Publication Date: August 8, 2014
Posted Date: August 8, 2014
Subject: PLUS Loan NPRM
FR Type: Notice of Proposed Rulemaking (NPRM)
[Federal Register Volume 79, Number 153 (Friday, August 8, 2014)] [Proposed Rules] [Pages 46639-46658] From the Federal Register Online via the Government Printing Office [www.gpo.gov] [FR Doc No: 2014-18673] [[Page 46639]] Vol. 79 Friday, No. 153 August 8, 2014 Part VI Department of Education ------------------------------------------------------- 34 CFR Part 685 William D. Ford Federal Direct Loan Program; Proposed Rule Federal Register / Vol. 79 , No. 153 / Friday, August 8, 2014 / Proposed Rules [[Page 46640]] ----------------------------------------------------------------------------------------- DEPARTMENT OF EDUCATION 34 CFR Part 685 [Docket ID ED-2014-OPE-0082] RIN 1840-AD17 William D. Ford Federal Direct Loan Program AGENCY: Office of Postsecondary Education, Department of Education. ACTION: Notice of proposed rulemaking. ------------------------------------------------------------------------------------------- SUMMARY: The Secretary proposes to amend the regulations governing the William D. Ford Federal Direct Loan (Direct Loan) Program. The Secretary is proposing to amend these regulations to strengthen and improve the administration of the Federal Direct PLUS Loan Program authorized under title IV of the Higher Education Act of 1965, as amended (HEA). DATES: We must receive your comments on or before September 8, 2014. ADDRESSES: Submit your comments through the Federal eRulemaking Portal or via postal mail, commercial delivery, or hand delivery. We will not accept comments submitted by fax or by email or those submitted after the comment period. To ensure that we do not receive duplicate copies, please submit your comments only once. In addition, please include the Docket ID at the top of your comments. If you are submitting comments electronically, we strongly encourage you to submit any comments or attachments in Microsoft Word format. If you must submit a comment in Adobe Portable Document Format (PDF), we strongly encourage you to convert the PDF to print-to-PDF format or to use some other commonly used searchable text format. Please do not submit the PDF in a scanned format. Using a print-to-PDF format allows the U.S. Department of Education (the Department) to electronically search and copy certain portions of your submissions.Federal eRulemaking Portal: Go to www.regulations.gov to submit your comments electronically. Information on using Regulations.gov, including instructions for accessing agency documents, submitting comments, and viewing the docket, is available on the site under ``Are you new to the site?'' Postal Mail, Commercial Delivery, or Hand Delivery: The Department strongly encourages commenters to submit their comments electronically. However, if you mail or deliver your comments about the proposed regulations, address them to Jean-Didier Gaina, U.S. Department of Education, 1990 K Street NW., Room 8055, Washington, DC 20006-8502. Privacy Note: The Department's policy is to make all comments received from members of the public available for public viewing in their entirety on the Federal eRulemaking Portal at www.regulations.gov. Therefore, commenters should be careful to include in their comments only information that they wish to make publicly available. FOR FURTHER INFORMATION CONTACT: Brian Smith or Pamela Moran at (202) 502-7551 or (202) 502-7732 or by email at: Brian.Smith@ed.gov or Pamela.Moran@ed.gov. If you use a telecommunications device for the deaf (TDD) or a text telephone (TTY), call the Federal Relay Service (FRS), toll free, at 1- 800-877-8339. SUPPLEMENTARY INFORMATION: Executive Summary: Purpose of This Regulatory Action: These proposed regulations would update the standard for determining if a potential parent or student borrower has an adverse credit history for purposes of eligibility for a Direct PLUS Loan (PLUS loan). Specifically, the proposed regulations would amend the definition of ``adverse credit history'' and require PLUS loan counseling for a parent or student with an adverse credit history who is approved for a PLUS loan as a result of the Secretary's determination that extenuating circumstances exist. The current regulations governing adverse credit history determinations have not been updated since the Direct Loan Program was established in 1994. The proposed regulations would amend the current regulations to reflect programmatic and economic changes that have occurred since 1994. Summary of the Major Provisions of This Regulatory Action: The proposed regulations would-- Revise the student PLUS loan borrower eligibility criteria to state more clearly that the PLUS loan adverse credit history requirements apply to student as well as parent PLUS loan borrowers. Add definitions of the terms ``charged off'' and ``in collection'' for purposes of determining whether an applicant for a PLUS loan has an adverse credit history. Specify that a PLUS loan applicant has an adverse credit history if the applicant has one or more debts with a total combined outstanding balance greater than $2,085 that are 90 or more days delinquent as of the date of the credit report, or that have been placed in collection or charged off during the two years preceding the date of the credit report. Provide that the combined outstanding balance threshold of $2,085 may be adjusted over time on a basis determined by the Secretary. Revise the provision that specifies the types of documentation the Secretary may accept as a basis for determining that extenuating circumstances exist for a PLUS loan applicant who is determined to have an adverse credit history. Specify that an applicant for a PLUS loan who is determined to have an adverse credit history but who documents to the Secretary's satisfaction that extenuating circumstances exist must complete PLUS loan counseling offered by the Secretary before receiving the PLUS loan. Please refer to the Summary of Proposed Changes section of this notice of proposed