Conclusion

Each year, tens of thousands of low- and lower-middle-income families are encouraged to borrow hefty Parent PLUS loans they likely won’t be able to repay to send their children to selective public and private research universities. The cash-strapped families often have little choice but to take out these risky loans because these schools spend the bulk of their financial aid trying to lure affluent students to campuses to help them raise their rank and revenue. Because these universities are not held accountable if borrowers go into default on this debt, their leaders are either blithely unaware or completely indifferent to the severe financial distress they are causing their students’ families.

While Parent PLUS loan steering isn’t exactly a new problem, it became much worse after the financial crisis of 2008 and the recession that followed. As states dramatically reduced funding for their public universities and the institutions raised their prices, PLUS loan borrowing exploded. According to the Century Foundation, annual PLUS loan disbursements at public universities grew nearly 300 percent between 2000 and 2017, from $2 billion to almost $8 billion.¹ In 2008, the families of University of Alabama students took out only $25 million in Parent PLUS loans. A decade later, they borrowed almost five times that amount.²

The dramatic cutbacks that state legislators made in per-student spending during the financial crisis ultimately caused many more public flagship and research universities to embrace enrollment management and financial aid leveraging. With state spending still lagging in the years after the recovery, and enrollment growth slowing, these schools became more aggressive in using non–need-based aid to pursue wealthy out-of-state students with standardized test scores high enough to boost schools in the rankings.³

At the same time, the giant enrollment management consulting firms, now owned by private equity companies, began aggressively marketing products and strategies that were designed to help selective public and private universities leverage all of their financial aid to increase their revenue and prestige.⁴ In doing so, they ensured that their clients would leave low- and lower-middle-income students with substantial funding gaps that their families could cover only by taking on Parent PLUS loans they couldn’t afford.

A potential subprime PLUS loan crisis is looming. It’s hard to see how encouraging low-income families to take on debt that they probably can’t repay will end in anything but disaster, unless the government takes decisive action to contain and undo the damage. The worst has not occurred yet because of the pandemic repayment pause and the ban on student loan collections during the Biden administration. The Trump administration resumed collecting loans for a short while but then reversed course and is delaying involuntary collections until very likely after the midterm elections.

What can be done to prevent this crisis? Congress took a shot this summer when it imposed loan limits in the Parent PLUS loan program. For three decades, families have been able to take out PLUS loans up to the full cost of attendance. The lack of borrowing caps has encouraged over-borrowing and has likely made it easier for colleges to raise their sticker prices as high as they wanted. Unfortunately, these limits won’t root out the problems students and their families are facing. Yes, low- and low-middle-income families may borrow slightly less, but they should not be taking on any Parent PLUS loan debt.

Much more substantial changes are needed to prevent Parent PLUS loan steering. Policymakers need to add an ability-to-repay measure to the program to ensure that only families that can afford the loans assume them. And the Parent PLUS loan program can’t continue to serve as “a no-strings-attached revenue source for colleges and universities,” as an Urban Institute report called it.⁵ Colleges need to be held accountable if a large number of their students’ families default on these loans. Policymakers also must forbid colleges from including Parent PLUS loans in the financial aid packages they offer students and require them to use a standardized financial aid award letter that clearly lays out how much families will be on the hook for after all grants and scholarships are awarded.

But fixing the Parent PLUS loan program is not sufficient. The problems highlighted in this report won’t be solved until policymakers recognize that loading low-income families with Parent PLUS loans is part of the deliberate financial aid leveraging strategies that the country’s largest enrollment management firms have been selling colleges. These firms and their clients must be held to account for the damage they have caused.

In my third and final report in this series on financial aid leveraging and Parent PLUS loan steering, I will suggest ways to rein in the enrollment management industry and make higher education more accessible and affordable for low- and lower-middle-income students and their families. We need to help the majority of Americans who struggle to pay for college, instead of continuing to cater to the most fortunate portion of the student body, those who can already afford to attend college without anyone’s help.