Department of Education issues new rules for PLUS loan credit checks

Posted on Jan 28, 2015

A client of mine in Houston called me recently and said that his son was responsible for a student loan that he (the client) had taken out. After I questioned him a bit more, it turned out that it was a Parent PLUS loan that my client was 100% responsible for repaying.

I'm sure from what the client said that there was an agreement that the son was going to repay the loan, but that doesn't change the fact that the Department of Education (DOE) will look to the father (my client) for repayment, not the son.

Anyway, one of the requirements for borrowing a PLUS loan is that the borrower not have an "adverse credit history." The DOE has just made "credit check" requirements in effect earlier than expected, on March 29, 2015.

The new rules say that the Department will consider whether an applicant has an adverse credit history if the prospective borrower:

1. has one or more debts with a total outstanding balance greater than $2,085;

2. has debts that are 90 or more days delinquent as of the date of the credit report; or

3. has debts 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

4. 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. 

The lack of a credit history won't keep someone from qualifying for a PLUS loan. Also an applicant may still qualify for a PLUS loan even if they have adverse credit histories, if they can obtain an endorser (co-signer) who does not have an adverse credit history, or prove to the DOE's satisfaction that there are extenuating circumstances.

These new rules sound good to me, because I don't want my clients getting in debt up to their eyeballs to send their children to college. On the other hand, it is bound to cause a lot of consternation to those with credit issues including parents who are trying to put together enough money to send their kids to college, and graduate students trying to get that advanced degree.

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