Parents, Loans and Fairness

Growing up in a small town near Trenton, N.J., Ewan Johnson said there were birthdays when his mother couldn't afford to buy presents for him and his sister, but she did her best by baking cookies. There were times when she worked overtime in her job helping people with disabilities.

“I come from a low economic background. Going to college was literally my only way out,” Johnson says.

But like many students, Johnson said, the maximum in Pell Grants he received wasn't enough to pay for living expenses and tuition and fees at Temple University, where he earned a bachelor's in strategic communications and political science.

He took out the $31,000 limit in federal loans that dependents are allowed -- an amount that “will mean I won’t be able to afford to live alone for at least another 10 years,” when he will be 34. And he was still short more than $100,000.

“I wouldn’t have been able to go to college if my mom didn’t take out Parent PLUS loans,” he said, referring to the federal program.

The Johnsons aren’t alone. According to researchers, the cost of higher education has raised the total amount borrowed by parents to pay for their children's college by about $30 billion in just the last few years.

While there is a limit on how much students can borrow in order to control the amount of debt with which they are saddled, there is no such cap for parents.

Johnson’s mother owes $150,000.

Little discussed in the debate over canceling student debt is the impact it would have on about three million parents -- many of whom, according to one study, are seeing their savings dwindle. They're also putting off retirement and increasingly defaulting on the loans they took out so that their children could go to college.

That canceling student debt would bring help to parents as well as their children isn’t explicit in President Biden’s proposal to lop $10,000 from the balance of all student loans. A spokesman for Biden’s transition team did not respond when asked if it would include the nearly $100 billion parents owe in Parent PLUS loans.

But when a member of the president's transition team told reporters last week that he will ask Congress to forgive the $10,000 in debt for all borrowers, it “presumably also includes all federal loans,” including those held by parents, said Cody Hounanian, program director for Student Debt Crisis, one of several advocacy groups pushing for widespread student debt cancellation.

Democratic Senators Chuck Schumer of New York, who leads the Senate, and Elizabeth Warren of Massachusetts, have called for canceling $50,000 of debt. A spokeswoman for Warren said their plan would also include canceling the debt of parents.

Broader Questions

However, the debate over whether to cancel loans taken out by parents reflects the broader questions around debt cancellation. To be sure, it would be a relief for lower-income families, many of them minorities, who are struggling with paying back the loans needed to fill a gap in affording college. But student debt researchers note that it would mean relieving billions of dollars in debt from those who might not need the help.

A majority of Parent PLUS borrowers are white, according to studies, and a third of them make more than $100,000 a year.

On one side of the argument are those like Johnson and Jason Wozniak, now an assistant professor in higher education philosophy and history at West Chester University. The cost of going to college has risen so dramatically in recent years that Johnson's and Wozniak's parents had no choice but to go into debt.

Wozniak said his father was a grade school teacher in Chicago, and his mother worked as a secretary.

“I came from a lower-middle-class family,” he said. His family made too much for him and his sister to qualify for Pell Grants. But even if they had gotten the financial aid for low-income students, it still wouldn’t have been enough to pay for going to the University of Kansas, where he earned his bachelor's degree. A study by the National College Attainment Network, for instance, found that the gap in what Pell Grant recipients attending four-year colleges could afford has risen from $1,212 in 2013-14 to $2,406 in 2017-18.

“Higher education expenses have gone through the roof, and there’s been a lack of investment in higher education,” Wozniak said. “The only way my sister and I could go to university was for my mother to take out loans.”

But, he said, “she considered this as part of what it means to be a mother.”

That the price of tuition, as well as the other costs of attending college, has risen faster than wages or student aid is a major factor in why parents have been taking on more debt in recent years, said Jeff Webster, co-author of a research study on Parent PLUS loans by Trellis, a nonprofit student loan guarantor.

According to the study, 3.2 million parents owed a total of $65.1 billion in student loans for their children in 2014. Five years later, the total amount of debt rose had risen by nearly a third, to $96 billion owed by 3.6 million parents.

"College costs have been increasing for a long time, and families haven’t been able to keep up," Webster said.

And the study found many are struggling to repay the loans. Trellis examined data from its portfolio of 59,096 parents whose children attended a Texas college and who entered repayment on their Parent PLUS loans in 2004 and in 2010. Examining how each group was doing seven years after they began making repayments, most recently in 2017, only 45 percent in both groups combined were repaying their loans without interruptions. That figure was roughly the same regardless of the period researchers examined. Seven years after entering repayment, 8 percent of parents had defaulted, and 7 percent had not reduced their principal balance. The company also interviewed borrowers and found having to pay off the loans was cutting into what they could save for retirement.

And that was before the pandemic. Parents are likely still struggling, said Carla Fletcher, another co-author of the Trellis study.

New data the Education Department published last week on the College Scorecard shed some more light, according to a blog post by Rachel Fishman, who has also studied parental borrowing as the deputy director of education research for New America, a progressive think tank. More than 30 percent of the parent borrowers had defaulted within two years of taking out the loans at 15 institutions, including nine for-profits.

Government policies are partly to blame for the large amounts of debt parents hold, said Kevin Carey, education policy director at New America, who wrote about the problem, particularly at some universities, in a recent New York Times op-ed.

Because there is no limit on how much they can borrow through the Parent PLUS program, “parent loans are often much larger than student loans. (And, of course, some parents help their children pay off student loans.),” Carey wrote.

