The popular parent PLUS loans are made without regard to the ability of borrowers to repay, and have fewer protections when they can’t.
By Tara Siegel Bernard
Kate Schweizer and her husband didn’t want their two daughters, just 13 months apart, to begin their adult lives saddled with college debt, so they borrowed much of the money themselves. Beginning in 2005, the couple took out a new batch of federal loans each academic year, eventually accumulating about $220,000 in debt.
Today, they owe half a million dollars.
“Even though the cost of tuition seemed insane, I convinced myself that it would all make sense and pay off in the end,” Ms. Schweizer, 65, said. “I had hoped that since my husband had a solid, union job, we would — we should — be able to afford this.”
But as they borrowed more each year, their monthly payments began to climb, until they reached $1,500. “We tried repeatedly to renegotiate the interest or the balance, or the payments, any part of it, many times,” she said. “It was ‘No, thanks — put it in forbearance or hardship with 8.5 percent interest,’ over and over again.”
The Schweizers took parent PLUS loans, which are underwritten by the federal government and have become popular with parents who want to borrow to help pay for their children’s education. Although the Schweizers, who live in the New York metropolitan area, carry more debt than most, many parents have turned to such loans as college costs have rocketed past wage growth, researchers say.
Parent PLUS loans now account for nearly a quarter of new federal borrowing for undergraduates. And while they are still just 6 percent of the $1.57 trillion in current federal student debt, and can let families of more limited means have their children attend the college of their choice, they can be problematic because they allow families to borrow without regard to their ability to repay.
1,000,000
800,000
600,000
400,000
Number of Parent
PLUS loan recipients
200,000
0
’00
’05
’10
’15
’19
$20,000
15,000
10,000
Average Parent PLUS loan size
5,000
Adjusted for inflation
0
’00
’05
’10
’15
’19
25
%
New parent loans share
of federal undergraduate loans
20
15
10
’00
’05
’10
’15
’19
1.0
$20,000
25
%
million
0.8
15,000
20
0.6
New parent loans
share of federal
undergraduate
loans
10,000
0.4
Number of
Parent PLUS
loan recipients
Average Parent
PLUS loan size
15
5,000
0.2
Adjusted for inflation
0
0
10
’00
’05
’10
’15
’19
’00
’05
’10
’15
’19
’00
’05
’10
’15
’19
1,000,000
$20,000
25
%
New parent loans share of
federal undergraduate loans
800,000
15,000
20
600,000
10,000
400,000
Number of Parent
PLUS loan recipients
Average Parent
PLUS loan size
15
5,000
200,000
Adjusted for inflation
0
0
10
’00
’05
’10
’15
’19
’00
’05
’10
’15
’19
’00
’05
’10
’15
’19
Note: Parent PLUS loans are federal loans that parents of dependent undergraduate students can use to help pay for college.
Source: Mark Kantrowitz (Cerebly Inc.)
By The New York Times
It’s also easier to accumulate heavier debts, because the only cap on parent PLUS loans is the total cost of attendance, minus any other aid provided. They generally carry higher interest rates than students’ loans, and come with fewer safeguards should a family’s financial situation take a turn for the worse. Only a basic credit check — looking for “adverse” events — is required to get one.
“The parent PLUS loan does not come with an attempt to understand the parents’ ability to repay,” said Rachel Fishman, deputy director of research for the higher education program at New America, a nonprofit research and policy group. “When the federal government is saying you can borrow this loan, and an institution is saying you can borrow this loan, that leads someone to believe that the federal government has done their due diligence. They have not.”
The Education Department views these loans — as it does all student loans — as “instruments of social insurance policy and not traditional debt,” which is why they are not subject to traditional underwriting norms, a spokesman said.
At the end of last year, there were 3.6 million loan recipients with nearly $101 billion in parent PLUS loans — an increase of about 40 percent from $72.2 billion (adjusted for inflation) at the end of 2014. In particular, they can be risky for many Black parents, experts said, who have been taking out more of these loans in recent years but who tend to have less wealth.
In 2016, 58 percent of students whose parents took out parent PLUS loans were white, 19 percent were Black, and 15 percent were Hispanic or Latino, according to Ms. Fishman’s analysis of federal data. Four years earlier, 15 percent were Black and 12 percent Hispanic or Latino. Three-quarters of Black borrowers had adjusted gross income of $75,000 or less in 2016, compared with just 38 percent of whites.
According to an analysis of federal College Scorecard data, which looked at 2017-18 and 2018-19 graduates, the typical parent borrows $24,416 in PLUS loans. But many borrow significantly more — though the pandemic year was an exception — especially at private colleges that are much more expensive.
At New York University, where the Schweizers’ older daughter studied, as many as one-fifth of students had a parent who took a parent PLUS loan, according to the most recent Scorecard data — which showed that the median total debt at graduation was $74,201.
A spokesman for the university said it did not recommend the loans and no longer mentioned them in financial aid letters sent to students and their families “so they’re not seen as among the first things to turn to pay for college.”
The interest on such loans can be unforgiving, said Adam Looney, a finance professor and the executive director of the Marriner S. Eccles Institute for Economics and Quantitative Analysis at the University of Utah. If borrowers default on or consolidate their loans — or if they receive a forbearance or a deferment, putting payments on hold — the interest that accrues is capitalized, which means it is added to the principal balance, he said, pushing payments higher. That’s what happened to the Schweizers’ loans, which were consolidated more than once and in forbearance for long stretches.
“Things really spiral out of control for borrowers who face repeated economic or financial ups and downs, especially when they have high-interest loans like PLUS loans,” Mr. Looney said.
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