A Houston bankruptcy client called me recently and said that his son was responsible for for repaying 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.

From what the client said, 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. 

Not having 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.

Do you think these new rules about PLUS loans are fair? Do you think it should be easier or more difficult to obtain a loan that is basically from the U.S. Government? Do you thing the government should even be involved in making student loans?

J Thomas Black
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Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization
I am not aware of any law that you must be notified if a cosigned loan becomes delinquent. We discourage our clients from cosigning others' loans, under any circumstances. The Texas Attorney General has the following to say about co-signing a loan on his website: "Co-Signing a Loan If you co-sign a loan for someone, you are responsible for the loan if the borrower does not pay. In fact federal law requires the creditor to provide you with a notice explaining that you must guarantee the debt. Therefore if the borrower does not make the payments, you are fully liable for the debt, just as if you had taken out the loan. This means you will have to pay all the money that is owed including late fees and interest. You could also lose any assets you used to secure the loan. If the loan is in default and the creditor sues to collect, you could even be responsible for attorney fees. Further if the creditor turns it over to a collection agency, the collector can pursue you by all legal means to collect the debt. Finally, a cosigned loan could affect your ability to borrow. Other lenders will consider your co-signed loan as part of your total debt load if you apply for another loan. If you co-sign for a loan ask the lender to notify you if the borrower misses a payment. Also keep important documents such as the loan contract and the Truth-in-Lending Disclosure Statement. You may have to obtain copies of these papers from the borrower as the lender may not be required to give you these papers." Thanks for your comment, J. Thomas Black
by J. Thomas Black February 2, 2015 at 06:27 PM
My daughter had student loan and defaulted. Letters went to her and she ignored them. She really did 't even understand them. I cosigned, except for the very beginning I was never informed in print or in any other way that the land was not being paid. I would have gland paid if I was notified. Bank posted a discharge on my credit file. I called them after seeing this credit mark on our record. I had no idea I had any outstanding loans. The bak (Amplify Credit) claims that in Texas they are not required to notify the cosigner of a loan when it is overdue or payments have not been made. If I had been notified the loan would not be in default. I cosigned and they never notify me until after the damage has been done. What kind of BS is this? What can I do??
by CRW February 2, 2015 at 04:38 PM
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