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Who Should Ensure Families Only Take On College Debt They Can Afford?

You know that college students often graduate with massive amounts of debt. The lesser-told side of the story: overburdened parents. 

As ProPublica’s Marian Wang and The Chronicle of Higher Education’s Beckie Supiano and Andrea Fuller reported last week, many parents are now taking out what are known as Parent Plus loans – a type of federal loan – to plug the gap between student aid and the soaring cost of attending college. Last year the government disbursed $10.6 billion in Parent Plus loans to just under a million families. That’s $6.3 billion more than in 2000, adjusted for inflation, and to nearly twice as many borrowers.

But no checks are in place to ensure parents only take on debt they can afford. The government doesn’t check applicants’ income, employment status or other debt. Though a bad credit history is grounds for denial, someone could still get a loan with no credit history at all. And there’s no set cap on borrowing.

Which brings up an interesting question: Who should be responsible for ensuring families only take on debt they can handle?

The Education Department says that it wants to make sure that college choice isn’t just for the wealthy. That’s why they make the loans easy to get.

Some schools list the Parent Plus loans in financial aid award letters, along with scholarships and student loans, to show how a student might come up with the money for tuition and other costs. Sometimes colleges suggest Parent Plus loans that add up to tens of thousands of dollars – without regard to whether families can afford it. Others simply provide information about the option.

Families often risk the financial strain, hoping the debt burden will be outweighed by the benefit to their children’s lives and futures. Some parents might also bank on the education boosting their children into a high-paying job, which could help pay off the loans.

“This is one of those knives that cuts both ways,” Craig Munier, director of scholarships and financial aid at the University of Nebraska at Lincoln told ProPublica. “If we leave a huge gap in the financial-aid package, families could reach the wrong conclusion that they cannot afford to send their children to this institution. The other side is we package in a loan they can’t afford, and they make a bad judgment and put themselves into debt they can’t manage. You can second-guess either decision.”

The situation mimics many elements of the sub-prime mortgage crisis: easy access to loans, lenient underwriting, and naïve or reckless borrowing. You can read the full story here.

Some readers have already started to leave their opinions in the comments.

“I have to say I see this as a non-system issue. This has to do with someone who makes $25k a year taking out a $17k loan. I grew up not poor, but at the lower end of middle class. My father worked in construction, which provided a good income, but not steady work. Therefore, you budgeted, first come necessities, then savings, then splurges.”  – Joe P.

“I don’t blame the folks who wind up borrowing Parent Plus money they can’t afford anymore than I blame those who wound up with ARM mortgages they couldn’t pay. Both situations involve emotional decisions, complicated forms and contracts, and very little objective counseling. Here’s the thing you want more than anything and here’s this expert (your government in both cases) saying “YES” you can have it…it’s easy to see how folks are misled.” – Kim Andrews   

What do you think? Should the government create measures to prevent over-borrowing? Should schools counsel people on how much aid is too much? Or should individuals be entirely and solely responsible for their own college loan decisions?

Take our poll, and let us know your thoughts in the comments. 

Are you struggling with student debt? Share your story with us.


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