As you noted, PLUS loans require a type of creditworthiness. Specifically, to be eligible for a PLUS loan the borrower must not have an "adverse credit history". One of the criteria for an adverse credit history is a foreclosure within the last five years. Since the subprime mortgage credit crisis was precipitated by an increase in foreclosures, it is reasonable to expect that PLUS loan denial rates will increase.
When a dependent undergraduate student's parents are denied a Parent PLUS loan, the student becomes eligible for increased unsubsidized Stafford loan limits: an extra $4,000 per year during the freshman and sophomore years, and an extra $5,000 per year during the junior and senior years. This falls short of the average PLUS loan amount, which is roughly $11,000. (Graduate and professional student borrowers who are denied a Grad PLUS loan do not become eligible for increased unsubsidized Stafford loan limits.) Borrowers with an adverse credit history are unlikely to qualify for private student loans. This problem affects both the FFEL and Direct Loan programs.
For this reason, Congress needs to consider increasing the limits on the unsubsidized Stafford loan for undergraduate students, and to provide a safety net for graduate and professional students. Since the President's FY2009 budget shows negative subsidy rates for the unsubsidized Stafford loan for both the FFEL and Direct Loan programs, Congress could increase the unsubsidized Stafford loan limits at no cost to the taxpayer. In fact, by increasing the loan limits Congress would obtain up to $500 million a year in additional revenue, enough to increase the maximum Pell Grant by $125.
Mark Kantrowitz
Editor's Note: Mark Kantrowitz is the Publisher of Finaid.org, a financial aid information website sponsored by Monster, Inc. and Citibank Student Loan Corporation.
PLUS Loans
As you noted, PLUS loans require a type of creditworthiness. Specifically, to be eligible for a PLUS loan the borrower must not have an "adverse credit history". One of the criteria for an adverse credit history is a foreclosure within the last five years. Since the subprime mortgage credit crisis was precipitated by an increase in foreclosures, it is reasonable to expect that PLUS loan denial rates will increase.
When a dependent undergraduate student's parents are denied a Parent PLUS loan, the student becomes eligible for increased unsubsidized Stafford loan limits: an extra $4,000 per year during the freshman and sophomore years, and an extra $5,000 per year during the junior and senior years. This falls short of the average PLUS loan amount, which is roughly $11,000. (Graduate and professional student borrowers who are denied a Grad PLUS loan do not become eligible for increased unsubsidized Stafford loan limits.) Borrowers with an adverse credit history are unlikely to qualify for private student loans. This problem affects both the FFEL and Direct Loan programs.
For this reason, Congress needs to consider increasing the limits on the unsubsidized Stafford loan for undergraduate students, and to provide a safety net for graduate and professional students. Since the President's FY2009 budget shows negative subsidy rates for the unsubsidized Stafford loan for both the FFEL and Direct Loan programs, Congress could increase the unsubsidized Stafford loan limits at no cost to the taxpayer. In fact, by increasing the loan limits Congress would obtain up to $500 million a year in additional revenue, enough to increase the maximum Pell Grant by $125.
Mark Kantrowitz
Editor's Note: Mark Kantrowitz is the Publisher of Finaid.org, a financial aid information website sponsored by Monster, Inc. and Citibank Student Loan Corporation.