Editor’s note: An earlier version of this commentary, published August 31, 2022, noted that borrowers with commercially held Parent PLUS loans through the retired Federal Family Education Loan (FFEL) program would have the opportunity to consolidate their loans so they could be eligible for relief. On September 29, 2022, the Department of Education issued new guidance announcing that borrowers with student loans not held by the department, including commercially held FFEL, cannot obtain one-time debt cancellation by consolidating those loans into Direct Loans. In addition, the department has reiterated that Parent PLUS borrowers’ eligibility for $20,000 in forgiveness is based solely on their own receipt of Pell, not their child’s.
Last week, President Biden and the U.S. Department of Education announced a plan to cancel $10,000 in federal student loan debt per borrower with individual incomes under $125,000, and up to $20,000 in cancellation for students who received a Pell Grant at any time. It is a key campaign promise fulfilled and a historic move for a historic moment, as the payment pause dating back to March 2020 soon comes to an end.
A blink-and-you-miss-it detail of the plan with profound implications is that all types of Direct Loans are included, including Parent PLUS loans. A unique type of loan, Parent PLUS loans are borrowed by the parent(s) of an undergraduate college student. The loan must be repaid by the parent borrower, whose earnings potential does not increase through the child’s educational attainment and who may have no college education themselves.
Politicians campaigning on cancellation and government officials planning cancellation did not explicitly address how these plans would treat Parent PLUS loans, leading those borrowers to wonder whether their loans would be eligible. The Century Foundation advocated for their inclusion in cancellation, detailing the program’s troubling reinforcement of the racial wealth gap. While Parent PLUS borrowers are not the stereotypical student loan borrower, they had as much on the line in last week’s announcement as any others.
By including these loans in the debt cancellation plan, the Biden–Harris administration directly improves the lives of millions of parent borrowers and older Americans.
Cancellation will bring much-needed relief to Black Parent PLUS families trapped in intergenerational cycles of debt.
As of early 2022, more than 3.7 million families owe $104 billion in Parent PLUS loans, which has been the fastest-growing form of undergraduate federal student loan over the past decade. Compared to Black families’ share of overall enrollment (13 percent), they are over-represented among Parent PLUS borrowers (18 percent). Meanwhile, Parent PLUS use has grown fastest among families living under the poverty line, with the number of annual recipients more than tripling between 1995–96 and 2017–18.
This pattern of borrowing only deepens America’s persistent racial wealth gap. By the time their child graduates with their bachelor’s degree, 44 percent of Black Parent PLUS families borrow a PLUS amount in excess of the typical Black family’s net worth. By contrast, the percentage of white Parent PLUS families whose PLUS loans exceed the typical white family’s net worth is barely a sliver of that figure: 0.4 percent.
Moreover, Black parent borrowers are almost twice as likely as other parent borrowers to still be in repayment for student loans for their own educations: 37 percent, versus roughly 20 percent for all other groups.
As with student loans writ large, income-capped cancellation of Parent PLUS loans targets relief to low-income families and Black families who tend most often to struggle in repayment. Racial disparities in intergenerational wealth accumulation caused families of color to rely on high interest loans to self-finance their education. Debt cancellation is poised to help these families achieve financial freedom and the social mobility higher education was intended to provide.
Parent borrowers will have an easier time in repayment moving forward.
According to survey data from 2015–16, Parent PLUS families borrow an average of $66,000 by the time their child graduates with a bachelor’s degree: $29,000 for the child in Stafford loan debt, $33,000 in Parent PLUS debt, and $4,000 in private loan debt. In inflation-adjusted terms, this is roughly $80,000, with half that amount being Parent PLUS debt.
Even though parents in repayment often have higher incomes than their children, they still can struggle mightily with their monthly payment. After ten years of repayment, 55 percent of the initial Parent PLUS balance remains for the average borrower; after twenty years, 38 percent remains. For many borrowers, balances accumulate as interest builds.
Thanks to President Biden’s announcement, repayment will be easier for these parent borrowers. The administration is not only reducing these parents’ monthly payments through the cancellation of $10,000; they are also resetting these families’ default clocks, meaning those who were delinquent on their payments or in default in March 2020 will re-enter repayment in good standing.
