Representatives of historically black colleges, whose institutions were among those hardest hit by the U.S. Department of Education’s abrupt tightening of credit standards for PLUS loans for parents more than two years ago, told the department on Friday that the simplest way to fix the problem would be to just revert to the standards it used before the fall of 2011.
“This is not a program in trouble,” and the department is not a bank, said David Swinton, president of Benedict College and one of 33 officials on a negotiated rule-making committee looking at the loan issue and other topics. “Your job is to promote education.”
The department’s changes, he said, had done just the opposite.
Benedict’s enrollment dropped from 3,224 in the fall of 2011 to 2,931 in the fall of 2012, and then by 400 more in the fall of 2013, an overall decline of nearly 22 percent. He said most of that amount was due to a 70-percent decrease in PLUS-loan approvals. Some families had their loans restored through appeals, but even so, he said, the college had instituted an 8-percent across-the-board salary cut to make up for the $5-million in lost revenue.
Benedict wants to do its part to help the nation meet its goals of higher educational attainmment, said Mr. Swinton. But “I can’t do it with this rug being pulled out from under me.”
Losses at HBCUs
According to the National Association for Equal Opportunity in Higher Education, more than 38,000 students at HBCUs left those institutions because of the stricter credit standards on PLUS loans, a decline of more than 10 percent. Other estimates have suggested the changes caused 400,000 students over all to leave or change colleges.
Many of the negotiators on Friday expressed sympathy for the plight of the colleges and their students. But several of them also indicated that as the panel’s discussions continue—it will meet for two more sessions over the next two months—its members may recommend changes that don’t simply turn back the clock on the tighter credit standards.
Representatives of several consumer-protection groups, for example, said they were concerned about reports of heavy borrowing by parents of students, particularly at for-profit colleges. That “has a huge impact on the lives of the borrowers,” said Whitney Barkley, a negotiator who is staff lawyer at the Mississippi Center for Justice.
A January report by the New America Foundation found that PLUS-loan use in the for-profit sector was disproportionately high relative to those colleges’ share of overall enrollments. “The data show there are quite a few traditionally aged, dependent students attending for-profit institutions, and the schools are costing their families a lot of borrowed money,” the report said. In 2011 and in 2012, borrowing in the PLUS-loan program reached $11-billion a year, up from about $8-bilion in 2008 and in 2009, according to the report. It dipped to about $9.9-billion in 2013.
Others too said they wanted more time to consider issues the New America Foundation had raised.
Hardships for Families
The foundation’s report, “The Parent Trap: Parent PLUS Loans and Intergenerational Debt,” highlighted ways that the loans can cause financial problems for low- and middle-income families. The loans, which are available to graduate students and parents of dependent undergraduate students, are more expensive than other types of federal student loans. Also, there are no set limits on borrowing of PLUS loans. Graduate students and parents of undergraduates can borrow as much as the student’s cost of attendance, after subtracting the value of other student aid.
The report also described some ways colleges were using PLUS loans to “game accountability measures and make their prices more opaque to consumers.” It said some colleges were steering families toward loans that don’t count as part of the institutions’ official loan-default rate or were describing the loans as if they were part of a student’s subsidized aid package.
Few of those issues were aired publicly on Friday. Negotiators also made little progress on the specific issue at hand: whether and how to redefine the credit standards for PLUS-loan borrowers in a way that differs from the current strict rule. (The stricter standard now makes it difficult to obtain a loan if a borrower has been delinquent on a loan within the previous five years and never restored his or her credit to good standing.)
Lack of Information
Several participants in Friday’s session made clear their frustration at being asked to recommend credit-standard policies without having data on the extent to which defaults are even a problem in the PLUS-loan program. Some negotiators cited repayment statistics about the program taken from federal budget documents and other sources that reflected well on the program, but those figures don’t always isolate the data on PLUS loans to parents from other loans offered to graduate students.
Without data “that we can all rely on, it’s really hard to have this discussion,” said Ms. Barkley of the Mississippi Center for Justice.
Department officials said they would provide the information they could at future sessions, but the department doesn’t calculate default rates for the PLUS-loan program as it does, by law, for its undergraduate student-loan programs.
Paul Kundert, president and chief executive of the University of Wisconsin Credit Union, suggested that if the department did want to impose different credit standards, it could consider criteria that had “predictive value” on borrowers’ likelihood of repaying. He suggested factors such as the ratio of the borrowers’ overall debt payments to their income, or whether a borrower had a stable job or residency history. He also suggested using a credit history based not only on whether a borrower had been delinquent but also the size of the delinquency and how recent it was.
Another negotiator, Jenny Wojewoda, an assistant attorney general of Massachusetts, suggested a “tiering” approach that could allow borrowers with weaker credit histories to borrow less than what they might otherwise borrow, rather than just rejecting them for a PLUS loan altogether.
Defending the Old Standards
Benedict College’s Mr. Swinton, who called PLUS loans “a last resort” for many students, said the old standards had provided sufficient protections. Even before 2011, he noted, only 43 percent of the applicants at Benedict were approved for PLUS loans.
George T. French Jr., another negotiator and president of Miles College, whose institution lost about 250 students because of the PLUS-loan change, also defended the program, while warning against imposing a slew of new rules that “cross that line of being paternalistic” to parents. The department “dealt with something that wasn’t broken,” he said. “As a result, we’ve broken a lot of schools.”
Miles, a historically black institution, has hired a fund raisier to help it make up for the $1.25-million in revenue it lost from the 14-percent enrollment decline, Mr. French said. The changes left damage that “I’m not sure we will be able to recover from anytime soon,” he said.
For the colleges affected by the PLUS-loan changes, the drops in enrollment could have effects beyond their own bottom lines. When retention rates drop, accreditors want to know why, noted Elizabeth H. Sibolski, president of the Middle States Commission on Higher Education and another negotiator. And if that pattern affects graduation rates, which are now part of the federal College Scorecard and could eventually end up in a proposed new ratings system, “some of the institutions are going to show worse data” than they would have of the change had not gone into effect.
Lezli Baskerville, who is president of the National Association for Equal Opportunity in Higher Education and who attended the session, said she hoped the negotiators and the department could find common ground without the issue’s having to reach Congress, where the proposed solutions would probably be “much more paternalistic and overreaching.”
Friday’s session occurred on the third day of the first round of negotiations, which also included discussions of federal standards for state approval of distance-education programs and policies on college-sponsored deals with banks and other entities for debit and prepaid credit cards.