|By Celia Baker; Celia Baker Deseret News|
"It was pretty awful, pretty dark, I guess," said DePaul, who writes for the Fiscal Times out of its
Such scenes are becoming more common.
Borrowers who are age 60 or older are the fastest-growing age group for student debt, according to the Federal Reserve Bank of
Federal Reserve data show that median family net worth declined between 1989 and 2010, but tuition soared during those years. At the same time, having a college education became ever more essential for young Americans. Meanwhile, promises of big salaries post-college grew rosier and rosier — at least until the 2008 recession.
Then and now, colleges lure students with easy-to-get federal and private loans. The disastrous results for students who don't finish or don't find high-paying jobs are well known — student loan debt in the U.S. adds up to more than
The fact that many parents end up in the college debt sinkhole isn't talked about as much, but parents do end up there. It's usually because they co-signed private student loans their kids can't pay, or because they over-borrowed through the federal Parent PLUS loan program, which allows parent to borrow up to the full cost of a child's education. The low-interest loans are not based on need, and require only that the parent have no adverse credit history.
Education loans — whether to students or parents — can't be discharged through bankruptcy except in the most extreme circumstances. There are few recourses for parents who get in too deep. That's especially true for retirees living on fixed incomes because there is less chance they can increase their income to cover a too-high payment.
A November New York Times article told of parents living with their now-prosperous children because the parents can't make the payments on education loans for their children. Parents distraught from hounding by student loan creditors have even resorted to suicide, the story said.
Those are the outliers, the worst cases. The average amount of debt per student is
PLUS or minus?
The federal Parent PLUS program allows parents to borrow up to the total cost of a student's education. Eligibility is not based on need, making the loans enticing for middle-class families that don't qualify for federal student aid. However, one in five of Parent PLUS borrowers have children who qualified for the federal government's need-based Pell grants, according to
The only eligibility requirement for a Parent PLUS loan is that parents must have no adverse credit history — income levels and current indebtedness are not checked. Parents who continue to borrow through the Parent PLUS program to stay ahead of debts could remain within the "no adverse credit" rule, even though they might be accumulating debts that far exceed their ability to repay, said
Despite the dangerous ease of over-borrowing, Parent PLUS loans are a better choice than private loans for financing a child's education, McClean said.
"We encourage students and families to exhaust federal options before going to private loans," she said. "Federal loans offer great protections, like a grace period after graduation. And they are dischargeable upon death or permanent disability."
Parent PLUS loans, used carefully, can be appropriate for helping a child get through an undergraduate program, said
"Throw the loan on the kid, because they can have an income- based payment," Cohen said.
Taking out a life insurance policy on a child you've co-signed with on a private student loan isn't a bad idea, Cohen said — but that won't cover most of the life events that could leave parents holding the bag. Parents can be tapped to pay back loans they co- sign if a child is unemployed, under-employed, has a serious medical problem or simply doesn't pay, he said.
Some parents tell Cohen they co-signed a loan so their child could go to school and didn't consider the possibility that they might have to pay back the money. Parents who talk that way make him crazy.
"Parents need to understand the legal ramifications of what they are doing when they sign a loan," he said. "Legally, they are on the hook for the loan. If a parent comes out and admits they never intended to pay, that's fraud on the bank. If they co-sign, they are 100 percent billable for the loan, no matter what happens."
There are many ways parents can avoid getting caught in the student loan debt trap. Here's what the experts say:
Jim Yannopolous, a
Yannopolous said parents would be wiser to hire an academic tutor for a child than spend resources chasing after athletic scholarships. U.S. colleges offered
McClean said parents and students should start early to begin talking about college, start savings plans and learn about the admissions process — by the time the child is in 6th or 7th grade. As high school graduation nears, use financial aid officers on college campuses as a resource to help them understand the ramifications of scholarship offers and loan documents.
CNN/Money: Be wary of free college funding workshops sponsored by schools. Chances are, an insurance agent will be there selling whole- life policies designed to look like college savings plans. (Not the same as buying life insurance on an indebted graduate.) Instead, consult a fee-only certified financial planner regarding decisions about the best way to save for college expenses.
Cohen said that if the student plans to attend a public college in the family's state of residence, the state's tax-sheltered 529 savings plan is usually a smart savings strategy for parents. Most important is for parents to involve students in research about financing college.
"If there is one thing that annoys me to no end, it's when the parent does all the research because they don't want to overwhelm the child with adult decisions," Cohen said. "That's what college is for — prepping the little guy to go out into the world. If your child can't handle financial decisions, don't send them to college."
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