Who Pays for the Student-Loan Crisis?

In the UNCF chief's first column for us, he hopes that Obama keeps his pledge on college costs.

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Members of the Morehouse College 2002 graduating class (Erik Lesser/Getty Images)

(Special to The Root) -- The start of the 2012-2013 academic year brought a nasty surprise for thousands of parents of low-income college students. They had kept their sons and daughters in school thanks to a popular federal loan program called "Parent PLUS." But when they applied for the loans, normally a routine transaction, they discovered that without notification, the U.S. Department of Education had changed the Parent PLUS Loans credit-history eligibility requirements by applying private-sector underwriting standards instead of looking at the family's actual repayment ability. Suddenly these parents fell below the line and their children's college education was at risk. 

For United Negro College Fund, a shortage of student aid is a familiar challenge. We are the nation's largest private provider of financial aid to minority students. Every year we support the education of more than 60,000 students through financial support for our 38-member HBCUs and by awarding more than 13,000 scholarships worth more than $100 million. 

Students were the most immediate victims of the Parent PLUS Loans change. Within our network of colleges and universities, we found that more than 14,500 students, or 25 percent, were denied -- not given smaller loans, not charged higher interest, but shut out of the program completely. Many of these "denied parents" had borrowed through Parent PLUS Loans just the year before. Others were parents of freshmen, and they were counting on the loan program to help them cover their tuitions this year.

The threat is not only to the education of HBCU students but also to the education of all low-income students and students of color. In a country whose population will be "majority-minority" by midcentury, these are our next generation of professionals and leaders. They are the new, more diverse face of American college students. 

Worst of all, though, is that the Parent PLUS Loans disaster is not simply a bad piece in a system that usually works well. It is part and parcel of a financial-aid system that does not consistently help low-income students go to and through college -- a stated Obama administration objective -- and therefore contributes to locking them and their families in a downward spiral of student debt and poverty. 

Obstacles for Low-Income Families

The problem isn't student loans per se. For the foreseeable future, low-income students will need loans -- in addition to family contributions, Pell Grants and scholarships -- to cover the cost of college. The problem is that the component parts of our jerry-rigged financial-aid system are not designed to work together to move students to and through college. For example, when programs like Parent PLUS impose criteria that exclude low-income families, it deprives these families of access to an essential part of college financing.

Low-income families are poor in large part because breadwinners lack the education they need to qualify for jobs that would lift them out of poverty. To get that education, and lacking the income, credit rating and assets to pay the high and increasing cost of college, they borrow. Some borrow from federally subsidized, lower-interest student-loan programs. But they also must call on higher-interest programs like Parent PLUS Loans. The accumulation of loans can bury them under a mountain of debt that few entry-level, college-graduate jobs pay enough to repay and thus perpetuate the student-debt spiral.

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And these low-income families are far more likely to be black or Latino than white. About half (55 percent of African Americans and 49 percent of Hispanic students in 2008) come from families that earned less than $30,000 per year. For whites, the number is 29 percent. These parents of color are also much more likely to turn to debt to pay for college.

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