NCPA - National Center for Policy Analysis

Looking at the Parent PLUS Loan Program

May 8, 2014

The federal Parent PLUS loan program encourages schools to raise their tuition, according to a new report from Awilda Rodriguez, research fellow at the American Enterprise Institute.

The federal government's Parent PLUS loan program grants loans to parents for their children's college education, up to the cost of attending.

  • The loan is strictly provided to parents, not students, and their children must be dependents.
  • To qualify for the loan, parents must pass a credit check. Any outstanding debts within the prior three months or delinquent accounts over the last five years will disqualify them from participating in the program.
  • The Parent PLUS interest rates are much higher than the interest rates on undergraduate student loans, at 6.41 percent compared to just 3.86 percent.
  • There are a limited number of repayment options, and payments begin as soon as the funds are disbursed.

The program has grown in popularity as college tuition has skyrocketed and financial aid packages have not kept up with rising costs. As of 2011, at the program's peak, there had been $11 billion in disbursements to nearly one million Parent PLUS borrowers.  But the rate of default has also risen. In 2010, 4.1 percent of parents had defaulted on their PLUS loans, compared to 1.8 percent just four years earlier.

There is a shortage of research on the details of the program. Rodriguez examines two questions: Which colleges are relying on PLUS loans, and what kinds of families are taking out these loans?

  • While parents take out PLUS loans under the assumption that their investment will help their children earn a degree, Rodriguez found that many of these loans go towards colleges with poor or middling graduation rates. Most families using the funds are not accessing schools with high graduation rates.
  • Most PLUS funds are funneled to schools whose tuition costs have risen faster than inflation. The program encourages schools to increase their tuition, because parents can always take out these loans up to the cost of attending.
  • In assessing the characteristics of PLUS borrowers, the report found that families across the income spectrum were borrowing funds, though the amount borrowed varied. In general, more affluent, college-educated, two-parent households took out larger loans.
  • On average, PLUS loans represented one-third to more than half of the aid that students received, regardless of income, marital status, or education.

The Department of Education needs to track and collect more data on the PLUS program in order to better understand its impact on college access and affordability, Rodriguez says. 

Source: Awilda Rodriguez, "Access to what and for whom? A closer look at federal Parent PLUS loans," American Enterprise Institute, May 1, 2014. 


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