NerdWallet has released a new study looking into the consequences for?parents taking on student education loans on behalf of their kids in order to permit them to attend the college of their choice.
The report, titled “Got Parent PLUS Loans? Cut costs With These Alternative Payment Plans,” which argues that dealing with student loan debt for their children could hurt parents’ ability to accrue security?during important years of saving for retirement, was launched just in time for Financial Literacy Month.
\”People will lend you money to go to college, but they won\’t lend you money to retire,\” says Delia Fernandez, a professional financial planner and president of Fernandez Financial Advisory LLC in Los Alamitos, California.
Report findings suggest that between 1989-90 and 2011-12, the percentage of federal education loan borrowers who held parent PLUS loans increased by an astounding 385%. ?That growth caused the proportion to go from 4.1% of borrowers to 19.9%. ?Additionally, the average amount of interest paid on those loans in that time more than doubled, going from?$15,323 to $40,154.
According to the authors, payments on these financing options are being made in the time period when parents ought to be saving for his or her retirement years. ?The quicker financing burden is reduced, the greater a person could be earning from compound interest accrued through investments.
In the same time period, the report found the typical amount of parent PLUS loans borrowed to possess more than tripled, going from?$8,900 to $27,700. ?The typical total interest paid rose almost 93%, going?from?$6,423 to $12,454.
Borrowers are able to take PLUS loans out for that total cost related to attending a school for the entire year. ?With the average price of an on-campus student attending a four-year school at $30,320 per year as of 2013-14, recent times such data was available, parents could easily take out $121,280 in loans before their child graduates, not including any increases in tuition. ?In contrast, dependent undergraduates are only able to borrow $5,500 in federal direct loans as freshman along with a total of $31,000 in their undergraduate?career.
\”For some people, it\’s just like having a mortgage. They are able to have over $100,000 in parent PLUS loans,\” says Ginny Schroeder, leader of counseling services at FISC Consumer Credit Counseling of Northeast Wisconsin. \”They believe that they have to get it done because their child couldn\’t go to school unless they made it happen, and that\’s simply not true.\”
In to reduce the amount of parent PLUS loan debt, the authors suggest several options. ?First, they are saying parents can refinance their loans?by?having a lender repay their loan and giving?the parent a private?loan with a new, better rate of interest. ?Those with a good credit score and a higher income compared to balance on their loan will typically be eligible for a this option.
The authors also suggest that parents refinance your finance to their child. ?As the government doesn\’t allow PLUS loans to be transferred right into a child’s name and still remain federal, refinancing lenders allow a child to take over a PLUS loan and refinance it in his or her own name.
Lastly, the report suggests parents subscribe to income-contingent repayment and public service loan forgiveness.