Student loans are a necessary evil for some. And even though the federal government inserted itself into most student loans. There are still a number of different programs around with different payment schedules, forgiveness, and eligibility options.
Talk about moral hazard and malincentives. Here is the definition of moral hazard: The moral hazard is that when people are not responsible for paying loans back (or paying a fair interest rate), they are likely to borrow more.
A Parent PLUS loan is a loan taken out by a parent (grandparents cannot do it, even if they are the legal guardian, unless they formally adopt the kid) for their child’s education. It is a federal loan but not a direct loan.
I don’t even like the idea of a parent loan at all. I think if anyone is going to borrow for a student’s education, it should be the student. When you borrow for something, by definition, it means you cannot afford it.
If you could, you’d just buy it, at least if it costs 4% upfront plus 7% a year to get the money. I’m all for saving for your child’s education. I think it’s great that you want to help your child. I think it’s great that you want to help your child. But you should help them from a position of strength.
Imagine you have a parent with a very low income who is already quite elderly. Let’s say they were 40 when you were born and you’re a non-traditional student who started college at 30.
Let’s assume they are living just on Social Security. That won’t stop the federal government from loaning to a parent. They don’t care about your debt-to-income ratio or your credit score.
Heck, the student doesn’t even need to demonstrate “financial need.” All they care about is your “adverse credit history”.