From a new analysis of federal loan data, The New York Times reported that the average debt load for students has plateaued—possibly incurring a slight drop—when adjusting for inflation. This should bring rounds of applause; however, the data for parents paints a different story.
Today, as more undergraduate students receive bachelor’s degrees, notably at more expensive colleges, many have exhausted their borrowing power under the federal loan program and have been tapping into their parents’ funds to pay for schooling. Now, mom and dad are facing their own debt crisis due to expanding federal student loan debt incurred from paying their children’s education.
In new research, parents on average owed $32,596 for cumulative loans from the Federal Parent PLUS (FPP) program upon college graduation in 2015–2016, the Detroit Free Press reported. This compared to college graduates with bachelor’s degrees owing $29,669 on average in loans during this same time period, noted Mark Kantrowitz, publisher and vice president of research for Savingforcollege.com.
Note that a smaller percentage of parents borrowed as compared to students: in 2015–16, about 69 percent of students took out student loans compared to about 14.4 percent of parents. But with high college costs and some families’ inability to save enough money, now almost half of college grads carrying student loans have maxed out on loans permitted under the federal student loan program.
“The parents are picking up the overflow when the student reaches the student loan limits,” Kantrowitz told the Free Press. Sometimes, students have agreed to repay these FPP loans and “some parents will have side agreements with the student where the student agrees to make the payments,” he added.
Parents and Federal Loans
Parents’ borrowing of FPP loans has risen 19.2 percent from $27,352 in 2011 and compared to almost a decade ago, it’s jumped 40 percent from $23,279, according to research by Kantrowitz. From FPP loans and Federal Grad PLUS loans, parents will pay 7.6 percent for fixed loan interest rates.
Interestingly, while their debt loads have increased significantly, the number of parents getting FPP loans fell by about 10 percent from the period of 2011–2012 to 2015–2016.
“It may be that we are in an economic recovery and as the stock market improves, fewer parents are borrowing and don’t need to borrow. But those who borrow need to borrow more because the cost of college continues to rise,” Kantrowitz told The New York Times.
Fallout from financially strapped parents is shifting where their children attend college and the types of degrees they are pursuing, potentially having long-term effects. Many students are now attending lower-cost public colleges, as their parents can’t afford more expensive schools. Data has also disclosed that low- and middle-income students are enrolling in associate degree and certificate programs versus traditional bachelor’s degree programs.
Kantrowitz told The New York Times that this second finding is “of greater concern because students who could benefit from a bachelor’s degree are scaling back their educational attainment for no reason other than college affordability.”
Author: Debbie Baratz
Debbie Baratz has written about topics including personal finance, financial markets, and banking. And as a media relations professional, she spent 10+ years working at not-for-profit, private, and publicly-traded financial institutions. When Debbie isn’t working, she can be found working out, reading, or traveling.