College borrowers with $75,000-plus in debt say they didn’t understand what they were doing, according to a new report, Lost Without a Map: A Survey about Students’ Experiences Navigating the Financial Aid Process.
“High-debt borrowers often do not have a clear idea about the consequences of the loans they take out, with many experiencing misunderstanding or surprise regarding repayment terms and interest rates,” says the report, by the firm NERA Economic Consulting and the youth advocacy group Young Invincibles.
Only 55 percent said they’d received financial counseling before taking out federal loans, even though colleges are require to provide counseling.
When financial aid falls short, colleges encourage parents to take out federal Parent Plus loans, reports ProPublica in The Parent Loan Trap.
As the cost of college has spiraled ever upward and median family income has fallen, the loan program, called Parent Plus, has become indispensable for increasing numbers of parents desperate to make their children’s college plans work. Last year the government disbursed $10.6 billion in Parent Plus loans to just under a million families. Even adjusted for inflation, that’s $6.3 billion more than it disbursed back in 2000, and to nearly twice as many borrowers.
. . . The loans are both remarkably easy to get and nearly impossible to get out from under for families who’ve overreached. When a parent applies for a Plus loan, the government checks credit history, but it doesn’t assess whether the borrower has the ability to repay the loan. It doesn’t check income. It doesn’t check employment status. It doesn’t check how much other debt — like a mortgage, or other student-loan debt — the borrower is already on the hook for.
If the parent can’t pay the loan, the government can seize tax refunds and garnish wages or Social Security checks. With a few exceptions, Parent Plus loans aren’t eligible for deferment or income-based repayment plans open to student borrowers.