NAICU Washington Update

Getting a PLUS Loan May Become Slightly Easier

August 12, 2014

The Department of Education is seeking comments on recommended changes to eligibility standards for PLUS Loans. The proposed regulations, published on August 8, would update the criteria for determining if a potential PLUS Loan parent or student borrower has an “adverse credit history” that prevents the applicant from getting the loan. By Department estimates, the change would expand loan access to 371,000 borrowers.

The PLUS Loan regulations have not been updated since 1994. Taking into account developments since that time, particularly the establishment of the Direct Loan Program, the Department has proposed several modifications designed to assure both access for students and responsible care of federal funds. The Department is seeking comments from institutions and has posed some specific questions in the rulemaking notice. Comments are due by September 8 – a short 30-day comment period. The quick turn-around enables the Department to publish final regulations by November 1, 2014, so that they can take effect by July 1, 2015.

Some of the proposed revisions would relax the financial standards the Department began using in November of 2011. (See below for additional program history.) Specifically:

  1. An applicant (parent or graduate/professional student) is not considered to have an adverse credit history unless the applicant’s debts have a total combined outstanding balance greater than $2,085. This is an increase from the current level of $780.
  2. This $2,085 threshold could be modified to adjust to changes in the economy.
  3. The standard for delinquency will remain at 90 days.
  4. Debts “in collection” or that have been “charged off” in the past 2 (rather than 5) years will be included in determining adverse credit history.
  5. Financial problems, such as bankruptcy, tax liens, and foreclosures will be considered as far back as 5 years.
  6. Borrowers who are denied a PLUS loan may reapply based on extenuating circumstances. Such applicants must provide additional information about their financial situation.
  7. Those who are granted a PLUS loan based on extenuating circumstances must complete loan counseling provided by the Secretary. (However, the notice does not provide information about the timing of such counseling, nor does it indicate how institutions will be notified that a borrower has completed the counseling so that the loan may be disbursed.)

Program History: Most PLUS loans were issued through FFELP, the bank-based loan program, prior to its elimination in 2010. In converting to all direct loans, Department of Education officials discovered that the “operational criteria” they were using to determine an adverse credit history were not consistent with the regulations, nor with the definition of adverse credit history used under FFELP. In short, the Department was not regarding loan applicants who had debts that were either in collection or charged off as having an adverse credit history. Thus, these applicants remained eligible for PLUS Loans—resulting in a significant increase in borrowing. In November 2011, after the inconsistency was identified, the Department modified its procedures. This action resulted in large numbers of applicants being denied PLUS loans. After considering a significant number of appeals to its decisions, the Department ultimately decided to update the regulations.

The Department included the consideration of changes to PLUS eligibility in broader-reaching negotiated rulemaking sessions that extended from February to May of this year and covered six disparate issues. The negotiators were able to reach “tentative” agreement on issues related to PLUS loans, but failed to do so on several of the other issues included in the negotiation. Because of the urgency of the matter, Department officials decided to publish the PLUS provisions separately.

In addition, the Department plans to publish consumer information about PLUS Loans, including default rates by institution and credit history characteristics of PLUS borrowers.

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