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[Federal Register Volume 79, Number 153 (Friday, August 8, 2014)]
[Proposed Rules]
[Pages 46639-46658]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-18673]

[[Page 46639]]

Vol. 79

Friday,

No. 153

August 8, 2014

Part VI

Department of Education

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34 CFR Part 685

William D. Ford Federal Direct Loan Program; Proposed Rule

Federal Register / Vol. 79 , No. 153 / Friday, August 8, 2014 / 
Proposed Rules

[[Page 46640]]

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DEPARTMENT OF EDUCATION

34 CFR Part 685

[Docket ID ED-2014-OPE-0082]
RIN 1840-AD17

William D. Ford Federal Direct Loan Program

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Secretary proposes to amend the regulations governing the 
William D. Ford Federal Direct Loan (Direct Loan) Program. The 
Secretary is proposing to amend these regulations to strengthen and 
improve the administration of the Federal Direct PLUS Loan Program 
authorized under title IV of the Higher Education Act of 1965, as 
amended (HEA).

DATES: We must receive your comments on or before September 8, 2014.

ADDRESSES: Submit your comments through the Federal eRulemaking Portal 
or via postal mail, commercial delivery, or hand delivery. We will not 
accept comments submitted by fax or by email or those submitted after 
the comment period. To ensure that we do not receive duplicate copies, 
please submit your comments only once. In addition, please include the 
Docket ID at the top of your comments.
    If you are submitting comments electronically, we strongly 
encourage you to submit any comments or attachments in Microsoft Word 
format. If you must submit a comment in Adobe Portable Document Format 
(PDF), we strongly encourage you to convert the PDF to print-to-PDF 
format or to use some other commonly used searchable text format. 
Please do not submit the PDF in a scanned format. Using a print-to-PDF 
format allows the U.S. Department of Education (the Department) to 
electronically search and copy certain portions of your submissions.
     Federal eRulemaking Portal: Go to www.regulations.gov to 
submit your comments electronically. Information on using 
Regulations.gov, including instructions for accessing agency documents, 
submitting comments, and viewing the docket, is available on the site 
under ``Are you new to the site?''
     Postal Mail, Commercial Delivery, or Hand Delivery: The 
Department strongly encourages commenters to submit their comments 
electronically. However, if you mail or deliver your comments about the 
proposed regulations, address them to Jean-Didier Gaina, U.S. 
Department of Education, 1990 K Street NW., Room 8055, Washington, DC 
20006-8502.

    Privacy Note: The Department's policy is to make all comments 
received from members of the public available for public viewing in 
their entirety on the Federal eRulemaking Portal at 
www.regulations.gov. Therefore, commenters should be careful to 
include in their comments only information that they wish to make 
publicly available.

FOR FURTHER INFORMATION CONTACT: Brian Smith or Pamela Moran at (202) 
502-7551 or (202) 502-7732 or by email at: Brian.Smith@ed.gov or 
Pamela.Moran@ed.gov.
    If you use a telecommunications device for the deaf (TDD) or a text 
telephone (TTY), call the Federal Relay Service (FRS), toll free, at 1-
800-877-8339.

SUPPLEMENTARY INFORMATION: 
    Executive Summary:
    Purpose of This Regulatory Action: These proposed regulations would 
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 proposed regulations 
would amend the definition of ``adverse credit history'' and require 
PLUS loan counseling for a parent or student with an adverse credit 
history who is approved for a PLUS loan as a result of the Secretary's 
determination that extenuating circumstances exist. The current 
regulations governing adverse credit history determinations have not 
been updated since the Direct Loan Program was established in 1994. The 
proposed regulations would amend the current regulations to reflect 
programmatic and economic changes that have occurred since 1994.
    Summary of the Major Provisions of This Regulatory Action: The 
proposed regulations would--
     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 may be adjusted over time on a basis determined by the 
Secretary.
     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 documents to the 
Secretary's satisfaction that extenuating circumstances exist must 
complete PLUS loan counseling offered by the Secretary before receiving 
the PLUS loan.
    Please refer to the Summary of Proposed Changes section of this 
notice of proposed rulemaking (NPRM) for more details on the major 
provisions contained in this NPRM.
    Costs and Benefits: As further detailed in the Regulatory Impact 
Analysis section of this document, the proposed regulations would 
affect applicants for parent and student PLUS loans by modifying the 
standard for a determination of an adverse credit history. In 
particular, a student or parent would be considered to have an adverse 
credit history if the student or parent has one or more debts with a 
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.
    The proposed regulations would also require that an applicant for a 
PLUS loan who is determined to have an adverse credit history but who 
documents to the satisfaction of the Secretary that extenuating 
circumstances exist must complete PLUS loan counseling offered by the 
Secretary prior to receiving the loan.
    Certain operational changes made by the Department in November 2011 
resulted in an increase in the number of PLUS loan applicants who were 
determined to have an adverse credit history, potentially limiting the 
financial options and resources available to those applicants. The 
modifications made in the proposed regulations will increase the number 
of PLUS loan applicants who pass the adverse credit history check and 
will not have to request reconsideration of an initial denial under the 
Department's process for determining whether extenuating circumstances 
for the adverse credit history condition exist.

[[Page 46641]]

We estimate an increase of approximately 370,000 PLUS loan applicants 
who will pass the adverse credit history check under the proposed 
regulations.
    Under the proposed regulations, applicants would not need to apply 
for reconsideration of an initial PLUS loan denial due to an adverse 
credit history, saving them time and effort. Additionally, because the 
proposed regulations strike a balance between increased availability of 
PLUS loan funds to improve student access to postsecondary education 
and helping to limit overborrowing through improved financial literacy, 
we believe that there will be benefits for both borrowers and the 
Department.
    Invitation to Comment: We invite you to submit comments regarding 
these proposed regulations.
    To ensure that your comments have maximum effect in developing the 
final regulations, we urge you to identify clearly the specific section 
or sections of the proposed regulations that each of your comments 
addresses, and provide relevant information and data whenever possible, 
even when there is no specific solicitation of data and other 
supporting materials in the request for comment. We also urge you to 
arrange your comments in the same order as the proposed regulations. 
Please do not submit comments that are outside the scope of the 
specific proposals in this notice of proposed rulemaking, as we are not 
required to respond to comments that are outside of the scope of the 
proposed rule. See the ADDRESSES section of this document for 
instructions on how to submit comments.
    We invite you to assist us in complying with the specific 
requirements of Executive Orders 12866 and 13563 and their overall 
requirement of reducing regulatory burden that might result from these 
proposed regulations. Please let us know of any further ways we could 
reduce potential costs or increase potential benefits while preserving 
the effective and efficient administration of the Department's programs 
and activities.
    During and after the comment period, you may inspect all public 
comments about the proposed regulations by accessing Regulations.gov. 
You may also inspect the comments in person in room 8055, 1990 K Street 
NW., Washington, DC, between 8:30 a.m. and 4:00 p.m., Washington, DC 
time, Monday through Friday of each week except Federal holidays. If 
you want to schedule time to inspect comments, please contact one of 
the persons listed under FOR FURTHER INFORMATION CONTACT.
    Assistance to Individuals with Disabilities in Reviewing the 
Rulemaking Record: On request, we will provide an appropriate 
accommodation or auxiliary aid to an individual with a disability who 
needs assistance to review the comments or other documents in the 
public rulemaking record for the proposed regulations. If you want to 
schedule an appointment for this type of accommodation or auxiliary 
aid, please contact one of the persons listed under FOR FURTHER 
INFORMATION CONTACT.

Background

    Section 428B(a)(1)(A) of the HEA provides that to be eligible to 
receive a Federal PLUS Loan under the Federal Family Education Loan 
(FFEL) Program, the applicant must not have an adverse credit history, 
as determined pursuant to regulations promulgated by the Secretary. 
This same eligibility requirement applies to applicants for PLUS loans 
under the Direct Loan Program. See section 455(a)(1) of the HEA. The 
definition of ``adverse credit history'' in the current Direct Loan 
Program regulations is effectively the same as the regulatory 
definition of ``adverse credit history'' in the FFEL Program. The 
Department conducts a credit check on each applicant for a PLUS loan 
under the Direct Loan Program to determine whether he or she has an 
adverse credit history.
    Section 685.200(b) and (c) of the Direct Loan Program regulations 
specifies that graduate and professional students, and parents 
borrowing on behalf of their dependent children, may borrow PLUS loans 
if they meet applicable eligibility requirements and do not have an 
adverse credit history. The regulations that specify what is considered 
to be an adverse credit history have not been updated since the Direct 
Loan Program was established in 1994.
    In 2010, Congress amended the HEA to end the making of new loans 
under the FFEL Program effective July 1, 2010. Since that date, all new 
subsidized and unsubsidized Stafford Loans, PLUS Loans, and 
Consolidation Loans have been originated in the Direct Loan Program. In 
implementing this change, the Department found that the operational 
criteria being used in the Direct Loan Program to determine whether an 
applicant for a PLUS loan has an adverse credit history were not 
consistent with the definition of ``adverse credit history'' in the 
Direct Loan Program regulations or with the regulations for the FFEL 
Program. Specifically, the Department determined that PLUS loan 
applicants who had debts that were in collection or charged off were 
passing the adverse credit history check even though these applicants 
were 90 or more days delinquent on a debt, which constitutes an adverse 
credit history under the Department's regulations. Once the 
inconsistency was identified, the Department modified its procedures in 
November 2011 so that borrowers with debts in collection or which were 
charged off would be considered to have an adverse credit history. This 
change increased the number of parent and graduate and professional 
student PLUS loan applicants who were determined to have an adverse 
credit history and thus, were originally ineligible for a PLUS loan. As 
a result of the increased initial denial rate, the Department 
determined that it would be appropriate to review the adverse credit 
history standards that were originally established in 1994. To reflect 
programmatic and economic changes that have occurred since 1994, the 
Department proposes to amend Sec.  685.200(b) and (c) to update the 
regulatory requirements governing PLUS loan adverse credit history 
determinations.

