Introduction

Public flagship and research universities in the South are thriving, setting enrollment records year after year. National publications marvel at their success recruiting students from around the country, particularly at a time when higher education as a whole seems to be in such dire straits. And journalists and pundits twist themselves into knots trying to explain the appeal of the schools to suburban college applicants from Northern states. Are these students flocking to these schools to enjoy the sun, tailgate parties, and winning football? Or are they, as Fox News would have it, leaving in droves to escape woke politics?¹

In reality, there is a much simpler reason. Many of these universities are spending tens of millions of dollars each year—and, in the case of the University of Alabama, $185 million annually—to reel in affluent students from around the country.² In other words, these schools are offering the best deals to well-to-do students and their families who are shopping around. Take Caroline Ward, who in 2017 was one of more than 200 freshmen from Illinois to receive full-tuition scholarships from the University of Alabama. “Students are looking for those scholarships, and they’re going to take them wherever they could get them,” Ward told the Chicago Tribune at the time.³

This sounds like a win-win, right? The universities are spending a lot of money to get the applicants they want, and these students are getting a great deal. What’s not to like?

There is, however, another side to this story, and it is one that has not received nearly enough attention. While the universities are wooing wealthy students, many of them are pushing the families of low- and lower-middle-income students into economic peril by pressuring them to take on heavy debt loads they are unlikely to be able to repay.

At issue is the fact that these universities, working with high-priced enrollment management consultants, are engaging in financial aid leveraging or financial aid optimization, in which analysts determine the precise price points at which these institutions can enroll different groups of students without spending a dollar more than is necessary. At selective colleges, both private and public, the largest discounts go to the most desirable students, typically the highest-achieving applicants, who can help the schools rise up the U.S. News & World Report rankings, and the wealthiest, who, even with the tuition break, can boost the institutions’ bottom line. While lower-income students will often receive some aid, those dollars won’t come anywhere close to meeting their financial need, which means that these students’ families are left with little choice but to borrow federal Parent PLUS loans to cover the funding gaps.

The Parent PLUS loan program was never intended for this purpose. Congress created the program in 1980 to help middle- and upper-middle-income families afford to send their children to expensive private colleges. For low-income families with few assets, taking on PLUS loans is extremely risky. Unlike federal student loans, which are strictly limited to $5,500 to $7,500 per year for dependent students (those under the age of 24), PLUS loans, for much of their history, have allowed parents to borrow up to the full cost of attendance, which includes not only tuition and fees but living expenses as well, regardless of their income.

Parent PLUS debt, like federal student loans, generally can’t be discharged in bankruptcy, and the loans are subject to the government’s extraordinary debt collection powers, including wage garnishment and partial offsets of defaulted borrowers’ Social Security benefits and income tax refunds. As a result, failure to repay these loans can lead to financial disaster, particularly for older Americans with few resources.⁴

To be fair, many selective colleges use financial-aid leveraging strategies for only a subset of their students. And those colleges that remain committed to meeting the full financial need of their students may use the additional revenue they generate from recruiting affluent students to boost need-based aid at their institutions.

However, the country’s largest enrollment management firms aggressively market financial aid leveraging or optimization products that are designed to help colleges use all of their aid to pursue the most desirable prospective students and increase their bottom lines. As EAB, the giant enrollment management consulting company, states in its marketing materials, “Our Financial Aid Optimization program ensures that every dollar you commit to aid is used to further your enrollment and net tuition revenue goals.”⁵

One way for a college to use financial aid to increase its “net tuition revenue goals” is to provide discounts to a larger number of wealthy students, who, even with the rebates, will ultimately pay more than less advantaged students and have families who may be willing to make substantial donations to the institution. But another way is to steer low-income students’ families to Parent PLUS loans. After all, Parent PLUS loans are easy credit colleges can offer families to cover funding gaps. The loans are readily available, so long as potential borrowers do not have bad credit. And because there are no consequences for the schools if borrowers can’t repay the debt, college officials don’t have to worry about how hazardous these loans may be for students’ families. As a 2019 Urban Institute report stated, the PLUS loan program is “a no-strings-attached revenue source for colleges and universities, with the risk shared only by parents and the government,” which loses the money if borrowers default.⁶

