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Parent PLUS Loan Requirements Revisions Get Mixed Initial Reviews

The U.S. Department of Education Wednesday announced additional changes to the Parent Plus Loan requirements, which have been the source of much controversy recently.

The new rule updates the requirements for “adverse credit history,” the application of which recently set off a firestorm when numerous parents found themselves rejected for the aid. Effective July 1, 2015, applicants who are determined to have adverse credit history and are approved on the basis of extenuating circumstances or a qualifying co-signer will be required to receive loan counseling prior to receiving the loan dispersement. Among other changes to the rule:

  • Borrower eligibility criteria will state more clearly that the PLUS loan adverse credit history requirements apply to student, as well as parent, PLUS loan borrowers.
  • Definitions of “Charged off” and “in collection” will be clarified as pertaining to the loan approval requirements.
  • Define adverse credit history as including one or more debts with a total combined outstanding balance greater than $2,085 that are 90 or more days delinquent as of the date of the credit report, or that have been placed in collection or charged off during the two years preceding the date of the credit report.
  • Increasing the combined outstanding balance threshold of $2,085 over time based on the rate of inflation, as measured by the Consumer Price Index for All Urban Consumers (CPI-U).
  • Revising the types of acceptable documentation for extenuating circumstances.

“The Department expects that the final regulations will increase the number of PLUS loan applicants who pass the adverse credit history check. We estimate an increase of approximately 370,000 PLUS loan applicants who will pass the adverse credit history check under the final regulations. As a result of the changes in these final regulations, these applicants will not need to apply for reconsideration of an initial PLUS loan denial due to an adverse credit history, saving them time and effort,” an advance copy of the department’s updated regulations state.

“Although the typical borrowing profiles of parents and graduate/professional students are very different, currently ED applies the same credit standards to both parent and graduate/professional borrowers (i.e., PLUS borrowers must have no adverse credit history in order to borrow),” said Justin Draeger, president of the National Association of Student Financial Aid Administrators, in a statement submitted to the department ahead of the rule changes, who spoke in favor of revising the “adverse credit history” definition. “The term ‘no adverse credit history’ is not a strict measure of underwriting, yet borrowers under both Parent PLUS and Grad PLUS can borrow up to the cost of attendance, which can be tens of thousands of dollars in some programs.”

“These are two very different populations, so when you look at adverse credit, it might be worth treating them differently,” Draeger said of the application of standards to undergraduate versus graduate students.

NASFAA did have some questions about the requirement to undergo loan counseling for those with adverse credit history, saying “while logical, we are not aware of any studies that demonstrably show that requiring additional counseling of parents will have a positive effect,” and urging the department to more closely examine the additional requirement, questioning the standing and qualification of the department to provide such counseling.

The presidents and chancellors of the 11 North Carolina HBCUs—including Dr. David Olah, Barber Scotia College; Dr. Rosalind Fuse-Hall, Bennett College; Charles Becton, Elizabeth City State University; Dr. James A. Anderson, Fayetteville State University; Dr. Ronald L. Carter, Johnson C. Smith University; Dr. Harold L. Martin, Sr., North Carolina A&T State University; Dr. Debra Saunders-White, North Carolina Central University; Dr. Everett Ward, Saint Augustine’s University; Dr. Gaddis Faulcon, Shaw University and Dr. Donald Reaves, Winston-Salem State University—called the policy changes “a good start toward repairing the damage and opening the doors of education to future students,” and said they are “pleased” to observe “the proposed regulation honors the fundamental purpose” of Parent Plus Loans to help students achieve an education.

Though department officials have said support of the new changes is overall high—and indeed, NASFAA viewed the changes as being mostly headed in the right direction and the North Carolina HBCU presidents called it “an important and constructive step forward” and said “we support it”—at least one group has come out in opposition to the changes. Thurgood Marshall College Fund President and CEO Johnny Taylor, Jr., for instance, balked at the delayed implementation of the rule changes, likening a July 2015 roll-out to ignoring an Ebola outbreak in a statement release Wednesday morning.

“The delayed implementation of PPL regulations is as disturbing as the unlikely scenario of our government issuing a statement indicating they have a cure for Ebola and then announcing the cure will not be released until July 2015,” Taylor said, calling the financial impediments to access to higher education for low and middle income families “a national crisis.”

“Students forced to remain at home with college debt, no degree, and no jobs are some of the outcomes of the Education Department’s decision to tighten credit standards on PPL with no warning,” he added, saying the changes are too little, too late and calling on the department to make them immediately effective.

The North Carolina HBCU coalition agreed the delayed implementation will add “more students to the list of those whose educations have been disrupted” and asked the department to take action to make the policy changes “effective no later than January 1, 2015.”

Still, National Association for Equal Opportunity in Higher Education (NAFEO) President and CEO Lezli Baskerville, in a joint statement with the Congressional Black Caucus, the United Negro College Fund and the President’s Board of Advisors on HBCUs, called the changes a “hard won victory for HBCUs and their stakeholder communities.”

“While the regulations do not restore the pool of ‘creditworthy’ applicants to the pre-2011 level as NAFEO and its colleagues fought indefatigably to achieve, it is a step in the right direction,” Baskerville said.

UNCF President and CEO Dr. Michael Lomax believes that the changes were a long time coming and said UNCF is “pleased” that the final regulation has taken into consideration some of the concerns raised by the HBCU community.

“HBCUs and the students they serve have endured three years of hardships caused by denied access to PLUS Loans,” he said. “This has been a distraction from the real work that needs to be done – preparing students with the skills needed in a competitive, global economy.”

Denise Horn, a spokeswoman for the department, said DOE has heard the concerns of the community and “is doing early implementation.” The changes will be effective “by March, at the very latest,” she confirmed.

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