Top Dollar Degrees: Parents on Hook for Child's Student Loans
American student loan debt now tops $1 trillion, according to the Consumer Financial Protection Bureau. But what happens when students can't pay it off?
If a parent co-signed the loan, the burden shifts to them.
We spent months researching and spoke with several bankruptcy attorneys along the way. Each one told us they get calls from parents all the time who are simply stuck paying off their kids' student loans. Nothing -- not even bankruptcy -- can wipe that slate clean.
So parents need to know when they sign on the dotted line for their child, that signature could lead to long-term financial problems.
Rasheedah El-Amin dreamed of a better life.
"It's still hard. It's very hard for me because I had such dreams -- dreams that were coming true after fulfilling that promise to myself. I felt it. It was this close," Rasheedah said.
Rasheedah graduated from St. Catherine University, set to become a radiology technologist. At the height of the recession, she had trouble finding a job.
Then the health problems started.
She had seizures and issues with her spine. That led to spinal surgery that left Rasheedah unable to work.
"My body just couldn't do labor anymore. As a matter of fact, my body says, 'I'm through. I'm through. You're going to have to figure out how to use your brain because the body's not functioning for me,'" Rasheedah said.
Disabled or not though, Rasheedah had bills to pay. She paid for college with federal and private student loans. The federal loans were erased because of her health issues. The private ones were not.
To date -- including interest -- Rasheedah owes nearly $80,000.
"The private loan people didn't give a rat's a**. Just did not care," Rasheedah said.
That's because even though Rasheedah couldn't pay back the loans, maybe someone else could.
Rasheedah's mom, Arlene El-Amin, 67, co-signed the loan.
"Her future looked very well. I mean, she would start off as a new employee at $25 an hour, which made it seem -- it was quite promising," Arlene said.
Unable to pay the $80,000, and with other debts mounting, Arlene now plans to file for bankruptcy.
Here's the catch though -- student loan debts are rarely, if ever, wiped out in bankruptcy.
"It's unimaginable that I can file bankruptcy against my home, against my mortgage, against my car, against all my debtors, but I can't file against a student loan? Something is not right about that," Arlene said.
Sen. Al Franken, D-Minnesota, is on the Senate Education Committee, and he's backed several pieces of legislation he thinks could help. One example is the Fairness For Struggling Students Act, which, if passed, would make it possible to eliminate private student loan debt in bankruptcy.
Franken has also backed legislation that aims to help students receive better counseling when taking out a loan.
"Unfortunately, there's no perfect solution. But it's important that we continue taking steps toward making college more affordable for Minnesotans," Franken said.
Of course, even the best laid plans still come with a certain degree of risk. That's why parents like Arlene hope student loan laws are rewritten.
"What makes a student loan so much more important than a home to live in or other necessities in life? I don't see that," Arlene said.
As for Rasheedah, becoming a radiology technologist may no longer be the dream -- but she is still dreaming.
"Even with all this, I know there's something -- there has to be something else that my Lord has in store for me, and I just got to figure out what it is," Rasheedah said.
For Arlene, or any other parent, bankruptcy often means losing everything else -- right down to their retirement plan being wiped out.
Experts say parents can and should co-sign their kids' loans, but that they need to more closely scrutinize the terms.
Many banks are getting out of the student loan market altogether, largely because of increased scrutiny from lawmakers. JPMorgan Chase announced it's getting out of the market just a couple of weeks ago. Bank of America, Citigroup, and U.S. Bank have already done the same. So for future borrowers, it means more student loans will come from the federal government.