rulemaking (NPRM) for more details on the major provisions contained in this NPRM. Costs and Benefits: As further detailed in the Regulatory Impact Analysis section of this document, the proposed regulations would affect applicants for parent and student PLUS loans by modifying the standard for a determination of an adverse credit history. In particular, a student or parent would be considered to have an adverse credit history if the student or parent has one or more debts with a combined outstanding balance greater than $2,085 that are 90 or more days delinquent as of the date of the credit report, or that have been placed in collection or charged off during the two years preceding the date of the credit report. The proposed regulations would also require that an applicant for a PLUS loan who is determined to have an adverse credit history but who documents to the satisfaction of the Secretary that extenuating circumstances exist must complete PLUS loan counseling offered by the Secretary prior to receiving the loan. Certain operational changes made by the Department in November 2011 resulted in an increase in the number of PLUS loan applicants who were determined to have an adverse credit history, potentially limiting the financial options and resources available to those applicants. The modifications made in the proposed regulations will increase the number of PLUS loan applicants who pass the adverse credit history check and will not have to request reconsideration of an initial denial under the Department's process for determining whether extenuating circumstances for the adverse credit history condition exist. [[Page 46641]] We estimate an increase of approximately 370,000 PLUS loan applicants who will pass the adverse credit history check under the proposed regulations. Under the proposed regulations, applicants would not need to apply for reconsideration of an initial PLUS loan denial due to an adverse credit history, saving them time and effort. Additionally, because the proposed regulations strike a balance between increased availability of PLUS loan funds to improve student access to postsecondary education and helping to limit overborrowing through improved financial literacy, we believe that there will be benefits for both borrowers and the Department. Invitation to Comment: We invite you to submit comments regarding these proposed regulations. To ensure that your comments have maximum effect in developing the final regulations, we urge you to identify clearly the specific section or sections of the proposed regulations that each of your comments addresses, and provide relevant information and data whenever possible, even when there is no specific solicitation of data and other supporting materials in the request for comment. We also urge you to arrange your comments in the same order as the proposed regulations. Please do not submit comments that are outside the scope of the specific proposals in this notice of proposed rulemaking, as we are not required to respond to comments that are outside of the scope of the proposed rule. See the ADDRESSES section of this document for instructions on how to submit comments. We invite you to assist us in complying with the specific requirements of Executive Orders 12866 and 13563 and their overall requirement of reducing regulatory burden that might result from these proposed regulations. Please let us know of any further ways we could reduce potential costs or increase potential benefits while preserving the effective and efficient administration of the Department's programs and activities. During and after the comment period, you may inspect all public comments about the proposed regulations by accessing Regulations.gov. You may also inspect the comments in person in room 8055, 1990 K Street NW., Washington, DC, between 8:30 a.m. and 4:00 p.m., Washington, DC time, Monday through Friday of each week except Federal holidays. If you want to schedule time to inspect comments, please contact one of the persons listed under FOR FURTHER INFORMATION CONTACT. Assistance to Individuals with Disabilities in Reviewing the Rulemaking Record: On request, we will provide an appropriate accommodation or auxiliary aid to an individual with a disability who needs assistance to review the comments or other documents in the public rulemaking record for the proposed regulations. If you want to schedule an appointment for this type of accommodation or auxiliary aid, please contact one of the persons listed under FOR FURTHER INFORMATION CONTACT. Background Section 428B(a)(1)(A) of the HEA provides that to be eligible to receive a Federal PLUS Loan under the Federal Family Education Loan (FFEL) Program, the applicant must not have an adverse credit history, as determined pursuant to regulations promulgated by the Secretary. This same eligibility requirement applies to applicants for PLUS loans under the Direct Loan Program. See section 455(a)(1) of the HEA. The definition of ``adverse credit history'' in the current Direct Loan Program regulations is effectively the same as the regulatory definition of ``adverse credit history'' in the FFEL Program. The Department conducts a credit check on each applicant for a PLUS loan under the Direct Loan Program to determine whether he or she has an adverse credit history. Section 685.200(b) and (c) of the Direct Loan Program regulations specifies that graduate and professional students, and parents borrowing on behalf of their dependent children, may borrow PLUS loans if they meet applicable eligibility requirements and do not have an adverse credit history. The regulations that specify what is considered to be an adverse credit history have not been updated since the Direct Loan Program was established in 1994. In 2010, Congress amended the HEA to end the making of new loans under the FFEL Program effective July 1, 2010. Since that date, all new subsidized and unsubsidized Stafford Loans, PLUS Loans, and Consolidation Loans have been originated in the Direct Loan Program. In implementing this change, the