Debt Till Death

by Jim Olsztynski | June 6, 2017 | Student Debt | 0 Comments

Do you love your Mom and Dad? There are exceptions, but I suspect most people reading this would answer yes.

If you do, do them a favor. Don’t put them in such a hole supporting your college education that they have to struggle in retirement. Unfortunately, millions of America parents are facing a miserable time in old age because they have taken out loans to pay for college. The U.S. Department of Education has a loan program called Parent Plus that allows parents to borrow to cover college expenses after their children have borrowed the maximum allowable. There is no limit on how much parents can borrow, however, and almost anyone can qualify for these loans, no matter how little their income or ability to make money.

Eventually, it’s payback time, and that’s tough to do for parents who have lost their jobs or suffered other financial setbacks. Many of these loans were taken out at interest rates of 6% to 8%, much higher than current rates. This Wall Street Journal article from last April 25 reports that, as of 2015, some 330,000 people, 11% of Parent Plus borrowers, had gone a year or more without making payments. In other words, they have defaulted.

Unlike private loans that may be written off in a bankruptcy filing, the federal government has ways of tightening the screws on Parent Plus borrowers who can’t or won’t pay back the loans. They can and do garnish Social Security checks, tax refunds and other federal payments the parents may have coming to them. Instead of looking forward to a leisurely retirement, many of those parents have had to put off retirement and neglect health expenses. Many will carry their debt burdens all the way until death.

Parents’ debt burden is on top of other loans taken out by students themselves, and which many are unable to pay back. Student borrowers on average leave school (whether graduated or not) owing an average of $34,000. The total debt for student loans amounts to a staggering $1.3 trillion – with a t. More than 10% of those borrowers are at least 90 days behind in their payments and the delinquency rate is far higher than it is for mortgages, credit cards and auto loans.

Of course, student loans defaulters needn’t worry much about the latter. Failure to pay off a student loan means they likely will never become eligible for a mortgage or auto loan. Credit card issuers are less fussy, so student loan deadbeats likely will be able to qualify for some credit cards, after which they will have the pleasure of making minimum monthly payments and kicking back 20%+ interest charges on the balance to the credit card issuers. Have a nice life.

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