PLUS Loans Final Rule Published; More Borrowers Should Qualify

The Department of Education published final regulations redefining “adverse credit history,” the financial disqualification for PLUS Loans. Using this revised definition, the Department estimates that an additional 370,000 PLUS borrowers, some of whom would have been deemed ineligible under the previous standards, would now be eligible for the loans.

Citing member institutions with parents and graduate students who depend on these loans, NAICU President David Warren expressed support for the revised definition in a letter to the Department, writing that the new definition would “establish fairer eligibility standards for parent and student PLUS Loans.”

Controversy about the adverse credit definition arose sometime after the elimination of the FFEL program when the Department assumed total responsibility for PLUS Loans in 2010. In late 2011, the Department suddenly tightened the eligibility standards used in the definition under the Direct Loan Program. This abrupt change had an adverse effect on many PLUS borrowers. (See Washington Update, Getting a PLUS Loan May be Slightly Easier.)

Earlier this year, the Department conducted a comprehensive negotiated rule-making session that included the definition of adverse credit history used to qualify borrowers for PLUS Loans. The definition was one of the only items upon which the negotiators reached consensus. The agreement underlies the NPRM that was published in August of this year. The final rule, which the Department describes as providing a balance between making credit available for low-income borrowers and preventing over-borrowing, closely follows the NPRM. It makes two notable changes:

1. Including an inflation factor in determining the threshold amount of delinquent debt, proposed at $2,085 in the NPRM, used in determining adverse credit history, and
     
2. Requiring mandatory loan counseling for borrowers with adverse credit history who are approved for a PLUS Loan based on obtaining an endorser of their loan, as was already proposed for borrowers with adverse credit history who qualified based on extenuating circumstances.

The final regulations apply to both Parent PLUS and Grad PLUS Loans and go into effect on July 1, 2015. According to the Department, Secretary Duncan hopes to provide for early adoption of the rule and will publish a separate notice when this might be possible.