Recommendations to Rein in Parent Borrowing for College

By Caralee J. Adams — March 08, 2013 2 min read
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It’s not just students who are borrowing massive amounts to attend college. Easy access to loans is putting more parents in debt — and financial aid professionals are concerned.

A new report from the National Association of Student Financial Aid Administrators suggests steps should be taken to limit parental overborrowing.

Now, both parents and graduate students are lumped into one PLUS loan program, and NASFAA suggests they be separated. Loans are given to borrowers with “no adverse” credit history, and loans are limited only by the unmet cost of attendance, which can be tens of thousands of dollars. Some parents accumulate PLUS loan debt over several years that far exceeds their ability to repay, the report notes.

NASFAA recommends parent borrowers should be held to a more-restrictive underwriting standard in the future and that financial aid administrators be able to evaluate parental ability to repay using a debt-to-income ratio or similar standard as part of the credit review process.

This is one of several suggestions made in a report recently issued by NASFAA’s Task Force on Student Indebtedness.

While NASFAA acknowledges a moderate amount of borrowing for a postsecondary education is often a “wise and reasonable decision,” the increased reliance on loans and levels of indebtedness prompted the organization of financial aid administrators to study the issue and offer its suggestions for reform.

“The NASFAA community acknowledges that dramatic student loan borrowing is certainly problematic, but it is even more important to acknowledge that what should be manageable amounts of borrowing can spiral out of control when students are not academically prepared for college, repayment tools are not readily accessible, schools have little to no control over borrowing, or the borrower has had inadequate financial literacy counseling or preparation,” according to a NAFSSA statement.

Some of the other recommendation in the report:

• Give financial aid administrators the authority to limit loan amounts, based on institutional factors, credential, or program level;

• Implement an interest-rate policy in which rates would vary from year to year based on the total cost to the government to lend and service those loans;

• Create a single web portal where students can easily go to access information about all of their loans, federal, private, and school;

• Modify institutional requirements related to private loans and require adherence to a code of conduct, disclosure to families of the criteria used
to develop a preferred lender list, and assurance that families may choose any lender not on the list.

An investigation by ProPublica and The Chronicle of Higher Education last year (see article here) revealed the impact of easy access to PLUS loans among families without the means to repay.

A version of this news article first appeared in the College Bound blog.