As colleges begin to release acceptance letters to students, many families across the country are trying to find out how to finance their children’s education. One loan that has been considered throughout the years is the Parent PLUS loan, which began in 1980 and is now widely used by Black parents.

Parent PLUS loans are loans that parents can sign to help pay for their dependent undergraduate students’ education. The loan does not cap how much families can borrow.  

These loans were designed in part to alleviate students’ debt burden — something felt more acutely by women, who take out federal loans more than men and who hold nearly two-thirds of all U.S. student loan debt.

But the loans do not come without drawbacks of their own, including a higher interest rate than loans taken out by students and the inherent risk of harming the parent borrower’s financial health.

According to federal data, as of the last quarter of 2023, 3.8 million parents took out this kind of loan. The number of families using these loans has increased by 5.5 percent since 2018.  These loans are not eligible for forgiveness under President Joe Biden’s loan repayment plans. 

Here is what you need to know about Parent PLUS loans. 

What are Parent PLUS loans?

Federal Parent PLUS loans, also known as Direct PLUS Loans, were designed for higher-income or wealthy families who needed liquidity or could not pay the cost of their children’s education in cash. Parent PLUS Loans can cover the remaining balance after what parents can pay out of pocket. 

As the cost of college increased over time, parents with lower income began to rely on these loans to cover the cost of tuition. 

Who do these loans impact, and why?

Black families take out Parent PLUS loans at a higher rate than other racial groups. The most recently available federal data shows that among Black students who completed associate’s degrees in the 2019-20 school year, 6 percent had family members use Parent PLUS loans. That percentage rose to 26 for families of Black students with bachelor’s degrees. Comparatively, the percentage of these loans for the families of White students with associate’s degrees was 5 percent, and 18 percent for those with bachelor’s degrees.

Victoria Jackson, the assistant director of higher education policy at Education Trust, a progressive research and advocacy group, suggests that the income disparity between Black and white families is why more Black families are relying on debt. 

In 2021, Black families had an average income of $58,728, compared with $94,447 for White families, according to a report last year by the Education Trust. 

Dr. Brittani Williams, Director of Advocacy, Policy, and Research at Generation Hope, a nonprofit organization that focuses on ensuring that all student parents have the opportunities to succeed, experience economic mobility, and build wealth, agrees and adds that Black families continue to pursue sometimes-costly educations because they believe that attaining a college degree is the route to upward economic mobility.  

With less income, parents need to borrow, but they also have less income available for repayments. 

Repaying the loans can be a challenge for Black families,and when the repayments strain their budget, most are choosing to meet their basic needs. 

“When it comes down to it, if they have to choose between paying their loans or bills they’ll choose their bills,” Williams said. 

With that priority – bills then loans – there isn’t much, if any, left for savings and retirement. According to Jackson, the Direct PLUS loans are “particularly concerning because now we’re seeing two generations of families go into debt for one degree.” 

What are the requirements for the loan?

To qualify for a Parent PLUS loan, parents must clear a credit check. They must also be a United States citizen, or an eligible noncitizen. 

Another criteria is that  parents must sign a promissory note, a legal document that states that they — not the student — agree to pay back the loan and interest accrued. 

Loans taken out on or after July 1, 2023, and before July 1, 2024, have a set interest rate of 8.05 percent, a higher rate than the 5.5 percent that the Department of Education set for its student loans.

Are there alternatives to the loan if a parent has an adverse credit history?

If parents have an adverse credit history, the U.S. Department of Education allows them to find a credit-worthy cosigner, who can pay back the loan if the parent is not able to. The borrower can also outline extenuating circumstances for consideration. 

What are some big-picture solutions that can help alleviate the burden on parents?

Williams and Jackson both suggest that the federal government should double the Pell Grant to increase college affordability. They also point to state-level finances, saying that  states need to invest more in public higher education to reduce colleges’ reliance on tuition.

On a broader level, Jackson believes states should create a federal-state partnership to make public four-year colleges tuition-free. They also need to ensure the federal government keeps its current payment plan for borrowers.