October 5, 2012
HIGHER EDUCATION BUBBLE UPDATE: The Parent-Loan Trap. “Today, a dozen years on, Ms. Nemenzo’s debt not only remains, it’s also nearly doubled, with fees and interest, to $33,000. Though Ms. Almendral is repaying the loans herself, her mother continues to pay the price for loans she couldn’t afford: Falling into delinquency on the loans had damaged her credit, making her ineligible to borrow more when it came time for Ms. Almendral’s sister to go to college. . . . A joint examination by ProPublica and The Chronicle of Higher Education has found that PLUS loans can sometimes hurt the very families they are intended to help: 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 loans—the borrower is already on the hook for. . . . Colleges rarely advise families on how much is too much. After a student’s own federal borrowing is maxed out, financial-aid offices often recommend large PLUS loans for parents.”
If a private industry did this sort of thing, it would be considered predatory.