Federal PLUS College Loans Can Trap Parents in Debt

“Things really spiral out of control for borrowers who face repeated economic or financial ups and downs, especially when they have high-interest loans like PLUS loans,” Mr. Looney said.

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“For a financially secure, high-income parent that makes automatic payments,” he added, “the loans work fine. But if anything bad happens, it’s a disaster.”

Parent PLUS loans also have fewer protections than other student loans. If borrowers can’t afford to pay, they generally have access only to the most expensive income-driven repayment plan, which requires borrowers to pay 20 percent of their discretionary income for 25 years; anything remaining is forgiven. Like other student debts, PLUS loans are not automatically discharged through bankruptcy, but require a separate proceeding with more stringent legal hurdles. The consequences of default are serious: The government can confiscate tax refunds and garnish wages and Social Security.

While data on default rates for parent PLUS loans is limited, they are far lower than for loans taken by undergraduates — but still worrisome, student loan researchers said. To keep debts manageable, parents should borrow no more than what they earn in a year — for all children, said Mark Kantrowitz, an expert on financial aid.

“A significant portion of parents are borrowing more,” he added.

Misty Wyscarver, 55, of Caldwell, Ohio, has put her four children through college, and now carries nearly $194,000 in parent PLUS loans for three of them. Her youngest graduated in May 2020.

“We qualified for very little student aid,” Ms. Wyscarver said. “The kids only received Pell grants when two kids were enrolled at the same time.”

Despite the heavy load, she may be one of the more fortunate. As a public servant for more than 30 years, Ms. Wyscarver qualifies for the public service loan forgiveness program, which, given her salary of $50,000, reduces her monthly payments to about $250 from $2,000. After 120 payments, over 10 years, any remaining balance is forgiven. But to remain eligible through the nine years of payments remaining for her youngest child’s education, she needs to continue holding a qualifying job.

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