According to the Federal Reserve, the fastest growing group of student debtors is not in their 20s, they are parents and other family members approaching retirement. For these folks who signed up for a loan when Social Security was a decade away and still in good health, reality has come crashing down on them.
Family income has declined while tuition has increased over the last twenty years. Dreams of a big post-graduation paycheck are now less about a fabulous lifestyle and more about being able to pay back an average of almost $27,000 in debt for every four year college graduate. If that student continues on to grad school, then the amount owed could easily increase to over $50,000 depending on the choice of studies. If a student does not get that high paying salary, then the parents are now on the hook. Of the over 2 million parents over the age of 60 who have co-signed for federal student loans, 13 percent are already delinquent.
In many cases, parents end up in this position because they “over borrow” on their children’s education. This is just one of the many reasons why student debt in the U.S. total is now over $1 Trillion. That is more than even credit card debt. Right now, it is too easy for parents to get drawn into low-interest and easy to get loans; federal and private. Many federal programs such as the Parent PLUS loans allow co-signers to borrow up to the full amount of a college education all at once. It is particularly easy to do since the only requirement for a PLUS loan is that the parents have no black marks on their credit report.
As long as the students and parents remain current on debt payments, regardless if how large that amount may grow; they can qualify for additional debt that can crush them just a few years down the road. What makes this especially bad for parents and students is that 20 percent of borrowers with PLUS loans are qualified for the need-based Pell Grant program which does not require repayment and was designed specifically for those lower income families who would have no opportunity to send their children to college without going into debt.
Once the loans are cut, parents really have few options. Some make the mistake of dipping into their savings, 401Ks or IRAs in order to stay current on payments. This method merely pushes the problem down the road; if the money is taken out before retirement, additional taxes will have to be paid on every dollar. Even if it is taken out after retirement, this is money that was previously earmarked for medical car, utility bills and food. If the parents are on a fixed income, relying primarily on social security, they have little to no opportunity to replace this money. Parent co-signers also need to understand that their social security check can be garnished for these loans, just like a paycheck. Thankfully with good credit, Parent PLUS loans can be refinanced either by the parent, or by the child and removing their parent.
Bankruptcy is not an option either. The current laws exclude federal and private student loan debt from being discharged under any bankruptcy court. There is some discussion in Congress now to change this, but there is very little support for it. Many Senators and Representatives see too many similarities with the amount of student debt to the Housing Crisis that crashed in 2008.
One unusual option that some parents have discovered is a life insurance policy on their graduate children. This does not cover unemployment or a medical condition that prevents them from working, but it will eliminate the student debt with the death of their child rather than make an already difficult family crisis even more painful.
Consolidation of student loans may be the only other option available to many older co-signers. In spite of the potential pitfalls, federal loans still remain a better option than most private loans. There are a number of different methods to consolidate federal loans with lower rates, extended payment plans and eventual forgiveness of the student loan debt possible that many private loan institutions are either unable or unwilling to consider. Some federal loans also allow for discharge of a student debt in cases of permanent disability.
Students and parents need to talk about all of these options before even applying to college. If this is no longer an option, then both need to make some difficult decisions about what they need to do in terms of future employment and their ability to repay their student debt. This is not a conversation to have after the caps have been thrown into the air. Student Debt Relief can assist borrowers at every stage in the process.
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
College Ave Refi Education loans are not currently available to residents of Maine.
1 – The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2 – $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 04/26/2019. Variable interest rates may increase after consummation.
3 – This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.