Two Chicago universities are among a few dozen colleges across the country that appear to favor wealthier families when offering financial aid packages, a new report finds.
Loyola University Chicago and DePaul University were named in a report released Thursday by the progressive think tank New America, alleging they are among 41 colleges nationwide that push a large share of lower-income families to take out hefty loans to cover college costs while offering attractive scholarships to wealthier families with high-achieving students.
The schools in the report have a high percentage of lower-income families taking out loans they often can’t afford to pay back, according to the report’s author Steven Burd, a senior writer and editor with the education policy program at New America. The amount parents take out in loans is sometimes more than their annual earnings, the report found.
“The fear is really that they're just putting these families into real financial trouble, real financial jeopardy,” Burd said.
The report focuses on federal Parent PLUS loans, which parents can use to pay for tuition costs that can’t be covered out of pocket or through scholarships.
While most federal student loans have limits, families can take out Parent PLUS loans up to the total cost of attendance. But Parent PLUS loans, which have a high fixed interest rate and origination fees, weren’t designed for low-income families, Burd said. They were meant to help middle- and upper-income families send their children to more prestigious and expensive schools, he added.
“They were never intended as a way for schools to be able to help low-income students,” Burd said.
DePaul officials say the university provides scholarships and grants and offers information about various loans but ultimately families decide what to borrow. A Loyola University spokesperson said the university "works proactively with students and families to present all available options," without steering families toward any particular option.
"Loyola will continue strengthening resources that help families manage educational costs and minimize debt," the spokesperson said in a statement.
With Parent PLUS loans, the schools are not held accountable if the borrowers go into default, and the Trump administration is expected to soon start garnishing wages from people who have defaulted on student loans after a pause on payments that started during the COVID-19 pandemic.
Schools can offer students merit-based scholarships based on grades and academic success, even if they don’t qualify for need-based aid. And those scholarships can end up taking up a large share of a school’s financial aid funds, leaving low-income students in need of loans — and that’s where the Parent PLUS loans come in, Burd says.
The problem compounds, Burd says, when schools offer better financial aid packages to students whose families make more, a strategy he says is often aimed at attracting high-achieving and wealthy students who could give generous donations in the future. That incentivizes colleges to recruit students with an eye for “raising revenue for your institution and rising up the rankings,” Burd said.
Some schools have used this practice to improve their spot in national rankings and transform themselves from a humble commuter school to a nationally competitive university, the report says.
To find schools that appeared to be steering lower-income families toward Parent PLUS loans, Burd looked for colleges where a large share of students who received federal Pell Grants, which are meant for low-income students, had parents taking out Parent PLUS loans.
At DePaul University, 53% of students whose parents took out Parent PLUS loans were Pell Grant recipients and their parents borrowed on average $33,000 in PLUS loans, according to the report.
At Loyola, 48% of students whose parents have Parent PLUS loans had Pell grants. The average Parent PLUS debt taken on by those Loyola parents was around $46,000.
“These are families making $30,000 or less, and then they're taking on $30,000 in debt to put their kids through school,” Burd said. “These schools are charging so much, they're leaving such a large financial aid gap that the families have no other choice but to take out these PLUS loans.”
A DePaul University spokesperson said the school works to ease the financial burden on students, but didn’t directly address questions about low-income families taking out Parent PLUS loans or how the school decides what aid to offer to wealthier students. The spokesperson said DePaul provides students over $350 million a year in academic scholarships and need-based grants using institutional funds and philanthropic gifts.
“DePaul offers information to students and families regarding various loan options, and ultimately families make the decision to proceed with loans as they see fit,” the spokesperson wrote in a statement.
The 41 private and public colleges and universities cited in the report collectively spent $2.4 billion of their financial aid dollars on students who didn’t need the help in 2023, the most recent data available. Nearly $2 out of every $5 spent on financial aid went to students who the federal government considers able to afford college without additional aid, the report found.
Burd started with a list of more than 300 selective colleges and universities with a certain size endowment, excluding historically Black colleges and universities because he said they have been historically underfunded and have far less financial aid to give. Art schools were also excluded because they are among the most expensive schools, partly because of costly supplies and tools.
Burd then looked for schools at which families of Pell Grant recipients made up at least one-third of PLUS loan borrowers and the median amount of loans was at least $15,000. At the 41 schools cited in the report, 45% of the borrowers were the parents of Pell recipients, and they borrowed a median amount of $29,102.
Some lawmakers have noted this trend and have capped Parent PLUS loans at $65,000 per child, but Burd says that’s still too much for many families to borrow. He said ideally, legislation will be implemented to stop schools from steering families toward taking out loans they can’t afford to repay.
“The only other worry, though, is that private lenders are going to come in and start offering even more predatory products,” he said. “So that's something we need to look out for as well.”
