Parent PLUS loan denial rates in the Federal Family Education Loan Program (FFELP) were
two times higher than the Parent PLUS loan denial rates in the Direct Loan Program in 2007-08, according to analysis by Mark Kantrowitz, publisher of Finaid.org.
According to Kantrowitz's analysis of National Postsecondary Student Aid Study (NPSAS) data:
- In 2007-08, Parent PLUS loan denial rates were 42% in the FFEL program and 21% in
the DL program.
- In 2003-04, Parent PLUS loan denial rates were 42% in the FFEL program and 26% in
the DL program.
Prospective PLUS loan borrowers can be denied a loan if they have "adverse credit history," defined as:
- borrowers with a default, bankruptcy discharge, foreclosure, repossession, tax lien, or wage garnishment in the last five years on their credit history, or
- borrowers with a current delinquency of 90 or more days on any debt on their credit history.
FFELP PLUS loan denial rates were the same in 2003-04 and 2007-08, while Direct Loan PLUS loan denial rates in the Direct Loan program decreased from 26% in 2003-04 to 21% in 2007-08. Kantrowitz predicts that the ongoing economic turmoil will increase PLUS loan denial rates in both loan programs in 2008-09.
"Anecdotal evidence suggests that several FFEL program lenders are incorrectly implementing
the definition of an adverse credit history by using a five-year lookback for the 90-day
delinquency restriction instead of limiting it to just current 90-day delinquencies," Kantrowitz writes in his analysis. "Since such a five-year lookback on delinquencies would represent a more stringent credit underwriting standard than education lenders use for private student loans, this error would likely lead to a shifting of some borrowers from the PLUS loan to private student loans."
Regulations allow FFELP lenders to establish a more stringent definition of adverse credit history than the criteria outlined in regulation. However, under both the FFEL and DL programs, an applicant cannot be rejected for a PLUS loan because she has no credit history -- i.e., the absence of a credit history cannot be construed as an adverse credit history.
When parents are denied a PLUS loan, their dependent becomes eligible for "exceptional Stafford loan maximum amounts" -- the increased unsubsidized Stafford loan limits available to independent students.
Posted 09/02/09 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web site questions or comments to Web@NASFAA.org.
