People make their way on the Clark Atlanta University campus in Atlanta Ga. Thursday Feb. 12, 2009. … [+]
“I know my mother is not paying this much money for school,” said Clark Atlanta University student Aaron Greene in a recent interview with USA Today. “We don’t have that.”
A recent report in USA Today drew attention to the ever-increasing burden of Parent PLUS, a type of loan the federal government offers to parents of undergraduate students. Unlike traditional undergraduate student loans, Parent PLUS loans effectively have no annual or lifetime limits, and carry higher interest rates than other types of loans. They also lack some protections of federal loans to undergraduates, such as the right to enroll in most types of income-based repayment plans.
From the college’s perspective, the unlimited loans the federal government offers to parents are carte blanche to raise their prices. Scholarly work has found a causal link between the availability of Parent PLUS loans and higher tuition. As a result of the soaring price of college, average Parent PLUS balances have more than quadrupled since 1994, after adjusting for inflation. In addition, loan repayment rates have dropped.
Source: Looney & Lee (2018), Brookings Institution
Lending to parents of college students makes no economic sense. Investments in education are really investments in future earnings potential, so it follows that the person who receives the earnings benefits from education (the student) should be the one to pay back the loans used to finance that education.
But the amount of debt parents take on through Parent PLUS may be entirely unrelated to their ability to pay it back. Annually, the Department of Education makes thousands of loans to parents whom it determines have no financial capacity to contribute anything to their children’s college education. Households with a so-called “expected family contribution” of zero accounted for 18% of Parent PLUS loans disbursed in 2015.
This is the very hallmark of a predatory lender. Yet the entity behind all this is not some shady payday-loans outfit. It’s the federal government.
In their broad higher-education reform bill released last week, House Democrats aim to make Parent PLUS loans eligible for income-based repayment, which would lower many parents’ monthly payments and provide forgiveness opportunities. But this plan would do nothing to limit the amount of debt parents take on; it would simply transfer some of the cost from borrowers to taxpayers. In fact, since taxpayers would be on the hook for part of their balances, parents might end up borrowing more.
Easing the loan repayment burden on parents is a laudable goal, but it should only happen after Congress has abolished the Parent PLUS program for good. The federal government should not write a blank check to colleges in parents’ names, regardless of what loan repayment options are available after the fact.
But in the meantime, colleges shouldn’t be able to disclaim responsibility for the Parent PLUS mess. Studies show that colleges have raised their prices in response to the availability of Parent PLUS. If colleges truly care about students and their families, they’ll hold the line on tuition so parents don’t have to go into debt to pay for their children’s education.