There have long been rumors that colleges were pushing low-income families to borrow PLUS loans. In October 2021, The Wall Street Journal confirmed these suspicions in a front-page exposé entitled “How Baylor Steered Lower-Income Parents to Debt They Couldn’t Afford.”⁷ The newspaper revealed that Baylor had been pressing low-income families to take out “no limit” Parent PLUS loans and then used the proceeds to help pay for the institution’s efforts “to transform itself from a regionally known Baptist college into a national brand.” The article cited U.S. Department of Education data showing that these cash-strapped families borrowed a median debt load of nearly $44,000, more than many of them earned in a year.⁸

According to The Wall Street Journal, Baylor’s inability or unwillingness to adequately support low-income students over the previous decade had not discouraged university recruiters from seeking them out. If anything, they recruited these students even more aggressively. Between 2010 and 2015, recipients of Pell Grants, the federal government’s primary source of funding for low-income students, made up between 20 and 25 percent of the student body annually. A former recruiter complained that she had been tasked with “visiting poor neighborhoods in Texas to sell prospective students on a college they couldn’t afford.”⁹

Confronted by The Wall Street Journal reporters, Linda Livingstone, Baylor’s president, acknowledged that her predecessors had acted irresponsibly by enrolling “students who really couldn’t afford Baylor.” She pledged to do better. “My heart goes out to families that are in that situation,” she told the newspaper. “We are working very, very hard to ensure that we don’t see that so much going forward.”¹⁰

While Livingstone’s sympathy provides cold comfort for families who were encouraged to take on this debt, she has taken steps to make Baylor more affordable for low-income students. Under the new Baylor Benefit Scholarship program, the university waives tuition and fees for students from families with annual incomes of $50,000 or less.¹¹ University officials say the program is paying off, as the retention rates for Pell Grant recipients at the university has shot up.¹² Still, the program does not cover room and board and other living expenses, so the jury is still out on how helpful it will be. And Baylor continues to be one of the most aggressive schools in providing non-need-based discounts to affluent students.

The Wall Street Journal reporters made clear that Baylor was not alone in pushing low-income families to take out Parent PLUS loans. In fact, the article led off by stating, “Some of the wealthiest U.S. colleges are steering parents into no-limit federal loans to cover rising tuition, leaving many poor and middle-class families with debt they can’t repay.”¹³ The journalists examined Parent PLUS loan borrowing at the wealthiest private universities in the country—those with endowments of $1 billion or more. They wrote that in addition to Baylor, about a half-dozen other of the most-wealthy schools, including Syracuse University, Texas Christian University, and the University of Miami, seemed to be steering low-income families to PLUS loans because they had “relatively low Parent PLUS repayment rates and high numbers of borrowers from low-income backgrounds.”¹⁴

Last year, I wrote a paper, entitled A Case of Predatory Inclusion at Baylor University, which revisited The Wall Street Journal article and provided updates on what has happened at Baylor since.¹⁵ The paper argued that the financial aid leveraging strategies that enrollment management firms like EAB and Ruffalo Noel Levitz market to universities push their clients to engage in a process of predatory inclusion. Predatory inclusion is when a marginalized group is given access to a service, good, or opportunity, but the conditions of access jeopardize the benefits.¹⁶

Universities that leverage financial aid and saddle low-income families with tens of thousands of dollars of debt they are unlikely to be able to repay are engaging in predatory inclusion. Yes, these universities are providing higher education access but at the potential cost of financial ruin for students’ families. That’s too high a price to pay, particularly given the wealth and power of these institutions.

For this paper, I wanted to identify universities, besides Baylor, that appear to be the most aggressive in leveraging their financial aid and pushing low-income families to borrow PLUS loans they cannot afford. Because there are affluent schools with lower endowments that leverage the bulk of their aid, this paper includes private colleges with endowments of $500 million or more.

Even more significantly, this paper includes public universities as well. In the face of state disinvestment and the lure of moving up the U.S. News rankings, many public universities have embraced the enrollment management strategies of their private college counterparts. At the urging of consultants, these once-low-cost schools, which for decades served as a gateway to the middle class, are increasingly employing their aid to lure affluent out-of-state students with good grades and standardized test scores to their campuses so that they can increase both their revenue and their rankings.¹⁷

In order to identify the schools that are most aggressive in leveraging their financial aid, I examined more than 20 years of institutional financial aid data for each of these institutions.¹⁸ I also looked at the average-net-price-by-income data that colleges have reported annually to the U.S. Department of Education’s Integrated Postsecondary Education Data System (IPEDS) since 2008 to examine the funding gaps with which these schools are leaving their lowest-income students.¹⁹

This paper identifies 41 universities that appear to be aggressively leveraging their aid and pushing low- and lower-middle-income students to borrow Parent PLUS loans. The list includes 23 selective private universities and 18 public flagship and research institutions, nearly half of which are in the South.