Public Participation

    On April 16, 2013, we published a document in the Federal Register 
(78 FR 22467) announcing topics for consideration for action by a 
negotiated rulemaking committee. A correction to this document was 
published in the Federal Register on April 30, 2013 (78 FR 25235). The 
topics for consideration listed in these documents were: Cash 
management of funds provided under the title IV Federal Student Aid 
programs; State authorization for programs offered through distance 
education or correspondence education; State authorization for foreign 
locations of institutions located in a State; clock to credit hour 
conversion; gainful employment; changes to the campus safety and 
security reporting requirements in the Jeanne Clery Disclosure of 
Campus Security Policy and Campus Crime Statistics Act made by the 
Violence Against Women Reauthorization Act of 2013; and the definition 
of ``adverse credit history'' for borrowers in the Federal Direct PLUS 
Loan Program. In the April 16, 2013, document, we announced three 
public hearings at which interested parties could comment on the 
negotiated rulemaking topics suggested by the Department and could 
suggest additional topics for consideration for action by a negotiated 
rulemaking committee. On May 13, 2013, we published in the Federal 
Register (78 FR 27880) a document announcing the

[[Page 46642]]

addition of a fourth hearing. The hearings were held on--

May 21, 2013, in Washington, DC;
May 23, 2013, in Minneapolis, Minnesota;
May 30, 2013, in San Francisco, California; and
June 4, 2013, in Atlanta, Georgia.

    We also invited parties unable to attend a public hearing to submit 
written comments on the additional topics and to submit other topics 
for consideration. Transcripts from the public hearings are available 
at http://www2.ed.gov/policy/highered/reg/hearulemaking/2012/index.html.
    Written comments submitted in response to the April 16, 2013, 
Federal Register document may be viewed through the Federal eRulemaking 
Portal at www.regulations.gov, within docket ID ED-2012-OPE-0008. You 
can link to the ED-2012-OPE-0008 docket as a related docket inside the 
ED-2014-OPE-0082 docket associated with this notice of proposed 
rulemaking. Alternatively, individuals can enter the docket ID ED-2012-
OPE-0008 in the search box to locate the appropriate docket. 
Instructions for finding comments are also available on the site under 
``How to Use Regulations.gov'' in the Help section.

Negotiated Rulemaking

    Section 492 of the HEA requires the Secretary to obtain public 
involvement in the development of proposed regulations affecting 
programs authorized by title IV of the HEA. After obtaining extensive 
input and recommendations from the public, including individuals and 
representatives of groups involved in the title IV, HEA programs, the 
Secretary must subject the proposed regulations to a negotiated 
rulemaking process. If negotiators reach consensus on the proposed 
regulations, the Department agrees to publish without alteration a 
defined group of regulations on which the negotiators reached consensus 
unless the Secretary reopens the process or provides a written 
explanation to the participants stating why the Secretary has decided 
to depart from the agreement reached during negotiations. Further 
information on the negotiated rulemaking process can be found at: 
http://www2.ed.gov/policy/highered/reg/hearulemaking/hea08/neg-reg-faq.html.
    On November 20, 2013, the Department published a document in the 
Federal Register (78 FR 69612) announcing its intention to establish a 
negotiated rulemaking committee to prepare proposed regulations to 
address program integrity and improvement issues for the Federal 
Student Aid programs authorized under title IV of the HEA. The document 
set forth a schedule for the committee meetings and requested 
nominations for individual negotiators to serve on the negotiating 
committee.
    The Department sought negotiators to represent the following 
groups: Students; legal assistance organizations that represent 
students; consumer advocacy organizations; State higher education 
executive officers; State Attorneys General and other appropriate State 
officials; business and industry; institutions of higher education 
eligible to receive Federal assistance under title III, parts A, B, and 
F and title V of the HEA, which include Historically Black Colleges and 
Universities, Hispanic-Serving Institutions, American Indian Tribally 
Controlled Colleges and Universities, Alaska Native and Native 
Hawaiian-Serving Institutions, Predominantly Black Institutions, and 
other institutions with a substantial enrollment of needy students as 
defined in title III of the HEA; two-year public institutions of higher 
education; four-year public institutions of higher education; private, 
non-profit institutions of higher education; private, for-profit 
institutions of higher education; regional accrediting agencies; 
national accrediting agencies; specialized accrediting agencies; 
financial aid administrators at postsecondary institutions; business 
officers and bursars at postsecondary institutions; admissions officers 
at postsecondary institutions; institutional third-party servicers who 
perform functions related to the title IV Federal Student Aid programs 
(including collection agencies); State approval agencies; and lenders, 
community banks, and credit unions. The Department considered the 
nominations submitted by the public and chose negotiators who would 
represent the various constituencies.
    The negotiating committee included the following members:
    Chris Lindstrom, U.S. Public Interest Research Group, and Maxwell 
John Love (alternate), United States Student Association, representing 
students.
    Whitney Barkley, Mississippi Center for Justice, and Toby Merrill 
(alternate), Project on Predatory Student Lending, The Legal Services 
Center, Harvard Law School, representing legal assistance organizations 
that represent students.
    Suzanne Martindale, Consumers Union, representing consumer advocacy 
organizations.
    Carolyn Fast, Consumer Frauds and Protection Bureau, New York 
Attorney General's Office, and Jenny Wojewoda (alternate), 
Massachusetts Attorney General's Office, representing State attorneys 
general and other appropriate State officials.
    David Sheridan, School of International & Public Affairs, Columbia 
University in the City of New York, and Paula Luff (alternate), DePaul 
University, representing financial aid administrators.
    Gloria Kobus, Youngstown State University, and Joan Piscitello 
(alternate), Iowa State University, representing business officers and 
bursars at postsecondary institutions.
    David Swinton, Benedict College, and George French (alternate), 
Miles College, representing minority serving institutions.
    Brad Hardison, Santa Barbara City College, and Melissa Gregory 
(alternate), Montgomery College, representing two-year public 
institutions.
    Chuck Knepfle, Clemson University, and J. Goodlett McDaniel 
(alternate), George Mason University, representing four-year public 
institutions.
    Elizabeth Hicks, Massachusetts Institute of Technology, and Joe 
Weglarz (alternate), Marist College, representing private, non-profit 
institutions.
    Deborah Bushway, Capella University, and Valerie Mendelsohn 
(alternate), American Career College, representing private, for-profit 
institutions.
    Casey McGuane, Higher One, and Bill Norwood (alternate), Heartland 
Payment Systems, representing institutional third-party servicers.
    Russ Poulin, WICHE Cooperative for Educational Technologies, and 
Marshall Hill (alternate), National Council for State Authorization 
Reciprocity Agreements, representing distance education providers.
    Dan Toughey, TouchNet, and Michael Gradisher (alternate), Pearson 
Embanet, representing business and industry.
    Paul Kundert, University of Wisconsin Credit Union, and Tom 
Levandowski (alternate), Wells Fargo Bank Law Department, Consumer 
Lending & Corporate Regulatory Division, representing lenders, 
community banks, and credit unions.
    Leah Matthews, Distance Education and Training Council, and 
Elizabeth Sibolski (alternate), Middle States Commission on Higher 
Education, representing accrediting agencies.
    Carney McCullough, U.S. Department of Education, representing the 
Department.
    Pamela Moran, U.S. Department of Education, representing the 
Department.
    The negotiated rulemaking committee met to develop proposed 
regulations on

[[Page 46643]]

