The U.S. Department of Education may be approving federal parent loans for parents of college students even if the parents can’t afford them, according to several college financial aid officers who spoke with U.S. News & World Report.
Federal parent loans — known as PLUS loans — are credit-based, government-issued education loans available to parents of undergraduates that can be used to cover up to 100 percent of a student’s cost of attendance.
The financial aid officers expressed concern that “unsophisticated parents may be taking PLUS loans to help their children out now, not realizing how much trouble awaits them if they start missing payments” (“Government OKs College Loans to Struggling Parents,” U.S. News & World Report, Sept. 27, 2010).
Parents who miss enough payments to default on a PLUS loan are subject to having their wages garnished by the government. And the debt of a PLUS loan won’t be easy to shake, even for families facing financial hardship. PLUS loans, like other federally issued college loans, aren’t easily dischargeable in bankruptcy and are only forgiven in extreme cases, such as death, permanent disability, or permanent financial collapse.
Even in cases where parents clearly can’t repay the loans because of unemployment or underemployment due to disability, the Education Department is approving PLUS loans because Congress “provides no authority for the Department to deny an applicant a PLUS loan based on their perceived ability to repay the loan,” a department spokesman said.
The spokesman added that the Education Department can only deny parent loans in cases where parents have “adverse credit,” which means serious credit problems such as bankruptcy, a recent lien or foreclosure, or bills that are currently delinquent by more than 90 days.
Struggling Families Apply for Parent Loans as a Way to Boost Student Loan Awards
Many cash-strapped parents apply for PLUS loans not with any intention of receiving the parent loan but as a means of helping their child receive more financial aid in the form of federal student loans.
Dependent students whose parents are denied a PLUS loan are eligible for up to an additional $5,000 in federal Stafford student loans. These supplementary Stafford loans carry a lower interest rate than PLUS loans — 6.8 percent compared to 7.9 percent.
But financially strained parents are being met with the unpleasant surprise of being approved for a college loan they can’t afford to repay.
One parent telephoned Melet Leafgreen, assistant director of loan programs for Texas Christian University, to tell her that he’d been approved for a PLUS loan even though he’s in a wheelchair and might never work again. “This is crazy,” he told Leafgreen.
Another parent, Tammy Turner of Ruskin, Fla., said that she was “dumbfounded” when the Department of Education approved her application for a PLUS loan this fall. Both she and her husband can only work part-time. Her husband is disabled, and they both tend to a son who has a number of medical problems.
Despite having a poor credit history and no extra income to cover more than their current monthly expenses, the Turners were still approved for a PLUS loan for their daughter to attend college. And unless the school decides to override the Education Department’s decision and reject the Turners’ parent loan, the Turners’ daughter won’t be eligible for any additional federal student loan aid.
“We can’t afford to pay it back,” Turner said. “It’s kind of ridiculous. They are setting families up for hardship.”
Although college financial aid offices are able to override PLUS loan approvals from the Education Department so that a student can qualify for additional student loan money, financial aid officials worry that parents may not know to contact the school to explain their financial situation and may just end up taking a parent loan they don’t have the resources to repay.
“They are giving loans to people who have no business getting federally funded loans,” Leafgreen said.
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