College Affordability

The Parent Trap

  • By
  • Rachel Fishman,
  • New America Foundation
January 8, 2014

In fall 2011, the U.S. Department of Education quietly tightened the credit check criteria for Parent PLUS loans, a federal program that provides loans to parents to send their children to college above and beyond the federal loans available to students. As a result, many families and higher education institutions were shocked to find that parents approved for the loan one year were suddenly denied the next. Students in the middle of their academic careers found themselves scrambling to cover a much larger portion of their bill upfront.

Should Secretary Duncan Apologize to For-Profits for Parent PLUS Loan Debacle?

October 9, 2013
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This blog post is the fourth part in a series that takes a look at recent changes to the credit criteria for Parent PLUS loans and the subsequent effect on colleges and universities. You can find the rest of the series here.

Since making relatively minor changes to the credit check requirements for Parent PLUS loans last year, the Department of Education has been under a firestorm of criticism from historically black colleges and universities (HBCUs) and their lobbying organization, the National Association for Equal Opportunity (NAFEO). According to HBCUs, the impact of the policy change caused a significant decline in enrollments and a huge loss in revenue for their institutions. In an effort to ease tensions, Education Secretary Arne Duncan recently apologized to HBCU leaders at their annual meeting saying, “I am not satisfied with the way we handled the updating and changes to the PLUS loan program. Communication internally and externally was poor. I apologize for that, and the real impact it had.”

But if Secretary Duncan really wanted to apologize to the colleges most affected by the change to Parent PLUS loans, he should have been talking to for-profit colleges, not HBCUs. After all, since the policy change was implemented two years ago, for-profits have lost approximately $790 million dollars more than HBCUs in PLUS disbursements. Why is that? The for-profit sector has a much higher percentage of Parent PLUS borrowers than at HBCUs.

Using recently released data from the U.S. Department of Education’s Office of Federal Student Aid (FSA), I analyzed Parent PLUS loan data from pre-recession 2006 to 2013. From 2009 to 2011, both for-profits and HBCUs saw huge increases in recipients (approximately 50,000 and 15,000 more recipients respectively) and disbursements (approximately $450 million and $156 million respectively). This was the peak of the recession, at a time when family net worth diminished while college prices soared. Parents turned to PLUS loans to help send their children to higher-priced colleges that could not or would not help them fill the gap with institutional aid.

 
 

However, since the change to the credit check, both sectors saw huge declines in recipients and disbursements (Tables 1 and 2). From 2011 to 2013, HBCUs experienced a 45 percent decline in PLUS borrowers and a 27 percent decline in PLUS disbursements. The for-profits experienced a much starker decline over the same period. At for-profits, PLUS loan borrowers and disbursements declined 54 percent. In addition, while HBCUs experienced a decline in PLUS recipients over the past five years, their disbursements increased 14 percent. Meanwhile, the for-profit sector experienced a five-year 30 percent decline in recipients and a 33 percent decline in disbursements.

What’s most startling is the overrepresentation of Parent PLUS borrowers at for-profits compared with HBCUs (see Chart 3 and Table 3).2 While HBCUs have been the most vocal opponents of the changes to PLUS loans, they actually make up a very small share of volume in the program. Approximately 2 percent of undergraduates are in HBCUs and these institutions represent between 3 and 4 percent of PLUS borrowers. The data from for-profit institutions, however, show a larger overrepresentation. From 2006 to 2011, the share of for-profit enrollments fluctuated from 7 to 11 percent, but accounted for 16 to 18 percent of total Parent PLUS loan recipients. In other words, Parent PLUS borrowers at for-profit colleges were almost 1.7 times overrepresented compared to their share of enrollment. That’s incredible considering that normally for-profit institutions have been seen as catering to the needs of adult, “nontraditional,” independent students who don’t qualify for Parent PLUS loans. It seems that there are quite a few traditionally-aged, dependent students attending for-profit institutions, and it’s costing their families a lot of borrowed money.

