A dramatic increase in 1993 in how much parents are permitted to borrow from the federal government for their children’s college is coming home to roost.
Since then, average debt through the parent PLUS loans has more than tripled, adjusted for inflation, according to a Brookings Institution report. About one in 10 parents owe more than $100,000. And as loan balances have ballooned, the rate of repayment has slowed.
Now that the college applications have been submitted, Allan Katz, a financial adviser in Staten Island, New York, has this advice for parents contemplating their next move:
PLUS loans should be avoided “at all cost,” he said. “A big part of my practice is avoiding PLUS loans.”
His dire warning stems from the 1993 change in the law, which made it easier for parents to get into trouble. The reform increased how much parents can borrow from $4,000 per year to whatever the teenager needs to cover his or her school expenses – regardless of the institution’s cost. Total borrowing per child used to be capped at $20,000 – there is no limit today. …Learn More
As the outlines of the student loan crisis were coming into focus, this blog featured a video of new college graduates dazed and bewildered by the size of their monthly loan payments and the intrusion on their lifestyles.
Beth Kobliner, a personal finance speaker and journalist, has a surefire antidote: talk to your teenager early and often so they know what they’ll be getting into if they borrow money for college.
She explains how to do this successfully in a new series of helpful, breezy videos.
She recommends that parents make the early conversations light and easygoing. Have the modest goal of encouraging your freshman in high school to start thinking about college broadly. Ask about his or her aspirations, interests, and the choice of Ivy League or state university.
Your teenager should know, Kobliner says, that they will “make about the same salary either way – turns out it’s more about the kid than the name of the college.”
As high school graduation gets closer, talk in more depth about paying for college. “The most important question often gets overlooked at first: Can we afford it?” she said. I would add that the question often comes too late – after the college applicant has already received their acceptance letters and expectations are set.
In addition to the how-to videos, another set of videos feature four conversations about college between real parents and their children. In one of them (above), a mother doesn’t tell her child not to go into debt for college. But she does explain the bad choices she herself made and that she regrets she is still paying off her student loans.
Many teenagers don’t want to talk about anything with their parents – period – but the videos provide tips for overcoming teen resistance and starting the critical conversation about the cost of college. …Learn More
Despite numerous state efforts to crack down on fly-by-night firms falsely claiming to reduce or eliminate young adults’ student loans, new firms keep popping up.
Their social media pitches and websites promise borrowers things the companies can’t possibly deliver on. They appeal to potential customers struggling to pay student loans with slogans like “Get Rid of Your Student Loans Today!” or “$17,500 in Up Front Forgiveness” – “100 percent guaranteed!”
In a high-stakes game of Whac-a-Mole, attorneys general in numerous states have repeatedly brought legal actions against these so-called “debt relief” companies in cases going back at least four years. Massachusetts resolved one case this past summer, and Pennsylvania filed a lawsuit last fall. Florida has aggressively pursued several debt relief companies recently. The Federal Trade Commission and the Consumer Financial Protection Bureau have also gotten involved.
Student loan borrowers “are desperate for help, which is how these companies are able to grab them,” said Betsy Mayotte, founder of the Institute of Student Loan Advisors, a Boston-area non-profit she founded to provide free help to people wrestling with college loan payments.
Mayotte described egregious fraud against a client who came to her organization and had been paying her student loans for years, whittling down the amount she owed to $5,000 – but it ballooned to $12,000 after she got involved with a debt-relief firm that took over her loan payments. The company put the loan into the federal government’s forbearance program, where it went unpaid while accruing interest for two years. After the forbearance period expired, the debt relief company neglected to resume the loan payments, despite continuing to collect its monthly fee. The customer defaulted on her debt unwittingly – but never got a notice because her contact information on the loans had been changed. … Learn More
The share of students borrowing money to pay for college increases year after year, and they’re borrowing more every year. Total student debt, adjusted for inflation, has tripled in just over a decade.
The loan payments, which can be a few hundred dollars a month, take a big bite out of young adults’ still-low levels of disposable income. The debt makes them more prone to bankruptcy and lower homeownership rates.
A key question is whether this pressing financial obligation might affect their preparation for a retirement that is several decades away. Here’s what researchers Matt Rutledge, Geoff Sanzenbacher, and Francis Vitagliano of the Center for Retirement Research learned about student debt:
By age 30, the college graduates who are loan-free have saved two times more in their retirement plans than the graduates who are paying off debt. (Perhaps surprisingly, the presence of student loans do not seem to affect the amount saved by students who didn’t graduate, though they do have substantially less in their 401(k)s than the graduates.)
The amount owed by college graduates with loans does not matter. The mere existence of the debt is enough to constrain saving. …
The student loan problem has gotten under our collective skin – so much so that a new game show revolves around it.
“Paid Off,” on TruTV, promises to pay off a share of the winning contestant’s student debt – 20 percent, 50 percent, or 100 percent – depending on how many answers he or she gets right in the final round of questioning.
“Paid Off” is as inane as any television game show. The format is more “Family Feud” than “Jeopardy,” with softball questions designed to spark as much faux competition as possible among the former students who compete. One example: name the most romantic date costing under $10: picnic, walk, Netflix movie, etc.
The show’s host, Michael Torpey, who also plays a corrections officer in “Orange is the New Black,” explains in the first episode of “Paid Off” that he created it because he and his wife struggled with student loans. He was only able to pay them off because he landed a long-shot acting job for a television commercial.
Torpey says his goal is to help debt-laden students “achieve their dreams by paying off their student loans.” He’s right that college debt is, indeed, standing between many Millennials and the adult milestones of buying a house,saving some money, or getting married.
The average amount of debt owed by college graduates increased again last year, to more than $39,000, according to Student Loan Hero.
Unfortunately, the weekly show won’t make a dent in this growing problem. … Learn More
Sky-high city rent, college loan payments, and the low-paying days of an early career are a bad combination for today’s Millennial.
Liz Patterson has solved all that. The carpenter built herself a 96-square-foot house on top of a flatbed truck for less than $7,000 in Manitou Springs, Colorado, a hip neighborhood near Colorado Springs.
The house “represents my monetary freedom – it’s the whole reason I did it,” the 27-year-old said.
Tiny houses, which average 500 square feet, are only about 1 percent of U.S. home sales. But builders say that sales continue to grow as Generation-X buys them as Airbnb rental properties, and baby boomers park their “granny pods” in an adult child’s backyard.
Patterson’s house before
Tiny houses actually make the most sense for 20-somethings in rebellion, given their financial constraints and a distaste for all the junk their parents accumulated over a lifetime, said Shawna Lytle, a spokeswoman for Tumbleweed Tiny Homes Company in Colorado Springs, which built its first tiny house in 1999. The national tiny house price is $23,000.
Five years earlier, the tiny house movement had started in Tokyo. Recently, a handful of U.S. communities, including Spur, Texas, and Berkeley, California, have modified their zoning rules or building codes to accommodate them. The laws are a patchwork: houses on wheels must sometimes be classified as RVs, and some cities set size minimums for houses with foundations. …Learn More