Families Shoulder Heftier Burdens as College Debt Swells

It’s been a year of eye-popping records for stu­dent debt. Out­stand­ing stu­dent loan debt sur­passed credit card debt, with one gov­ern­ment esti­mate peg­ging total stu­dent loan debt at more than $1 trillion.

Such stag­ger­ing fig­ures drew renewed atten­tion to the fact that ris­ing higher edu­ca­tion costs and falling gov­ern­ment sup­port for state col­leges and uni­ver­si­ties has bur­dened indi­vid­ual stu­dents and their fam­i­lies with immense debt — all at a time when new grad­u­ates face ane­mic prospects for get­ting a decent job.

Par­ents Take on Fed­eral Loans for Their Children

Increas­ingly, the debt bur­den falls on par­ents, not just stu­dents. As we reported with The Chron­i­cle of Higher Edu­ca­tion, the fed­eral Par­ent Plus loan pro­gram allows par­ents to bor­row big from the fed­eral gov­ern­ment to fund their children’s col­lege edu­ca­tion when grants, schol­ar­ships and fed­eral stu­dent loans (which are capped at strict dol­lar amounts) don’t suf­fice. Bor­row­ers with low income, or even no income at all, can still get the loan so long as they pass a check on their credit history.

The Par­ent Plus pro­gram has increas­ingly been the solu­tion for fam­i­lies com­ing up short on funds for col­lege — but as we noted, it can be dan­ger­ous when fam­i­lies, des­per­ate to give their child the advan­tages of a costly col­lege edu­ca­tion, bor­row more than they can handle.

Col­lege finan­cial aid offices — which typ­i­cally see their role as merely lay­ing out finan­cial aid options — are often reluc­tant to advise fam­i­lies on how much is too much to bor­row. But some high­light the par­ent loans by includ­ing them in a student’s finan­cial aid pack­age in a sug­gested amount — often the amount needed to cover the “gap” in need. At some schools, that amount can eas­ily reach tens of thou­sands of dol­lars for just one year, let alone four. With no check on the borrower’s income or abil­ity to repay the loan, many fam­i­lies sink into hope­less debt — which, like all fed­eral stu­dent loans, can almost never be elim­i­nated through bankruptcy.

Pri­vate Stu­dent Loan Pains Continue

Pri­vate stu­dent loans can also sad­dle gen­er­a­tions with debt when par­ents co-sign on the loans taken out by their chil­dren. As we reported, that’s what hap­pened to Fran­cisco Reynoso, a Cal­i­for­nia gar­dener who made just over $21,000 last year. He co-signed on six fig­ures in pri­vate stu­dent loans for his son. Sev­eral months after the younger Reynoso grad­u­ated, he died in a car acci­dent, leav­ing his father mired in grief and debt.

Pri­vate stu­dent loans — which for years had been unreg­u­lated — gen­er­ally carry fewer con­sumer pro­tec­tions than gov­ern­ment loans. If Reynoso’s loan had been fed­eral, his debt would have been can­celled upon his son’s death. Instead, as we reported, he was left on the hook — unsure of what com­pany to appeal to because his loans had changed hands so many times. (As of this writ­ing, Reynoso’s four years of finan­cial uncer­tainty over his debts are near­ing an end. One of his debts was dis­charged through the bank­ruptcy process. The other debt has been set­tled in a con­fi­den­tial agree­ment with the lender. See our lat­est story.)

Bor­row­ers on the hook for pri­vate stu­dent loans don’t have many places to turn when lenders refuse to grant flex­i­bil­ity. They’re not affected by the Obama administration’s efforts to help fed­eral stu­dent loan bor­row­ers man­age loan pay­ments — see below. And, of course, stu­dent loans are one of the few debts that gen­er­ally can­not be shed in bank­ruptcy. Both the Con­sumer Finan­cial Pro­tec­tion Bureau and some mem­bers of Con­gress have sug­gested that this should be changed for pri­vate stu­dent loans, but the pro­posal hasn’t seen much movement.

What the Obama Admin­is­tra­tion Has Done

This fall, the Obama admin­is­tra­tion final­ized reg­u­la­tions expand­ing an exist­ing fed­eral pro­gram to help strug­gling bor­row­ers with fed­eral loans. It’s worth not­ing that the mea­sures — said to be a wind­fall for some bor­row­ers, espe­cially those head­ing to grad­u­ate school - won’t be of much help for bor­row­ers who have already fallen behind on their fed­eral stu­dent loans. In order to qual­ify for the cur­rent income-based repay­ment pro­gram or the new ver­sion, called “Pay As You Earn,” bor­row­ers must be cur­rent on their loans.

As we reported, the Obama admin­is­tra­tion also recently adopted a cru­cial reform to help dis­abled bor­row­ers get their fed­eral stu­dent loans for­given more eas­ily by elim­i­nat­ing some of the red tape. Now, the Edu­ca­tion Depart­ment has agreed to accept the assess­ment of the Social Secu­rity Admin­is­tra­tion in deter­min­ing whether a bor­rower is dis­abled and thus eli­gi­ble for loan for­give­ness. Its pre­vi­ous, more dys­func­tional sys­tem had required a sec­ond assess­ment of dis­abil­ity that kept many bor­row­ers deprived of the ben­e­fits to which they were entitled.

We’ve also reported on how through­out this year, the Edu­ca­tion Depart­ment has con­tin­ued its seis­mic shift in the ser­vic­ing of stu­dent loans - steadily trans­fer­ring more than a mil­lion bor­row­ers to pri­vate com­pa­nies with con­tracts to han­dle the day-to-day man­age­ment of fed­eral stu­dent loan accounts. As we’ve reported, the shift will roughly triple the total num­ber of com­pa­nies han­dling loans from a year ago, caus­ing con­fu­sion for many bor­row­ers caught in the shuf­fle and mak­ing it harder for the gov­ern­ment to over­see its services.

In the past year, the new con­sumer watch­dog agency, the Con­sumer Finan­cial Pro­tec­tion Bureau, began wield­ing new reg­u­la­tory power over pri­vate stu­dent loans. The CFPB has pub­lished a num­ber of reports detail­ing abuses in the pri­vate loan mar­ket and has been tak­ing all man­ner of student-loan com­plaints from consumers.

We’ll con­tinue cov­er­ing stu­dent loan sto­ries in the new year. So if you or some­one you know has a story about any of the issues men­tioned above — from bor­row­ing to ser­vic­ing to the loan relief pro­grams - share them with us. Or if you work in finan­cial aid or at a stu­dent loan com­pany, sign up to be one of our experts.


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