SMOKINCHOICES (and other musings)

December 18, 2012

No Golden Years

DISPATCH INVESTIGATION

More seniors trapped in children’s student debt

Even in retirement, helpful parents and grandparents who took out federal loans or co-signed bank college loans for their kids are struggling with repayment

By Mike Wagner and Jill Riepenhoff                                                                                                                                                                             THE COLUMBUS DISPATCH

GRETCHEN ERTL FOR THE DISPATCH    Robert Austin, 83, endured years of government garnisheeing of about 15 percent of his Social Security benefits — and damage to his credit — because of his sons’ student loans.

The early-morning calls from debt collectors continued even after her massive stroke, waking Bella Logan to daily reminders that she owed $75,000 in student loans. Logan is 94.

The federal government garnisheed $200 a month from Robert Austin’s Social Security checks for years for student-loan debt, leaving Austin without money he needed for medications. He is 83.

After Ray Stockman’s wife died, he wanted to move but was turned down three times for apartments because a student-loan debt had sunk his credit rating. He is 78.

Each of their names is attached to student loans for their children’s college educations — loans that the children didn’t repay and that scarred the parents’ financial lives.

“We paid our dues; we worked all our life and tried to do right by our kids,” said Stockman, of Kent, in northeastern Ohio. “But these loans can come back and haunt you in ways you would never think about.”

As tuition costs have skyrocketed and access to credit has tightened, more students are turning to their parents and grandparents for help. If the elders don’t have the cash, they have limited options. Among them: sign a federal parent PLUS loan or co-sign on a private student loan from a bank.

SCOTT R. GALVIN FOR THE DISPATCH    Bella Logan, 94, and daughter Janice Ryan, 65, face a mountain of student debt: Mainly because of compounding interest and fees, Logan owes $75,000 on loans she co-signed. Ryan owes an additional $100,000 in private and federal loans.

There is no way to know how many parents and grandparents are saddled with their children’s student-loan debts, but the number of borrowers older than 60 has tripled since 2005, statistics from the Federal Reserve Bank of New York show. The number of those who have fallen behind on payments also has tripled, from 63,000 to 198,000.

Those borrowers are heading into retirement and the fixed-income years carrying an average balance of nearly $20,000, about $6,000 less than the average debt load of a new graduate with a bachelor’s degree.

And the demand for parents to help shoulder the burden of debt is likely to continue. Last year, about 90 percent of borrowers who took out a private student loan had a co-signer, compared with 55 percent in 2005.

PHIL LONG FOR THE DISPATCH    Ray Stockman, 78, still has collection notices and damaged credit from his ordeal involving a loan his son used.

Federal loans do not require co-signers but can be made directly to parents, tying them solely to the debt.

Both methods of borrowing carry significant risks, advocates say. And both are largely exempt from a discharge in bankruptcy court.

The federal Consumer Financial Protection Bureau has received more than 2,000 complaints about student loans; dozens involve the plight of parents and cosigners.

One borrower complained that his private student loans fell into default solely because his co-signers — his parents — had filed for bankruptcy. Although the man was making timely payments, the parents’ bankruptcy triggered a clause in the fine print making the entire balance due at once. “I am now in a situation where I can’t afford the terms,” he wrote.

Another borrower complained that her parents couldn’t refinance their home because the student loans for which they had co-signed made their debt-to-income ratio too high.

Another borrower regretted his decision to borrow $100,000 for art school. He can’t afford the payments, but worse, he said, is that his grandfather, who lives on Social Security, co-signed on the loans, and debt collectors now pursue him, too.

“Complaints are an early warning” of trouble, said Rohit Chopra, the student-loan ombudsman for the consumer-watchdog agency in Washington.

  • The system is particularly unbending for co-signers and parents who borrowed from the federal government because there are even fewer options for help.
  • “You can’t refinance … you can’t take your business elsewhere. When you can’t refinance, you’re captured,” Chopra said.
  • Federal parent loans lock borrowers into a 7.9 percent interest rate, more than twice the national average for a rate on a 30-year mortgage. Parents can’t consolidate loans into one payment, and they are ineligible for the government’s income-based repayment plan.

Some leaders, including President Barack Obama, say that changing that rule alone could greatly help struggling borrowers.

The U.S. Department of Education has no real accounting of how its parent PLUS loans are performing because it doesn’t track them for defaults.

In a statement to The Dispatch, the department said: “While we want to ensure that taxpayer funds are paid back, we also offer flexibility to borrowers and have taken a number of steps to help them avoid default.”

The parent loans are canceled if the student dies before the parent. However, the forgiven balance is treated as income, and the parents “get hit with a tax bill,” said Mark Kantrowitz, an expert on financial aid and publisher of the websites FinAid.org   and Fastweb.com  .

Kantrowitz said the federal government should eliminate parent loans and base all loans on a student’s ability to repay while allowing the poorest students to attend college free.

Living in the basement

The college degree that escaped Janice Ryan in her 20s finally was earned in her 60s. She had proved to her children that she could be more than a mom, and she was realizing her dream of running a restaurant with her son after earning a degree in hospitality management.

But shortly after they made a $17,000 deposit in 2008 for a Beef O’Brady’s franchise, the economy went into deep recession, and neither the franchise nor any bank would lend them the additional money to open the neighbor sports pub.

Ryan filled out more than 100 applications but couldn’t find a job; not even the fast-food chains were hiring.

