Why Parent Plus Loans are the Worst Student Loans and Other Money Lessons

In today's episode Robert Farrington, the College Investor, shares with us why he believes Parent Plus Loans are the worst student loans out there.   HOW ROBERT LIVES FRUGALLY IN SAN DIEGO But before we did a deep dive into all things student loans and paying for college, we learned a little more about Robert, his money story and how he and his wife are able to live a filling frugal life in one of the most expensive cities in the United States.  Some of the ways Robert and his wife save money is by only having one car.  A few years ago Robert's 10-year old car was on its last leg and looking at a few thousand dollars on repairs. So they decided to just go down to one car.  Robert owns his own business and so his wife often drops him off if he needs to go somewhere and if their schedules conflict, he will take an Uber.  Another way he and his wife save is that they live in a walkable neighborhood. They can walk to the store or many of the other places they need to frequent.  Robert says the best way they are able to live frugally is that they attack their goals as a team and recognizing each other's strengths.  His wife is the deal finder and the "nitty-gritty financial analyst.". Robert's strong suit is ways to make income and entrepreneurship. ALL THINGS STUDENT LOANS When it comes to student loans, the one area where Robert thinks there is a lot of misinformation is in the area of Student Loan Forgiveness.  What is so frustrating is to hear that "99% of people" get denied for forgiveness.  The truth, Robert says, is that the programs are working as they should be and the problem is that people are applying for forgiveness when they are ineligible or have not followed the rules to apply.  People only began becoming eligible in 2017.  In that year only 90 people qualified for forgiveness.  As each year passes, more and more people become eligible.  Robert estimates that by 2027, 400,000 people will be eligible to apply for forgiveness.  If you want to make sure you have done your paperwork correctly so that when it is your time to apply for the forgiveness, you can always check the status on your secure mailbox at the Fed Loan website.  Robert reminds us, "No one will care about your money more than you."  THE FIRST STEP IN GETTING OUT OF STUDENT LOAN DEBT The very first step Robert recommends to get out of debt, not just student loan debt, is to get organized. You must know where you are, what your balances are and what your monthly payments are.  Check your credit reports to make sure you have the current information for all of your loans. Make sure there are not any out there you have forgotten about or that are possibly going to an old address.  Then, he says studentloans.gov is a great resource to help figure out the best repayment options.  You can also check out his new site, loanbuddy.us as well.  PARENT PLUS LOANS Robert advises that parents should NEVER, Ever, ever (one last ever for emphasis) borrow money to pay for a child's education and that Parent Plus loans are the worst thing you could do.  Robert believes parent plus loans are the worst for many reasons but primarily because:  Parent Plus Loans do not have the same forgiveness or repayment options as other student loans.  Parent Plus Loans have no income-driven repayment option.  The parent is the one responsible for the loan and the student has no legal responsibility for them.  If in default, the government can garnish a parents social security.  If a parent is having difficulty repaying the Parent Plus Loan there is one, and only one option.  They can consolidate the loans into a new Direct Consolidation Loan and that opens up ONE Income-Driven Repayment Plan, the Income Contingent Repayment (ICR).  With an IRC plan, the borrower's payment is 20% of the discretionary income.  If the parent's income is extremely low, this could possibly be equal to zero.  If the parent is in default, they have one opportunity to get the loan out of default via the Student Loan Rehabilitation program.  This is only available one time.  The other option is for the parent to wait it out at 25 years when they will be forgiven - or upon death.  ROBERT'S RULE OF THUMB FOR BORROWING FOR COLLEGE Never borrow more than the total of your estimated first year of income.  For instance, if your first career upon graduation pays $40,000, you should borrow more than $10,000.00 per year for four years of college.  Student loans should remain the LAST option to pay for college.  Look into other methods first: Scholarships and Grants Local orgs and non-profits Parents/family savings  Self-pay/cashflow Work-study Then, once each of these are exhausted, student loans (keeping the first rule of thumb in mind.)  Robert also suggests if you have a special needs child, look into the 529(a) (529 Able plan).  APPLYING FOR SCHOLARSHIPS Robert says the biggest mistake young people make when applying for scholarships is by not following the instructions and/or completing the applications incorrectly.  So, if you are applying for scholarships, take care to make sure you have followed all of the instructions and perhaps have another person double check your application/essay.  ROBERT ON THE FINAL QUESTIONS:  Robert's Favorite Childhood Money Lesson - If you want something, find a way to earn the money to pay for it.  The Lesson He Wants to Pass on to His Children - How to save and how to earn.    ROBERT'S FAVORITE READ  Never Split the Difference by Chris Voss  WHERE TO FIND ROBERT  thecollegeinvestor.com