{"id":40584,"date":"2023-07-26T05:05:29","date_gmt":"2023-07-26T09:05:29","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/why-college-plus-loans-are-a-double-edged-sword-for-black-parents\/"},"modified":"2023-07-26T05:05:31","modified_gmt":"2023-07-26T09:05:31","slug":"why-college-plus-loans-are-a-double-edged-sword-for-black-parents","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=40584","title":{"rendered":"Why college PLUS loans are a double-edged sword for Black parents"},"content":{"rendered":"<div id=\"js-article__body\" itemprop=\"articleBody\" data-sbid=\"WP-MKTW-0002310758\" role=\"document\">\n<p><em>This <\/em><em>article<\/em><em> is reprinted by permission from <\/em><em>NerdWallet<\/em><em>.\u00a0<\/em><\/p>\n<p>Malik Lee, a Georgia-based certified financial planner and managing principal of Felton &amp; Peel Wealth Management, thinks back to being accepted to Morehouse College in 1999 and facing around $20,000 per year in college costs.<\/p>\n<p>While his friends\u2019 parents took out loans to cover education costs, Lee\u2019s grandmother \u2014 his legal guardian \u2014 declined.<\/p>\n<div class=\"paywall\">\n<p>Her response may seem harsh, but looking back with his perspective as a financial professional, Lee describes it as one of the best decisions she\u2019s ever made.<\/p>\n<p>Many of those parents who took out loans for their kid\u2019s education struggled to repay them, Lee says. In some cases, the children are covering the loan payments because the parents can no longer afford them.<\/p>\n<p>Lee imagines his grandmother, now 90 years old, still paying on a loan for his education when retirement should be her priority. Her saying \u201cno\u201d was an amazing decision, he says.<\/p>\n<h2><strong>Parent PLUS loans can be harder to repay<\/strong><\/h2>\n<p>Federal parent PLUS loans are available to parents of dependents attending college and are intended to fund education expenses not covered by other federal student aid.<\/p>\n<p>But these loans differ from federal loans taken out by student borrowers in ways that make them harder to repay:<\/p>\n<ul class=\"articleList\">\n<li>\n      <strong>Higher interest rates.<\/strong>\u00a0The interest rate on parent PLUS loans is 8.05%, compared with 5.5% for federal student loans.\u00a0<\/p>\n<\/li>\n<li>\n      <strong>No grace period<\/strong>. Federal student loan borrowers have a six-month grace period before they begin repayment. Repayment for parent PLUS loans begins after the loan is fully paid out.<\/p>\n<\/li>\n<li>\n      <strong>Fewer repayment options.<\/strong>\u00a0Parent PLUS loans don\u2019t qualify for the government\u2019s more generous income-driven repayment programs \u2014 like Revised Pay As You Earn, Pay As You Earn and Income-Based Repayment. Parents can apply for Income-Contingent Repayment after consolidating to a Direct Loan.<\/p>\n<\/li>\n<\/ul>\n<p>When you couple the tougher loan terms \u2014 compared with federal student loans \u2014 with the racial wage and wealth disparity that impacts Black families, you get a double-edged sword that limits the economic growth of some of the most vulnerable borrowers, according to a recent brief by the Education Trust, a higher education research and advocacy group based in Washington, D.C.<\/p>\n<p><strong>Learn more: <\/strong>Parent PLUS loans for college are easy to get, but hard to shake: Here are some options for forgiveness<\/p>\n<p>On average, Black workers earn 22% less than white workers, based on March 2023 weekly earnings data from the Bureau of Labor Statistics. And, regardless of income, Black households are less likely to own financial investments, according to a January 2023 report from the Treasury Department. Black families who do invest hold significantly less value in their assets, compared with white families, the same report concludes.<\/p>\n<p>Black borrowers are dipping into their retirement plans to repay parent PLUS loans, says Brittani Williams, senior policy analyst in higher education for the Education Trust. And that\u2019s undercutting their ability to save for their own futures.<\/p>\n<p>If your child is heading off to college soon, there are ways to support them without falling into a debt trap.<\/p>\n<h2><strong>Dive into the financial aid process<\/strong><\/h2>\n<p>The more you can learn about financial aid and funding options, the less likely you\u2019ll overextend yourself and be left with debt you can\u2019t repay.