- Parent PLUS loans are the most expensive type of federal loan with the highest interest rate.
- Millions of parents are withdrawing them and going into debt because there is no limit to borrowing.
- Experts say the policy should ensure that parents can pay the debt they want to incur upfront.
- This article is part of The Cost of Inequity, a series examining systemic issues that disproportionately affect marginalized and disenfranchised groups.
Danet Henry, 53, knew she would do whatever she could to make sure her two daughters could get an education, and she has $49,000 in student debt for her eldest daughter.
When her youngest daughter graduates from college in three years, she estimates her debt balance will double.
That’s because she used Parent PLUS Loans — a type of federal loan for parents that covers the full cost of attendance minus any financial assistance the child has already received. For Henry, the loans seemed like a good deal at first. She could pull out whatever she needed to make sure her daughters weren’t held back just because she couldn’t afford to pay the tuition out of pocket. The plan was that once she graduated, she could manage the monthly payments from there.
But after four years of taking out loans, her perspective has changed, and although she told Insider they were “the only way for my kids to get an education and succeed,” she didn’t. no idea how she can afford to pay them back.
“I definitely won’t be able to make those payments,” Henry said.
Henry’s situation is not uncommon. PLUS loans have the highest interest rate of any federal loan, at 6.28%, which can lead to an increased debt load, especially if the borrower is in arrears. Additionally, PLUS loans do not come with a borrowing limit and the lenders do not verify borrowers’ income. According to According to Urban Institute researchers Kristin Blagg and Jason Cohn, the volume of parents borrowing PLUS loans doubled from 2009 to 2019.
“Parents don’t necessarily get the benefit of a college education”
When students take out federal loans to pay for their own education, the intention is that upon graduation, they will find employment and earn enough income to pay off that debt. But it’s different for parents. As Blagg explained to Insider, parent PLUS loans were initially intended for parents who had many assets that they could not immediately access when their children went to college.
“The theory of parent loans was that you had this wealth or collateral, and we would give you a loan to help pay for your tuition over time,” Blagg said. But in practice, federal lenders do not require parents to have a certain income, wealth, or collateral to borrow the funds. “What’s happened more broadly is that Parent PLUS loans have become another way for colleges to increase the amount of debt people can take on.”
Parents also don’t have the same access to income-driven repayment plans as students, and since they’re likely in a different place financially and professionally than a recent college graduate, the potential for increased income is probably low – especially if PLUS loans were needed in the first place because they couldn’t afford tuition and fees.
“We think about student loans because we give you money to invest with the idea that you’re going to increase your earning potential over time and you’ll be able to repay that loan,” Blagg said. “But the math for parents, especially if they’re really unable to afford tuition and other fees by the time their child goes to school, those math doesn’t quite work because parents don’t get not necessarily have this benefit of a college education.”
More than 3 million parents have gone into debt to pay for their children’s education
Insider previously reported that 3.6 million parents took out $103.6 billion in loans, according to 2021 federal data, with the average starting balance nearing $29,000. Some have been paying off loans for decades, but their balances have only increased due to soaring interest rates, and they don’t see the monthly bills stopping anytime soon.
Jeff O’Kelley, for example, previously told Insider he had $104,000 in student debt for his son and still had 360 monthly payments left to make — each payment about $760. $ – which means he will be 88 when he finishes paying off his debt. , “that is, if I live that long,” he said.
Robert Pemberton, a 64-year-old father with $265,000 in student debt for his two children, is delaying retirement to pay off the loans. He said he wishes he could stop working as he gets older, but he can’t afford it.
“It’s an endless cycle where the loan can never be paid off unless I get a windfall and pay it all off or I die and it’s gone,” Pemberton said. “I don’t know if I’ll be able to work until I’m 80.”
A 2019 report from the Urban Institute has suggested a series of policy changes to help parents take on debt to send their children to college, such as limiting how much parents can borrow based on income and measuring default rates on loans to ensure that low-income borrowers do not take on more than they can afford.
But until these changes are implemented, many parents like Henry will continue to be burdened with debt they cannot afford.
“It puts a lot of pressure on a parent,” she said.