PLUS Loan Exceptional Circumstances

Chad Olson, Assistant Director, Iowa State UniversityIASFAA Fall Conference - November 2014

Why look at Exceptional Circumstances?

• Parents’ ability to borrow has changed• Lack of ability to borrow privately• Differing economic circumstances• As always, it’s for the students!

DL PLUS Loan Criteria

• Cannot be 90 days or more delinquent on any debt over $2,085– New amount as of 10/23/2014 final regs– Will be adjusted, based on CPI increase more than

$100• For 5 years preceding the credit report, no

debt in default, foreclosure, bankruptcy discharge, repossession, tax lien, wage garnishment or write off of an FSA debt

Possible Eligibility Concerns for Parent Borrowers

• Overpayment on FSA Grant• Default on FSA Loan• Stafford loan cancelled for Total and

Permanent Disability (TPD)• All of the above can be waived if satisfactory

repayment arrangements have been made

The FSA Handbook tells us…

• 2014/2015 FSA Handbook lists “exceptional circumstances” on in Volume 3, Chapter 5, page 109.

• http://ifap.ed.gov/fsahandbook/attachments/1415FSAHbkVol3Ch5.pdf

14/15 Vol 3, Chap 5, page 109

What are some Exceptional Circumstances?

• Parent is incarcerated• Parent’s whereabouts are unknown• Parents have filed for bankruptcy and has

documentation prohibiting further borrowing• Parent is on disability or public assistance• Parent’s existing debt to income ratio• Parent does not meet citizenship

requirements for PLUS Loan

Other Exceptional Circumstances

• The examples in the previous slide are examples given by the Department, but should not be considered as an all-inclusive list

Criteria for Additional Unsubsidized Stafford Loans

• What doesn’t grant additional eligibility?– Parent’s unwillingness to borrow– School’s decision not to participate in PLUS Loan program– FAO’s belief that a parent shouldn’t borrow a PLUS Loan– One parent approved, one parent denied– Parent credit denial in previous years

Parent is incarcerated

• Check on the web• Have student provide documentation of

formal court proceeding• Where is the other parent?

Parent’s whereabouts are unknown

• May be independent already

Parent has filed for bankruptcy

• Additional debt cannot be incurred during the bankruptcy proceeding until discharge is granted

• Conditions of the bankruptcy discharge could include inability to take on additional debt for specified time period

• Parents will have plenty of documentation of bankruptcy proceedings from the court

Parent is on disability or public assistance

• FAFSA may indicate receipt of public assistance

• Tax return may show disability payments and will also show if income is limited to disability

• Verification forms may indicate

Parent’s existing debt to income ratio

• If school is using this option, they need to establish a debt to income ratio and document in P & P

• Common debt to income ratio is 40%

Parent does not meet citizenship requirements for PLUS Loan

• Check the ISIR you have on file• Is the other parent a citizen?• Foreign Income Tax Return

Things to remember

• This is professional judgment• Exceptional circumstances must be reviewed

annually• Document, document, document!• Parent’s eligibility can change during the year,

even after a previous PLUS Loan

Tools to assist you

• ISIR• Possibly an admissions application• DHHS Poverty Guidelines– 2014 Family of 2 = $15,730– Add $4,060 for each additional family member– Different for Alaska and Hawaii

• Monthly income and expenses of parent

One Institution's Process

• Discuss other options first including PLUS and private loans

• In conversation, family shares a concern about borrowing

• Learn about family’s concerns– Level of debt– Inability to make payments– Credit history

One Institution's Process

• If concern is debt level or inability to repay, have family complete institutional income/expense form– Use results to make unsubsidized loan

determination– Utilize other file information (EFC, supp app)– Does the parent have ability to make a monthly

loan payment of $50 after other expenses are taken into account

One Institution's Process

• If credit history is the concern, collect authorization to run credit– Only use this route if good indicators that credit

will be denied– Use income/expense form if we think credit might

be approved– Different credit bureaus can have different results• Trans Union dominant in Iowa because based in the

Midwest

One Institution's Process

• Income/expense form almost always reveals families operating in or dangerously close to the red each month

• Use of different loan code to track additional unsub loans due to PJ

• Review previous year’s file in awarding next year’s aid to determine if additional unsub previously awarded

Student’s eligibility for Unsub

• What can student borrow under these circumstances?

• What if student has borrowed their base aggregate in Stafford Loans?

Student’s eligibility for Unsub

• From the FSA Handbook, 14/15 Volume 3, Chapter 5, page 97

• Review annual and aggregate loan limit charts

Student’s eligibility for Unsub

Student’s eligibility for Unsub

• Student may have reached $31,000 limit, but they could borrow up to $12,500 if parents are denied

• Undergraduate student cannot exceed aggregate limit of $57,500

• Student eligibility changes with parents’ annual eligibility!

PLUS Loan Eligibility Final Regs

• Published 10/23/2014 • https://www.federalregister.gov/articles/2014

/10/23/2014-25266/william-d-ford-federal-direct-loan-program#h-10

PLUS Loan Eligibility Final Regs - Summary

• Establishes outstanding balance level of $2085 for bankruptcies and determines mechanism to adjust level

• Clarifies acceptable documentation for adverse credit appeals

• Establishes PLUS Loan counseling criteria – Borrowers using an endorser– Borrowers who document extenuating

circumstances

PLUS Loan Eligibility Final Regs - Summary

• Extends credit check validity from 90 to 180 days

• Enhanced PLUS Loan consumer information will be available for 15/16 school year

• Default rate information on Parent and Graduate PLUS Loans will be calculated

Acknowledgements

• Aaron Steffens – Luther College• Kendra Heaton & Cyndi Peiffer – William Penn

University• Sara Harrington – University of Iowa• Brittany Peterson – Iowa State University

Questions?

• Contact info:Chad Olson chado@iastate.edu(515) 294-8825