February 19-21, 2014, March 26-28, 2014, and April 23-25, 2014. In 
response to requests from members of the negotiating committee, the 
Department provided extensive PLUS loan data to the committee prior to 
the March session. During the March session, the Department proposed 
adding an additional negotiated rulemaking session to the schedule to 
give the negotiators sufficient time to consider the PLUS loan data. 
The negotiators agreed to add a fourth and final session held on May 
19-20, 2014.
    At its first meeting, the negotiating committee reached agreement 
on its protocols and proposed agenda. These protocols provided, among 
other things, that the committee would operate by consensus. Consensus 
means that there must be no dissent by any member in order for the 
committee to have reached agreement. Under the protocols, if the 
committee reached a final consensus on all issues, the Department would 
use the consensus-based language in its proposed regulations. 
Furthermore, the Department would not alter the consensus-based 
language of its proposed regulations unless the Department reopened the 
negotiated rulemaking process or provided a written explanation to the 
committee members regarding why it decided to depart from that 
language.
    During the first meeting, the negotiating committee agreed to 
negotiate an agenda of six issues related to student financial aid. 
These six issues were: Clock to credit hour conversion; State 
authorization of distance education; State authorization of foreign 
locations of domestic institutions; cash management; retaking 
coursework; and PLUS loan adverse credit history. Under the protocols, 
a final consensus would have to include consensus on all six issues.
    During the meeting, the Department explained that it planned to 
include the proposed regulations that would be published after 
completion of the negotiated rulemaking process in two separate NPRMs. 
One NPRM would contain the proposed PLUS loan adverse credit history 
regulations. The second NPRM would contain all the remaining proposed 
regulations on the negotiating agenda. This is consistent with past 
practice for publishing NPRMs, as the Department generally publishes 
proposed loan program regulatory changes separately from proposed 
regulations for the Student Assistance General Provisions regulations 
in 34 CFR Part 668 or other title IV, HEA program regulations when 
there are no shared cross-programmatic or other conforming changes 
involved.
    Non-Federal negotiators encouraged the Department to take action 
quickly with respect to the PLUS loan adverse credit history 
regulations. The Department said it would consider designating final 
regulations resulting from this NPRM for early implementation under 
section 484(c)(2) of the HEA.
    During committee meetings, the committee reviewed and discussed the 
Department's drafts of regulatory language and the committee members' 
alternative language and suggestions. At the final meeting on May 20, 
2014, the committee did not reach consensus on the Department's 
proposed regulations. For this reason, and according to the committee's 
protocols, all parties who participated or were represented in the 
negotiated rulemaking, in addition to all members of the public, may 
comment freely on the proposed regulations. For more information on the 
negotiated rulemaking sessions, please visit: http://www2.ed.gov/policy/highered/reg/hearulemaking/2012/programintegrity.html#info.

Summary of Relevant Data

PLUS Loan Data

    At the first negotiating session, the non-Federal negotiators asked 
the Department to provide certain data about the PLUS loan program to 
the negotiating committee. The non-Federal negotiators asked if the 
Department could calculate PLUS loan cohort default rates. They also 
asked for information on PLUS loan volume--both numbers of borrowers 
and amounts borrowed. Non-Federal negotiators asked to see rates of 
PLUS loan denials due to an adverse credit history, broken out by 
school sector. In addition, they asked for data on the frequency of 
different adverse credit conditions that result in denial of a PLUS 
loan.
    The Department agreed to provide PLUS loan data for the PLUS loan 
adverse credit history discussion at the second negotiated rulemaking 
session.

The Session 2 Data

    Prior to the second negotiated rulemaking session, the Department 
provided the non-Federal negotiators with charts containing the 
following data:
     Debt of PLUS, Parent PLUS, and Grad PLUS Borrowers;
     PLUS Credit Check Denial and Remediation Rates by Sector 
and by Program Offering;
     Credit Check Declination Rate by Sector by Year;
     Top Five Credit Check Declination Reasons by Sector by 
Year;
     PLUS Borrower 3-Year Cohort Default Rate; and
     AY 2012-13 Credit Check Approval and Denials.\1\
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    \1\ All of the charts provided to the negotiators are available 
at: http://www2.ed.gov/policy/highered/reg/hearulemaking/2012/programintegrity.html#2.
---------------------------------------------------------------------------

    In addition, during the second session, the Department provided the 
negotiators with data breaking out PLUS loan disbursements under the 
Direct Loan and FFEL programs from 2006 to 2010.\2\
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    \2\ This data is available at: http://www2.ed.gov/policy/highered/reg/hearulemaking/2012/programintegrity.html#2.
---------------------------------------------------------------------------

    The non-Federal negotiators expressed appreciation to the 
Department for providing the requested data about PLUS loans. The non-
Federal negotiators also asked for additional data in connection with 
the charts showing PLUS loan remediation rates (the rates at which 
applicants who were initially denied PLUS loans due to an adverse 
credit history were able to obtain PLUS loans; or, if the parent did 
not obtain PLUS loans, the rates at which the parent's dependent 
children were able to receive additional unsubsidized loans) and PLUS 
loan cohort default rates. The Department agreed to provide this 
additional data for the third negotiated rulemaking session.

The Session 3 Data

    Prior to the third negotiated rulemaking session, in response to 
the requests made during the second session, the Department provided 
the non-Federal negotiators with amended versions of the following 
charts:
     PLUS Credit Check Denial Remediation Rates by Sector and 
by Program Offering (two versions reflecting breakout of remediation by 
obtaining an endorser, submitting documentation of extenuating 
circumstances, or the dependent student's receipt of additional 
unsubsidized loans); and
     PLUS Borrower Three-Year Cohort Default Rates (broken out 
by the FFEL and Direct Loan programs).\3\
---------------------------------------------------------------------------

    \3\ These charts are available at: http://www2.ed.gov/policy/highered/reg/hearulemaking/2012/programintegrity.html#3.
---------------------------------------------------------------------------

Summary of Proposed Changes

    The proposed regulations would--
     Revise the student PLUS loan borrower eligibility criteria 
to state more clearly that the PLUS loan adverse credit history 
requirements apply to graduate or professional student PLUS loan 
borrowers.
     Add definitions of the terms ``charged off'' and ``in 
collection'' for

[[Page 46644]]

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 may be adjusted over time on a basis determined by the 
Secretary.
     Revise the provision that specifies the types of 
documentation the Secretary may accept as a basis for determining that 
extenuating circumstance 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 documents to the 
Secretary's satisfaction that extenuating circumstances exist must 
complete PLUS loan counseling offered by the Secretary before receiving 
the loan.

Significant Proposed Regulations

    We discuss substantive issues under the sections of the proposed 
regulations to which they pertain. Generally, we do not address 
proposed regulatory provisions that are technical or otherwise minor in 
effect.

Student PLUS Borrower (34 CFR 685.200(b))

    Statute: Section 428B(a)(1)(A) of the HEA specifies that a graduate 
or professional student with an adverse credit history is not eligible 
to borrow a PLUS loan.
    Current Regulations: Current Sec.  685.200(b)(5) specifies that a 
student must meet the requirements of Sec.  685.200(c)(1)(vii) to 
qualify for a PLUS loan. Current Sec.  685.200(c)(1)(vii) includes the 
adverse credit history requirements for parent PLUS loan borrowers.
    Proposed Regulations: Proposed Sec.  685.200(b)(5) specifies that a 
graduate or professional student must meet the requirements ``that 
apply to a parent'' under Sec.  685.200(c)(2)(viii)(A) through 
(c)(2)(viii)(D) to qualify for a PLUS loan. Proposed Sec.  
685.200(c)(2)(viii)(A) through (c)(2)(viii)(D) would include the 
adverse credit history requirements for parent PLUS borrowers.
    Reasons: The proposed regulations would revise Sec.  685.200(c). 
Due to the revision to Sec.  685.200(c), we would also need to revise 
the cross-reference in Sec.  685.200(b)(5). New Sec.  
685.200(c)(1)(viii)(B) refers to a parent with an adverse credit 
history, rather than an applicant with an adverse credit history. 
Therefore, a conforming change, adding a reference to the ``parent'', 
would be required in Sec.  685.200(b)(5). In addition, proposed Sec.  
685.200(b)(5) would clarify that the adverse credit history 
requirements that apply to parent PLUS borrowers under Sec.  
685.200(c)(2)(viii)(A) through (c)(2)(viii)(D) also apply to all 
student PLUS borrowers.
    Some of the non-Federal negotiators contended that there should be 
different eligibility standards for parent PLUS loan borrowers and 
graduate and professional student PLUS loans borrowers. These 
negotiators argued that graduate and professional students should be 
eligible for PLUS loans without application of the adverse credit 
history criteria. Alternatively, one non-Federal negotiator requested 
that the Department consider defining ``adverse credit history'' 
differently for graduate and professional student PLUS loan borrowers 
than for parent PLUS loan borrowers.
    We did not agree with the suggestion to have different standards 
for parent and student PLUS loan applicants. We noted that, pursuant to 
the HEA, there is a single PLUS loan program that provides loans for 
both graduate and professional students and parents of dependent 
students. The statutory requirement that a PLUS loan applicant not have 
an adverse credit history applies equally to student and parent 
applicants. We see no basis under the HEA for establishing different 
regulatory definitions of ``adverse credit history'' for graduate and 
professional student applicants and parent PLUS applicants.

Parent PLUS Borrower: Definitions (34 CFR 685.200(c)(1))

    Statute: None.
    Current Regulations: None.
    Proposed Regulations: The proposed regulations would define the 
terms ``charged off'' and ``in collection'' for purposes of adverse 
credit history determinations. Proposed Sec.  685.200(c)(1)(i) would 
define the term ``charged off'' to mean a debt that a creditor has 
written off as a loss, but that is still subject to collection action. 
Proposed Sec.  685.200(c)(1)(ii) would define the term ``in 
collection'' to mean a debt that has been placed with a collection 
agency by a creditor, or that is subject to more intensive efforts by a 
creditor to recover amounts owed from a borrower who has not responded 
satisfactorily to the demands routinely made as part of the creditor's 
billing procedures.
    Reasons: Under the current regulations, an applicant who has debts 
that are in collection or that has been charged off will be determined 
to have an adverse credit history, but the regulations do not define 
these terms. The proposed definitions for these terms are commonly 
understood definitions in the collections industry. Although some of 
the non-Federal negotiators did not agree that these conditions should 
constitute adverse credit, they agreed that if the Department is going 
to consider debts that are in collection or that have been charged off 
as indicators that a borrower has an adverse credit history, the terms 
should be defined in the regulations.

