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How presidential candidates pay for college: The surprisingly high cost for parents taking out loans

Former Maryland Governor Martin O’Malley raised eyebrows when he said his family amassed $339,200 in student loans. REUTERS/Jim Bourg
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Presidential hopefuls are talking a lot about the high cost of college these days.  A few are even sharing their family’s own experience paying for college. Intrigued, I reached out to all of the candidates with children over age 18 to find out how they’ve handled higher education costs. Some got back to me, many didn’t. The ones who opened up serve as good examples of the myriad of ways families pay for school. In the coming weeks, we’ll look at the lessons that can be learned from their choices and how they measure up to the average family.

Democratic contender Martin O’Malley raised a few eyebrows earlier this month when he revealed that his family amassed $339,200 in student loans sending his two daughters to college. To hit that number, the O’Malleys borrowed just about every dime for their daughter Grace, now 24, to attend Georgetown University and Tara, now 23, to go to the College of Charleston, a public university in South Carolina.

[How Martin O’Malley wants to lighten the load of college debt]

While the amount of debt the family accumulated is astonishing, it’s also striking that O’Malley and his wife mostly took out Parent PLUS loans, a form of federal aid that lets parents borrow up to the full cost of attendance, but at double the interest of most home loans.

In an interview with my colleague Michelle Singletary, O’Malley said, “Better we have the debt than [our children] have the debt.”

O’Malley isn’t the only parent that feels that way. About 3.2 million parents hold a total of $69 billion Parent PLUS loans, according to the Education Department. The loan was introduced in 1980 to help families cover any college expenses left over after accounting for scholarships, grants and student loans.

It can be a critical resource for parents who are turned down by banks because of their poor credit. Anyone can get the loan as long as they haven’t recently defaulted on a loan, declared bankruptcy or had any other black marks on a credit report in the last two years. There is no accounting for a parent’s credit scores, employment or debt relative to their income.

But in exchange for those lenient terms, the government imposes some hefty charges. PLUS loans for the 2014-2015 academic year carried a 7.21 percent fixed interest rate. While the rate is slated to come down to 6.84 percent for the coming academic year, the government is not budging on the 4.2 percent fee it charges to make the loan.

By comparison, federal student loans carried a 4.66 percent interest rate and 1 percent origination fee for the most recent school year. Students who borrow directly from the government can also have their payments tied to a percentage of their income, a benefit that parents are rarely afforded. Because of the disparities in loan terms financial advisers encourage families to have students borrow for school, even if the parents plan to pay back the loan.

It can be tricky for parents to take out loans to send their children to college, especially if retirement is on the horizon, said Felicia Gopaul, a certified financial planner and president of College Funding Resource.

“If you take out huge sums of debt right before you retire, it puts you in a precarious situation,” she said. “Instead of having the relaxing retirement, you might have to work longer, dial back your plans to pay off that debt.”

Parents should not take on more debt than they can pay back in 10 years or less, said Mark Kantrowitz, publisher of, a college planning Web site. He recommends that the total amount parents borrow for all of their children should be less than their annual income, assuming that retirement is more than 10 years away. If retirement is only five years away, parents should be borrowing half as much.

O’Malley and his wife Katie are in their early 50s, giving them more than a decade before hitting retirement. But they still have two sons to send to college.

“We are very lucky in that both of us are working and hopefully will continue to work,” O’Malley told the Post. “I don’t want to hold us up as a metaphor of every family. I think one thing that is true for all of us as Americans, it’s not good for our country or our economy to saddle [families] with the sort of debt that we have. A lot of families don’t have the ability to go into that sort of debt.”

[On student loans, do as O’Malley says, not as he does]

To help other families avoid the kind of debt he now faces, O’Malley is proposing a multi-prong approach to lower the cost of college. He would like to cap tuition to 10 percent of a state’s median income at four-year colleges and 5 percent at two-year schools, with the federal government kicking in matching grants to help states accomplish the goal. The presidential candidate would also increase the amount of free money students receive from federal Pell Grants and overhaul work-study programs to cover room and board.

Want to read more on paying for college? Check out these stories:

It’s about to get cheaper to borrow for college

How to negotiate a better financial aid package

How to read a financial aid award letter

What to do when you haven’t saved much for you kid’s college education