Negotiators Agree To Proposed Definition of Adverse Credit Under PLUS Program

By Brittany Hackett, Communications Staff, and Joan Berkes, Policy and Federal Relations Staff 

Negotiators reached tentative agreement Monday on a revised definition of adverse credit under the Federal PLUS Loan Program, leaving only two issues still under discussion today during the final session of the Department of Education's (ED) 2013-14 Program Integrity and Improvement negotiated rulemaking.

The second draft of proposed changes to the definition of adverse credit under the PLUS Loan Program was largely unchanged from the draft presented in April and contained primarily technical changes intended to provide clarification. 

Federal negotiators also explained that ED would institute operational changes to address some concerns expressed previously, which are not really the subject of regulation. For example, ED will expand the period for which a credit determination will hold from 90 days to six months. Upward adjustments made through COD to an originated PLUS loan will not be subject to a new credit evaluation during that period. ED cautioned, however, that if a new loan process is begun instead of an adjustment, a new credit evaluation will be triggered, so schools need to ensure they have a process for upward adjustments to take advantage of this expansion.

Discussion on the newest draft centered on ED’s proposed de minimis amount of outstanding debt and reservations some negotiators had about the decision to not index that figure for inflation.

As discussed in April’s session, ED’s proposal would stipulate that delinquent accounts would only be considered adverse credit if the applicant has one or more delinquent debts with a total combined outstanding balance greater than $2,085. At the time, negotiators suggested tying the de minimis amount of outstanding debt to some kind of financial index, such as the Consumer Price Index (CPI), which would allow the number to gradually change with inflation.

Federal negotiators said Monday that they discussed the recommendation and ultimately felt uncomfortable using the CPI, due to its volatility, but did not have sufficient time between negotiating sessions to discuss the issue further.

Several negotiators reiterated the need for using an index to keep the de minimis amount relevant, noting that even small annual increases add up over time. Some negotiators indicated a willingness to see language that did not permit the amount to decrease based on an index. Others suggested averaging increases over a few years.

In response, federal negotiators proposed amending the draft language to include the phrase “as may be adjusted over time on a basis determined by the Secretary” of Education to the regulations regarding the de minimis amount, allowing for some kind of index to be used. ED officials noted that they could solicit comment on methods for indexing the de minimis in the preamble to the notice of proposed rulemaking (NPRM) that will result from these negotiations.

Non-federal negotiators said they were supportive of the proposed draft with the added language and tentatively agreed to it as final, making it the fourth out of six issues on which tentative agreement has been reached. 

Reaching agreement on the final two issues, state authorization of distance education and cash management rules surrounding the use of sponsored accounts in the disbursement process, however, is likely to be more difficult as several concerns remain among the negotiators. 

For example, several negotiators said they had concerns with a new draft proposal on state authorization of distance education discussed Monday. They noted that the proposal was met with skepticism by many of their constituencies, including state higher education representatives who told negotiators they do not have the resources to comply with parts of ED’s proposal.

Some negotiators reiterated their concerns that the proposed regulations do not solve the issue ED says it is trying to solve and that they are overreaching into states’ rights. Another negotiator warned that ED will “run into uniform opposition” to the regulations should it decide to pursue them.

Negotiators also continued to grapple with ED’s proposed definitions of sponsored accounts and student choice under the proposed draft of cash management regulations. This  issue, along with state authorization will be further discussed in today’s session, which is the final session of the negotiated rulemaking. Tune in to Wednesday’s Today’s News for a full recap, including the final count of agreed-to issues, and be sure to check out our previous Neg Reg coverage for more information. 

 

Publication Date: 5/20/2014


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