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<p>You need to find out. So you are going to have to sit down with them and have a very specific discussion about what has been borrowed so far, and what the current outstanding debt is. If your parents have been deferring all payments then you all may be in for a rude awakening. </p>
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For the PLUS loans, if it not being paid when due, then it is added to the loan balance, and interest is charged on interest.</p>
<p>So, to keep the math easy, let’s say that a person borrows $10,000 at 10% annual interest, accruing monthly. That’s $1000 per year interest - or $83.33 a month. A person could make interest-only payments of that amount, and at the end of the year they would have paid out $1000 and still owe $10,000. </p>
<p>If the person makes no payments at all, then the unpaid interest is added to the balance (capitalized), and interest is charged on that. A Parent PLUS loan will be “capitalized” on a quarterly basis. </p>
<p>So each month without a payment the unpaid interest is being added to the balance, and the amount of interest charged is slowly creeping up as the balance goes up.</p>
<p>There are some online calculators you can use here:
<a href=“http://www.finaid.org/calculators/interestcap.phtml”>http://www.finaid.org/calculators/interestcap.phtml</a>
<a href=“http://www.asa.org/repay/calculators/defer/”>http://www.asa.org/repay/calculators/defer/</a></p>
<p>The interest rate on PLUS loans has changed over the years, but as an example – if your parents borrowed $20,000 for the first year of college at 7.9%, then after 12 months of no payment, the outstanding balance on that $20K would be $21,627. </p>
<p>Your parents should be able to get an exact statement of the total amounts now outstanding from the loan servicing account – so there is no need to do all the math – but the point is that you may find that they owe considerably more than $60K at this point. </p>
<p>But you really don’t know without talking to them. </p>