Department found that the operational criteria being used in the Direct Loan Program to determine whether an applicant for a PLUS loan has an adverse credit history were not consistent with the definition of ``adverse credit history'' in the Direct Loan Program regulations or with the regulations for the FFEL Program. Specifically, the Department determined that PLUS loan applicants who had debts that were in collection or charged off were passing the adverse credit history check even though these applicants were 90 or more days delinquent on a debt, which constitutes an adverse credit history under the Department's regulations. Once the inconsistency was identified, the Department modified its procedures in November 2011 so that borrowers with debts in collection or which were charged off would be considered to have an adverse credit history. This change increased the number of parent and graduate and professional student PLUS loan applicants who were determined to have an adverse credit history and thus, were originally ineligible for a PLUS loan. As a result of the increased initial denial rate, the Department determined that it would be appropriate to review the adverse credit history standards that were originally established in 1994. To reflect programmatic and economic changes that have occurred since 1994, the Department proposes to amend Sec. 685.200(b) and (c) to update the regulatory requirements governing PLUS loan adverse credit history determinations. Public Participation On April 16, 2013, we published a document in the Federal Register (78 FR 22467) announcing topics for consideration for action by a negotiated rulemaking committee. A correction to this document was published in the Federal Register on April 30, 2013 (78 FR 25235). The topics for consideration listed in these documents were: Cash management of funds provided under the title IV Federal Student Aid programs; State authorization for programs offered through distance education or correspondence education; State authorization for foreign locations of institutions located in a State; clock to credit hour conversion; gainful employment; changes to the campus safety and security reporting requirements in the Jeanne Clery Disclosure of Campus Security Policy and Campus Crime Statistics Act made by the Violence Against Women Reauthorization Act of 2013; and the definition of ``adverse credit history'' for borrowers in the Federal Direct PLUS Loan Program. In the April 16, 2013, document, we announced three public hearings at which interested parties could comment on the negotiated rulemaking topics suggested by the Department and could suggest additional topics for consideration for action by a negotiated rulemaking committee. On May 13, 2013, we published in the Federal Register (78 FR 27880) a document announcing the [[Page 46642]] addition of a fourth hearing. The hearings were held on-- May 21, 2013, in Washington, DC; May 23, 2013, in Minneapolis, Minnesota; May 30, 2013, in San Francisco, California; and June 4, 2013, in Atlanta, Georgia. We also invited parties unable to attend a public hearing to submit written comments on the additional topics and to submit other topics for consideration. Transcripts from the public hearings are available at http://www2.ed.gov/policy/highered/reg/hearulemaking/2012/index.html. Written comments submitted in response to the April 16, 2013, Federal Register document may be viewed through the Federal eRulemaking Portal at www.regulations.gov, within docket ID ED-2012-OPE-0008. You can link to the ED-2012-OPE-0008 docket as a related docket inside the ED-2014-OPE-0082 docket associated with this notice of proposed rulemaking. Alternatively, individuals can enter the docket ID ED-2012- OPE-0008 in the search box to locate the appropriate docket. Instructions for finding comments are also available on the site under ``How to Use Regulations.gov'' in the Help section. Negotiated Rulemaking Section 492 of the HEA requires the Secretary to obtain public involvement in the development of proposed regulations affecting programs authorized by title IV of the HEA. After obtaining extensive input and recommendations from the public, including individuals and representatives of groups involved in the title IV, HEA programs, the Secretary must subject the proposed regulations to a negotiated rulemaking process. If negotiators reach consensus on the proposed regulations, the Department agrees to publish without alteration a defined group of regulations on which the negotiators reached consensus unless the Secretary reopens the process or provides a written explanation to the participants stating why the Secretary has decided to depart from the agreement reached during negotiations. Further information on the negotiated rulemaking process can be found at: http://www2.ed.gov/policy/highered/reg/hearulemaking/hea08/neg-reg-faq.html. On November 20, 2013, the Department published a document in the Federal Register (78 FR 69612) announcing its intention to establish a negotiated rulemaking committee to prepare proposed regulations to address program integrity and improvement issues for the Federal Student Aid programs authorized under title IV of the HEA. The document set forth a schedule for the committee meetings and requested nominations for individual negotiators to serve on the negotiating committee. The Department sought negotiators to represent the following groups: Students; legal assistance organizations that represent students; consumer advocacy organizations; State higher education executive officers; State Attorneys General and other appropriate State officials; business and industry; institutions of higher education eligible to receive Federal assistance under title III, parts A, B, and F and title V of the HEA, which include Historically Black Colleges and Universities, Hispanic-Serving Institutions, American Indian Tribally Controlled Colleges and Universities, Alaska Native and Native Hawaiian-Serving Institutions, Predominantly Black Institutions, and other institutions