PLUS Loans for Parents and Parent Income

PLUS Loans for Parents and Parent Income

Question:  How has the use of PLUS loans for parents changed over time for parents of student attending undergraduate institutions and for students attending graduate schools?   What is the share of PLUS loans taken out by parents with income in the bottom quartile?

Does it appear that parents taking out PLUS loans for students have adequate income to repay their obligations?

Why this issue is important:  Parents who have problems repaying PLUS loans are not allowed to default on the loan.   Increasingly, many parents with PLUS loan obligations have had problems repaying and in some cases the government has garnished Social Security benefits from these borrowers.   It is possible that many of the financial problems caused by use of PLUS loans could have been prevented if lenders had considered the adequacy of parent income prior to making the loan.

Data and Methodology:

I addressed this issue with TRENDSTATS from the NCES DATALAB.

https://nces.ed.gov/Datalab/trendstats/trends.aspx

TRENDSTATS allowed me to get data on use of parent plus loans by income quartile for five different survey years  — 1996, 2000, 2004, 2008 and 2012.

I created separate analysis for parents of undergraduate students and parents of graduate students.

The table on PLUS loans for undergraduates only involves parents of dependent students.

The table on PLUS loans for graduate students uses the combined income of the student and the parent.

Results:  Two tables on PLUS loan use and income quartiles over time are presented below.

Percent of Dependent Parents with PLUS Loans by Income Quartile
Year Lowest 25th  Percent Lower Middle 25th  Percent Lower Upper 25th  Percent Upper 25th  Percent Total
1996 2.96 5.56 6.38 5.65 5.06
2000 3.56 5.48 8.61 6.76 6.07
2004 3.92 6.53 9.34 8.34 6.98
2008 4.33 6.73 9.37 8.86 7.25
2012 6.22 9.17 11.33 10.87 9.27
Percentage Growth 1997 to 2012 109.91% 64.96% 77.57% 92.49% 83.27%

Sample is all parents of dependent undergraduate students

Parent Plus Loans for Graduate Student by Quartile of

Sum of Parent and Student Income

Year Lowest 25th  Percent Lower Middle 25th  Percent Upper Middle 25th  Percent Upper 25th  Percent Total
1996 6.83 3.94 2.36 0.80 3.48
2000 7.37 5.75 4.14 2.90 5.07
2004 7.98 6.18 3.44 3.87 5.51
2008 9.82 8.14 5.48 3.88 6.76
2012 11.47 7.87 5.23 3.27 7.13
% Change 67.85% 99.63% 121.73% 308.91% 104.82%

Analysis of Percent of Plus Loans Across Income Quartiles:

Undergraduate Students:

The lower upper 25th percentile had the highest share of students dependent on PLUS loans for parents in all years.

Growth rate in use of PLUS loans for parents is highest in the lowest 25th percentile.

Graduate Students:

The lowest 25th percentile consistently had the highest percent of people dependent on PLUS loans for parents.

The upper 25th percentile had the highest growth rate in the use of PLUS loans for parents; although, the PLUS loan share for this quartile remained lower than all other quartiles in 2012.

Share of PLUS Loans Taken Out by Parents in First and Second Income Quartile:

Above I discussed the percent of students in each quartile that used a PLUS loan.

Here I look at the percent of students using PLUS loans that are in particular quartiles in each income quartile.

PLUS Loans for Parents Usage
Number out of 1,000 per income quartile
Q1 Q2 Q3 Q4 Total
Undergraduates 62.2 91.7 113.3 108.7 375.9
Graduates 114.7 78.7 52.3 32.7 278.4
Share in Each Quartile
Q1 Q2 Q3 Q4 Total
Undergraduates 16.5% 24.4% 30.1% 28.9% 100.0%
Graduates 41.2% 28.3% 18.8% 11.7% 100.0%

Calculations above are for 2012

Observations on use of Parent PLUS Loans Across Income Quartiles:

Lower-income people take out a lot of PLUS loans.

