Alex Lykos doesn’t like to think about what his life would be like if he only had to deal with $27,000 in student loans.
The 23-year-old is making good money as a software engineer in Boston and, at least on paper, is faring better than the average college graduate who is $35,000 in the red.
Yet, Lykos has also assumed responsibility for another $92,000 in Parent PLUS loans that his mom and dad took out to pay for his college education. He has no legal responsibility for them and there would be no financial repercussions to him if he decided to turn a blind eye.
“I simply pay their loans month by month out of kindness,” says Lykos, who agreed to pay them as a teenager before he fully understood what that meant.
As a result of the staggering six figure debt, he isn’t able to save from month to month and can’t shake the feeling that he’s getting left behind his peers. “It’s a struggle to see many people my age investing in stocks and looking into owning homes while I know I’ll be paying loans until I’m 33,” says Lykos. His relationship with his parents has been so strained over whose responsibility the loans are that they aren’t currently speaking.
It’s not difficult to see how this happens. Parents get in over their heads by taking on too much debt and at some point their children feel a sense of responsibility to pay the loans, which were, after all, taken out to finance their education. Call it part guilt trip and part moral obligation. If payments aren’t made, a family’s credit could be ruined, their wages and Social Security checks might be garnished and their tax refunds withheld.
Parent PLUS loans are notoriously easy for parents to get their hands on. The government doesn’t consider whether they can afford to pay back the loans by looking at their income or other debts. All that is done is a credit check for skeletons in the closet. So long as a parent doesn’t have an adverse credit history – defined as being more than 90 days late on a loan or credit card or having serious marks like a foreclosure or bankruptcy within the last five years – they’re approved to borrow from Uncle Sam.
“The federal government is sort of filling a need gap for disadvantaged families who can’t fund higher education,” says Andy Josuweit, founder of Student Loan Hero, a student loan education website.
Even if parents are just financing one child’s education, the debt can pile up quickly. Whereas students can borrow no more than $31,000 in subsidized and unsubsidized loans for their entire undergraduate education, the government will let parents borrow the total cost of attendance minus any other financial aid. They’re not even looking at student loans that parents may have already taken out for other children. “If you have ten kids you can borrow for all ten kids,” says Kantrowitz. “So it is very possible for parents to get overextended.”
One 22-year-old in New York, who requested anonymity to protect his relationship with his family, doesn’t think his parents ever had the means to pay back these loans. They have trouble making ends meet from month to month as it is. “It’s not that my parents refuse to pay, it’s just that they can’t,” he says. However, he’s caught himself passing judgment on their spending habits, like his mother’s trips to Disney World. Whenever he tries to bring the loans up? “They shut down. They don’t even listen.”
He isn’t in much better financial shape, himself. He only went to college for one year before dropping out, which left him with no degree and $35,000 in debt between his own loans and his parents’ loans. Now he lives at home and makes less than $13 an hour working on an airport tarmac. He has contemplated going back to school but is scared to take on more debt.
“I feel stuck. While I don’t technically have a legal responsibility, I have a moral responsibility because I don’t want to destroy my parents’ credit,” he says. “I can easily pay off the loans in my name, but the problem is with the PLUS loans.”
The PLUS loan is kind of like the ugly duckling of federal loans. It features higher interest rates (currently 6.31%) and fewer repayment options than anything offered directly to undergrads. There aren’t any silver linings for students making payments, either. Throwing money at someone else’s loans doesn’t make them eligible for the student loan interest deduction (only their parents can claim it) or help them build good credit (it helps their parents’ credit).
One parent found out that his son, Manhattan College junior Sao Mir, had been sneakily making payments on the PLUS loans when his credit score went through the roof. The engineering major had set up the online login information and been tutoring and doing work-study outside of classes in order to do so.
“Our family has never been in debt before,” explains Mir, 20, who paid off $7,300 in student loans last semester. “It was a financial burden.” (It turns out Mir’s dad, who is disabled, qualifies for loan forgiveness. Mir is no longer making payments and will seek to have the loans discharged after graduation.)
One option that students have is to refinance the PLUS loans into their own name through a private lender like CommonBond, SoFi or DRB. There are several downsides, however, like losing certain income-based repayment plans. Federal protections, such as the option to defer payments or have the loans discharged upon death or disability, also disappear.
“Since graduation, my parents have tried to convince me to privatize the loan,” says Lykos, who has refused because he is wary of making the loans his legal responsibility. He also doesn’t think he could swing larger payments that would come from refinancing.
He’s resigned himself to simply paying down the balance. However, if he has a change of heart and throws in the towel, he’s insulated from financial consequences. “In terms of consequences for the student, it just means awkward holiday dinners,” says Kantrowitz.
Yet, for students who are interested in preserving their relationship with their parents, that can be one cost that’s too dear.