<\/p>\n<p>\u201cImmerse yourself in the financial aid process as much as you\u2019re immersing yourself in the college choice,\u201d says Jackie Cummings Koski, an Ohio-based certified financial planner and financial educator. Koski says financial aid offices can often show you program-specific funding or other need-based dollars available to those who ask.<\/p>\n<p>Making sure your child submits the Free Application for Federal Student Aid, or\u00a0FAFSA, is a great starting point. But before you or your child accept any money, be sure to visit studentaid.gov to understand the type of federal aid awarded and the terms that come with it.<\/p>\n<p><strong>Also see: <\/strong>If the FAFSA makes you look too rich, here are 4 steps to boost college financial aid<\/p>\n<h2><strong>Set limits on how much you borrow<\/strong><\/h2>\n<p>You can borrow up to the cost of attendance minus any federal aid your child receives. That could mean being asked to foot a pretty hefty bill, depending on what\u2019s awarded to your child.<\/p>\n<p>But you don\u2019t have to borrow the full amount requested.<\/p>\n<p>\u201cConsider not paying for everything,\u201d says Angela Ribuffo, an Alaska-based certified financial planner and president and financial advisor for Raion Financial Strategies. Parents can pay for one year \u2014 ideally year four, so they have at least three years to put away money, Ribuffo says. Giving yourself time to save can minimize how much you borrow, if you choose to borrow at all.<\/p>\n<p>You can set limits on how much you borrow based on your income and other financial goals. Use a\u00a0parent PLUS loan calculator\u00a0to see how different loan amounts can impact your monthly payment given an 8.05% interest rate.<\/p>\n<p><strong>Read<\/strong>: How \u2014 and why \u2014 to cut off your adult children financially<\/p>\n<h2><strong>Always prioritize your retirement savings<\/strong><\/h2>\n<p>As hard as it might be, try not to place funding your child\u2019s education over saving for retirement.<\/p>\n<p>\u201cWe\u2019re not saying retirement is more important than your child\u2019s future,\u201d Lee says. \u201cIt\u2019s that your retirement has no fail-safe.\u201d<\/p>\n<p>If you must choose between contributing to your child\u2019s education or saving for retirement, Lee recommends being realistic about how the two scenarios can play out. There are more options for a child who cannot pay for college than there are for a retiree who is short on income, Lee says.<\/p>\n<p><strong>Also read:<\/strong> Are you still making this huge mistake with your grown kids?<\/p>\n<p>Committing to your retirement savings over paying for college could mean your child must find alternative ways to fund their education, and that is OK. Helping them research\u00a0how to pay for college\u00a0is still supporting your child on their journey and showing them that their future is important.<\/p>\n<p><strong>More From NerdWallet<\/strong><\/p>\n<p><em>Trea Branch writes for NerdWallet. Email: tbranch@nerdwallet.com.<\/em><\/p>\n<\/p><\/div>\n<\/div>\n<p>Read the full article <a href=\"https:\/\/www.marketwatch.com\/story\/why-college-plus-loans-are-a-double-edged-sword-for-black-parents-ad4a5c14?mod=personal-finance\" target=\"_blank\" rel=\"noopener\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>This article is reprinted by permission from NerdWallet.\u00a0 Malik Lee, a Georgia-based certified financial planner and managing principal of Felton &amp; Peel Wealth Management, thinks back to being accepted to Morehouse College in 1999 and facing around $20,000 per year in college costs. While his friends\u2019 parents took out loans to cover education costs, Lee\u2019s [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":40585,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[236],"tags":[83],"class_list":["post-40584","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-news","tag-featured","post_format-post-format-gallery"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Why college PLUS loans are a double-edged sword for Black parents | iFintechWorld<\/title>\n<meta name=\"description\" content=\"This article is reprinted by permission from NerdWallet.\u00a0 Malik Lee, a Georgia-based certified financial planner and managing principal of Felton &amp;\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, 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