This blog post is the fourth part in a series that takes a look at recent changes to the credit criteria for Parent PLUS loans and the subsequent effect on colleges and universities. You can find the rest of the series here.
Since making relatively minor changes to the credit check requirements for Parent PLUS loans last year, the Department of Education has been under a firestorm of criticism from historically black colleges and universities (HBCUs) and their lobbying organization, the National Association for Equal Opportunity (NAFEO). According to HBCUs, the impact of the policy change caused a significant decline in enrollments and a huge loss in revenue for their institutions. In an effort to ease tensions, Education Secretary Arne Duncan recently apologized to HBCU leaders at their annual meeting saying, “I am not satisfied with the way we handled the updating and changes to the PLUS loan program. Communication internally and externally was poor. I apologize for that, and the real impact it had.”
But if Secretary Duncan really wanted to apologize to the colleges most affected by the change to Parent PLUS loans, he should have been talking to for-profit colleges, not HBCUs. After all, since the policy change was implemented two years ago, for-profits have lost approximately $790 million dollars more than HBCUs in PLUS disbursements. Why is that? The for-profit sector has a much higher percentage of Parent PLUS borrowers than at HBCUs.
Using recently released data from the U.S. Department of Education’s Office of Federal Student Aid (FSA), I analyzed Parent PLUS loan data from pre-recession 2006 to 2013. From 2009 to 2011, both for-profits and HBCUs saw huge increases in recipients (approximately 50,000 and 15,000 more recipients respectively) and disbursements (approximately $450 million and $156 million respectively). This was the peak of the recession, at a time when family net worth diminished while college prices soared. Parents turned to PLUS loans to help send their children to higher-priced colleges that could not or would not help them fill the gap with institutional aid.
However, since the change to the credit check, both sectors saw huge declines in recipients and disbursements (Tables 1 and 2). From 2011 to 2013, HBCUs experienced a 45 percent decline in PLUS borrowers and a 27 percent decline in PLUS disbursements. The for-profits experienced a much starker decline over the same period. At for-profits, PLUS loan borrowers and disbursements declined 54 percent. In addition, while HBCUs experienced a decline in PLUS recipients over the past five years, their disbursements increased 14 percent. Meanwhile, the for-profit sector experienced a five-year 30 percent decline in recipients and a 33 percent decline in disbursements.
What’s most startling is the overrepresentation of Parent PLUS borrowers at for-profits compared with HBCUs (see Chart 3 and Table 3).2 While HBCUs have been the most vocal opponents of the changes to PLUS loans, they actually make up a very small share of volume in the program. Approximately 2 percent of undergraduates are in HBCUs and these institutions represent between 3 and 4 percent of PLUS borrowers. The data from for-profit institutions, however, show a larger overrepresentation. From 2006 to 2011, the share of for-profit enrollments fluctuated from 7 to 11 percent, but accounted for 16 to 18 percent of total Parent PLUS loan recipients. In other words, Parent PLUS borrowers at for-profit colleges were almost 1.7 times overrepresented compared to their share of enrollment. That’s incredible considering that normally for-profit institutions have been seen as catering to the needs of adult, “nontraditional,” independent students who don’t qualify for Parent PLUS loans. It seems that there are quite a few traditionally-aged, dependent students attending for-profit institutions, and it’s costing their families a lot of borrowed money.
So why aren’t the for-profits crying foul? One reason may be that they are letting HBCUs do it for them. For-profits know that they have been criticized for saddling students with unmanageable debt, and know that complaints about lost revenue from high-cost loans are unlikely to receive a sympathetic ear from the Obama Administration, Congress, or the media. By contrast, HBCUs have strong political connections through the Congressional Black Caucus, a White House initiative located within the Department of Education, and a generally sympathetic ear from the Obama Administration, which secured a total of $850 million from 2010 through 2019 in additional formula money for HBCUs.
So by letting HBCUs make the PLUS loan changes a racially-charged issue, for-profits are able to let a politically popular group seek out changes to the credit check that will help all borrowers, regardless of the institution type. But this approach loses sight of the bigger issue—PLUS loans provide large amounts of intergenerational, inflexible debt to families who may be unable to pay that money back. And continuing to present the issue in terms of revenue lost to schools allows high-cost institutions (especially for-profit institutions) avoid the real issue, which is that their high tuition—enabled by parent PLUS loans—is pricing students out of an affordable education.
Arne Duncan shouldn’t have to apologize to anyone for making a policy change meant to protect students and families. But if he has to apologize to HBCUs, it’s only fair that he apologize to the for-profits as well.
1Also worth noting during this time period was the transition to full Direct lending. Before July 2010, federal loans could be made under two programs—Direct and the Federal Family Education Loan (FFEL) program. The change to Direct Lending saved the government money by cutting out subsidies to loan middlemen. However when the change was made, the number of Parent PLUS loan approvals increased due in part to a discrepancy between how the Education Department defined adverse credit compared with FFEL lenders. In October 2011, the Education Department changed its definition of adverse credit slightly to match what it was under the FFEL program.
2Note that the data on enrollment from 2012 and 2013, during which time for-profit enrollment dropped significantly, are not yet available so we will have to wait to see how both sectors’ share of enrollments and recipients changed during those two years.
Edited 10/9/2013 at 1:17pm to change title.
Edited 1/10/2014 at 1:18pm to change the over/under representation data.