If you took out a federal Parent PLUS loan to help pay for your child’s college education, you’ve likely saved them from having to deal with potentially crushing debt as they get their first apartment, first real job and begin their life as an adult. However, you may well be feeling that crush of debt yourself – at a time when you’d rather begin planning for retirement.
You’re not alone. More than 3.7 million families in the U.S. owe a combined $100+ billion on Parent PLUS loans.
Why can they have worse financial consequences than traditional student loans?
One think tank recently called these loans the “driving cause of some of the worst outcomes for families who receive federal student loans.” The average borrower owes half the original amount of the loan. There are a number of reasons for this.
First, parents (or legal guardians, who are often a child’s grandparents) are allowed to borrow more under the program than students can if they get a loan, and the interest rates are higher. That means they’re left owing more.
Like student loans, they’re almost impossible to discharge by filing for bankruptcy. Meanwhile, the consequences for defaulting on a Parent PLUS loan can be particularly harsh. They can include garnishment of wages and even Social Security benefits.
An increasing number of people with Parent PLUS loan debt have low incomes. They’re often used by parents who couldn’t otherwise afford to send their kids to college. However, many of these parents don’t have college degrees themselves and can’t afford to keep up with payments along with their other financial obligations when they’re on a tight budget. Of course, many people these days are in that situation regardless of their income and education level.
If your Parent PLUS loan payments are putting you in financial peril, it’s worthwhile to find out what your options are. Even if you can’t discharge the student loans, you can discharge or reorganize other debts in bankruptcy so that you can manage all your payments and expenses. Talk to an attorney about your options. You also can file a Chapter 13 and although the student loans won’t be discharged, you’ll get breathing room from three to five years.