Student Aid

Coming Soon for PLUS Loans: More Eligible Borrowers, New Data on Defaults

By Kelly Field

October 22, 2014

Washington

Borrowers with past credit problems will soon find it easier to qualify for federal PLUS loans under a final rule announced on Wednesday by the Education Department.

An additional 370,000 parents and graduate students are expected to qualify for PLUS loans under the rule, which will relax the program’s underwriting criteria.

But the real news in Wednesday’s announcement was that the department will begin calculating (and publishing) annual cohort default rates for institutions receiving PLUS loans, much as it already does for Stafford loans. That information will shed light on how many borrowers are benefiting from the loan program—and how many are getting in over their heads.

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Borrowers with past credit problems will soon find it easier to qualify for federal PLUS loans under a final rule announced on Wednesday by the Education Department.

An additional 370,000 parents and graduate students are expected to qualify for PLUS loans under the rule, which will relax the program’s underwriting criteria.

The fight over PLUS eligibility goes back to 2011, when the Education Department quietly tightened its standards. The changes caused loan-denial rates to spike and led to sharp enrollment drops at some institutions.

Under pressure from historically black colleges, the department announced last year that it would revisit the changes as part of a negotiated rule-making process. The rule-making panel wrapped up its work in May, and the department published a draft rule in August.

That rule changed the program’s credit-history requirement so that an applicant with less than $2,085 in certain types of overdue debt would pass the credit check. Historically black colleges welcomed the change, but some consumer advocates warned that it could saddle some borrowers with unmanageable debt.

The final rule hews closely to the draft, with two tweaks. First, it will tie the $2,085 threshold to the inflation rate; second, it will require borrowers with adverse credit histories to complete PLUS-loan counseling before receiving a loan.

The rule is scheduled to take effect on July 1. But department officials said on Wednesday that they were moving up the timetable, to March at the latest. They did not say when the first institutional default rates for PLUS loans would be published.