Financing the cost associated with post-secondary education has long been a heavy lift for many students and their families. After exhausting all other avenues of financial aid, many of these borrowers turn to federal PLUS loans.
While these loans were at one time a well-intentioned initiative designed to facilitate access to education, the underlying data in a recent research brief by the Education Finance Council reveals a narrative of unintended consequences. PLUS loans have inadvertently catapulted many families into a life of financial stress, prolonged indebtedness, and a diminished standard of living.
Unlike other federal student loans, PLUS loans allow the student or parent to borrow up to the total cost of attendance, net of all other aid. This makes it possible to borrow very large amounts annually, easily resulting in an overwhelming aggregate amount of debt.
There is a modest credit review when applying for the loans, but no assessment of the borrower’s ability to repay the debt. Parent PLUS loan disbursements surged over 50% between 2000 and 2020, creating a financial burden that weighs heavily on those already facing economic challenges and can exacerbate racial and ethnic disparities.
Parent Plus loans have been a critical tool for many families, and for Black families in particular, given wage and racial wealth gaps. However, the share of Black Parent PLUS recipients who had no expected family contribution (because their income was too low to pay any out-of-pocket costs for college) rose to 42% in 2018, up from 10% in 2000. Shockingly, there were three times as many Parent PLUS loan recipients living below the poverty line in 2018 compared to 1996. The high interest rates and fees associated with Parent PLUS have resulted in a heavy burden for these families. These stark figures highlight the disproportionate impact Parent PLUS loans have had on economically vulnerable families.
In stark contrast to the higher interest rates and hidden fees associated with PLUS loans, CHESLA’s myCHESLA Student Loan shines as a low-cost option for Connecticut residents.
With a current highly competitive fixed interest rate of 6.35%, the myCHESLA Student Loan clearly stands out as the more affordable option when compared to the federal Parent PLUS loan or the Grad PLUS loan, with a current interest rate of 8.05%. Unlike PLUS loans, which exacerbate the financial burden of borrowers with fees exceeding 4.20%, CHESLA loans are fee-free, helping families to finance the cost of post-secondary education without additional financial burden.
CHESLA also supports students by offering a comprehensive solution. CHESLA offers financial literacy education through its CT Dollars and Sense portal and a need-based scholarship initiative. Importantly, CHESLA supports educators through the Alliance District Teacher Loan Subsidy Program which provides an interest rate subsidy on CHESLA Refi loans to teachers, counselors, and paraprofessionals working in Alliance Districts.
Additionally, CHESLA, working with its Rhode Island partner, RISLA, provides Connecticut employers with a turnkey solution for making payments on the student loans of their employees through the Employer Loan Repayment Program which provides employers and employees with an online dashboard to manage payments.
In the ever-evolving landscape of post-secondary education financing the distinctions between CHESLA and the federal PLUS Loan program have become more pronounced. Mission-driven state-based and nonprofit lenders, such as CHESLA, offer lower rates and a more transparent lending process.
By serving as a leading resource for Connecticut students and families as they pursue their post-secondary education goals, CHESLA is proud to offer Connecticut families transparent and affordable options for education financing.
Daniel C. Giungi is a Government Affairs & Communications Specialist for CHEFA.
