Quick Takes: New America — The Subprime PLUS Loan Crisis: How Dozens of Universities Steer Low-Income Families to Debt They Can’t Afford

https://www.newamerica.org/education-policy/reports/parent-plus-subprime-loans-universities-debt/

Why it’s worth a look: Happy to thank friend and colleague Erik Ellefsen for directing me to this important article.  First, let’s establish what a PLUS loan is.  The Parent PLUS Loan, as it suggests, is a loan taken by the parents of an undergraduate student, when all other financial aid opportunities have been ‘exhausted’.  They tend to have high interest rates, and the interest payments accrue right away (no deferrals or subsidies offered).  When low-income families take on this type of debt, it’s similar to using credit cards as a last resort of funding, and it frequently leads to painful financial outcomes, and in some more exacerbated cases, bankruptcies.  While each case (and family) is different, we can use patterns of recent prior behavior to know where we, as consumers, are likely going to be burdened with higher borrowing costs by colleges.  The article lists the following schools (in alphabetical order – my choice, not theirs) as the worst culprits of leaning on PLUS loan use for their undergraduate students: American University (DC), DePaul University (IL), Drexel University (PA), Duquesne University (PA), Fordham University (NY), Hofstra University (NY), Loyola Marymount University (CA), Loyola University Chicago (IL), Marquette University (WI), Pepperdine University (CA), Quinnipiac University (CT), Rochester Institute of Technology (NY), Saint Louis University (MO), St. John’s University (NY), Southern Methodist University (TX), Syracuse University (NY), Texas Christian University (TX), The George Washington University (DC), University of Denver (CO), University of Miami (FL), University of the Pacific (CA), University of San Diego (CA), University of Southern California (CA).

The twist?  The federal government is moving forward with new legislation this summer that will cap PLUS loan borrowing to $20,000/year (and $65,000 over the total enrollment period for one child).  What will these colleges/universities do when that financial aid tool is diminished?