NASFAA Summary: PLUS Final Rules Change PLUS Credit Requirements, Require Loan Counseling for Certain PLUS Borrowers
By Karen McCarthy, Policy and Federal Relations Staff
In final rules published yesterday, the Department of Education (ED) modifies the definition of “adverse credit history” in the PLUS Loan program and requires loan counseling for PLUS borrowers with adverse credit who have extenuating circumstances or who have an endorser. With these final rules, ED’s stated intent is to strike a balance between increased availability of PLUS funds to improve student access to postsecondary education and limiting overborrowing to some extent through improved financial literacy.
Summary of the Major Provisions
These final regulations will:
- Revise the student PLUS loan borrower eligibility criteria to state more clearly that the PLUS loan adverse credit history requirements apply to student, as well as parent, PLUS loan borrowers
- Add definitions of the terms ‘‘charged off’’ and ‘‘in collection’’
- Specify that a PLUS loan applicant has an adverse credit history if the applicant has one or more debts with a total combined outstanding balance greater than $2,085 that are 90 or more days delinquent as of the date of the credit report, or that have been in collection or charged off during the two years preceding the date of the credit report
- Provide that the combined outstanding balance threshold of $2,085 will be increased over time based on the rate of inflation, as measured by the Consumer Price Index for All Urban Consumers (CPI–U)
- Revise the provision that specifies the types of documentation the Secretary may accept as a basis for determining that extenuating circumstances exist for a PLUS loan applicant who is determined to have an adverse credit history
- Specify that an applicant for a PLUS loan who is determined to have an adverse credit history, but who obtains an endorser or one who documents to ED’s satisfaction that extenuating circumstances exist, must complete PLUS loan counseling offered by ED before receiving a PLUS loan
Changes from the Proposed Rules
The final rules align very closely with the proposed rules published in August, with only two changes:
- After inviting comment on the NPRM provision that ED may adjust the $2,085 delinquent debt threshold, the final rule specifies that ED will index the $2,085 threshold to the Consumer Price Index (CPI-U), which will help ensure that it remains a meaningful limit to the amount of delinquent debt a PLUS loan applicant may have and still qualify for a PLUS Loan. The rule specifies that ED will only adjust the $2,085 threshold amount, or the most recent adjusted threshold amount, when the application of the percentage change in the CPI-U to the then current threshold amount results in an increase of $100 or more. ED will round up adjustments, to the nearest $5.
- The NPRM required loan counseling only for PLUS applicants who were approved through the extenuating circumstances process and ED solicited comment on whether loan counseling should also be required for approved applicants with endorsers. Based on public comments supporting required loan counseling for approved applicants with endorsers, ED added that requirement in the final rules.
Validity of Credit Check for 90 Days
Under ED’s current operational practices, an approved credit check remains valid for purposes of determining an applicant’s eligibility to receive a PLUS loan for 90 days from the date on which the credit check was performed. In the NPRM ED announced its intention to modify its procedures so that a credit check that indicates that the applicant does not have an adverse credit history would remain valid for 180 days. This timeframe will remain a procedural issue and will not be incorporated into regulation.
In the preamble to the final rules, ED states that it plans to implement this procedural change as soon as possible, and will inform schools in advance of the effective date of the change through an Electronic Announcement.
Collection and Release of PLUS Default Rates
In the NPRM, ED stated its intent to collect and, where appropriate, publically release information about the performance of PLUS Loans, including default rate information based on credit history characteristics of borrowers and individual institutional default rates.
Several commenters shared their concerns and recommendations about ED’s plans, including support for improved transparency, desire for separate graduate and parent PLUS data, and concerns about misperceptions of institutional PLUS loan default rates as an indicator of institutional quality. ED indicates that it will take the concerns and recommendations into consideration as they formalize their plans.
Enhanced PLUS Borrower Consumer Information
In the NPRM, ED invited suggestions for specific types of enhanced consumer information, including voluntary PLUS loan counseling, that ED should develop for PLUS applicants, particularly parents. The voluntary counseling will be easily accessible to applicants and will also be made available through links on other ED websites. Based on public comments, the following will be included in the voluntary counseling:
- A calculator that will allow borrowers to estimate their future required monthly payment amount under available repayment plans
- Tools to assist borrowers in determining how factors such as taking out additional PLUS loans or deferring repayment until the student leaves school will affect the required monthly payment amount and total loan amount to be repaid
- Available repayment plans for student and parent PLUS borrowers
- Information about loan consolidation
- Budgeting information, with an emphasis on borrowing only the minimum amount needed
- Strategies for avoiding delinquency and default
The voluntary counseling will be made available prior to the start of the 2015–16 academic year.
Generally, final rules published by November 1 are effective the following July 1. However, the Higher Education Act (HEA) permits ED to designate any regulation for optional early implementation prior to July 1, and any conditions for early implementation. As such, ED will implement these final rules as soon as possible and will publish a separate Federal Register notice informing the community of the exact implementation date. ED will also work with schools to inform parents and students of the changes to the PLUS loan adverse credit history standards.
Publication Date: 10/24/2014