 

So why aren’t the for-profits crying foul? One reason may be that they are letting HBCUs do it for them. For-profits know that they have been criticized for saddling students with unmanageable debt, and know that complaints about lost revenue from high-cost loans are unlikely to receive a sympathetic ear from the Obama Administration, Congress, or the media. By contrast, HBCUs have strong political connections through the Congressional Black Caucus, a White House initiative located within the Department of Education, and a generally sympathetic ear from the Obama Administration, which secured a total of $850 million from 2010 through 2019 in additional formula money for HBCUs.

So by letting HBCUs make the PLUS loan changes a racially-charged issue, for-profits are able to let a politically popular group seek out changes to the credit check that will help all borrowers, regardless of the institution type. But this approach loses sight of the bigger issue—PLUS loans provide large amounts of intergenerational, inflexible debt to families who may be unable to pay that money back.  And continuing to present the issue in terms of revenue lost to schools allows high-cost institutions (especially for-profit institutions) avoid the real issue, which is that their high tuition—enabled by parent PLUS loans—is pricing students out of an affordable education.

Arne Duncan shouldn’t have to apologize to anyone for making a policy change meant to protect students and families. But if he has to apologize to HBCUs, it’s only fair that he apologize to the for-profits as well.

 

1Also worth noting during this time period was the transition to full Direct lending. Before July 2010, federal loans could be made under two programs—Direct and the Federal Family Education Loan (FFEL) program. The change to Direct Lending saved the government money by cutting out subsidies to loan middlemen. However when the change was made, the number of Parent PLUS loan approvals increased due in part to a discrepancy between how the Education Department defined adverse credit compared with FFEL lenders. In October 2011, the Education Department changed its definition of adverse credit slightly to match what it was under the FFEL program. 

2Note that the data on enrollment from 2012 and 2013, during which time for-profit enrollment dropped significantly, are not yet available so we will have to wait to see how both sectors’ share of enrollments and recipients changed during those two years.

Edited 10/9/2013 at 1:17pm to change title.
Edited 1/10/2014 at 1:18pm to change the over/under representation data.

Zero Education Debt: The Promise of Income Share Agreements

October 8, 2013
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Last Friday, the New America Foundation’s Education Policy Program, in partnership with the Lumina Foundation, hosted a “Zero Education Debt” event. Panelists looked at the concept of Income Share Agreements (ISA), a new financial vehicle in which a student completes school with no loans and no debt, but instead agrees to pay an investor (or the government) back a set share of his income for a set number of years.

We started off the event with comments from Jamie Merisotis, president of the Lumina Foundation. Merisotis helped contextualize the topic with a much larger question: how to provide students with access to a high quality, low cost education. New America’s Alex Holt then presented a theoretical framework of Income Share Agreements and where they fit into the existing higher education financial system.

Panel One: Implementing Income Share Agreements

Our first panel focused on practitioners – people who are attempting to implement these plans. The panelists included people implementing plans both in the private market and also via the government. The discussion was lively, with John Burbank, Executive Director of the Economic Opportunity Institute, defending the proposed Oregon Pay It Forward program that he helped to develop. That plan would be a publicly funded one – the first in the U.S.

Others on the panel discussed alternate arrangements for private Income Share Agreements. We had representatives from the major existing private ISA providers: Dave Girouard of Upstart; Tonio DeSorrento, formerly of Pave; Miguel Palacios of Lumni; and Gordon Taylor of 13th Avenue Funding.

Panel Two: Are Income Share Agreements Viable?

The second panel, moderated by Zakiya Smith of the Lumina Foundation, had a more focused policy perspective. Michelle Asha Cooper of the Institute for Higher Education Policy started the session off with a healthy dose of skepticism towards these plans, pointing out that the higher education policy community tends to “become fixated on the next big thing” and offering some concerns of some unintended consequences.

Miguel Palacios, professor at Vanderbilt and cofounder of Lumni, and Alex Holt of the New America Foundation both had a more optimistic outlook towards ISAs, arguing their potential to inject consumer certainty and price signaling into the higher education market. Rohit Chopra of the Consumer Financial Protection Bureau added the unique perspective of a regulator in the space, asking some very useful questions for the audience and the panel to think over.

