Student debt crisis ensnares parents as PLUS loans grow

If you have children nearing college age, you’ve probably heard a lot about student loans. Americans owe $1.7 trillion in college debt, an amount that grows every year. And while colleges differ greatly in their propensity to load up families with debt, it has been hard to identify the biggest offenders — until now.

Colleges themselves provide parents with little information about prices and borrowing. Published tuition rates are really just a starting point for negotiation, like the sticker price on a new car. The financial aid offers that colleges send to admitted students are often confusing, making it hard to distinguish scholarships from loans. And those offers are usually good only for freshman year — prices as well as loan and scholarship amounts can change afterward.

The U.S. Department of Education has been filling this information gap with a website called the College Scorecard. It allows students and parents to look up a college, or a group of colleges, to see how many students take out federal loans and how much they borrow. At American University in Washington, for example, 55% of undergraduates borrow federal loans that typically range from $20,500 to $26,800 upon graduation.

But this omits crucial information: How much do parents borrow for their children’s education? Data available this month for the first time on the College Scorecard shows that at some colleges, the answer is: a lot, often much more than students themselves. If we think of student and parent debt together as “family debt,” the loan picture at many colleges looks much more dire.

The federal government sets a limit of $31,000 on how much undergraduates who are financially dependent on their parents can borrow. The loan cap is meant to reduce young adults’ exposure to burdensome debt.

But there’s a loophole, in the form of a separate program called Parent PLUS loans. It lets parents of undergraduates borrow money directly from the federal government. Crucially, there is no cap on the size of Parent PLUS loans, other than whatever colleges choose to charge for tuition, books, room and board, or personal expenses. As a result, parent loans are often much larger than student loans. (And, of course, some parents help their children pay off student loans.)

The main Scorecard page for American University shows that 79% of students graduate on time and go on to jobs that pay between

$27,000 and $74,000, largely depending on what students choose to study.

The volume of Parent PLUS loans is growing quickly, from 14% of loans for undergraduates in 2013 to over 25% last year. The destruction of wealth during the Great Recession and stagnant middle-class recovery left many families with less money to pay for college. PLUS loans allow colleges to fill in the gap between what parents have and what colleges want to charge. Parents now owe around

$100 billion in outstanding PLUS loans.Parents pay an upfront “origination fee” of about 4.25% on PLUS loans, which means paying a college

$50,000 requires borrowing $52,125. The interest rate is currently 5.3%. And while parents legally owe the money, some students head to college knowing that their parents expect them to be responsible for repaying the Parent PLUS loans in addition to what they borrow themselves.

The growth of Parent PLUS borrowing means the student debt crisis that engulfed millennials is increasingly moving backward in time to snare parents with far fewer working years left to earn money for loan payments. The federal government can and does garnish Social Security checks for older parents who default on Parent PLUS loans.