Parent PLUS Borrower: Adverse Credit History (34 CFR 685.200(c)(2))

    Statute: Section 428B(a)(1)(A) of the HEA provides that a parent of 
a dependent student is not eligible to borrow a PLUS loan if the parent 
has an adverse credit history.
    Current Regulations: Current regulations under Sec.  
685.200(c)(1)(vii)(B) establish the conditions under which a PLUS loan 
applicant will be considered to have an adverse credit history. Under 
Sec.  685.200(c)(1)(vii)(B), an adverse credit history means that, as 
of the date of the credit report, the applicant: (1) Is 90 or more days 
delinquent on any debt; or (2) has been the subject of a default 
determination, bankruptcy discharge, foreclosure, repossession, tax 
lien, wage garnishment, or write-off of a debt under title IV of the 
HEA during the five years preceding the date of the credit report.
    Proposed Regulations: Under proposed Sec.  
685.200(c)(2)(viii)(B)(1), an adverse credit history would mean that a 
parent (or, by cross-reference, a student) 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 charged off or placed in collection during the two years preceding 
the date of the credit report. Proposed Sec.  685.200(c)(2)(viii)(B)(1) 
would provide that the $2,085 threshold amount may be adjusted over 
time on a basis determined by the Secretary. In proposed Sec.  
685.200(c)(2)(viii)(B)(2) the Department would retain the current 
provision that provides that a parent or student has an adverse credit 
history if the parent or student has been the subject of a default 
determination, bankruptcy discharge, foreclosure, repossession, tax 
lien, wage garnishment, or write-off of a debt under

[[Page 46645]]

title IV of the HEA during the five years preceding the date of the 
credit report.
    Reasons: After the Department corrected its implementation of the 
adverse credit history standards in November 2011, some borrowers who 
had qualified for PLUS loans in earlier years were determined to have 
an adverse credit history when they applied for subsequent PLUS loans 
even though their credit history had not substantially changed. In many 
cases, these applicants requested reconsideration on the basis of 
extenuating circumstances as permitted under the regulations.
    Based on its experience in handling PLUS loan applicant requests 
for reconsideration on the basis of extenuating circumstances, the 
Department concluded that it was appropriate to update the standards 
for determining that an applicant has an adverse credit history to 
reflect programmatic and economic changes since the standards were 
established in 1994.
    We believe that the proposed changes to the PLUS loan adverse 
credit history regulations will improve the adverse credit history 
determination process by incorporating some of the circumstances that 
the Department considers during the reconsideration process into the 
standards for initial determinations of an adverse credit history. We 
expect that making these changes to the definition of ``adverse credit 
history'' will reduce the number of applicants who, under the current 
regulations, are initially denied PLUS loans due to an adverse credit 
history, but upon further review, the Department determines have 
extenuating circumstances. During the negotiated rulemaking sessions, 
the committee members discussed how the proposed changes would serve 
three public interests: (1) Ensuring greater access to higher education 
for all students and families; (2) ensuring that borrowers do not take 
out loans that they will be unable to repay without hardship; and (3) 
protecting the Federal fiscal interest by ensuring that borrowers repay 
their student loans. Some of the non-Federal negotiators expressed the 
view that the primary focus of the title IV, HEA programs, including 
the PLUS loan program, should be increasing access to higher education. 
These negotiators argued that the lending standards that apply to 
commercial loans should not be applied to PLUS loans, which serve a 
compelling public interest. The negotiators expressed the view that it 
is a parent's (or graduate or professional student's) decision as to 
whether to borrow a PLUS loan, and in what amount, even if the 
applicant's financial circumstances or history may indicate that the 
applicant could experience difficulty in paying it back. One non-
Federal negotiator strongly recommended that the Department return to 
the adverse credit history standard as it had been implemented in the 
Direct Loan program prior to the changes made in November 2011, under 
which debts in collection or that were charged off did not constitute 
adverse credit.
    Other non-Federal negotiators argued that the Department should 
take action to prevent overborrowing by parents and students. These 
negotiators argued that a return to the standard in the Direct Loan 
program used prior to November 2011 would encourage both student and 
parent borrowers to take out greater, perhaps unaffordable, amounts of 
PLUS loan debt regardless of the financial circumstances or history of 
the applicant. They also argued that, in addition to ensuring access to 
higher education, the Department should consider whether or not 
borrowers could repay these loans.
    In expressing their concerns about overborrowing and the potential 
for high debt loads, some non-Federal negotiators noted that, unlike 
Direct Subsidized and Direct Unsubsidized loans, there are no annual or 
aggregate loan limits for PLUS loans and a PLUS loan can be taken out 
in an amount up to the student's cost of attendance. They further noted 
that parent PLUS loan borrowers are not eligible for income-driven 
repayment plans and it is very difficult to qualify for a bankruptcy 
discharge of a student or parent loan. To that end, some non-Federal 
negotiators recommended establishing annual and aggregate loan limits 
for PLUS loan borrowers. We noted that loan limits in the title IV, HEA 
programs, including the PLUS loan program, are based on the relevant 
statute, and may not be established through regulation.
    Some non-Federal negotiators recommended considering the 
applicant's ability to repay in an adverse credit history determination 
in order to prevent overborrowing of PLUS loans. We noted that the HEA 
would need to be amended to allow consideration of the applicant's 
ability to repay. Rather, adverse credit history is a measure of an 
individual's history of repaying existing debt. It does not measure 
whether the individual has the financial ability to repay a specific 
level of debt, but whether that individual has repaid debt in the past.
    In developing the proposed regulations, we attempted to strike a 
balance between the public policy interests of ensuring access to 
higher education while helping to ensure that borrowers do not take out 
loans that their past financial credit history indicates they will not 
repay. Based on our experience in evaluating requests for 
reconsideration based on extenuating circumstances, we expect that more 
borrowers would qualify for PLUS loans under the adverse credit history 
standard in the proposed regulations without the need to demonstrate 
extenuating circumstances.
    The proposed definition of ``adverse credit history'' has several 
components. Each component is discussed separately in the following 
sections.
Component 1--Outstanding Balance Greater than $2,085
    Statute: None.
    Current Regulations: Current Sec.  685.200(c)(1)(vii)(D) specifies 
that, for purposes of documenting extenuating circumstances, the 
Secretary may rely on a satisfactory statement from the applicant 
explaining any delinquency with an outstanding balance greater than 
$500.
    Proposed Regulations: Under the proposed regulations, the amount of 
the applicant's debt would be taken into account during the initial 
determination of whether the applicant has an adverse credit history, 
rather than as part of the process for documenting extenuating 
circumstances following denial of a PLUS loan. In addition, the 
proposed regulations would establish a standard that an applicant is 
not considered to have an adverse credit history unless the applicant's 
debts have a total combined outstanding balance greater than $2,085.
    Reasons: After the November 2011 operational change to the 
Department's implementation of the adverse credit history definition, 
the Department adjusted the $500 amount, referred to as ``the threshold 
amount,'' to $780 to account for inflation since 1994. Later, the 
Department increased the threshold amount from $780 to $2,085. The 
Department selected this level to reflect the estimated median debt 
level for all debts with a status of in collection, charged off, or 90 
or more days delinquent, from all parent PLUS loan denials resulting 
from all credit checks conducted between the spring of 2012 and the 
spring of 2013. The Department now proposes to use the $2,085 threshold 
amount in the initial determination of whether an applicant has an 
adverse credit history to reflect current operational practice in our 
reconsideration process.

