The minuses of student PLUS loans

College money


Tess Vigeland: While kids are learning how to manage their credit in college, some of their parents are learning the hard way that just because you can get a loan, doesn't mean you should. Federal PLUS loans lend parents everything they need to pay for their kids' college. But the government doesn't consider whether they can really afford to pay it back.

Commentator Kim Clark says there's a lot wrong with that system.

Kim Clark: Most parents are responsible, of course. They only borrow what they can afford, and they faithfully make their payments. And PLUS loans are strictly voluntary. Most parents don't apply for them, and those who do get approved are free to turn them down.

But I've talked to parents who are jobless, or living on disability. They want to help their kids and have gotten approved for PLUS loans -- even though they probably can't afford to repay them. Some college financial aid officers are getting alarmed by the number of parents living on small incomes who are taking out thousands of dollars of these government loans.

Department of Education officials say they are just following the law Congress passed. They say they reject more than 20 percent of PLUS applicants for having really bad credit -- like a recent bankruptcy or unpaid bills. But they say Congress never told them to reject parents based on their inability to repay the loan. So the government doesn't even look at PLUS applicants' income.

OK, time for some numbers, but trust me they're necessary to understand how serious this is. Last year, the government made more than 700,000 parent loans, for a total of more than $9 billion. Let's say 10 percent of those are going to parents who are struggling financially. What does that mean? About 70,000 families could face financial crises when those loans come due in four years. And it means the government potentially wasted nearly a billion of taxpayer dollars last year.

This wouldn't be hard to fix. All college students and parents are supposed to fill out a Free Application for Federal Student Aid. That analyzes a family's disposable income to determine what kind of financial aid the student needs. The government could simply require that form for parent PLUS loans as well. And they could set a minimal disposable income level to qualify for PLUS loans.

If they don't do something, we as taxpayers are going to keep making loans to people who obviously can't afford to pay them back. Does that sound familiar to anybody? This is a recipe for financial crises for families and for taxpayers.

Vigeland: Kim Clark covers higher education for US News and World Report.

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Plus loans processed through Direct Loans approve credit more easily than the old FFELP program. Many parents near bankruptcy or laid off are getting unexpectedly approved. How do they plan to actually pay these loans back? Here are the approval statistics: http://j.mp/ceOwOq

I think the real issue is that even though both my daughters have graduated from college, with student loans, neither one of them can make enough money to do more than rent a cheap apartment. They are working jobs they hate, not in their field just to survive.

Education IS available to everyone. There is a perfectly viable community college system that will provide classes in a wide variety of subjects.
The problem come from that as a society we feel those are 'inferior' schools, and bestow less value on degrees, both in reputation and in hiring the grads.

There's not a housing crisis in America: we have more homes than we can sell. The problem is, people only want the 'good' ones and they can't afford them. Education? Same same.

Yes, that money was wasted _as loans._ It should have been given as grants, and private vocational schools should have to demonstrate that their fees are in line with the expected income of their students.

It's vicious to limit college education to the children of people who can pay. That's a recipe for reinforcing heridary castes. It's a fundamental precept of education that it needs to be available to everyone.

The government *wasted* money on these loans? Did you consider people who deserve to go to college (everyone) and have trouble affording what we (and you, obviously) take for granted? I contend that not only did you not consider this at all, but that this is another extremely offensive article on Money that is starting to severely put off regular listeners like myself.

Sure, in a missguided Laissez-faire, ignore the poor and care only about the rich sense the government might have "wasted" money, but that's only because you're thinking about the issue in a very limited context-free black and white fashion, without considering the wider benefits to society (including financial) further down the road. Federal Plus Loans are in no way similar to the financial crisis in housing (since when did houses get an education and use that to dig themselves out?)

Next time you consider running an article like this, please consider students without parents, the poor, those not at Harvard spending their parents money, and the rest of the real world. That would be *fantastic*. Thanks. Meanwhile, I'm utterly *disgusted* in you.

I wonder how many parents are on the hook for loans for those over promising, under delivering, over priced for-profit colleges like Gibbs which was unflatteringly profiled on 60 Minutes.

Can we start talking about the Education Bubble? There's a limited supply of slots in universities, and an "unlimited" supply of dollars chasing them. By unlimited I mean that you can drain your parents' savings and get enough student loans to choke a horse.

Many complain that college prices keep growing; it's because they're doing it to themselves with the "whatever it costs!" thinking. It's time to stop believing that these 4 years are so vital to anybody's success that you'll mortgage your future for it.

Parent Plus loans are only deferred for the school year, then the parent starts making payments. This loweres the parent's credit score - I can't get a house now because of this debt showing against my credit. I was trying to help my three kids out and I'm screwed because of the long term debt on these loans.

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