Research Department Working Papers
No. 2217
Summary: Parents who take out loans for their children’s college education may face excessive debt loads that put their own financial security at risk. This article examines the experience of Parent Loan for Undergraduate Students (PLUS) borrowers using administrative data from a major student loan guarantee agency. We find that PLUS borrowers are more likely to default if their children attend low-resource institutions, typically those where low-income enrollment predominates. Although parent PLUS generally outperforms student loans, PLUS’s performance is sensitive to program costs during tough economic times. On the other hand, the results of the pupils depend more on the academic results. Interviews with borrowers confirm that PLUS borrowers have more experience dealing with debt than their children, but there is a lack of communication about repayment obligations and expectations across generations. This study reveals the different consequences of parental and student borrowing for higher education and the problematic design of the PLUS program that poses challenges for some borrowers.
DO I: https://doi.org/10.24149/wp2217
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