Report: Fix Weak Parent PLUS Policies to Benefit Borrowers

By Allie Bidwell, NASFAA Senior Reporter

A lack of tough standards around federal student loans for parents through the Parent PLUS Loan program has led to an unnecessary number of parent borrowers struggling to repay these loans, according to a new report published this week. In the report, researchers from the Urban Institute and New America argue that lawmakers should provide some relief to current borrowers struggling to repay their loans, and tighten requirements for future borrowers while providing more grant aid to low-income students.

The report’s authors—Sandy Baum and Kristin Blagg of the Urban Institute, and Rachel Fishman of New America—recommended that Congress make several changes to the Parent PLUS loan program for new borrowers, including limiting the borrowing amount to the parent’s Expected Family Contribution (EFC), increasing loan limits for low-income students whose parents would not be eligible for PLUS loans, not allowing PLUS borrowers to have access to income-driven repayment plans, and holding institutions accountable by creating a cohort default rate for Parent PLUS loans.

For current borrowers, the authors argue lawmakers should make it easier for Parent PLUS borrowers to discharge loans through bankruptcy, allow borrowers in a “social safety net program” such as the Supplemental Nutrition Assistance Program to discharge all or some of their debt, and allowing them to enroll in an income-contingent repayment plan after consolidating their loans.

Think tanks and thought leaders in higher education have pointed to flaws in the PLUS Loan program, arguing that the Parent PLUS Loan program "invokes predatory lending," or that the program should be eliminated altogether in favor of boosting funding for grants.

According to the report, in 2017-18, a total of 779,000 parent borrowers took out an average of $16,452 in PLUS loans. Between 2012-13 and 2017-18, the total Parent PLUS loan volume increased from 14 percent of lending for undergraduates to 23 percent.

When the Parent PLUS loan program began, lawmakers saw it as a way “to provide liquidity to parents who might not be able to pay tuition up front,” according to the report. And until the 1992 reauthorization of the Higher Education Act (HEA), the loan was capped at $3,000 a year, or about $10,000 adjusted for inflation.

While middle- and upper-income families still make up a larger proportion of Parent PLUS loan borrowers, “some low- and middle-income students and families have started to rely on the program in ways Congress did not intend,” the report said.

“As the Pell grant program has failed to keep pace with rising tuition prices and stagnant family incomes, and as families at all income levels have seen the importance of sending their children to college, low- and middle-income families, and the institutions their children enroll in, have sought alternative financing mechanisms,” the report said.

That became a problem when the Department of Education (ED) in 2011 tightened the program’s underwriting standards, leading many previously-approved parent borrowers to lose access to those funds. The change was particularly severe at Historically Black Colleges and Universities (HBCUs). ED then reversed the criteria change in 2013-14 and prompted a public apology from then Secretary of Education Arne Duncan.

Recognizing the problem, both Republicans and Democrats have proposed changes to the program through bills to reauthorize HEA. The House Republicans’ bill, the PROSPER Act, proposed implementing a new cap on parent loans. The House Democrats’ Aim Higher Act proposed allowing parent borrowers to enroll in income-driven repayment plans.

But the new report claims neither of those solutions is sufficient.

“These education loans will not increase future earning opportunities for parents the way they do for students,” the report said. “Providing these loans to parents who are unlikely to be able to repay them is a poor substitute for providing the grant funding their children need to access meaningful educational opportunities.”

The reasoning behind allowing for income-driven repayment “does not carry over from students to parents,” the authors argue.

“Parents’ income paths are different from those of recent students. Parents’ incomes are not interrupted by their children’s college enrollment and do not increase because of that enrollment,” they write. “All income paths are subject to unforeseen variation, and parents can run into difficulties with education loans just as they can with mortgages or car payments. But parents are better able to predict and plan for repayment than are students, and education loans are not in a separate category from any other debt these borrowers hold.”

They also warned that doing so could lead to “adverse selection” and a reduction in overall repayment, claiming parents soon to retire “will be particularly drawn to loans that allow them to lower or avoid payments when their incomes predictably fall.”

“Unlike grants and loans for students, Parent PLUS loans are not a tool for ensuring access to college for those with limited resources. Lending to these families, particularly in large amounts, only postpones and worsens their financial hardship,” the authors write. “As the federal government strengthens aid programs for students, increasing the resources available to them, it should reform the Parent PLUS program, reducing or eliminating loans made to parents who are unlikely to be able to repay and providing support for those currently facing insurmountable barriers to meeting their obligations.”

