Parent Plus Student Loans: How to Screw Parents and Kids in a Single Shot

MishTalk

It’s easy to get student loans thanks to the aptly named “Parent Plus” program, a subprime loan trap that ensnares parents plus their college-age children.

by Mish

The program was enacted by Congress in the 1980s, but president Obama promoted it heavily.

The results speak for themselves: Nearly 40% of the loans are subprime. The default rate exceeds the rate for U.S. mortgages at the peak of the housing crisis.

Kids graduate from college with useless degrees, plus parents and kids are stuck with massive bills that cannot be paid back.

It’s Easy for Parents to Get College Loans—Repaying Them Is Another Story.

"Student loans made through parents come from an Education Department program called Parent Plus, which has loans outstanding to more than three million Americans. The problem is the government asks almost nothing about its borrowers’ incomes, existing debts, savings, credit scores or ability to repay. Then it extends loans that are nearly impossible to extinguish in bankruptcy if borrowers fall on hard times.

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As of September 2015, more than 330,000 people, or 11% of borrowers, had gone at least a year without making a payment on a Parent Plus loan, according to the Government Accountability Office. That exceeds the default rate on U.S. mortgages at the peak of the housing crisis. More recent Education Department data show another 180,000 of the loans were at least a month delinquent as of May 2016.

“This credit is being extended on terms that specifically, willfully ignore their ability to repay,” says Toby Merrill of Harvard Law School’s Legal Services Center. “You can’t avoid that we’re targeting high-cost, high-dollar-amount loans to people who we know can’t afford to repay them.”

The number of Americans with federal student loans, including through programs for undergraduates, parents and graduate students, grew by 14 million to 42 million in the decade through last year. Overall student debt, most of it issued by the federal government, more than doubled to $1.3 trillion over that period.

The financing fueled a surge in college enrollment. Between 2005 and 2010, enrollment grew 20%, the biggest increase since the 1970s. The Obama administration supported such lending in an effort to widen access to college education.

Nearly four in 10 student loans—the vast majority of them federal ones—went to borrowers with credit scores below the subprime threshold of 620, indicating they were at the highest risk of defaulting, according to a Wall Street Journal analysis of data from credit-rating firm Equifax Inc. That figure excludes borrowers, such as many 18-year-old freshmen, who lacked scores because of shallow credit histories. By comparison, subprime mortgages peaked at nearly 20% of all mortgage originations in 2006.

Roughly eight million Americans owing $137 billion are at least 360 days delinquent on federal student loans, nearly the number of homeowners who lost their homes because of the housing crisis. More than three million others owing $88 billion have fallen at least a month behind or have been granted temporary reprieves on payments because of financial distress."

Joint Effort

In 2005, president Bush signed the bankruptcy reform act of 2005 making student loans not dischargeable in bankruptcy.

President Obama came along next and encouraged parents who had no idea what they were getting into to sign loans to put their kids through college.

Parents plus their kids are mired in debt that cannot be paid back. Thank you Congress, President Bush, and President Obama.

Surefire Way to Discharge the Loans

There is one way to get rid of these loans. Die.

Stop the Madness

Wherever government meddles, costs rise dramatically.

The solution is to stop the meddling: Stop all the loan programs, stop all the aid programs, stop insisting that everyone needs to go to college, and start accrediting programs and course offerings from places like the Khan Academy.

Not a single student aid program aided any students. Rather, escalating costs went to teachers, administrators, and their pensions as student debt piled sky high.

Mike “Mish” Shedlock

Comments (2)
No. 1-2
Herkie
Herkie

Mish, I have mixed feelings about this trap, and as long as the debt can't be discharged in BK like other debt it is certainly a trap with no way out.

I was in college in the late 1980's with a study plan to get a 4 year degree in finance, it called for two years at Santa Rosa JC in Sonoma County (at the time the largest junior college in the country) and the core two years at SF State.

In order to pay for it the school had worked out a financial aid plan that had several moving parts, I was a disabled vet with a small income from that, and benefits that was about $400 per month, as well as the old GI Bill that paid for tuition and books, I had a Board of Governors Grant, it was tiny a few hundred at most, a Pell Grant that was a few hundred per month, a $2,200 student loan, and I worked about 10 hours per week at something like $13 per hour take home as a home nurse taking care of AIDS patients. Nobody really wanted to work with them because we still knew so little about that epidemic. Funny how we were never called HEROES! Or offered hazardous duty bonuses. But this was Santa Rosa and the cost of living was just crazy even back then.

Because the VA had such intricate rules all veterans at the college had their finsancial aid package handled through the campus Veteran Service Officer's office, a Guy named Chris. He was a great guy and good at his job.

Then in the middle of the school year Chris took a two week vacation; one of the regular financial aid officers took over his duties while he was gone, back then we got the non VA money by lining up at tables in the quad and signing for a paper check. I went to sign for my check and was told I had to go inside the office. When I got in and was seen by the officer I was told my eligibility for the grant money was recalculated and terminated. I made too much money, I was utterly gobsmacked, I was practically living in my pickup.

