Journalism in the Public Interest

Financial Aid Group Calls on Feds to Shore Up Lending to Parents


As we reported last year, parents are increasingly borrowing through a federal program to fund their children’s college education. Called Parent Plus, the program has no hard limits on what parents may borrow — providing easy money but few options to help manage the debt burden if the bills prove too much.

A new report by the National Association of Student Financial Aid Administrators recommends reining in the potential for overborrowing, saying the government should tighten underwriting standards for parent loans.

Right now, parent borrowers applying for the loans need only pass a backward-facing check for lapsed debts in their credit history — debt-to-income ratio isn't considered. As a result, the report notes, some parents “accumulate PLUS loan debt over several years that far exceeds their ability to repay."

As we reported, financial-aid officers themselves are sometimes demure when it comes to warning families about borrowing beyond their means. And some schools actually encourage the parent loans by plugging them into the financial-aid packages sent to students.

The report acknowledges the authority of financial-aid administrators to do more to prevent overborrowing, but explains why they are often skittish:

Currently, financial aid administrators are allowed to evaluate a borrower’s ability to repay a PLUS loan through debt-to-income measures. However, financial aid administrators have little loan underwriting expertise and are reluctant to use this authority. To ensure consistency, it would be more appropriate for ED, as the lender, to evaluate parental ability to repay using a debt-to-income ratio or similar standard as part of the credit review process already in place.

The Education Department has made a modest effort to try to curb overborrowing of Parent Plus loans —an effort that caused enrollment to drop at some schools that rely heavily on the loans.

In October 2011, the Department of Education tweaked what it considered "adverse credit history," expanding the category to include charged-off debt and unpaid collection accounts. Morehouse College — the all-male historically black college where the average Plus loan amount topped $22,000 in 2010-2011 — had to furlough staff, citing the tweak to the parent loan program.

For-profit company Education Management reported feeling the effects as well in its latest annual report, noting that its Art Institutes were particularly hard hit. "PLUS program loans represented 12.4% and 12.8% of our net revenues in fiscal 2012 and fiscal 2011, respectively," the company stated.

Further tightening of the Plus loan criteria has the potential to set some in higher ed on edge. But the report suggests that at least within college financial aid offices, there’s some sense that program does indeed need fixing.

GET INVOLVED: Who should be responsible for ensuring people only take on college debt they can afford? Join the discussion. 

Well, schools could also solve the problem by not holding the price of an education in the same neighborhood as a small house.  With declining enrollments, they could stop borrowing piles of money to erect new “complexes” and not have presidents who make six-figure salaries.

(And I’ll try to stay away from a “it would be nice if schools also supplied value for their price, especially in a YouTube/Open Source/collaborative world” rant.)

But nah.  Better to blame the financial aid officer for not acting like an actuary.

Bubbles. “Free” market capitalism is blowing them with the speed of high frequency trading.

While the White House is pushing higher education (and higher and higher student debts), they do nothing to rein in Wall Street profiteering.

We recognize that “low skill” jobs in factories and on farms have been devalued by outsourcing and migrant workers (exploited for their undocumented status). The same is happening in white collar professions, where virtual and robotic replacements are sought for a return on investment. Wonder why the big STEM movement???

Conveniently, knowledge brokers (like Bill Gates and Rupert Murdoch) will have access to more and more education data to “personalize” education.

My FSA data button “unlocks the power of education data” for big corporations that have no-bid access to market their education reform products.

Certainly, Sallie Mae “conversion foundation” Lumina must be grateful that the federal government is creating cradle through career databases that can use the SSN to track earnings and personally identifiable information.

The ball and chain of student debt is getting heavier and heavier.

We need to push for HR 532!
Latest Title: Private Student Loan Bankruptcy Fairness Act of 2013
Sponsor: Rep Cohen, Steve [TN-9] (introduced 2/6/2013)    Cosponsors (17)
Related Bills: H.R.646
Latest Major Action: 2/28/2013 Referred to House subcommittee. Status: Referred to the Subcommittee on Regulatory Reform, Commercial And Antitrust Law.
Private Student Loan Bankruptcy Fairness Act of 2013 - Amends the federal bankruptcy code to remove qualified educational loans as an exception to discharge from bankruptcy.

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