3.6 million parents hold the most expensive federal student loan
- Parent PLUS loans are student loans that parents can take out to pay for their children’s education.
- But these loans have the highest interest rate – 6.28% – allowing parents to get into debt faster.
- Parents told Insider that they will always do whatever it takes to educate their children.
The $ 1.7 trillion student debt crisis weighs on the shoulders of 45 million Americans, causing enormous financial burdens for many. For 3.6 million parents who have taken out loans to pay for their children’s college, debt could jeopardize retirement.
This is because they took out PLUS Parent Loans – the most expensive type of student loan with the highest interest rate.
A direct PLUS loan, commonly known as a parent PLUS loan, is a type of federal student loan that parents can take out to pay for their children’s education. To benefit from a PLUS loan, according to Federal student aid (FSA), all parents need to do is prove that they have a good credit history and meet the general eligibility requirements for federal student aid, and the government will then loan them money that can cover their child’s school fees minus any other financial assistance the child has already received.
Compared to other types of student loans, however, PLUS loans can add up quickly if parents cannot afford to repay them immediately. Insider reported in June the new interest rates for different types of federal student loans that will be in effect until July of next year: Direct loans for undergraduates have a rate of 3.73%, direct loans for graduates and professionals have a rate of 5.28%. , and PLUS loans have the highest rate of 6.28%.
The problem with PLUS loans is that they are too easy to take out, for example. report for the Texas Public Policy Foundation. This is because the amount parents receive is based on the cost of attendance instead of what parents can actually afford. This can create a “dangerous mentality” which leads to increased and uncontrolled borrowing, Andrew Gillen, author of the report, Recount Yahoo finances.
Insider previously spoke to two parents who are delaying retirement thanks to interest rates on PLUS loans that make it difficult to pay off debt. Reid Clark, 57, unexpectedly became the sole provider of his five children and his debt now stands at over $ 550,000.
âI think I’m paying $ 3,000 a month for most of the rest of my life,â Clark told Insider. He estimates that he will have to continue making these payments for at least three decades.
For Robert Pemberton, 64, who took out $ 265,000 in PLUS loans for his two children, the debt is a “never-ending cycle where the loan can never be repaid unless I have a windfall and pay it all off.” , or I die and it goes. “
“I don’t know if I will be able to work until I am 80,” he said.
Pemberton told Insider that the loan underwriting process was eerily easy, and he described it as being “on autopilot” and all he had to do was “sign a paper”.
PLUS loans were included in the pandemic student loan payment freeze, but once the freeze is lifted on February 1, parents and other federal student loan borrowers will have to start paying down debt again. But it’s not clear whether PLUS loans are included in the federal conversation about student loan forgiveness, and while Pemberton and Clark both told Insider they don’t expect any loan forgiveness, they don’t regret. not having done all that was necessary to ensure that their children received education.
âFor those of us who want to see our children do better, we understand that you improve yourself and your chances of success through education,â said Clark. “And I’m just not going to take the risk of not sending my kids to school, even though that will create a huge financial burden. It’s not an option.”