Well a few days later Chris returned and said what happened was some (bitch) financial aid officer that deep down was vocally antagonistic towards veterans and military ("baby killers") had taken it upon herself to recalculate all the veterans incomes by including their vet disability.

The Pell Grant application form was crystal clear and all the grants used the Pell application, if you qualified for Pell you got the state grants. In the instructions on the back of the application form it said in large font, all capital, BOLD letters, DO NOT USE VETERANS DISABILITY INCOME WHEN CALCULATING INCOME FOR PELL GRANT ELIGIBILITY so I had of course left that out. This woman that who so hated everything military had recalculated all the veterans incomes by including our disability and as a result cut many of us off our Pell Grants and by extention all other state grants based upon Pell.

Chris said it was an error and was so convinced he could resolve it quickly he actually wrote me a check from the college's petty cash account for that month's Pell so I could make my car payment, he said when the Pell was turned back on I could repay the "loan" so in reality he was just advancing me the money I should have got anyway.

Well a week later he called and said while he was able to change the income status back to the way it belonged there was no mechanism to restart a Pell Grant once it was terminated, mistake or not. He still needed me to return the school's petty cash loan.

I don't think I ever returned it, I simply did not have that much. Also I had to cut a class out of my schedule to accomodate more working hours per week to make up for the lost funding. Then Chris called and said that the VA had slashed my pay because I was no longer a full time student but 3/4 time. That was still a 50% cut to reimbursement. So, I really had no choice but to withdraw for the remainder of the semester to work full time. But that left me with a large overpayment for the whole semester so far which I had already been paid. I was no longer eligible for VA funds till it was repaid.

I worked all spring and summer to repay it, and went to register for classes in the autumn, but was told I did not qualify for any student financial aid because by a few days my $2,200 student loan had defaulted and was due in full. That was 1989 and I did not get that loan paid off until 1999. For one thing the Department of Education had been created in '79 and was relatively new, there was no central office that handled student loans and appeals. I gave up after trying to get my case heard, there was simply a bureaucratic wall that kept refering me to the bank that held the note, and they were way less than interested in my story.

The IRS was now my worst enemy. I did eventually find a work around to be able to go back to college, but had to move out of state, and apply for a higher disability rating to qualify for Chapter 31 education benefits which were not subject to student loan default garnishment. That is how I came to have a BS Finance from Franklin University in Columbus Ohio. But it was a decade of lost opportunity, stolen tax refunds, no ombudsman to get justice, wrecked credit, etc. There simply was no avenue of correcting that one single wrong that bitch in the SRJC financial aid office had done.

Ever since then I have told young people at a loss for what to do and how to do it as graduation came and went and they were floundering in life to consider the military, it is a great move on so many levels, and will pay for your education, not to mention education opportunities while you are in the service. Just NEVER EVER even consider a student loan. If you must have a student loan to get an education then you must realize that perhaps you just cannot afford university. Look into a trade school. And if you are going to do that why not the service?

This one of the main reasons I despise "progressive" politicians, they come along and hold out hope of student debt forgiveness that is never going to happen which encourages people to take on such debt that they become slaves to it.

But, NO! They will not even consider the military and yet can't find a job that they can afford to live on. So they scream at baby boomers and bitch about the state of the world and even though they are in poverty still find the cash for weed and tats.

The entire young generation stupidly thinks our generation is entitled rich and never had any problems like runaway stagflation, gas rationing, 30% and more unemployment in many counties like my home county in far northwest California.

I say they are more entitled and spoiled than I ever was and our survival was predicated upon a lot tougher decisions than they will ever have to make. Though as dark as some visions of that future now are that may not always be the case to come.

Mish, I would like to see the BK laws changed to include student loans so that people can get out from under even if it is the ultimate financial price to pay for doing so. Without that option student debt in reality is indentured servitude. Of course it should always be the last option, but, until that is the law I have just about less than no sympathy for people stuck in this debt trap. They knew it was a possibility when they signed. Nobody put a gun to their heads. People know or SHOULD know that things can happen in life that are unforeseeable and random like my situation was. If you are not adult enough to know the risks then why are you signing a contract with such potential consequences. They should know that now, back then the whole student debt thing was smaller and newer without such examples of underhanded misery.

I slept on the floor of a tiny one room apartment for 3.5 years with no vehicle or computer while working full time 40 hours per week and carried 16 semester hours of college in Columbus to make up for the lost time Santa Rosa JC cost me. So I am just not really open to whining about the state of student debt much. Not one in 67 college students would have done the same level of effort to get it done.

That bitch in the college financial aid office cost me my old GI Bill because I was one of the last to get the old version of GI Bill and it had a 10 year time limit to be used or lost. That was one of the major reasons for my enlistment, to get that education benefit. I could not access it as long as I was in default. To say I have a few anger issues around student loans is a gross understatement.

jonathanmark
jonathanmark

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