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Many parents who took on student debt for their kids regret the decision: Nearly 1 in 3 parents (30%) with federal parent PLUS loans say if they could do it over, they’d ask their children to rethink their education plans so they wouldn’t have to take out the loans.
These results, part of a July 2021 survey conducted by The Harris Poll on behalf of NerdWallet, illustrate the burden shouldered by parents who amassed federal loans to help their children attend college.
Parent PLUS loans don’t have strict credit requirements, so they’re easy for parents of undergraduate students to get. However, they’re more expensive than other federal student loans their children take on since they carry higher interest rates and higher origination fees.
PLUS loans also don’t have the limits that undergraduate loans do. Parents can take on loans up to the total cost of attendance minus other financial aid like grants and scholarships. And they can take on loans for multiple children.
Around 1 in 5 parents borrow to help pay for their child’s school, with 11% using PLUS loans, according to a 2021 report by Sallie Mae.
Over time, loans add up quickly for parents. According to 2021 federal College Scorecard data, the median parent PLUS loan debt is $29,945. Around 3 in 10 parent PLUS borrowers (27%) surveyed in the Harris Poll say they wish they’d taken out a lower PLUS loan amount.
“Everybody wants to do everything they can for their kids; there’s a natural inclination to give your kids what they want,” says Nancy Goodman, founder and executive director of College Money Matters, a nonprofit organization that helps families make college decisions. “Many parents have also bought into the notion that a college degree is a golden ticket. While yes, historically that’s definitely been true, it isn't true for every kid in every situation and in every major.”
Parents are expecting help from their kids
When you compare the interest rates and fees of student loans, it’s better for students to borrow federal undergraduate loans than it is for parents to take on PLUS debt, says Sandy Baum, nonresident senior fellow for the Center on Education Data and Policy at the Urban Institute and professor emerita of economics at Skidmore College in Saratoga Springs, New York.
But experts say that parents often see loans as the only way their child can afford college, and some parents expect their child will eventually bear the responsibility of payments. According to the survey, 22% of parent PLUS borrowers say they thought their children would take over their loan payments, but they haven’t yet.
Legally, parents can’t hand their debt to their child that easily. The only way to do it is by refinancing with a private lender and transferring ownership to their child, which some lenders allow. But if the child borrows the maximum amount available, Baum says, the idea that they'll be able to repay all that and more once they graduate "seems questionable."
What’s affordable now might not be so for the future
One in 5 parent PLUS borrowers (20%) say they were able to afford the loan payments initially, but no longer can. Parents shoulder student debt burdens for their children without the promise of increased earnings that typically come with a degree. That makes it more difficult to repay the debt since IRS data shows earnings tend to drop off after age 65.
“It’s probably unlikely that it will be a lot easier for you to make loan payments once your kids go to college than it would have been to save before your kid goes to college,” says Baum.
Parents who carry debt into their latter working years may have more trouble saving for their financial future. More than 1 in 4 parent PLUS borrowers (26%) say they won’t retire as expected due to their PLUS loans, according to the NerdWallet survey.
More than one-third of parents aren’t ready for loans to restart
Parents, like all federal student loan borrowers, have had the chance to take one long collective breath: Since March 13, 2020, all federal loans have been paused due to the COVID-19 pandemic.
When the survey was taken, the federal payment pause had not yet been extended. The forbearance was supposed to conclude after Sept. 30, 2021, but it will now end after Aug. 31, 2022. As of the time of the survey, close to a quarter of parent PLUS borrowers (24%) say they would request a forbearance extension after the automatic forbearance period ends.
Requesting an additional forbearance is an option, but unlike the current payment pause, if you request a forbearance or deferment when payment restarts, interest will accrue and increase the total amount you owe.
Unlike federal direct undergraduate loan borrowers, parent PLUS borrowers only have one income-driven repayment option: income contingent repayment. This sets your payment to 20% of your discretionary income (or fixed payments based on a 12-year loan term) and extends repayment for 25 years. To qualify, you must first consolidate your student loans, which you can do for free at studentloans.gov.
Parents shouldn’t count on forgiveness
Troublingly, the survey shows that 28% of parent PLUS borrowers are counting on widespread debt forgiveness to wipe out a large sum of their debt. But there is no guarantee or expectation among experts that student loans will be canceled.
Congressional Democrats have called on President Joe Biden to use executive action to cancel debt, but he has not committed to canceling student loans and has questioned his authority to do so. No bill has been introduced in Congress to do so, either.
There are legitimate and existing sources of loan forgiveness for parents if they qualify, including:
Total and Permanent Disability Discharge for those who are disabled.
Public Service Loan Forgiveness for those who worked in public service for 10 years while repaying a consolidated direct loan.
Discharge through borrower defense to repayment if it’s deemed your child’s school defrauded them.
Only the federal government can discharge your loan debt. Student loan borrowers, including parents, often receive unsolicited messages via email, text and phone indicating they’re eligible for loan forgiveness. These are scams and you should not respond. If in doubt about messages you receive about your loans, contact your loan servicer.