Unlike other federal student loans, there is a “credit check” requirement for both parent and graduate/professional PLUS loans. The “credit check” basically requires that PLUS loan borrowers show that they do not have adverse credit histories.
There has been considerable controversy about how to define an “adverse credit history.” After a lot of back and forth, the Department made changes to this definition in 2014 and recently announced that those changes will go into effect earlier than expected–March 29, 2015.
The recent changes came about after the Department decided in 2011 to tighten the PLUS loan credit standards without new regulations. PLUS loan denials increased dramatically at certain schools after the Department tightened the adverse credit category, including at many historically black colleges and universities (HBCUs). The HBCUs and their allies fought the change. This public push by the HBCUs obscured the fact that the for-profit education sector was hit hardest by the changes.
The Department’s actions in 2011 appeared to stem from understandable concern about PLUS loan borrowing and delinquency rates. The reality is that PLUS loans can be dangerous products, with higher interest rates than other federal student loans and fewer flexible repayment options. New America issued a report in 2014 focusing on the “parent PLUS loan crisis.”
Despite these dangers, the Department ultimately made only modest changes to the credit check rules. The Department recently announced that these new rules will go into effect early—on March 29, 2015.
Under current rules, “adverse credit history” means that as of the date of the credit report, the PLUS loan applicant–
(1) Is 90 or more days delinquent on any debt; or
(2) Has been the subject of a default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off of a debt under title IV of the Act during the five years preceding the date of the credit report.
Under the new rules effective March 29, in determining whether there is an adverse credit history, the Department will consider whether the applicant has one or more debts with a total outstanding balance greater than $2,085, debts that are 90 or more days delinquent as of the date of the credit report, or that have been placed in collection or charged off as defined in the regulations during the two year preceding the date of the credit report, OR if the applicant has been the subject of a default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off of a federal student loan debt during the five years preceding the date of the credit report. This last category is the same as the current regulation.
