Poster #27 - Public Credit, Private Exit: Borrower Selection in Parental Student Loans

• In Event: Friday Poster Reception

Abstract

Beginning in 2026, the One Big Beautiful Bill Act caps federal Parent PLUS borrowing for the first time, replacing a cost-of-attendance ceiling that previously allowed effectively unlimited borrowing. Because these caps are likely to push some parents toward private lenders, we study a historical precedent for parental student lending contraction: JPMorgan's 2013 exit from private student lending, and how parental borrowing reallocated between the private market and Parent PLUS when a major lender withdrew. Using an annual 1% sample of U.S. credit-bureau tradelines spanning 2004 to 2024, we develop the first procedure to separately identify public and private parent student loans at the tradeline level, layering lender line-of-business codes, borrower relationship, disbursement patterns, undergraduate loan limits, servicer codes, and COVID-19 payment-pause behavior. The two borrower pools differ sharply. Federal parent borrowers are younger, less creditworthy (mean origination score 627 versus 716), and far more likely to reach 90 or more days delinquent within four years (38.7% versus 19.7%), yet they borrow more—consistent with a program that caps borrowing only at the cost of attendance and applies no ability-to-repay check, while private lenders screen on credit. Exploiting geographic variation in JPMorgan's pre-exit ZIP-code deposit share in a continuous difference-in-differences design, we find that families in more exposed ZIP codes shifted away from private toward federal parent loans, with no decline in overall borrowing. The effect concentrates among prime borrowers and homeowners—those with genuine private-market access and thus most exposed to its withdrawal. When private credit retreats, Parent PLUS absorbs more creditworthy borrowers: fiscally favorable for the government, which prices credit without regard to risk and already earns positive returns on the program, but costly for prime parents who pay a flat rate and cross-subsidize a riskier pool of fellow borrowers.

Author

• Ruth Jacobson Cohen, University of Wisconsin-Madison
  Presenting Author