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The next victims of the student debt crisis: Mom and dad

Decades of tuition rising faster than the rate of inflation means that more parents are taking out student loans to help their children pay for college.

The average parent borrows $21,000 in student loans for their children's education, according to a recent study by researchers at the University of Southern California and the University of South Carolina. The debt comes as these parents are approaching retirement and it is on top of the loans students take out to pay for their own education.

"This debt crisis is not just about students, it's about parents as well," said Jennifer Ailshire, an assistant professor of gerontology at the University of Southern California and co-author of the study. "It paints a dismal picture and we're only at the beginning of this trend."

Parents with a household income of $120,000 or more borrow an average of $30,000 for their children and are more likely to take out student loans, according to Ailshire's research. (See chart below.)

Most of the debt parents use when college savings, financial aid and scholarships fall short comes from federal student loans.

"Student loans are the most pernicious type of debt because they can't be discharged in bankruptcy," Ailshire said. She examined more than 6,500 middle-aged and elderly people who repaid their children's college debt from 2004 to 2012 in a study funded by the National Institute on Aging.

Ailshire's research could actually underestimate the average level of parental student debt.

In 2016, more than 3.3 million borrowers held $74.5 billion in parent PLUS loans used to pay for their children's education, according to the U.S. Department of Education. That implies the average parent PLUS borrower had a balance of more than $22,000.

The College Board found that annual parent PLUS loan volume has increased nearly fivefold over the past decade.

"The biggest issue with parent PLUS loans is the underwriting doesn't take into account affordability." -Nick Clements, Co-founder of MagnifyMoney.com

As long as parents do not have poor credit, they can borrow as much as they need in parent PLUS loans to cover their children's tuition, room, board and books minus the financial aid the student receives.

"The biggest issue with parent PLUS loans is the underwriting doesn't take into account affordability," said Nick Clements, co-founder of MagnifyMoney.com, a loan comparison website. He said he frequently receives emails from parents seeking help with handling their parent PLUS loans because they have borrowed too much.

The burden of parent PLUS loans can carry over to retirement.

In 2015, more than 210,000 people age 65 and older had parent PLUS loans, more than a quarter of those borrowers had defaulted, and more than 7,300 people had money taken out of their Social Security checks to pay back their parent PLUS loans, according to a recent report from the U.S. Government Accountability Office.

Parent PLUS loans, which levy an origination fee of more than 4.7 percent, have higher interest rates than other student loans. (See table below.)

Unfortunately, borrowers cannot directly transfer their parent PLUS loans to their children when they graduate, but parents can use these tools to lower the costs of sending their kids to college:

Income-based repayment. Parent PLUS loans only qualify for one kind of income-based repayment plan. It's called income-contingent repayment. The plan is less generous than other repayment options offered by the federal government, but it will forgive the loan if a borrower is in the repayment plan for 25 years. This repayment plan may be the only option for low-income borrowers who don't have the financial resources to lower their debt burden through other means, Clements said.

Home equity. Home equity loans and home equity lines of credit can provide lower rates than parent PLUS loans, depending on your credit score and debt load. The downside is that you can put your house at risk if you default on these loans.

Student loan refinancing. This option only works for people with good credit, a FICO score of 720 or more, to qualify for rates lower than PLUS loans. Several online lenders, including CommonBond, DRB and SoFi, allow you to transfer the PLUS loans you refinance to your children. This is a good option if they can afford to make the payments, Clements said.