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The blessing and curse of student loans part five; parent plus loans and HBCUs

March 11, 2013
Photo by Sandra Mu/Getty Images

As an alumnus of Johnson C. Smith University (JCSU), a historically black college (HBCU), it’s important for me to keep up with these particular institutions and communicate any new or relevant information about them to those in my network who are interested. For quite some time now, it has been my intention to talk about some of the issues associated with the HBCUs in this era where many are closing.

This final installment in this series about student loans and debt, will focus on a key cause for the financial hardships for HBCUs; tightening of the borrowing standards for the Parent Plus Loan.

“You can apply for a Parent Plus Loan,” a financial officer at JCSU told me when a shortfall in my tuition was identified. After transferring from the SUNY College at Brockport, the costs of attending college increased due to my; 1) now out of state status and; 2) my new school being a private institution. With only one parent actively involved with the financing to my college education, we turned to student loans.

Fortunately my mother, a frugal and thrifty woman was approved for the Parent Plus Loan allowing me to go to class that semester. Not every student was and is so lucky because their parents may; 1) be unwilling to financially expose themselves and; 2) not have the credit history to qualify for such a loan.

Even though the changing of the standards for the Parent Plus loan are affecting HBCUs significantly, the loan isn’t designed strictly for African American families and HBCUs. It just so happens that these more stringent standards are having an adverse effect on this specific demographic. The standards for the Parent Plus loan consist of:

• A demonstrated need for the loan.
• A modest credit check that determines whether or not the parents have an adverse credit history.

According the Parent Plus Loan website, an adverse credit history consists of:

• Being more than 90 days late on any debt
• Default on a previous debt
• Bankruptcy discharge
• Foreclosure
• Repossession
• Tax Lien
• Wage garnishment
• Write-off (Charge-off)

Interestingly this discussion suggests that some students experience difficulty financing their college educations not only because their families lack the money, but also because their parents lack the credit history necessary to qualify for loans to finance their child’s education. It’s a difficult situation because once the damage is done, it’s not quite clear what to do if parents lack a solid credit history. One long-term answer may be to increase the financial IQs of families who may rely on these types of loans.

As described in part two of this series, a child’s life is very much affected by the circumstances into which they are born (in this case their parents credit history), as well as the good and bad decisions their parents and guardians make (and what their parents know or don’t know to teach). This discussion also suggests that while certain communities have traditionally been economically and socially disadvantaged in the United States, those same communities also have some accountability and the power to make better financial decisions.

Not all HBCUs are closing. Some are surviving due to solid strategic planning, and targeting of other demographics as previously described in the Current State of Johnson C. Smith University and my interview series with Allstate’s Cheryl Harris.

In closing while a college education is thought to be the gateway to a greater life in the United States, it is something that should be thought out carefully, particularly the financial side which can be complex and have long term ramifications for the student, future spouses, their parents, and society as a whole. While student loans can be considered good debt, too much of any kind of debt for anyone over too long a period of time can be crippling and can defeat the purpose of taking it on in the first place, in this case creating a better life for one’s self through higher education.