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Parent Plus loans are burying families in college debt

“I feel like I’m stuck in it until I die,” a Nevada father says of the debt he and his wife owe after helping their children pay for college.
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This article about Parent Plus loans was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education.

Jay Rife was sitting in his pickup truck on the outskirts of Las Vegas when he answered a phone call that would permanently alter his life. A man from the federal government was on the line and told him that the loan he had taken out so his son and daughter could go to college had come due. The monthly payment was $1,200.

“I thought I was going to pass out,” said Rife, who was making $13 an hour as a maintenance worker. “I hung up the phone and just kind of set there for an hour trying to figure out what I was going to do.”

He didn’t want to tell his wife, Tina, hoping to protect her from the possibility of being plunged into poverty, but it wasn’t a secret he could keep.

“I think we both sat and cried for a while over it,” said Jay, now 64.

Jay and Tina Rife took out $40,000 in Parent Plus loans. With interest, they now owe more than $100,000.
Jay and Tina Rife owe more than $100,000 in Parent Plus loans, including interest.Bryan Lavietes / NBC News

Eighteen years after that phone call, the couple lives paycheck to paycheck, still struggling to scrape together the monthly fee.

“I feel like I’m stuck in it until I die,” he said, sitting next to his wife, whose face draws down in disbelief when they discuss it.

The couple’s original $40,000 loan to cover the cost of sending their son and daughter to public universities in Indiana, where the family lived at the time, has snowballed in those 18 years, with interest rates as high as 8.5 percent. Their bill now stands at more than $100,000.

The Rifes would have lost their house if they had been forced to make the original monthly payment, so they negotiated with the federal government to get it down to $733. Still, it’s more than their mortgage, and it doesn’t cover the interest, so the amount owed has continued to grow.

Jay and Tina are among the 3.5 million parents who have federal loans designed for families who don’t have the money to send their kids to college. Even when students take out their own loans, the Parent Plus loan program enables parents to borrow more to meet the full cost of college.

These families now collectively owe the government more than $98 billion, up from $68 billion five years ago. When the government releases yearly student loan figures, which are astronomical in their own right, it omits the amount parents have borrowed, obscuring the true financial crisis for families. From 2003 to 2016, the average combined student and parent debt for Plus borrowers was nearly $38,000, according to an analysis by the liberal think tank New America.

Part of what pushes up those numbers are the government’s interest rates, which are higher than private banks’ — they’ve averaged more than 7 percent over the past decade. On top of that, the government charges parents an additional fee of more than 4 percent of the total loan, and the terms are relatively unforgiving. The government makes money off Parent Plus loans, according to the Congressional Budget Office.

Unlike student loans, with Parent Plus, it’s difficult to get a payment plan based on a family’s income. That means that if a parent loses a job or suffers a significant pay cut they may be stuck with monthly bills that they cannot afford.

More than 1 in 8 parents will default on the loans, according to the most recent government estimates. Nonetheless, colleges and universities continue to offer parents the loans, and Congress allows them to borrow, even when administrators can see from a family’s financial records that they have little possibility of repaying them.

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Last spring, in the face of the coronavirus pandemic-induced economic meltdown, the federal government allowed students and parents with college loans to temporarily stop making payments without accruing interest. But that reprieve is scheduled to end on Dec. 31. Neither President Donald Trump nor President-elect Joe Biden has addressed the possibility of extending the deadline.

Policy experts only expect the situation to get worse for Plus borrowers during the pandemic. Millions of Americans have lost their jobs or have had their hours cut this year, and states face gaping budget holes, which in the past have led to huge cuts to higher education. The result has been spiking tuition, which in turn has led to increased student loans.

The Parent Plus program was originally designed for higher-income parents for use at private colleges, and repaying was seldom a problem. As the cost of public education rose, more low- and middle-income families began seeking the loans, desperate to give their children a shot at a secure future. But families’ debt loads soon increased as well, according to federal data, raising the question of whether loans that were ostensibly created to help parents are actually doing the opposite. More than 200,000 families who made less than $40,000 a year took out a Parent Plus loan in 2016 alone, an increase of more than a third from 2008.

