Student Loan Underwriting Failures Undermine College Access

5 min readJul 29, 2019
Photo by Element5 Digital on Unsplash

By Justin Draeger, NASFAA President and CEO, and Jill Desjean, NASFAA Policy Analyst

What happens when our attempt to increase college access backfires, and instead of increasing college access, ends up putting disadvantaged families even further behind the economic eight ball? The federal Parent Loan for Undergraduate Students, more commonly known as the PLUS loan program, provides an unfortunate example.

For many middle income families, parent PLUS loans are a valuable tool that can help fill the gap between college costs and available financial aid. However, lack of proper underwriting standards have led to unintended and perverse consequences for some of our nation’s most vulnerable populations, saddling many low-income, and especially minority families, with unsustainable levels of debt.

To qualify for a parent PLUS loan, parents must have “no adverse credit,” but this criterion looks only at past repayment history without any regard for a parent’s ability to repay the loan based on their current income or existing debt obligations. As many parents are unfortunately discovering today, that is a pretty big underwriting flaw.

Too many parent borrowers who meet PLUS credit criteria will nevertheless struggle to repay their loans because they lack the income to support their debt. One quarter of parent borrowers earn less than $40,000 per year, and yet are borrowing on average $10,000 per year for college. For minority populations, the numbers are worse. Nearly one-third of black parent PLUS loan borrowers have incomes below $30,000.

Tacking on a loan payment not only jeopardizes these families’ current financial stability, but adds to intergenerational debt, potentially negating the economic benefits their children should realize from a college education. Past payment history alone is insufficient to judge a borrower’s ability to repay. And while students will increase their earnings by pursuing a college degree, parents will not be increasing theirs.

If the mortgage crisis of a decade ago taught us anything, it’s that good underwriting not only protects lenders, but just as importantly, protects borrowers. That is why private-sector lenders employ a debt-to-income ratio before approving loans.


The National Association of Student Financial Aid Administrators: Shaping the future by promoting student access & success in higher education.