When College Debt Exceeds Tuition Costs, We Have a Problem
Last week I was advising a client, now in college, who is struggling to make payments on the Parent PLUS loan that her family had to take out, all because her college failed to meet the family’s demonstrated need in the first place. Unfortunately, this story is all too common. Given this reality, I was disturbed to read an article in the Chronicle of Higher Education over the weekend, highlighting the rising family debt coming through PLUS loans.
Families typically turn to PLUS (Parent Loans for Undergraduate Students), unsubsidized federal student loans for parents of college students, when there is a difference between what the school offers in financial aid and what the family can realistically pay. This under-funding, often referred to as “gapping,” happens for a number of reasons (you can find other blog posts where we address that issue). Between rising tuition costs and cuts to crucial federal aid programs like Pell Grants, students and families are borrowing more every year. Federal and state loans have caps on what a student can borrow to help prevent insurmountable debt; there is no cap on PLUS, meaning that families could borrow up to the full cost of tuition. This is leading to families borrowing far more –at high interest rates– then they should.
While parents across the income spectrum are using PLUS loans, the Chronicle article highlights data from The Institute for College Access & Success* (TICAS), which shows that colleges and universities who serve high percentages of underserved students are disproportionately represented in the numbers of parents taking out these additional loans. The TICAS report ranks colleges by their percentage of all parents with PLUS loans in 2017-18. This is important, because colleges are only required to report numbers for student debt, not parent loans or private loans. It turns out that many of the schools who consistently report a low average student debt have high percentages for PLUS loans. Rather than actually funding students, they’re just shifting this burden back to parents.
It’s also upsetting to see the correlation between schools with low graduation rates and the those ranked high on this list. Historically Black Colleges and Universities account for eleven of the fifteen top parent borrowers on the list for public schools, and eight out of fifteen for private schools. We already know that students of color, particularly African American students, face systemic barriers to graduation and carry a disproportionate amount of the student debt load. Now we’re seeing that their parents are also taking on this insurmountable debt. According to TICAS, colleges and universities reported $92.9 billion total in outstanding PLUS debt on behalf of 3.5 million undergraduate students for the class of 2018. This works out to an average of $26.5k in PLUS debt per family, on top of the $35k+ the student likely has already borrowed. We also know that there is a direct relationship between student debt and degree completion; the higher the debt, the less likely students are to successfully graduate college with a degree and they are more likely to default on their loans.
As educators, we cannot continue sending students to schools where we know they are unlikely to graduate on time and they are borrowing more than the annual tuition cost. As frustrating as research like this is, we pay close attention to this data. At Bridge to College and Vielka Hoy Consulting, our work is always guided by the research, so that we can help students graduate in as close to four years with as little debt as possible. During your college search, ask careful questions not only about the net cost of tuition but also about what colleges mean when the say “financial aid.” Ask about the average debt for graduating students. Ask for examples of aid packages for families similar to yours. Ask about the average PLUS loans. If most of the “financial aid” being offered is loans and PLUS loans are especially high, consider this a red flag.
Learn more about college financials at our upcoming FAFSA & College Financial Aid workshop on Sunday, January 12. We’d love to hear from you in the comments, or you can schedule a consultation with our team.
*The Institute for College Access & Success. College Insight, http://college-insight.org. Student debt and undergraduate financial aid data are licensed from Peterson’s Undergraduate Financial Aid and Undergraduate Databases, ©️ 2019 Peterson’s LLC, all rights reserved.