$104 Billion in Parent PLUS Student Loans Creating Multigenerational Debt

Parents are often ready to do anything to help their children receive a good education, even when it is a financial challenge. As the price of higher education has risen dramatically, more and more parents have turned to borrowing to bridge the gap between grants and scholarships and even student loans to bridge the gap. . One of the results has been a significant increase in the number of families taking out Parent PLUS loans.

A new report from the Century Foundation sheds light on the problems with Parent PLUS loans – a federal loan borrowed by parents of dependent undergraduate students – showing that these loans potentially harm the economic well-being of families, with profound implications in terms of fairness.

Using data from the Department of Education and the Survey of Consumer Finances, the report shows a concerning growth in the number of parents borrowing Parent PLUS loans, particularly low-income families and Black and Latino families. -American.

The report clearly indicates that the Parent PLUS loan program has strayed from its original goal, growing to more than 3.7 million parent borrowers owing more than $104 billion.

The Parent PLUS loan program was created in the 1980s to help provide cash to middle and upper middle income families seeking a loan at interest rates below the double digit interest rates seen in the private sector. More than 40 years later, these loans have increasingly been taken out by families in more precarious financial situations.

“The rising cost of higher education, coupled with state and federal disinvestment, has left many families with very few options to ensure their children can earn a degree,” explained author Peter Granville. of the report. “That makes these risky but easy-to-obtain loans an attractive option, or sometimes the only option for families.”

Parent PLUS loan problems are not new

Researchers and advocates have long warned that Parent PLUS loans pose a unique risk to borrowers, as parents of students least able to repay them can easily access tens of thousands of debts. The report sheds light on the troubling reality that most Parent PLUS recipients also receive Pell grants, financial aid for students with the lowest incomes, typically students from families earning less than $50,000 a year. .

Plus loans have higher interest rates, higher loan origination fees than other federal student loans, and tend to be issued for larger amounts – the only cap on how much a parent can borrow with a PLUS loan is the total cost of the student’s attendance, minus any other assistance the student received. They also have more limited repayment options and can only access income-based repayment options if they are consolidated into direct federal loans. Even if a parent consolidates successfully, they can only access the least generous of the income-driven repayment plans.

Many borrowers, especially black and Latino borrowers, simultaneously hold Parent PLUS loans for their children and loans for their own college education. There is also an inverse relationship between PLUS borrowings with black families versus white families. White parents who borrow MORE tend to have higher incomes, while black parents who borrow tend to have lower incomes. Forty percent of black students whose parents have taken out Parent PLUS loans are students with no FAFSA expected family contribution — typically students from families with incomes near or below the poverty line.

Parent PLUS Loans Grow Fastest in States with Lower Higher Education Funding

Parental borrowing plus increased the most in states where state funding for higher education declined the most, suggesting that as state funding for higher education declines and As tuition fees rise at these institutions, families are turning to the PLUS loan program to fill the growing gap in unmet need.

When asked if states should take the growth in parent PLUS borrowing as a wake-up call, Granville said, “It absolutely should be a wake-up call for states. The growth of Parent PLUS over the past twenty years has been greatest in public institutions, where the cost burden on families is a function of state funding.

Parent PLUS loans and student loan forgiveness

The report calls for any loan forgiveness the Biden administration is considering to include Parent PLUS borrowers, noting that this would provide relief to a large number of student borrowers who are struggling to repay. The Biden administration is reportedly considering $10,000 in student loan forgiveness for federal borrowers. It is unclear if Parent PLUS loans are being considered for this discount.

Can the Parent PLUS loan program be fixed?

The report recommends that a PLUS loan fix that could result in an associated decline in loan access (such as adding a repayment capacity measure or loan capping) be accompanied by an increase in other financial aid resources, namely grants. If the PLUS loan program is changed without increasing subsidies for low-income students and the resources of the schools that serve them, access to higher education could be restricted or parents could be pushed towards less good credit products. private.

According to Granville, “The exact amount of debt a poor family should incur for their child’s education is $0. This is why Parent PLUS repair must go beyond Parent PLUS. Low-income families only need these loans because the subsidies are not available. To implement the Parent PLUS reform, the first step is new federal grant funding. This includes increasing the Pell Grant and embracing President Biden’s free community college plan. If Congress wanted to target institutions where the need for Parent PLUS is greatest, it could also enact new funding for HBCU endowments so that HBCUs can replace Parent PLUS with grants.

Going to college shouldn’t burden two generations of families with unpayable debt; the growing problems with the PLUS loan program are just one indication that the higher education funding system needs significant reform.

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