Parent loans, another piece in the wealth gap puzzle

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A monthly newsletter that explores issues facing historically Black colleges and universities and follows the work of our HBCU Student Journalism Network. By Naomi Harris.

Strain on parent borrowers

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.