Changes to student loan program threatens future of black students, HBCUs

theGRIO REPORT - In late 2011, the federal government implemented changes to the administration of one of its most popular student loans, possibly having devastating consequences for black students...

This month, President Obama is planning to deliver the commencement address at Morehouse College, one of the most prestigious of all historically black schools. Yet, at the beginning of the current school year, Morehouse was forced to furlough faculty and staff and make other budget cuts as the result of a sharp decline in enrollment.

In late 2011, the federal government implemented changes to the administration of one of its most popular student loan options, forcing black students to leave campuses as their loans were denied at alarming rates. More than a year later, critics of the changes have confirmed that the stricter credit requirements now enforced for Direct PLUS Loans are having devastating consequences for black students and threatening the future of historically black colleges and universities.

Johnny C. Taylor, president of the Thurgood Marshall College Fund (TMCF), told theGrio that the policy changes stand in “direct contradiction” to President Obama’s stated goal of America having the highest proportion of college graduates in the world by 2020. He calls the upcoming speech by Obama an “opportunity” to address the financial hardship afflicting black students and HBCUs.

“And this isn’t a partisan issue,” Taylor said. “Fixing this is totally within the purview of the administration.”

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.

Changes in credit rules came unannounced

This change in how loans are awarded by ED was not announced to students or education institutions, many of whom were shocked when what had been routine applications were rejected.

Taylor told theGrio that most members of the HBCU community became aware of changes to the program when record numbers of families were rejected for PLUS loans for the 2012 fall semester.

“We sniffed around and found out that the Department of Education chose to reinterpret their policies,” Taylor said.  In partnership with a consortium of HBCU-affiliated groups, the scholarship and mentoring program leader met regularly with Secretary of Education Arne Duncan to make the negative impact of the new rule clear.

“His reply was that his office was concerned about default rates and, very paternalistically, parents taking on too much debt,” Taylor said. “I asked for more information on the default rates to understand their concern. To this day, we have not received it.”

The Department of Education did not respond to requests from theGrio for comment on these allegations.

In a report by The Washington Post, Education Department spokesman Daren Briscoe responded to these criticisms, relating that “about 80 percent of the students who were denied the PLUS loans ended up enrolling in school anyway. He said the department contacted thousands of borrowers who were denied the loans and reconsidered some cases.”

According to Taylor, only 10 percent of loan denials have been overturned on appeal.