New Improved Access For Federal Direct PLUS Loan Programs: US Dept. of Ed.

As part of an effort to ensure more families can afford a higher education and promote the responsible use of taxpayer dollars, the U.S. Department of Education proposed new regulations last week that will update eligibility standards and improve access for student and parent borrowers under the federal Direct PLUS loan program. The current adverse credit history regulations have not been updated since the Direct lending program was established in 1994.

“The Obama Administration is committed to keeping college accessible and affordable and helping families make thoughtful and informed choices to fund a higher education in today’s economy,” said U.S. Secretary of Education Arne Duncan. “These changes allow us to continue to be good stewards of taxpayer dollars and open the doors of college to ensure all students have the opportunity to walk through them.”

Formally published tomorrow in the Federal Register, the proposed regulations will allow more families to borrow under the PLUS lending program. While developing the updated standards, the Department gathered feedback and recommendations from students, families and partner organizations, including representatives of minority-serving institutions and Historically black colleges and universities (HBCUs). Specifically, the proposed regulations would update the definition of adverse credit history and require PLUS loan counseling for approved borrowers with an adverse credit history. If a potential borrower’s combined adverse debt is $2,085 or less, the potential borrower will not be considered to have an adverse credit history. Other proposed changes include:

• Clearly stating the adverse credit history eligibility standards for potential borrowers;
• Defining terms such as “charged off” and “in collection” to more accurately determine if an applicant has an adverse credit history;
• Minimizing the time period a borrower’s credit history is reviewed from the last five years to the last two years for charge offs and collections to determine adverse credit history.
• Authorizing the Secretary to adjust the combined outstanding balance adverse debt threshold of $2,085 as necessary;
• Allowing denied PLUS loan applicants the opportunity to provide documentation that can be used for the Department’s reconsideration and require PLUS loan counseling for applicants who are granted loans under extenuating circumstances prior to loan disbursement.

The Department plans to publish the final rules by Nov. 1, which would allow borrowers to take out a PLUS loan under the new criteria for the 2015-16 school year. In the meantime, borrowers who are denied for a PLUS loan under the current rules can continue to apply for reconsideration. The Department is also considering implementing final regulations before the 2015-16 school year begins so that borrowers could benefit even sooner.

The Department of Education’s Office of Federal Student Aid manages and administers the student financial assistance programs authorized by the Higher Education Act of 1965.