With the high cost of a bachelor’s degree, many parents are taking out loans that they can’t afford to repay. They can actually be delinquent on other loans and still qualify for the Parent PLUS loans. Hmm. Why would lenders do that? In 1990, parents borrowed about $5200 annually; in 2014, they borrowed $16,000. Even worse, parents who really need financial aid often rely on the Parent PLUS loans after they’ve reached their limits with subsidized (government pays the interest while student is in college) and unsubsidized (interest payments start immediately) Stafford loans. These loans don’t have income-based repayment plans or loan forgiveness that they might have with federal undergraduate debt.
Underrepresented minority students are hit the hardest. When colleges don’t offer enough scholarship money and they reach their borrowing limits on government loans, parents are pressured to fill the gap between affordable loans and the total cost of the bachelor’s degree with Parent PLUS loans that they may never be able to repay. In 2011, the Obama administration tightened eligibility standards on the Parent PLUS loans to ensure that families could repay their loans.
Unfortunately, this creates an unfair advantage for students whose parents can simply write those tuition checks. Lower income families with students who have average grades and SAT/ACT scores often shy away from elite and private colleges because they know they can’t afford the costs and won’t qualify for merit-based grants. Many of these parents who are desperate to give their children a college degree often give up their retirement and any chance of establishing financial security for themselves. What’s really devastating is that many students never complete their degrees or they get degrees in careers that don’t provide a good return on investment (ROI). The ridiculous cost of a college degree needs to change to reflect what parents and students can afford.