Growing Student Debt Burden for Parents

A new study adds to growing concerns about a federal program that allows parents to take out loans to help finance their children’s undergraduate education.

Roughly 3.6 million parents had taken out $96 billion in outstanding loans under the federal Parent PLUS program as of late last year, the study from Trellis Research said. Parent PLUS loans now account for about a quarter of total federal lending for undergraduates, a share that grew from 14 percent in 2012-13.

An increasing portion of parents also are struggling to pay off these loans. For example, the five-year default rate grew to 11 percent for parents who took out PLUS loans in 2009, up from 7 percent for the 1999 cohort, research has shown.

The feds eliminated annual and lifetime borrowing limits for Parent PLUS loans in 1993, allowing parents to borrow up to the cost of attendance. And the program features only minimal credit checks.

“The program enables parents to incur substantially larger amounts of education debt than their college student children even though the parents, unlike their children, receive no direct economic returns on the investment,” Trellis Research said in the new study.

The research from the nonprofit group includes data on 59,096 parents whose children attended a Texas college and who entered repayment on their Parent PLUS loans during a roughly six-year period before September 2010. The data set is based on the federal loan portfolio of the Trellis Company (formerly TG), a student loan guarantee agency based in Texas.

Also included in the research are qualitative data Trellis collected from 49 Parent PLUS borrowers. And the study specifically examined borrowing and repayment outcomes for parents whose children went to historically black colleges and universities and other minority-serving institutions.

Over all, less than half of parents in the sample (45 percent) were successfully repaying their Parent PLUS loans with uninterrupted payments. The study found that seven years after entering repayment, 8 percent of parents had defaulted, 12 percent had consolidated their loans and 7 percent had not reduced their principal balance.

“Increasingly, low-income families with no adverse credit experiences rely on Parent PLUS loans to access higher education amid rising costs and stagnant wages, although the debt may become especially challenging to repay,” the report said.

Among parents who were successfully repaying their loans, 30 percent had delinquencies, deferments or forbearances at some point within their first seven years of repayment. Roughly 40 percent had at least one delinquency, with 12 percent of parents experiencing three or more.

Roughly 22 percent of the 59,096 parent borrowers had children who attended minority-serving colleges.

These parents were less likely to have uninterrupted payments (40 percent) and more likely to default (10 percent) and to not reduce their loan principal balance (8 percent) compared to parents whose children did not attend minority-serving institutions.

The median cumulative amount parents borrowed in the sample was $12,304. Parents whose children attended minority-serving institutions borrowed less on average, with a median amount of $10,000.

However, as research on other forms of student debt has found, parents with smaller loan debt balances were more likely to default, Trellis found. They also took out the lowest average number of loans.

For example, parents who were in delinquency and default took out a mean of 1.27 loans with a median debt of $6,500. In comparison, parents who were successfully repaying loans without interruption took out 1.82 loans at a median of $11,629.

Federal Fixes?

The Obama administration in 2011 raised credit standards for Parent PLUS loans. The move was unexpected, and loans subsequently were denied to thousands of families.

Families with students who attend historically black colleges and universities were most likely to be affected by the credit change. Due to the steep wealth gap between black and white families, Parent PLUS is viewed as an important tool for college access for black students. And historically underfunded HBCUs often are unable to meet the financial needs of students.

Many HBCU leaders were upset with the Obama administration over the decision, which led to steep enrollment and revenue declines in the sector.

“No one consulted the HBCU community,” said Lodriguez Murray, UNCF’s senior vice president of public policy and government affairs. The sector’s total enrollment dropped to 290,000 from 330,000, he said. “It terribly impacted these students.”

Arne Duncan, the first education secretary under Obama, later apologized for the credit change. And the administration in 2014 created a looser credit standard for the program.

Since then, Republicans in the U.S. Congress have called for new lending limits for Parent PLUS. And congressional Democrats have proposed making the loans eligible for income-driven repayment plans.

Those policy fixes would be “treating symptoms rather than the cause” of the problems with the loan program, said Clare McCann, deputy director for federal higher education policy with New America's education policy program.

Last year New America and the Urban Institute published a report on Parent PLUS loans. The report recommended that lending should be limited to a family’s expected family contribution. It also said loan limits should be increased for undergraduate students whose parents would no longer qualify for PLUS loans.

A primary policy goal should be “preventing very low-income parent borrowers from taking on a lot of debt,” McCann said.

Officials with the Education Department last month said the agency plans to release program-level data on Parent PLUS debt, default and repayment later this year. But until then, the Trellis data are helping to fill a hole.

“We have a huge dearth of information” about Parent PLUS, said McCann, who called the new study a “public service.”

Roughly two-thirds of the parents interviewed by Trellis for the study said they have struggled to repay their Parent PLUS loans, with almost half describing it as a regular, frequent or constant issue.

The interviews also revealed college financing gaps that parents had not anticipated. For example, almost a quarter said living costs for their children in college were much higher than expected.

The effect of repaying Parent PLUS loans on parents’ ability to save money and make major purchases varied widely among respondents. But, not surprisingly, parents whose children attended minority-serving institutions and those who defaulted were more likely to describe a large impact.

Murray said his organization would be closely watching policy discussions about Parent PLUS. "We don't want to see the doors of higher education closed."