Jerry Shelton, acting assistant secretary of the U.S. Department of Education, said “we’re already very sensitized to what impact” the new PPL credit criteria has had.
The Parent PLUS loan (PPL) program crisis shaking many of the nation’s colleges and universities today started in 2010 as a small, “routine” and “technical” change in the credit criteria for loan applicants to the increasingly popular program, say federal officials now wrestling with the unexpected loan denial fallout from college officials across the country.
The “routine” changes resulted in parents of thousands of students being unable to qualify for loans to support tuition for their children in the fall of 2012.
University officials across the higher education landscape fear the pattern will be the same, or worsen, for the coming school year.
In addition to derailing college plans for thousands of students across the country, the new credit rules have cost scores of colleges and universities millions of dollars in anticipated student tuition revenue, much of which they say they have not been able to replace with other sources of funds.
“We’re already very sensitized to what impact this has had,” said Jerry Shelton, acting assistant secretary of the U.S. Department of Education, the federal department that controls the Federal Student Aid loan programs including Parent PLUS loans.
“We’re also trying to figure if there should be changes in the rules,” said Shelton who a month ago took responsibility for the Federal Student Aid office as part of a new department assignment.
Shelton said his office has no quick fix that will address the outcry of complaints about the adverse impact families and institutions say the new rules are having. At the same time he issued a strong call for families that had PPL loans before the new rules took effect to seek reconsideration, if they have since been denied a PPL loan.
“I can’t say anyone is grandfathered,” said Shelton, referring to the long-established rule of governments at all levels of allowing writing many regulations and laws in a manner that makes them forward looking only, not retroactive. In the PPL revisions, the agency made the added rules apply to all applicants—new and existing.
“I can say anyone who had a loan before the new rules took effect and was denied a loan afterward has a high probability of being approved, if they apply for reconsideration,” said Shelton. ”The department wants to make sure all students have “a school option.”
As Shelton and his colleagues weigh what course of action they will take to address the PPL issues, activists in the higher education community are increasingly hinting they may seek help from a “third party,” probably the federal courts, if the Department of Education offers no relief soon as institutions prepare for the 2013-14 school year.
As the debate between colleges and federal officials intensifies, more information is emerging about the roots of the controversy.
The PPL program, which in the past decade had lending rules as flexible as those that allowed home loans to flow so freely before the nation’s economy collapsed in a sea of bad home loans, has grown significantly during the same period. That policy helped thousands of families to secure unlimited amounts of money to help their children get into almost any institution in the country. Its appeal has always been the ease of getting the PPL loan and the fact there are no caps on the amount that can be borrowed.
The government charges 7.4 percent interest on Parent PLUS loans and imposes a loan origination fee that is deducted from the loan amount when the loan is approved. Unlike some other student loans, repayment of a PPL loan begins immediately.
In the midst of the nation’s economic collapse, one that saw thousands of middle-income families lose their jobs, homes and savings, a “mid-level” group of Department of Education officials in the Federal Student Aid group office decided at a regular meeting in 2010 to adjust the PPL program’s “adverse credit history” criteria so they more closely mirrored those of other federal student loan programs.
It could not be determined what pros and cons were considered in their discussions. Still, rather than put a cap on loan amounts, a move that would cause quite an immediate stir, the officials decided to change the technical rules governing the program by adding two criteria. Those changes tightened the loan rules, making it significantly harder to qualify.
Starting in 2012, the agency managers decided, the agency would take into consideration whether an applicant had any unpaid debts charged off by a creditor in the past five years. It would also examine whether an applicant had any debts in “collection” status in the past five years.
Since the proposed changes appeared “routine” and were considered “technical,” the staffers conducted no impact study. The changes were not questioned by any higher-ups in the department. Soon after that meeting, the agency issued a standard “change order,” to which there was nothing beyond routine acknowledgement from recipients inside the department or affected colleges.
“They (the FSA office) didn’t run any numbers to see if it was going to be a big deal,” said a department official who refused to speak for attribution. “No one realized what the implications would be.”
At a November 2011 national meeting in Las Vegas of college and university student loan officers, the federal officials noted the change as part of a routine update and review of student loan program rules and regulations. Again, there was no backlash to the notice.
