FEATURE
As Parents Struggle to Repay College Loans for
Their Children, Taxpayers Also Stand to Lose
New Department of Education data shows rising default rates on federal
loans to parents.
by Marian Wang
College Debt
Total outstanding college debt is estimated at $1 trillion dollars – and with costs still soaring, the burden
on students and their families shows no signs of abating. We’re examining how the complicated system of
college debt is putting the squeeze on families.
Parents are increasingly struggling to repay federal
loans they’ve taken out to help cover their children’s
college costs, according to newly released federal
data.
The Parent Plus program allows parents to take out
essentially uncapped amounts to cover college costs,
regardless of the borrower’s income or ability to repay
the loan. As the cost of college has risen, the program
has become an increasingly critical workaround for
families that max out on federal student loans and
can’t pay the rest out of pocket.
Education Department officials have long said that
they simply don’t have figures on how many of the
loans were in default. But the agency has finally run
some numbers. The data shows that default rates,
while still modest, have nearly tripled over the last
four years. About five percent of loans originated in
fiscal year 2010 were in default three years later. The
default rate at for-profit colleges is much higher, at 13
percent.
Overall, there is about $62 billion in outstanding debt
from Parent Plus, according to the new data. The average Parent Plus loan borrower owes about $20,300.
The Education Department compiled the numbers at
the request of a government committee that is working on new rules for the program.
As ProPublica and the Chronicle of Higher Education
have detailed, the availability of easy money can put
individual families in a difficult place, leaving them to
choose between taking on debt that they may struggle to repay and curtailing what they believe to be
their child’s best shot at building a future. (See: How
the Government Is Saddling Parents with College
Loans They Can’t Afford.)
The program can be a losing proposition not only for
overburdened parents, but also for taxpayers when
the government isn’t able to recoup what it loaned.
Consider Lisa, a New Jersey mother living on Social
Security disability payments who nevertheless qualified for tens of thousands dollars in Parent Plus loans.
(Lisa asked that her last name not be used.) Due to an
accident that left her with partial paralysis and chronic pain, Lisa h