Given the lively debate from the panels and terrific questions from the audience, we hope this will be the first of many discussions on the topic of Income Share Agreements. Check back with the New America Foundation’s Ed Money Watch and Higher Ed Watch blogs as the debate continues.

Merit Aid: Not Just for the Middle Class

October 3, 2013

Supporters of “merit aid” often defend it as being a middle class benefit. When articles appear that are critical of non-need-based financial aid, they are typically greeted with responses such as this (taken from a forum on College Confidential):

I think that it is ridiculous to cut merit aid. The middle class will be in even more of a bind. The only reason I will be able to afford to go to a good school is if I get merit aid. I'm in the typical middle class FA situation- too "rich" to get FA but too poor to afford college.

Newly-released data by the U.S. Department of Education's National Center for Education Statistics (NCES) show that a student’s chances of receiving merit aid increases as his or her family’s income rises. In fact, students from families making more than $250,000 a year are more likely to receive merit aid than those making less than half of that.

The data in question come from the latest edition of the National Postsecondary Student Aid Study (NPSAS), a nationwide survey of college students that the NCES conducts every four years. The survey provides the most comprehensive information available on how students and their families pay for college.

Overall, one in five students with family incomes of over $250,000 a year obtained merit aid from their colleges in the 2011-12 academic year. That’s compared to about one in seven students from families that make between $30,000 and $65,000, and one in six from families with annual incomes between $65,000 and $105,000.

These results are not entirely surprising. As I’ve written in the past, four-year colleges, both public and private, are increasingly using their institutional aid dollars to compete for students who can otherwise pay full freight. This strategy has been particularly appealing to public colleges and universities of late as a way to make up for declining support from their states.

Indiana University professor Donald Hossler, who served as IU’s vice chancellor for enrollment services for many years, recently explained this strategy to ProPublica. “One of my charges was to go after what I would call pretty good out-of state students,” he said. “Not valedictorians, not the top of the class. Students who you didn’t have to give thousands and thousands of dollars to in order to get them to enroll.”

It’s certainly true that students from middle-income families are benefiting from merit aid. But that shouldn’t obscure the fact that a significant share of recipients are coming from very wealthy families who can certainly afford to send their children to college without the help.

Event Series at the University of Kansas on Poverty, Assets, and the American Dream

September 6, 2013

The University of Kansas School of Social Welfare, the Assets and Education Initiative (AEDI), and the KU Social Work Administration and Advocacy Practice are convening a series of events over the next few months about the interplay of assets with upward economic and social mobility. Learn more about the series and RSVP for the first event here.

The first event kicks off next week on September 11 at the University of Kansas. Keynote speaker Dr. Mark Rank, a widely-recognized expert on poverty and inequality, will be discussing his research, including a finding that nearly 60 percent of Americans experience poverty at some point between the ages of 20 and 75. His talk, and the panel discussion to follow, will examine why poverty is portrayed as an individual failing despite its prevalence and structural origins, and how institutions can support (or stop hindering) upward economic mobility. 

Check out the details for Wednesday's event below and make a note of the dates of forthcoming events. In particular, note that our Senior Research Fellow, William Elliott, will be speaking at the November event about his work on improving children's educational outcomes through access to savings. The early 2014 events will feature Tom Shapiro, whose work with the Institute on Assets and Social Policy has greatly informed the national conversation on the causes of racial wealth disparities, and Michael Sherraden, whose work laid the earliest foundations of the asset building field.

The series will be available on livestream for those not able to travel to the Lawrence, Kansas area.

The Ed Dept.'s New Proposed Language for Gainful Employment is Out. Here's What You Need to Know

August 30, 2013

With a little bit more than a week until the next round of negotiated rulemaking on gainful employment kicks off on Sept. 9, the U.S. Department of Education today released its initial proposal for the new rule along with reams of supporting data. Higher Ed Watch will be digging into this information over the coming days, but here's what you need to know right now.

