Why Families Over-Borrow For College

Like millions of graduates, Valerie began her career last year in the worst global economic crisis since the global economic crisis. Although her career prospects as a medical assistant were good and her earning potential high, her future looked bleak.

She and her mother, a public school teacher, owed $ 250,000 in student loans. She unsuccessfully applied for jobs at a state hospital to solicit credit, losing to far more experienced competitors. “I felt helpless,” she said.


Students feel helpless as they compute decades of monthly college debt payments.


Lost in the jargon of financial aid and student loans, Valerie and her parents relied on colleges and lenders to please them. But in the world of student debt, an industry that rewards lenders and colleges and punishes families, you have to fight back.

Middle-class parents with good salaries but limited wealth are at greatest risk of borrowing more college than they can repay. Understanding how to prevent over-indebtedness empowers families to avoid the same fate, Valerie and her parents now have to wait for a loan that will likely never come.

For students, this means that only as much credit can be taken out as the state grants subsidized credit. These loans have the lowest interest rates, the highest probability of forgiveness and the best terms. But they are also limited. The amount is so small – $ 23,000 over four years, or $ 5,750 a year – that it is nowhere near the average sticker price at private colleges or even public universities in the United States.

When students hit credit limits, colleges encourage parents to take unsubsidized state PLUS loans or borrow from private lenders, a risky and increasingly common trap. Parental loans offer far less protection, have higher credit limits and interest rates, and are next to impossible in bankruptcy. Minimal credit checks encourage older Americans to accumulate so much debt that they are forced to work long past retirement age.

This is a system created by design. Free market lawmakers for the past three decades have put the burden of student loans on parents. That shift began in 1986 when Ronald Reagan amended the Higher Education Act to relax restrictions to allow parents to take out loans to pay for college. George HW Bush went further and ended the parenting credit limits in 1992, just as tuition fees began to rise inexorably – nearly 1,000 percent since 1980.

With billions of dollars at stake, private lenders fought hard for market share during what seasoned college administrators call the decade-long “credit war” of the 1990s. Lawmakers and their lending allies made it inexcusably easy for teenagers to borrow far more than they could hope to repay.


Lenders developed “one plan at a time to undermine taxpayer-friendly government lending programs,” according to the 2003 US News & World Report. “Like community leaders, private lenders, along with their friends in Congress and the Department of, used money and favors Education to get what they wanted. They wanted these checks to be made out on them. “

Corruption and kickbacks scandals followed in the 2000s, which only ended when the 2008 financial collapse prompted Congress to cap government-guaranteed student loans.

But lawmakers have not placed such restrictions on parenting borrowing.

More and more parents are taking out student loans and struggling to repay them, according to a study by the Brookings Institute. Although President Joe Biden canceled $ 3 billion in student debt, he has only helped a small fraction of the 42 million Americans who hold more than $ 1.5 trillion in student loans. The few who benefited the most were fraud victims, the disabled, and defaulting students holding private loans that the federal government had guaranteed – about 2 percent of student debt holders.


Valerie wasn’t one of them.

Although she was awarded a full scholarship from Duke University, her parents needed a PLUS loan to pay $ 80,000 for room, board, fees, and books. The family believes so strongly in higher education as the engine of social mobility that they have never questioned credit. At that time she was “18 years old and financially incapable,” she said. Her parents, both immigrants and educated outside the US, “had no idea.”

After graduating from Duke, Valerie returned to California to live at home and save money while training as a medical assistant at the University of Southern California. She borrowed $ 170,000 to pay for a degree that isn’t available at a cheap state university. Today she works in a private emergency center.

Last week, she took out her mother’s PLUS loan and refinanced her debt to pay it off over 20 years, which cost about $ 1,500 a month. With a good job and an amortization plan, she no longer feels helpless. But she can’t understand why so many countries are subsidizing degrees while the U.S. government is forcing Americans to cripple their debts in order to improve themselves.


“It’s a daunting process for people who don’t have the experience, knowledge, or resources to navigate the system,” she said. Until Americans commit to offering affordable degrees to students, “all you have to do is toss your hands in the air and say, That’s it. I’ll just have to navigate it as best I can. “