it is a personal 'investment' choice. If the former and they are running up six-figure debt.....