31 Mar Changes to PLUS Loans Effective March 29, 2015

By Stacey Musulin, Asst. Director, Financial Aid Services, CT Community Colleges

On October 23, 2014, the Department of Education made multiple changes to the Direct PLUS Loan Program (34 CFR Part 685), effective March 29, 2015. The new regulations apply to both parent and graduate student borrowers for all 2015-16 PLUS loans as well as any applications for the 2014-15 year on or after 3/29/2015. The changes include:

• Length of credit check status
• Adverse credit history criteria
• New PLUS loan counseling

Because there are multiple changes to the Parent and Grad PLUS Loan programs, clear communication with students, parents, and financial aid staff is critical. Schools should update financial aid website information and other correspondence with information about the PLUS application process, adverse credit criteria, and counseling requirements for disbursement of PLUS loans.

Length of Credit Check

As of 3/29/2015, credit checks for PLUS borrowers will remain valid for 180 days (previously 90 days). This change applies to any credit checks on or after 3/29/2015 for PLUS loans for the 2014-15 school year as well as those for 2015-16.

Extension of the valid credit check is retroactive for some borrowers whose credit expired prior to March 29^th. Certain borrowers, depending on the date they apply for a PLUS loan, may have their previous expiration dates extended under the new 180-day regulation to facilitate application for new PLUS loans. Borrowers with extended credit checks will be identified on a spreadsheet accessible in the online Common Origination and Disbursement system (COD) by clicking the “File Share/Messages” link within School Information. Users may download this CSV file into Excel for easy sorting and review. Revised credit check expiration dates will be indicated on this spreadsheet as well.

Example:

• Gene Genrisdad applied for a Parent PLUS Loan on December 1, 2014 to help pay his son Gerry’s spring 2015 fee bill. He was approved for $5000.
• In April, Gene discovers that the loan amount was not enough to pay Gerry’s fee bill and wishes to borrow an additional $1000.
  • Even though Gene’s credit check had expired in March, his credit check expiration date has been updated to June 1 and an additional credit check is no longer required for him to be approved for the additional PLUS funding.

Definition of “Adverse Credit”

Revised “adverse credit” criteria applies to parent and student PLUS borrowers who are in one or more of the following situations:

• Debts totaling more than $2,085 which are “delinquent” / past due for 90 or more days as of the date of the credit report
• “In Collection” or “Charged off” debts totaling more than $2,085 within two years of the date of the credit report
• Bankruptcy discharge, repossession, foreclosure, tax lien, wage garnishment, and/or default determinations within five years of the date of the credit report.

Under the new criteria, if an applicant’s delinquent, in-collection, or charged off accounts sum to $2085 or less, s/he would be eligible for a PLUS loan so long as there are no other forms of adverse credit (such as foreclosure) on the credit report. Prior regulations reviewed all credit under a longer, five-year time period and did not consider the $2,085 cutoff for delinquent or charged-off debts during the initial application process.

Example:

• Lily Leytpayer needs additional funding for her daughter, Lulu’s, education. Lily is afraid that she will unable to obtain a Parent PLUS loan because she was denied in the past. Though she had been making progress in paying her bills on time, Lily recently has fallen behind in some of her payments again.
• Lily applies for a Parent PLUS loan. The credit check reveals:

• No accounts in collection
• No bankruptcies, foreclosures, defaults, etc.
• A single account with “charged off” status dated March 2012
• Four months of delinquent payments in the Cheese-of-the-Month Club, totaling $300
• Three months of delinquent payments in the Sock-of-the-Month Club, totaling $75

• Due to the modified criteria, Lily is approved for a Parent PLUS loan. She hasn’t any accounts in the last 2 years that are “in collection” or “charged off.” Though Lily is delinquent over 90 days in two accounts, the total delinquency is well under the $2085 cutoff.

The new adverse credit criteria are not retroactive and will have no impact on applicants who were previously approved or denied for PLUS loans. If a parent or student applied before 3/29/2015 and was deemed to have adverse credit under the old criteria, s/he can submit a new application to be reviewed under the new rules. If the credit status is “adverse,” then the applicant has the option to obtain an endorser or to request reconsideration should extenuating circumstances exist. There are no changes to the endorser application or appeal processes.

