Parents trying to do a good thing and send their loved kids to college often blindly take out student loans. In the federal loan space, these undergraduate loans are Parent PLUS loans.
The best way to think of these loans is where only one parent is financially responsible for the loan, but all the benefit is given to the child.
I’ve had many internal discussions trying to decide if this is a smart thing to do. But, unfortunately, with the situations I witness, many Parent PLUS loans expose a parent to financial strife and rob retirement savings by doing a “good” thing.
The nearest example I’m comfortable with is putting a Parent PLUS loan and co-signing for a loan in the same bucket. My advice on co-signing is never doing it. The realities of Parent PLUS loan financial consequences appear to be similar.
The Poll Numbers
NerdWallet recently conducted a poll of Parent PLUS borrowers, and here is what parents said. Keep in mind; I feel the responses underreport the actual realities.
- 34% of Parent PLUS respondents are not confident that they will be able to resume payments once the nationwide student loan payment pause ends in January. The Biden administration extended the payment pause and interest suspension to January 31, 2022, characterizing this as the “final” extension of the relief.
- 24% of Parent PLUS respondents say will have to request an additional voluntary forbearance to continue postponing payments after January. Once the payment pause and interest suspension ends, any additional forbearance could have significant interest accrual and capitalization consequences for borrowers. The loan balances will rapidly grow.
- 21% of Parent PLUS respondents regret taking out their loans, and 27% would take out lower amounts — or none at all — if they could have a do-over.
- 22% of Parent PLUS respondents expected their child to be able to take over their payments, but so far that has not happened, leaving the parent borrower on the hook.
- 26% of Parent PLUS respondents say they’ll be unable to retire as expected because of their loan burden.
- 28% of Parent PLUS respondents say they’re counting on student loan forgiveness to help wipe out a large sum of their debt.
A Fact to Remember
One situation I’ve run into repeatedly is when a parent takes out a Parent PLUS loan, and the child promises to make the payments. But I’ve seen many situations where the child can or forgets the deal and refuses to make payments. Poll responses mentioned that reality.
Hey, I can’t be responsible for the integrity of your kids. It happens. What can I say?
This is Your Loan
If you want to take out a Parent PLUS loan, it is important to always keep in mind you are solely responsible for the loan. If you default on the loan, it can lead to Social Security garnishment and even a wage garnishment on current income. That does not even include the massive collection fees and penalties that can be added as well.
No Good Deed Goes Unpunished
I understand that as a parent, you want to help your child succeed. But do it in such a way that it pulls you under if your child drops out, does not complete the degree, or is unable or unwilling to make payments.