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 25^{th} Percent | Lower Middle 25^{th} Percent | Lower Upper 25^{th} Percent | Upper 25^{th} 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 25^{th} Percent | Lower Middle 25^{th} Percent | Upper Middle 25^{th} Percent | Upper 25^{th} 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 25^{th} 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 25^{th} percentile.
Graduate Students:
The lowest 25^{th} percentile consistently had the highest percent of people dependent on PLUS loans for parents.
The upper 25^{th} 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.