When I was interviewed on the Kathleen Dunn Show, I was prepared to talk about the health implications of educational debt for students. That changed when a father called in and shared his story about helping his children pay for college. This father wanted to protect his children from debt and was trying to do the “right” thing by his children, and it almost resulted in the loss of his home. At that moment, I realized we – myself, the media, policy makers – were thinking too narrowly about who is affected by student debt.
It soon became clear that parents had been ignored in discussions about student debt because there was little data about their experiences helping their children pay for college. While we had some indication that more parents today were borrowing to pay for their children’s college education than in the past (see Figure 1), we still did not know which parents were more likely to borrow. I, along with my colleague, Jennifer Ailshire, set out to answer this question.
We found that among mid-life parents of college-aged children, 13% borrowed to help their child(ren) attend college. These parent borrowers, on average, borrowed about $21,000.
A number of factors were associated with whether parents borrowed or not. Some of these were expected; for instance, parents who had 2 or more college-aged children were more likely to borrow than parents with just 1 college-aged child. We also found that parents with at least a high school diploma and who earned more income were more likely to borrow than parents with less than a high school diploma or who were making less than $30,000 a year. At first glance, these may seem like less than intuitive findings – why would parents making more money borrow to pay for college? Two possibilities come readily to mind. First, higher SES children may attend more selective universities that require greater financial investment than lower SES children. We were unable to examine this directly because information on institutional characteristics was unavailable, however. Second, compared to lower SES parents, higher SES parents could be in a better financial position to borrow as a way to help their children avoid taking on student debt. For example, the Parent PLUS loans program will not lend to a parent who has an adverse credit history, which includes events such as foreclosure, bankruptcy, wage garnishment, tax liens, or being delinquent on loans or credit cards.
The pattern for household wealth, on the other hand, suggested that the wealthiest parents were no more likely than the least wealthy parents to borrow. Rather, it was the parents in the middle of the wealth distribution who were the most likely to borrow (see Figure 2). Because our measure of wealth included home equity, it may be that these parents had to rely on loans to help their children pay for college because they did not have ready access to their home equity, but felt financially secure enough to borrow because of the home equity.
Fewer factors predicted how much parents borrowed, but household income over $120,000 (compared to less than $30,000) and having 2 college-aged children versus only 1 were associated with borrowing more.
As college tuition continues to rise and state investment in higher education declines, more students will rely on loans to finance their education. Since undergraduate students can borrow a maximum of $31,000 in federal loans, universities may increasingly look upon parents to cover the remaining cost of college. As a result, more and more parents will have to decide if they are in a position to borrow to pay for their children’s college tuition. Some parents will not be adversely affected if they decide to borrow, but other parents will have to make trade-offs between saving for retirement and servicing their student debt. This is concerning because 50% of midlife adults have saved $12,000 or less for retirement. What is more, student debt typically cannot be discharged, even in standard bankruptcy filings. As a result, student debt has the potential to increase financial stress and negatively impact physical and mental health and well-being, particularly among those parents who financially struggle to repay the debt.
In the end, parents should carefully consider if borrowing to pay for their children’s college is the right decision to make given their financial situation. Policy makers should recognize the importance of including parents in policy discussions around student debt, and must pay attention to the tradeoffs that parents often make because of it.
Featured image credit: university education school by TeroVesalainen. Public domain via Pixabay.