“If I had to do it again, I would think twice. ” Like more than 3.5 million Americans, Jeff Sands, 59, took out a loan a few years ago so his son could go to college. He was in debt to the tune of 100,000 dollars (82,000 €). This Los Angeles area resident who works in real estate took advantage of a very popular federal loan program in the United States called the “Parent Plus Loan”. A program that allows you to borrow instead of your child or in addition to a student loan.
→ ANALYSIS. Higher education, a profitable investment?
But Jeff now finds himself unable to repay. “After losing my job, I was no longer able to pay my monthly payments. I therefore requested a temporary suspension of reimbursement. What I didn’t know was that I was going to have to pay interest on the interest. Result: the amount of my debt has soared “, he assures.
One in eight people fail to repay their “Parent Plus Loan”
The case of Jeff Sands is no exception in the United States: today, around 25% of loans to finance a university degree come from the “Parent Plus Loan” program (compared to 14% in 2013). One in eight people fail to repay it. Originally, this loan was mainly designed for wealthy parents who sent their children to study in private institutions but who had no difficulty in repaying the loan. Now, with the explosion in the cost of registration fees – an average of $ 10,000 per year in the public sector and $ 35,000 in the private sector – more and more parents with modest incomes are turning to the “Parent Plus Loan”. “.
Especially since to protect students from debt, the government has implemented a series of measures that limit the borrowing capacity of young people. For students who are financially dependent on their parents, a federal undergraduate loan cannot exceed $ 31,000, while a “Parent Plus Loan” is not capped.
Only 27% of young people find a job related to their diploma
As for the return on investment, it varies greatly depending on the degree and the university. “Many young people change direction along the way or find work in a field different from that in which their parents have invested”, notes Jeff Sands, whose son now works in construction after studying sports medicine. According to a study by the Federal Reserve Bank of New York, only 27% of young people today find a job related to their diploma.
Rather than going into debt, some families also choose to invest money before their child goes to university. Some plans allow, for example, to pay in advance the registration fees of certain public universities at the current price.
But today, with the sharp increase in the cost of university fees and the shrinking of the middle class, the strategy of savings remains less popular than that of debt. One of the reasons for the success of the “Parent Plus Loan” is that many Americans lost with the 2008 crisis the savings they had set aside for their children …