We hear a lot about how the one trillion dollars in student loans make life tough for millennials. Paired with the 17 percent under-employment rate for graduates, loans inhibit the ability to save for the future, to make economy-boosting purchases of things like TVs, houses, and cars; and ultimately they delay normal adulthood milestones like getting married and having children.
What you don’t hear about is how many elders are getting totally screwed by student loans.
Rising college costs land more than half of graduates with an average of $30,000 in debt-and 21 percent of those have parents who took out a high-interest loan to help; which means 3,000,000 American parents will be paying off over $62 billion in student debt, according to a report published by American Student Assistance (ASA).
Some 73 percent of millennials say they have delayed saving for retirement because of loan payments, but for parents who are likely still paying off their own student-debt, the exorbitant eight percent interest rate (not to even mention the minimum four percent squeeze for fees) on Parent’s PLUS loans can financially cripple even the hardest working of families and leave millions of Americans with no savings for retirement.
Lu Ehlers, an accountant with the city of Brookings, Ore., took out what she thinks was about $7,000 in federal Parent PLUS loans to help her son pay for a private university in 2009. Her balance sits at over $14,000. Ehlers says she is paying $110 a month, with only $3 of that going to the principle amount. While she is “nowhere near retirement,” she doesn’t know how she’ll get rid of the debt before then.
Taking out school loans for a child or grandchild does not come with the investment-like benefits of increased income that students themselves experience, the system seems designed for failure. Ehlers recounts late fees and penalties for payments she didn’t even realize she had missed. “Every six months I have to call those people or else I’m going to be slammed with late payments….and why do I have to do that? I just told you I’d give you $100 a month for the rest of my life, but they just bump it up to the max amount. My credit is messed up because of that.”
Ehlers says these loans are predatory. “I was a single mom, I didn’t save a single dollar for college….and here I have this great opportunity to send my child to college; they are preying on the people who want better for their kids.” Ehlers says she didn’t realize how difficult repayment would be when she accepted the loans. She had a good job and in the 90’s was able to pay off her own $21,000 in student loans “pretty quickly.”
“When we decided to do this, we thought it was a great loan program to help people get on their feet; but it’s not that at all.”
Congress sets the eight percent interest rates on student loans. Ehlers, who fought to keep her house during the 2008 recession, says interest on her mortgage is about two percent; and unlike her credit cards and other debts, she doesn’t have the option to refinance student debt for more reasonable conditions. “My [Parent’s PLUS] loans are the only bad thing still on my credit,” and parent PLUS loans aren’t eligible for the new income-based repayment plans.
“I will pay my debt,” she said. When her son wanted to go to college, her family “had no other options at the time. I’ll pay my debt, I just don’t want to pay triple my debt; paying towards the interest and fees while just accruing more interest.”
According to Ehlers, student loan borrowers are just “people who are trying to do the right thing and pay for their education,” so she doesn’t think “there shouldn’t be people making a bunch of money off of it,” and that “student loans should be the easiest, most forgiving kind of loan out there.”
She has been able to climb out of $80,000 in other personal debt, but can’t seem to get on top of what she owes for her son’s schooling. With her youngest son now in his second year of college, they’re looking into options like a program called ‘Dreamsavers’ out of Umpqua, Ore. to help him pay down his principle amount before the interest kicks in.
“I keep hoping something’s going to happen, that some day the opportunity will come up where I can satisfy my debt, but not this way; not when someone is making millions off of the kids and their parents who are trying to do the right thing.”
What’s worse: In 2013, over 155,000 social security recipients had their benefits check garnished to pay outstanding federal student loans. The 1996 Debt Collection Improvement Act changed the law so that student loan payments-and student loan payments alone-can be swiped from your grandparents’ meager, fixed income.
Lest we forget: We we have the power to elect the Congress members who set these high vigs and think it’s appropriate to put the screws to the people who simply want to help their children and grandchildren succeed.
Resistance has been proposed in the form of mass-default to cause collapse of the system, but the average 18-year old requires a co-signer for the thousands they’ll need, which complicates the issue for many would-be-protesters; defaulting on loans has implications beyond one’s own credit score.
Less than half of all student borrowers are currently paying on their loans.
Photo: Manuel Balce Ceneta/AP