When a PLUS is a Big Minus: The Biggest Mistake Parents Can Make

College, Debt, Financial Security, Student Loans

February 28, 2019

We’re heading into that whirlwind time of year when high school seniors receive their college acceptance letters and the decision-making begins.

It’s such a dangerous time for parents. Your instinct is to encourage your kid to follow her dreams, and enroll at her favorite school.

Please, please, please, slow down, and listen up. 

The most loving long-term decision you can make is to steer your family toward a college that makes financial sense for everyone. And parents, that means being very, very careful about borrowing a penny to pay for college.

I want you to stand in your truth and carefully consider if you can afford to take out PLUS loans.  

PLUS loans are federal loans available to parents of college students. There is no limit on PLUS loans; parents can borrow up to the cost of college minus any other aid the student receives. Please carefully read any financial aid offers. Often it will list a PLUS loan as part of the aid package. But you’re the one providing that aid! 

Even more dangerous is that no one in the financial aid office is crunching your household’s financial numbers to see if that borrowing is affordable. It’s not their job to tell you if taking out these loans will ruin you financially.

I will. 

PLUS loans can lead to financial trouble that will haunt your entire family. The average annual PLUS loan amount is more than $16,000. Over four years that’s $64,000. For one child! 

What happens next is that many families run into a cascade of bad decisions and heightened risks. Faced with paying back PLUS loans, parents stop saving for retirement, or scale back their retirement contributions. This is the worst. What will you live on in retirement? Don’t tell me you’ll figure that out later. You will dig yourself a horrible hole you can’t climb out of if you put college over retirement saving.

I also want you to consider what would happen if you lost your job. The reality is that more than half of people over the age of 50 end up losing a job, and when they land a new job it is rare that they make as much as they did. That’s an argument for focusing on getting out of debt in your 50s and 60s, not adding more debt! Sadly, many more families with parents 55 or older are now saddled with student loan debt.

As you and your kids make college choices in the coming months, I hope you will focus on choosing the financial dream school. That’s the school your child can graduate from that won’t leave your kid, or you, in dire financial straits. (That’s why I always insist college-bound students apply to at least one in-state school. I also encourage families to consider community college, especially if a 2-year certification will launch your child into his chosen field. Not all jobs require a four-year degree.) 

Choosing a college that is a great financial fit is the secret to your kid’s happiness as a young adult. You want your child to emerge from college with a manageable amount of student loan debt. If they stick to borrowing with Federal Stafford student loans they should be in good shape. It’s the children who borrow more that feel as if they can never buy a home or save for retirement. That’s a lousy way to spend your 20s.  

And if you avoid taking on PLUS loan debt that you can’t afford, that’s going to help your kid too. The last thing you want is to need to lean on your grown children for financial help down the line because you weren’t able to save enough for retirement.

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