Parents are borrowing three times the amount they did 25 years ago to send their children to college and are struggling to repay the debt, according to a Brookings Institution report on Parent PLUS loans. The federal loan program gives parents the ability to help finance their child’s college education, and today, more than 3.4 million Parent PLUS borrowers collectively owe at least $87 billion. The average amount borrowed annually has risen from $5,200 in 1990 to $16,100 in 2014.
While noting that the growth in Parent PLUS borrowing has roughly kept pace with tuition inflation, Mark Kantrowitz, a student aid expert, told Inside Higher Ed that he is more concerned with data showing a jump in loan defaults. According to Brookings, the five-year default rate on Parent PLUS loans jumped from 7 percent in 2000 to 11 percent in 2009.
‘A terrible choice’
Having parents “taking out loans that some of them clearly can’t afford to repay” for the sake of their children’s future “seems like a terrible choice,” Adam Looney, the director of the Brookings Center on Regulation and Markets director and co-author of the Parent PLUS report told Inside Higher Ed.
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. Critics of the program say its low eligibility requirements set families up for repayment failure; eligible borrowers can qualify for Parent PLUS loans even when they’re more than $2,000 delinquent on other loan payments.
Exacerbating racial disparities
Rachel Fishman, deputy director for research at New America’s Education Policy program, says the Parent PLUS program has proven especially problematic for families of color. By burdening many Black families with debt they can’t repay, the loans simply widen the existing racial wealth gap.
However, Parent PLUS loans also have historically helped students with limited loan options to attend Historically Black Colleges and Universities (HBCUs). Inside Higher Ed notes that a 2011 effort to restrict Parent PLUS eligibility generated a significant backlash among parents of color and historically Black institutions, whose students had maxed out their federal financial aid eligibility and did not qualify for private loans with more reasonable repayment rates.
Still, observers note the need for reforms, and legislators have outlined several different solutions in their various proposals for updating the Higher Education Act. “There are a lot of things that the federal government can do,” Looney told Inside Higher Ed. “One initial step would just be transparency to have a better sense of who is being successful paying their loans and who isn’t.”