In Victory for HBCUs, Department to Reconsider a Policy Change on Parent PLUS Loans

August 15, 2013

The Education Department, yielding to pressure from historically black colleges and members of Congress, said Wednesday that it would reconsider recent changes to the standards it uses to award Parent PLUS loans.

In a letter obtained by The Chronicle, Secretary of Education Arne Duncan told the chair of the Congressional Black Caucus, Rep. Marcia L. Fudge, Democrat of Ohio, that his agency would review its definition of "adverse credit" in rule-making sessions planned for next spring.

In the meantime, he said, the department is taking steps to make it easier for parents who were initially denied a PLUS loan to receive one on appeal. Under the new policy, more families with minor blights on their credit histories will be approved for loans.

The Education Department tightened its underwriting criteria for PLUS loans to parents in 2011, two years after an analysis by the financial-aid expert Mark Kantrowitz showed that the denial rate on such loans was twice as high in the bank-based guaranteed-student-loan program as in the government's direct-loan program, due largely to the banks' stricter credit standards.

The department did not conduct any analysis of its recent changes, and officials seemed surprised last year when denials shot up by 50 percent for parents of students at historically black colleges and universities.

Since then, the colleges, along with the for-profit company Education Management Corporation, have been lobbying the department to ease its rules, warning that their institutions were being disproportionately harmed.

While the department has made some changes to simplify the appeals process, it has resisted calls to reverse the change, arguing that the stricter standards protected families and taxpayers from the consequences of default. (The department says it doesn't track PLUS loan default rates, and isn't sure how high they are at historically-black colleges).

Help for Families on Appeals

The letter to Representative Fudge, while not exactly an about-face by the department, represents a victory for the colleges, which had pressed the administration to add the issue to its rule-making agenda.

In the letter, Mr. Duncan said that to help families with "relatively small adverse credit events"—such as unpaid medical debt, parking tickets, or cellphone bills—to qualify for a PLUS loan upon appeal, the department would double the size of the debt that it would consider "de minimis," or inconsequential.

Department officials declined to say how many families have applied for, and received, loans on appeal. They would not say what the department considers a "de minimis" debt, either, arguing that disclosing the amount could cloud the judgment of the financial-aid administrators who distribute federal aid.

In the letter, Mr. Duncan said that 95 percent of students whose parents were initially denied a PLUS loan to enroll in a historically black college had enrolled in the 2012-2013 award year, many with the help of a larger Stafford loan. Still, almost 20 percent of them ended up at different institution that was not historically black.