Read this before you take out a Parent PLUS loan

<p>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.) </p>

<p>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?) </p>

<p>Anyway, here's a link: The</a> Parent Loan Trap - Students - The Chronicle of Higher Education</p>

<p>Wow - what a sobering article.</p>

<p>I'm highlighting this quote (certainly not to pick on NYU - you can insert the name of any "dream school" and get the same point):</p>

<p>
[quote]
Often, students and families set their hearts on a specific college and will do whatever it takes to make it work, betting that the rewards will outweigh the financial strain.</p>

<p>That’s what happened with J.C., who asked that her name not be used. J.C. took out about $41,000 to help her daughter, an aspiring actress, attend NYU. A high-school valedictorian, her daughter could have gone to a public university in their home state of Texas debt-free, J.C. says. But the opportunities in theater wouldn’t have been the same. It had to be NYU.</p>

<p>“The night she got there she said, ‘Mom, this is the air I was meant to breathe,’” J.C. says of her daughter. J.C., 58, is divorced and makes about $50,000 a year. She anticipates PLUS loan payments of $400 to $500 a month, which she says she can handle. “I’ll never retire. I’ll work forever, that’s OK,” she says. Still, the hope is that her daughter makes it to the big time in her acting career: **“If she’s really, really successful I’ll retire sooner rather than later,” **J.C. says.<a href="highlighting%20mine">/quote</a></p>

<p>As parents, we want our children's dreams to come true. But at what cost? I think it is more important to help them learn that life is full of difficult choices and compromises, and that there can be many different paths to fulfill their dreams.</p>

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<p>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.</p>

<p>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.</p>

<p>I think that schools are going to push these loans as long as they can...otherwise how can they continue to charge $50,000 and up per year? This is their way of getting at all the assets that financial aid is not supposed to touch -- the family home, retirement funds and social security and pension benefits.</p>

<p>Thank you for posting this frank piece of reality.</p>

<p>I think no matter how much we want to consider ourselves above the marketing hype, the 'what the neighbors think', the 'I won't fall into the trap with my kid' or 'if junior doesn't spend 4 years at one of the (pick your ranking level) University they will never become the fantastic human being they are destined to become mentality...the forces pulling parents into unjustifiable and potentially very detrimental financial positions so that they can fulfill their kids 'dream' screams and screeches in an omnipresent fashion from all directions. The Mad Men are payed good salaries for this work.</p>

<p>This issue is brought to light regularly on CC threads addressing the value of school X over school Y and the OBVIOUS justification for 6 digit loan amounts because a certain 4 year experience over rides the common sense most folks carry within themselves. (Please, this is not an opening to yet again reduce the conversation to a YES it is/ NO it isn't worth it sandbox level neener neener.)</p>

<p>This type of debt is just choking the life out of not only the eventual grads, but also their parents. I predict that just as in the housing debacle where the cry of 'it was the big bad banks made me do it .... it is their fault' began ringing across the plains when things crumbled, so also will two separate generations of the loan burdened take up this battle cry in the not to distant future. </p>

<p>Actually, kudos to the powers that be who at least have made an attempt to keep the burden with those who chose it. (well, at least until the next gang of smarty pants takes over DC)</p>

<p>Caveat Emptor...</p>

<p>And, maybe it's time to start molding our kids 'dreams' to be bigger that just where they are going to spend their years between 18 and 22.</p>

<p>Something to reflect upon: Our parents (or in some cases, grandparents) had dreams too. They survived the Depression & WWII to follow their dreams. Nobody handed anything to them on a silver platter and they turned out ok, through hard work and perseverance. In fact, they are called the "Greatest Generation."</p>

<p>Yes, dietz199, that's the phrase--caveat emptor. Buyer beware, folks.</p>

<p>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. </p>

<p>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.</p>

<p>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.</p>

<p>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?</p>

<p>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.</p>

<p>Maybe folks are holding on to the plausible deniability defense.</p>

<p>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. </p>

<p>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.</p>

<p>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.</p>

<p>from the quote above from the article: "“The night she got there she said, ‘Mom, this is the air I was meant to breathe,’” J.C. says of her daughter. J.C., 58, is divorced and makes about $50,000 a year. She anticipates PLUS loan payments of $400 to $500 a month, which she says she can handle."</p>

<p>Little Snowflake gets to breathe special (ha!) air, and Momma gets to pay $400-$500/month for that. Ridiculous!</p>

<p>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.</p>

<p>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.</p>

<p>It's not surprising. We're conditioned to sacrifice for our children. There's nothing wrong with that. What's wrong is that colleges are calling these loans "financial aid" and often zeroing out the balance on their financial aid offers (after subtracting grants and federal loans) with them...as if you had no choice about whether to take them or not. (Surely we can put a little cash down?) It's dishonest. It's supporting outrageous tuition increases. And it's going to blow up the economy in a year or two just like no-look loans did in housing. </p>

<p>Tell me these schools would be building their ridiculous "luxury condo" dorms and sports arenas if they didn't have a steady flow of loan money.</p>

<p>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.</p>

<p>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.</p>

<p>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.</p>

<p>Another quote from the article: "'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 Mr. Munier, who is also chair-elect of the National Association of Student Financial Aid Administrators.'" </p>

<p>Wrong conclusion? Seems like it would mostly likely be the right conclusion!</p>

<p>^^^^^^ times a thousand</p>

<p>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.</p>

<p>
[quote]
I thought Harvard was supposed to truly try and meet need.

[/quote]
</p>

<p>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.</p>

<p>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.</p>

<p>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.</p>

<p>That is a very scary article but an impt. warning! Thanks for sharing.</p>