There is currently no limit on the amount parents can borrow, as long as the money is used for college-related expenses.

“We’ve set parents up for a disaster when they are trying to do the best for their kids but end up in financial crisis,” said Justin Draeger, president and CEO of the National Association of Student Financial Aid Administrators. “We’ve now saddled many parents with unmanageable amounts of debt.”

Tina Rife with her daughter, Stacy Johnson.
Tina Rife with her daughter, Stacy Johnson.Courtesy of Tina Rife

Congress created the Parent Plus program and controls its terms, but the Department of Education oversees the program. An Education Department spokeswoman said the agency is "very concerned about the debt that low-income parents could take on through the Parent Plus loan program,” but hopes to aid parents in their decisions by increasing the information available online through the department’s College Scorecard.

Like Tina and Jay Rife, parents aren’t racking up the debt just to send their kids to high-priced private colleges. From 2009 to 2019, the amount of Parent Plus loan money flowing to public universities each year more than doubled, to $6.6 billion.

The Rifes’ daughter, Stacy Johnson, now 41, got a good job as a nurse after she graduated. She is managing her own student loan payments, raising a family and sending her parents what money she can to help them out. It pains her to know that her 63-year-old mother, who has become disabled and can no longer work, goes without health insurance so her parents can make the loan payments.

Stacy Johnson
Stacy Johnson is helping her parents as much as she can because of the enormous Parent Plus loans they owe.Bryan Lavietes / NBC News

“They fulfilled my dreams,” Johnson said. “But it’s affected them. … I don't think that parents should have to jeopardize their future to put their kids through college.”

Pricey public universities

Since Johnson graduated from Indiana University in 2001, the parent loan crisis has gotten worse, especially for parents whose children attended public universities, the ones that are supposed to be financially accessible to state residents.

Over the past two decades, the average Parent Plus loan for families whose children attended state schools grew by at least 50 percent in 23 states. That growth is at least partly driven by state legislatures that have repeatedly cut higher education budgets, throwing more of the financial burden for college onto families. Average in-state tuition at public state universities has risen by 38 percent since 2009 as state funding in most states has declined.

Related: Tangled up in debt

Grindl Weldon thought that sending her child to an in-state public school, the University of Alabama, would be an affordable choice.

Her daughter, Caitlin, had worked hard and graduated fourth in her class from her high school in rural northern Alabama. Her community chose her as the recipient of a $10,000 scholarship, to be spread out over four years, and she had worked since she was 16, saving money along the way.

Caitlin took out the maximum allowed in federal student loans, received a Pell Grant from the federal government and got a small scholarship from the University of Alabama, where she had always dreamed of going. Altogether, they had enough to cover tuition for the first year, but there was still a big hole: The university requires freshmen to live on campus and buy a meal plan, and she didn’t have enough money for that.

Grindl Weldon
Grindl Weldon, whose mother lives with her in her rural Alabama home, took out a Parent Plus loan so her daughter could go to college.Meredith Kolodner / The Hechinger Report

Weldon, now 48, faced a choice. As a single mom and teacher (she was her county’s high school teacher of the year in 2018), she had no way to scrape together the money that would allow her daughter to register for classes. Weldon had worked summers and taught online courses to make extra money, but a college education for her only child at the state’s flagship public university was still thousands of dollars out of reach. She also had her own student loans from her undergraduate degree at the University of Alabama at Huntsville, which she’d gotten down to about $25,000.

The financial aid offer Caitlin received from the University of Alabama included the option to take out a Parent Plus loan to close the gap, and Weldon could defer paying it off until after her daughter graduated. So she took the plunge and borrowed $20,000 in 2014. Two years later, she borrowed another $5,000.

