Chicago Universities Under Fire: Are Parent PLUS Loans the New Student Debt Crisis?
DePaul University and Loyola University Chicago are facing scrutiny following the release of a new report by New America, a progressive think tank. The report alleges that these institutions, along with 39 others nationwide, may be steering low-income families toward substantial Parent PLUS loans while offering more favorable financial aid packages to wealthier students. This practice raises concerns about a potential “subprime PLUS loan crisis,” as families take on debt they may be unable to repay.
The Problem with Parent PLUS Loans
Parent PLUS loans are federal loans available to parents of dependent undergraduate students. Unlike traditional federal student loans, Parent PLUS loans have no borrowing limits – parents can borrow up to the total cost of attendance. While intended to help middle- and upper-middle-income families afford college, the report highlights a troubling trend: an increasing number of low-income families are relying on these loans, often with devastating consequences.
According to the New America report, over 32,000 families with students attending the 41 universities analyzed received Pell Grants – federal grants awarded to students with exceptional financial need. Despite this assistance, these families carried a median debt load of nearly $30,000, sometimes exceeding their annual income.
DePaul and Loyola: A Closer Look at the Numbers
The report provides specific data for DePaul, and Loyola. At Loyola University Chicago, approximately 48% of Parent PLUS loan borrowers were parents of Pell Grant recipients, with an average debt of around $46,446. At DePaul University, 53% of PLUS loan borrowers were parents of Pell Grant recipients, owing an average of $33,000.
While both universities have substantial endowments – $929 million for Loyola and $957 million for DePaul – they don’t reach the $1 billion threshold considered for the wealthiest institutions. However, the report suggests that even with these resources, the schools are not doing enough to mitigate the burden of debt for low-income families.
Why is This Happening?
The report suggests a concerning incentive structure. Universities are motivated to attract affluent students, who often don’t require significant financial aid, to boost their rankings and revenue. This can lead to a prioritization of merit-based scholarships for high-achieving students from wealthier backgrounds, leaving lower-income families to fill the funding gap with Parent PLUS loans.
As Stephen Burd, the author of the report, explains, “Each year, tens of thousands of low- and lower-middle-income families are encouraged to borrow hefty Parent PLUS loans they likely won’t be able to repay to send their children to selective public and private research universities.”
University Responses
DePaul University responded to the report with a statement emphasizing its commitment to affordability. The university highlighted its provision of over $350 million in annual scholarships and grants, transparency regarding loan options, and participation in the College Cost Transparency Initiative. Loyola University Chicago did not immediately respond to requests for comment.
Future Trends and What to Expect
This report signals a growing awareness of the risks associated with Parent PLUS loans and the potential for a wider student debt crisis. Several trends are likely to emerge in the coming years:
- Increased Scrutiny: Expect greater scrutiny of university financial aid practices from policymakers, consumer advocacy groups, and the media.
- Regulatory Changes: There may be calls for stricter regulations on Parent PLUS loans, including tighter eligibility requirements or limits on borrowing amounts.
- University Accountability: Universities may face pressure to increase grant aid for low-income students and reduce their reliance on Parent PLUS loans.
- Focus on Transparency: More universities may adopt initiatives like the College Cost Transparency Initiative to provide clearer information about financial aid offers.
- Alternative Funding Models: A rise in income share agreements and other alternative funding models that tie repayment to post-graduation income.
Did you understand?
Parent PLUS loans have a higher fixed interest rate and origination fees compared to most federal student loans, making them a more expensive option for borrowers.
FAQ
Q: What is a Parent PLUS loan?
A: A federal loan available to parents of dependent undergraduate students to help cover college costs.
Q: Why are Parent PLUS loans considered risky?
A: They have high interest rates and origination fees, and families can borrow up to the total cost of attendance, potentially leading to unmanageable debt.
Q: What is a Pell Grant?
A: A federal grant awarded to undergraduate students with exceptional financial need.
Q: What can families do to avoid taking on excessive debt?
A: Explore all financial aid options, including grants and scholarships, and carefully consider the terms of any loans before borrowing.
Pro Tip: Always complete loan counseling before taking out a Parent PLUS loan to fully understand the repayment obligations.
This situation highlights the urgent need for systemic changes in how higher education is funded and accessed. As the cost of college continues to rise, ensuring equitable access for all students, regardless of their socioeconomic background, remains a critical challenge.
Want to learn more about student loan debt? Explore additional resources on the Federal Student Aid website.
