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Read this before you take out a Parent PLUS loan

Jkellynh17Jkellynh17 1987 replies26 threads Senior Member
edited January 2014 in Parents Forum
Found a really good, kind of disturbing piece about Parent PLUS loans, which are the mainstay of financial aid financing for many of the conservatory schools we're all targeting. (Boston Conservatory is #4 in terms of Parent PLUS burdens, NYU is #11.)

Some things to consider: the rate is 7.9% (home equity is under 4%), obligations cannot be discharged in bankruptcy and even your social security benefits can be garnished to recover defaults. It's a truly terrible deal for parents -- and also probably dangerous for the economy as a whole. (There is no income check to qualify, so people who make, say, less than $50,000 are being encouraged to borrow up to a quarter of a million...how do we think that's going to end?)

Anyway, here's a link: The Parent Loan Trap - Students - The Chronicle of Higher Education
edited January 2014
328 replies
Post edited by Jkellynh17 on
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Replies to: Read this before you take out a Parent PLUS loan

  • redpointredpoint 1190 replies46 threads Senior Member
    Thanks for the article. I'm having fun (sort of) perusing the accompanying chart of schools. It is interesting that the average amount for parents taking PLUS loans for Harvard is $20,000, on the high side. I thought Harvard was supposed to truly try and meet need. All the schools kids are dying to get into are the ones deep in the red.
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  • redpointredpoint 1190 replies46 threads Senior Member
    Also: Is this going to change (incrementally) soon? Here on cc I read how the tide is turning. Fewer parents want to take out big loans and are advising students to go to schools they can afford.
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  • jnm123jnm123 735 replies8 threads Member
    Yes, dietz199, that's the phrase--caveat emptor. Buyer beware, folks.

    That being said, the REAL problem is not that the PLUS loans are bad in and of themselves, but that too many parents enter into the Parent PLUS loan world without the faintest idea of the consequences. Yes, they have to be paid back. Yes, unlike the students' Stafford loans, the interest on PLUS loans starts accruing the semester after the loan is disbursed, even if you put a temporary hiatus on payments. And yes, the 7.9% interest is usurious by today's standards.

    But the government knows darn well it's pretty much the only ballgame in town, unless you want to tap whatever home equity exists. Me? I took 'em out and I'll pay 'em back as fast as I can--I don't like paying the juice anymore than the next guy.

    I'm definitely one in favor of personal responsibility, but I will admit that most PLUS loans are granted pretty much willy-nilly without enough verification, or at the very least enough information to the owner of the loan. I know what compound interest means--many don't understand that the other shoe will drop eventually, and the longer you wait, the bigger the shoe.

    As I've said before, the financial landscape for higher learning is miles different today than it was in 2004, when I started down that road. Certainly I'd have done things differently, looking even MORE for value for my two D's educations than I did. I also would've done more to pay from daily cash flow, but up through 2007, everything was peaches & cream, you know?
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  • dietz199dietz199 3629 replies73 threads Senior Member
    What is concerning IMHO, is how little traction this thread is getting. I take it as a sign of a "don't ask, don't tell" or head in the sand approach. Which, given the above average interest, expertise and involvement in the entire college process by the CC community is very disturbing.

    Maybe folks are holding on to the plausible deniability defense.

    Because we are such a short term memory, interrupt driven population it is not only easy, put preferable, to forget that what goes up (housing, economy, value of XYZ) will inevitably go down.

    Add all this to the fact that the 'college dream experience' is marketed to the most vulnerable of audiences - parents who want the BEST for junior - and we have the current, waiting to explode, mess.
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  • RunsWScissorsRunsWScissors 417 replies39 threads Member
    I think anyone who is borrowing obscene amounts of money through the Parents Plus program to send their kid to college is not going to admit it here or even to their friends. We are planning on taking out a small amount to fill the gap, since we have no equity to borrow on, but I have done my research and have no anxiety about repayment. The stories that get all the press are head scratchers, but people do all sorts of crazy things for crazy reasons, excessive loans are just another example.
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  • jnm123jnm123 735 replies8 threads Member
    Maybe you're right. Maybe there's also a growing stigma, since the almost-economic collapse, of borrowing too much just to get their Johnny or Susie (excuse me, Matthew or Megan :)) into their dream school. I know I'm more cognizant of that.

    But...if you can pay it back, what's the big deal? For the parents with only one income, job insecurity, or little to no savings, PLUS loans are just the wrong thing to do. But for those with savings earmarked for their kids' college in retirement vehicles, the 7.9% interest is high but a necessary evil to avoid the taxation from early withdrawals.
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  • jnm123jnm123 735 replies8 threads Member
    Ehhh...I guess to a certain extent it's the Parent PLUS loans and all the college systems that promote it that are in cahoots, but I don't know if it was consciously planned that way. Believe me, if the stock market & housing prices hadn't dropped by 40% between 2007-2009, we wouldn't be having this discussion. Debt has turned into a dangerous word the last few years.

    My next door neighbor, whose oldest D will be a college freshman this fall, called to ask me about the 'award letter' they received. Work-study, Stafford loans (subsidized & unsubsidized), & Parent PLUS loans. I told him that ain't no award, buddy. I advised him, in true 'do-as-I-say-not-as-I-do' form, to take the least amount of loans possible.

    Will it all blow up, like housing? Or worse? Better? Bailouts? I think there is some serious PLUS money out there that is being deferred--because it's ridiculously easy to do--that the interest clock is ticking away on.
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  • RunsWScissorsRunsWScissors 417 replies39 threads Member
    ^^^^^^ times a thousand
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  • ptcptc 55 replies11 threads Junior Member
    My son attended Berklee this year, which is number 2 on the list of places with high rates of parents with PLUS loans. We did not have to take out a PLUS loan this year. But my son also is not goign back to Berklee either, and the cost of the college is the primary reason. He loves being in Boston and he has made some connections that may be useful for him down the road. But he was disappointed with the level of committment that he saw in many of the students in his classes, which dragged down the value of the classes, in his view. Plus, between Hurrican Sandy, the winter blizzard, and the marathon bombings, Berklee was closed to classes for two weeks this school year, which makes the cost of the schooling even higher.
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  • cloudyweathercloudyweather 5 replies5 threads New Member
    I thought Harvard was supposed to truly try and meet need.

    They do, but some parents mismanage money / don't want to pay for their children's education. I know some ethnic Indian parents in USA who make their children take out loans (some even as high as $150,000+) for undergraduate studies. I feel sorry for these children.
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  • jnm123jnm123 735 replies8 threads Member
    That is not correct. Students can only take out Stafford loans totalling maybe $26-27,000 for 4 years total. It's the parents that would take out the rest in PLUS loans to make up the difference, providing they meet the minimum criteria to be able to obtain these loans.
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  • ldavisldavis 565 replies107 threads Member
    Their minimum criteria must be pretty low... I think a family w/ $50k in income
    can pretty much borrow whatever amount they want. That's the trap.
    Reminds me of the Mortgage Brokers in the early 2000's.... no documentation...
    no problem!! We all know how that turned out.

    That is a very scary article but an impt. warning! Thanks for sharing.
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  • ldavisldavis 565 replies107 threads Member
    FAQ Parent PLUS loans... interest accrues from Day 1, etc.

    Parent Plus Loans: Frequently Asked Questions - US News and World Report
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