 

Publication Date: 4/17/2019


Kimberly L | 4/17/2019 3:1:03 PM

Although well intended, I do not think that some of the ideas listed in the article will solve the parent debt or student debt problem for that matter. I have worked in the financial aid arena for nearly 30 years. I worked at a professional school and a community college. While the demographics might be quite different, some of the approaches on how to pay for college were not that different. Based on my observations, the planning of paying for college often begins once the student and parents read the student's award letter. I liken it to planning on how to pay for a party a week before the party without little or no concept on how much it will cost. I have also met with friends and relatives who are educated and middle class, however, they made poor decisions on how to finance a college education. One family was dead set against going to a prestigious state school, which not only cost less, but was far more reputable. Instead, they choose a private college on the other side of the country. Now, after four years of borrowing PLUS loans, this couple has no idea how they are going to retire. I firmly believe that personal finance needs to be mandated curriculum starting in 9th grade. I do want to express, however, as far as borrowing for low-income for parents and students, I do not have any solid suggestions. I would like to see more students receive a higher amount in Pell Grants.

Susie E | 4/17/2019 2:42:19 PM

For current borrowers, the authors argue lawmakers should make it easier for Parent PLUS borrowers to discharge loans through bankruptcy, allow borrowers in a “social safety net program” such as the Supplemental Nutrition Assistance Program to discharge all or some of their debt, and allowing them to enroll in an income-contingent repayment plan after consolidating their loans.

Why should they get to get rid of their debt in bankruptcy? They are adults. They signed up for the loans.

Kim J | 4/17/2019 2:28:00 PM

I agree with the comments of James and David. I would like to add that I find the following interesting:

"A lack of tough standards around federal student loans for parents through the Parent PLUS Loan program has led to an unnecessary number of parent borrowers struggling to repay these loans, according to a new report published this week ... and tighten requirements for future borrowers while providing more grant aid to low-income students

Back to my comment ... several years back (around 2013-14 timeframe), ED allowed parents of those attending HBCU schools to be eligible in spite of the credit check ... and of course, we are reaping the fruit of decisions planted by those in authority. What did we think would happen? An apology from then ED Secretary Duncan was not an apology, but rather a handout or a cop out. Your further jeopardized the futures of parents and students. Of course the parent borrowers are in a bind as they were likely deemed ineligible to begin, but to acquiesce and play politics, they were approved. There are tough decisions at times and these tough times we endure help mold us ... make us stronger ... allow us the opportunity to grow and not give up. There is always another path that we can take ... we do not need lawmakers or bad policy to compound this issue with additional short-sighted steps. As David noted, holding schools accountable for Parent PLUS borrowing/default without allowing schools authority on such matters is very short sighted.

David S | 4/17/2019 9:27:27 AM

“These education loans will not increase future earning opportunities for parents the way they do for students,” is exactly why it would be bad policy to "[hold] institutions accountable by creating a cohort default rate for Parent PLUS loans." Colleges are powerless to say who gets a PLUS loan, when or for how much. We are educating their children, not them; the value in a college degree benefits the student, not their parents. I know firsthand the sense of pride as a parent seeing my child walk across the stage and be handed a diploma - I have a photo of that exact moment on my desk as I write this - but my daughter's BA with honors and the MA she is working on right now are not going to result in new career opportunities for me.

Should PLUS loans have debt-to-income requirements? I think that's a conversation we need to have (but would require a change in the law). Should schools have the authority to deny or refuse to process a PLUS loan? Another conversation. But schools are not responsible for the repayment of debt that we can't limit or prohibit, especially loans that are set up so that someone with no income can borrow without limits.

And while we're at it, let's stop with the Non-Parental Loan for Non-Undergraduate Students being the same as the Parental Loan for Undergraduate Students. There needs to be a completely different, up-to-full-cost federal loan for graduate and professional students.

James C | 4/17/2019 8:27:24 AM

It is time to make loan eligibility and limits the same for dependent and independent students. How is a zero EFC dependent student any less deserving of the extra unsubsidized loan than what an independent student receives? An interim fix would allow schools to grant plus denials to anyone with an auto 0 EFC.

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