Inside Higher Ed. August 8, 2014.
The Obama administration on Friday will formally propose changes to the PLUS loan program that would largely loosen the credit requirements needed to obtain them.
The proposal, which was tentatively agreed to by a negotiated rule making panel earlier this year, will clarify in regulation the department’s current practice of considering accounts more than 90 days delinquent as “adverse credit” that generally hurt a person’s chances of getting a loan.
But the department is also including several provisions that would relax the current standards for obtaining the loan. The new rules would exempt up to $2,085 in delinquent debt from the adverse credit history that counts against a borrower.
It would also reduce from five years to two the amount of time the department reviews when analyzing a prospective borrower’s credit history for most adverse credit events. More serious credit events, such as a bankruptcy, however, would still count against a prospective borrower for up to five years.
“The Obama administration is committed to keeping college accessible and affordable and helping families make thoughtful and informed choices to fund a higher education in today’s economy,” Education Secretary Arne Duncan said in a statement. “These changes allow us to continue to be good stewards of taxpayer dollars and open the doors of college to ensure all students have the opportunity to walk through them.”
In addition, the new regulations would require the department to provide special loan counseling to people who are automatically denied a PLUS loan based on their credit history but are successful in obtaining the loan by demonstrating extenuating circumstances.
The administration estimated that the changes would expand PLUS loan access to 371,000 borrowers who are currently being denied loans because of their credit history. It was not clear how many of those borrowers have, despite the denials, been able to obtain PLUS loans through an appeals process.
The Education Department angered many colleges and families in 2011 after it quietly implemented tighter standards for the PLUS loan program. The department subsequently apologized for the rollout of those changes, but the tens of thousands of sudden loan denials drew sharp criticism from many college leaders, particularly those at historically black colleges and universities.
Rachel Fishman, a policy analyst at the New America Foundation who has criticized the Parent PLUS loan standards as being too lenient, said that the department’s “hands are tied” when it comes to tightening the standards.
Fishman, like many consumer advocates, has expressed concerns that Parent PLUS loans are saddling some low-income families with debt that they cannot possibly repay.
“This loan is not a safe product for low-income borrowers,” she said. “If we want to keep this product, then through the Higher Education Act, we’re going to make it a safer product by having an ability-to-pay test or capping the loan or increasing dependent student loan limits.”
Proponents of the PLUS loan program argue that it’s an important tool for college access.
Historically black colleges and universities, along with their supporters in Congress, had been particularly vocal in protesting the tighter loan standards, which they said was disproportionately affected families that attend their institutions.
The UNCF earlier this year issued a report calling the PLUS loan problem a “crisis” that is limiting students’ access to higher education.
Cheryl Smith, the group’s senior vice president for public policy and government affairs, said she was generally pleased with the outcome of the negotiated rule making process and welcomed the new rules.
“UNCF supports the proposed regulations and would like the department to move quickly to put them in place,” she said. “We didn’t get everything that we wanted, but we think that this is reasonable balance.”
Strengthening PLUS Data?
The department’s notice on Thursday also indicated that it would expand access to data tracking the performance of Parent PLUS loans.
“The Department intends to collect, and where appropriate publish, information about the performance of parent and graduate/professional student PLUS loans, including default rate information based on credit history characteristics of PLUS loan applicants and individual institutional default rates,” the notice said.
Department officials for the first time earlier this year releasedinformation about the rate at which students and parents default on PLUS loans across the country. However, that data did not include individual institutional default rates for PLUS loans.
That national data showed that while the default rate for Parent PLUS loans has nearly tripled in recent years, it remains below the default rates for other federal student loans.
Fishman said that the department should disclose far more information than it currently does about the PLUS loan program as a matter of transparency and accountability. Although colleges are penalized by the federal government for having high default rates on federal loans, no such metric applies for PLUS loans.
Smith, the UNCF vice president, said that publishing institutional default rates for PLUS loans deserved closer study.
“As a general matter, providing additional information about PLUS loans may be useful,” she said. “But we want to think carefully about the specific measures that the department is proposing.”