Stop Borrowers From Drowning in Debt

The Dept. of Education was right to make it harder for families to bury themselves.

The Department of Education approved more than 200,000 fewer recipients for Parent PLUS loans in 2013 than it did in 2011.

Many parents were getting into debt by taking out Parent PLUS loans to finance their children's college educations.

By SHARE

Monica Cabral took out a federal parent PLUS loan in the early 2000s to help send her son to college. While she realizes that she probably won’t be able to pay back the loan, she says she has no regrets. “I may go into poverty. I may end up on the street. But I did something for my child so that would not happen to him, and that is the plus,” she recently told The Chronicle of Higher Education. But should the federal government enable parents like Cabral to financially ruin themselves in the hopes that their children will experience a brighter future after attending a high-priced school? Arguably, the government should not be making hefty loans – up to the full cost of attendance – to parents to help them send their children to any college regardless of cost or their ability to repay.

Two years ago, the U.S. Department of Education slightly tweaked the credit check requirement for the parent PLUS loan. This small change delivered a brutal blow to high-priced colleges that attract large numbers of low- and moderate-income students, like historically black colleges and universities and for-profit schools. Some students in the middle of their academic careers had to scramble to find enough money upfront to cover their tuition bills. Many incoming freshmen had to decide whether they would have to enroll elsewhere. The subsequent loss of revenue caused some colleges and universities to furlough faculty and staff.

[Read Lezli Baskerville: Student Loan Limits Deal a Blow to Economic Equality]

The DOE bungled the implementation of the change; much more should have been done to ensure students who were on track to graduate weren’t suddenly rushing to find the money to remain in school. But the department’s underlying motivation was sound. The federal government had made it too easy for lower- and middle-income families to get buried in debt, putting their financial well-being at risk.

A parent takes out a PLUS loan to help cover the total cost of one year of college, including tuition and fees and various living expenses. Often parents take these loans after their child has already received thousands of dollars in other financial aid, including institutional grants, state aid, Pell Grants and federal student loans. That’s because a gap between the aid and the total amount due still exists for many low- and middle-income students at high-cost institutions.

PLUS loans also often come with much worse terms than student loans: They have higher interest rates and aren’t eligible for flexible income-based repayment plans. Also, PLUS loans are nearly impossible to discharge in bankruptcy.

[See a collection of political cartoons on the economy.]

If anything, the DOE’s changes were too modest. Indeed, more thoughtful reform is needed to ensure that the parent PLUS loan program does not harm students and families. Instead of a backwards-looking credit check, a parent’s ability to repay should be taken into account. And like other federal student loans, PLUS loans should be capped.

Parents like Monica Cabral should never have to ruin their financial futures to send their children to college. And certainly the federal government shouldn’t allow them to.

If a gap still remains after taking advantage of these sources of aid, then students may have to make the difficult decision of attending a more affordable college or one that provides more institutional aid. Easily accessible, practically unlimited PLUS loans prevent families from making sound financial decisions.