New America Parent Plus Loan Panel

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The New America Parent Plus Loan Panel weighs in on the issue at hand.

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New America Parent Plus Loan Panel

  1. 1. New America #PlusLoan Panel Compiling the top ideas with help from Twitter!
  2. 2. What is the Parent Plus Loan? The Parent Plus loan is an unsubsidized federal loan for parents of dependent students that are attending college PLUS loans help pay for education expenses up to the cost of attendance minus all other financial assistance A Plus Loan is originated and processed through the federal Direct Loans Program
  3. 3. What happened? October 2011: Federal Parent Plus loan policy was adjusted internally to enforce a more stringent review of credit. Traditionally, a Parent Plus loan could be denied for one of these two reasons: • Within the past five years, the credit report shows a loan default, bankruptcy, tax lien and other similarly detrimental record on the credit report • Credit report demonstrates a debt that is currently 90 or more days delinquent What changed in October of 2011 is how a 90 or more days delinquent would be determined based on credit report information Prior to October 2011, the Department did not consider an account in “Collections” status to be part of the 90 day delinquency criteria for a Plus loan denial. Plus loans were able to be approved in circumstances where a debt already went over 90 days delinquent, and were sold to a collections agency for repayment. As long as the collections account was not being listed as 90 days delinquent, the Parent Plus loans could be approved.
  4. 4. What happened? After October 2011, the Department began denying Parent Plus loans for applicants that had accounts in collections or charge offs as proof of a 90+ day delinquency. The logic of the decision: The applicant had to be delinquent for over 90 days to be put into collections or charge-offs. So while the overall standards for Parent Plus loan approvals / denials has not changed, the way the 90-day delinquency requirement is being observed has.
  5. 5. The Effects of Policy Changes The adjustment in the observation of what counted as a 90+ day delinquency did impact students • Parent Plus loan denials greatly increased • Parents were unable to access funding to cover college costs • Many of these parents were approved in prior years, but suddenly were not approved. • Students were unexpectedly left without a way to pay their bill, even those close to graduation This achieved an effect of "Pulling out the rug" from a parent that may have been approved for Plus during prior years. This suddenly left them unable to be approved to help the student actually complete the 4 or more years necessary to complete their degree.
  6. 6. The Effects of Policy Changes Colleges lost revenues: Additionally, colleges that had derived a high amount of revenue through Parent Plus suddenly faced shortfalls. Hardest hit schools were HBCU and some For-Profit colleges. An appeal process was instituted where if a parent borrower were denied for the loan, they may be able to have that decision overturned. As a result, the department began taking and consequently approving many of the appeals in a case-by-case basis. This is a very sticky way to provide loans to families who may not be able to pay the debt back. Is this the way a Federal Parent Plus loan program should operate?
  7. 7. Result On January 8th, the New America foundation held a panel to discuss the Plus Loan and how it could be changed…. Here are some of the top thoughts and tweets from the conference!
  8. 8. What’s left? • Questions! • Do the benefits outweigh the costs? Does this near guarantee to college access outweigh the cost of the debt incurred to support that guarantee? • Is it a more important priority to guarantee more loans or to guarantee more grants from the federal government? • Should future federal loan profits be reinvested into increased federal grants for education? • What about reducing college costs rather than increasing loan availability? • A full report from Rachel Fishman is available at New America Foundation (http://newamerica.net/events/2013/parent_plus_or_minus)
  9. 9. If you’d like to learn more… Click here for more information about the parent plus loan:

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