I've written many times here about the consequences of heavy student loan debt -- for students. Often overlooked in these discussions are the consequences of college-related loan debt for parents. Today, I would like to take a look at some surprising information about the parental college loan burden, which I hope will sound a caution to the parents of future college-bound high schoolers.
My inspiration for writing about this comes from a release sent to me from brookings.edu entitled New data showing troubling trends for parents with student loans. The release refers to a new report, which features this unfortunate news: “Parents are borrowing more and more to send their kids to college — and many are struggling to repay." This is the information I would like to reference today.
Before getting into the details of the report, I can testify to the fallout of parental student loan debt. I experienced this when my father died unexpectedly when I was a junior in college. Because my mother was not employed, I assumed the loans that my dad had taken out for me to attend college. I had no idea how much he borrowed until I was confronted with the payment schedule that accompanied the loans.
It took many years for me to satisfy these loans -- and, looking back, my memories about having to deal with my father's parent loans make me especially sensitive to the issue of parents going into debt to facilitate their children's higher education. With that in mind, let's see what this report has to say.
Up until now, the focus of the student loan debt crisis has centered primarily on undergraduate students —although research has shown troubling trends in graduate debtas well. New research, however, provides novel data on the trends for parent borrowers, who are supporting their children through the federal Parent PLUS program.
A new paper, by Brookings' Adam Looney and Vivien Lee, finds the annual borrowing amount for parent borrowers has more than tripled over the last 25 years and, perhaps more concerning, the rate of default for these loans has increased and repayment rates have slowed.
The issue of default deserves mentioning here. In recent years, there have been rumblings about the federal government pondering a program of forgiveness to students overwhelmed with college loan debt. However, nothing has happened to ease their plight. One element working against such a program, in light of the magnitude of student loan debt, is the national debt, which is currently beyond reasonable understanding. Where the money would come from to begin to put a dent in this $1.5 trillion (with a “T") figure is the main stumbling block. Accordingly, not only students -- but also parents -- should not plan on realizing relief from their loan obligations anytime soon.
- Parent PLUS borrowers owe $87 billion, or about six percent of all current outstanding federal student loans.
The fact that $87 billion is only six percent of the total student loan debt adds one more perspective on the sheer enormity of college-related indebtedness.
- The typical parent borrower whose last loan entered repayment in 1990 had about $6,200 in debt, and in 2014 about $38,800.
That's over a sixfold increase across those years. One reason for the explosive growth of parent loans is simply (and obviously) the skyrocketing rate of college costs. At this point, there's little hope that the increasing costs will abate anytime soon, which should be putting parents of aspiring college students on notice to become increasingly discriminating about which colleges their sons and daughters are considering.
- Parent outcomes appear to be getting worse: The five-year default rate was about seven percent in 2000, but about 11 percent in 2009.
Another depressing statistic for parents. As for students, the Public Colleges Student Loan Default Rate is 11.3 percent (previously 11.3 percent). The Private Colleges Student Loan Default Rate is 7.4 percent (previously 7.0 percent). These rates, both for students and parents are certainly likely to continue to rise.
- 8.8 percent of parent borrowers entering repayment on their last loan in 2014 owed more than $100,000.
This is a frightening figure. When you consider that the average student in the Class of 2016 has $37,172 in student loan debt, it's not hard to envision families with total college-related loan debt of $150,000 or more, since there are students who owe $50,000+. Add to this a home mortgage, auto loans and credit cards. Crushing debt.
- The majority of institutions with the worst parent repayment rates are for-profit institutions.
I've mentioned before about knowing a young woman who graduated from an online, for-profit university. Her monthly student loan payment is over $700. I don't know if her parents have also taken out loans to cover her education, but I use her as one example of how for-profit institutions can heap lifelong debt upon families.
Finally -- And Unfortunately:
- HBCUs and Hispanic-Serving Institutions (HSIs) make-up 26 percent of the institutions in the bottom parent repayment decile, but have worse repayment outcomes because they largely serve underprivileged students. Parents supporting students at these institutions are likely to be disadvantaged minority borrowers, with relatively weak credit histories.
The report's authors note: “These trends have important implications. From the borrower's perspective, there is heightened economic distress. Many parents supporting college students are saddled with large debt burdens, repay just enough to avoid default, or sometimes owe significantly more than their initial balance. Further, expanded eligibility for credit and higher loan limits distort educational offerings, encouraging schools to offer programs that they would not otherwise have and charge higher tuition."
College-related debt is a slippery slope. Just as the subprime mortgage era sent America into financial chaos, so too are these easily obtained loans luring parents into a debt situation that in many cases becomes unmanageable.
Looney and Lee recommend that policymakers balance providing fair access to higher education, while minimizing costs to borrowers and taxpayers and the unintended consequences of easy credit, through a variety of outcome-oriented accountability systems. These systems could better direct credit to students, programs and institutions where students are more likely to succeed. Additionally, some high-risk borrowers might be better served with grants or progressive repayment programs than today's mostly one-size fits all approach.
If words aren't enough to bring you into a sobering understanding of this situation, the report provides dramatic graphs that paint the Big Picture starkly. Since the Parent PLUS loans are at the heart of this parental debt crisis, it may benefit parents of yet-to-be college students to become familiar with that program, which is explained here.
Looney and Lee comment the following:
… The Parent PLUS program was launched in 1980 with limits on what parents could borrow. Those caps were subsequently lifted by Congress. Since 1993, parents have been eligible to borrow up to the cost of attendance (minus aid received by the student) to finance the cost of an undergraduate's education. The elimination of borrowing caps combined with tuition increases, changes in the institutions and programs students attend, and regulatory changes have led to increased loan burdens and worsening repayment outcomes for parents. Today at least 3.4 million Parent PLUS borrowers owe $87 billion (not including any consolidated loans). That's about 6 percent of all outstanding federal student loans. Parent loans issued today are charged a 4.248 percent origination fee and an interest rate of 7.6 percent....
At least to me, the most frightening phrase in that paragraph is “... Since 1993, parents have been eligible to borrow up to the cost of attendance…" It doesn't take a lot of work to find out how much colleges cost these days. When we think about what degree of financial help we want to give our children's higher education efforts, it's important to examine those PLUS loans.
So, add parents to my list of those to whom I say, “Stand warned. Don't let college loan debt be your undoing. The road to long-term debt is paved with largesse."
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