A Rescue or a Trap?—An Analysis of Parent PLUS Student Loans
Abstract: Parents taking out loans for their children’s college educations may face an excessive debt burden that jeopardizes their own financial security. This paper examines the experience of Parent Loan for Undergraduate Students (PLUS) borrowers using administrative data from a large student loan guaranty agency. We find that PLUS borrowers are more likely to default if their children attend low-resource institutions, typically ones where lower-income enrollments predominate. Although parent PLUS generally outperforms student loans, PLUS performance is sensitive to program costs during difficult economic times. In contrast, student outcomes depend more on educational outcomes. Interviews with borrowers confirm that PLUS borrowers have more experience handling debt than their children, but there is a lack of communication on repayment obligations and expectations between generations. This study reveals the differing consequences of parent and student borrowing for higher education and the troublesome PLUS program design that poses challenges to certain borrowers.
File format is application/pdf
Description: Full text
Provider: Federal Reserve Bank of Dallas
Part of Series: Working Papers
Publication Date: 2022-09-09