Parents, Grandparents Declaring Bankruptcy Because of Kid's Student Loans
About 2.2 million people over age 60 took out student loans last year, and much of this debt is related to parents or grandparents taking out loans for their children's college education.
January 12, 2013
Parents, grandparents declaring bankruptcy because of kid's student loansParents want what is best for their children, but sometimes they forget what is best for their own financial security. About 2.2 million borrowers over the age of 60 took out student loans last year, this is triple the amount for the same age group in 2005. About ten percent of these borrowers are delinquent on their payments. Financial analysts say that almost all of this debt is related to parents or grandparents taking out loans for their children's college education.
Struggling parents applying for bankruptcy
The majority of private student loans require a co-signor. With unemployment as it is, lenders are turning to co-signors when students cannot make their payments. The co-signers of student loans are often parents or grandparents who were trying to help their children further their education and enhance their lives. Some parents and grandparents who co-signed student loans for their children and grandchildren have already filed for bankruptcy to stop collection calls regarding the defaulted amount.
By filing for bankruptcy parents and grandparents try to either get the debt discharged or to acquire lower monthly payments. However, student loan debt is very difficult to discharge in bankruptcy, and the outstanding loan amounts have an effect on whether parents or grandparents can get other credit such as a new mortgage or an opportunity to refinance.
Using retirement funds and all assets to repay
Certain federal student loans, Parent PLUS loans, are available to parents for their children's college education. Parent PLUS loans are offered in addition to the federal student loans offered to the student. Parents may also co-sign federal student loans offered to the student. Parent PLUS loans may be a good option for parents who can afford the payments and whose child needs the additional financing beyond the federal student loan award. Parent PLUS loans have reached $10.4 billion, doubling since the year 2000. While the federal loans are very popular, parents should be aware the loans do not offer the same flexibility as federal student loans offer students. For example, students may choose to repay their student loans under an income-based repayment option; however, the Parent PLUS loans do not offer such an option. Therefore, when tough times fall upon a parent the repayment terms of the loan are not as forgiving as those for students. Often, parents who face repayment issue dip into their retirement savings to keep up with the loan repayment schedule. While using savings helps ensure payments are timely, it also erodes the financial security of parents.
Parents struggling with student debt should consider assistance. An experienced bankruptcy attorney can help a distressed borrower address his or her finances and help the borrower determine the best strategy to move forward.
Article provided by Law Office of Andrew Kern
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