The US Government’s Predatory Lending Program

Michael Grunwald:

Most parents will do just about anything for their children, especially when it comes to education. Predictably, at a time when college costs are exploding and students are staggering under more than $1 trillion in debt, one opportunistic lender is making huge profits on loans to their doting moms and dads.

Less predictably, that lender is the United States government.

The fast-growing federal program known as Parent PLUS now serves 3.2 million borrowers, who have racked up $65 billion in debt helping their kids go to school. The loans have much in common with the regular student loans that have created a national debt crisis and a 2016 campaign issue, but PLUS has much higher interest rates and fees, and far fewer opportunities for loan forgiveness or reductions.

In fact, the PLUS program, which includes similar loans to graduate students, is the most profitable of the 120 or so federal lending programs. That sounds like a good thing, until you remember the government’s profit comes from its own citizens, often citizens of modest means.

Parent PLUS was created in 1980 to provide small loans to help reasonably well-off families finance the American Dream of an undergraduate education. But in an era of skyrocketing education costs, it has grown to look a lot like publicly funded predatory lending, providing almost any borrowers with almost unlimited cash to attend any school with almost no regard to their ability to repay. Thirteen percent of undergraduates now rely on Parent PLUS, and many of their parents are falling into debt traps.