with a substantial enrollment of needy students as defined in title III of the HEA; two-year public institutions of higher education; four-year public institutions of higher education; private, non-profit institutions of higher education; private, for-profit institutions of higher education; regional accrediting agencies; national accrediting agencies; specialized accrediting agencies; financial aid administrators at postsecondary institutions; business officers and bursars at postsecondary institutions; admissions officers at postsecondary institutions; institutional third-party servicers who perform functions related to the title IV Federal Student Aid programs (including collection agencies); State approval agencies; and lenders, community banks, and credit unions. The Department considered the nominations submitted by the public and chose negotiators who would represent the various constituencies. The negotiating committee included the following members: Chris Lindstrom, U.S. Public Interest Research Group, and Maxwell John Love (alternate), United States Student Association, representing students. Whitney Barkley, Mississippi Center for Justice, and Toby Merrill (alternate), Project on Predatory Student Lending, The Legal Services Center, Harvard Law School, representing legal assistance organizations that represent students. Suzanne Martindale, Consumers Union, representing consumer advocacy organizations. Carolyn Fast, Consumer Frauds and Protection Bureau, New York Attorney General's Office, and Jenny Wojewoda (alternate), Massachusetts Attorney General's Office, representing State attorneys general and other appropriate State officials. David Sheridan, School of International & Public Affairs, Columbia University in the City of New York, and Paula Luff (alternate), DePaul University, representing financial aid administrators. Gloria Kobus, Youngstown State University, and Joan Piscitello (alternate), Iowa State University, representing business officers and bursars at postsecondary institutions. David Swinton, Benedict College, and George French (alternate), Miles College, representing minority serving institutions. Brad Hardison, Santa Barbara City College, and Melissa Gregory (alternate), Montgomery College, representing two-year public institutions. Chuck Knepfle, Clemson University, and J. Goodlett McDaniel (alternate), George Mason University, representing four-year public institutions. Elizabeth Hicks, Massachusetts Institute of Technology, and Joe Weglarz (alternate), Marist College, representing private, non-profit institutions. Deborah Bushway, Capella University, and Valerie Mendelsohn (alternate), American Career College, representing private, for-profit institutions. Casey McGuane, Higher One, and Bill Norwood (alternate), Heartland Payment Systems, representing institutional third-party servicers. Russ Poulin, WICHE Cooperative for Educational Technologies, and Marshall Hill (alternate), National Council for State Authorization Reciprocity Agreements, representing distance education providers. Dan Toughey, TouchNet, and Michael Gradisher (alternate), Pearson Embanet, representing business and industry. Paul Kundert, University of Wisconsin Credit Union, and Tom Levandowski (alternate), Wells Fargo Bank Law Department, Consumer Lending & Corporate Regulatory Division, representing lenders, community banks, and credit unions. Leah Matthews, Distance Education and Training Council, and Elizabeth Sibolski (alternate), Middle States Commission on Higher Education, representing accrediting agencies. Carney McCullough, U.S. Department of Education, representing the Department. Pamela Moran, U.S. Department of Education, representing the Department. The negotiated rulemaking committee met to develop proposed regulations on [[Page 46643]] February 19-21, 2014, March 26-28, 2014, and April 23-25, 2014. In response to requests from members of the negotiating committee, the Department provided extensive PLUS loan data to the committee prior to the March session. During the March session, the Department proposed adding an additional negotiated rulemaking session to the schedule to give the negotiators sufficient time to consider the PLUS loan data. The negotiators agreed to add a fourth and final session held on May 19-20, 2014. At its first meeting, the negotiating committee reached agreement on its protocols and proposed agenda. These protocols provided, among other things, that the committee would operate by consensus. Consensus means that there must be no dissent by any member in order for the committee to have reached agreement. Under the protocols, if the committee reached a final consensus on all issues, the Department would use the consensus-based language in its proposed regulations. Furthermore, the Department would not alter the consensus-based language of its proposed regulations unless the Department reopened the negotiated rulemaking process or provided a written explanation to the committee members regarding why it decided to depart from that language. During the first meeting, the negotiating committee agreed to negotiate an agenda of six issues related to student financial aid. These six issues were: Clock to credit hour conversion; State authorization of distance education; State authorization of foreign locations of domestic institutions; cash management; retaking coursework; and PLUS loan adverse credit history. Under the protocols, a final consensus would have to include consensus on all six issues. During the meeting, the Department explained that it planned to include the proposed regulations that would be published after completion of the negotiated rulemaking process in two separate NPRMs. One NPRM would contain the proposed PLUS loan adverse credit history regulations. The second NPRM would contain all the remaining proposed regulations on the negotiating agenda. This is consistent with past practice for publishing NPRMs, as the Department generally publishes proposed loan program regulatory changes separately from proposed regulations