The Subprime Loans for College Hiding in Plain Sight

The federal government has a deal for you that will blow your mind if you can't afford college for your kids.

You can borrow the entire cost, minus any other aid your child gets, through a Parent Plus loan. Your ability to repay the debt isn't important. If you don't have a lot of black marks in your credit history, you can still get a six-figure loan even if you don't make much money.

This is crazy. Don't bother taking my word for it.

Rachel Fishman of New America is a left-leaning think tank.

According to Beth Akers of the American Enterprise Institute, she hates these loans.

The president of the National Association of Student Financial Aid Administrators said that the system has gone off the rails.

The majority of parents don't pay for college with this loan. About 3.6 million of them have outstanding debt. A number of low-income Black families at schools may not have given their children enough help in the way of scholarships. Many of the families are struggling to repay the federal government's generous offer.

If it appears to be the least horrible option, why wouldn't mothers and fathers use it? Keeping the American promise that children should do better than family members from previous generations is one of the main reasons for parenting. A college degree can make that happen.

There were good reasons for Congress to create parent loans. Middle-income families had trouble paying for college due to increased costs. Interest rates were very high.

A worsening problem was solved by the lower-than- market interest rate on the PLUS loan. It made it easier for parents to pay a bigger portion of the bill.

You were only able to borrow $3,000 per year. According to a report from the Urban Institute, the cap went away in 1992 due to a successful push by a higher education lobbying association.

As college costs increased and schools began to include information about PLUS loans in financial aid notifications, more families took out loans. If you have discharged debt in bankruptcy, been subject to a tax liens, or have similar problems, the government will only approve the loan.

As more data becomes available, a number of policy organizations have looked at the impact of these loans. We will look at the adjusted gross incomes of the parents.

Ms. Fishman is the acting director of the higher education program at New America.

One in 10 black families earn more than $110k and one in three earn less than $30,000 a year. According to a Century Foundation report from this year, the federal government has told 42 percent of black borrowers that they can't afford to pay for their children's education if they don't have enough money.

If there is not enough grant money available from the government or the college, these parents and others like them will borrow. The Department of Education doesn't expect them to pay anything It tends to give them almost everything.

It's either to repay or not. According to the Century Foundation, borrowers whose children attended the colleges with the highest percentage of black students owe an average of 96 percent of the original principal. The figure is 47 percent at the schools with the most white students.

Parent PLUS loans are a no-strings attached revenue source for colleges and universities, with the risk shared only by parents, according to a report from the Urban Institute.

It's pointless to try to assign blame. Our elected representatives were trying to make it easier for people to pay for college. Federal rules don't allow colleges to prevent families from using the PLUS loan if they meet minimal eligibility requirements, even if they have over promoted the loan.

It is difficult to criticize parents who are trying to do right by their kids. It is not a good idea for many of them to borrow a lot. They are no bargain with an interest rate of 7.54 percent and an origination fee of 4.228 percent.

Parent loans aren't going to help them earn more, unlike student loans. Up to 25 years of repayment can push the bills into what are supposed to be the retirement years. The federal government helps itself if you default.

The solution is for states to subsidize their universities more generously and for the federal government to double the amount of grants for low income students. People won't need to borrow a lot if that happens. This is not something that will be accepted in many states and at the federal level.

The loan cancellation is good and the loans are eligible for the offer. Parents of this year's high school seniors don't benefit from that.

It seems like the return of restrictions on PLUS loan amounts is sensible. Are they fair?

Historically Black colleges and universities lost $150 million in revenue when the Education Department tried to turn the screws on credit standards. Hurting institutions that exist feels like a political non-starter and amoral.

There is a chance that the most expedient fix is to create more generous repayment terms based on parental income. It feels like it's possible, even though this adds complexity and possibly incentive to borrow more.

The author of Making College Pay asked me this week why we act as if college and graduate schools are infinitely valuable.

She said that if we reduced access with caps, we would reduce access to college.

The people who were stopped were about to take on an investment that might not have a return and might put them in debt. We seem to be unwilling to have that discussion.