“For borrowers facing repeated economic or financial ups and downs, things really get out of hand, especially when they have high-yielding loans like PLUS loans,” Looney said.
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“For a financially secure, high-income parent making automatic payments,” he added, “the loans work well. But if something bad happens, it’s a disaster. “
Parent PLUS loans also offer less protection than other student loans. Typically, when borrowers cannot afford to pay, they only have access to the most expensive income-driven amortization plan, which requires borrowers to pay 20 percent of their disposable income for 25 years; everything else is taken. PLUS loans, like other student debts, are not automatically waived through bankruptcy, but require a separate procedure with tightened legal hurdles. The consequences of a payment default are serious: the state can seize tax refunds and seize wages and social security.
While the data on default rates for Parent PLUS loans is limited, it is far lower than for student-borrowed loans – but still worrying, student loan researchers said. In order to keep the debt manageable, parents should not borrow more than they earn in the year – for all children, said Mark Kantrowitz, an expert in financial aid.
“A significant proportion of the parents borrow more money,” he added.
Misty Wyscarver, 55, of Caldwell, Ohio, sent her four children to college and now contributes nearly $ 194,000 in Parent PLUS Loans for three of them. Your youngest completed her studies in May 2020.
“We qualified for very little student aid,” said Ms. Wyscarver. “The children only received Pell grants if two children were enrolled at the same time.”
Despite the heavy burden, she can be one of the luckier ones. A civil servant for more than 30 years, Ms. Wyscarver qualifies for the Public Service Loan Program which, given her $ 50,000 salary, reduces her monthly payments from $ 2,000 to approximately $ 250. After 120 payments, over 10 years, the remaining amount is waived. However, to be eligible for her youngest child’s education for the nine years remaining, she must continue to have a skilled job.