for the Student Assistance General Provisions regulations in 34 CFR Part 668 or other title IV, HEA program regulations when there are no shared cross-programmatic or other conforming changes involved. Non-Federal negotiators encouraged the Department to take action quickly with respect to the PLUS loan adverse credit history regulations. The Department said it would consider designating final regulations resulting from this NPRM for early implementation under section 484(c)(2) of the HEA. During committee meetings, the committee reviewed and discussed the Department's drafts of regulatory language and the committee members' alternative language and suggestions. At the final meeting on May 20, 2014, the committee did not reach consensus on the Department's proposed regulations. For this reason, and according to the committee's protocols, all parties who participated or were represented in the negotiated rulemaking, in addition to all members of the public, may comment freely on the proposed regulations. For more information on the negotiated rulemaking sessions, please visit: http://www2.ed.gov/policy/highered/reg/hearulemaking/2012/programintegrity.html#info. Summary of Relevant Data PLUS Loan Data At the first negotiating session, the non-Federal negotiators asked the Department to provide certain data about the PLUS loan program to the negotiating committee. The non-Federal negotiators asked if the Department could calculate PLUS loan cohort default rates. They also asked for information on PLUS loan volume--both numbers of borrowers and amounts borrowed. Non-Federal negotiators asked to see rates of PLUS loan denials due to an adverse credit history, broken out by school sector. In addition, they asked for data on the frequency of different adverse credit conditions that result in denial of a PLUS loan. The Department agreed to provide PLUS loan data for the PLUS loan adverse credit history discussion at the second negotiated rulemaking session. The Session 2 Data Prior to the second negotiated rulemaking session, the Department provided the non-Federal negotiators with charts containing the following data: Debt of PLUS, Parent PLUS, and Grad PLUS Borrowers; PLUS Credit Check Denial and Remediation Rates by Sector and by Program Offering; Credit Check Declination Rate by Sector by Year; Top Five Credit Check Declination Reasons by Sector by Year; PLUS Borrower 3-Year Cohort Default Rate; and AY 2012-13 Credit Check Approval and Denials.\1\ --------------------------------------------------------------------------- \1\ All of the charts provided to the negotiators are available at: http://www2.ed.gov/policy/highered/reg/hearulemaking/2012/programintegrity.html#2. --------------------------------------------------------------------------- In addition, during the second session, the Department provided the negotiators with data breaking out PLUS loan disbursements under the Direct Loan and FFEL programs from 2006 to 2010.\2\ --------------------------------------------------------------------------- \2\ This data is available at: http://www2.ed.gov/policy/highered/reg/hearulemaking/2012/programintegrity.html#2. --------------------------------------------------------------------------- The non-Federal negotiators expressed appreciation to the Department for providing the requested data about PLUS loans. The non- Federal negotiators also asked for additional data in connection with the charts showing PLUS loan remediation rates (the rates at which applicants who were initially denied PLUS loans due to an adverse credit history were able to obtain PLUS loans; or, if the parent did not obtain PLUS loans, the rates at which the parent's dependent children were able to receive additional unsubsidized loans) and PLUS loan cohort default rates. The Department agreed to provide this additional data for the third negotiated rulemaking session. The Session 3 Data Prior to the third negotiated rulemaking session, in response to the requests made during the second session, the Department provided the non-Federal negotiators with amended versions of the following charts: PLUS Credit Check Denial Remediation Rates by Sector and by Program Offering (two versions reflecting breakout of remediation by obtaining an endorser, submitting documentation of extenuating circumstances, or the dependent student's receipt of additional unsubsidized loans); and PLUS Borrower Three-Year Cohort Default Rates (broken out by the FFEL and Direct Loan programs).\3\ --------------------------------------------------------------------------- \3\ These charts are available at: http://www2.ed.gov/policy/highered/reg/hearulemaking/2012/programintegrity.html#3. --------------------------------------------------------------------------- Summary of Proposed Changes The proposed regulations would-- Revise the student PLUS loan borrower eligibility criteria to state more clearly that the PLUS loan adverse credit history requirements apply to graduate or professional student PLUS loan borrowers. Add definitions of the terms ``charged off'' and ``in collection'' for [[Page 46644]] purposes of determining whether an applicant for a PLUS loan has an adverse credit history. Specify that a PLUS loan applicant has an adverse credit history if the applicant has one or more debts with a total combined outstanding balance greater than $2,085 that are 90 or more days delinquent as of the date of the credit report, or that have been placed in collection or charged off during the two years preceding the date of the credit report. Provide that the combined outstanding balance threshold of $2,085 may be adjusted over time on a basis determined by the Secretary. Revise the provision that specifies the types of documentation the Secretary may accept as a basis for determining that extenuating circumstance exist for a PLUS loan applicant who is determined to have an adverse credit history. Specify that an applicant for a PLUS loan who is determined to have an adverse credit history but who documents to the Secretary's satisfaction that