New Research Shows Harm Parent PLUS Student Loans Cause Black Families

With the recent focus on the Supreme Court’s decision on student debt forgiveness, it is easy to forget about a group of often overlooked student loan borrowers: parents. A new report from The Education Trust shows how Federal Parent PLUS loans pose a unique danger to the many families who rely on them to pay for college.

The report is one in a series that focuses on how student debt has particularly affected Black students and families. The latest brief focuses on Parent PLUS loans and the “double-edged sword” they pose for Black families who are more likely to rely on them to help pay for college.

The Parent PLUS loan program was created in the 1980s to help provide liquidity for middle and upper-middle-income families looking for a lower-interest loan than the double-digit interest rates borrowers faced in the private sector. Over 40 years later, families in more precarious financial positions have increasingly taken out these loans. Parent PLUS loans now account for over $100 billion of federal student loan balances.

PLUS loans are made directly to parents for their student’s education and cannot be transferred to their child. They are fixed-rate federal loans and lack many protections available with other types of federal student loans. When originally instituted, the loans also had a strict borrowing cap of $3,000, but that limitation was lifted during the 1992 reauthorization of the Higher Education Act. While loans made to undergraduates are capped, loans made to their parents are only limited by a school’s total cost of attendance, which include living expenses on top of tuition and fees.

The Ed Trust report clarifies why borrowers, especially Black borrowers, turn to PLUS loans to pay for college. Grants and scholarships rarely cover the total cost of college for most students, particularly at four-year institutions. This is especially true for Black families who often have fewer financial resources because of racial income and wealth gaps. Institutions that enroll large numbers of Black students also tend to have fewer financial resources to provide generous financial aid. Historically Black Colleges and Universities (HBCUs), historically underfunded directly because of racism, tend to have relatively high tuition without the large endowments required to offset high prices with more scholarship funds.

The report shows the challenge that PLUS loans pose. On the one hand, they provide access to college for students and families who might have no other way of covering the costs involved. On the other, they create intergenerational debt that makes it harder for students and their families to benefit from the economic success and security that a college degree is meant to provide.

Brittini Williams, Senior Policy Analyst at The Education Trust and one of the report’s authors, said, “It is not sustainable to saddle two generations with debt to pay for one degree.”

This is far from the first report highlighting the severe harm the PLUS loan program has caused. Researchers and advocates have long warned that Parent PLUS loans represent a unique risk to borrowers, as parents of students least able to pay them back can easily access tens of thousands of dollars in debt. Last year another report from the Century Foundation highlighted the way that PLUS loans have created intergenerational debt.

Many borrowers, especially Black borrowers, hold parent PLUS loans for their children and loans for their college education simultaneously. There is also an inverse relationship between PLUS loan borrowing and Black families compared to White ones. White parents who borrow PLUS tend to have higher incomes, while Black parents who borrow tend to have lower incomes. Forty percent of Black students whose parents took out Parent PLUS loans are students with zero expected family contribution from FAFSA—generally students from families with incomes near or below the poverty line.

The report recommends several solutions for lessening the burden of Parent PLUS loans on Black families. These include limiting access to Parent PLUS loans and replacing them with other types of financial aid, including increases to the Pell Grant program and working towards creating a nationwide free college program through a federal-state partnership.

The report’s recommendations were echoed by Williams, who highlighted the need for higher education reform. “In order to reduce the overburden of parent plus loans for black students and families. We must begin with making college more affordable through doubling Pell, state reinvestment in college affordability, fed-state partnerships that make college affordable and equitable, and accessible state financial aid policies that meet the needs of students.”