President Obama Aims to "Shake Things Up" in Higher Ed

August 23, 2013
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When President Obama said he was going to “shake things up” in higher education just under a month ago, many of us didn’t really believe it, fatigued from lofty presidential promises that failed to go anywhere due to Congressional gridlock and the effective workings of the higher education lobby. Well, we were wrong. This week he revealed his bold new vision for higher education that will focus on three key areas: paying for performance, promoting innovation and competition, and ensuring that student debt remains affordable. The first priority—paying for performance—could be the most ambitious reform to higher education funding since the creation of federal financial aid.

Speaking to a large crowd of mostly college students at SUNY Buffalo, Obama explained, “Our first priority is aimed at providing better value for students -- making sure that families and taxpayers are getting what we pay for.  Today, I’m directing Arne Duncan, our Secretary of Education, to lead an effort to develop a new ratings system for America’s colleges before the 2015 college year.”  

A ratings system based on college performance across the dimensions of access, affordability, and outcomes would be a welcome alternative to input- and prestige-focused rankings. In his speech, the president called out the much-derided (but much-used) US News and World Report rankings:  

Right now, US News and World Report puts out their rankings [each year], and it encourages a lot of colleges to focus on ways to…game the numbers, and it actually rewards them, in some cases, for raising costs.  I think we should rate colleges based on opportunity.  Are they helping students from all kinds of backgrounds succeed, ...on outcomes, on their value to students and parents? 

Even if the president had stopped with the creation of a new ratings system, this would have been big news and a huge step because it doesn’t require congressional approval, making it harder for the education lobby to thwart. But he didn’t stop there. He challenged the way that federal financial aid dollars are allocated by proposing that they be based on these outcomes-focused ratings, rather than enrollments (examples from the White House fact sheet include providing larger Pell grants or more affordable federal student loans to students at high-performing colleges).   

Last year, when the president proposed tying just a small portion of federal campus-based financial aid dollars (i.e. Perkins loans, federal work-study) to “value” in his State of the Union, the higher education lobby cried foul—stating that the proposal was both: 1) Too small to matter; and 2) Too large a federal intrusion. Given that the president just proposed tying a much larger pot of money to outcomes—Title IV aid that is the lifeblood of most institutions of higher education—perhaps he agreed that his first attempt was too modest. But he clearly disagrees that this is too large a federal intrusion, and said as much in his speech:

And I’ve got to tell you ahead of time, these reforms won’t be popular with everybody, especially those who are making out just fine under the current system.  But my main concern is not with those institutions; my main concern is the students those institutions are there to serve…It is time to stop subsidizing schools that are not producing good results, and reward schools that deliver for American students and our future.

We couldn’t agree more. And we’re glad that our (low) expectations for the speech were mistaken. A rating system is coming. One that will be created after much careful consideration and participation with stakeholders and one that we hope is based on much better data that focus on access, affordability, and outcomes. Once this happens, students, families, and taxpayers will have a better understanding of the value of specific institutions, and Congress will no longer be able to ignore the good and bad actors the ratings reveal. Instead, lawmakers will know where money should be focused to get the most bang-for-the-constituent-buck.

Stay tuned in the coming days for more analysis of the White House proposal.

CHEAT SHEET: President Obama’s Higher Ed Plan: What Requires Congressional Approval?

August 22, 2013

We’ve been getting a lot of questions about what in President Obama’s higher education proposal requires Congressional approval. We’ve made this cheat sheet to give you a quick and dirty look. This is not meant to be exhaustive. Instead, it’s a straightforward way to evaluate what the President has power to do while clarifying some important requirements.

As an added benefit, the cheat sheet follows each point in the White House fact sheet on the President’s plan to make college more affordable. It’s available as a picture, Excel spreadsheet, and PDF for your convenience.

And if it isn’t obvious, green means President Obama has the go-ahead. Red means stop for Congressional gridlock. 

Click on image to enlarge it.

Stay tuned in the coming days for more analysis of the White House proposal.

