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Who Takes Out Parent PLUS Loans, Anyway?

In 2014, over 10.6 billion dollars were distributed to parents under an unusual federal loan program, known as Parent PLUS. Yet while most federal financial aid is meticulously tracked, understanding how Parent PLUS loans are used remains incredibly difficult. The lack of data collection and reporting on Parent PLUS clouds our ability to evaluate their true impact on access and makes it impossible to understand how they affect the lives of the families who take them on. Data on Parent PLUS loans are particularly important due to their unique role in federal student aid: these are the only loans made directly to the parents of students, and because their terms are less generous than other student loans, they’re usually taken out only after other federal resources have been exhausted. The loans are virtually unlimited, yet they are made without regard to a parent’s ability to repay. In effect, these loans can mean certain students are able to attend institutions they wouldn’t otherwise be able to afford. But some of these same families will do so through taking on debt they might not be able to repay.

As the interactive below shows, by analyzing data from multiple sources at the Department of Education, we can begin to close some of these gaps in our understanding of the Parent PLUS program. These data allow us to estimate the percentage of parents at each institution who take out Parent PLUS loans. This data still can’t tell us anything about the characteristics of the parents most likely to take out these loans, or whether they’re repaying them, key questions in understanding the effectiveness of the program. But it does highlight that certain institutions utilize Parent PLUS at much higher rates than others.

In the aggregate, the average disbursement and percent of plus loans recipients are highest at private nonprofit schools. On average, 7.9 percent of parents at nonprofit schools borrow PLUS loans compared to 6.6 percent at for-profit schools, with the average parent at a private nonprofit receiving a disbursement of over $14,000 dollars annually, and parents of students at for-profit schools receiving an average of $7,621. (Since these are annual disbursements, it’s also likely that the combined impact over time is substantially more burdensome for students enrolled in nonprofit schools.) At four-year publics, 4.9 percent borrow Parent PLUS loans, while less than one percent of parents of students at two-year publics take out these loans. Participation in Parent PLUS varies enormously by sector, but even within these groups, some institutions are utilizing PLUS loans much more heavily than others. For-profit schools have more of these outliers, with as much as three-quarters of all undergraduates receiving Parent PLUS loans at some schools. Across institutional sectors, certain schools are quickly identifiable as egregious in their use of Parent PLUS loans. For example, at the Creative Center, a private for-profit school that enrolled just 78 students in 2013, 58 received Parent PLUS disbursements that same year. Making matters worse, the average disbursement among these students was well over $24,000. The Creative Center serves a high portion of low-income students, with 49 percent receiving a federal Pell grant. While the data do not allow us to examine the overlap between Parent PLUS and Pell grant recipients, it is likely that at least some of the parents taking on these high debt levels are the same ones with low enough earnings to secure federal Pell grants for their children.  But the Creative Center is not alone in these high numbers: six for-profit schools disburse Parent PLUS loans to over 40% of the parents of the students they enrolled, and five have an average disbursement above $30,000. 

Lots of families use these loans, with many simply seeking an alternative to borrowing on the private market to pay for their child’s education. These loans are made without regard to a family’s income, an appealing idea for advocates of increased access to higher education. But for those who can’t repay, the consequences can be severe. The federal government is able to garnish wages, rescind tax refunds, and even dock social security checks. And while student loans are typically seen as an investment in human capital, this rationale does not apply to parents, since parents incomes won’t increase due to their children’s increased educational attainment. Nor will their ability to repay their debt. Effectively, loans to low-income parents provide access at the expense of a parent’s long-term financial security. They also aren’t covered by existing safeguards that have made the federal student loan market much more favorable in recent years, including income-based repayment.

Using PLUS loans can also be thought of as a measure of affordability -- or lack thereof -- for families of students enrolled at a given school. It’s no secret that institutions enroll students from different socioeconomic backgrounds and that these schools engage in price discounting based in part on each family’s ability to pay. But the level of unmet need remains high at many schools, which leads students to the federal loan system. Since the interest rate on Parent PLUS loans is much higher than that of other undergraduate loans, for most families, Parent PLUS loans are taken after all other forms of federal financial assistance have been exhausted. This means that a higher rate of PLUS loan recipiency is one indication of a less affordable pricing structure, given the population of students an institution enrolls. For example, at Landmark College in Vermont, 17 percent of students receive Pell grants, and fully one-fifth have parents who are borrowing an average of $24,868 in Parent PLUS loans. Such high rates of borrowing can hardly be considered an affordable financial model for the students enrolled.

Other measures for addressing affordability reinforce this story. The most common of these is the net price charged to low-income students after grant aid from all sources has been applied. The average net price for low-income students at Landmark College is an astonishing $26,264. For first-year students receiving the maximum Pell grant and taking out the maximum federal Stafford loan, this leaves students scrambling for the remaining $14,989 in unmet need. These numbers support the idea that many schools aren’t affordable for low-income students. Even worse, the problem has been growing over time.

Schools that rarely use Parent PLUS loans aren’t necessarily affordable since there are many other ways for students to finance their educations outside of the federal loan system. Nor do these numbers illustrate how the program serves the typical Parent PLUS recipient, the ability of parents to repay the loans they’ve taken on, or how the loans impact access and intergenerational debt. But these numbers do provide new insights into how often parents are taking on debt, and which schools their children most commonly attend. Better data on Parent PLUS loans would allow us to explore these issues more fully, an issue of critical importance to anyone concerned about the ways we finance the rising costs of college. At the same time, addressing the underlying costs structures at these institutions remains crucial. Finding ways to lower costs, provide more grant aid to students who need it most, or raise loan limits for federal student loans - which include key protections that aren’t included in the Parent PLUS program - would all be better models to promote access without dragging Parents into tens of thousands of dollars of debt.

Methodology: The percentage of students receiving Parent PLUS loans is based on the number of recipients reported to the U.S. Department of Education’s Office of Federal Student Aid (FSA) for the academic year 2013-14, along with total undergraduate enrollment in Fall of 2013. These enrollment numbers are aggregated by each school’s six-digit OPEID and matched with the data reported to FSA. Schools that reported individual campuses under separate OPEID’s are shown separately while campuses with the same OPEID are shown combined. Individual campuses within the same OPEID are occasionally categorized into different degree levels - in these cases, the higher degree level is used. Additionally, two branches of the Northwestern College of Beauty are classified as nonprofit but are included here for the for-profit schools that make up their OPEID. Schools with less than 15 students enrolled are not shown. Average disbursements are calculated using FSA data on the total amount of money disbursed, divided by the number of recipients at each school. Net price and percent Pell recipients are taken from the College Navigator for the same school year.