[[Page 46646]]

Component 2--Adjustment Over Time
    Statute: None.
    Current Regulations: None.
    Proposed Regulations: Under the proposed regulations, the $2,085 
amount may be adjusted over time on a basis determined by the 
Secretary.
    Reasons: Several of the non-Federal negotiators recommended that 
the Department index the $2,085 amount to the rate of inflation. The 
negotiators argued that by indexing the amount to an accepted measure 
of inflation, increases could be calculated and implemented without the 
necessity of amending the regulations.
    Most of these negotiators recommended indexing the $2,085 amount to 
the Consumer Price Index (CPI), a measure of inflation determined by 
the Bureau of Labor Statistics (BLS). However, BLS calculates several 
different CPI rates on a monthly basis. The CPI rate most commonly used 
as a measure of inflation is the Consumer Price Index for All Urban 
Consumers (CPI-U). The Department considered using the CPI-U as the 
basis for indexing, but decided to invite comment on which index would 
be most appropriate in this context, and whether to base the adjustment 
of the $2,085 amount on a measure other than inflation.
    One non-Federal negotiator suggested that the Department should 
adjust the amount of debt annually. This negotiator argued that, while 
small, short-term changes would have little impact in one year, over a 
period of time they could have a significant impact. Another non-
Federal negotiator suggested using the CPI, but averaging the rate over 
time. This negotiator noted that averaging the rate over time would 
smooth out abrupt and relatively short-term changes in CPI and thus 
reduce volatility.
    The Department is open to adjusting the $2,085 amount. Therefore, 
we are proposing in the regulations that the Secretary may adjust the 
amount over time, on a basis determined by the Secretary. Any 
adjustments that the Secretary makes to the $2,085 amount would be 
announced through a Notice in the Federal Register. We invite comment 
on this provision, and welcome recommendations on an appropriate 
measure of inflation to use in adjusting this amount, or whether 
another measure of growth or decline in consumer debt due to economic 
conditions may be a more appropriate measure.
    As discussed in the ``Operational Issues'' section of this 
preamble, the Department intends to collect, and where appropriate 
publish, information about the performance of parent and graduate/
professional student PLUS loans, including default rate information 
based on credit history characteristics of Plus loan applicants and 
individual institutional default rates.
Component 3--Debts 90 or More Days Delinquent
    Statute: None.
    Current Regulations: Current Sec.  685.200(c)(1)(vii)(B)(1) 
specifies that a PLUS loan applicant who is 90 or more days delinquent 
on any debt has an adverse credit history.
    Proposed Regulations: The proposed regulations would maintain the 
90 or more days delinquent standard.
    Reasons: Some of the non-Federal negotiators argued that the 
current delinquency standard of 90 or more days past due is too short 
for adverse credit history determinations. These negotiators 
recommended extending the past due period to 120 days or 180 days. They 
asserted that credit reports often have errors that may not be 
corrected during a 90-day timeframe.
    In the absence of a consistent industry-wide standard, we decided 
to maintain the standard of 90 or more days delinquent in the proposed 
regulations. We rely on credit reports to determine whether an 
applicant is delinquent on a debt, as the number of days a debt is past 
due is included on an individual's credit report until an account is 
placed in collection. Based on our experience, most creditors send 
accounts to collection once they are 90 days' delinquent. Once an 
account is placed in collection, the number of days past due is 
generally not reflected on the credit report. Therefore, a standard 
beyond the current 90-day standard would be more difficult to track.
    With regard to errors on credit reports, a PLUS loan applicant 
would have the opportunity during the process for determining whether 
extenuating circumstances for the adverse credit history condition 
exist to show that the determination of an adverse credit history was 
based on an error in the credit report by providing an updated credit 
report or information from the creditor.
Component 4--In Collection or Charged Off
    Statute: None.
    Current Regulations: None.
    Proposed Regulations: Under the proposed regulations, an applicant 
with debts in collection or debts that have been charged off during the 
two years preceding the date of the credit report would have an adverse 
credit history.
    Reasons: Under current operational practice, a borrower with debts 
in collection or debts that have been charged off in the preceding five 
years is considered to have an adverse credit history. One non-Federal 
negotiator recommended that the Department return to the operational 
standard used prior to November 2011, when the Department did not 
consider these circumstances to constitute an adverse credit history.
    We do not agree that the earlier operational practice met the 
purposes of the statute in determining an adverse credit history. We 
believe it would create an inconsistency in the regulations to not 
consider as an adverse credit history accounts in collection or debts 
that have been charged off, while including accounts that are 90 or 
more days delinquent. Generally, accounts in collection or accounts 
that have been charged off are well past the 90-day delinquency stage.
    Although we do not propose to change the treatment of collection 
accounts and charged-off accounts in the determination of an adverse 
credit history, we did agree to propose to reduce the period of time 
for which such accounts would be considered as an adverse credit 
history. The proposed regulations would reduce the current look-back 
period of five years to two years preceding the date of the credit 
report. We believe that this standard would screen out most anomalous 
conditions, such as a single bad debt on an otherwise clean credit 
report.
    Non-Federal negotiators made varying proposals for the look-back 
period for debts that are in collection or charged off. Some 
negotiators recommended a one-year look-back period. We do not believe, 
however, that one year is sufficient, particularly when the past due 
status of the account might be reduced through a series of payments, 
but not eliminated, and then increase again.
    Other non-Federal negotiators recommended a three-year look-back 
period. They argued that, in many States, debts have a statute of 
limitations of three years. However, because the statute of limitations 
on debts varies from State to State, we do not think that it is a 
useful standard in determining the length of the look-back period for 
collections and charge-offs in the PLUS loan program.
    Based on these considerations, we believe that the proposed two-
year look-back period for debts that are in collection or have been 
charged off is appropriate. A one-year look-back period is too short to 
measure a PLUS loan applicant's history and a five-year

[[Page 46647]]

period is more closely associated with the major, long-term items 
indicating an adverse credit history in proposed Sec.  
685.200(c)(2)(viii)(B)(2).

Extenuating Circumstances (34 CFR 685.200(c)(2))

    Statute: None.
    Current Regulations: Section 685.200(c)(1)(vii)(A)(3) specifies 
that a parent who has an adverse credit history, but who documents to 
the satisfaction of the Secretary that extenuating circumstances exist, 
may be eligible for a PLUS loan. Section 685.200(c)(1)(vii)(D) of the 
current regulations (as amended by final regulations published on 
November 1, 2013) provides that the Secretary may determine that 
extenuating circumstances exist based on documentation that includes, 
but is not limited to, an updated credit report, a statement from the 
creditor that the borrower has made satisfactory arrangements to repay 
the debt, or a satisfactory statement from a borrower explaining any 
delinquencies with an outstanding balance of less than $500.
    Proposed Regulations: Proposed Sec.  685.200(c)(2)(viii)(A)(3) 
states that, in addition to providing documentation to the Secretary 
demonstrating that extenuating circumstances exist, a parent or student 
with an adverse credit history would be required to complete PLUS loan 
counseling offered by the Secretary to become eligible for a PLUS loan.
    Proposed Sec.  685.200(c)(2)(viii)(D)(2) would eliminate from the 
list of possible extenuating circumstances a statement from an 
applicant explaining any delinquencies with an outstanding balance of 
less than $500.
    Reasons: During the negotiations there was a significant amount of 
discussion about methods for improving financial literacy for PLUS loan 
applicants. Many non-Federal negotiators recommended that all parent 
PLUS loan applicants be required to complete loan counseling before 
receiving a PLUS loan, much as first-time student borrowers are 
required to complete entrance counseling before receiving Direct 
Subsidized Loans, Direct Unsubsidized Loans, or student Direct PLUS 
loans. The Department explained, however, that, while loan counseling 
is a statutory requirement for student borrowers, the HEA does not 
require parent PLUS applicants to receive loan counseling prior to 
receiving a PLUS loan. Therefore, the Department does not have the 
legal authority to extend this requirement to all PLUS loan applicants.
    However, the Department is proposing through these regulations that 
a PLUS loan applicant who is ineligible for a PLUS loan due to an 
adverse credit history, but who documents to the satisfaction of the 
Secretary that extenuating circumstances exist, would be required to 
complete loan counseling as an additional condition for receiving the 
PLUS loan. The Department also plans to offer enhanced PLUS loan 
consumer information, as discussed under ``Operational Issues.''
    The proposed regulations do not apply the loan counseling 
requirement to a PLUS loan applicant who has an adverse credit history 
but is eligible to receive a PLUS loan by obtaining an endorser who 
does not have an adverse credit history. A PLUS loan applicant who 
obtains an endorser is still primarily responsible for repaying the 
PLUS loan. The Department believes that these applicants, like PLUS 
loan applicants who qualify due to extenuating circumstances, would 
benefit from PLUS loan counseling. Therefore, the Secretary is 
requesting comment on whether the loan counseling requirement for 
applicants who qualify due to extenuating circumstances should also 
apply to applicants who obtain an endorser.

