$104 Billion In Parent PLUS Student Loans Creating Multi-Generational Debt

Parents are often willing to do anything to help provide their children with a good education, even when doing so is financially challenging. As the price of higher education has increased dramatically, more and more parents have turned to borrowing to make up the gaps between grants and scholarships and even students’ own borrowing to bridge the gap. One outcome has been a significant increase in the number of families taking out Parent PLUS loans.

A new report from the Century Foundation highlights problems with the Parent PLUS loans—a federal loan borrowed by the parents of dependent undergraduate students— showing that these loans are potentially harming families’ economic well-being, with profound equity implications.

Using data from the Department of Education and the Survey of Consumer Finances, the report shows concerning growth in how many parents borrow parent PLUS loans, particularly low-income families and Black and Latino families.

The report makes clear that the Parent PLUS loan program has moved away from its original goal, swelling to over 3.7 million parent borrowers owing more than $104 billion.

The Parent PLUS loan program was created in the 1980s to help provide liquidity for middle and upper-middle income families looking for a lower interest loan than the double-digit interest rates seen in the private sector. Over 40 years later, these loans increasingly have been taken out by families in more precarious financial positions.

“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 Peter Granville, author of the report. “That makes these risky but easy-to-obtain loans an attractive option, or at times, the only option for families.”

Parent PLUS loans problems are not new

Researchers and advocates have long warned that Parent PLUS loans represent a unique risk to borrowers, as parents of students least able to pay them back can easily access tens of thousands of debt. The report highlights the troubling reality that most Parent PLUS recipients also receive Pell Grants, financial aid targeted at the lowest income students, generally students from families who earn less than $50,000 a year.

Plus loans have higher interest rates, higher loan origination fees than other federal students loans, and tend to be taken out in higher amounts—the only cap on how much a parent can borrow with a PLUS loan is the student’s total cost of attendance, minus any other aid the student receives. They also have more limited repayment options and can only access income-driven repayment options if they are consolidated into Direct Federal loans. Even if a parent successfully consolidates, they can only access the least generous of the income-driven repayment plans.

Many borrowers, especially Black and Latino borrowers, hold parent PLUS loans for their children and loans for their own college education simultaneously. There is also an inverse relationship between PLUS loan borrowing with Black families compared to white. White parents who borrow PLUS tend to have higher incomes, while Black parents who borrow tend to have lower incomes. Forty percent of Black students whose parents took out Parent PLUS loans are students with zero expected family contribution from FAFSA—generally students from families with incomes near or below the poverty line.

Parent PLUS loans are growing fastest in states with lower funding for higher education

Parent plus borrowing has increased the most in states where state funding for higher education has decreased the most, suggesting that as state appropriations for higher education drop and tuition at those institutions increase, families turn to the PLUS loan program to make up the increasing gap of unmet need.

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

Parent PLUS loans and Student Loan Forgiveness

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

Can the Parent PLUS loan Program be fixed?

The report recommends that a PLUS loan fix that could result in an associated decline in access to the loan (such as adding an ability to repay measure or capping the loan) is accompanied by an increase in other financial aid resources, namely grant aid. If the PLUS loan program is tweaked without increasing grant aid to low-income students and resources to the schools that serve them, access to higher education could be curtailed, or parents could be pushed into worse private credit products.

Said Granville, “The right amount of debt a poor family should have to take out for their child’s education is $0. That’s why fixing Parent PLUS has to go beyond Parent PLUS. Low-income families only need these loans because grant aid isn’t available. To implement Parent PLUS reform, the first step is new federal funding for grant aid. This includes increasing the Pell Grant and passing President Biden’s free community college plan. If Congress wanted to target institutions where the need for Parent PLUS is greatest, it could also pass new funding for HBCU endowments so that HBCUs can replace Parent PLUS with grant aid.”

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

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