It wasn’t until the spring of 2012, when the government began applying the new rules across the board, that the first signs of trouble began to emerge. A few institutions began seeing a sharp rise in application denials. Federal officials decided the early alarms were “not enough for red flags.”
The alarms did not go full blast until late last summer. By then thousands of families, including many that had qualified for Parent PLUS loans in the past, were receiving loan denial notices. In some cases at some institutions, the denial rate was running in excess of 75 percent.
Soon, widely known and highly regarded institutions like Howard and Hampton universities and dozens of their smaller peers were calling the Department of Education questioning why the government had taken the action it did and whether anyone in Washington realized the adverse impact the PPL changes were having on the local level, especially at historically Black colleges and universities (HBCUs).
Howard, for example, saw hundreds of its students in a sudden quandary that suddenly cost the institution some $8 million in anticipated income. Hampton lost some $6 million in anticipated income via PPL loan denials to families that had registered their children to attend the Virginia institution.
The story was much the same at dozens of other institutions—from Morehouse College, the prestigious men’s college, to Florida A & M University, one of the nation’s largest public historically Black colleges, to North Carolina Central University and its peers along the East Coast.
Shelton said he can’t speculate why the new credit criteria had such an adverse impact on so many people, while acknowledging that a “down economy” such as that of the past few years could be a culprit.
He said the department is doing what it can, short of putting the new rules on hold or rolling them back to pre-2012 status to “make students have a school opportunity.”
The agency is making “every effort,” he said, to help get parents who have been declined loans “every chance for reconsideration.”
Shelton said the new efforts include better tracking of PPL experience on a week-to-week basis and proving institutions with more frequent detailed reporting on applications, denials and reconsideration. A telephone hotline has been established for denied parents to call in with questions and to get detailed guidance on loan application reconsideration.
Shelton echoed several higher education activists in expressing concern that the widespread discord over the program may have already done some irreparable damage.
“There definitely is some confusion and misunderstanding about this change,” said Shelton. “The noise is going to drive down applications because people think they can’t be approved.”
Crisis? Since when is it a crisis to deny loans to individuals who are not qualified or prepared to repay the debt??? If you’re interested in a real crisis, start tracking the PPL defaults that will soon begin to skyrocket, particularly on loans made since Congress nationalized federal student lending. Does anyone remember the great recession that happened a few minutes ago? If not, here’s a root cause summary: too many people with subprime credit borrowed huge mortgages whose terms they did not fully understand and, eventually, could not repay. Net result: economic implosion.
So, why would anyone in good conscious advocate for a repeat, albeit in a different type of loan program? The federal PPL is already one of the easiest consumer loans to be approved for: no income requirements, no employment history, no minimum credit score, no maximum debt-to-income ratio, no collateral…how much more lenient do you want the approval process to be?!?
Here’s the bottom line: if someone is denied a Parent PLUS Loan, that means he/she is a horrible credit risk! Plain and simple. And since John Q. Taxpayer is responsible for the defaults on federal student-parent loans, we should not be entertaining a single thought of making PPL approvals easier to obtain.
The PPL was/is a taxpayer funded cash cow from which many colleges and universities are simply unwilling to wean themselves from. They want a never-ending flow of federal parent loan dollars without the burden or responsibility of ensuring the actual loan recipients are qualified borrowers who are willing and able to repay their debt. Certain leaders in higher education are quick to point to their loss of revenue, but they dare not utter a word about the rate at which their parent loan borrowers default or the actual taxpayer dollars associated with those bad loans.
These leaders need to accept this painful truth: anyone denied for a federal parent loan – at any school – should not be borrowing, period. Your declining income is no justification for greasing the wheels of what is already a subprime federal lending program. Doing so, in no uncertain terms, would be the real crisis. Perhaps your institutions should be on the hook for your bad parent loans. If so, you might look at this issue in the correct, objective light. It’s downright appalling to expect me to be on the hook for any more.
On the hook
July 22, 2013 at 1:34 pm
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Should social and emotional learning be incorporated into educational curricula?