The Department of Education has also proposed a rule that will simplify loan repayment and offer savings to low-income borrowers in income-driven repayment (IDR). Borrowers should be aware that these IDR reforms, which would decrease the discretionary income threshold for monthly repayments, will not likely apply to Parent PLUS loans.
Families with Pell recipients will benefit significantly from the higher maximum of $20,000.
While the announcement of $10,000 in relief per borrower had been largely expected, the Biden–Harris Administration took a surprise step farther: for borrowers who had received the Pell Grant, the Department of Education will cancel a maximum of $20,000. A majority (53 percent) of all families with Parent PLUS debt received Pell Grants for their child to attend college, meaning their child could claim the $20,000 maximum cancellation. Among Parent PLUS families whose child attended an HBCU, 80 percent received Pell.
The latest information from the Department of Education is that Parent PLUS borrowers’ ability to claim $20,000 in forgiveness is based solely on their own receipt of a Pell Grant for their own education. In other words, the child’s receipt of a Pell Grant is not enough for a parent to claim $20,000, according to the latest information we have received. The Department of Education is expected to release more details about verifying Pell Grant receipt in the coming months.
We recommend that the Department of Education allow for parents who hold Parent PLUS loans for an undergraduate who received Pell to claim $20,000 in cancellation instead of $10,000, independent of whether the parent ever themselves received Pell. Often, these parents never went to college themselves: of undergraduates whose parents borrowed Parent PLUS in 2015–16, 16.7 percent come from families where neither parent attended college. That rises to 20.7 percent among Black students and 29.9 percent among Latinx students.
Allowing Parent PLUS borrowers to claim the $20,000 limit based on their child’s receipt of Pell also removes a major technical barrier for many Parent PLUS borrowers: having to verify that they themselves received Pell, which may have been decades ago.
For low-income families where the parent(s) and child(ren) both hold student loans, the additional cancellation based on Pell may help the family—parents and children alike—achieve financial independence. It is a major relief to the low-income families who may lack the savings and assets to avoid falling into default.
Cancellation provides major retroactive support for HBCU families. Forward-looking investments are needed, too.
HBCUs exceed other types of institutions in their reliance on Parent PLUS: between 2016 and 2020, more than 15 percent of all financial aid dollars at HBCUs were Parent PLUS, compared to 9 percent at non-HBCUs over that period. Of the ten institutions with the highest percentages of students whose families used Parent PLUS, five are HBCUs. HBCUs are also among the schools where families struggle the most in Parent PLUS repayment.
President Biden’s cancellation plan, particularly the inclusion of Parent PLUS, is a long-overdue investment in HBCU families.
But last week’s announcement cannot be the final step. Due to a long history of discrimination and under-investment, HBCUs remain at a significant financial disadvantage compared to their predominantly white peer institutions, with a heavy reliance on Parent PLUS being just one of many challenges for these institutions. Congress should pass new investments in HBCU endowments, which would enable them to replace some Parent PLUS loans with grant aid that families need not repay.
Cancellation will save tens of thousands of older and disabled Americans from losing their Social Security benefits to debt collection.
When a retiree or disabled American defaults on their student loan, they may see their monthly Social Security payments offset, a form of collection akin to wage garnishment. It is one of the more gruesome outcomes of the student loan crisis, tearing a rent in a program that is meant to provide basic subsistence for those who cannot work due to age or disability.
According to data from the Government Accountability Office, 114,000 Social Security recipients had their payments offset in fiscal year 2015 due to a student loan default, which may plunge them below the poverty line. A disproportionate share of these defaulters—one-third—owed Parent PLUS loans.
Most of these borrowers had less than $10,000 in loans when they were first subject to the offset. This is consistent with research showing those who struggle the most in repayment often start with relatively small balances.
By canceling $10,000 in loans per borrower, President Biden saves tens of thousands of Americans from losing portions of their Social Security benefits. This is just one of the innumerate ways last week’s announcement will improve the economic lives of Americans, young and old alike.