Operational Issues

Validity of Credit Checks for 90 Days

    As explained in the ``Background'' section of this preamble, the 
Department conducts a credit check on each applicant for a PLUS loan to 
determine whether he or she has an adverse credit history. A credit 
check is conducted when a school submits a PLUS loan origination record 
to the Department's Common Origination and Disbursement (COD) System, 
or when an applicant for a PLUS loan completes the optional Direct PLUS 
Loan Request for Supplemental Information (Direct PLUS Loan Request) on 
the Department's StudentLoans.gov Web site. Alternatively, a school may 
submit a credit check request for a PLUS loan applicant to the COD 
System Web site.
    Under the Department's current procedures, an approved credit check 
remains valid for purposes of determining an applicant's eligibility to 
receive a PLUS loan for 90 days from the date on which the credit check 
was performed. That is, any action that would normally trigger a credit 
check (for example, the submission of a Direct PLUS Loan Request or a 
PLUS loan origination record) will not do so if a prior credit check on 
the applicant was conducted within the past 90 days. This 90-day window 
reflects the Department's long-standing practice in the Direct Loan 
Program and is consistent with the standard previously used by most 
FFEL Program lenders when conducting credit checks on applicants for 
Federal PLUS Loans. The 90-day window is not in the Direct Loan Program 
regulations, but it was adopted by the Department as a reasonable 
standard for ensuring that a credit check is conducted within a 
timeframe that will result in an accurate representation of a PLUS loan 
applicant's current credit history prior to the receipt of PLUS loan 
funds.
    During the negotiations, many of the non-Federal negotiators 
expressed concern that the current 90-day period is not a long enough 
period of validity for the credit check when disbursing PLUS loans. 
They noted that, in certain situations, the requirement that a new 
credit check be conducted (if the most recent credit check was more 
than 90 days in the past) can mean that a PLUS loan applicant who was 
initially approved for a PLUS loan for the purpose of a school's 
financial aid award packaging for the upcoming academic year may later 
be denied the loan if an event that triggers another credit check 
occurs more than 90 days after the date of the prior credit check, and 
if the subsequent credit check determines that the borrower has an 
adverse credit history. For example, if a student or parent was 
approved for a PLUS loan for the purpose of a school's financial aid 
award packaging for the upcoming academic year based on the results of 
a credit check that was completed when the applicant submitted a Direct 
PLUS Loan Request, but the school is not able to submit the PLUS loan 
origination record within 90 days of the date of that credit check, a 
second credit check will be conducted when the loan origination record 
is submitted.
    Similarly, an individual who received a PLUS loan based on the 
results of a credit check may later request additional loan funds by 
submitting another Direct PLUS Loan Request and indicating that he or 
she wants to increase the amount of an existing PLUS loan. If the 
borrower submits the Direct PLUS Loan Request more than 90 days after 
the date of the prior credit check, another credit check will be 
conducted. In both instances, the subsequent credit check may 
potentially result in a determination that the borrower now has an 
adverse credit history (if the applicant's financial circumstances have 
changed since the date of the prior credit check), and therefore is 
ineligible for a PLUS loan or for an increased loan amount, even though 
the borrower was

[[Page 46648]]

previously approved based on the results of an earlier credit check.
    Many of the non-Federal negotiators stated that applicants who are 
determined to be eligible to receive a PLUS loan based on the results 
of a credit check should be able to rely on that approval if they later 
need to request an increase in the amount of an existing loan. 
Accordingly, some of these negotiators suggested that the Department 
should consider changing its procedures so that the results of a credit 
check would remain valid for a full year after the date of the credit 
check. Other negotiators proposed that the Department go even further 
and make a credit check valid for the purpose of a parent's or 
student's eligibility to receive PLUS loans for the duration of a 
student's program of study if the borrower was not determined to have 
an adverse credit history.
    After considering the concerns expressed by some of the non-Federal 
negotiators, the Department has decided to modify its procedures so 
that a credit check that indicates that the applicant does not have an 
adverse credit history would remain valid for 180 days. We believe that 
extending the window for an even longer period of time would result in 
borrowers receiving PLUS loan funds based on credit checks that do not 
reasonably reflect the applicant's most current financial 
circumstances. However, extending the window from the current 90 days 
to 180 days should satisfactorily address the concerns raised by some 
of the negotiators.
    Although the Department agreed with the non-Federal negotiators 
that it would be appropriate to extend the period of time during which 
an approved credit check is valid, the Department also reminded the 
negotiators that under current procedures it is possible for a school 
to process a borrower's request for an increase in the amount of an 
existing PLUS loan without subjecting the borrower to a second credit 
check. In such cases, a school may simply submit an upward adjustment 
to the amount of an existing PLUS loan to the COD system, without 
submitting a new PLUS loan origination record. The submission of an 
upward adjustment will not trigger a new credit check, regardless of 
the date of the most recent credit check for the borrower. Also, it is 
not mandatory for borrowers to request an increase in the amount of an 
existing loan by submitting a Direct PLUS Loan Request, which may 
trigger a second credit check. A school may obtain a borrower's request 
for a loan amount increase by other means.

Enhancing PLUS Borrower Consumer Information

    As discussed under the ``Extenuating Circumstances'' section of 
this preamble, the negotiating committee discussed methods for 
improving access to consumer information for PLUS loan applicants. In 
particular, many non-Federal negotiators believed that there is 
currently a lack of sufficient consumer information specifically 
targeted at parent PLUS loan applicants.
    The Department agrees with the concerns expressed by the 
negotiators and will develop enhanced consumer information and 
resources for parent PLUS applicants that could be incorporated within 
the existing PLUS loan application process or made available to parents 
through links to information on other Department Web sites. At a 
minimum, the Department will offer voluntary entrance counseling to all 
parent PLUS applicants which would provide clear information on the 
monthly payment that would be required for the loan the applicant is 
requesting as well as what the total monthly payment would be if the 
applicant borrows the same amount for each year of a dependent 
student's four-year or six-year undergraduate program. In addition, the 
Department will expand its current online financial tools to include a 
PLUS-specific loan calculator that would allow parents to evaluate 
their future ability to repay PLUS loans based on their individual 
economic circumstances.
    The Department intends to collect, and where appropriate publish, 
information about the performance of parent and graduate/professional 
student PLUS loans, including default rate information based on credit 
history characteristics of PLUS loan applicants and individual 
institutional default rates. Providing more detailed information about 
the PLUS loan program will assist the Department in evaluating the 
definition of adverse credit history in the future and will allow 
institutions to understand the impact of PLUS loan borrowing on 
students and parents in order to help them better support their parent 
and student PLUS borrowers.
    We invite suggestions for the specific types of enhanced consumer 
information that the Department should develop for PLUS applicants, 
particularly parent PLUS applicants who may be planning to borrow for 
more than one dependent over multiple academic years. We also invite 
comments on what other types of information about Parent PLUS loans 
would be helpful for institutions and consumers, and we invite 
suggestions on the most effective way for the Department to communicate 
with parent PLUS borrowers.

Executive Orders 12866 and 13563

Regulatory Impact Analysis

Introduction
    The Department makes Direct PLUS Loans to graduate or professional 
students and to parents of dependent undergraduate students to help pay 
for education expenses not covered by other financial aid. According to 
data from the Department's Federal Student Aid (FSA) office, 
approximately 3.9 million borrowers owe a balance of $100 billion in 
total Direct PLUS loans. The Department is proposing these regulations 
to update the standard for determining if a potential borrower has an 
adverse credit history for purposes of eligibility for a Direct PLUS 
loan.
    Under Executive Order 12866, the Secretary must determine whether 
this regulatory action is ``significant'' and, therefore, subject to 
the requirements of the Executive order and subject to review by the 
Office of Management and Budget (OMB). Section 3(f) of Executive Order 
12866 defines a ``significant regulatory action'' as an action likely 
to result in a rule that may--
    (1) Have an annual effect on the economy of $100 million or more, 
or adversely affect a sector of the economy, productivity, competition, 
jobs, the environment, public health or safety, or State, local, or 
tribal governments or communities in a material way (also referred to 
as an ``economically significant'' rule);
    (2) Create serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impacts of entitlement grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles stated in the 
Executive order.
    This proposed regulatory action is a significant regulatory action 
subject to review by OMB under section 3(f) of Executive Order 12866.
    We have also reviewed these regulations under Executive Order 
13563, which supplements and explicitly reaffirms the principles, 
structures, and definitions governing regulatory review established in 
Executive Order 12866. To the extent permitted by law, Executive Order 
13563 requires that an agency--
    (1) Propose or adopt regulations only upon a reasoned determination 
that

[[Page 46649]]

