Government’s War on the Poor: Parent Plus Edition

Rebecca McEvoy, Parent Plus borrower and likely victim of unintended consequences.
Rebecca McEvoy, Parent Plus borrower and likely victim of unintended consequences. Photo credit: Wall Street Journal.

Rebecca McEvoy, a retired school teacher coping with multiple sclerosis, borrowed $84,000 under the federal Parent Plus program to help her oldest son through art and design school. When he graduated, the government expunged the debt under a law that forgives balances for borrowers deemed permanently disabled. Three years later, she and her husband Dave, also a retired teacher, turned to Parent Plus again. The couple expects to borrow another $50,000 to cover costs for a second son, as Josh Mitchell with the Wall Street Journal tells the story.

The McEvoys’ finances likely would have raised red flags with private lenders, Mitchell dryly notes. They live off modest pensions, and existing debts eat up much of their income. Odds are, they won’t be able to meet their payment obligations for the second round of student debt any more than they could the first.

As of September 2015, more than 330,000 people, or 11% of borrowers, had gone at least a year without making a payment on a Parent Plus loan. The student loan debt crisis is engulfing not only students but many parents. An estimated 41,000 Parent Plus borrowers had their checks garnished in FY 2015.

“This credit is being extended on terms that specifically, willfully ignore their ability to repay,” said Toby Merrill with the Harvard Law School’s Legal Services Center. “You can’t avoid that we’re targeting high-cost, high-dollar-amount loans to people who we know can’t afford to repay them.”

Parent Plus defaults began rising during the Great Recession. By 2011, Obama administration officials recognized that they had a problem and put tighter restrictions into place. Writes the WSJ:

But after schools argued stiffer underwriting would prevent many students from covering tuition, thus reducing college access for minorities and poor students, the administration rolled back the new rules. Research shows that restricting access to loans based on credit scores leads to lower college enrollment.

The Government Accounting Organization (GAO) estimates that taxpayers ultimately will forgive $108 billion on student loans made through the current fiscal year, says the WSJ. Colleges are the only winners here. Federal loans allow them to jack up tuition, but they suffer no adverse consequences when students or parents cannot repay the debt.

Bacon’s bottom line: Thus has the student loan program, created with the best of intentions, been corrupted: simultaneously saddling taxpayers with the cost of a massively expensive entitlement and burdening students and parents alike with billions of dollars in loans they can never repay. That’s quite a two-fer. Two… Two… Two massively destructive unintended consequences in one!

It hasn’t always been this way. Once upon a time, student loans weren’t dogged by subprime mortgage-scale bad debt. The problem arose when Uncle Sam began treating student loans as an entitlement for anyone who wanted to attend college. Refusing loans to students with no credit rating and/or parents with poor credit ratings constituted “discrimination” against the poor and minorities. Once you play the discrimination card, the debate is over.

The unintended consequence, of course, is that when poor and minority students and parents load up with debt they cannot repay, they suffer disproportionately — even when billions of dollars in bad debt are written off. Except in rare instances like Ms. McEvoy’s, student loan debt cannot be dispelled. Uncle Sam extracts its pound of flesh by garnishing wages and social security. Families living on the edge of poverty are pushed into poverty; families living in poverty are pushed into destitution.

All for what? A significant number of poor students make it through college, obtain degrees, and get good jobs that allow them to service their debt. But millions don’t. Federal law limits undergraduate federal loans to $27,000 over four years. Even when parents step in by borrowing under the Parents Plus plan, many poor students lack the resources to graduate. (The problem may be compounded by a lack of academic preparation — student loan programs apparently don’t take that into account either.) Meanwhile, millions of well-paying, semi-skilled jobs go unfilled. Washington could not have better designed a system to crush the poor if it tried.

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4 responses to “Government’s War on the Poor: Parent Plus Edition”

  1. LarrytheG Avatar

    I think the “all you want to borrow” loans are bad for everyone , not just the poor. It’s bad even for the folks that can afford the loans because it driving the tuition inflation – not only at taxpayer-supported public colleges, private colleges, but for-profit, and fly-by-night “schools” that are using deceptive practices to get people to borrow money for worthless “degrees” and now the govt is going to forgive the bad loans.

    I cannot imagine a worse situation!

    this is every bit as bad as the housing bubble!

  2. I’m not sure I understand. If this is a regular credit banking institution, they would inquire on the same issues. How is it discrimination for the govt but not banking?

  3. I quite disagree with “crush the poor” — this is crushing the middle class. Who are the 89% who DO repay these loans? And who are the taxpayers who DO pick up the tab for the 11% who default? The middle class pays twice while the culture of entitlement grows ever larger. The problem of runaway HE costs grows at the same time, unchecked.

  4. LarrytheG Avatar

    I agree with Acbar.. this is not just a problem of the poor but I would point out that in other threads here about Payday Loans – the issue is characterized as the private sector providing a needed service to the “poor” and argues against regulations to “help” those who may lack financial sophistication in getting those loans.

    So if the Govt provides loans to people who cannot repay them – it’s a “war” on them… but if the private sector does it – it’s a “needed service”?


    yes.. the loan problem affects way more than just the “poor”. For instance, for quite some time now – veterans have been cheated out of their veteran benefits AND encourage to get loans to cover the other costs the GI benefits did not cover – and at the end – they got worthless degrees…

    Trump University is another example of people apparently borrowing money to get something that was thought to be not worth that money.

    so characterizing this as a “war on the poor” is .. hmm… not exactly a fair and accurate presentation in my view.

    Here’s the question – Should the govt be involved in educating consumers about costs and loans with regard to post HS education..whether it be public, private or for-profit institutions – where students get govt loans to pay for?

    The College Scoreboard and Govt Financial Counseling programs are two existing examples.

    Do we want the govt looking at each recipient to determine if they are “poor” and “need” help or just deny them the loan because they are not financially illiterate and make bad decisions that put them in debt?

    It looks like that’s exactly what the govt is doing right now with veterans and their GI benefits:

    Veterans: Empowered to fight fraud

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