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How the Gov’t Is Saddling Parents with College Loans They Can’t Possibly Afford

Exposing the dangers of the so-called "Parent Plus" loans.

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Average Plus Loan Amount

Even when inflation is taken into account, the average Plus loan has increased by roughly a third, to almost $12,000. All values are adjusted for inflation.

Source: U.S. Education Department

Source: U.S. Department of Education

Walter is 65. His wife is already collecting Social Security. "I could have retired a couple years ago," he says, "but with these loans, I can't afford to stop." His sons want to help with the Plus payments, but none are in the position to do so: One son is making only $24,000. Another is unemployed. The youngest is considering grad school.

Before the downturn, Walter says, he might have been able to sell his house and use the profit to pay off the loans. But given what his house is worth now, selling it wouldn't cover the loan. With his sons in a challenging job market, he thinks he may be repaying the loans for at least a decade.

Many parents are more than willing to take on the burden. Steve Lance, 58, is determined to pay for the education of his two sons, whose time at private universities has left him saddled with $133,000 in Parent Plus loans. (He also says he's committed to paying for his sons' federal and private student loans, which bring the total to $317,000 in debt.)

"The best thing I thought I can do as a parent is support them in having their dreams come true," says Lance, a creative director who writes and speaks on advertising and marketing. "There's no price tag on that." Out of necessity, he has put some loans in deferment.

Often, students and families set their hearts on a specific college and will do whatever it takes to make it work, betting that the rewards will outweigh the financial strain.

That's what happened with J.C., who asked that her name not be used. J.C. took out about $41,000 to help her daughter, an aspiring actress, attend NYU. A high-school valedictorian, her daughter could have gone to a public university in their home state of Texas debt-free, J.C. says. But the opportunities in theater wouldn't have been the same. It had to be NYU.

"The night she got there she said: Mom, this is the air I was meant to breathe," J.C. says of her daughter.

J.C., 58, is divorced and makes about $50,000 a year. She anticipates Plus loan payments between $400 and $500 a month, which she says she can handle. "I'll never retire. I'll work forever, that's OK," she says. Still, the hope is that her daughter makes it to the big time in her acting career: "If she's really, really successful I'll retire sooner rather than later," J.C. says.

Recent Changes to Parent Plus, and Uncertain Results

The Education Department's recent change in how it defines adverse credit history — adding unpaid collections accounts or charged-off debt as grounds for denial — is meant to "prevent people from taking on debt they may not be able to afford while protecting taxpayer dollars," Hamilton, the department spokesman, wrote in an email message.

The change may result in significantly more Parent Plus loan denials, according to Kantrowitz — and some financial-aid officers' recent observations seem to bear that out. But new denials may actually target the wrong people. After all, the tightened underwriting still examines aspects of credit history, not ability to repay.

"It's not going to make much of a difference for people who overborrow. It's not going to prevent people from overborrowing," Kantrowitz says. Instead, the new policy may preclude borrowers who once fell behind on a debt, he says, but now pose little credit risk.