Parent PLUS loans are a dubious higher-ed option, study finds
The questions, Fishman argues, should be squarely centered on students and their families and whether they can afford the burdens they are acquiring. There are, she says, ample evidence that consumer protections are lacking.
For some families at the upper end of the economic scale, Parent PLUS loans can work, Fishman says. In some cases, it makes sense for parents to get up front the liquidity of the loan and then pay it off with their higher earning power over time.
But at the lower end of the economic scale, things are very different. The average amount borrowed by a parent using PLUS loans for students currently in college, Rodriguez says, is around $19,000. That includes first-year students as well as those near graduation.
A parent who borrowed $40,000 at the standard 6.25 percent PLUS loan rate would be paying $450 a month over 10 years on the loan. Few low-income families could afford those payments, Rodriguez says.
“This can be a very predatory product,” Fishman said. “PLUS loans don’t solve the college affordability issue. Someone is on the hook for paying that money back. There are low-income parents getting this loan who may never be able to pay it back.”
How many parents are struggling to repay these loans? What are the profiles of those who fail? And which institutions produce default?
What’s most disconcerting to critics is how much we don’t know to each of these questions. Recent data from the Department of Education show that, overall, 5 percent of the PLUS loans made in 2010 are now in default. But over 13 percent of those made for attending for-profit colleges are in default.
“We don’t know if the loans are doing more harm than good,” said Beth Akers, a fellow in the Brookings Institution's Brown Center on Education Policy.
Rodriguez does report that a disproportionate amount of PLUS loans go to a limited number of schools. In the 2012-13 school year, 30 institutions took in $1.6 billion in PLUS loans, while the remaining 3,751 accounted for $7.6 billion of the tally.
Of the 30, two were for-profit schools and 20 were four-year public universities, mostly state flagships. Many state universities are heavily dependent on out-of-state tuition, which is often supplemented by Parent PLUS loans.
Moreover, Rodriguez notes that a quarter of PLUS loan recipients attended schools with graduation rates below 50 percent, and one fifth of PLUS loan dollars flowed to these high-failure-rate schools. While this is a fraction, Rodriguez says, it is a sizable fraction, and calls into question what the parents are getting for their unforgivable debt burden.
While we know where the money went, we know next to nothing beyond that. The Department of Education does not release default rates by school, for example, and individual-level data is completely off the table.
“Ideally, you would want to know how much people borrow, where they go to school and what they studied,” Akers said. “And then you would want information about their outcomes after school, with long periods of earnings and employment information.”
This would be called the “unirecord system,” Akers said, and all of this is actually available. But current law prevents the government from creating this data set due to deeply rooted suspicions about how trustworthy government is to handle personal data.
“The graph we want, we can’t make,” agrees Rodriquez. “But I know things anecdotally that I can’t represent with data.”
She has, for example, spoken with college guidance counselors who tell her of families who take on a large chunk of debt, begin to make payments on it, and then quit once they realize they can’t afford it. There is no data on how often this happens, where it happens, or what happens to these families, she notes.
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