By examining loan portfolio data and interviewing parent borrowers, the study reveals the impact of Parent PLUS borrowing.
Round Rock, TX – Helping students meet their full financial need to attend college is an increasing challenge. While there is wide-spread information available on the outcomes of federal student borrowers, far less data is available about parents who also take out loans to help finance their dependent student’s undergraduate education. Many of these parents borrow under a decades-old program known as Federal Direct PLUS for parents (PLUS), currently estimated at 3.6 million parents with $96.1 billion outstanding.
The PLUS loan program requires only a modest check for adverse credit rather than a more thorough check of credit worthiness that reflects ability to repay the debt. As a result, some parents with lower credit scores may borrow more than they could feasibly repay, yet do not have access to a number of programs and protections provided to student borrowers.
“The impact of this debt on parents and families provides an important, more expanded view into the growing challenges of higher education affordability. Families try to fill the gap between the cost of attendance and available financial aid resources with debt that can be unmanageable,” said Jeff Webster, Director of Trellis Research. “This is especially true of families whose dependent students attend minority serving institutions (MSIs), which have been historically underfunded and, as a result, have less financial strength to meet their students’ full financial needs.”
To provide greater understanding, Trellis Research recently conducted a mixed-methods, outcomes-based study of parent PLUS borrowers in Texas. The study, PLUS Borrowing in Texas: Repayment Expectations, Experience, and Hindsight by Minority-Serving Institution Status, provides a rare look into the repayment behavior of Parent PLUS borrowers of both MSI and non-MSI students, shedding light on the borrowers’ goals and financial trade-offs concerning saving, major purchases, and retirement. The study also focuses on both the level of knowledge they possess about the PLUS loan and the differences between their initial expectations and the actual amount of the debt.
Among the study’s key findings, Trellis discovered that eight percent of Parent PLUS borrowers had defaulted after seven years. Another seven percent had not reduced their principal balance at all over that time period. “We found that most parents indicated that they struggled with PLUS loan repayment at some point, and many described impacts on their ability to make major purchases or save for retirement,” said Carla Fletcher, Senior Trellis Research Analyst. “Financial challenges impacted parents’ ability to support their children in a number of ways. For example, parents who defaulted or had no reduction in their principal balance were less likely to say they had helped their children with their student loan payments.”
Other key study insights include:
- Loans became delinquent | Thirty-one percent of Parent PLUS borrowers had become delinquent on their loan; 12 percent had three or more delinquencies.
- Parents of MSI students owed less when entering repayment | The median cumulative amount owed in Parent PLUS loans when the loans entered repayment was $3,749 lower for parents with children attending MSIs ($10,000) than parents with children attending non-MSIs ($13,749).
- PLUS borrowers who defaulted had a lower median cumulative debt than those who did not default | Borrowers who defaulted on their Parent PLUS loans had a median cumulative debt that was only 53 percent of the size for all borrowers, $6,500 and $12,304 respectively. Lower overall debt among student loan defaulters has been widely attributed to the students failing to earn a degree that can increase their expected earnings, but parent borrowers who default face no such earnings barrier.
About the Study
The Trellis Research team designed an outcomes-focused, mixed-methods study to learn more about the repayment expectations, the financial impacts of the loans, and the repayment outcomes of parent borrowers. Due to the consistency of the PLUS program since its inception and the lack of significant differences between the current Federal Direct Lending program and Federal Family Education Loan Program (FFELP), researchers utilized Trellis’ FFELP administrative database of loans guaranteed in Texas to track repayment progress and categorize patterns in both loan status and amounts owed. Trellis then interviewed parent borrowers about their borrowing expectations and perspectives regarding how their educational loan experiences influenced their financial decisions.
The study analyzed data of 59,096 parent borrowers who entered repayment on their Parent PLUS loans between October 2004 and September 2010 and whose children attended a Texas institution. The repayment activities of these borrowers were tracked for the first seven years of repayment. Additionally, 49 Parent PLUS borrowers were interviewed on their experience with repaying their loans. They provided insight into their repayment expectations and the personal financial impacts of paying back their PLUS loan.
About Trellis Company
Trellis Company is a nonprofit 501(c)(3) corporation with the dual mission of helping student borrowers successfully repay their education loans and promoting access and success in higher education.
We have a nearly 40-year successful track record of delivering positive outcomes for students and institutions. Our strong philanthropic heritage of giving through grants to colleges, universities, and research groups remains focused on improving student outcomes, especially to assist underserved students and families, and to help institutions navigate the changing landscape of higher education.