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The minuses of student PLUS loans

College money

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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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