16.5 percent of PLUS loans taken out by parents of undergraduates are in the lowest income quartile.

41.2 percent of PLUS loans taken out by parents of graduate students are in the lowest income quartile.

Methodological Note:

I wanted the software to provide numbers of students in each income quartile based on population weights.   I would have obtained contingency tables based on population weights in SAS or STATA if I had access to the raw data files.  TRENDSTATS does not appear to have this capability.   Alas, I don’t have access to the raw data so this could not happen.

I attempted to switch the row and column variables in TRENDSTATS but the TRENDSTATS software does not allow for automatic creation of income quartiles when parent income of dependent variable is the column variable.

How then did I get the share of loans for all income quartiles?

By definition, each quartile has the same number of observations so I assumed each group had 1000 students.   I multiplied 1000 by share of students using PLUS loans for each quartile to get PLUS loan use per 1,000 students.

The sum of these numbers is total PLUS loan use across all students.   I divided PLUS loan use by income quartile by total PLUS loan use in the population to get quartile shares.

I am very interested in understanding the advantages and limitations of the POWERSTATS and TRENDSTATS education department software and will continue to make comments that might lead to improvements in the on-line databases.

Concluding Thought:

Barring really exceptional circumstances, student debt including PLUS loans obtained by parents is not forgiven or discharged even in bankruptcy.   Lenders happily give PLUS loans to lower-income parents because the loans are guaranteed even if the lender cannot make repayments.

The combination of government guarantees for loan payments and a prohibition on discharge of loans in bankruptcy has led to a thriving debt market geared towards people with little chance of repayment.

Why are young adults absent from state exchanges?

Differences between state-exchange and employer-sponsored health insurance

The affordable care act created state health exchanges a market place where many working-age people can obtain health insurance.  This post describes differences between the size of the state-exchange market and the age composition of the state-exchange markets compared to private employment-based insurance.

Questions:  How many people obtain health insurance through state exchanges?   How many people obtain health insurance through their employer?

How does the age composition of the people insured in state exchanges differ from the age composition of people who obtain health insurance through their employer?

What are the policy implications of these differences between the two markets?

Short Answer:  The post presents and discusses three findings.

The first finding is that the employer sponsored health insurance market is much larger than the newly formed state exchanges.   As a consequence of this size differential it is quite easy for major insurers to leave the state exchanges and concentrate on the employer-sponsored sector of the industry if they perceive the state exchange sector as unprofitable.

The second finding presented here indicates that the share of people insured on state exchanges, that are 26 or under, is lower than the share of people in employers-sponsored plans that are 26 or younger.  The higher percent of young adults in the employment-based market is partially a consequence of a provision of the ACA that allows young adults to remain on their parent’s health plan.

Third, the percent of people with private insurance who obtain their health insurance from an exchange plan is larger for the 55 to 65 year old age group than any other age group.

Data:   The data used in this study was obtained from the PERSONX file for 2015 from the National Health Interview Survey.   I look at the relationship between two variables on the interviews.   The first question involves whether a person with private health insurance obtained the private health plan from a state exchange or some other source, presumably the person’s employer.   This question was only asked of people with private insurance.

Since I was interested in people with households where the head of household was working age I only considered people less than or equal to age 65.   (Most people over age 65 get their primary insurance through Medicare.   Some of these people may also have private Medigap plans but this market is not the focus of the ACA issues studied here.)

The second variable is age category.   I use the age variable to create age categories  — less than or equal to age 21, 21<age<=26, 26<age<=35, 35<age<=45, 45<age<=55, and 55<age<=65.

There are 3,392 people in the sample obtaining private insurance from state exchanges and 57,579 people in the sample obtaining private health insurance from some other venue, primarily their employer.

A weighting variable WTFA was used to translate these sample numbers to estimates of age category by insurance type for the entire country.

The analysis in this post involves evaluating the relationships between these age categories and the two types of insurance.

