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Parents Crushed by Kids' College Debt Get Relief in Biden’s Forgiveness Plan

Parent PLUS loans are eligible for $10,000 relief under the program.

(Bloomberg) -- Millions of Americans could see their loan balances reduced or wiped away under President Joe Biden’s student debt forgiveness program. And it’s not just students who can apply for relief — many parents who supported them through college are also eligible.

The program, which was  formally launched on Oct. 17, allows 40 million Americans with federally held student debt to apply for up to $20,000 in forgiveness, depending on their loan type. Included are Parent PLUS loans, which are awarded to parents whose children need help paying for their education beyond any financial aid they’ve received.

The president plans to promote his initiative Friday at Delaware State University. As of Oct. 18, about 12 million people had applied for loan forgiveness, Biden has said.

Parents can borrow the full amount of annual college expenses, minus whatever grants or scholarships their children have been awarded. The interest rate on such loans is typically higher than that of other federal student loans. The rate for the 2022-2023 school year is 7.54%, compared with 4.99% for direct undergraduate loans. 

Parent PLUS Loans accounted for about 10% of the $95.9 billion in student aid distributed in the 2020-2021 school year. By the second quarter of 2021, 3.6 million parents held $103.6 billion in such loans. The total amount of outstanding college debt is $1.7 trillion.

The average Parent PLUS balance is $28,800. Some parents took out loans for multiple children, and some are still paying off debt for their own college education, as well. 

After paying down her own student debt, Julie Mastrine, a 31-year-old marketing director in Pennsylvania, is paying off about $41,000 in Parent PLUS loans that her father took out to support her and her twin sister. He was only making minimum payments so the interest was accumulating. 

Mastrine said she believes that such forgiveness is an imperfect, short-term solution to the long-term crisis of  rising tuition rates. Still, the $10,000 in forgiveness her father is eligible to receive will “help us free up other money that would’ve been going to student loan debt to buy a house,” Mastrine said. But she said she is confused about the specifics:  “Who applies? Is it me or my father?” she asked.

guide published by the Department of Education notes that parents must apply for Parent PLUS loan forgiveness through the student-aid website portal themselves. Parents who earned up to $125,000 — or couples who made $250,000 — are eligible for up to $10,000 in forgiveness, regardless of how many children their loans may have covered. 

Multiple legal challenges moving through the courts threaten to halt the effort, but the administration so far has fended them off. On Oct. 20, U.S. Supreme Court Justice Amy Coney Barrett rejected a request by a Wisconsin-based taxpayer group to block the program. Senate Minority Leader Mitch McConnell of Kentucky has called the debt forgiveness program "socialism" and a "slap in the face" to Americans who paid back their student loans.  

Representative Alexandria Ocasio-Cortez, a New York Democrat, has warned parents on Instagram not to leave money on the table, pointing out that such payments could double or triple the amount of relief some families can receive.

Students often take on college debt in the hope that a degree will help them obtain high-paying jobs that will enable them to pay off their loans quickly. Parents, by contrast, take out loans without any assurances that their incomes will rise, said Kristin Bragg, a researcher at the Urban Institute, a think tank. As a result, parents can be stuck with loan balances for longer periods.

Some parents struggle with repayment. Twenty percent of Black parents who took out PLUS loans defaulted on those loans, compared with 5% of their White counterparts, Bragg and other researchers noted in an April 2019 paper. Parents who took out such loans for children who attended for-profit colleges also defaulted at higher rates than those who borrowed for kids at nonprofit schools. 

Parent PLUS loans can be especially burdensome for older people, whether they are nearing or in retirement. A College Board analysis of federal student loan data found that people aged 50 and older held 23% of the federal student loan balance in the second quarter of 2021. That number, which includes undergraduate, graduate and parent loans, further dispels the myth that the only people with student debt are 20-somethings. 

“Millions of parents who wanted to help their kids pay for college are being crushed by student debt, leaving them unable to pay off their homes or retire,” Democratic Senator Elizabeth Warren told Bloomberg News. She called the Biden administration’s relief plan “transformational,” and is planning a tour with fellow Massachusetts lawmaker, Representative Ayanna Pressley, to help people apply for forgiveness.

For Joshua Sauberman, a consultant in New York and the eldest of six children, the loan forgiveness program comes as an “incredible relief.” It will help make a dent in the $40,000 balance his mother, a teacher, holds after she took out $50,000 in Parent PLUS loans to finance her youngest child’s college education. (His brother, he noted, will have $15,000 in debt left after he receives $10,000 in forgiveness.)

Sauberman’s mother, who is 68, “is still actively paying off three different kids’ student loans,” he said. The forgiveness “will allow her to retire on time — she'll have a lot more wiggle room to finish paying off all the other student loans."

To contact the authors of this story:
Ella Ceron in New York at [email protected]
Claire Ballentine in New York at [email protected]

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