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Where do you turn when you’ve maxed out on federal student loans? Ask Mom and Dad to take out some parent loans, too.
Students aren’t the only ones crushed by school debt
The average cumulative federal student loan debt that parents borrow even exceeds what’s being taken on by students who graduate with debt, according to new research.
On average, parents owed $32,596 for their cumulative loans taken out under the Federal Parent PLUS program at college graduation in 2015-16.
On average, college grads with bachelor’s degrees owed $29,669 in student loans in 2015-16, according to Mark Kantrowitz, publisher and vice president of research for Savingforcollege.
To be sure, a much smaller percentage of parents borrow than students. About 69 percent of students took out student loans in 2015-16, compared with about 14.4 percent of parents, Kantrowitz said.
The high cost of college – and the inability of some families to save much money – has caused nearly half of college grads with student loans to take out the maximum amount of loans allowed under the federal student loan program.
One Dearborn mother I talked with took out about $6,000 in loans about five years ago when her daughter began attending Central Michigan University.
The idea was to borrow some for the first year to pay part of the tuition, try to pay that off quickly and then build up savings to cover the cost of college in future years.
Her daughter worked during the summers, took a few odd jobs while she was at school in Mt. Pleasant, and she took out about $5,000 in student loans herself.
Nearly 69 percent of bachelor’s degree recipients graduated with student loan debt in 2015-16, Kantrowitz said. As a result, about 31 percent graduated without any federal or private student loan debt.
“They have to get the money from somewhere,” Kantrowitz said. “Debt may be the only option, especially if you’re going to a more expensive college.”
Parents take on more student loan debt for a variety of reasons. Some college students are attending some expensive, prestigious schools to study specific fields. Some parents saved far less than they needed for college, financial aid isn’t as easy to get as some families expect, and big scholarships are limited.
When student borrowing hits the limit, more parents start filling out the paperwork for private student loans or the federal Parent PLUS loans.
Parent borrowing on PLUS loans is up 19.2 percent from $27,352 in 2011-12. And it’s up 40 percent from $23,279 nearly 10 years ago, according to research by Kantrowitz.
Kantrowitz, who reviewed recently released federal government data, was a bit surprised to see student loan borrowing for undergrads basically flatline from around 2011 to 2016.
Average cumulative debt at graduation for bachelor’s degree recipients increased by only 1 percent from 2011 to 2016. But that’s up 26.5 percent from $23,228 in 2007-08.
How much can I borrow?
The maximum limit for a Parent PLUS loan is the cost of attendance (determined by the school) minus any other financial aid received. So the PLUS loans can fill the gap for many costly schools if there is no other savings or parents aren’t able to cover some costs out of their current income.
The maximum that a dependent student can take out for a federal Stafford loan is $5,500 for a freshman with the amount going up to $6,500 in the second year and $7,500 in the third year and beyond.
The aggregate loan limit for students for Federal Direct Stafford Loans is $31,000 for dependent students. But to hit that maximum, students would need to borrow for a fifth year.
