$104 Billion in Parents PLUS Student Loans Creating Debt for Generations – Forbes | Vette Leader

Parents are often willing to do anything to give their children a good education, even if it is financially difficult. As the prices of higher education have risen dramatically, more and more parents are turning to borrowing to bridge the gaps between scholarships and grants, even taking on students’ own loans to bridge the gap. One result was a significant increase in the number of families taking out Parent PLUS loans.

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

Using data from the Department of Education and the Consumer Finance Survey, the report shows how many parents are taking up Parent PLUS loans, particularly low-income, black and Hispanic families.

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

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

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

The problems with Parent PLUS loans are not new

Researchers and advocates have long warned that Parent PLUS loans pose a unique risk to borrowers because parents of students who are least able to repay them can easily access tens of thousands of dollars in debt. The report highlights the disturbing reality that most Parent PLUS recipients also receive Pell Grants, financial assistance for the lowest-income students, generally students from families earning less than $50,000 a year.

Plus loans have higher interest rates, higher lending fees than other state student loans, and are typically borrowed in larger amounts – the only limit to how much a parent can borrow on a PLUS loan is the student’s total attendance cost minus any other assistance, which the student receives. They also have more limited repayment options and can only access income-contingent repayment options if they are consolidated into direct federal loans. Even if a parent successfully consolidates, they can only access the least generous of income-based repayment plans.

Many borrowers, particularly Black and Hispanic borrowers, simultaneously hold Parents PLUS loans for their children and loans for their own college education. There is also an inverse relationship between black family PLUS borrowing compared to white family borrowing. 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 have taken out Parent PLUS loans are students with no expected family contribution from the FAFSA—generally students from families with incomes near or below the poverty line.

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

Parents Plus borrowing has increased the most in states where government funding for higher education has declined the most, suggesting that families turn to the PLUS loan program as government funding for higher education falls and the Tuition fees at these institutions are increasing to fill the growing gap in unmet needs.

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 government funding.”

Parent PLUS Loans and Student Loan Forgiveness

The report calls for loan forgiveness to be considered by the Biden administration to include Parent PLUS borrowers, noting that it would relieve a large number of student loan borrowers who are struggling to repay. The Biden administration is reportedly considering waiving $10,000 in student loan forgiveness for federal student loan borrowers. It is unclear if Parent PLUS loans will be considered for this forgiveness.

Can the Parents PLUS loan program be repaired?

The report recommends that a PLUS loan fixation, which could lead to an associated decrease in access to the loan (e.g. adding a repayment measure or capping the loan), is accompanied by an increase in other sources of financial assistance, namely grants. If the PLUS loan program is optimized without increasing grants for low-income students and resources for the schools that serve them, access to higher education could be restricted or parents could be pushed into inferior private loan products.

Granville said, “The right amount of debt a poor family should take on for their child’s education is $0. Therefore, the repair of Parent PLUS must go beyond Parent PLUS. Low-income families only need these loans because there are no grants available. The first step in implementing the Eltern-PLUS reform is a new subsidy from the federal government. These include increasing the Pell Grant and passing President Biden’s free community college plan. If Congress wishes to address institutions where the need for Parent PLUS is greatest, it could also approve new funds for HBCU endowments to allow HBCUs to replace Parent PLUS with grants.”

College attendance should not burden two generations of families with unpayable debts; Growing problems with the PLUS loan program are just one indication that the system of college funding needs major reform.

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