Ability to pay is seldom factored into decisions to offer big loans
San Francisco, CA -- (SBWIRE) -- 10/10/2012 -- Parents might find it easy to borrow for their children’s college education, but some loans are almost impossible to discharge if a family finds itself overburdened. The Parent Plus loan program sometimes can hurt the people it is intended to benefit, according to a report by ProPublica and The Chronicle of Higher Education.
Parent Plus has helped families send their children to college even as the cost of higher education has soared. A million families received $10.6 billion in government money through Parent Plus loans last year.
A borrower’s credit history is checked in the application for a Parent Plus loan but not ability to repay it.
Mark Kantrowitz, publisher of two websites that specialize in financial aid, said the program is run “by the seat of its pants.”
“You do have some parents who are borrowing $100,000 or more for their children’s college education who are getting in completely over their heads,” he said. “Those parents are going to default, and their lives are going to be ruined, because they were allowed to borrow far more than is rational.”
Parent Plus loans do not have a borrowing limit. Parents can take out as much as needed, and colleges generally do not consider whether they will be able to afford to pay. If borrowers do not make payments, the government can seize wages, Social Security payments or tax refunds.
Many families of little means may be overextending themselves with the loans, an examination of federal data by Kantrowitz suggests.
His study found that for families with the least income, in the lowest 10%, monthly payments took up an average of 38% of their income.
Education officials say it is important to enable low-income families to send their children to college. And parents have to take responsibility for their own money, says Education Department spokesman Justin Hamilton. He said the government lets students and their parents know what their financing choices are. “We want to make sure we’re arming folks with all the information they need,” Hamilton said.
Some borrowers who have taken Parent Plus loans are working past the age of retirement to keep up with payments. Galen Walter, 65, is a pharmacist whose family took out $150,000 in loans to enable three children to attend colleges. Although Walter’s wife is getting Social Security payments, he is still working. “I could have retired a couple years ago, but with these loans, I can’t afford to stop,” he said.
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