Education Dept. Seeks to Relax PLUS Loan Credit Requirements

Late last week, the U.S. Department of Education formally proposed changes to broaden access to the federal Direct PLUS loan program.

The draft regulations, published in the Federal Register on Friday, would alter the program's credit history requirement, exempting up to $2,085 in delinquent debt from the adverse credit history that counts against a borrower. The proposed rules would shorten the review period for borrowers' credit history from the last five years to the last two years and allows the education secretary to adjust the debt threshold as needed. More serious credit events, such as a bankruptcy, however, would still count against a prospective borrower for up to five years.

The proposal would clarify the department's current practice of considering accounts more than 90 days delinquent as "adverse credit" that generally hurt a person's chances of getting a loan.

In addition, the new regulations would require the department to provide special loan counseling to people who are automatically denied a PLUS loan based on their credit history but are successful in obtaining the loan by demonstrating extenuating circumstances.

The proposed changes resemble a departmental draft proposal that was presented at a negotiated rulemaking session earlier this year, The Chronicle of Higher Education reported. The department tightened the program's rules into their current form in 2011, causing an outcry among applicants – especially parents of students at historically black colleges and universities – who suddenly did not qualify.

The administration estimated that the changes would expand PLUS loan access to 371,000 borrowers who are currently being denied loans because of their credit history. Supporters say the new rules would expand access to college for low-income students, but skeptics worry the rules could saddle poor borrowers with unmanageable debt, driving up defaults.

"This loan is not a safe product for low-income borrowers," Rachel Fishman, a policy analyst at the New America Foundation, told Inside Higher Ed. "If we want to keep this product, then through the Higher Education Act, we're going to make it a safer product by having an ability-to-pay test or capping the loan or increasing dependent student loan limits."


Related Links

The Federal Register

The Chronicle of Higher Education

Inside Higher Ed