Parent PLUS Loan Worsens Racial Debt Inequities, Study Finds

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Photo of a graduation cap on a pile of U.S. 100 dollar bills

A new report released Tuesday by The Century Foundation, a progressive think tank, found that the federal Parent PLUS student loan program disproportionately worsens debt for Black borrowers.

Congress first established the Parent PLUS program in 1980 to offer higher-income families flexible repayment options for their children’s college loans. Because the loans were created with higher-earning borrowers in mind, Congress implemented higher interest rates and origination fees and made most income-driven repayment options ineligible, according to the report.

“Ability to repay Parent PLUS is a matter of income and wealth,” the study states. “Parent PLUS poses a dilemma for Black and Latino families in particular, who may view higher education as one of the only available opportunities to ensure their child achieves upward mobility.”

The report found that many borrowers struggle to repay the loan, with more than 3.7 million parents now owing upward of $104 billion. Furthermore, the study shows that the loan actually worsens debt inequities for low-income Black families who mainly utilized the loans to enroll at historically Black colleges and universities.

Parent borrowers with children attending historically Black colleges still owed an average of 96 percent of their principal after ten years, compared to 47 percent at predominantly White institutions.

Based on these findings, the foundation urged President Joe Biden and the U.S. Department of Education to include Parent PLUS debt in any potential forgiveness plans, given that defaulted debts could impact Social Security eligibility for older borrowers.

“The cancellation of student debt, including and especially Parent PLUS loans, is one vital step toward correcting the ills of racial inequality in the United States and enabling many of these borrowers to regain their financial footing and once again become full participants in the economy. Parent PLUS must be included in debt cancellation,” the report states.