Students are not the only ones who have to deal with the skyrocketing costs of higher education. According to a recent annual survey conducted by Sallie Mae, parents are the largest source of financing for college expenses, paying up to 37 percent of the costs. Financial aid website publisher Mark Kantrowitz reported that the amount of parent PLUS loans, which are federal student loans parents can take out to pay college costs, reached $10.4 billion in 2011 — up from $3.7 billion in 2001. While parents rightly want to help their children get an education, many make some costly mistakes that end up sending them into a financial tailspin.
According to the College Board, tuition and fees at state universities has risen at an average of 5.6 percent higher than inflation over the past ten years. One of the most common mistakes that parents have made was beginning to save for college too late in their children’s lives, not anticipating the speed with which college costs would increase. They ended up not saving enough and did not give the money they did save enough time to collect interest in various investment options.
Another common occurrence is parents ran into unexpected economic hardship, such as one parent losing a job or the sudden drop in the value of investments when the market collapsed in 2008, and the money that parents had saved for college was no longer there — necessitating loans to pay for college. Some parents even resort to using credit cards to pay expenses.
Stress on family finances only increases when parents have more than one child to put through school.
Drowning in Debt
Many parents have found themselves unable to survive financially after taking on the costs of their children’s higher educations. They took out loans, counting on their children to get jobs after college and repay the loans, which may not have happened.
Many parents are considering bankruptcy as an option to deal with their situations. A survey conducted by the National Association of Consumer Bankruptcy Attorneys revealed that 81 percent of bankruptcy attorneys surveyed had seen an increase in the number of debtors — including parents — seeking bankruptcy protection because of student loan debt. The NACBA’s report accompanying the survey results called student loan debt the country’s “next debt bomb.”
Unfortunately, unlike other forms of debt, people cannot discharge student loans in bankruptcy. However, bankruptcy can help people eliminate other forms of debt so student loan payments are more manageable.