With all the talk about student debt, it’s easy to miss the PLUS loan numbers. PLUS loans are federal loans taken out by parents on the student’s behalf. The really scary thing about PLUS loans is that parents can borrow up to the full amount of tuition. Furthermore, eligibility for PLUS loans isn’t based on ability to repay the loan but rather your credit history. Just think about it, even with a great credit history, a bank won’t loan you money for $250,000 house without some evidence that you can make the payments. The government will.
Until 1993, the federal government limited PLUS loans to $4,000 a year with an aggregate limit of $20,000. Now parents can borrow up to the total cost of attendance minus any other financial aid. This is great for colleges because they can assign any unmet need to a PLUS loan on a financial aid award.
PLUS Borrowers Owe More
You can see the difference in the average amount per borrower. According to Student Loan Hero, 27.1 million students borrowed Stafford Unsubsidized loans which averages to over $15,000 per borrower. The 3.3 million borrowers for Parent PLUS loans are averaging over $22,000.
The use of PLUS loans can vary pretty dramatically from school to school. At Harvard approximately seven percent of undergraduates had PLUS loans taken out on their behalf while the number was 20% at Yale. At UC Berkeley, five percent of undergraduates had parents with PLUS loans, at the University of Connecticut, over 18%.
Why Are Parents Taking Out PLUS Loans?
Families should consider the high percentage of PLUS loans when looking for colleges. There are a variety of possible causes. It could mean that students are being “gapped,” not having their full financial need met. It might also mean that merit aid is limited or it’s difficult to maintain the GPA required to keep the scholarship. At public institutions, it may be out-of-students that account for most of the PLUS loans because the institution doesn’t provide them with any aid.
When families see a high percentage of PLUS loans, they should be extra diligent in using Net Price Calculators and check carefully on the possibilities and requirements of merit aid.
The following table lists the public 50-50 university in each state with the highest percentage of PLUS loans taken out on behalf of undergraduate students. An asterisk indicates that the state has only one public 50-50 school. Not all states have public schools that meet 50-50 requirements. As usual, the five-year graduation rate is used for public institutions.
Public Universities with Highest Percentage of PLUS Loans by State