extenuating circumstances exist must complete PLUS loan counseling offered by the Secretary before receiving the loan. Significant Proposed Regulations We discuss substantive issues under the sections of the proposed regulations to which they pertain. Generally, we do not address proposed regulatory provisions that are technical or otherwise minor in effect. Student PLUS Borrower (34 CFR 685.200(b)) Statute: Section 428B(a)(1)(A) of the HEA specifies that a graduate or professional student with an adverse credit history is not eligible to borrow a PLUS loan. Current Regulations: Current Sec. 685.200(b)(5) specifies that a student must meet the requirements of Sec. 685.200(c)(1)(vii) to qualify for a PLUS loan. Current Sec. 685.200(c)(1)(vii) includes the adverse credit history requirements for parent PLUS loan borrowers. Proposed Regulations: Proposed Sec. 685.200(b)(5) specifies that a graduate or professional student must meet the requirements ``that apply to a parent'' under Sec. 685.200(c)(2)(viii)(A) through (c)(2)(viii)(D) to qualify for a PLUS loan. Proposed Sec. 685.200(c)(2)(viii)(A) through (c)(2)(viii)(D) would include the adverse credit history requirements for parent PLUS borrowers. Reasons: The proposed regulations would revise Sec. 685.200(c). Due to the revision to Sec. 685.200(c), we would also need to revise the cross-reference in Sec. 685.200(b)(5). New Sec. 685.200(c)(1)(viii)(B) refers to a parent with an adverse credit history, rather than an applicant with an adverse credit history. Therefore, a conforming change, adding a reference to the ``parent'', would be required in Sec. 685.200(b)(5). In addition, proposed Sec. 685.200(b)(5) would clarify that the adverse credit history requirements that apply to parent PLUS borrowers under Sec. 685.200(c)(2)(viii)(A) through (c)(2)(viii)(D) also apply to all student PLUS borrowers. Some of the non-Federal negotiators contended that there should be different eligibility standards for parent PLUS loan borrowers and graduate and professional student PLUS loans borrowers. These negotiators argued that graduate and professional students should be eligible for PLUS loans without application of the adverse credit history criteria. Alternatively, one non-Federal negotiator requested that the Department consider defining ``adverse credit history'' differently for graduate and professional student PLUS loan borrowers than for parent PLUS loan borrowers. We did not agree with the suggestion to have different standards for parent and student PLUS loan applicants. We noted that, pursuant to the HEA, there is a single PLUS loan program that provides loans for both graduate and professional students and parents of dependent students. The statutory requirement that a PLUS loan applicant not have an adverse credit history applies equally to student and parent applicants. We see no basis under the HEA for establishing different regulatory definitions of ``adverse credit history'' for graduate and professional student applicants and parent PLUS applicants. Parent PLUS Borrower: Definitions (34 CFR 685.200(c)(1)) Statute: None. Current Regulations: None. Proposed Regulations: The proposed regulations would define the terms ``charged off'' and ``in collection'' for purposes of adverse credit history determinations. Proposed Sec. 685.200(c)(1)(i) would define the term ``charged off'' to mean a debt that a creditor has written off as a loss, but that is still subject to collection action. Proposed Sec. 685.200(c)(1)(ii) would define the term ``in collection'' to mean a debt that has been placed with a collection agency by a creditor, or that is subject to more intensive efforts by a creditor to recover amounts owed from a borrower who has not responded satisfactorily to the demands routinely made as part of the creditor's billing procedures. Reasons: Under the current regulations, an applicant who has debts that are in collection or that has been charged off will be determined to have an adverse credit history, but the regulations do not define these terms. The proposed definitions for these terms are commonly understood definitions in the collections industry. Although some of the non-Federal negotiators did not agree that these conditions should constitute adverse credit, they agreed that if the Department is going to consider debts that are in collection or that have been charged off as indicators that a borrower has an adverse credit history, the terms should be defined in the regulations. Parent PLUS Borrower: Adverse Credit History (34 CFR 685.200(c)(2)) Statute: Section 428B(a)(1)(A) of the HEA provides that a parent of a dependent student is not eligible to borrow a PLUS loan if the parent has an adverse credit history. Current Regulations: Current regulations under Sec. 685.200(c)(1)(vii)(B) establish the conditions under which a PLUS loan applicant will be considered to have an adverse credit history. Under Sec. 685.200(c)(1)(vii)(B), an adverse credit history means that, as of the date of the credit report, the applicant: (1) Is 90 or more days delinquent on any debt; or (2) has been the subject of a default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off of a debt under title IV of the HEA during the five years preceding the date of the credit report. Proposed Regulations: Under proposed Sec. 685.200(c)(2)(viii)(B)(1), an adverse credit history would mean that a parent (or, by cross-reference, a student) has one or more debts with a total combined outstanding balance greater than $2,085, that are 90 or more days delinquent as of the date of the credit report, or that have been charged off or placed in collection during the two years preceding the date of the credit report. Proposed Sec. 685.200(c)(2)(viii)(B)(1) would provide that the $2,085 threshold amount may be adjusted over time on a basis determined by the Secretary. In proposed Sec. 685.200(c)(2)(viii)(B)(2) the Department would retain the current provision that provides that a parent or student has an adverse credit history if the parent or student has