Her student loans went into default, and an avalanche of debt soon followed — not only for her, but also for her 94-year-old mother, Bella Logan, who had co-signed on about $30,000 in student loans.

  • Today, mainly because of compounding interest and fees, Logan owes $75,000 in student loans, and Ryan owes an additional $100,000 in private and federal loans.

“The debt collectors called my mom every single morning at 8 a.m., even after she had her stroke,” said Ryan, 65, of Niles, between Warren and Youngstown. “They have been ruthless to a woman not far from 100. I tried to make myself and my life better, and now the rest of our lives are ruined by this.”

Consumer complaints filed with the federal government and the Ohio attorney general’s office include numerous cries for help from seniors who agreed to help their children and now are buried in debt in their golden years. Most say they attempt to keep up with payments, but they say that added fees and interest make it virtually impossible for people living on fixed incomes, pensions or Social Security benefits.

Ryan lost her home three years ago and lives with her husband in her mom’s finished basement.

  • Bella Logan likes having her daughter at home with her and sharing morning cups of coffee. She isn’t angry at her daughter for the student-loan mess. And she has no regrets about co-signing, even as debt collectors demand a combined $2,100 monthly payment from Logan and her daughter. That’s only a few hundred dollars less than what Logan has to live on each month from her husband’s pension and Social Security benefits.

The women are willing to pay something each month, but the collectors won’t accept less than the full $2,100 monthly payment, so neither mother nor daughter is paying on the debt.

  • “I hope the people in power figure out a way to give people a chance at college and a better life,” Logan said. “I don’t want other generations of people to go through this.”

Gambling on their kids

Robert Austin paid his own way through Boston College by working nights. He served in the Korean War. And he worshiped former Ohio State University football coach Woody Hayes’ desire to run over the other team.

He is used to doing things the hard way. He prefers it.

But the government’s garnisheeing of about 15 percent of his Social Security benefits to pay off student loans is one difficulty the 83-year-old never thought he would face. Austin helped his two sons attend Ohio’s Miami University and Ohio State, among other schools. He isn’t sure how much they borrowed in his name or how much he has paid over the years.

“I paid on student loans while living in a retirement home; that’s a combination you don’t hear of every day, right?” said Austin, who lived in Columbus for 25 years and now lives in Billerica, Mass. “I did the right thing by helping my boys, but it did ruin my credit rating. I’m 83, though; it’s not like I am going to buy a house.”

Parents and grandparents such as Austin who co-sign on private loans or assume federal-loan debt on behalf of their children often don’t consider what might happen to their financial lives if they or their kids default. Most believe their children will earn enough after graduation to pay off their loans without help. Some even forget the loans or are unaware that they agreed to co-sign.

  • And complaints with the Ohio attorney general’s office show that some parents or grandparents fear their kids might have victimized them.

That was the case for Ray Stockman, a retired truck driver from Kent. He received a call in 2008 from his son saying that he needed him as a “reference” to apply for a technical college.

About 2 1/2 years later, after his son had earned his degree but couldn’t find a job, Stockman started receiving notices saying that he owed on loans of $9,000 and $2,500.  “I never signed a thing, nor did I agree to be a co-signer,” said Stockman, 78. “I think I paid the smaller loan off, but the bigger one is still hanging out there.”

The harassing calls from collectors and the loan bills stopped after Stockman filed police reports and proved by hiring handwriting experts that he never signed the loan forms.

His son has never admitted to signing his dad’s name, and no charge has been filed. The defaulted loans have virtually destroyed Stockman’s credit. After his wife’s death last year, he was rejected when trying to lease three apartments.

“My credit being ruined hurt the most,” he said. “I took great pride in that, and now, in retirement, all my hard work is tarnished.”

   Ray Stockman, 78, still has collection notices and damaged credit from his ordeal involving a loan his son used.

Avoiding default

Since Damita Hoblit agreed in the spring to borrow $10,000 so daughter Shelby could continue studying health sciences at Ohio State, Hoblit has faithfully made the payments.

  • In fact, she and her husband, Dan, pay an extra $70 or so each month in hopes of paying off the parent loan sooner.
  • But what she sees on her monthly statements confuses her: Her balance is not shrinking, but growing.

“When we ask the government how our total could be higher now, we get no answers,” said Mrs. Hoblit, 45, who lives in Covington in western Ohio’s Miami County. “I would never let the loan go into default, but I can see how easily that could happen for some people.”

The Hoblits and others who want to ease the financial pressure of paying for college for their children often are unaware of all their loans’ details.

They often take the advice of university officials who suggest the direct parent loans, and they are unaware that those loans come with a standard 7.9 percent interest rate that can’t be refinanced. They take out loans that are readily available without fully understanding the possible long-term impact.

The Hoblits, like millions of other families, are doing what they can to ensure that the loans don’t go into default.

They pay about $400 a month for two parent loans totaling about $27,000 for Shelby, 21, and their daughter Ashley, 23, who graduated from OSU in August with a degree in biology.

  • They have no regrets about helping their daughters, but they warn other parents and grandparents to read the fine print and ask plenty of questions before borrowing.

“I am not blaming anyone else, but it’s confusing,” Mrs. Hoblit said. “The girls needed the money to get their degrees, but I would have never borrowed these kinds of loans if I had known it would be like this.” mwagner@dispatch.com

@mikewagner48 jriepenhoff@dispatch.com

@jriep

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