their benefits justify their costs (recognizing that some benefits and 
costs are difficult to quantify);
    (2) Tailor its regulations to impose the least burden on society, 
consistent with obtaining regulatory objectives and taking into 
account--among other things and to the extent practicable--the costs of 
cumulative regulations;
    (3) In choosing among alternative regulatory approaches, select 
those approaches that maximize net benefits (including potential 
economic, environmental, public health and safety, and other 
advantages; distributive impacts; and equity);
    (4) To the extent feasible, specify performance objectives, rather 
than the behavior or manner of compliance a regulated entity must 
adopt; and
    (5) Identify and assess available alternatives to direct 
regulation, including economic incentives--such as user fees or 
marketable permits--to encourage the desired behavior, or provide 
information that enables the public to make choices.
    Executive Order 13563 also requires an agency ``to use the best 
available techniques to quantify anticipated present and future 
benefits and costs as accurately as possible.'' The Office of 
Information and Regulatory Affairs of OMB has emphasized that these 
techniques may include ``identifying changing future compliance costs 
that might result from technological innovation or anticipated 
behavioral changes.''
    We are issuing these proposed regulations only on a reasoned 
determination that their benefits would justify their costs. In 
choosing among alternative regulatory approaches, we selected those 
approaches that maximize net benefits to borrowers and institutions. 
Based on the analysis that follows, the Department believes that these 
proposed regulations are consistent with the principles in Executive 
Order 13563.
    In accordance with both Executive orders, the Department has 
assessed the potential costs and benefits, both quantitative and 
qualitative, of this regulatory action. The potential costs associated 
with this regulatory action are those resulting from statutory 
requirements and those we have determined as necessary for 
administering the Department's programs and activities.
    This Regulatory Impact Analysis is divided into five sections. The 
``Need for Regulatory Action'' section discusses why updating the 
regulatory requirements governing PLUS loan adverse credit history 
determinations is necessary.
    The ``Summary of Proposed Regulations'' section briefly highlights 
the updates, revisions, and new requirements for PLUS loan applicants 
that are included in the proposed regulations.
    The ``Costs, Benefits, and Transfers'' section discusses the impact 
of the proposed regulations on institutions of higher education, 
students, and parents. We anticipate that the proposed regulations 
would result in a lower denial rate for PLUS loan applicants. For some 
parents and graduate and professional students who would be denied PLUS 
loans under the current standards, the proposed regulations would allow 
them to borrow a PLUS loan in an amount up to the cost of attendance.
    Under ``Net Budget Impacts,'' we present our estimate that the 
proposed regulations would not have a significant net budget impact on 
the Federal government.
    In ``Alternatives Considered,'' we describe other approaches we 
considered for key provisions of the proposed regulations, including 
different definitions for adverse credit history for parents and 
graduate students, criteria regarding the borrower's ability to repay 
as part of the adverse credit history definition, indexing the $2,085 
threshold amount to the rate of inflation, increasing the delinquency 
period of 90 or more days past due, and increasing the length of time 
for the look-back period for debts that are in collection or charged 
off.
Need for Regulatory Action
    Congress amended the HEA in 2010 to end the origination of new 
loans under the FFEL Program. All new subsidized and unsubsidized 
Stafford Loans, PLUS Loans, and Consolidation Loans are made under the 
Direct Loan Program. To be eligible for a Federal Direct PLUS loan, 
under the statute, an applicant must not have an adverse credit 
history. To determine if an applicant has an adverse credit history the 
Department conducts a credit check on the applicant. A PLUS loan 
applicant is considered to have an adverse credit history if the credit 
report shows the applicant is 90 days delinquent on any debt, or has 
been the subject of a default determination, bankruptcy discharge, 
foreclosure, repossession, tax lien, wage garnishment, or write-off of 
a title IV, HEA program debt in the five years preceding the date of 
the credit report.
    Since 2011, we have made operational changes to improve compliance 
with the regulations and the practices of the FFEL program. 
Specifically, the Department applied operational standards that were 
similar to those in the FFEL program where an applicant with debts in 
collection or charged off is considered to have an adverse credit 
history because the applicant is 90 or more days delinquent on a debt. 
Based on these standards, more PLUS loan applicants were determined to 
have an adverse credit history and had to request reconsideration of 
the PLUS loan denial through the Department's process for determining 
whether extenuating circumstances for an adverse credit history 
condition exist. After these changes resulted in an increase in PLUS 
loan denials, the Department made operational changes to balance making 
the Direct Loan PLUS program consistent with the old FFEL regulations 
and the public policy goal of maintaining access to higher education. 
In the interest of providing transparency to institutions and families, 
we concluded that the operational changes that the Department 
instituted in its operating procedures should be updated in the 
regulatory requirements governing PLUS loan adverse credit history 
determinations, which were originally established in 1994.
    The proposed regulations would update the standard for determining 
if a potential borrower has an adverse credit history and more 
specifically would amend the definition of ``adverse credit history'' 
and require PLUS loan counseling for a parent or student with an 
adverse credit history who is approved for a PLUS loan as a result of 
the Secretary's determination that extenuating circumstances exist.
Summary of Proposed Regulations
    The proposed regulations would update the eligibility requirements 
for a PLUS loan. Specifically, the proposed regulations would state 
more clearly that the PLUS loan adverse credit history requirements 
apply to graduate student PLUS loan borrowers, as well as parent PLUS 
borrowers. In addition, the proposed regulations would define the terms 
``in collection'' and ``charged off'' for purposes of determining 
whether an applicant for a PLUS loan has an adverse credit history. 
They would also 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. The proposed regulations would provide that 
the debt threshold of a combined outstanding balance greater than 
$2,085 may be adjusted over time

[[Page 46650]]

on a basis determined by the Secretary. The proposed regulations would 
also 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. Finally, the regulations would 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.
Costs, Benefits, and Transfers
    Under the proposed regulations, the Department expects that the 
number of approved applications for parent and graduate and 
professional student PLUS loans will increase from 2012-2013 levels, 
and that this will result in a series of costs, benefits, and 
transfers. The most significant factor leading to this increase is 
expected to be the establishment of a new standard for the 
determination that an applicant has an adverse credit history. In 
particular, under the proposed regulations, an adverse credit history 
means that 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.
    Over 70 percent of the PLUS loan application denials in the past 
three academic years have been a result of delinquent debt that was 
held by the original creditor, charged off, or was in collection 
status.

----------------------------------------------------------------------------------------------------------------
                                                                                                  Academic year
                                                              Academic year     Academic year       2013-2014
              Reason for credit check denial                    2011-2012         2012-2013         (through
                                                                (percent)         (percent)      February 2014)
                                                                                                    (percent)
----------------------------------------------------------------------------------------------------------------
ACCOUNT IN COLLECTION.....................................              40.9                46                46
CHARGE OFF................................................              21.3                24                24
PRESENTLY 90 OR MORE DAYS DELINQUENT......................              11.1                14                13
CHAPTER 7, 11, OR 12 BANKRUPTCY...........................               7.9                 5                 6
COUNTY/STATE/FEDERAL GOVERNMENT TAX LIEN WITHIN LAST 5                   6.4                 3                 3
 YEARS....................................................
OTHER REASONS.............................................              12.3                 9                 9
----------------------------------------------------------------------------------------------------------------

    We estimate that, under the proposed regulations, approximately 33 
percent of the applicants who were initially denied PLUS loans in the 
2012-2013 award year would have been approved in the initial process.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               AY 2012-13 PLUS                        Number and percentage of  denied
                                                          ---------------------------------------------------------  applications in AY  2012-2013 that
                                                                                                                        would be  approved under the
                                                                                                                            proposed  regulations
                                                             Number  denied    Number  approved        Total       -------------------------------------
                                                                                                                          Number           Percentage
--------------------------------------------------------------------------------------------------------------------------------------------------------
All Credit Checks (Original Decision)....................         1,123,617          1,300,986          2,424,603            371,508                 33
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We also believe that the proposed regulations would clarify the 
process by which applicants request reconsideration, and possibly 
increase the percentage of denied loan applicants who eventually 
qualify for PLUS loans after requesting reconsideration or obtaining an 
endorser who does not have an adverse credit history.

Students/Parents

    Parent PLUS loan applicants and their dependent students would be 
affected by the proposed regulations. Under the proposed regulations, a 
larger number of parent PLUS loan applicants would be approved for PLUS 
loans on behalf of their dependent students. As a result, some families 
could accrue higher loan debt amounts.
    Unlike Direct Subsidized and Unsubsidized loans, PLUS loans do not 
have annual or lifetime aggregate limits. PLUS loans can be borrowed in 
any amount up to and including the full cost of attendance, which is an 
amount that is determined by individual institutions and is beyond the 
control of the Department.
    In the 2011-2012 award year, the median total PLUS loan debt for a 
parent who borrowed a PLUS loan at any point for a dependent 
undergraduate student ages 18 to 24 in the student's fourth (senior) 
year or above was $27,700.\4\ If the dependent student had borrowed the 
maximum amount of his or her Direct Loans, the total debt shared by the 
parent and student would be equal to $58,700, $1,300 more than the 
aggregate limits for an independent student.
---------------------------------------------------------------------------

    \4\ http://nces.ed.gov/programs/digest/d13/tables/dt13_331.95.asp
---------------------------------------------------------------------------

    Parents who take out PLUS loans on behalf of their dependent 
children are acquiring some of the debt burden associated with their 
child's education. Parent PLUS loans have higher interest rates and 
origination fees than Direct Subsidized and Direct Unsubsidized loans.
    In the example that follows, the Department compares two sample 
borrowers to show the potential impact of borrowing under the parent 
PLUS Loan Program compared to borrowing up to the annual Direct Loan 
limits for independent students. Student A's parent applied for a 
parent PLUS loan; however, Student A's parent was not approved for 
parent PLUS loans in any of the four years. Therefore, Student A was 
eligible to borrow Unsubsidized Stafford loans up to the independent 
borrower limits. Students B's parent was approved for parent PLUS loans 
for all four years to help pay for Student B's college education. The 
total amount borrowed by each of the families in this example is equal. 
The example also assumes that both borrowers took out loans every year 
of college, the student graduated in four years, and repayment began 
following graduation. Student A deferred all payments on the

[[Page 46651]]

Unsubsidized Stafford loans and Student B's parent deferred payments on 
their PLUS loans until six months after graduation. The example also 
uses the current interest rates and origination fees (as of July 1, 
2014) and assumes they remain unchanged through the two students' 
matriculation (this is only an example; although interest rates are 
fixed over the life of the individual loan, those rates are updated 
annually and origination fees can be changed.)

