A federal college loan program is widening racial disparities

A report from the New America Foundation finds that the Parent PLUS loan program, a federal loan program that gives parents the ability to help finance their child’s college education, actually burdens low-income families and widens the racial wealth gap.

Created in 1980 to help middle-income families pay for college amid rising tuition and high interest rates, the Parent PLUS program offers loans free of the borrowing limits associated with other college loans. Parent PLUS loans, however, also have higher interest rates than student loans, don’t have income-driven repayment options, and are typically seen as a last resort after exhausting other kinds of aid and loans.

Although the program was intended to be used primarily by middle- and upper-class families—families that tend to be white—low-income, African-American families are also relying on the loan program as they struggle to finance higher education. Only 10 percent of white PLUS borrowers in 2012 had a family income less than $30,000, compared with one-third of black PLUS borrowers.

As the Pacific Standard points out, there is an “ample body of evidence concluding that black students are much more likely to struggle to repay back their student loans.” Further, when you consider all these parent and student loans together,” federal student loan policies are driving an intergenerational accumulation of debt that burden the neediest families,” Rachel Fishman, the author of the study, writes.

As covered by Inside Higher Ed, the report proposes several steps to prevent harmful debt accumulation, including more stringent credit checks and stronger counseling for borrowers. The study authors also recommend prohibiting colleges from including Parent PLUS loans in students’ financial aid award letters. Ultimately, though, Fishman says there “must be a targeted investment that is not debt-financed and will completely bring down the cost” of higher education.

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