Study: Parent PLUS Loans Increase Racial Debt Burdens

President Biden might cancel $10,000 of student debt, but civil rights advocates are worried that this figure is not enough to address core racial disparities seen in student debt burdens. A new study released Tuesday by the Century Foundation found that it is not just Black students who are hurt disproportionately by student debt, but also Black parents through federal Parent PLUS borrowing, a new finding on a federal program loan that has been mostly excluded from the student debt relief debate.

Black borrowers, who are more likely to be low income and low wealth, take on more student debt and often struggle to repay such debt. Graduating Black borrowers tend to owe 50 percent more in student debt compared to their white peers, increasing to 100 percent by four years after graduation. Additionally, Black college graduates hold seven times less wealth than white college graduates, contributing to struggles to repay student loan debt.

Civil rights organizations, including the NAACP, have stated that $10,000 in relief per borrower will not be enough to address the financial toll that student debt takes on Black borrowers. An analysis from the Roosevelt Institute found that canceling $50,000 of student debt per borrower would increase the wealth of Black Americans by 40 percent immediately and would dramatically boost economic recovery.

“While it does address some of the burden, it is not enough to really address the high balances that Black borrowers have,” said Victoria Jackson, assistant director of higher education policy at the Education Trust. “Black borrowers on average are borrowing around $39,000, which is much higher than any other racial or ethnic group.”

Parent PLUS Loans

Black parents are disproportionately burdened by debt taken on for their children to attend college through Parent PLUS loans, federal loans that parents can take out to help cover the cost of their children’s education.

The Century Foundation study found that 42 percent of Black Parent PLUS borrowers are low income and low wealth, compared to 26 percent of Latino and 8 percent of white borrowers. As a result, Black borrowers struggle to repay such debt, further contributing to the racial wealth gap.

“While Parent PLUS loans can open doors for children, they close many doors for the parents who hold them. These loans are now often taken out by families for whom college is already the least accessible—lower-income families and families of color—compounding the financial barriers they face, and trapping families in multigenerational debt,” said Peter Granville, the author of the report and senior policy associate at TCF.

Compared to other student loan programs, Parent PLUS loans are riskier and more expensive; at this time, 3.7 million Americans have parents who owe $104 billion through this federal loan program. They have higher interest rates and allow borrowers to take on more debt while not having the same options to reduce monthly payments or seek forgiveness as other federal loan programs.

The average amount of debt held by Parent PLUS borrowers when a student graduates is $29,600, according to the study. Under building interest, parents often struggle to repay these debts. After 10 years of repayment, on average, 55 percent of the initial balance remains.

As tuition increases across the nation, more low-income families are turning to Parent PLUS loans as an option to afford to send their children to school. Between 2000 and 2016, the annual disbursement of Parent PLUS loans increased by over $10 billion, driven by a 269 percent rise in Parent PLUS borrowing for families with students enrolled at public universities.

The study found that Parent PLUS loans are increasingly used at institutions that serve large numbers of low-income and minority students. For example, students at historically Black colleges and universities have relied on Parent PLUS loans for financial aid far more than students at any other type of institution for over a decade, according to the TCF study.

Black families, who are more likely to be low income and low wealth compared to white borrowers, are hit the hardest by the financial toll of Parent PLUS Loans. Parents with children at top-rated HBCUs still owed 96 percent of their loan principal compared to 47 percent of white Parent PLUS borrowers with children who attended top-ranked predominantly white institutions, the study found.

Additionally, Parent PLUS borrowing is increasing far more among Black parents than white parents. In award year 2017–18, the share of parents who took out Parent PLUS loans for Black students reached 6.2 percent compared to 5.1 percent for white students.

It is unclear whether President Biden will include Parent PLUS loans in his debt relief plan, or whether it will include any loan level distinction at all, according to sources familiar with the topic.

Civil rights and higher education advocates have called for broad reforms to make the federal student loan system operate in a way that does not place such long-term economic burdens on borrowers, especially borrowers of color.

“I think that what it’s pointing to is our need to create a more affordable system in the first place that doesn’t require these loans. Ultimately, if we want to solve the racial wealth gap, if we want to make sure that higher education is not making the racial wealth divide worse, we’re going to have to figure out how to increase aid and make college affordable to the point where it is not so wealth-based to be able to go,” said Sameer Gadkaree, president of the Institute for College Access and Success.