View profile

Parent loans, another piece in the wealth gap puzzle

The Intersection
Welcome to The Intersection! I’m Naomi Harris, and this is my Open Campus newsletter that examines race and equity in higher education. If you’re new, make sure to sign up for future editions!

Strain on parent borrowers
Photo by Vasily Koloda on Unsplash.
Photo by Vasily Koloda on Unsplash.
Student loan numbers are so big our eyes may glaze over. The pandemic pause has saved 41 million people something like $200 billion in payments. The Corinthian College loan discharged the administration just announced will top $5.8 billion — for half a million people who went to a single for-profit chain. The entire ordeal is oftentimes called a $1.7 trillion student debt crisis
Meanwhile, there’s another program that is like the quiet kid in the back of class, not getting much attention but still shaping the financial future of millions of families. 
Forty years into a program designed for “high asset families who needed liquidity to cover expected family contribution” the federal Parent PLUS program has expanded to 3.7 million families using the loans to make their children’s college dreams come true. They owe an overwhelming $104 billion.   
It’s not just a giant number but a tricky program, according to Peter Granville.
The loans prove risky for some families because, unlike direct student loans, they have so few options to decrease monthly payments. I spoke with Granville, a senior policy associate at The Century Foundation, about his new report on the program.  
“We know that a lot of parent borrowers struggle in repayment. An ideal Parent PLUS system would allow for forgiveness for those who are truly struggling and don’t have a way out,” said Granville. 
But paying for college is increasingly seen as a chance for upward mobility. For parents, he said, it becomes more of an emotional component to find a way to help. 
“There are plenty of documented examples of parents who realized too late they were getting too far over their heads. It makes sense that this is a very emotionally charged conversation that families have – so many parents out there want nothing more than what’s best for their child.”
Who relies on Parent PLUS
The type of parent borrower has changed as more low-income families have applied for the program. 
When Congress created the program in 1980, the idea was to support middle class families and address a gap in higher education, said Persis Yu, the policy director and managing counsel at the Student Borrower Protection Center.
“What has happened is that there are a lot of low-income families who are desperately trying to send their kids to college and trying to provide the best life for their kids. They wind up taking really large amounts of unaffordable debt in order to provide for their kids,” she said.
The program doesn’t offer the same affordable repayments options as other federal loan programs. When the program underwent tighter restrictions about a decade ago, the decision backfired, primarily facing pushback from HBCUs. More Black families were excluded and struggled to access HBCUs, she said. 
Granville’s recent study found that the federal student loans have negatively impacted Black and brown families. Last year, the U.S. Department of Education released Parent PLUS repayment data at institutions, offering a clearer look into the program, he said.  
He analyzed Parent PLUS Loans and found racial disparities across the program.
  • The annual number of Black Parent PLUS borrowers almost tripled from 1996 to 2018 and nearly quadrupled for Latino Parent PLUS borrowers, he found. 
  • Ten years after starting to pay back the loans, Black borrowers still owe 96 percent — in comparison to 47 percent of white families. 
  • Substantially more Black and Latino parent borrowers are simultaneously paying on their own student loans. (33 percent of Black borrowers and 29 for Latino ones, compared to 13 percent of white borrowers.) 
Costly reality
Parents struggle to pay back the loans and soon find themselves in financial trouble. 
“Parents default and it means that they’re having their wages garnished, it means that they’re having their Social Security garnished – their tax refunds taken. It’s creating incredible economic hardship for these parents,” said Yu.
Overall, 1 in 11 parent borrowers default, but researchers found that for Black parent borrowers the number is closer to 1 in 5. 
Like other student loan programs, Parent PLUS can exacerbate racial wealth gaps that last generations. For example, students paying back their loans are unable to build up their own wealth, especially if they have to pay for their own children to go to college, Yu said. 
“The intergenerational racial wealth gap, with regards to student loans, is just a snowballing problem. It’s going to be a retirement crisis for folks who don’t have the assets and wealth to retire,” she said. 
Possible solutions
Along with incorporating parent borrowers into the policy discussions around student debt, making college more affordable outside of loans can help reduce the financial burdens on parents. 
“The solutions to the problems of Parent PLUS go beyond Parent PLUS,” Granville said. 
He recommended more federal grants to help reduce the amount of loans needed to pay for college, an increase in free community college programs as well as an increase in federal funding for HBCU endowments – a solution that could eventually increase financial aid for students and for families.
Recommended Readings
Parent PLUS loans also have a tricky relationship with HBCUs. Cash poor, the institutions are unable to provide more financial aid to students. As a result, parents look to loans to close the gap. My Open Campus colleagues dug into this a couple years back:
“The scale of this debt for Black families is remarkable. It’s not a little bit bigger. The amount black parents are taking on is proportionately enormous.
Consider Atlanta. This fall there are about 7,000 undergrads walking around Emory University. Their parents borrowed about $7 million in Parent PLUS loans for the year. Eight miles away, sit three of America’s foremost historically black colleges — Spelman College, Morehouse College, and Clark Atlanta University — and roughly 7,600 undergrads. Their families have taken on more than $102 million in Parent PLUS loans for the year. That’s 14 times as much.”
Earlier this month, the Education Department announced it will discharge $5.8 billion in federal student loans owed by 560,000 borrowers who went to a Corinthian College, a for-profit institution. Read more by Meghan Brink at Inside Higher Ed. 
How can university tax payments contribute to cities? In Boston, it is almost $15 million. In New Haven, it is $13 million. But for Pittsburgh? There is no agreement and more than 90 percent of the universities are tax exempt. Read more of the story by Emma Folts at PublicSource.
Thanks for reading!
I’d like to hear from you. Share your stories, tips or perspectives by sending me an email. Reach out to me at naomi@opencampusmedia.org.
 
Did you enjoy this issue?