Edited 8/22/2013 to add a note to "Make all borrowers eligible for Pay-As-You-Earn (PAYE)"

Obama Education Plan and New America Research

August 22, 2013
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President Obama today announced a bold new plan for higher education that aims to make college more affordable. Many of the features of the Obama plan have been the subject of research and analysis by the New America Foundation’s Education Policy Program in the recent past. This blog post sets out how New America’s research links with, and can help to shape, the current round of higher education reform efforts. It is our hope that our readers will find it a helpful resource.

This post closely aligns with the White House’s fact sheet on the President’s plan to make college more affordable. 

Paying for Performance

Policy 1. Tie financial aid to college value

What New America has said: “Colleges have traditionally received federal financial aid with few strings attached. In order to create new accountability mechanisms for improving data collection and to require colleges to provide more information about their success in serving students, we would hold colleges accountable for quality and affordability by extending broad accountability metrics to all higher education institutions.” (January 2013 report, Rebalancing Resources and Incentives in Federal Aid)

Policy 2. Challenge states to fund public colleges based on performance

What New America has said: "With the economy stuck in neutral, tuition prices and student loan debt skyrocketing, and parents and students increasingly questioning the value of a college degree, our public institutions urgently need a different approach to the challenge of educating an increasingly diverse mix of students at a reasonable cost. For this reason at the national level, there should be a competitive grant program, like Race to the Top for Higher Education, that challenges public higher education institutions to innovate." (May 2013 report, The Next Generation University)

Policy 3. Hold students and colleges receiving student aid responsible for making progress toward a degree

What New America has said: “One area ripe for experimentation is how colleges disburse federal student aid. Financial aid is typically distributed in one or two lump sums, which may work well for students attending traditional four-year colleges that generally require large upfront payments from students and their families. But in cases where the primary costs students face are not large upfront payments, but more regular, ongoing costs of living, it may be counterproductive to distribute aid in one or two large disbursements… Changing aid delivery to smaller, more regular disbursements at low-cost institutions could provide these students with more reliable income, create greater incentives to persist, and protect students who have to withdraw during the semester from having to pay back large amounts of aid.” (January 2013 report, Rebalancing Resources and Incentives in Federal Aid)

Promoting Innovation and Competition

Policy 4. Challenge colleges to offer students a greater range of affordable, high-quality options than they do today

What New America has said: “In an era when college degrees are simultaneously becoming more important and more expensive, students and taxpayers can no longer afford to pay for time and little or no evidence of learning. Federal policy should encourage traditional institutions to think differently about how they deliver and award credit for learning and also create a space for nontraditional institutions and organizations to prove their ability to help students achieve real, objectively verified learning outcomes.” (September 2012 report, Cracking the Credit Hour)

What New America has said: “At a time when a higher education is more important to individual and collective prosperity than ever before, students need online courses and degree programs that are effective, affordable, and grounded in public values. A State U Online model is achievable, but only if states and higher education institutions work together to share their resources and reduce barriers that prevent students from moving seamlessly through the system – credits in hand.” (April 2013 report, State U Online)

Policy 5. Give consumers clear, transparent information on college performance to help them make the decisions that work best for them.

What New America has said: “One of our biggest concerns with government consumer information tools is the assumption that students and families already have enough knowledge about higher education to understand what they are seeing. Higher education involves a lot of jargon. What does default mean? What is a 10-year repayment plan? What is a federal student loan? The [existing] Scorecard misses an opportunity here to raise overall higher education “literacy” for families.” (April 2013 blog post, “New College Scorecard: Will Students Use It?”)

Policy 6. Encourage innovation by stripping away unnecessary regulations.

What New America has said: “Higher education generally suffers from a lack of rigorous experimentation, both in terms of practice and policy. Federal financial aid is no exception...Fortunately, the ability to conduct such evaluations already exists, thanks to legislation passed in 1992. The Experimental Sites Initiative (ESI) allows the Department to waive regulatory and/or statutory financial aid requirements for a small, voluntary group of institutions to reduce burden, improve delivery of aid, or “otherwise benefit” students.” (January 2013 report, Rebalancing Resources and Incentives in Federal Student Aid)

Ensuring that Student Debt Remains Affordable

Policy 7. Help ensure borrowers can afford their federal student loan debt by allowing all borrowers to cap their payments at 10 percent of their monthly income.

