“Parent PLUS loans present conundrums for both the government issuing the loans and the parents who take them on,” said Peter Granville, the study’s author and TCF’s senior policy associate. “The loans provide liquidity for families who need it to send their child to college. But it is a very risky, long-term gamble. The government, colleges, and families are all doing what seems best for the child’s college opportunity, yet this can trap parents in debt. And for no group is this more true than low-income communities of color.”
Parent PLUS loans are held by more than 3.7 million families and account for upwards of $104 billion in student debt nationwide. These loans have high interest rates and fewer options to lower monthly payments, so the risk of default is greater compared to other federal student loans.
“I think this report takes a comprehensive look at what I always felt was a bellwether for the serious affordability issues in higher education, particularly for Black families,” said Rachel Fishman, deputy director for higher education research at New America, a think tank. Fishman has also researched Parent PLUS loans in recent years. “We could be solidifying a racial wealth gap with something seen as supposed to mediate that racial wealth gap.”
Fishman explained that Parent PLUS loans were initially created to give middle-class and upper middle-class parents more flexibility for how to pay for college. Yet the skyrocketing cost of tuition and fees has meant more low-income families have used these loans despite their perilous terms. At the same time, public funding for higher education, particularly federal grant aid for students, has not caught up with price hikes.
“More and more families have had to turn to this loan in ways that it was never intended to be utilized for,” said Fishman. “The way this program was created does not protect the borrowers in the program.”
Since 2000, the annual disbursement of Parent PLUS loans tripled nationwide, according to the TCF study. Disbursement stood at about $5 billion in 2000, then leapt to over $15 billion in 2016, prior to COVID-related enrollment drops. Most of that increase came from a 269% rise in using Parent PLUS loans to go to public universities.
