Parents left to navigate ‘Wild West’ of PLUS Loans under Biden FORGIVENESS plan

By Oliver Ward

Image Credit: Street Lab

Tara Bradley’s son was poised to receive a basketball scholarship from Penn State University in 2020, but when the head coach resigned following allegations of inappropriate conduct, the scholarship offer never materialized and Bradley had to look for alternate ways to pay for her son’s college tuition.

Bradley, along with 3.7 million American families, turned to Parent PLUS, a federal student loan program for parents with much less favorable terms than those offered to students and only minimal eligibility requirements. Parent PLUS loans were included in Biden’srecent loan forgiveness package, granting parents loan relief up to $10,000, but some argue that amount should be doubled for such borrowers, many of whom will still be paying off their children’s tuition well beyond retirement age.

Advocates, as well as a group of Democratic senators, have urged Biden to increase the forgiveness amount to $20,000 and include parents of children who were also Pell Grant recipients, a sentiment echoed by Peter Granville, a senior policy associate at the Century Foundation

Granville said Pell Grant recipients have already proven circumstances of exceptional financial need,

“For that reason, I would have extended that $20,000 maximum also to the parents,” he added.

Rachel Fishman, acting director of the Education Policy program at New America, agreed.

“I wish it went a little bit further,” she said.

Howard Community College graduation (Image Credit: Wikimedia Commons)

Fishman argued that if a family had qualified for a Pell Grant then the parent “should also have access to that $20,000 of forgiveness that the student has access to.”

Under Biden’s current proposals, only student Pell Grant recipients will receive the full $20,000 20,000 relief, while their parents are limited to $10,000.

Parent PLUS loans were not originally designed for low-income earners like Pell Grant recipients. They were introduced in 1980 to provide high-asset families with liquidity to pay for higher education. But in the decades since, investment in financial aid at the federal and state levels has not kept pace with the ballooning costs of college, shifting more of the costs onto students and families.

“Lower-income people were kind of taken care of by the need-based aid system and they’re not so much anymore,” Jill Desjean, a senior policy analyst at the National Association of Student Financial Aid Administrators, said. This widening gap between financial aid and tuition costs has spurred many to seek alternate funding sources.

“I was trying my hardest not to have to do any type of loans,” Bradley, the Penn State mother explained, but tuition “ended up being a lot pricier than I anticipated.” Bradley has taken on around $51,000 in Parent PLUS loans over the first two years of her son’s degree, with some of the debt incurring interest above 7%.

“Lower-income people were kind of taken care of by the need-based aid system and they’re not so much anymore.”

-Jill Desjean, National Association of Student Financial Aid Administrators

Minority groups are overrepresented among the low-income families using Parent PLUS loans to fund the difference between financial aid and the total cost of tuition. Granville’s research for the Century Foundation found that among families of white students, Parent PLUS take-up increases as income increases. Among Black families, the opposite is true. In 2018, 42% of Black Parent PLUS borrowers had

incomes low enough to qualify for the maximum federal financial aid.

The high interest rates and origination fees Parent PLUS loans carry mean they are contributing to the racial wealth gap.

Bradley, who is Black and also has student loans of her own, said she has not made any payments on her initial Parent PLUS loan balance. “The only way I figured I can somewhat, kind of, get toward the principal is based on having my student loans deferred,” she said. “This is going to be a 30-year feat.”

If Bradley defaults, the consequences could be damaging. The Department of Education can collect payments on defaulted federal student loans from borrowers’ social security or disability payments. While this is of minor concern to younger student borrowers, parents are much closer to retirement age and face greater risks of falling below the poverty line through offset social security payments.

These risks are not always obvious to parents during the application process and differentiating between a loan and a grant can be challenging.

(Image Credit: RawPixel)

Fishman of New America explained that discrepancies between how schools present Parent PLUS loans on financial aid offer letters cause confusion. Terminology and the names of loans can vary subtly between offer letters. Some schools will not even tell families that Parent PLUS is a loan, instead calling it “federal plus”, or something similar.

“If you’re a parent and you’ve never heard of this before, how do you even know that’s a loan?” Fishman said. “It’s really the Wild West.”

Jennifer Coppola, senior associate director at George Washington University’s Financial Aid Office, said it is up to families to do their own due diligence. “We advise them to research various loan options since they can have different terms. However, we can't make any specific recommendations,” she said. “They really have to decide what is best for them when it comes to borrowing funds.”

The largest Washington D.C. colleges, including George Washington University, Georgetown, American University, and Howard University, all clearly list Parent PLUS loans as a loan option on their websites. Only Georgetown and Howard, however, list the interest rates and origination fees. None of the other schools responded to requests for comment.

Parents have also been left with unanswered questions about the Biden administration student loan forgiveness program, particularly those with multiple loans. The president officially launched the application website on Monday, after a period of beta testing during which 8 million borrowers reportedly applied for forgiveness.

The president lauded the program for its handling of the applications “without a hitch,” and called it a “new day for millions of Americans all across our nation.”

“It’s really the Wild West.”

-Rachel Fishman, New America

But the program has still left some borrowers struggling to find out if they qualify for student loan forgiveness.

“I’ve been trying to reach out to the student loan people,” Bradley said, “you literally get put on hold for what seems like forever.” She wants to ask whether the forgiveness will be applied to the Parent PLUS loans or her own student loans and whether she could choose to apply the forgiveness to the portions of her Parent PLUS loan with the highest interest rates.

The loan forgiveness program rollout has still left many borrowers wondering when it will kick in. The Biden administration has indicated it plans to administer the relief before payments resume early next year but Granville said the mechanism is still “TBD.”

Fishman believes the issue is a symptom of an overcomplicated system. “Our student loan financing system in America is just so complex that it is hard to design anything that is comprehensible to communicate to any group,” she said.

For Bradley, her experience with her Parent PLUS loan has been a lesson in the importance of doing your own research. She advises parents of college-aged students exploring financing options to be vigilant. “If you’re not, you kind of get tossed to the wayside.”

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