been the subject of a default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off of a debt under [[Page 46645]] title IV of the HEA during the five years preceding the date of the credit report. Reasons: After the Department corrected its implementation of the adverse credit history standards in November 2011, some borrowers who had qualified for PLUS loans in earlier years were determined to have an adverse credit history when they applied for subsequent PLUS loans even though their credit history had not substantially changed. In many cases, these applicants requested reconsideration on the basis of extenuating circumstances as permitted under the regulations. Based on its experience in handling PLUS loan applicant requests for reconsideration on the basis of extenuating circumstances, the Department concluded that it was appropriate to update the standards for determining that an applicant has an adverse credit history to reflect programmatic and economic changes since the standards were established in 1994. We believe that the proposed changes to the PLUS loan adverse credit history regulations will improve the adverse credit history determination process by incorporating some of the circumstances that the Department considers during the reconsideration process into the standards for initial determinations of an adverse credit history. We expect that making these changes to the definition of ``adverse credit history'' will reduce the number of applicants who, under the current regulations, are initially denied PLUS loans due to an adverse credit history, but upon further review, the Department determines have extenuating circumstances. During the negotiated rulemaking sessions, the committee members discussed how the proposed changes would serve three public interests: (1) Ensuring greater access to higher education for all students and families; (2) ensuring that borrowers do not take out loans that they will be unable to repay without hardship; and (3) protecting the Federal fiscal interest by ensuring that borrowers repay their student loans. Some of the non-Federal negotiators expressed the view that the primary focus of the title IV, HEA programs, including the PLUS loan program, should be increasing access to higher education. These negotiators argued that the lending standards that apply to commercial loans should not be applied to PLUS loans, which serve a compelling public interest. The negotiators expressed the view that it is a parent's (or graduate or professional student's) decision as to whether to borrow a PLUS loan, and in what amount, even if the applicant's financial circumstances or history may indicate that the applicant could experience difficulty in paying it back. One non- Federal negotiator strongly recommended that the Department return to the adverse credit history standard as it had been implemented in the Direct Loan program prior to the changes made in November 2011, under which debts in collection or that were charged off did not constitute adverse credit. Other non-Federal negotiators argued that the Department should take action to prevent overborrowing by parents and students. These negotiators argued that a return to the standard in the Direct Loan program used prior to November 2011 would encourage both student and parent borrowers to take out greater, perhaps unaffordable, amounts of PLUS loan debt regardless of the financial circumstances or history of the applicant. They also argued that, in addition to ensuring access to higher education, the Department should consider whether or not borrowers could repay these loans. In expressing their concerns about overborrowing and the potential for high debt loads, some non-Federal negotiators noted that, unlike Direct Subsidized and Direct Unsubsidized loans, there are no annual or aggregate loan limits for PLUS loans and a PLUS loan can be taken out in an amount up to the student's cost of attendance. They further noted that parent PLUS loan borrowers are not eligible for income-driven repayment plans and it is very difficult to qualify for a bankruptcy discharge of a student or parent loan. To that end, some non-Federal negotiators recommended establishing annual and aggregate loan limits for PLUS loan borrowers. We noted that loan limits in the title IV, HEA programs, including the PLUS loan program, are based on the relevant statute, and may not be established through regulation. Some non-Federal negotiators recommended considering the applicant's ability to repay in an adverse credit history determination in order to prevent overborrowing of PLUS loans. We noted that the HEA would need to be amended to allow consideration of the applicant's ability to repay. Rather, adverse credit history is a measure of an individual's history of repaying existing debt. It does not measure whether the individual has the financial ability to repay a specific level of debt, but whether that individual has repaid debt in the past. In developing the proposed regulations, we attempted to strike a balance between the public policy interests of ensuring access to higher education while helping to ensure that borrowers do not take out loans that their past financial credit history indicates they will not repay. Based on our experience in evaluating requests for reconsideration based on extenuating circumstances, we expect that more borrowers would qualify for PLUS loans under the adverse credit history standard in the proposed regulations without the need to demonstrate extenuating circumstances. The proposed definition of ``adverse credit history'' has several components. Each component is discussed separately in the following sections. Component 1--Outstanding Balance Greater than $2,085 Statute: None. Current Regulations: Current Sec. 685.200(c)(1)(vii)(D) specifies that, for purposes of documenting extenuating circumstances, the Secretary may rely on a satisfactory statement from the applicant explaining any delinquency with an outstanding balance greater than $500. Proposed Regulations: Under the proposed