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More Parents Are Defaulting on College Loans For Their Children, Costing Taxpayers

| April 6, 2014

More greenbacks than ivory.

More greenbacks than ivory.

Parents are increasingly struggling to repay federal loans they’ve taken out to help cover their children’s college costs, according to newly released federal data.

The Parent Plus program allows parents to take out essentially uncapped amounts to cover college costs, regardless of the borrower’s income or ability to repay the loan. As the cost of college has risen, the program has become an increasingly critical workaround for families that max out on federal student loans and can’t pay the rest out of pocket.

Education Department officials have long said that they simply don’t have figures on how many of the loans were in default. But the agency has finally run some numbers. The data shows that default rates, while still modest, have nearly tripled over the last four years. About five percent of loans originated in fiscal year 2010 were in default three years later. The default rate at for-profit colleges is much higher, at 13 percent.

Overall, there is about $62 billion in outstanding debt from Parent Plus, according to the new data. The average Parent Plus loan borrower owes about $20,300. The Education Department compiled the numbers at the request of a government committee that is working on new rules for the program.


As ProPublica and the Chronicle of Higher Education have detailed, the availability of easy money can put individual families in a difficult place, leaving them to choose between taking on debt that they may struggle to repay and curtailing what they believe to be their child’s best shot at building a future. (See: How the Government Is Saddling Parents with College Loans They Can’t Afford.)

The program can be a losing proposition not only for overburdened parents, but also for taxpayers when the government isn’t able to recoup what it loaned.

Consider Lisa, a New Jersey mother living on Social Security disability payments who nevertheless qualified for tens of thousands dollars in Parent Plus loans. (Lisa asked that her last name not be used.) Due to an accident that left her with partial paralysis and chronic pain, Lisa had no expectation that she would ever work again. Lisa took the loans with mixed feelings, but no regrets, determined to help her daughter get the college education that she’d never had.

Documents reviewed by ProPublica show that Lisa is now roughly $45,000 in debt. That’s even with her daughter — currently a junior — having attended a community college for a year, giving her a year’s reprieve from taking on more parent loans. This fall, Lisa’s younger child will start college as well.

“There was a part of me that was definitely terrified, because it’s something that in my lifetime I couldn’t pay back. Let’s be realistic. With what I get, there was no way,” Lisa said, on signing for the loans. But she also felt relief: “Like, ‘Wow, they’re going to give me this money so I can do something for my child.’…You’re like a lottery winner.”

Her daughter worries about the loans, having planned on paying for them anyway because she knew Lisa couldn’t.

“Honestly my mom never should have been accepted for a Plus loan,” her daughter told ProPublica. (She also asked that her name not be used.) “It’s ridiculous that they gave thousands of dollars a year to somebody who will never work again.”


To collect on defaulted loans, the government can garnish wages and Social Security checks. But the government is unlikely to get much back from Lisa, who gets roughly $700 per month from Social Security. Lisa may even ultimately qualify to get the loans discharged by the federal government. (Cancellations of debt due to severe and permanent disabilities have not been easy to get in the past, though that process hasimproved somewhat since we first reported on it.)

While both families and the government can face downsides for the loans going bad, colleges and universities benefit either way.

In the fall of 2011, a slight tightening of credit checks for Parent Plus caused consternation at a handful of colleges that were particularly reliant on revenue through the parent loan program. Several historically black colleges saw drops in enrollment, causing staff furloughs at some schools. EDMC, a for-profit college chain, felt the change enough to have to note it in regulatory filings, alerting investors to possible impacts on earnings.

Facing pressure from schools, the Education Department backpedaled, working with schools to reverse denials on a case-by-case basis. Secretary of Education Arne Duncan personally apologized to HBCU leaders, in particular, for how the changes were handled.

At the moment, there’s no mechanism in place that even loosely ties the performance of parent-loans back to the colleges that benefitted from the borrowed dollars, the way there is for most federal loans to students.

To do that, the agency would first need to track default rates by individual colleges. A department spokeswoman said the agency doesn’t calculate those figures.

–Marian Wang, ProPublica

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9 Responses for “More Parents Are Defaulting on College Loans For Their Children, Costing Taxpayers”

  1. Dalgarnif says:

    So basically, Lisa borrowed money that she knew she could never repay and had no intent on paying. No matter how well-meaning this may be towards the desire to get her daughter a college education it is still Fraud. The ironic part is her daughter has the gall to criticize the government for making this loan to her mother in the first place!

    • Jethro Bodeen says:

      Actually, I blame the STUPID government for not knowing Lisa was on Social Security and could not work. Just shows how dysfunctional and corrupt this government is….Spend Spend Spend !!!!!

  2. Genie says:

    At least here daughter understands the difference between right and wrong. There is a sense of entitlement growing in this country to take advantage of government programs that other people must pay for.

    It’s not the government’s money, it belongs to the taxpayers. Every time somebody defaults, the people pay and not necessarily those who can afford it. Instead of redistribution of wealth, we are now redistributing poverty.

    We haven’t learned a thing, have we?

  3. Really? says:

    then the daughter should incur her mothers debt which in reality is her debt. honest taxpayers funds giving someone a free ride. i want a masters degree, would you all mind paying for it?

  4. Anonymous says:

    College gads have ammassed huge loan balances. However, they neve counted on Barry obamma’s socialist economic policies which have killed off well paying jobs.

    The unemployment numbers are false and misleading. 60% of the jobs that are being created in this sick economy have minium wage job. Grads cannot cannot find job commensurate with their skilsl. Obamma has chased real business and jobs off shore. Nice going, Barry!

    Remember that when you go to vote in November.

  5. Teddy says:

    Lisa listened to the propaganda that everyone needs a college degree. Her college introduced her to the government loan people that approves EVERYBODY. The money was paid to the college, profs were paid and the admins got their bonuses. Education? Not so much.

    Now, unlike a bad car, home or Corporate loan, Lisa is stuck with this obligation for the rest of both her life and her parents life. And all for a worthless piece of paper.

    College financing is a big-time scam, with the scamers enjoying paid-for government protection.

    Ques: What do Fox Pwe’s like even better than ruining the lives of people unable to pay their unforgivable education loans?

    Ans: Fox Pwe’s absolutely LOVE it when people are not able to pay their children’s medical expenses.

  6. I/M/O says:

    It’s not about students it was never about students. It has always been about taking care of the “College Education Lobby” of this nation.

    Simply read the reports. More than 50% of students entering college need remedial courses simply to qualify.

    Why should students get remedial courses in a college. Every public school district in this nation has adult education courses. They should have to attend those programs and only be considered for college if they can make the grade in the future. Otherwise it is a gigantic waste of money.

  7. Bethechange says:

    Really hope l’m dead before the demise of the American middle class. Like my middle class parents, l enjoy few creature comforts, those within my means and neither accept, nor qualify for even one handout for myself or my children. While l believe in aid for those less fortunate, especially the disabled, the apparent lack of regulation serves only to accelerate the unsustainability of this line of credit. And where is the accountability of the university system? My son’s board alone, is close to a grand a month and he shares an apartment with 3 other students! That’s double my mortgage + utilities. I don’t have a degree in economics, but isn’t there such a thing as debt ratio, and doesn’t it just seem prudent to apply this concept on the larger scale???

  8. m&m says:

    In this case or any other the family and the student should be held responsible and have all future earnings froze until THEIR bills are paid.

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