Parent PLUS Loans and Black Borrowers: Two Generations Saddled With Student Loan Debt for One Degree

By Hugh T. Ferguson, NASFAA Senior Staff Reporter

The Parent PLUS loan program has faced increased scrutiny in recent years and now a new brief is highlighting how the plan can have a disproportionately negative financial impact on Black parents who take out such loans for their children’s education.

The brief, released by the Education Trust, found that the Parent PLUS debt currently accounts for $104 billion of the $1.5 trillion (close to 7%) in total outstanding federal student loan debt. And according to a report from The Century Foundation that the brief draws on, the share of Black Parent PLUS borrowers whose families have an expected family contribution (EFC) of zero rose from 15% in 2008 to 42% in 2018.

This brief, the latest in a series based on qualitative data from the National Black Student Debt Study, details how the racial wealth gap and structural racism have strained the financial resources of Black families whose median incomes and accumulation of wealth have lagged behind their white counterparts. At the same time, financial aid hasn’t kept pace with increases in college costs, leading more low-income parents to fill the gap by taking out Parent PLUS loans, which were originally intended for higher income families.

“Black families rely heavily on federal financial aid because they have fewer financial resources due to structural racism,” the brief said. “The racial wage gap creates the conditions that force Black students to borrow more than their peers and Black parents, who have lower incomes than their White counterparts, to take out PLUS loans.”

FAFSA data showed that Black parents of dependent students had the lowest annual incomes of any racial or ethnic group as well as the highest financial need. The data further showed that the calculation of the student’s Expected Family Contribution (EFC) does not cover the student’s full cost of attendance and that Black students have the lowest average EFC and that the rate of a zero EFC is highest among Black students.

In fact, the brief found that the average Parent PLUS loan in 2015-16 took up more than 25% of a typical Black family’s income, compared with about 14% of a typical white family’s income. It’s a complicated issue with a number of contributing factors, including minimal credit checks that approve many Parent PLUS borrowers for loans they may likely struggle to repay, and higher interest rates and stricter repayment parameters than federal student loans that give parent borrowers little wiggle room.

“PLUS borrowing by Black parents is especially concerning because Black parents are borrowing outsized amounts relative to their incomes and assets and struggling with repayment, especially in retirement,” the brief said.

This growing gap makes Parent PLUS loans a last resort for Black borrowers to enroll in colleges. However these loans, especially for older parents, can put a strain on other financial goals like retirement. The brief found, for example, that more than 1 in 5 Black parent borrowers said they had borrowed or taken money from retirement accounts, compared with fewer than 9 in 10 of white parent borrowers.

The Education Trust included seven recommendations for the federal government to consider in order to make postsecondary education more affordable for Black borrowers, who face unique challenges within the aid system.

Specifically, they urge Congress and the White House to double Pell Grant and to make public two- and four-year colleges debt free. On the student loan front, the organization is also urging the administration to cancel up to $50,000 in federal student loans and to make Parent PLUS loans eligible for the proposed income-driven repayment plan. 

“The growing use of Parent PLUS loans by Black parents and their struggles with repayment illustrate that higher education finance and financial aid policies have failed,” the brief explains. “It is not sustainable to saddle two generations with debt to pay for one degree.”


Publication Date: 6/8/2023

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