Black Caucus Behind Obama’s Easier Student Loans

Career College Central Summary:

  • Responding to complaints from the Congressional Black Caucus and historically black colleges, the Education Department has loosened standards for low-income federal student loans to help cover undergraduate costs, including tuition and living expenses.
  • These so-called PLUS loans are often used by African-American parents, but many were being rejected for the loans due to unemployment and degraded credit.
  • Now, for the first time, it's OK to have bad credit, be behind on paying some loans and still be eligible for this federal financing program for college. Starting next year, the Education Department will look at "adverse credit" over just two years instead of five and consider approving loans even if parents have delinquent credit balances of up to $2,085.
  • What's more, the administration will overlook delinquencies tied to medical debt, accidents or even unemployment. The department expects the new rules will reverse denials for some 370,000 PLUS loan applicants.
  • But loosening eligibility criteria will only hurt minority borrowers, while driving government-inflated tuition costs even higher for all students (some 7,500 institutions accept the parent PLUS loans).
  • National default rates for the loans, already on the rise, will only climb higher. Default rates have nearly tripled in recent years. The loans go bust at a rate of 13% at for-profit colleges. Less than half of the outstanding $62 billion in parent loans are being actively repaid.
  • PLUS loans are the only federal school loans with no limit. They also carry the highest interest rates.
  • The administration brushes aside concerns about added risk. "We disagree that these regulations will put low-income borrowers at risk," the department said in its final rule.

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