Beware of Parent Plus Loans

cptofthehouse
Fri, 12 Oct 2012 17:50:22 +0000

I’ve thought about starting another thread about PLUS loans as the title of this one is biased from the onset.

I know very well the pitfalls of overborrowing for college, and everything that is said about these loans has happened to families. They have caused a lot of hardship. I do not believe that they are the cause of those financial problems. The way the loans are structured, they allow those with a low income but responsible for their bills to borrow for their children’s education regardless of income level. The loans have a high enough interest rate (particularly in this low interest climate) that they are not bargains to be snapped up, and this allows for them to help pay for those who do fall behind, default or are forgiven the balances. One does pay for the convenience of this loan.

My feeling is that they do serve an important purpose. Yes, I do advocate community college and local state schools for those who don’t have the money, and those options should always be fully explored by anyone who wants to be financially responsible. However, those options are often not good. Where I live now, the residents have an embarassment of riches in terms of availibility of low cost programs within a commuting distance, but that is not always the case. I lived in the midwest for a number of years in an area where the community college was not worth beans, nor was the satellite branch of the flagship that was quite a distance away and required a car to get ther. I had friends who were enraged, in tears, frustrated and just held up by the system there. And if you somehow managed to get enough credits to transfer, you then had to come up with the funds for room and board at a four year school. To call that system second rate was a huge compliment. It was a disaster.

So, yes, PLUS would allow a family who has a good student that doesn’t have the test scores to get into the schools that would meet need or get a lot of merit money to stretch out. It could also not work out. I agree that low income people attending schools like NYU is a very tiny part of the picture. I can come up with many scenarios where PLUS makes it possible.

It still isn’t fair. Those who are in high income/asset families have a tremendous advantage over those who need PLUS. Even if such families use PLUS, it’s a heck of a lot easier to pay pack the money when you make a high salary than it does when you don’t make much, something I have to remind myself as I write the checks. But this gives such families some options that would otherwise be closed .

The risk of non payment on PLUS is small because the big grabbing hand of the governement can and will swoop down and take payments from non payers unlike non federal lenders who have to eat their loan papers when people don’t pay. To say we want to eliminate this program to save those with low income from themsleves doesn’t sit well with me.