“I knew I was getting myself into debt, but what were my choices?” said Weldon, who now cares for her mother who has Parkinson’s disease, on top of her full-time job. “I felt like her future was at stake. What would any mama do?”

For many low- and middle-income families in Alabama, the state’s public universities are out of reach. At the lowest-cost college, the University of North Alabama, families making $30,000 to $48,000 a year paid, on average, nearly $13,000 for their child to attend in 2018-19. At Auburn University and the University of Alabama, the average cost was about $20,000.

Even when students took out the maximum loans allowed by the federal government, families making $30,000 or less had to come up with at least $6,000 out of pocket to enroll their first year — and more than $12,000 at the most expensive universities, according to a Hechinger Report analysis of data from the U.S. Department of Education.

As a result, many parents are advised by colleges to apply for a Plus loan to close the gap, a decision that can lead families down a dire financial road.

Related: Even at elite colleges lauded for their generosity, some students take on debt

From 2009 to 2019, the number of Parent Plus borrowers at Alabama’s public universities nearly tripled, and the amount borrowed nearly quintupled to $250 million, with an average loan of more than $17,500. That spike mirrors the slashing of the state’s education budget and the jump in tuition.

Like many children whose parents have Plus loans, Caitlin Weldon isn’t in a position to help her mom. Caitlin, now 24, is trying to pay off her own student debt, which stands at more than $32,000.

When Grindl Weldon’s Parent Plus loans came due last fall and she learned that her combined monthly loan payments, including her own remaining student loans, would be $537, she had the same reaction as the Rifes.

“I was about to have a breakdown and cry,” she said.

She got a second job this fall teaching a class online and will do the same this spring, but it won’t be enough to cover the loans. Weldon is grateful for the temporary respite the government granted student loan borrowers, but once her loans come due again, she’ll be facing the same grim financial situation.

What’s driving the debt

Educators and policy experts say there’s enough blame to go around for the economic precariousness facing hundreds of thousands of Parent Plus borrowers. There’s the federal government, which disburses the money; Congress, which created the program in the first place; state legislators, who slashed financial aid to public universities, which many educators and policy experts see as the root of the problem; and the colleges themselves, which offer the loans and sometimes encourage parents to take them out.

Financial aid officers at several universities said it is standard practice to offer a Parent Plus loan when they send out an acceptance and financial aid offer. They said they often know that the parents taking out the loans will struggle to repay them.

“I don't think these loans should be presented with the financial aid offer at all,” said Amy Laitinen, director for higher education at New America. “I think it speaks more to the school’s desire to bring in the students than to what’s best for the family. …To present it as if it’s really a way for paying for college when there’s no way for those parents to pay it back is shameful and harmful.”

In 2011, the Obama administration set restrictions on who could borrow through the Plus program, imposing credit and income requirements. But an outcry from colleges caused the administration to reverse course the following year, making it even easier for parents to borrow.

Related: Universities that boost the poorest students to wealth are becoming harder to afford

Critics compare the government’s loans to those given out by banks to people who couldn’t afford to repay in the lead-up to the 2008 financial crisis. Unlike student loans, parent loans offer no easy option for an income-based repayment plan. If a parent defaults, the federal government can garnish wages and Social Security checks to force repayment.

Rep. Marcia Fudge, D-Ohio, introduced a bill last year that would cap Parent Plus interest rates, allow for income-based repayment plans and mandate counseling for all borrowers, but it has been stuck in committee. Biden has not announced any plans regarding the program.

Even before the economy cratered this spring, reliance on Parent Plus loans was trapping a slice of middle-aged and older Americans in a debtor’s purgatory.

Weldon said she expects she’ll die in debt. She doesn’t live in a wealthy part of the country and assumes that other parents are facing a similar problem, but she said that few people talk about it.

“There’s an embarrassment, I guess, for not having the financial ability,” Weldon said. “It’s almost a kind of embarrassment for not being rich.”

“Maybe if more people knew they weren’t the only ones, something would change,” she said. “That’s what I’m hoping.”

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