Sudden, stricter credit requirements:
Direct PLUS Loans are one of the seven sources of funding provided by the U.S. Department of Education (ED) for financing higher education. Unlike its other Direct Loan programs, PLUS loans are issued to parents of college students for amounts ranging up to the total cost of attendance. This allows those approved for these loans to cover tuition, books, and other school-delineated expenses.
While ED has always denied PLUS loans to applicants with "adverse credit history," the government body has adjusted its definition of bad credit to include a much wider range of negative credit activity, sources say.
Credit reviews before the 2011 revision examined the credit history of applicants during the 90 days prior to the application. New regulations have extended the review period to five years.
This has hit black families, still reeling from the economic downturn, especially hard. The Federal Reserve is currently studying the effect of the most recent recession on credit scores by race, but its 2008 report on related racial disparities paints a vivid picture, stating that "more than one-half of all blacks have scores in the subprime range."
Black students -- and historically black colleges and universities (HBCUs) with their predominately black enrollment -- tend to rely significantly on PLUS loans. "In recent years, as many as a third of all black college graduates had used PLUS loans, a proportion twice as high as the rate for all schools, according to one estimate," the Associated Press reports.
In an additional analysis of the data, financial aid expert Mark Kantrowitz further noted that just 9.5 percent of students graduating from all undergraduate institutions between 2007 and 2008 benefited from a PLUS loan. The same year, that number was almost double for students attending HBCUs.
But between 2010 and 2011, PLUS loan denial rates increased from about a quarter of applicants overall to almost half, having a disproportionate effect on the monies received by HBCUs, Kantrowitz said.