A Rescue or a Trap?—An Analysis of Parent PLUS Student Loans

Wenhua Di, Carla Fletcher and Jeff Webster

No 2217, Working Papers from Federal Reserve Bank of Dallas

Abstract: Parents taking out loans for their children’s college educations may face an excessive debt burden that jeopardizes their own financial security. This paper examines the experience of Parent Loan for Undergraduate Students (PLUS) borrowers using administrative data from a large student loan guaranty agency. We find that PLUS borrowers are more likely to default if their children attend low-resource institutions, typically ones where lower-income enrollments predominate. Although parent PLUS generally outperforms student loans, PLUS performance is sensitive to program costs during difficult economic times. In contrast, student outcomes depend more on educational outcomes. Interviews with borrowers confirm that PLUS borrowers have more experience handling debt than their children, but there is a lack of communication on repayment obligations and expectations between generations. This study reveals the differing consequences of parent and student borrowing for higher education and the troublesome PLUS program design that poses challenges to certain borrowers.

Keywords: student loans; parent PLUS; default risk; minority serving institutions (search for similar items in EconPapers)
JEL-codes: D04 G51 J15 (search for similar items in EconPapers)
Pages: 36
Date: 2022-09-09
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddwp:94844

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DOI: 10.24149/wp2217

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