Kevin Carey shines some much-needed light on the problematic Parent PLUS loan in The Federal Parent Rip-Off Loan:
“Parent PLUS loans are the worst federal loans out there. They come at a high interest rate, 7.9 percent, which is closer to 9.0 percent after accounting for origination fees…
Like all college loans, Parent PLUS debt is all but undischargeable in bankruptcy, putting parents’ retirement savings and Social Security benefits at risk of seizure in cases of default…
Just because some parents may be willing to ruin their financial future on behalf of their children doesn’t mean we should let them”
One of the most illogical aspects of the Parent PLUS loan program is that the government determines with great precision how much it thinks parents can afford to pay for their child’s education (a portion of the expected family contribution, EFC). Yet when it comes to determining how much money to lend the parent, the government completely ignores its own calculation. So the government may think a student’s parents can only afford to pay $3,000 a year toward their child’s education, yet it will lend the parents $30,000 a year.
Given how bizarre the current policy is, there is actually an easy fix: Use the parents’ contribution to EFC (which is already calculated) to determine the amount of money a parent can borrow through the Parent PLUS program. The goal is to modify eligibility to avoid encouraging the most financially distressed parents from committing financial suicide.
But while we wait for the government to implement that sensible solution, we’ll continue our exploration of the program. Below is a map showing the distribution of Parent PLUS loan recipients across the country.
When compared to a similar map showing enrollment, the most interesting finding is that colleges in the South and Western United States are underrepresented among Parent PLUS loan recipients, meaning that the Parent PLUS loan problem is more of a problem in the Midwest and Northeast. One possible explanation for this is that colleges in the Midwest and Northeast tend to be more expensive. In contrast, states with low tuition (circa 2011-12), such as California, Florida, and Texas, have many fewer Parent PLUS loan recipients than we might expect from their enrollment, indicating that one way to reduce the Parent PLUS problem is to reduce tuition.
The second chart tries to determine if the Parent PLUS loan problem is worse at schools with more needy students. It charts the percent of students receiving a subsidized loan (a good proxy for the presence of needy students since subsidized loans are mostly given to students from less well-off families) and the percent of students whose parents take out a Parent PLUS loan. (Note that many colleges fall outside the chart’s limits).
Fortunately, there is essentially no relationship. This is reassuring since it means that Parent PLUS loans are not disproportionately affecting colleges that serve low-income students.