To pay for her son’s education, a 53-year-old retired school teacher with multiple sclerosis took out an $84,000 government loan through the Parent Plus program. Her husband also took out a $40,000 loan for their younger son’s college tuition. The parents live with modest pensions that barely cover their expenses.
A student who attends Williams College works a paper route from 1 a.m. to 4 a.m. during a winter break. He’s helping his dad who works three jobs to fund his son’s education. In spite of student loans, generous financial aid, and working extra jobs, they still can’t close the tuition gap.
Parents these days take extraordinary financial risks to help their children pay for a college education. Some borrow from a government program called Parent Plus, which is taken out in the parent’s name. Others take out private loan arrangements, either as cosigner, or in full name. Even home equity loans are not uncommon.
Experts urge caution when it comes to taking out a student loan. Never miss a payment is the relentless refrain. Otherwise, the consequences can lead to years of mounting interest rates and continued penalties creating a lifestyle significantly compromised. There’s always a feeling that the loan will never be paid off.
In many cases, a lot of these loans were taken out by aging baby boomers who would otherwise look to be enjoying retirement. Instead, these seniors are taking student loans in the face of reduced retirement income. Consequently, millions of baby boomers struggle to pay off these loans. Thousands have slipped into delinquency or default. If it’s a Parent Plus loan, it’s not uncommon for the government to garnish Social Security benefits and wages, leaving some to manage on below poverty incomes.
Rethink Student Loan Strategies
There are common sense strategies to fund an education. Knowing the risks is half the battle. If parents take out student loans, it’s almost impossible to take out a loan for retirement needs. So, consider every avenue to put the loan in the student’s name. Down the road, students find it easier to apply for loan forgiveness, with many more options for refinancing and repayment plans that aren’t available to parents.
The Bigger Picture
Let’s not forget the bigger picture on the economy. A 29-year-old Florida State University graduate owes $40,000 in student loans. After attempting to start a web design firm in California, she moved back to Miami after being denied business loans. Her story is common. A recent study indicates that the increase in student debt since 2008 is coincident with a decrease in start-up activity.
It’s a $1.3 trillion problem, more than double the amount in 2008. It’s bigger than all the car loans and credit card debt in America. It’s holding back millennials from marriage, homeownership and other investments for the broader economy. At the end of the day, it’s affecting every American.
Student Loan Debt Facts
– 44 million borrowers
– $1.3 trillion total debt burden (Survey by LendEDU)
– Average debt of all graduates in 2016: $27,975
Contact Me Before You Make A Financial Decision
For 34 years I have worked relentlessly to serve the needs of my clients inside and outside the courtroom. These days, my mission is to help my clients establish a secure financial future. Please contact me for estate planning and wealth protection strategies. I look forward to serving you.
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