The Education Department is taking new steps to help parents obtain federal college loans if their applications are rejected because of minor problems in their credit history — an effort to address complaints about tighter lending standards that has hurt enrollment at historically black colleges and universities.
Education Secretary Arne Duncan disclosed the action in a letter Tuesday to Rep. Marcia L. Fudge (D-Ohio), chairman of the Congressional Black Caucus. For months, advocates of historically black colleges and universities (HBCUs) have pressed Duncan for help because a sharp reduction in lending to parents has had a significant impact on HBCUs, including Howard University in the District, Morgan State University in Maryland and Hampton University in Virginia.
The gist of this week’s federal response: Parents turned down for what is known as a PLUS loan to help their children pay for college will have an easier path to qualifying through an appeal based on “extenuating circumstances.”
Among those circumstances, Duncan wrote, are delinquent debts so small they are considered “de minimis,” or inconsequential. Duncan told Fudge that the department was doubling what it would consider “de minimis,” but he did not specify the new threshold.
Cameron French, a department spokesman, declined to elaborate. French also declined to say how many parents have secured loans through such appeals.
In October 2011, the federal government quietly tightened its screening criteria for lending to parents. To a long list of disqualifying situations — including bankruptcy, foreclosure and defaulting on student loans — it added certain types of unpaid bills written off or placed in collection accounts within the past five years. Some analysts applauded the move, saying it could prevent parents from taking on more education debt than they can handle. The current interest rate on PLUS loans is 6.41 percent.
A Washington Post analysis of federal data found that the tighter standards led to an 11 percent drop in the amount of money approved for parents’ PLUS loans in the first three quarters of the 2012-13 school year compared with the same period in 2011-12. The drop was 36 percent for HBCUs.
At Howard, student enrollment fell 5 percent from 2011 to fall 2012, contributing to financial challenges at the Northwest Washington school. University officials said the PLUS loan shift was a factor in the drop.
Duncan said the department has done “extensive outreach” to help educators, parents and students, including providing college presidents with weekly updates on parent loan data. He also indicated that the department will begin negotiating a possible change in lending regulations in spring 2014. Whether the lending standards will be eased as a result is unknown.
Michael L. Lomax, president and chief executive of the United Negro College Fund, said HBCUs are finding that huge numbers of parents still have problems obtaining loans as the fall term approaches. “We know we’re about to get hit,” he said. “This is lethal for these institutions.” He accused the Obama administration of “shutting the door for thousands of students” and “sugarcoating it with a letter.”
Lezli Baskerville, president and chief executive of the National Association for Equal Opportunity in Higher Education, which represents HBCUs and other colleges, called Duncan’s action “steps in the right direction” but said more must be done. “We cannot continue hemorrhaging student enrollment while awaiting a process that will likely take two years to complete,” she said.
A Congressional Black Caucus spokeswoman said the group was reviewing the federal actions and could not immediately comment.