Like millions of graduates, Valerie began her career last year in the worst global economic crisis since the Great Depression. Though her job prospects as a physician assistant were good and her earning potential high, her future looked dismal.
She and her mom, a public-school teacher, owed $250,000 in student loans. She unsuccessfully applied for government hospital jobs so she could ask for loan forgiveness, losing out to far more experienced competitors. “I felt helpless,” she said.
Students feel helpless as they calculate decades of monthly college debt payments.
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Lost in the jargon of financial aid and student loans, Valerie and her parents trusted colleges and lenders to do right by them. But in the world of student debt, an industry that rewards lenders and colleges and punishes families, caveat emptor.
Middle-class parents with good salaries but limited wealth face the greatest risk of borrowing more for college than they can afford to repay. Understanding how to prevent over-borrowing empowers families to avoid the same fate Valerie and her parents now endure waiting for loan forgiveness that will likely never come.
For students that means borrowing only as much as the government gives in subsidized loans. Those loans have the lowest interest rates, the highest likelihood of forgiveness and the best terms. But they’re also restricted. The amount is so small— $23,000 over four years or $5,750 per year—it comes nowhere near paying average sticker prices at private colleges or even public universities in the United States.
When students reach lending limits, colleges encourage parents to take out unsubsidized government PLUS loans or borrow from private lenders, a risky and increasingly common trap. Parent loans offer far fewer protections, have higher lending limits and interest rates, and are nearly impossible to discharge in bankruptcy. Minimal credit checks encourage older Americans to accumulate so much debt they’re forced to work long past retirement age.
This is a system created by design. Free-market lawmakers have ingeniously shifted the student loan burden to parents in the last three decades. That shift began in 1986 when Ronald Reagan amended the Higher Education Act to ease restrictions so parents could borrow to pay for college. George H. W. Bush went further, ending lending limits for parents in 1992, just as tuition began a relentless rise—nearly 1,000 percent since 1980.
With billions of dollars at stake, private lenders competed viciously to grab market share during what veteran college administrators call the decade-long “Loan War” of the 1990s. Lawmakers and their lending industry allies made it inexcusably easy for teenagers to borrow far more than they could hope to repay.
Lenders devised “one scheme after another to gut the taxpayer-friendly government loan programs,” U.S. News & World Report noted in 2003. “Like political ward bosses, private lenders used money and favors, along with their friends in Congress and the Department of Education, to get what they wanted. They wanted those checks made out to them.”
Financial aid corruption and kickback scandals followed in the 2000s, ending only when the financial collapse of 2008 prompted Congress to limit government guaranteed undergraduate loans.
But lawmakers placed no such curbs on parent borrowing.
More and more parents are taking out student loans and struggling to repay them, a Brookings Institute study found. Though President Joe Biden has cancelled $3 billion in student debt, he has helped only a small fraction of the 42 million Americans holding more than $1.5 trillion in student loans. Those few who benefitted most were victims of fraud, the disabled and students in default holding private loans that the federal government had guaranteed—about 2 percent of student debt holders.
Valerie was not one of them.
Though Duke University awarded her a full scholarship, her parents needed a PLUS loan to pay $80,000 for room, board, fees, and books. The family believes so strongly in higher education as an engine of social mobility, they never questioned the loans. At the time, she was “18 years old and not financially competent,” she said. Her parents, both immigrants and educated outside the U.S. “didn’t have a clue.”
After graduating from Duke, Valerie returned to California to live at home and save money while she trained as a physician’s assistant at the University of Southern California. She borrowed $170,000 to pay for a degree that is unavailable at a low-cost state university. She now works at a private urgent-care center.
Last week, she assumed her mom’s PLUS loan and refinanced her debt to pay over 20 years at a cost of about $1,500 a month. With a good job and a repayment plan in place, she no longer feels helpless. But she can’t understand why so many countries subsidize degrees while the U.S. government forces Americans into crippling debt to better themselves.
“It’s a disheartening process for people without the experience, knowledge or resources to navigate the system,” she said. Until Americans commit to providing students affordable degrees, “You just have to throw your hands in the air and say, This is the way it is. I’m just going to have to navigate it the best I can.”
