CLEARWATER, Fla. – Mike and Karen Scully helped their son Cory achieve his American dream – attend culinary school at Cordon Bleu and become a chef.
“We promised our children we would send them to school,” Mike said.
They say the school recommended they take out a "Parent Plus Loan" – three words that will haunt them for a long time.
“Retirement is not an option for me at this point.”
When Corey finished school, their payments kicked in. Then the 2007-08 financial crisis hit. Mike lost his job and paying that loan back wasn't feasible.
“They were very nice. They said, ‘Oh, we'll put you on what's called a forbearance, you know, don't worry about it.’”
But, it wasn’t what the Scullys thought. They went into a second year of forbearance and the interest kept compounding.
That's how a $47,000 loan turned into $84,617.34.
“They were more than happy to give you another forbearance,” Karen said.
Mike and Karen are working with loan attorney Christie Arkovich. She helped them move from Sallie Mae to the U.S. Department of Education, where there are more protections, like income-based repayment.
“You're turning what is a student loan crisis for older Americans, you're actually turning that into a retirement crisis,” Christie said. “If you're getting up there in age, you may not have the time and the income stream to be able to repay these loans.”
Recently, Mike received a 2 percent raise at work, causing his payment plan to go way up. He's back in forbearance.
“It was more than a third of his raise for the entire year," Christie said. "That's what they felt they were entitled to.”
More than 3 million Americans are paying back Parent Plus Loans – all approved without consideration for the borrowers' income, ability to repay, other debts and credit scores.
Many expect their kids to pay it back, but as you know, jobs and good-paying jobs aren't always guaranteed after graduation.
But, one guarantee is that statement you'll get in the mail.
“'Sorry, there is nothing we can do, can I help you with anything else?' Yeah, well, beside suicide, I said no,” Mike said of the loan company.
“I wouldn't say to not take them out because it may make the difference on your student going to that college, but just know that there's options on how to deal with repayment so that you don't default and cause your Social Security to be offset,” Christie said.
So, the big question is what can you do if you are faced with this problem?
- Don’t go into default by missing payments. This can add an additional 25 percent to the loan balance.
- Also, try to avoid forbearance, which compounds interest.
- Know your options: like income-based repayment plans and loan consolidation.
- Reconsolidating with a private company could help you save thousands.
- But, also be careful with private companies because they don’t come with the same protections.
- Lastly, consider a loan attorney.
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