The U.S. government is sitting on a growing pile of debt backed by little more than parental love.
That’s because parents can borrow tens of thousands of dollars a year for their kids’ college education without showing they can pay it back.
About 3 million parents have $71 billion in loans, contributing to more than $1.2 trillion in federal education debt. As of May 2014, half of the balance was in deferment, racking up interest at annual rates as high as 7.9 percent.
“It’s deeply problematic that the federal government is making relatively high-interest loans without thinking about, much less checking, whether the people they’re lending to will be crippled by this debt,” said Toby Merrill, a Harvard Law School lecturer who has counseled defaulted parents through the school’s Project on Predatory Student Lending.
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“We’re impoverishing the less-privileged population who are aging. That’s a terrible policy.”
The U.S. Education Department, which administers the parent PLUS loan program, doesn’t regularly provide performance data, even though taxpayers will have to foot the bill for any unpaid debt.
The last time the agency released default rates for parent loans, in 2014 for the group that deferred payment until their kids left school and began repaying in 2010, the rate was 5.1 percent, up from 1.8 percent four years earlier. It has projected that loans originated in 2014 will default over their lifetime at a rate of 10.2 percent.
In August and October, the department denied Freedom of Information Act requests by Bloomberg News seeking parent default and deferment numbers by college, saying it “has yet to complete its analysis” by institution. The agency provides default data annually, broken out by school, for most student borrowers. Those rates help determine which schools can continue to access the loan program.
“We can’t fix problems in the student-loan programs if researchers, policymakers and consumers don’t have access to the information they need,” Sen. Elizabeth Warren, a Massachusetts Democrat, said in an emailed response to questions.
Sen. Lamar Alexander, the Tennessee Republican who heads the Senate Health, Education, Labor and Pensions Committee, plans to look at ways to improve the disclosure of loan information in forthcoming legislation, according to a spokeswoman.
Denise Horn, an Education Department spokeswoman, said the government is committed to keeping college accessible and affordable, while helping families make informed choices about borrowing, including parent loans.
“As part of those efforts, the department offers loan counseling to all PLUS loan applicants to empower parents with additional details on their loans,” Horn said in an email. “We believe this is an important component to ensuring borrowers are aware of and understand their repayment obligations.”
Parents can borrow to cover tuition, room, board and books, minus grants or loans the student receives. PLUS loans also carry an origination fee of 4.3 percent. The current interest rate is 6.8 percent, and it was almost 8 percent from July 2006 to June 2013.
“When money comes from the government, a trusted source, parents do have good reason to borrow,” said Merrill. “But the problem is their income is not going to change based on their kids’ education.”
Parents aren’t eligible for most programs that offer reduced payments for struggling student borrowers based on income.