Access to What and for Whom? A Closer Look at Federal Parent Plus Loans

By Glee Smith

A recent report from AEI considers the federal Parent PLUS loan program: the types of institutions that benefit from the program, the types of families that are borrowing from the program, where PLUS loan borrowing is most common, and how the graduation rates of PLUS institutions compare to others. The report also contemplates whether PLUS receiving institutions are making or have made an effort to keep tuition prices under control.

PLUS loans are unsubsidized loans made to the parents of undergraduates for any amount up to the cost of attendance. A student must be a dependent and enrolled at least half time to be eligible. PLUS loans have a higher interest rate than other federal loans, repayment begins immediately, and like other student loans they are not dischargeable in bankruptcy. PLUS loan debt is incurred by parents not students.

Among the report’s key findings:

  • In 2011 the Department of Education tightened the underwriting criteria for Parent PLUS loans by tightening the definition of “credit-worthy.”
    • As a result, 40% of parents who applied for a PLUS loan in 2013-2014 were denied, up from 22% in 2010-2011.
  • Of the institutions that serve PLUS loan students, 30 colleges account for 17% of the loan volume These institutions are primarily flagships that accept large numbers of out-of-state students.
    • The report suggests that PLUS loans are being used by students to attend the out-of-state university of their choice and by universities to raise additional tuition revenues.
  • According to the report, students who benefit from PLUS loans are more often from high-income families with college-educated parents.
  • About one quarter of PLUS loan recipients and one fifth of PLUS loan dollars go to colleges with graduation rates lower than 50%.
  • About a quarter of PLUS loan students and PLUS dollars go to institutions where the three-year change in net price exceeded 10% after adjusting for inflation.
  • On average, parents who took out PLUS loans accrued more than $15,000 in debt. Research indicates that many families are not using Parent PLUS loans to gain access to “high performing” institutions.

The report also looked at the types of families who are taking out PLUS loans. With the exception of families in the lowest income quartile, the share of families borrowing Parent PLUS loans is similar across income, parental education, and marital status. There are some key differences however:

  • Two-parent households that are more affluent and college educated take out larger loans – they are less likely to qualify for need-based aid.
  • Of those who borrow, PLUS loans make up one third to one half of the aid the students receive, regardless of income, parental education or marital status.
  • Thirty one percent of students whose parents are PLUS loan borrowers are from single-parent households.
  • Low-income and first-generation students are more likely to use PLUS loans at minimally selective and open admission four-year colleges, for-profits, or two-year institutions. High income families and families with advanced degrees are more likely to use PLUS loans at very to moderately selective institutions.

The report makes the following conclusions:

  • Most families who use PLUS loans are not gaining access to institutions with high graduation rates.
  • PLUS loans are rewarding institutions that increase tuition.
  • The U.S. Department of Education needs to collect and report better data on the PLUS program.