Looser PLUS Loan Standards

Parents and students with damaged credit histories will have an easier time getting the loans under new regulations. Education Department will publish institution-level PLUS loan default rates. 

October 23, 2014

WASHINGTON -- The Obama administration announced Wednesday that it had finalized its plan to loosen the credit requirements needed to obtain federal PLUS loans.

Under the new regulations, which will take effect next year, it will be easier for students and parents with damaged credit histories to take out PLUS loans.

The rule reduces from five years to two the period of time that the Education Department reviews when evaluating a prospective borrower’s history for adverse credit events. It will also exempt up to $2,085 in delinquent debt from counting against an applicant; that threshold will be adjusted for inflation.

The final regulation largely mirrors the draft proposal that the Education Department published in August. Department officials estimated that the changes will allow approximately 370,000 PLUS loan applicants to now pass the initial credit history check who wouldn't have done so under the current rule. It wasn’t clear what share of those borrowers would already currently qualify for loans after appealing their denial.

Jim Shelton, deputy secretary of education, touted the changes Wednesday as part of the administration’s commitment to improving access to higher education.

“With these new regulations we’ll reach and better serve many more families and students,” he told reporters.

But the final regulations also come after several years of intense lobbying from the leaders of historically black colleges, whose students often rely heavily on Parent PLUS loans to finance their tuition. The Education Department angered many colleges and families after it tightened standards for the PLUS loan program in 2011, resulting in tens of thousands of sudden loan denials.

David Swinton, president of Benedict College, a historically black institution in South Carolina, said he was O.K. with the new changes.

"We came out as well as we could have hoped under the circumstances," he said. “We are satisfied with the outcome.”

Swinton said that about 700 fewer students enrolled at his college over the three years since the Education Department first tightened the eligibility requirements for PLUS loans. He said the new, looser standards would help “gradually” return the college’s enrollment back to its levels before the 2011 changes to the program.

Rachel Fishman, a policy analyst at the New America Foundation who has studied and been critical of the PLUS loan program, said the new standards reflected a “regulatory compromise for something that needs to be eventually fixed through statute.”

Fishman has called for ability-to-pay criteria in the PLUS loan program to make sure that students and families are not saddled with large amounts of debt that they cannot repay.

“Under this new rule you could still have a parent borrower below the poverty line borrowing large amounts of money,” she said. “This doesn’t do anything to protect those borrowers.”

Institutional PLUS Default Rates Are Coming

Officials also announced Wednesday that they would begin publishing, for the first time, the rate at which a college’s former students (and the parents of those students) default on PLUS loans.

The department does not currently disclose such institutional-level data, though earlier this year it released PLUS loan default rates for each sector of higher education.

Jeff Appel, deputy undersecretary of education, said Wednesday that the department would, in the future, calculate and publish PLUS loan default rates by college. He did not say whether colleges would be able to challenge the data underlying those default rates, as the department allows for the default rates on direct student loans.

“Our plan is to make that available on an ongoing basis, and we’re still working through what that process will be,” he said.

Federal law cuts off funding to institutions whose direct loan default rate is too high, but colleges are not held responsible for PLUS loan default rates.

Swinton said he opposed the department's plan to publish PLUS loan default rates because they are misleading. 

"We're hesitant about people publishing stuff that is not simple, not easy to interpret and is misleading," he said. 
"Publishing these default rates as if they are the fault of the school is not correct, nor is it equitable, nor is it fair," he add. "We've never had any responsibility to monitor parents for three years after students leave, to make sure they are repaying their loans."

Mixed Reaction to Changes

The credit standards for PLUS loans have been among the most contentious issues that the Education Department has faced over the past several years. Department officials have been inundated by requests and meetings from black college presidents and many of their supporters in Congress, who have railed against the department’s 2011 change to tighten the criteria.

Education Secretary Arne Duncan last year apologized to a conference of black college presidents for what he said was poor communication about the 2011 changes.

On Wednesday, Representative Chaka Fattah, a Pennsylvania Democrat who co-chairs the Congressional Black Caucus Education Task Force praised the new, relaxed standards on PLUS loans.

He said in a statement that the department's new regulation would "eliminate some of the financial barriers that have limited families from federal loan eligibility."

But in a sign of just how fraught the relationship between the administration and black college leaders has become over the PLUS loan issue, the Thurgood Marshall College Fund, which works with public black colleges, said Wednesday that it was “outraged” that the department was not moving quickly enough to put the looser standards in place

Johnny C. Taylor, the group’s president and chief executive officer, said that the Department of Education should make the changes effective immediately.

“The delayed implementation of [the Parent PLUS loan] 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 in a statement. “While some may balk at the comparison of a potential global health epidemic to denied access to education for low- to middle-class students, the end result is the same – a national crisis.”

The Higher Education Act typically requires the Education Department to wait until the following July to implement new regulations that are published by November 1. However, the department said Wednesday would use its discretion to push up the timeline for putting the new standards into effect “as soon as possible.”

Shelton, the deputy secretary, said that would mean that the department would have the new standards in place “no later than the end of March 2015.” He told reporters that Taylor’s statement was “underinformed.”


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