When it comes to student loan borrowing, there’s relatively little information on those who take out Parent PLUS loans to support their children in college. A new report from the Federal Reserve Bank of Dallas highlights the increase in parent borrowing over the years, an increase in default rates throughout the recession, and factors that may influence which borrowers are more likely to default.
The report draws on previous research conducted by Trellis Company, which tracked more than 62,000 Parent PLUS borrowers who entered repayment between October 2004 and September 2010, and tracked them for the next seven years, or until the loans were paid off.
Overall, the research found that about 8.6 percent of the borrowers defaulted within that seven-year timeframe. The borrowers that defaulted also shared some characteristics with undergraduate borrowers who are likely to default: they took out fewer loans and had smaller balances. The borrowers who defaulted also had children who took more time to complete their programs, and were more likely to enroll in a community college or for-profit institution. The research also found that PLUS borrowers were more likely to default if the students they were supporting borrowed large amounts, dropped out of school without a degree, or were enrolled in a for-profit or minority-serving institution.
Policymakers and researchers have pressed for more information on the demographics of PLUS loan borrowers as well as the repayment outcomes of those borrowers, as parent borrowing has become more prevalent. The Dallas Fed report noted that while Parent PLUS loans made up about 8.6 percent of undergraduate loans originated in the 1996-97 academic year, that share rose to 15 percent by 2016-17, an increase of more than 70 percent. Additionally, parents took out larger amounts in PLUS loans over time. The average parent loan rose from about $9,600 in 1996-97 to nearly $15,900 in 2016-17, the report said, “much greater borrowing than the average amount of Stafford subsidized or unsubsidized loans.”
The PLUS loan program is no stranger to controversy and scrutiny. Just last spring, a system error caused some 1,600 PLUS Loan applicants to have erroneously received loan disbursements. The Department of Education (ED) also came under fire in 2011 when it changed the underwriting standards on PLUS loans, resulting in scores of previously approved parents and graduate students being suddenly denied. The change hit students at open access schools and Historically Black Colleges and Universities (HBCUs) hardest. The entire situation ultimately resulted in a public apology from then Secretary of Education Arne Duncan.
Others have claimed the loan program may actually intensify the racial wealth gap for black families.
The authors of the Dallas Fed report interviewed 49 parent borrowers and 36 students whose parents had taken out a PLUS loan to gather more information on their expectations and experiences. Although the parent borrowers “tended to have more experience” in managing debt and more realistic views for repayment, the decision to use PLUS loans “didn’t always follow thoughtful discussions with students about explicit academic expectations and implications of ongoing financial obligations,” the report said. Parents also noted that taking out the loans negatively impacted their ability to save for retirement and make other financial decisions.
“The collegiate pathway to adulthood, when parental borrowing is involved, seems to come with parental sacrifice as well as a transfer of financial responsibility,” the report said.
Publication Date: 10/2/2018