Parents are borrowing more to pay for their kids’ college — and they’re struggling to pay back the debt

The parents are not alright.

Parents are borrowing more money than in the past to pay for their kids’ college and they’re struggling more to repay it, an analysis of government data released this week by the Brookings Institution finds. In 1990, parents borrowed an average of $5,200 per year (adjusting for inflation) through the Parent PLUS program, a federal loan product parents can use to pay for their kids’ college. By 2014, that average had jumped to $16,400.

But parents rarely borrow for just one year, the study notes. They typically take out multiple loans during the time their children spend in school. In 2014, the average parent borrower entering repayment was holding about $38,800 in debt, according to Brookings, that’s up from $6,200 in 1990.

‘They’re incurring a liability but they don’t get the asset. For a parent in the later half of their working career it can be a real burden on them.’


Adam Looney, the director of the Center on Regulation and Markets at Brookings

Parents aren’t just borrowing more, they’re struggling to repay the debt, the study found. The share of parent borrowers defaulting on their loans within five years was 7% in 2000. By 2009, it had jumped to 11%.

Even parents who aren’t facing the worst consequences are making less progress repaying their loans than in the past. Parents who entered repayment in 2000 paid down 56% of their loan balance within five years, the study found. Those who started repaying their loans in 2009 only paid down 36% during the first five years.

Some parents, “are clearly financing their kids education with loans they will not be able to repay,” said Adam Looney, the director of the Center on Regulation and Markets at Brookings and the co-author of the study.

Though Parents PLUS loans makeup just 6% of all federal outstanding student loans, the rise in parents’ balances and the challenges they face repaying them could have troubling consequences. Parents can borrow up to their child’s cost of attendance and the government will allow them to borrow even if they have relatively poor credit. The only restriction is on parents who have a 90-day delinquency on any debt or have had a major adverse credit event in the last five years, like a bankruptcy.

Parents don’t have the same repayment options as their kids

On the back end, parents have fewer safety nets than students when repaying their debt. They don’t have access to most of the federal student loan program’s income-driven repayment plans, which allow borrowers to repay their loans as a percentage of income.

But perhaps more crucially, parents are taking on these loans with less time to pay them off before they stop working and aren’t receiving the boost in earnings that comes with the degree the loans are financing. That could put their retirement and overall financial security at risk. In 2014, 8.8% of parent borrowers entering repayment on their last loan owed more than $100,000, according previous research by Looney and a co-author. That’s compared to just 0.4% in 2000.

The burden of Parent PLUS debt also differs by race and may be fueling the racial wealth gap, other research has found.

“They’re incurring a liability but they don’t get the asset,” Looney, who served as Deputy Assistant Secretary for Tax Analysis at the Treasury Department, said of parents taking on debt for their kids. “For a parent in the later half of their working career it can be a real burden on them.”

The rise of for-profit colleges has contributed to the problem

There are some reasons specific to the circumstances of Parent PLUS loans that explain why they’ve ballooned, according to Looney. In 1993, the government got rid of the annual and aggregate loan limit on Parent PLUS loans and in the intervening years, the cost of college continued to climb.

But in many ways the rapid rise of Parent PLUS loans is fueled by some of the same trends driving the overall rise in student debt. For one, the Great Recession meant that parents had less money to draw from when helping their kids pay for college. In addition, the growth in for-profit college enrollment over the past several years may also be contributing to parents’ challenges with debt.

The share of parents who took out loans for their kids to attend for-profit colleges and defaulted within five years was 11.5% in 1999, according to the study. By 2009, that share grew to 16.3%. The default rates for parents who borrowed for their kids to attend public or nonprofit private schools stayed steady at about 6% during the same period.

Some of the worst outcomes, the study found, were among parents who borrowed for their kids to attend for-profit colleges that later collapsed amid allegations they lured students with inflated job placement and graduation rates.

“In some ways that would be consistent with a poorly informed parent not understanding what they were getting into or having been tricked or fooled into taking out a loan that they didn’t understand the consequences of,” Looney said. “That strikes me as plausible.”

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Jillian Berman covers student debt and millennial finance. You can follow her on Twitter @JillianBerman.

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