The Dual Challenge: Parental Student Loan Debt And Saving For College – As America’s student loan debt rises to more than a trillion and a half dollars, it has captured the nation’s attention and urged people to seek forgiveness and change. , 000 in federal student loan debt per borrower. This historic move is sure to spark international debate about the benefits of student loan relief for younger and higher-income Americans.

But people need to know that not all loan borrowers are young, college educated, and on the rise in their careers. Some of them retired. Some never enrolled in college. And these borrowers, even if they have been talked about a little, can be among the most eligible borrowers.

The Dual Challenge: Parental Student Loan Debt And Saving For College

The Dual Challenge: Parental Student Loan Debt And Saving For College

What has been largely ignored in the international debate are Parent PLUS borrowers, the more than 3.7 million families whose parents owe more than $104 billion through a special student loan program that they used to help pay for their children’s graduate education.3 Parent PLUS loans differ from federal student loans in several important ways. Of course, the obvious difference is that the people who owe the debt—the parents—are not the ones who receive the benefits of education. But what is clear is that the terms of these loans are lower for borrowers than those of other federal student loans for undergraduate studies, with options available to borrowers to reduce their monthly payments, or request forgiveness for all or part of the loan. slightly more generous than federal student loans. This makes the Parent PLUS loan one of the most dangerous types of student loans.

Protesters Call For Supreme Court To Uphold Student Loan Forgiveness

Additionally, Parent PLUS loans are significantly higher than other high school student loans, 4 and data shows that parents often struggle to repay them. When a student whose parents loaned to him completes his program, the average Parent PLUS loan carried by his parents is about $29,600. After ten years, the length of the Parent PLUS repayment plan—more than half of the original amount. (55 percent) still exists, on average, because borrowers have difficulty keeping repayment schedules; after twenty years, the remaining amount is still 38 percent more.5 In other words, many parents spend more years paying off Parent PLUS loans than they spend raising the child whose education the loan helped support.

Many parents spend more years paying off their Parent PLUS loans than they spend raising the child their education helped.

High-risk Parent PLUS borrowers, if they can’t make repayments, could see their livelihood opportunities taken away. In 2015, 40,000 disabled or retired Parent PLUS borrowers saw portions of their Social Security benefits confiscated after they defaulted on their loans.6

This report provides new analysis from a variety of sources to understand how Parent PLUS has evolved from a middle-income family program to one that risks the worst outcomes for families receiving federal student loans, particularly black families. . Our analysis shows the following:

Student Loan Debt Elimination

Because low-income families, particularly black and Latino/a parents, are disproportionately taking out Parent PLUS loans, their poor application and poor credit conditions widen economic disparities. This highlights the challenges for HBCUs where credit utilization is high.

Two main policy implications are apparent. The first is that anything the Biden administration does to stop federal student loans must include families in debt because of Parent PLUS loans. A large amount of forgiveness, such as $10,000 per borrower, would change the lives of hundreds of thousands of struggling parents. Although all the details of the process were not public and it is possible that they are increasing when this report is published, it is very important that this forgiveness is done “on the borrower”, not “on each student” to hold these parents.

The second implication is that the country needs to take a larger account of the reliance on this program among families and the colleges their children attend, and the lasting damage that college debt causes to families, especially families of color. Current proposals for reform have largely focused on changes to the Parent PLUS system that Congress could enact, such as changing the Parent PLUS rules to make fewer parents eligible and reducing the amount that can be borrowed.9 Although these changes would reduce the risk of repayment problems. for new borrowers, they also put college out of reach for children in many low-income families. Changing the program’s rules for future borrowers is just one part of several, including new federal funding for college affordability at financially troubled institutions like HBCUs.

The Dual Challenge: Parental Student Loan Debt And Saving For College

The way families pay for the ever-increasing cost of college is changing, with parents taking on a larger share of the financial burden, paid for by loans. Across the undergraduate education sector, reliance on the federal Parent PLUS program has grown dramatically over the past two decades. Consider this:

Student Debt Cancellation, Pslf & More: What Educators Need To Know

Because the Parent PLUS program was originally designed to give high-income families more flexibility in how they pay for their children’s college, Congress established it with a high interest rate and interest rate that covers all of the federal program’s operating costs. Parent PLUS will be more expensive for borrowers, especially in the long run, thus becoming a less attractive option for low-income, affluent families. Parent PLUS loans are not eligible for federal repayment, and are as difficult as any other student loan to repay.16 And yet, they are easy to obtain, and applications for tens of thousands of dollars are completed and processed in minutes.17 a family can take in Parent PLUS is not enough but all the money that their child pays and other money when they use other support.18

The features of the Parent PLUS program described above can cause financial problems for families without much income or access to resources, so through Parent PLUS, a family can find themselves with significant debt. By granting these loans, the government considers that the family understands the long-term consequences of signing the loan agreement. As with all student loans, while some Parent PLUS borrowers can repay without difficulty, others struggle, go into delinquency or default. But unlike federal student loans, the burden of Parent PLUS loan repayment falls on the parent, not the child. Many parents are able to refinance with little opportunity to improve their finances, while others are close to retirement.

Being able to repay Parent PLUS is a matter of money and resources. Parents PLUS poses a particular problem for black and Latino families, who may see higher education as the only chance to ensure their child’s success. Just as Parents PLUS opens doors for their children, it can close doors for parents: because of these debts, they may find themselves unable to retire at an earlier age, to withdraw money faster than planned, or even to live below the poverty line if their Social Security payments have to be withdrawn. due to insolvency.19

Wanting to help their children succeed through higher education, low-income and disadvantaged parents who take out these loans are at risk of making themselves inferior, so no family should have to suffer because of college opportunities. The following sections use the most recent data to examine in detail how high-risk families rely on Parent PLUS and face financial hardship in repayment.

Public Colleges In 49 States Send Students’ Debts To Collection Agencies, Imperiling Financial Futures

In this report, we focus on disparities between black or Latino/white parents. Statistics for some groups are limited by sample size restrictions, but are presented in this report when samples are sufficient.

Congress established the Parent PLUS program in 1980 with the goal of making it easier for parents who can afford to pay for education – that is, financial aid programs show them that they have good family contributions (EFCs) – but are facing current challenges and don’t want to make their children seek it. other loans.20 Congressional hearings in the 1980s show a widespread view that the program would help middle-class families: opponents said they recognized “the fact that middle-income families are struggling. paying college bills out of current income.” ” is “more evidence that many middle-income families are finding it difficult in the short term to provide the income expected of them as a parental contribution.”21

Forty years since, college enrollment by students from low-income families has increased, and the cost of college has skyrocketed.22 In response, families in all income groups have shown greater reliance on the Parent PLUS program to pay for college.

The Dual Challenge: Parental Student Loan Debt And Saving For College

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