Personal Finance

More parents struggle to repay loans they borrowed for their children's education 

Key Points
  • Today at least 3.4 million people hold so-called parent PLUS loans and they owe nearly $90 billion, according to a new report by the Brookings Institution, a Washington-based think tank.
  • Parent borrowers took out $16,100 on average in 2014, up from an inflation-adjusted $5,200 in 1990. Currently, the average parent plus balance is about $26,000.
  • Default rates among parent borrowers are also on the rise.
Haydee Cruz owes more than $200,000 in student loans
Source: Haydee Cruz

After Haydee Cruz and her daughter toured Full Sail University in Winter Park, Florida, the two were hooked.

Then came the math. To finance four years of tuition and living expenses at the for-profit college, both Cruz and her daughter would have to go into debt. Cruz alone borrowed around $160,000 in "parent PLUS" loans from the government.

Repaying that balance has been a challenge for the 63-year-old social worker.

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She makes around $50,000 a year and the monthly student loan bill is more than $600. Since her payments barely cover the interest on the debt, the amount she owes has ballooned to well over $200,000 today, she said.

At this rate, when she's 85, she'll be done with the payments. In the meantime, she's barely able to save for her retirement.

"I have nothing that is going to sustain me if I stop working," Cruz said. "This loan governs my life."

As college costs rise, more students are hitting the federal student loan limits with a portion of their bill unpaid. Increasingly, their parents are borrowing to make up the difference.

Source: Mark Kantrowitz

Today, at least 3.4 million people hold so-called parent PLUS loans and they owe nearly $90 billion, according to a new report by the Brookings Institution, a public policy research group. (Those numbers don't capture parents who have consolidated their debt, in which a loan is rolled into a new one.)

Parent borrowers took out $16,100 on average in 2014, up from an inflation-adjusted $5,200 in 1990. For comparison, the average undergraduate student borrowed about $7,300 in 2014.

Currently, the average parent PLUS balance is $25,600. Some parents take out loans for multiple children, the researchers note, increasing their debt even more. Nearly 9 percent of parents who began repayment in 2014 owed more than $100,000.

Limits on parent PLUS loans were eliminated in 1993 by Congress, the researchers at Brookings note. And in 2014, eligibility for the loans was expanded to parent borrowers with weaker credit histories. Since then, at least another 370,000 parents — who would have previously been denied the loans because of an adverse credit history — have been approved, according to the researchers.

"You can be earning $20,000 a year and be eligible to take out $20,000 a year in parent PLUS debt," said Adam Looney, an economist at Brookings and a co-author of the report. "It's a trap for the unwary."

Parents are struggling to repay the loans.

Five years into repayment, parents from the 2009 cohort had just around a third of their debt paid off. Eleven percent of them were in default.

The picture is grimmer still for parents who took out loans to send their children to for-profit colleges. More than 16 percent of those parent borrowers defaulted on their debt within five years.

"We shouldn't force parents to make a choice between sending their kids to college and taking out a loan they can't afford," Looney said.

What if I'm struggling with student debt for a child?

If you took out parent PLUS loans for your child, "you should know there are options for reduced payment and possible forgiveness," said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit that helps student loan borrowers with free advice and dispute resolution.

Parent borrowers may be eligible for reduced payments, Mayotte said, including through extended and graduated repayment plans. If you consolidate the parent PLUS loan into a "direct" loan, you could enroll in an income contingent repayment plan, which caps your monthly payments at a percentage of your income and typically results in the cancellation of your debt after 25 years.

"This can be particularly helpful for retired parents on fixed incomes," Mayotte said.

Parents can also appeal to the Education Department to be put in a so-called alternative repayment plan, Kantrowitz said, which also comes with reduced monthly payments.

Many parent borrowers don't realize they are potentially eligible for public service loan forgiveness, Mayotte said. That program allows certain not-for-profit and government employees to have their federal student loans canceled after 10 years of on-time payments.

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