Colleges Steered Pell Students to Parent PLUS Loans, Report Finds

Students at dozens of universities who are eligible for Pell Grants also take out Parent PLUS loans in order to afford tuition and other costs, raising questions about how some colleges dole out their institutional aid dollars.

A new study from New America, a left-leaning think tank, asserts that 41 universities appear to be encouraging low-income families to take on the risky federal loans while simultaneously offering financial aid to students who don’t need it.

The practice, known as financial aid leveraging, is a common tactic used by large enrollment management firms, and it aims to “determine the precise price points at which these institutions can enroll different groups of students without spending a dollar more than is necessary,” according to the report, which was released Thursday. The largest amounts of aid go toward attracting wealthy and academically gifted students, while low-income students are given small aid packages, “steering” them toward Parent PLUS loans their families can’t afford.

Stephen Burd, the report’s author and a senior writer and editor with the education policy program at New America, looked through the public records of over 300 selective colleges. He identified 41 that appeared to engage in this practice based on how many of their low-income students were using Parent PLUS loans and how much aid the institutions were giving those families.

At all of the colleges that made the list, Pell Grant recipients made up at least one-third of the college’s PLUS loan borrowers and the institution charged its lowest-income students an average net price of at least $12,000 annually. (The most recently available College Scorecard data about Parent PLUS loans is from students who left or graduated in 2021, while the most recently available data on financial aid was from 2023.)

Although Burd didn’t examine aid offer letters for the report, he told Inside Higher Ed that research into the institutions and the enrollment management firms they work with, combined with the data, led him to believe that some institutions are pushing PLUS loans.

“A potential subprime PLUS loan crisis is looming. It’s hard to see how encouraging low-income families to take on debt that they probably can’t repay will end in anything but disaster, unless the government takes decisive action to contain and undo the damage,” he wrote in the report.

The study includes both public and private universities, with the University of Alabama at Birmingham topping the list as the institution with the highest percentage of PLUS loan borrowers who are low-income, at 64 percent. Burd told Inside Higher Ed that he found the number of public institutions that appear in the report particularly jarring.

“We’ve long depended on public universities to [be] the gateway to the middle class and the upper middle class,” he said. “This is much more of a betrayal, in a way, that publics are engaged in this kind of activity.”

Burd’s analysis follows a 2021 Wall Street Journal article that uncovered the same practice at Baylor University from 2010 to 2015. According to the report, the median Parent PLUS loan taken out by low-income families at the Texas institution was $44,000—more than some of those families earn annually. Baylor has since introduced a new scholarship waiving tuition and fees for individuals whose families make less than $50,000 per year, though Burd noted it doesn’t include room and board, and he said Baylor still offers large amounts of merit aid to wealthier students.

It also comes shortly after the Republican-passed One Big Beautiful Bill Act capped Parent PLUS loans at $20,000 annually and $65,000 total for any one student. But Burd doesn’t think those caps will address the root problem.

“While the policy is well intentioned, it is unlikely to be anything but minimally helpful for low-income families who cannot afford to take on any Parent PLUS loans,” the report said. “To make matters worse, the legislation removed the ability of parents to consolidate their PLUS loans and pay the debt back as a percentage of their income through the Income-Contingent Repayment Program. This was the one safety net available in the Parent PLUS loan program for financially distressed borrowers.”

Peter Granville, a fellow at the Century Foundation who studies college affordability, called the report “fantastic” and said he hopes state and local leaders hold the colleges referenced in the report accountable.

“College presidents have felt like they can sell parents on risky loans to fill affordability gaps that the college could have filled with grants,” he said. “It’s important to name names and spell out the harm they’ve done.”

Inside Higher Ed reached out to the 41 colleges in the report, some of which did not respond or declined to comment.

Others noted their recent affordability initiatives. A Kent State University spokesman said in an email that the university launched its Flashes Go Further scholarship program in 2021, which covers the full cost of tuition and fees for families making under $75,000. The University of Cincinnati and the University of Southern California have similar programs.

A University of Alabama spokesman wrote that the institution offers “generous scholarships, including a range of both merit- and need-based aid for in-state students. All types of financial assistance can be key to helping students successfully reach their education and career goals. The University provides current and prospective students with access to information about financial aid options, but the decision to engage any such aid ultimately rests with the student and their family.”

A spokesperson for Quinnipiac University denied that the university encourages students to take on unsustainable debt and said it strives to be affordable to students from all financial backgrounds.

St. John’s University, a Roman Catholic institution in New York and the private institution with the highest rate of PLUS loan borrowers who are Pell-eligible, argued that the report ignores that the university is need-blind in its admissions, meaning merit aid is awarded solely based on academic achievement.

“This need-blind approach enables the University to provide several stackable financial aid options, ensuring that a St. John’s education remains affordable for all students,” Brian Browne, the university’s spokesperson, wrote in an email. “Ultimately, the only direction that St. John’s ‘steers’ students toward is a transformative educational experience and a path of upward social mobility.”

USC also defended merit aid, writing that such scholarships “help USC attract academically outstanding students from across the country and around the world, including many who go on to contribute meaningfully to research, public service, and innovation.”

Two institutions, Drexel University and the College of Charleston, also countered that they do not recommend Parent PLUS loans in aid letters. A spokesperson for the College of Charleston added that they haven’t had time to review the report’s methodology and findings. However, the spokesperson added that 8.7 percent of the College of Charleston’s 11,600 undergraduate students in the 2024–25 academic year had a Parent PLUS loan, and 300 of those students were Pell recipients.

The report is the second in a planned three-part series about financial aid leveraging. The final report will focus on possible solutions to “rein in the enrollment management industry and make higher education more accessible and affordable for low- and lower-middle-income students and their families,” the report said.

“We need to help the majority of Americans who struggle to pay for college,” it concluded, “instead of continuing to cater to the most fortunate portion of the student body, those who can already afford to attend college without anyone’s help.”