While student loan debt has become a burden for graduates, it’s also having a real impact on their parents with a growing number putting off their retirement so they can help their kids pay for college education.
According to the Government Accountability Office, almost 2 million borrowers between the ages of 50 and 66—and 200,000 ages 65 and over—had Parent Plus loans in 2015. Those numbers are significantly higher compared to just a little over a decade ago. In fact, the dollar volume of Parent Plus loans has doubled in the past decade. As mentioned, this has a direct impact on the retirement plans of these parent borrowers.
Taking on this financial burden comes with its risks. Parent Plus loans have higher interest rates and lesser flexibility compared to other federal student loans. Research shows that parent loans have the biggest impact on middle class families who are more likely to borrow than adults with negative net worth. With higher interest rates and fewer options, older borrowers are more likely to have issues managing the debt in the long run.
So, what’s the solution? Financial advisers suggest that students, not parents, should take on the bulk of student debt responsibility. Students will have more time to pay off loans than parents. If a parent must take on a loan, it should only be if they’re prepared to work for another 10 years.
It is a suggestion that is easier said than done. In the modern labor market where a degree seems critical, student debt appears to be a necessary evil that won’t stop growing. In the United States, average student loan debt approaches $30,000 as many struggle to make monthly payments. To minimize their children’s debt, many parents opt to take out Parent Plus loans which helps explain the retirement fund issues of parents today.
The Parent PLUS program wasn’t originally designed to attack retirement funds. The parent plus program was designed as a way for parents to fund their children’s education via the federal loan program. Despite the good intentions, PLUS loans are notorious for high interest rates, and they are solely in the parent’s name. Forgiveness on a PLUS loan is a rarity, and payments start almost immediately. On top of that, while student loan consolidation can transfer a parent loan to the child's name, there are certain eligibility requirements that must be met, making it not as feasible for some borrowers.
The GAO findings simply reveal an unfortunate side effect of the rigid Parent PLUS loan stipulations and the rising cost of higher education.
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