By DANIELLE STROLIA
When Komal Kazim was accepted into NYU and offered the opportunity to spend her freshman year in Paris, it was a dream come true. Yet her blissful stay on cloud nine was cut short with the gathering of the dark clouds of financial aid. The tuition for the 2011-2012 school year was almost $40,000. With added fees along with non-negotiable on-campus residence, the total bill came up to $64,276. Student loans were a must, and while a third of her bill was covered by scholarships and grants, Komal still found herself short. Luckily, or so she thought at the time, Parent PLUS loans could fill the gap.
Federal Parent PLUS loans are often offered as part of financial aid packages for college costs after student loans and awards have been maxed out. These are loans signed solely by parents and the responsibility to repay them falls exclusively on them. While federal student loans offer a number of repayment plans that take one’s income into account (“Pay As You Earn,” “Income-Based,” “Income-Contingent”), PLUS loans must be repaid within 25 years regardless of whether one can afford it or not. Along with the PLUS loan’s higher interest rate (7.2 percent vs. 4.7 percent with student loans), what may have at first glance seemed a feasible option ends up causing severe financial and emotional distress on both parent and child.
Komal, now a senior in NYU Steinhardt majoring in Media, Culture and Communications, says her relationship with her mother has suffered the most: “Once, last year, she told me that she resented me for putting her in this situation.” Although her mother frequently avoids the subject, Komal knows it is because she is simply too overwhelmed to think about the impending loan repayments.
This is not an isolated circumstance. At NYU, Komal is among the 16 percent of undergraduates who have parents with PLUS loans. NYU itself is nationally ranked eleventh in parent loan debt, with an average of $27,305 borrowed by each Parent PLUS loan signer annually. If a four-year education is to be assumed, the average amount borrowed totals to $109,220. The repayment period begins six months after the student graduates, and to be paid off within ten years, the parent would have to pay around $1200 per month. In contrast, a student who is $30,000 in debt would only have to pay $250 monthly.
These figures expose another insidious feature of PLUS loans: “A key problem with [them] is that the loan limits are based on the college’s cost of attendance, not the borrower’s ability to repay the debt,” wrote Mark Kantrowitz, a prominent financial-aid expert, in an e-mail. When applying for a PLUS loan, one’s credit score is checked yet one’s income is ignored. Although Kantrowitz suggests that parents should never borrow more than they can pay off within ten years, the loan limits used today for Parent PLUS loans make it easy to borrow significantly more.
A lack of knowledge of the limited repayment options Parent PLUS loan borrowers have can also be partially to blame. “It is unlikely that the parent realized what he or she was getting into when he or she borrowed that much debt,” wrote Kantrowitz.
That’s what happened in Komal’s case. “I honestly didn’t know the gravity of what we were doing at the time,” she says. Her mother was hesitant about signing the loans, yet still eventually agreed.
There is a possible modification. Kantrowitz hints at a loophole for bigger sums. Although the Federal Student Aid website explicitly states that Parent PLUS loans are not eligible for the income-contingent repayment plan, some digging shows that if the PLUS loans are consolidated into a Direct Consolidation Loan, they qualify. This allows parents to pay 20 percent of their monthly discretionary income for 25 years, after which point the consolidated loan is forgiven. For big borrowers, this may be a preferred course of repayment.
Still, Kantrowitz stresses that parents and students both need to be aware of their repayment options and how much debt is reasonable debt so that they can make informed decisions and borrow smart. Otherwise, they are in for an unpleasant surprise: “Repaying Federal Parent PLUS loans can be like going into labor to deliver a child, but the pain lasts a lot longer.”
That’s why another NYU student decided to stop her mother from signing more PLUS loans. Stephanie Clavijo, an economics major, had her mother sign a semester’s worth of PLUS loans which equaled to $15,000. But Stephanie quickly decided that she did not want to place that burden on her mother. She dropped down to a part-time student and found herself a full-time job in order to graduate (almost) debt-free. “I wish I could have a student life, where I didn’t have to choose between working or worrying about loans. Where my parents could take care of me completely. But that’s not the case,” she said.
On the other hand, Komal remains to some degree optimistic. “I do not regret coming to NYU 98 percent of the time. I love it here.” Yet she also maintains that the jobs she may be offered upon graduation are a product of her internships, not the name of her school: “It’s foolish the way we are taught to be obsessed with brand name colleges in high school.” A degree at a SUNY or CUNY school, she argues, would have been a lot cheaper for the same end result.
Her goal now is to be able to help her mother: “Having realized that we are in over our head with these loans, all I want is to be in the position where I can take over the loan payments,” she said. Yet she insists that this does not mean sacrificing a more fulfilling job purely for money. “I work in advertising now and I love it. And I know that if I work hard enough at it, I’ll be able to gradually pay off these loans.”