PLUS Counseling

As before, PLUS Loan borrowers initially denied access to the program due to adverse credit may later be eligible to borrow based on ED’s approval of an endorser, or ED’s approval of an appeal given extenuating circumstances. Any previously-denied borrowers now eligible for PLUS through endorser or appeal, whose credit checks are dated 3/29/2015 or later, will need to complete a new PLUS counseling process prior to disbursement of the loan. This requirement applies to both parent and graduate student borrowers; it does not apply to endorsers.

This new regulation applies to new PLUS loans for both the 2014-15 and 2015-16 school years beginning 3/29/2015. However, there is no impact on borrowers who had previously been approved to receive a PLUS loan for 2014-15. PLUS Counseling is only required if borrowers are credit denied and who later were approved via an endorser or appeal.

Note that the new PLUS Counseling is completely separate and distinct from the PLUS Entrance Counseling requirement for all new graduate student PLUS borrowers. This new PLUS Counseling is only provided via the StudentLoans.gov website; Schools are NOT responsible to provide it, but they must not disburse a PLUS loan until it has been completed. Additionally, PLUS Counseling is only valid for the 180-day timeframe associated with the related credit check, and therefore may need to be repeated for additional PLUS loans.

For PLUS loans processed after 3/29/15, Grad PLUS borrowers in particular may have multiple counseling requirements if they are first-time borrowers of both Stafford and Grad PLUS loans.

Example:

• Stanley Stoodius is a graduate student who has never before borrowed in the Stafford or PLUS programs. He accepts an Unsubsidized Stafford Direct loan for the maximum annual limit for the 2015-16 school year, but also applies for $3000 in Graduate PLUS loan. His PLUS application dated 5/30/2015 is denied due to adverse credit.

• Stanley must complete Entrance Counseling and a Master Promissory Note for his Unsubsidized Stafford loan

• Stanley’s Mom, Fiona Fabfico, agrees to endorse his PLUS loan and is accepted.

• Now Stanley may have his PLUS Loan. He must complete PLUS Entrance Counseling, PLUS Counseling, and a Master Promissory Note before the PLUS Loan may disburse.

• A year from now, Stanley accepts another Unsubsidized Stafford Direct loan and applies for $4000 for the 2016-17 school year. Unfortunately, his PLUS application dated 5/15/2016 is again denied for adverse credit.

• Fiona Fabfico again is approved to endorse Stanley’s PLUS loan.

• Because the prior PLUS Counseling has expired, because it was tied to the duration of the initial credit check in May 2015, Stanley must complete PLUS Counseling again to obtain his 2016-16 PLUS loan.

COD Changes:

Beginning March 29, 2015, screens in the Award Information and Batch sections of the COD website will include a new field: “Credit Requirements Met.” A new “Credit Requirements Met” tag will be sent by COD to confirm that all credit-related requirements have been met and that a PLUS loan may be disbursed. The new COD Reject Edit #217 will flag loans with unfulfilled requirements.

New COD response files (Doc Type “CS”) will not include information about MPN status, but may indicate one of the following credit requirement situations:

• An approved credit check
• An approved endorser + completed PLUS Counseling by the borrower
• An approved appeal + completed PLUS Counseling by the borrower

The former Credit Override (CO) response type will be retired after 3/29/15.

A new Credit Status Report will be created by COD each week and posted to each School NewsBox on the COD site. This report will be in a CSV format, which may be downloaded to an Excel file for ease in sorting and filtering. The report contains information about borrowers whose loan applications fall into the following categories:

• Credit requirements are not met (so long as the credit check is not expired)
• Credit requirements have been met within the last 30 days

Conclusion:

The changes to the Federal Direct PLUS Loan program were made in an attempt to improve access, to speed the application process, and to provide better consumer information to borrowers who may be at greater risk of default.

Training for financial aid administrators at all levels should occur to ensure familiarity with the new regulations. “Frontliners” must be prepared for questions from parent and graduate student borrowers. Staff members responsible for the receipt of loan files from COD should review the COD Technical Reference and other information about the 3/29/2015 release, to prepare for the new file types and edit codes. Teamwork within financial aid offices and effective communication will ensure a smoother transition to these changes, and will ultimately result in a positive experience for students and families.

(Please see separate article in this edition, Resources for New PLUS Loan Regulations, for reference list)