What New America has said: “A redesigned federal student loan program would substantially reduce the dangers of borrowing by offering a single repayment plan that is similar to both the ‘Pay-As-You-Earn’ plan that the U.S. Department of Education recently enacted (which itself is meant to mimic a plan in statute set to take effect in 2014) and the income-based repayment plan that was enacted in 2007. Under this proposal, all borrowers would repay their loans as a percentage of their income. Such a system would recognize that some people will never earn enough to fully repay their debt, no matter how earnestly they try.” (January 2013 report, Rebalancing Resources and Incentives in Federal Aid)

Policy 8. Reach out to struggling borrowers to ensure that they are aware of the flexible options available to help them to repay their debt.

What New America has said: “Figuring out how to pay for college is a seriously complex process. Students need to be aware of the terms and conditions of their loans before they sign their promissory notes. But we can’t be complacent in thinking that all students are coming from the same place and have the same general understanding of student loans. For many students and families, a student loan is their first loan, and their unfamiliarity with loan vocabulary will add further mystery to an already opaque process. More needs to be done to educate borrowers about financial aid.” (June 2012 blog post, “What Borrowers Don’t Understand About Student Loans May Hurt Them”) 

Stay tuned in the coming days for more analysis of the White House proposal.

The Ed Department Blinks on Parent PLUS Loans

August 16, 2013
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This blog post is the third part in a series that takes a look at recent changes to the credit criteria for Parent PLUS loans and the subsequent effect on colleges and universities. You can find the introductory post here and the second post here.

For nearly a year the Department of Education has been under a firestorm of criticism from the Historically Black College and University (HBCU) community and its advocates over changes to the PLUS loan program that they say reduced revenue and enrollment at these institutions.According to an article yesterday in the Chronicle of Higher Education, the Education Department finally relented and made further accommodations to help more applicants get approved, while promising to rethink the criteria as part of a rulemaking session next spring. But did loosening criteria really solve a national policy problem? Or was it a set of changes to benefit a small subset of institutions, the result of which will mean greater amounts of worse debt for families?

The Department’s changes were outlined in a letter to Rep. Marcia Fudge (D-Ohio), the Chair of the Congressional Black Caucus. In it Education Secretary Arne Duncan wrote that, the Department would more than double the size of debt it considers to be “de minimis,” allowing rejected borrowers with larger debts of any type to be approved through an appeals process. "We believe this may help families who have relatively small adverse credit events that negatively impact their credit histories, such as unpaid medical debt, parking tickets, or cell phone bills of greater than 90 days duration,” the letter says. 

This is a huge victory for many HBCUs and for-profits, which rely heavily on PLUS loans because they charge relatively high prices, enroll large numbers of low- and moderate-income students, and lack the resources to give out much institutional aid. The losers in this battle are the low- and moderate-income families who will be allowed to borrow up to the cost of attendance of a school, with no regard to whether they have any hope of paying it back. And remember, parent PLUS loans are not eligible for any of the income-based payment plans or forgiveness options nor are they dischargeable in bankruptcy. This means a family making $30,000 a year could borrow more than their salary to send their child to school.

Here are four reasons why it’s a big mistake for the Department to weaken the adverse credit standards for the Parent PLUS loan:

  1. This “patch” fixed a problem that appears to not have existed. According to Secretary Duncan’s letter, 95 percent of students whose parents were initially denied a PLUS loan to enroll in an HBCU ended up still attending an institution of higher education. Many did so with the assistance of the additional $4,000-$5,000 in unsubsidized Stafford loans that students whose parents are denied a PLUS loan are able to borrow.  For students this fall, that additional Stafford debt will carry an interest rate that is 2.55 percentage points lower than what their parents would have paid on a PLUS loan. Losing 5 percent of applicants is not good, but it is far different from the sky is falling outcry.
     
