Posted Date: January 27, 2015

Author:  Lynn Mahaffie, Acting Assistant Secretary, Office of Postsecondary Education

Subject: Early Implementation of Changes in Regulations on Adverse Credit History Under the Direct PLUS Loan Program

On October 23, 2014, the Secretary published in the Federal Register final regulations that change the adverse credit history provisions in the Direct PLUS Loan Program.  In the preamble to those regulations, the Secretary stated the Department's intent to implement the new regulations as soon as possible.  In a January 14, 2015, Federal Register notice, the Secretary announced that the new Direct PLUS Loan regulations will be implemented on March 29, 2015.  The new standards and procedures relating to adverse credit history will apply to all PLUS Loan credit checks conducted on or after March 29, 2015, regardless of the loan period of the PLUS Loan or which Common Origination and Disbursement (COD) System version is used by an institution to originate the PLUS Loan.

The October 23, 2014 regulations provide that a PLUS loan applicant (either a parent or a graduate or professional student) has an adverse credit history if, in addition to other conditions (e.g., bankruptcy, foreclosure, tax lien, or a default determination), the applicant has one or more debts that are 90 or more days delinquent or that are in collection or have been charged off during the two years preceding the date of the applicant’s credit report, but only if the total combined outstanding balance of those debts is greater than $2,085.  Thus, absent any other adverse credit history finding a PLUS Loan applicant whose credit check shows that the total of any debts that are 90 or more days delinquent or that have been placed in collection or charged off is $2,085 or less will not be considered to have adverse credit and therefore, will be eligible for a PLUS Loan.

Also, beginning on March 29, 2015, the Secretary will implement the new regulatory provision that requires special loan counseling for any PLUS Loan applicant who has an adverse credit history but who qualifies for a PLUS Loan through the process for reconsideration due to extenuating circumstances or by obtaining an endorser for the loan.  While the counseling is mandatory only for these borrowers, the Department will offer voluntary counseling for all PLUS Loan borrowers.  Note that this special PLUS Loan counseling is separate and distinct from the PLUS Loan entrance counseling that all graduate and professional student PLUS Loan borrowers must complete   [see CFR 685.304(a)(2)]. 

In addition to these counseling provisions, the Department provides extensive consumer information on all of the Title IV student aid programs, including the PLUS Loan program for parents and graduate and professional students.  For the PLUS Loan Program this includes information on borrower eligibility, repayment requirements and options, and interest rates.  It also includes repayment calculators where the borrower can get an estimate of monthly repayment amounts.

Finally, as announced in the preamble to the final regulations, the Department will modify its procedures so that a credit check for a PLUS Loan applicant will remain valid for 180 days, instead of the current 90 days.  This change will also be implemented on March 29, 2015.

These Questions and Answers (Q&As) describe the impact of the new provisions on Direct PLUS Loan applicants.

Q1: What will be the difference between a PLUS Loan credit check conducted prior to March 29, 2015, and one conducted on or after that date?

A1: Under current procedures, among other conditions (e.g., bankruptcy, foreclosure, tax lien, or a default determination) a PLUS Loan applicant is determined to have an adverse credit history if the applicant has debts that are 90 or more days delinquent or that have been placed in collection or charged off during the five years preceding the date of the credit report, without regard to the amount of those debts. Those applicants can then request reconsideration through the extenuating circumstances process or obtain an endorser.  The Department currently uses the $2,085 limitation discussed above in an automatic review of a PLUS Loan applicant’s request for consideration of extenuating circumstances.  The Department will continue to use that amount in the extenuating circumstances review process until March 29, 2015.

Under the new provisions that will be in place for any PLUS Loan credit check conducted on or after March 29, 2015, an applicant will be determined to have an adverse credit history if the total combined outstanding balance of the debts, including debts in collection or charged off during the two years preceding the date of the credit report, is greater than $2,085. 

Q2: To what academic periods and loan periods will the new adverse credit history standards that will be implemented on March 29, 2015 apply?

A2: The new standards will apply to all PLUS Loan credit checks conducted on or after March 29, 2015, regardless of the academic period or loan period of the PLUS Loan.  Results of a credit check conducted on or after March 29, 2015, will be used for a PLUS Loan intended not only for the upcoming 2015-2016 school year, but also for a late Spring 2015 or Summer 2015 application.  For late 2015-2016 school year applicants, the new provisions will be used for a loan intended for a Spring 2015 term and for a Summer 2015 term.

Q3: What is the impact of the new adverse credit history standards on PLUS Loans for the 2014-2015 academic year, including for a Spring 2015 term, if the credit check occurred prior to March 29, 2015?

A3: There is no impact on the eligibility of a borrower who had previously been approved to receive a PLUS Loan for all or part of the 2014-2015 academic year, including the Spring 2015 and/or Summer 2015 terms.   However, an applicant who was denied a PLUS Loan because of an adverse credit history determination made prior to March 29, 2015, may have another credit check performed under the new standards by completing a Direct PLUS Loan Request on the StudentLoans.gov website, or by submitting a request to the postsecondary institution the student is or will be attending.

Q4: What action can a PLUS Loan applicant take if the loan is needed before the end of March and the credit check performed under the old standards resulted in or will result in a determination of an adverse credit history?

A4: If the only reason for the adverse credit history determination is that the total amount of debt that is equal to or less than $2,085 was delinquent or in collection or written off, the applicant will receive special instructions that provide an expedited method for requesting reconsideration and have the loan approved almost immediately.  When the adverse credit history determination is due to other reasons, the applicant is informed that he or she may obtain an endorser or request reconsideration through the extenuating circumstances process.

Q5: What can a PLUS Loan applicant do if the results of a post-March 28, 2015 credit check resulted in a determination of an adverse credit history?

A5: If applicants receive an adverse credit history determination through the new credit check process, they can either obtain an endorser or request reconsideration through the extenuating circumstances process.   In either case, applicants will be required to complete the special PLUS Loan Counseling on the Department’s StudentLoans.gov website.

   

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