Results:   The age patterns of people with private health insurance obtained on state exchanges and private health insurance obtained from some other source are presented below.

 

Number of People with Private Insurance from State Exchanges and From Other Source (Primarily Employer)
age_cat Exchange Plan Not Exchange Plan Total
<=21 1,999,788 48,204,273 50,204,061
21<age<=26 697,760 13,419,295 14,117,055
26<age<=35 1,544,447 23,290,719 24,835,166
35<age<=45 1,665,307 26,388,265 28,053,572
45<age<=55 2,090,070 28,775,752 30,865,822
55<age<=65 2,220,015 25,602,310 27,822,325
Total 10,217,387 165,680,614 175,898,001
Percent of people with private insurance by market source
age_cat Exchange Plan Not Exchange Plan Total
<=21 4.0% 96.0% 100.0%
21<age<=26 4.9% 95.1% 100.0%
26<age<=35 6.2% 93.8% 100.0%
35<age<=45 5.9% 94.1% 100.0%
45<age<=55 6.8% 93.2% 100.0%
55<age<=65 8.0% 92.0% 100.0%
Total 5.8% 94.2% 100.0%
Age Composition of Health Insurance Markets
age_cat Exchange Plan Not Exchange Plan Both Markets
<=21 19.6% 29.1% 28.5%
21<age<=26 6.8% 8.1% 8.0%
26<age<=35 15.1% 14.1% 14.1%
35<age<=45 16.3% 15.9% 15.9%
45<age<=55 20.5% 17.4% 17.5%
55<age<=65 21.7% 15.5% 15.8%
Total 100.0% 100.0% 100.0%

 

 

Observations:

 The estimates reveal that a little over 10.2 million people get private health insurance from state exchanges compared to 165.7 million from other sources.   This is a 16.2 to 1 ratio.

 Comment on Observation:  In many states, the state exchange share of private policies sold is even smaller than indicated by the national average.   In these states most major insurance firms are exiting the state exchange markets.

 The share of state exchange market less than or equal to 21 years old is 19.6% much less than the 29.1% share for insured that are not sold on state exchanges.  The share of state exchange participants who are young adults (age 21 to 26) is 6.8%.   By contrast, this share is 8.1% for people who get their private insurance through their employer.

Comment on observation:  The higher proportion of younger people (minors and young adults) covered through employment-based insurance is not a consequence of choice by the covered person because most of these young people get their coverage based on their parent’s plan.    One of the reasons that there are so many young adults in the employment-based market is that the ACA allows young adults to stay on their parent’s plan until age 26..  This provision has helped sharply reduce the uninsured rate among young adults but it has had the side effect of increasing the age composition and the risk of the state-exchange market.

 The share of the exchange plan sector that is 55 to 65 years of age is 21.7%.   The share for employment-based insurance sector is 15.5%

Comment on observation:  The membership p of the state exchange market is a lot older than the membership of the employment-based market.   Premiums in the state exchange market are age rated.   A comparison of the age-rate premiums to age-associated health expenditures will have a large impact on the viability of the state exchanger markets.

Final Thoughts:  The differences in the age composition of the two markets suggests that many people will get a better insurance buy in employment based markets than state exchange markets.   People who get a job with employment based insurance will drop their exchange plan for the new plan from their employer.   (In fact, they have to drops their state exchange insurance because insurance on state exchanges is only available to people that do not have offers of qualified employment-based insurance.)

The rules defining eligibility for state exchanges insure that these markets will be the poor cousins of employment-based insurance.  The withdrawal of major insurers from state exchanges is the latest evidence that state exchanges are under great financial stress.  This financial stress cannot be alleviated without changes in eligibility rules and financial incentives that lead to the expansion of state exchanges.

