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Updated Monday, November 12, 2012 at 05:42 AM

Parents saddled with college loans for their kids face financial ruin

By TAMAR LEWIN
The New York Times

When Michele Fitzgerald and her daughter, Jenni, go out for dinner, Jenni pays. When they get haircuts, Jenni pays. When they buy groceries, Jenni pays.

It has been six years since Fitzgerald — broke, unemployed and in default on the $18,000 in loans she took out for Jenni's college education — became a boomerang mom, moving into her daughter's town-house apartment in Hingham, Mass.

Jenni pays the rent.

For Jenni, 35, the student loans and the education they bought have worked out: She has a good job in public relations and is paying down the loans in her name. But for her mother, 60, the parental debt has been disastrous.

"It's not easy," Fitzgerald said. "Jenni feels the guilt and I feel the burden."

There are record numbers of student borrowers in financial distress, according to federal data. But millions of parents who have taken out loans to pay for their children's college education make up a less visible Generation Debt. For the most part, these parents did well enough through midlife to take on sizable loans, but some have since fallen on tough times because of the recession, health problems, job loss or lives that took a sudden hard turn.

And unlike the angry students who have recently taken to the streets to protest their indebtedness, most of these parents are too ashamed to draw attention to themselves.

"You don't want your children, much less your neighbors and friends, knowing that even though you're living in a nice house, and you've been able to hold onto your job, your retirement money's gone, you can't pay your debts," said a woman in Connecticut who took out $57,000 in federal loans. Between tough times at work and a divorce, she is now teetering on default.

In the first three months of this year, 2.2 million borrowers of student loans were over 60, a figure that has tripled since 2005, making them the fastest-growing age group for college debt. All told, those borrowers owed $43 billion, up from $8 billion seven years ago, according to the Federal Reserve Bank of New York.

Almost 10 percent of the borrowers over 60 were at least 90 days delinquent on their payments during the first quarter of 2012, compared with 6 percent in 2005.

More and more of those with unpaid federal student debt are losing a portion of their Social Security benefits to the government — nearly 119,000 through September, compared with 60,000 for all of 2007 and 23,996 in 2001, according to the Treasury Department's Financial Management Service.

The federal government does not track how many of these older borrowers were taking out loans for their own education rather than for that of their children. But financial analysts say that loans for children are the likely source of almost all the debt. Even adjusted for inflation, so-called Parent PLUS loans — one piece of the pie for parents of all ages — have more than doubled to $10.4 billion since 2000.

Colleges often encourage parents to get Parent PLUS loans, to make it possible for their children to enroll. But many borrow more than they can afford to pay back — and discover, too late, that the flexibility of income-based repayment is available only to student borrowers.

Many parents with good credit choose private student loans, but those, too, offer little flexibility in repayment, while others co-sign their children's loans, also leaving them responsible.

The consequences of such debt can be dire because borrowers over 60 have less time — and fewer opportunities — than younger borrowers to get their financial lives back on track.

Some, like Fitzgerald, are forced to move in with their children. Others face an unexpectedly pinched retirement. Still others have gone into bankruptcy, after using all their assets to try to pay the student debt, which is difficult to discharge under any circumstances.

Fitzgerald said she had little hope of a comfortable old age. She has no health insurance. She knows the odds of finding a good job in her 60s, with no college degree, are slim — and she knows the government will take part of her Social Security, in payment of her debt, which she said had now ballooned to about $40,000 because of penalties for nonpayment. At one point, she said, the Internal Revenue Service seized a $2.43 tax refund.

Many young people live with deep guilt that their education has pushed their parents into debt, and perhaps ruined their credit rating. Even those who do not know exactly how much money their parents have, or how much they owe, worry about how their debt will affect their parents' lives.

One 27-year-old man from East Texas, who earned a bachelor's degree in California, is now nearing graduation with another bachelor's degree, in Russian literature, from Columbia University. He said he did not know how much debt he and his mother had accumulated in the course of his educational wanderings, sounding almost paralyzed by the prospect of talking to her about it.

"I should know how much I owe, and it's sad that I don't," he said. "I feel like I'm standing on the train track and I can hear the rumble of the train coming, and I don't know how hard the train will slam into me."

In one extreme case, student debt, and the constant creditor calls, were mentioned in a suicide note by the stepfather of a young law-school graduate. The guilt has been crushing for the graduate.

Teresa Tosh, 56, a mother of five who works for the county government in Tulsa, Okla., had cosigned large graduate- and law-school loans for one of her sons, Jacob, who has a different last name. In total, he owes more than $200,000 on his federal loans, in addition to more than $100,000 on the private student loans his mother cosigned.

But like many recent law graduates, Jacob had trouble finding a job, and when he finally found one, an hour from his home, the salary was nowhere near enough to cover his loan payments. Creditor calls to both Jacob and to his mother became more and more frequent.

Jacob talked to the collectors when they called, and tried to work out payments as best he could. But shortly after one call ended, he and his mother said, the phone would ring again: another collection agent, in another part of the country.

Tosh's husband, George, a Vietnam veteran who worked from home, concluded that Jacob was lying about trying to work things out, deceiving Tosh, ruining her credit and leaving her holding the bag.

The household tension grew intense, and in July 2010, George Tosh shot himself, leaving a note saying that he could no longer stand the incessant calls from Sallie Mae, one of the lenders.

By the numbers

In the first three months of this year, 2.2 million borrowers of student loans were over 60, a figure that has tripled since 2005, making them the fastest-growing age group for college debt. All told, those borrowers owed $43 billion, up from $8 billion seven years ago, according to the Federal Reserve Bank of New York.

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