Report: Parent PLUS Debt Disproportionately Burdens Lower-Income Borrowers

By Maria Carrasco, NASFAA Staff Reporter

The Parent PLUS loan program creates “immense debt” for thousands of low-income parents each year, which they will struggle to pay off, due to poor policy design and compounded by structural inequalities, a new report out of Georgetown University found. 

The Georgetown Center on Poverty and Inequality released a report on Thursday titled “Unrepayable Debt: How Economic, Racial, & Geographic Inequality Shape the Distribution of Parent PLUS Loans.” NASFAA President and CEO Justin Draeger and Vice President of Public Policy and Federal Relations Karen McCarthy were cited in the report for providing feedback and insight. 

The findings show that the median Parent PLUS loan for borrowers with incomes of $130,000 or greater is $19,000 — which is just over twice the size of the median PLUS loan for parents with incomes less than $30,000 of $8,400. The report notes that while the data reflect a single year of college, many parents take out multiple Parent PLUS loans over a student’s college career.  

“Parent PLUS distributes often unrepayable debt disproportionately by income level, race and ethnicity, geography, and higher education sector,” the report states. “Understanding this uneven distribution of debt is vital to any efforts by policymakers, higher education administrators and staff, researchers, and advocates to effectively envision an equitable higher education system for parents and students.”

And while middle- and higher-income households make up a larger share of Parent PLUS borrowers, there’s been an increase in usage of those loans by Black, Latinx, and Asian students whose parents’ annual income is less than $30,000. In 2018, 44% of Black and 25% Latinx students using Parent PLUS loans came from very low-income backgrounds, with their annual parental income less than $30,000. That’s compared to 10% of white students whose parents make less than $30,000. 

The report notes that from 2008 to 2018, the share of Black students using Parent PLUS loans whose parents’ annual incomes are less than $30,000 nearly tripled from under 20% to 44%. The authors claim there may be an increase in the representation of Black and Latinx students from low-income backgrounds among Parent PLUS borrowers because the cost of college outpaced inflation and more students from low-income backgrounds and students of color are enrolling in college. 

“Economic changes following the 2008 financial crisis also resulted in fewer resources available to students and colleges through state higher education spending, rising unemployment, and depletion of wealth among U.S. households, especially among workers and families of color,” the report states. “Additionally, while the maximum amount of federal Pell Grants has increased over the last decade, the purchasing power of Pell Grants relative to the cost of college has generally decreased over time.”

Another finding from the report is that students from low-income backgrounds whose parents borrow Parent PLUS loans disproportionately attend college in the South, at 45% in 2018. Twenty-two percent of those students attended college in the Northeast, 22% in the Midwest, and 11% in the West. The report suggests that state funding decisions over the last three decades may have impacted why there is inequality in higher education financing and higher reliance on Parent PLUS among low-income families.

“For example, politicians in Southern states pivoted from focusing on need-based aid for public higher education institutions to merit-based scholarships,” the report states. “Merit-based scholarships are disproportionately awarded to wealthy, white students, leave less funding for low-income students, and contribute to significant gaps in financial aid resources, benefiting wealthy white students over low income students.”

Private four-year for-profit institutions hold the highest rates of Parent PLUS loan debt, followed by private four-year nonprofit institutions, public four-year institutions, and public two-year institutions. For both for-profit and nonprofit private institutions, Parent PLUS borrowing rates tend to be highest for students whose parents earn $30,000 to $49,999 per year. Fifty-four percent of the dependent student population at private four-year for-profit institutions whose parents earn $30,000 to $49,999 have accumulated PLUS debt. At four-year nonprofit private institutions, 28% of the dependent student population whose parents earn $30,000 to $49,999 had accumulated PLUS debt. 

The report calls on policymakers to redesign higher education financing policy, especially the PLUS program. 

Last week, Draeger told The New York Times that the Parent PLUS loan program has gone “off the rails.” Additionally, NASFAA has recommended that a Higher Education Act (HEA) reauthorization should include separating the Grad PLUS and Parent PLUS programs because currently borrowers can borrow up to the cost of attendance for an institution, which could be tens of thousands of dollars.

