WASHINGTON -- Since the Education Department changed its underwriting standards  for loans to students’ parents in 2011, 400,000 parents have been denied the loans. The denials have fallen disproportionately on historically black colleges and universities, whose leaders pleaded with the Obama administration Tuesday to reconsider the policy.
“Our students and families are in crisis now,” Michael Lomax, president and chief executive officer of the United Negro College Fund, told Education Department officials Tuesday. Lomax spoke at a hearing at which department officials sought input in advance of a new round of negotiated rule-making , which will consider underwriting standards for PLUS loans, among many other topics.
Through the federal parent PLUS loan program, parents of college students can borrow up to the cost of attendance at a student's college -- often tens of thousands of dollars. Unlike other federal student loans, parent PLUS loans require a credit check. But until recently, it wasn’t particularly stringent: Before October 2011, borrowers would be approved if they didn’t have any accounts that were more than 90 days delinquent, or any foreclosures, bankruptcies, tax liens, wage garnishments or defaults within the past five years. During the 2010-11 academic year, 72 percent of PLUS loan applicants were approved.
Then the department, attempting to limit defaults on the loans, changed the rules so that unpaid accounts in collections, or charged off but unpaid balances, from the past five years would also count against a prospective borrower. Denials spiked.
Only about 28,000 of the 400,000 denials since the standards were tightened have been at historically black colleges, but officials at those colleges have been the most outspoken about the effects of the change. Lomax called the change a “terrible policy shift,” and said it stunned officials at historically black colleges, since institutions were given no warning of the change.
Lezli Baskerville, president and CEO of the National Association for Equal Opportunity in Education, which represents historically black and predominantly black institutions, urged the Education Department to return to the former underwriting criteria. “Parent PLUS was not broken,” Baskerville said, describing the change as a “debacle.” “The criteria were working effectively for most students at the time.”
Many of the 28,000 students at historically black colleges whose parents were denied loans dropped out -- parents who aren’t approved for a PLUS loan, even with the tighter criteria, are unlikely to be approved for private student loans -- and the UNCF has been unable to find out whether they enrolled at other, less costly institutions.
Representative Corrine Brown, a Florida Democrat, also commented at the hearing Tuesday, saying denials under the newly stringent PLUS loan underwriting criteria were “worse than under the banks” and criticizing the Education Department for not addressing black colleges’ concerns.
“I know the president could not know about this,” Brown said.
Another Go at ‘Gainful’
When the Education Department convenes negotiated rule-making panels, which is expected to occur this fall, the stakeholders who help write new regulations will also deal with one of the biggest controversies in higher education in recent years: the “gainful employment” regulation that attempted to punish vocational programs whose students weren’t able to get jobs and repay their loans.
The rule was aimed at reining in for-profit colleges but also applies to vocational and certificate programs at public and private nonprofit institutions. Those programs had to successfully pass one of three tests, one based on loan repayment rates and two on graduates’ debt-to-income ratios. A judge struck down  the rule in 2012, saying the repayment rate wasn’t sufficiently justified as a way to judge programs.
A series of consumer and advocacy groups on Tuesday urged the department to rewrite and strengthen the rules, saying for-profit colleges mislead students and abuse the federal financial aid system.
Groups representing for-profit colleges, including the Association of Private Sector Colleges and Universities, argued that the Education Department should postpone writing new regulations until the Higher Education Act is reauthorized. The law expires at the end of 2013, and members of Congress have indicated they want to begin renewing it soon -- which would mean that just as the Education Department publishes final rules based on the expiring version of the Higher Education Act, legislators would be putting the finishing touches on the next one.
“If I were a member of Congress, whether a Democrat or Republican, I would say, ‘Give us our chance first,' " said Steve Gunderson, APSCU’s president, after urging the Education Department to put off rule-making.
A former Congressional staff member, though, urged the Education Department not to wait. For-profit colleges know they have a better chance of influencing members of Congress than a rule-making committee, said Bethany Little, formerly the chief education adviser to Democrats on the Senate Committee on Health, Education, Labor and Pensions. Little, now a managing partner at America Achieves, a group focused on K-12 education, said for-profit colleges had the “most intense, pervasive and manipulative lobbying” she saw during her career on the Hill.
Other for-profit-college groups, and some representing nonprofit institutions, echoed Gunderson’s call for a postponement.
But whether reauthorization will occur on schedule is unclear. The Obama administration has indicated it intends to pursue an aggressive regulatory agenda through the rule-making process. In addition to the issues discussed Tuesday -- which range from the effects of the Violence Against Women Act on campus to debit cards for financial aid refunds and the gainful employment and state authorization program integrity regulations -- the department also intends  to convene rule-making committees on college affordability and value, according to the initial Federal Register notice.