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New report asks policy makers to impose tighter standards on Parent PLUS Loans

Getting Tough on Parent PLUS
January 8, 2014

As the Education Department prepares to begin negotiations next month on changes to the eligibility requirements to Parent PLUS Loans, a report released Wednesday says that the government needs to tighten the standards for those loans.

The controversial changes that the Education Department made in October 2011 to the Parent PLUS Loan program -- which led to loan denials for roughly 40,000 families -- were poorly executed but also too modest, according to the report by the New American Foundation.

“More far-reaching reforms are needed to ensure that the Parent PLUS Loan program is correctly targeted to families who can afford to pay the debt back,” wrote Rachel Fishman, a policy analyst at the think tank and author of the report.

The paper calls on policy makers to either add an “ability to pay” metric to the Parent PLUS credit check, cap the loans, or end the program altogether and increase the loan limits on other federal loans.

The department’s changes to the Parent PLUS Loan program were met with backlash from black college leaders, whose institutions often rely on the loans to help students cover tuition.

Under pressure from black college leaders and several members of Congress, the department last year said it would consider appeals from parents who were originally denied the loans. The department has since said that it has reversed the denials in more than 98 percent of the appeals that have been filed. U.S. Education Secretary Arne Duncan also personally apologized to black college leaders for the way his agency rolled out the changes to the program.

The report also suggests that institutions have been relying on the Parent PLUS Loan program “to hide their prices from students and skirt accountability measures.” Since Parent PLUS loans are not counted by the department in assessing the default rates at an institution, the report says that institutions may steer parents toward PLUS loans as a means to reducing their exposure to defaults.

Cheryl Smith, senior vice president for public policy and government affairs at UNCF, rejects those allegations.

“We take issue with the tone of the report, which takes a needless swipe at HBCUs that are working hard every day to make a college degree a reality for thousands of low-income students,” she said. “The new PLUS Loan credit criteria issued by the Department of Education represent flawed policy, implemented through a flawed process.”

Smith acknowledged that the PLUS loan program “is not perfect and certainly can be improved.” She said the UNCF would be open to supporting changes to the credit criteria but was not yet ready to say publicly what those changes should be.

Although historically black colleges have been particularly vocal in how the PLUS loan changes have harmed their students and campuses, the report found that the for-profit sector actually suffered the most from changes to the PLUS loan program. For-profit colleges experienced a 54 percent decline in loan recipients and disbursement, according to federal data analyzed by the New America Foundation.

For-profit colleges have been less visible on the PLUS loan issue. A spokesman for the Association of Private Sector Colleges and Universities said that the organization was still reviewing the report and declined to comment.

Last summer, the group said that it wanted the department to “ensure deserving PLUS loan applicants are being carefully considered and assisted before being denied,” but did not offer any details on what types of credit standards it may support in the upcoming rule making. 

 

 

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