Collectively, these 41 universities spent $2.4 billion of their own financial aid dollars on students who lacked financial need in 2023, the latest data available. Nearly $2 out of every $5 these schools spent on institutional aid that year went to non-needy students—those whom the federal government deems able to afford college without financial aid.²⁰ Meanwhile, more than 32,000 families of Pell Grant recipients who had either graduated or left these 41 schools in the recent past were stuck with PLUS loans they took out to pay for their children to attend these institutions. These families carried a median Parent PLUS loan debt load of nearly $30,000 each.²¹ For many of these families, the amount they owed came close to or exceeded their yearly earnings.

In 2023, the 41 universities collectively:

• provided more than a quarter of freshmen a median amount of non-need-based “merit” aid of nearly $15,000 each;
• met, on average, just 74 percent of the financial need of their freshmen student aid recipients; and
• charged freshmen from families with annual incomes of $30,000 or less an average net price of $18,000, after all grant and scholarship aid was awarded. At the private universities, these first-year students and their families were left on the hook for about $24,000, and at the public ones, they had to come up with more than $14,000.

Like Baylor, the 41 universities on the list have higher aspirations. None more so than the University of Alabama, which has spent over $2 billion of its own money in current dollars on non-need-based aid since 2003, the year the institution declared its intention to become a national university. This paper shows how the University of Alabama has been on a remarkably similar path as Baylor over the past two decades and has put low- and lower-middle-income families in financial jeopardy. Meanwhile, its aggressive approach has forced other public universities, particularly in the South, to respond in kind.

This paper also shows that some of the private universities on the list have used enrollment management strategies, such as financial aid leveraging, since the 1980s and 1990s to transform themselves from commuter schools to nationally prominent universities. Schools like George Washington University produced the blueprint that schools like Baylor and the University of Alabama have followed to try and raise their stature.

We will not know the full fallout from these Parent PLUS loan steering practices for a while, because students and their parents did not have to make payments on their loans during the COVID pandemic, and the Biden administration did not collect on defaulted student loans. President Trump resumed student and parent loan collections and then paused them once again. Nevertheless, there is expected to be a tsunami of student and parent loan defaults over the coming year.

Worried that the lack of loan limits in the Parent PLUS loan program have given colleges carte blanche to raise sticker prices as high as they want and have encouraged overborrowing, the Republican-led Congress approved legislation in July that introduced borrowing caps into the program. Starting on July 1, 2026, families will be able to take out Parent PLUS loans up to only $20,000 per year per student, and $65,000 overall for that individual while in college. While the policy is well-intentioned, it is unlikely to be anything but minimally helpful for low-income families who cannot afford to take on any Parent PLUS loans. As a recent Brookings Institution paper argued, the new loan limits will continue “leaving financially vulnerable families exposed to unmanageable debt burdens.”²²

To make matters worse, the legislation removed the ability of parents to consolidate their PLUS loans and pay the debt back as a percentage of their income through the Income-Contingent Repayment Program. This was the one safety net available in the Parent PLUS loan program for financially distressed borrowers.

Substantial changes need to be made to the Parent PLUS loan program. Chief among them would be adding an “ability to pay measure” that would prevent parents from borrowing over their means. And colleges should have skin in the game, so that they are held accountable if large numbers of their former students’ parents are unable to repay their loans. But fixing the Parent PLUS loan program is not enough. The problems outlined in this report won’t be solved until policymakers recognize that what’s happened at these 41 universities isn’t an accident and isn’t inevitable. 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. Policymakers must put the brakes on financial aid leveraging and hold these firms and their clients to account for the damage they have done to low- and lower-middle-income families who simply wanted to give their children the same opportunities that more affluent families take for granted.

But even more fundamentally, it is time for policymakers to address the real affordability crisis in higher education for the vast majority of Americans, instead of standing by as selective public and private colleges and universities fight over and cater to the students who already have every advantage in the world.