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A Parent Trap? New Data Offers More Dire View of College Debt

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The College Scorecard also allows users to select a group of universities for comparison. (Scroll back to the top and click “Add to compare school.”) You can create a comparison list via a round green icon (a building with Roman columns) at the upper right, where the shopping cart icon is often found on a commerce website. Comparing American University with nearby private universities like Georgetown and George Washington reveals that parents at those universities are less likely to take out PLUS loans, and that they borrow similar or smaller amounts.

The volume of Parent PLUS loans is growing quickly, from 14 percent of loans for undergraduates in 2013 to over 25 percent last year. The destruction of wealth during the Great Recession and stagnant middle-class recovery left many families with less money to pay for college. PLUS loans allow colleges to fill in the gap between what parents have and what colleges want to charge. Parents now owe around $100 billion in outstanding PLUS loans.

The list of colleges where sizable numbers of parents borrow unusually large Parent PLUS amounts includes for-profit companies like Academy of Art University, where the median parent borrowers take out about $72,000 in loans, in addition to what their children borrow. Perhaps not coincidentally, Academy of Art is also on the list of colleges that produce very high levels of graduate school debt.

But not all colleges that require a great deal of parent borrowing are private or for-profit. The University of Vermont and Auburn University are public universities where significant numbers of parents take out PLUS loans, typically more than $45,000 by graduation. That’s in large part because a majority of undergraduates at both universities come from out of state, and pay tuition comparable to what is charged by private universities.

As with any loan, the way we think about Parent PLUS depends, in part, on what people get in return, and whether they’re able to repay the loans. Some parent borrowers have very little money. The data on how much low-income families borrow is not part of the College Scorecard. We have to dig into public data sets released by the Department of Education to uncover that.

For example, in 2018 and 2019, 1,726 students from households with income low enough to qualify for the federal Pell grant left St. John’s University in New York with an education that was financed in part by Parent PLUS loans. The median loan was $39,872. That translates into a monthly loan payment of more than $400 — a very large amount for households that often earn less than $20,000 a year.

Low-income parents qualified for these loans nonetheless because underwriting standards for PLUS loans are lax: Parents are ineligible for PLUS loans if they have a bad credit history, like a defaulted loan or late bill payment, but not if they have no credit history. An unemployed parent with $0 in the bank could borrow $100,000 or more in PLUS loans, even with no credible means of paying it back.

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