# William D. Ford Federal Direct Loan (Direct Loan) Program

# Small Entity Compliance Guide

## Introduction

This guide was prepared by the staff of the U.S. Department of Education as a “small entity compliance guide” under Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996, as amended.  The guide summarizes and explains rules adopted by the Department, but is not a substitute for any rule itself.  Only the rule itself can provide complete and definitive information regarding its requirements.

## Purpose of This Regulatory Action

The Department of Education is amending § 685.200 of title 34 of the Code of Federal Regulations (CFR) to update the standard for determining if a potential parent or student borrower has an adverse credit history for purposes of eligibility for a Direct PLUS Loan (PLUS loan).  Specifically, the final regulations revise the definition of “adverse credit history” and require that parents and students who have an adverse credit history but who are approved for a PLUS loan on the basis that extenuating circumstances exist or who obtain an endorser for the PLUS loan must receive loan counseling before receiving the loan. 

## Summary of the Major Provisions

These regulations -- 

· Revise the student PLUS loan borrower eligibility criteria to state more clearly that the PLUS loan adverse credit history requirements apply to student, as well as parent, PLUS loan borrowers.

· Add definitions of the terms “charged off” and “in collection” for purposes of determining whether an applicant for a PLUS loan has an adverse credit history.

· Specify that a PLUS loan applicant has an adverse credit history if the applicant has one or more debts with a total combined outstanding balance greater than $2,085 that are 90 or more days delinquent as of the date of the credit report, or that have been placed in collection or charged off during the two years preceding the date of the credit report.

· Provide that the combined outstanding balance threshold of $2,085 will be increased over time based on the rate of inflation, as measured by the Consumer Price Index for All Urban Consumers (CPI-U).

· Revise the provision that specifies the types of documentation the Secretary may accept as a basis for determining that extenuating circumstances exist for a PLUS loan applicant who is determined to have an adverse credit history.

· Specify that an applicant for a PLUS loan who is determined to have an adverse credit history, but who obtains an endorser, must complete PLUS loan counseling offered by the Secretary before receiving a PLUS loan.

· Specify that an applicant for a PLUS loan who is determined to have an adverse credit history, but who documents to the Secretary's satisfaction that extenuating circumstances exist, must complete PLUS loan counseling offered by the Secretary before receiving the PLUS loan.

## Compliance Date for Entities Subject to These Regulations

Section 482(c) of the Higher Education Act (HEA) requires that regulations affecting programs under title IV of the HEA be published in final form by November 1, prior to the start of the award year (July 1) to which they apply.  However, that section also permits the Secretary to designate any regulation as one that an entity subject to the regulations may choose to implement earlier and the conditions for early implementation.

Consistent with the Department's objective to improve the loan application process for Direct PLUS loan borrowers, the Secretary exercised his authority under section 482(c) to implement the new and amended regulations earlier than July 1.  A Federal Register notice was published on January 14, 2015, announcing that the implementation date of these regulations would be March 29, 2015.  

## Entities Subject to the Rule

The regulations affect institutions that participate in the title IV, HEA programs, including alternative certification programs not housed at institutions, and individual borrowers.  The U.S. Small Business Administration (SBA) Size Standards define for-profit institutions as “small businesses” if they are independently owned and operated and not dominant in their field of operation, with total annual revenue below $7,000,000.  The SBA Size Standards define nonprofit institutions as “small organizations” if they are independently owned and operated and not dominant in their field of operation, or as “small entities” if they are institutions controlled by governmental entities with populations below 50,000.  The number of title IV, HEA-eligible institutions that are small entities would be limited because of the revenues involved in the sector that would be affected by the regulations and the concentration of ownership of institutions by private owners or public systems.  However, the definition of “small organization” does not factor in revenue.  Accordingly, several of the entities subject to the regulations are “small entities,” and we have prepared this Small Entity Compliance Guide.

## Description of and, Where Feasible, an Estimate of the Number of Small Entities to Which the Regulations Will Apply

The regulations affect approximately 7,500 institutions that participate in the title IV, HEA loan programs, as the amount and composition of title IV, HEA program aid that is available to students affects students' enrollment decisions and institutional choice.  Approximately 60 percent of institutions of higher education qualify as small entities. Using data from the Department’s Integrated Postsecondary Education Data System, we estimate that 4,365 institutions qualify as small entities—1,891 are nonprofit institutions, 2,196 are for-profit institutions with programs of two years or less, and 278 are for-profit institutions with four-year programs.

## Description of the Projected Reporting, Record-keeping, and Other Compliance Requirements of the Regulations, Including an Estimate of the Classes of Small Entities That Will Be Subject to the Requirements and the Type of Professional Skills Necessary for Preparation of the Report or Record

The new regulations will not change the reporting requirements related to PLUS loans for institutions.  Accordingly, the Department does not expect a change in institutional burden from the current regulations.  However, PLUS loan borrowers with an adverse credit history who request reconsideration based on extenuating circumstances must provide satisfactory documentation that extenuating circumstances exist, and will be required to complete loan counseling offered by the Department.  In addition, PLUS loan borrowers who qualify for a PLUS loan after obtaining an endorser will also be required to complete loan counseling.

## Other Resources

The final regulations published for the Direct Loan Program can be found on the Department of Education’s Web site at http://www2.ed.gov/policy/highered/reg/hearulemaking/2012/programintegrity.html.  

## Contacting the Department of Education

The Department of Education’s Office of Postsecondary Education is happy to assist small entities with questions regarding the Direct Loan Program rules.  Please direct questions by telephone at (202) 502-7750.

March 16, 2015