 

 

 

President Trump’s Approach to Student Debt

President Trump’s Approach to Student Debt

The Trump Administration is pushing forward a broad range of policies that will impose substantial financial costs on student borrowers.   The policy levers include changes to the tax code, changes in rules governing student loan programs, and reduced consumer protections for borrowers.

Proposed Policy Change and Actions

The Elimination of Subsidized Student Loans

Currently, subsidized student loans are available for low-income students. The government pays all interest on subsidized loans while a student is still enrolled.  The Trump Administration’s budget proposes the elimination of all subsidized student loans.  As a result, low-income students will accrue interest even when in school.

Comment on Proposal to Eliminate Subsidized Student Loans: Subsidized student loans are only available for lower-income students.   The build-up of interest payments while a student is in school will have the largest impact on students who fail to graduate on time.   This provision may discourage students who leave school after their freshman or sophomore debt to reenter school later in life.   This provision will also have a large impact on low-income students in complex fields (medicine, science and law) because interest will accrue for years prior to the initiation of repayment.

The Modification of the Income Based Replacement Loan Program:

The Trump Administration is proposing a uniform set of rules for Income Based Replacement Loan programs.   People with an undergraduate education would pay more annually but would be able to receive loan forgiveness after 15 years rather than 20 years.   However, debt incurred in graduate school would not be forgiven until after 30 years.

Comments on Income Based Replacement Loan Programs:    The current IBR program has many flaws.   The modifications proposed by Trump worsen the program. 

Many people enrolled in the IBR program because they temporarily have low income and they are trying to prevent a loan default.  These people pay more under iBR than under a 10-year loan plan. Many people who enroll in IBR fail to receive any debt relief because obtaining debt relief requires that a person stay in the loan program every year.

Many borrowers will be unable to make the new annual IBR payment.   These borrowers may default or may sign up for a 20-year loan, which will cause them to pay more student loan interest over their lifetime.  It is highly likely that a substantial number of student borrowers will select 20-year repayment options because of higher debt totals and the increases in the annual IBR payment.

The Elimination of Public Loan Forgiveness Programs:

Current law provides loan forgiveness to borrowers who have been certified to work in a public service job after 10 years of on-time payments.   President Trump’s budget proposal would end public loan forgiveness for loans issued after July 1, 2018, except for loans needed to finish the current program.   Current law provides loan forgiveness to borrowers who have been certified to work in a public service job after 10 years of on-time payments.

Comment on Abolishing Student Loan Forgiveness Programs:  Some economists including staff at the Government Accountability Board have forecasted large costs for the current Public Service Loan Program.  Around 500,000 people have enrolled and many jobs are potentially covered by the program.   I believe the number of people receiving public service loan forgiveness may be lower than anticipated because people who leave public service employment prior to ten years do not receive any loan forgiveness.

This program will encourage some people to stay in a public service job even when more productive opportunities exist elsewhere. Proposals providing partial loan forgiveness for people serving in public service jobs for a period smaller than ten years should be considered.

Denying Access to Enrollees in Public Loan Forgiveness Programs Prior to the Elimination of the Program:

The Department of Education under Betsey DeVos has denied student borrowers with existing loans access to the public loan forgiveness program.   This administrative change is being applied to people who have already taken on debt and are currently working.  A law suit is currently challenging these denials and claims that the Administration has arbitrarily changed eligibility requirements for the public service loan program.

Comment on Denial of Access to Public Service Loan Programs:  The Trump Administration position favors taxpayers over students.   The savings to the taxpayer may be smaller than anticipated if many people do not stay 10 years in a public service position.

Consumer Protections:

Reducing Protections for Defrauded Students:

Under President Obama, the Department of Education put into place rules that provided defrauded students debt relief.   Betsey DeVos stopped work with the CFPB on student loan fraud efforts, proposed changes to the Obama-era rule that would limit the amount of debt relief given to defrauded borrower and delayed applications of debt relief until the new rule is finalized.

Comment on Reduced Protections for Defrauded Students:   The Trump Administration appears to oppose most regulations of for-profit colleges evens when there is documented abuse.

