It was while standing in line for lunch at a Howard University cafeteria when Corey Arvinger learned that he was unable to pay for his meal, his dorm room or his classes.
The 20-year-old sophomore was told in midsemester that funds he expected under the federal PLUS program had been pulled in the wake of policy changes and new eligibility requirements by the U.S. Department of Education.
Students and administrators at historically black colleges and universities, known as HBCUs, such as Howard say these changes are placing particular burdens on minority families.
HBCU officials said they were given no advance notice of the changed loan standards, that students with the loans were not grandfathered into the policies, and that their students typically lack long credit histories and accumulated net worth compared with white applicants. They also are not ruling out a court fight to force the Obama administration to reverse the changes.
“We’re going to continue to pursue the legislative process to find a better solution,” said Johnny C. Taylor, president and CEO of the Thurgood Marshall College Fund. “[But] if at some point we determine that there is no agreement, then we may have to consider going to the courts.
“We are not itching for a fight, [but] we need to do what is necessary to protect what is the most vulnerable and fragile in our society,” he added.
Mr. Arvinger claims he was blindsided by the new loan policies, which forced him to drop out of Howard.
“I was shocked,” he said. “I didn’t get an email or anything. It just happened. I was in the middle of the semester making good grades and everything, and I was forced to leave.”
New standards
As part of budget legislation, Congress and the Department of Education in 2011 began increasing underwriting standards to the PLUS program, which makes direct loans to undergraduate and graduate students or their parents. The tighter requirements in eligibility quietly took effect last summer.
The loan standards raise the bar for such credit events as foreclosures, delinquent accounts, defaults and unpaid charge-off accounts. Charge-off accounts and accounts in collections within five years, if they had not been repaid, now count against applicants for PLUS loans.
Unlike other federal education loan programs that limit the amount of loans, parents under the PLUS program can borrow up to the full cost of attendance, more than $50,000 per year at the most expensive private colleges.
Administration officials say the changes were instituted to bring federal lending standards in line with private industry requirements, to protect the taxpayers’ money and to protect students and their families from taking on more school debt than they could afford.
But where less than a quarter of PLUS applicants were denied under the old guidelines, more than half of new applicants may not be able to obtain loan money, Mark Kantrowitz, publisher of Finaid.org, told Inside Higher Ed.
In part because of the populations they serve, HBCUs see much higher loan burdens for students and their families than the average U.S. college. Students at schools such as Howard University, Spelman College, Morehouse College and Clark Atlanta University have median debt levels of $32,000 or more — among the highest in the U.S.
All college students across the U.S. experienced the shock, but HBCU officials said their students were hit especially hard.
Student default rates were the reason behind the change, as student loan reforms pushed by the Obama administration cut out the banks as middlemen lenders. Some analysts say many parents and young adults going to college were choosing schools out of their price range, leading to reliance on student loans and resulting in debt that families could not repay.
“Adjustments to the PLUS loan was a response to the rising default rates, and tightening credit eligibility criteria were used to make sure students and parents weren’t borrowing more money than they could handle,” said Andrew Gillen, research director at Education Sector, an education-oriented think tank.
Abrupt implementation
Mr. Kantrowitz, who has written several studies on the changes in the PLUS program, said there is no evidence that this policy was targeted on repayment and default rates and that the abrupt implementation could give HBCU officials an avenue of attack in court.
“I think if someone would file suit against this, they would be immediately successful and ultimately successful,” Mr. Kantrowitz said. Department of Education officials “did not do things in the process in which they were supposed to be done. … [T]hey have to give the schools enough time so it’s not sprung on them, and they failed to comply with the calendar.”
Mr. Taylor said he and other leaders in the HBCU community wrote a letter to the Department of Education last summer expressing concerns about the new policy. He felt that because of recent economic struggles, determining loan eligibility through a five-year window would be unfair.
Howard University recognized the change in the PLUS policy ahead of time and was able to alert many students about the appeal process to reduce the impact of the new standards. University spokeswoman Kerry-Ann Hamilton said close to 600 students were approved for both fall and spring semesters, 92 percent of all applicants.
Mr. Taylor said federal officials promised to “revisit” the new standards in light of their impact on historically minority schools.
“Since then, there has been no change in the interpretation, and the impact on our schools are as profound, if not more profound, than last year,” he said.
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