“Policymakers need to understand that Parent PLUS has disproportionately distributed debt by income level, race and ethnicity, geography, and college sector,” the report states. “Reforms should focus on equitable postsecondary education pathways that provide equal opportunity for students and their families in their efforts to achieve security and upward mobility, and thoughtfully consider institutions that have depended on and continue to depend on PLUS loans to serve low-income students and students of color.”


Publication Date: 9/20/2022

James C | 9/20/2022 10:48:35 AM

I should add below when opening up the ability for school to perform more plus denial PJs for Pell recipients I also mean we would award them the additional unsub loan. It was implied in my comment but it may not have been clear.

Armand R | 9/20/2022 10:44:54 AM

Darren C makes excellent points.
Why is it just accepted that the cost of education will continue to increase at a rate higher than the cost living, healthcare, wages, GDP? Nobody, including NASFAA, wants to adress the real issue: the cost of education. A 2014 article by economist Stephen Moore points to the real problems.
"What do these two industries – medical care and education – have in common? The answer is: government. The public sector basically runs these two sectors of the economy. Our health care system is about 52 percent public and 48 percent private. In education, about 70 percent of the dollars flow to public schools.

"It’s no secret why these industries are such failures at curtailing costs. The answer is the people who get the service don’t pay for it. This is called the third-party payment problem, and it’s systemic in medicine and education...
"Imagine for a moment that there were no public subsidies for education, and parents paid for their kid’s schooling the way we pay for everything else – by shopping around and finding the best quality at the best price. What if there were no government-guaranteed student loans for college or other federal aid to underwrite tuition. Does anyone believe that colleges would cost $30,000 or $40,000 or $50,000? No way."

James C | 9/20/2022 9:51:19 AM

The US Dep't of Ed allowing borrowers to take out loans up to the COA without the ability to pay them back is simply unethical. There needs to be a debt/income component to the Parent PLUS approval process. Schools should also be allowed to deny, through PJ, a parent PLUS loan to the parents of any pell students who are approved but do not want to take out the parent plus due to low income if their parent income is on the FAFSA. We process some plus denial PJ's now when requested by the borrower but we keep them limited. The Parent PLUS loan should then be limited to the additional amount an independent student receives ($4,000/$5,000 yr) instead of borrowing up to the COA.

The GRADPLUS approval process would have to be looked at differently than the Parent PLUS loan if debt to income is added to the approval process if the GRADPLUS program continues.

Darren C | 9/20/2022 9:28:50 AM

I find this article to be a lot of finger pointing, with no personal accountability brought up or honest solutions presented. The cost of education is out of control in this country. Our society, the Federal Gov’t and Dept. of ED have sat back for decades as education costs inflate at a rate like no other. They give out loans made of taxpayer money at an unprecedented rate using no standards, or credit checks whatsoever. When this creates a debt crisis the “solution” then becomes “lets forgive the debt”.

Keep in mind, no one is forcing people to take out Parent PLUS loans. It is an option for financing education. If people take out these loans and cannot by them back, where is their personal accountability? Having articles that only point fingers and group people into categories of “victims” does not actually address the systemic problems of the economy and education costs. I would imagine if someone made $30,000 a year, you would not want to finance a loan that is 1/3 or more of your entire yearly income.

On the other hand, quotes such as “Merit-based scholarships are disproportionately awarded to wealthy, white students, leave less funding for low-income students, and contribute to significant gaps in financial aid resources, benefiting wealthy white students over low income students.” come across specifically divisive. It sounds as though wealthy families with students that meet merit standards to receive scholarships are at fault here. These types of sentiments only divide people and further create social gaps.

Stop playing politics and start talking about real solutions. Curb education costs and in this country across the board. Do we need institutions charging tens of thousands of dollars for 1 year of education? Do we need the Dept. of ED handing out loans like candy to people that they know can’t pay them back? Put some accountability into the system and those that allowed it to become the giant mess it is. Let’s start there.

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