regulations, the amount of the applicant's debt would be taken into account during the initial determination of whether the applicant has an adverse credit history, rather than as part of the process for documenting extenuating circumstances following denial of a PLUS loan. In addition, the proposed regulations would establish a standard that an applicant is not considered to have an adverse credit history unless the applicant's debts have a total combined outstanding balance greater than $2,085. Reasons: After the November 2011 operational change to the Department's implementation of the adverse credit history definition, the Department adjusted the $500 amount, referred to as ``the threshold amount,'' to $780 to account for inflation since 1994. Later, the Department increased the threshold amount from $780 to $2,085. The Department selected this level to reflect the estimated median debt level for all debts with a status of in collection, charged off, or 90 or more days delinquent, from all parent PLUS loan denials resulting from all credit checks conducted between the spring of 2012 and the spring of 2013. The Department now proposes to use the $2,085 threshold amount in the initial determination of whether an applicant has an adverse credit history to reflect current operational practice in our reconsideration process. [[Page 46646]] Component 2--Adjustment Over Time Statute: None. Current Regulations: None. Proposed Regulations: Under the proposed regulations, the $2,085 amount may be adjusted over time on a basis determined by the Secretary. Reasons: Several of the non-Federal negotiators recommended that the Department index the $2,085 amount to the rate of inflation. The negotiators argued that by indexing the amount to an accepted measure of inflation, increases could be calculated and implemented without the necessity of amending the regulations. Most of these negotiators recommended indexing the $2,085 amount to the Consumer Price Index (CPI), a measure of inflation determined by the Bureau of Labor Statistics (BLS). However, BLS calculates several different CPI rates on a monthly basis. The CPI rate most commonly used as a measure of inflation is the Consumer Price Index for All Urban Consumers (CPI-U). The Department considered using the CPI-U as the basis for indexing, but decided to invite comment on which index would be most appropriate in this context, and whether to base the adjustment of the $2,085 amount on a measure other than inflation. One non-Federal negotiator suggested that the Department should adjust the amount of debt annually. This negotiator argued that, while small, short-term changes would have little impact in one year, over a period of time they could have a significant impact. Another non- Federal negotiator suggested using the CPI, but averaging the rate over time. This negotiator noted that averaging the rate over time would smooth out abrupt and relatively short-term changes in CPI and thus reduce volatility. The Department is open to adjusting the $2,085 amount. Therefore, we are proposing in the regulations that the Secretary may adjust the amount over time, on a basis determined by the Secretary. Any adjustments that the Secretary makes to the $2,085 amount would be announced through a Notice in the Federal Register. We invite comment on this provision, and welcome recommendations on an appropriate measure of inflation to use in adjusting this amount, or whether another measure of growth or decline in consumer debt due to economic conditions may be a more appropriate measure. As discussed in the ``Operational Issues'' section of this preamble, the Department intends to collect, and where appropriate publish, information about the performance of parent and graduate/ professional student PLUS loans, including default rate information based on credit history characteristics of Plus loan applicants and individual institutional default rates. Component 3--Debts 90 or More Days Delinquent Statute: None. Current Regulations: Current Sec. 685.200(c)(1)(vii)(B)(1) specifies that a PLUS loan applicant who is 90 or more days delinquent on any debt has an adverse credit history. Proposed Regulations: The proposed regulations would maintain the 90 or more days delinquent standard. Reasons: Some of the non-Federal negotiators argued that the current delinquency standard of 90 or more days past due is too short for adverse credit history determinations. These negotiators recommended extending the past due period to 120 days or 180 days. They asserted that credit reports often have errors that may not be corrected during a 90-day timeframe. In the absence of a consistent industry-wide standard, we decided to maintain the standard of 90 or more days delinquent in the proposed regulations. We rely on credit reports to determine whether an applicant is delinquent on a debt, as the number of days a debt is past due is included on an individual's credit report until an account is placed in collection. Based on our experience, most creditors send accounts to collection once they are 90 days' delinquent. Once an account is placed in collection, the number of days past due is generally not reflected on the credit report. Therefore, a standard beyond the current 90-day standard would be more difficult to track. With regard to errors on credit reports, a PLUS loan applicant would have the opportunity during the process for determining whether extenuating circumstances for the adverse credit history condition exist to show that the determination of an adverse credit history was based on an error in the credit report by providing an updated credit report or information from the creditor. Component 4--In Collection or Charged Off Statute: None. Current Regulations: None. Proposed Regulations: Under the proposed regulations, an applicant with debts in collection or debts that have been charged off during the two years preceding the date of the credit report would have an adverse credit history. [FR Doc. 2014-18673 Filed 8-7-14; 8:45 am] BILLING CODE 4000-01-P