In addition, many parents are struggling with making payments because the Parent PLUS program hands out money without doing much to determine if they can repay the loans.

The Obama administration in 2011 set off a firestorm by tightening up the credit requirements for the program, but it loosened them again when historically Black colleges and universities protested that the tougher standards made it more difficult for their students' families to get loans.

That the government gives out the loans so freely is a strong argument for canceling the loans of low-income parents, said Sandy Baum, senior fellow at the Urban Institute’s Center on Education Data, who has studied the parent loan program.

“We were giving out PLUS loans to people who were never going to be able to pay them back. We should forgive it because they never should have been given the loans in the first place,” said Baum.

Instead of continuing to lend money to parents who cannot repay them, Baum argues that grants should be increased so that low-income parents would not have to borrow in the first place.

But broadly forgiving parent debt would be “outrageous,” she said. Many who’ve taken out loans are far from poor.

While canceling student debt would help parents with very low incomes, they make up a small portion of borrowers in the program, she said.

Only 15 percent of Parent PLUS borrowers whose children began college in the 2011-12 school year had incomes below the federal poverty level, which was then $18,530 for a family of three, Baum found.

Meanwhile, 52 percent of the parental borrowers had incomes at least three times the poverty level, or $55,590 for a family of three, she said.

In addition, canceling the parental debt of all parents would favor white parents, and among them, wealthier ones, said Fishman.

In the 2015-16 academic year, 58 percent of Parent PLUS borrowers -- or those who’d have at least part of their loans forgiven -- were white. Only 19 percent were Black.

Among the white parents with loans, nearly half of them have incomes over $100,000, and 20 percent make more than $150,000, Fishman said.

A third of Black parent borrowers have an adjusted gross income of less than $30,000, while 10 percent made more than $110,000.

The disparity could point to differences in why white and Black parents borrow, Fishman said.

For Black and lower-income families, Fishman said “the PLUS loan has become a way for these families to access higher education.”

Because of the lax credit standards, the loans might be the only option for low-income families to borrow money for their children’s college education, she said.

But for white and upper-income parents, the reason they hold the loans could be based less on necessity, but they would still be canceled. After the loans were created in 1965 for low-income parents, middle-class and wealthier parents pushed in the 1970s for the program to be expanded to them because at the time they offered lower fixed rates.

“White families use it for more of its intended legislated purpose -- as access to liquidity at a fixed rate to cover unmet needs,” Fishman said.

There likely are differences in whether parents took out loans out of necessity or convenience, agreed Trellis’s Fletcher.

But it would be difficult to figure out where to draw the line so that debt relief would only go to those who couldn’t send their children to college without borrowing.

Biden, during the campaign, also said he supports canceling all tuition-related student debt for those making less than $125,000 who attended public institutions, historically Black colleges and universities, and other minority-serving institutions. However, David Kamin, who will be deputy director of the National Economic Council in the Biden administration, only mentioned the $10,000 debt cancellation idea when he described the president's economic plan to reporters last week.

In addition to holding more of the loans, families with higher incomes have larger amounts of debt.

On average, Baum said, those below the poverty line owed $18,891 each. Those making three times the poverty level had borrowed an average of $36,371 that would be canceled if larger amounts of debt are forgiven.

The difference is borne out in new College Scorecard data made available by the Education Department. The median amount of Parent PLUS debt held by lower-income Pell students was $9,500, but the figure was $17,000 for non-Pell students, said Robert Kelchen, associate professor of higher education at Seton Hall University.

At Seton Hall, for instance, Pell recipients had median Parent PLUS debt of $20,000, while those not receiving Pell had $39,545 in debt that would be forgiven.

“Parent PLUS debt is disproportionately held by wealthier families,” Kelchen said. Even with lax credit standards, “the adverse credit check limits how many lower-income families can qualify.” In addition, he said, “wealthier families are more willing to borrow more money because they feel more comfortable paying it back.”

However, advocates for widespread debt relief for people of all incomes push back on the idea that canceling debt would unfairly benefit those who are better off.

People shouldn’t have been made to be in so much debt in the first place, Johnson said. "There never should have been a system that costs so much that institutions are elitist and privileged," he said.

Wozniak said his parents certainly aren’t rich. They were ultimately able to repay their loans, but only because a relative left them an inheritance. If not, they might have had to work until their 70s, even with Wozniak and his sister helping with some of their other expenses.

Johnson said he plans to pay back the loan his mother took out for him. But he's not sure how many other parents will have their children take on their loans. It took him a year to find a full-time job as an affordable housing activist in Philadelphia. "I'm entering a job market that doesn't want me," he said.

“Calling student debt regressive because it would also include some white, wealthier families fails to understand the complexities of the crisis,” Hounanian said. Some borrowers might have higher incomes than others, but they’re still feeling the impacts of having had to borrow a lot of money to go to college, he said.

“These are people who are still living modest lifestyles, many struggling completely, because of the heavy burden of student debt,” he said.

He also repeated an argument pushed by Marshall Steinbaum, a University of Utah assistant economics professor, who disputes that debt cancellation is regressive. He has written that while higher-income people might benefit, canceling a certain amount of debt would mean more to lower-income people because it represents a greater percentage of their wealth.

“Borrowers and advocates know how powerful debt cancellation would be and how it will improve their lives. In a time of an unprecedented crisis, we cannot wait a second longer to provide as much relief for as many people as possible,” Hounanian said. “And we can't let technical discussions from D.C. think tanks prevent us from doing what is right.”