Why families over borrow for college

Valerie, like millions of other graduates, began her career in the worst economic crisis since the Great Depression. Her job prospects as a physician assistant were bright and her earning potential was high, but her future looked grim.

Her mom, a teacher in public schools, was also a student loan holder. She owed $250,000 to her mother. She applied unsuccessfully for government hospital jobs to be eligible for loan forgiveness. However, she lost out to much more experienced applicants. Valerie said that she felt helpless. She was lost in the maze of student loans and financial aid. Valerie and her parents trusted their colleges and lenders to be right for them. In the world of student loans, which rewards colleges and lenders while punishing families, caution is advised.

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Parents with middle-class incomes and limited assets are most at risk of borrowing more to pay for college than they can repay. Families can avoid over-borrowing by understanding how to prevent it. Valerie and her parents are now waiting for loan forgiveness, which is unlikely to ever come.

This means that students can borrow only as much money as the government provides in subsidized loans. These loans offer the best terms, lowest interest rates and most forgiveness possibilities. They are also limited. It is so small, $23,000 over four years or $5,750 annually, that it does not even come close to paying the average sticker price at private colleges in the United States. Colleges encourage parents to borrow from private lenders or unsubsidized government PLUS loans, which are risky and becoming more common. Parent loans have far fewer protections and can be difficult to discharge in bankruptcy. They also have higher interest rates and lending limits. Older Americans are encouraged to accumulate so many debts that they have to continue working long after retirement.

This system was designed. Ingenious student loan transfers to parents have been made possible by free-market legislators over the past three decades. This shift started in 1986, when Ronald Reagan amended The Higher Education Act to allow parents to borrow money to pay college costs. George H.W. Bush took it further by removing parental lending restrictions in 1992. This was just as tuition rose nearly 1,000% since 1980.

Private lenders fought fiercely for market share in the “Loan War of the 1990s”, a decade-long battle between college administrators and private lenders to capture market share. Teenagers were able to borrow more than they could repay because of the generosity of lawmakers and their allies in the lending industry.

U.S. News & World Report reported in 2003 that lenders devised “one after another” to undermine the taxpayer-friendly government loan programs. Private lenders, much like political ward bosses used money and favors to get what they wanted, as well as their friends in Congress, the Department of Education and other government agencies. They wanted the checks to be made out to them.

In the 2000s, financial aid corruption and kickback scams continued. Congress finally decided to limit the government’s guarantee of undergraduate loans in 2008 after the financial crash.

However, lawmakers did not place any restrictions on parent borrowing.

A Brookings Institute study has found that parents are increasingly taking out student loans, and struggling to pay them back. While President Joe Biden has canceled $3 billion of student debt, only a fraction of the 42,000,000 Americans with student loans worth more than $1.5 trillion have been helped. The fewest beneficiaries were the victims of fraud, students in default, and students who had private loans that the federal government guaranteed–about 2% of student debt holders.

Valerie wasn’t one of them.

Although Duke University granted her a full scholarship to attend, her parents had to take out a PLUS loan for $80,000 to cover room, board and fees. Because the family strongly believes in higher education as a means of social mobility, they didn’t hesitate to apply for loans. She stated that she was 18 years old at the time and wasn’t financially capable. Her parents, both immigrants, were educated in the U.S. but she didn’t know.

Valerie, who graduated from Duke University, returned to California to save money and live at home while she worked as a physician’s aid at the University of Southern California. To pay for her degree, she borrowed $170,000 from a state university that was low-cost. She is now employed at a private urgent care center.

She took over her mom’s PLUS Loan and refinanced her debt for $1,500 per month. She feels empowered now that she has a job and a plan for repayment. She can’t comprehend why so many countries subside degrees, while the U.S. government makes it impossible for Americans to repay their debts in order to improve themselves.

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She said, “It’s a demoralizing process for people who don’t have the knowledge or experience to navigate the system.” “You can’t expect Americans to provide affordable degrees for students unless they do so. It’s going to be a challenge, but I will do my best to make it work.