Students aren’t the only at-risk population when it comes to insurmountable student loan debt.
Parents can also overborrow to finance their children’s college educations.
In fact, the overall three-year default rate for parent PLUS borrowers entering repayment in 2010 is 5.1 percent, according to data reported by the U.S. Department of Education. While that’s lower than the default rate for federal student loans, it still shows that parents struggle to stay on track with their own debt.
[Get answers to frequently asked questions about parent PLUS loans.]
Unfortunately for Mom and Dad, the student loan relief system is largely focused on students, not parents. “There are very few student resources out there to help student loan borrowers in general,” says Adam S. Minsky, an attorney specializing in student loan debt, and author of “The Student Loan Guide for Parents and Cosigners.” “And they’re primarily geared toward students.”
Parent borrowers with questions may be tempted to call up the financial aid office where their child attended school. But those departments have limited powers in helping parents overhaul their PLUS loans.
“We’ll give them what their options are,” says Terry Finney, director of financial aid and scholarships at Arkansas State University. For example, for a parent considering a deferment, “We’ll tell them about it, but tell them they need to talk to the servicer,” says Finney.
So, before parents send questions to financial aid officers, online forums or other sources of limited help, here are a few places to start finding the answers to common parent PLUS loan inquiries.
[Understand why parents should think hard before borrowing for or with their student.]
Question: How much do I owe in parent PLUS loans?
Where to start: Those who don’t know how much they borrowed can log into the National Student Loan Data System to demystify their debt load.
Parents should have their own account within the database — not one shared with their child — to keep track of those loans. The reason? That debt is in the parent’s name and remains the parent’s financial responsibility throughout repayment.
Question: Can I get on an income-driven repayment plan to make monthly bills more manageable?
Where to start: Parents should pick up the phone and dial their servicer for this question, says Jan Miller, president of Miller Student Loan Consulting. But he warns that untrained call center employees may struggle with the complicated answer.
“It’s a less understood program and it’s older and it’s more complex and not standard,” he says. “A lot of the representatives who work for the servicers just will get it wrong, unfortunately.”
A knowledgeable representative should be able to explain that income-driven plans, which tie monthly student loan bills to the debtor’s paycheck, aren’t typically available to parent borrowers. Instead, they may help borrowers determine whether they’re eligible for one workaround.
This strategy involves consolidating parent debt in order to apply for repayment under the income-contingent plan. This repayment plan, known as ICR, ties monthly bills to 20 percent of discretionary income for up to 25 years, after which the remainder is forgiven.
[Discover four strategies for repaying federal parent PLUS loans.]
While it is less generous than other income-based plans, parents repaying through ICR and working for qualifying federal agencies or nonprofits may have their federal PLUS debt forgiven after 10 years with Public Service Loan Forgiveness.
Question: How do I get out of default?
Where to start: At the point of default, borrowers will likely be dealing directly with the collection agency instead of their lender or servicer, say experts. “Call up the collection agency and say, ‘I want to enter into a rehabilitation arrangement,'” says Miller.
This strategy allows the borrower to repay a reasonable amount for a set time — Miller recommends requesting nine months. After making those payments on time, the default is removed from the borrower’s credit report and collection costs may be reduced.
Borrowers can also look into consolidation or repaying the loan in full to seek relief from default.
Question: Can I stop my lender from engaging in abusive practices?
Where to start: If dealing with their servicer isn’t resolving an issue, the Department of Education’s Federal Student Aid Ombudsman is a third-party group tasked with resolving disputes related to federal loans.
These issues might occur when a loan company applies payments incorrectly, sends harassing messages or charges unnecessary fees, for example.
Just keep your expectations in check, say experts. “A resolution is far from guaranteed,” says Minsky, the student loan lawyer.
In the end, the surefire way to make sure that parent PLUS debt doesn’t get out of control, is to not overborrow in the first place. If a school looks like it’s financially out of reach, “My advice is often consider a different school,” says Minsky. “It’s advice that a lot of people don’t want to hear.”
Trying to fund your education? Get tips and more in the U.S. News Paying for College center.
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Where to Start When You Need Help With Parent PLUS Loans originally appeared on usnews.com