  2. This “fix” screams institutional capture. The Department’s letter provides a possible suggestion as to why it made the change even though this doesn’t appear to be a national problem. It notes that within the 95 percent of students whose parents were denied and still enrolled, 19 percent went somewhere besides the initial HBCU. From a national picture, the story is no different—only 5 percent of students never enrolled. But from the narrow institutional perspective, one-quarter disappeared. The change thus feels less like solving a national problem but rather addressing the concerns of a small subset of institutions.

    But is that even the responsibility of the Department of Education?  Its job is to oversee the broader national interest in education and to help more individuals earn postsecondary credentials. That’s exactly why they made changes to the adverse credit standards for the Parent PLUS loan—the only proxy the Department has to ensure they aren’t saddling parents with debt they won’t be able to pay back. This move makes it seem like the Department is ignoring the broader national interest over the interest of a handful of politically powerful institutions. And what about those students who chose to go elsewhere? Wouldn’t it be worth knowing whether they are actually taking on less debt now?
     
  3. Changes to “de mimimus” credit will allow parents to borrow even though they have financial risk factors. Although we do not know what the “de minimus” amount is, the letter is not clear whether it applies only to collections or charge off or whether all debts will get this tolerance. In the latter case, a parent who is 90 days late with a large credit card charge could borrow nearly unlimited amounts under the PLUS program, even though they’re struggling with debts that never would have been approved prior to the change.
     
  4. We should be concerned about people not paying their cell phone bills. In the letter to Rep. Fudge, Secretary Duncan alluded to the fact that the Education Department wants to help families obtain loans who have small adverse credit events related to things like medical debts or cell phone bills. It’s unclear if this means special treatment for these debts or they will just be covered under the larger de minimis amount, but these types of debt are not equivalent. Unpaid medical debt is a sensible thing to consider, since we don’t want to penalize families who have suffered a sudden financial hardship due to a medical emergency out of their control. But unpaid parking tickets and cellphone bills are arguably not in the same realm of sudden, medical debt and speak to someone who is struggling to pay their regular bills.

It is clear that HBCUs and for-profits have gained inroads in ensuring the Education Department reverts back to the old credit standards for Parent PLUS loans during negotiated rulemaking this spring. Part of the problem is that the Department only has proxy measures to gauge a family’s financial health. So all they can do to ensure families aren’t taking on too much debt is to patch the credit check.

Enough with proxy measures. Instead of small tweaks to a backward-looking credit check, the parent PLUS loan application process should include a forward-looking “Ability to Pay” measure. Adding “Ability to Pay” to the credit check would help protect parents from over-borrowing at whatever cost to send their child to school by looking at parents’ indebtedness (with or without PLUS loans) relative to their earnings. In designing this metric, the Education Department could include exemptions for families who have suffered a sudden and catastrophic financial hardship, such as a medical emergency, that may have affected a parent’s debt to income ratio.

Fortunately, there will be an opportunity to take a reasoned approach to PLUS criteria at the negotiated rulemaking session that is likely to take place next spring. As that process goes on, the Department must not bend to the will of politically strong institutions and go back to where we started. Instead it should make real changes that are transparent and capture the exact financial health of families so that we make sure the very students we are looking to give access to, don’t impoverish their parents just to do so.

Stay tuned to Higher Ed Watch for the continuing coverage of the Parent PLUS loan crisis.


1In order to receive a Parent PLUS loan, applicants cannot have been through certain significant financial conditions in the past five years, such as bankruptcy, foreclosure, or a tax lien. Nor can they have any debts that are more than 90 days past due. In the fall of 2011, the Department began counting accounts whose current status was in collections or charged off as evidence of a debt more than 90 days late and thus grounds for an application being denied. This resulted in a substantial uptick in the number of denied loans, typically at high-cost low-resource institutions like HBCUs and some for-profit colleges. Read more here.

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