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Parent PLUS loans are increasingly used by parents with low incomes to pay for college and to cover gaps left by financial aid.

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Parent PLUS loans have become a key tool for Black Americans to access higher education but come with high costs for borrowers, creating a “double-edged sword” for families, a new report argues.

“Parent PLUS loans have been left out of the conversation,” said Brittani Williams, a senior policy analyst for higher education at the Education Trust and lead researcher on the report.

Parent PLUS loans, which are uncapped, require a credit check and come with higher interest rates, are increasingly used by parents with low incomes and low wealth to pay for college and to cover gaps left by financial aid. The repayment terms make the loan more difficult for low-wealth parents to pay off, the report says, saddling older Americans with debt and forcing some to put off retirement. The loans are not eligible for the more generous income-driven repayment plans.

“I will be dead before that principal balance ever gets paid off,” one borrower said in the report.

The report, which is focused on how Parent PLUS loans affect Black borrowers, outlines several recommendations on how to fix this type of loan. Those recommendations include canceling at least $50,000 of federal student loans per borrower, lowering interest rates, doubling the Pell Grant and creating federal-state partnerships to make public college debt-free.

Parent PLUS loans were originally intended to be used by middle-class families, though now those with fewer resources are turning to them. During the 2015–16 academic year, Parent PLUS loans “took up, on average, 25.3 percent of a typical Black family’s income, versus 14.2 percent of a typical white family’s income,” according to the report.

Still, without the loans, Black Americans would struggle to pay for college because of the cost and insufficient financial aid, Williams said.

“We can’t solve student loan problems at the loans phase,” she said. “We need to consider all parts that make up what college affordability is.”

The report, based on a survey of Black borrowers and series of interviews, is part of a broader series from the Education Trust about how Black borrowers experience student debt. Williams said Ed Trust wanted to focus on Parent PLUS loans because they were having a significant impact on borrowers but weren’t receiving much attention from policy makers. More than 3.7 million people hold Parent PLUS loans, which make up more than $107 billion of the Education Department’s student loan portfolio.

Williams said more nuance is needed in conversations about student loan borrowers to have better, more inclusive discussions about how to fix the system.

“We cannot only think of the undergraduate student borrower,” she said.

The report’s release comes as borrowers are awaiting a decision from the Supreme Court on whether the Biden administration can move forward with its student loan forgiveness plan. The administration is planning to forgive up to $20,000 in federal student loans for eligible borrowers, including those with Parent PLUS loans.

That plan would be a lifeline for Parent PLUS borrowers, said Peter Granville, a fellow at the Century Foundation who studies ways to make college more affordable.

“Cancellation is the best opportunity for these borrowers’ lives to improve that we’ve seen in a long time,” Granville said. “It meant an opportunity to get out of a serious rut that many, many older Americans experience because of these loans.”

Granville found in a report released last spring the Black and Latino parents are disproportionately taking out Parent PLUS loans. Additionally, his research found that 20 years after initially signing for Parent PLUS loans, the typical borrower still owes 37 percent of what was borrowed.

“Some parents spent more time paying off the loan for their child’s education than the number of years they’ve spent raising their child,” he said. “It speaks to the immense intergenerational cost that Parent PLUS loans can have on the low-resource families that rely on them.”

Granville said that the borrower testimonials in the Ed Trust report were powerful and could help to spur changes to reform the loans. Lowering the interest rates would be a good place to start, he said, adding that broader changes are needed to lower the cost of college and improve financial aid.

“It’s no surprise that families turn to Parent PLUS when they have so much unmet needs and see college as the surest way toward a better future for their children,” he said. “There’s a wide gulf in between what families have to pay and the support they currently get. Unfortunately, Parent PLUS is the way that they try to cross that divide.”

Black borrowers told the researchers that the loans were a “last resort” and that college for their children would not have been possible without them. The report notes that “Black parents of dependent students have the lowest annual incomes of any racial or ethnic group and highest financial need,” per the formula for disbursing federal student aid. Parents whose children have borrowed the maximum annual loan amount are more likely to take out a Parent PLUS loan, according to the report.

“We cannot have a student loan conversation about the way that Black borrowers experience student loan debt without acknowledging the racial wage gap and the racial wealth gap,” Williams said.

Granville hopes that reports like Ed Trust’s and sharing more stories of borrowers will increase awareness about the loans and what parents are facing, adding that few people who don’t have these loans know about them.

“The more data we have and the more testimonies we have from the borrowers themselves, the more I think the public will understand this is a big deal and it deserves congressional action,” he said.

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