Enforcement of IBR loan application rules:

The CFPB recently found that loan servicers were illegally denying students access to Income Based Replacement loan programs. The CFPB ordered loan servicers to improve procedures to guarantee

Comment on CFPB Ruling:   The Trump Administration and many Republicans oppose the existence of the CFPB.   The Administration named an interim director who opposes the agency.   

The lack of regulation of applications to the IBR program is important because applications must be renewed annually and no debt relief is offered to debtors who do not remain continuously enrolled.

Taxing free tuition waivers, ending the tax deductibility of student loan interest and other student loan tax preferences.  

The House tax bill, which has been supported by President Trump, proposes to treat tuition waivers for graduate students and sons and daughters of university employees as ordinary income for tax purposes. The House bill also eliminates the tax deductibility of student debt, the exemption from tax for lifetime learning, and exemption from tax for employee tuition assistance.

Most of these proposals were removed from the final tax bill, which was enacted into law.  

Links to Articles Documenting These Policy Changes:

https://www.nytimes.com/2017/11/15/us/politics/house-tax-bill-higher-education-increases-tuition.html

http://www.denverpost.com/2017/11/08/gop-tax-bill-student-loan-interest-deduction/

http://time.com/money/4784214/trump-2018-budget-education-cuts-student-loans/

https://www.usnews.com/news/politics/articles/2017-05-22/budget-seeks-end-to-subsidized-student-loans-forgiveness

https://www.washingtonpost.com/news/grade-point/wp/2016/12/20/lawsuit-accuses-education-department-of-reversing-course-on-student-loan-forgiveness/?tid=a_inl&utm_term=.b62d5935222e

https://studentloanhero.com/news/betsy-devos-delays-closed-for-profit-colleges-student-loan-forgiveness/

https://www.marketwatch.com/story/cfpb-student-loan-companies-are-illegally-denying-borrowers-right-to-make-lower-payments-2016-10-31

https://www.politico.com/story/2017/11/27/consumer-financial-protection-bureau-fight-mulvaney-english-190862

http://thehill.com/policy/finance/349223-education-dept-ends-agreement-to-work-with-consumer-bureau-on-student-loan

Why is the price of insulin so high?

Why is the price of insulin so high?

There have been several news articles on price increases for Insulin?  Here are two.

https://www.webmd.com/diabetes/news/20180725/spiking-insulin-costs-put-patients-in-brutal-bind

https://health.usnews.com/health-care/for-better/articles/2018-06-29/whats-behind-the-rising-costs-of-insulin

These articles raise more questions than they answer.

Insulin is a very old drug, first used in 1922.  There are several different types of insulin but most modifications or tweaks appear to be minor compared to ground breaking discoveries of brand new drugs.

Why has our government granted new patents for relatively minor modifications to this drug?

Why have foreign governments been less receptive to new patents for revisions to insulin?

Pharmaceutical firms have in the past decade created several new drugs other than insulin to treat diabetes.   Since insulin is a substitute for non-insulin diabetes drugs, the higher price of insulin allows pharmaceutical firms to charge higher price for non-insulin drugs.

Would a lower price of insulin lead to price decreases for other types of diabetes medicines?

How effective are the new diabetes drugs compared to insulin?

Are there instances where pharmaceutical firms are persuading doctors to prescribe new medicines when insulin would have the same or better outcome?

Is there a relationship between patent policy on insulin modifications and the price of and utilization of new diabetes drugs?

Do patients on new non-diabetes drugs get better health outcomes than patients on insulin?

Review Question:  Is it possible that control of insulin prices brought about by more stringent review of new patents or greater competition from generic forms of insulin would decrease utilization of new diabetic medicines or decrease the price of new diabetic medicines?

I would like to learn more about the economics of insulin and new diabetes drugs. Please contact me at Bernstein.book1958@gmail.com with some citations of literature that I should read on this topic.