Student debt appears to be leveling off for students who graduate with a bachelor’s degree. But that doesn’t mean their parents are alright.
The college class of 2016 graduated with $29,669 in student debt on average, according to an analysis of government data by Mark Kantrowitz, the publisher of Savingforcollege.com. That represents a just a slight jump — about 1% or $285 — from the class of 2012. The 2016 number is the latest for which government data is available, but Kantrowitz projects that students who received their bachelor’s degree in 2018, left school with $29,812 in student debt on average, also just a small uptick from current levels.
That small increase represents a change from just a few years ago, when breathless headlines would offer snarky congratulations to the latest group of college graduates leaving school with the most debt in history. But the slower growth in debt among students receiving bachelor’s degrees isn’t necessarily reason to cheer, according to Kantrowitz. That’s because the parents of those students are taking on more debt than ever.
Parents risk heading towards retirement with tens of thousands of dollars in debt and few manageable options for paying it off.On average, families with a student who graduated with a bachelor’s degree and borrowed from the Parent PLUS program — the government product that parents can use to borrow for college on behalf of their kids — had an average of $32,596 in parent PLUS debt. That’s a 19.2% or $5,244 increase from the class of 2012, Kantrowitz found.
The rapid growth in debt among parents has stoked worry among experts and policymakers for a number of reasons. For one, unlike students, parents don’t get the economic benefit from the degree they’ve invested in.
In addition, parents can borrow through the federal government up to the cost of their child’s program, but Parent PLUS loans don’t offer many of the same protections as federal student loans. That means there’s a risk parents will be heading towards retirement with tens of thousands of dollars in debt and few manageable options for paying it off.
The number of borrowers over 60 with student debt hit 2.8 million in 2015, according to the Consumer Financial Protection Bureau.
“Parent PLUS debt is something that keeps me up at night,” said Robert Kelchen, a professor at Seton Hall University in South Orange, N.J., who focuses on higher education finance.
Students are hitting the federal student loan limitKantrowitz speculates that the uptick in debt among parents is related to the leveling off in debt among bachelor’s degree recipients. With college costs rising, students are increasingly hitting the federal student loan limit for dependent undergraduates — or those who rely on their parents financially before getting to college — of $31,000 for the course of their college career.
When borrowers hit that max, they only have a few options available to pay for the rest of their schooling, including taking out private loans and having their parents borrow on their behalf. For students from families with mediocre (or worse) credit, a parent PLUS loan may be their only option.
“Parent borrowing has increased faster than it did in the past and that’s probably because it’s serving as a pressure relief here,” Kantrowitz said.
The growth in PLUS loans comes as more students are hitting their loan limits, but it likely doesn’t explain all of the growth in average PLUS loan debt, said Rachel Fishman, the deputy director for research in the higher education initiative at New America, a think tank. Though the average amount parents borrow using PLUS has increased, there’s only been a slight uptick in the actual number of borrowers turning to PLUS loans over the past several years.
That means that rising college costs, particularly at public colleges, are also likely pushing families to rely on PLUS loans in ways they haven’t before, Fishman said.
Less state support for public colleges“There’s less state support,” for public colleges, which has pushed costs for students and families up, Fishman said. “They need to turn to some other financing option and that other financing option has become PLUS loans because they’re so readily available.”
Students whose parents are borrowing to pay for college represent a small share of the population of students attending college overall, Fishman said. Independent students — those who don’t live with their parents before attending college — students pursuing cheaper degrees and those who are taking on debt and then dropping out of college may not be hitting their loan limits or relying on their parents to take on debt.
But any significant growth in debt among this group of borrowers raises worries, Fishman said. That’s because they’re more likely to struggle to pay off those loans.
Still, the fast uptick in debt among parents raises concerns. “One has to wonder who is paying back these parent loans? Is it the parent really or is it the student?” Kantrowitz said. If it’s the student, they may be taking on more debt than they can repay, he said. If it’s the parent, they could wind up retiring with the debt, which would put their Social Security benefits at risk.
The way families are using PLUS debt could also be cause for concern, Fishman notes. In a recent analysis of parental debt, she found that white families — who generally have more access to wealth due to the racial wealth gap — use parent PLUS loans very differently than black families.
About one-third of black families who are using PLUS loans have incomes of $30,000 or less and about 10% have incomes that are more than $110,000. Essentially the opposite is true for white families, Fishman found.
White borrowers appear to be using those loans for liquidity, while black borrowers likely rely on them more to get through college. “They just don’t have the wealth to back it up,” she said.