----------------------------------------------------------------------------------------------------------------
                                                                                                    Amount owed
                                      Direct          Direct       Interest rate   Months until    upon entering
                                    subsidized     unsubsidized                      repayment       repayment
----------------------------------------------------------------------------------------------------------------
                    Student A: Dependent student whose parents were denied a parent PLUS loan
----------------------------------------------------------------------------------------------------------------
1st Year Fall...................          $ 1750         $ 3,000          0.0466              50         $ 5,424
1st Year Spring.................           1,750           3,000          0.0466              45           5,365
2nd Year Fall...................           2,250           3,000          0.0466              38           5,791
2nd Year Spring.................           2,250           3,000          0.0466              33           5,731
3rd Year Fall...................           2,750           3,500          0.0466              26           6,717
3rd Year Spring.................           2,750           3,500          0.0466              21           6,648
4th Year Fall...................           2,750           3,500          0.0466              14           6,551
4th Year Spring.................           2,750           3,500          0.0466               9           6,482
                                                                                                 ---------------
                                  ..............  ..............  ..............       Total Due          48,709
----------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     Amount owed                                Months      Amount owed
                                            Direct        Direct        Interest    upon entering  Parent PLUS    Interest      until      upon entering
                                          subsidized   unsubsidized       rate        repayment                     rate      repayment      repayment
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                            Student B: Dependent student with parents approved for PLUS loans
--------------------------------------------------------------------------------------------------------------------------------------------------------
1st Year Fall..........................      $ 1,750         $ 1,000       0.0466         $ 2,995         2000       0.0721           50         $ 2,712
1st Year Spring........................        1,750           1,000       0.0466           2,975         2000       0.0721           45           2,650
2nd Year Fall..........................        2,250           1,000       0.0466           3,456         2000       0.0721           38           2,562
2nd Year Spring........................        2,250           1,000       0.0466           3,436         2000       0.0721           33           2,499
3rd Year Fall..........................        2,750           1,000       0.0466           3,917         2500       0.0721           26           3,014
3rd Year Spring........................        2,750           1,000       0.0466           3,897         2500       0.0721           21           2,936
4th Year Fall..........................        2,750           1,000       0.0466           3,870         2500       0.0721           14           2,827
4th Year Spring........................        2,750           1,000       0.0466           3,850         2500       0.0721            9           2,748
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                         ...........  ..............        Total          28,397  ...........  ...........        Total          21,949
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                         ...........  ..............  ...........    Total due at the beginning of repayment--combined            50,345
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As this example demonstrates, at the identical school, the combined 
parent-student debt upon entering repayment would be higher for the 
family of Student B than the total debt of Student A because of the 
higher interest rates (currently 7.21 percent for Direct PLUS loans and 
4.66 percent for Direct Subsidized and Unsubsidized loans) and 
origination fees (currently 4.28 percent for Direct PLUS loans \5\ and 
1.72 percent for Direct Subsidized and Unsubsidized loans \6\). This 
example is only meant to show the potential difference between two 
students using a combination of Direct Subsidized, Direct Unsubsidized, 
and Direct PLUS loans to fund their education. The example does not 
address choices individual borrowers may make to manage their student 
loan debt or the benefits of increased access to PLUS loans, as 
discussed below. These tables also do not account for a family choosing 
a less expensive school to account for the lack of access to PLUS 
loans. These examples also only apply to Parent PLUS loans.
---------------------------------------------------------------------------

    \5\ Origination fees for Direct PLUS loans will increase to 
4.292 percent on October 1, 2014.
    \6\ Origination fees for Direct Subsidized and Unsubsidized 
loans will increase to 1.073 percent on October 1, 2014.
---------------------------------------------------------------------------

    Borrowers may choose to make payments on their loans while in 
school to decrease the accumulation of interest and decrease the amount 
of loan debt owed after leaving school. Furthermore, loan disbursement 
dates and amounts vary by campus. Individual debt loads for borrowers 
under any loan program will be impacted by borrower behavior.
    As borrowers enter into repayment, their loan payments and 
principal balance amounts will also be impacted by borrower behavior. 
Benefits such as loan consolidation, forbearance, deferment, and loan 
forgiveness can have an impact on their overall loan payments.
    Increased access to PLUS loans may allow some students to continue 
their attendance in programs that they otherwise would not be able to 
afford. While some applicants may use additional Direct Unsubsidized 
loans to cover their educational expenses after their applicant parents 
have been denied PLUS loans, others may be unable to make up the 
difference because of annual or lifetime aggregate limits on Stafford 
loans. This could result in a student having to withdraw from a 
particular education program, transfer to another program or 
institution, or find additional means of financing his or her 
education, such as private student loans. Since PLUS loans can be 
borrowed up to the cost of attendance, they may be used to more fully 
cover funding gaps for dependent students who have exhausted their 
annual or lifetime aggregate limits for Direct Subsidized and 
Unsubsidized loans or allow students to attend a more expensive 
institution. PLUS loans often help lower-income students who may lack 
the personal or family resources to pay for college.
    PLUS loans are generally a better option for students than private 
student loans. PLUS loans have fixed interest rates and offer more 
flexibility in respect to repayment plans (such as extended and 
graduated repayment plans). PLUS loans also offer important consumer 
protections such as deferments for unemployment, active

[[Page 46652]]

duty military service, and economic hardship; and cancellation for 
occurrences such as death, total and permanent disability or school 
closure. Private loans, in contrast, are not required to provide such 
borrower benefits and protections. Private loans also typically have 
variable interest rates that cost most for those who can least afford 
them.''
    Applicants with an adverse credit history who qualify for a PLUS 
Loan by demonstrating extenuating circumstances will be required to 
participate in loan counseling provided by the Department. This 
requirement could help PLUS loan applicants to make informed decisions 
and to avoid over-borrowing for their own or their child's education.
Net Budget Impacts
    The proposed regulations are not estimated to have a significant 
net budget impact over the loan cohorts from 2014 to 2024. Consistent 
with the requirements of the Credit Reform Act of 1990, budget cost 
estimates for the student loan programs reflect the estimated net 
present value of all future non-administrative Federal costs associated 
with a cohort of loans. (A cohort reflects all loans originated in a 
given fiscal year.)
    In general, student loan cost estimates are developed using OMB's 
Credit Subsidy Calculator. The OMB calculator takes projected future 
cash flows from the Department's student loan cost estimation model and 
produces discounted subsidy rates reflecting the net present value of 
all future Federal costs associated with awards made in a given fiscal 
year. Values are calculated using a ``basket of zeros'' methodology 
under which each cash flow is discounted using the interest rate of a 
zero-coupon Treasury bond with the same maturity as that cash flow. To 
ensure comparability across programs, this methodology is incorporated 
into the calculator and used government-wide to develop estimates of 
the Federal cost-of-credit programs. Accordingly, we believe that it is 
the appropriate methodology to use in developing estimates for the 
proposed regulations. That said, in developing the following Accounting 
Statement, the Department consulted with OMB on how to integrate our 
discounting methodology with the discounting methodology traditionally 
used in developing regulatory impact analyses.
    The operational changes to adverse credit history determinations 
made in 2011 have already been incorporated into the Department's 
budget baseline. The changes in the proposed regulations, including (1) 
using $2,085 as an upfront threshold amount in the determination of an 
adverse credit history, and (2) the reduced look-back period of two 
years for accounts in collection and accounts that have been charged 
off to trigger a determination of adverse credit, would likely decrease 
the number of PLUS loan applicants denied loans based on an adverse 
credit history determination. This could increase PLUS loan volumes, 
and decrease the amount of additional Direct Unsubsidized loans taken 
out by student borrowers whose parents cannot obtain PLUS loans because 
of adverse credit determinations. Generally, an increase in PLUS loan 
volume results in net budget savings because of the negative subsidy 
rate on the overall PLUS loan portfolio.
    However, loans made to borrowers who would have been considered to 
have an adverse credit history before the changes in the proposed 
regulations could have a higher incidence of default or could be 
difficult for borrowers to repay. If that were the case, potential 
savings from any increased PLUS loan volume resulting from the proposed 
regulations would be reduced or even reversed. The Department does not 
have data to determine if borrowers who would have been considered to 
have an adverse credit history in the absence of the proposed 
regulations have a greater incidence of default or repayment 
difficulty, but, if a subsidy rate were available for this subgroup of 
PLUS borrowers, it would likely differ from the overall PLUS subsidy 
rate. The budget baseline already reflects the $2,085 threshold amount 
as currently used in the Department's process for considering requests 
for reconsideration and most of the charged-off accounts or accounts in 
collection that would result in an adverse credit determination fall 
within the two-year period that would still be in effect under the 
proposed regulations. These factors could limit the increase in PLUS 
loan volume associated with the changes in the proposed regulations. 
Therefore, the Department has not estimated significant savings from 
the proposed regulations.

Assumptions, Limitations, and Data Sources

    In developing these estimates, a wide range of data sources were 
used, including data from the National Student Loan Data System; 
operational and financial data from Department of Education systems, 
including the Fiscal Operations Report and Application to Participate 
(FISAP) from institutions; and data from a range of surveys conducted 
by the National Center for Education Statistics such as the 2011-2012 
National Postsecondary Student Aid Survey and the 2004/09 Beginning 
Postsecondary Student Survey. Data from other sources, such as the U.S. 
Census Bureau, were also used.

Accounting Statement

    As required by OMB Circular A-4 (available at www.whitehouse.gov/sites/default/files/omb/assets/omb/circulars/a004/a-4.pdf), in Table 3, 
we have prepared an accounting statement showing the classification of 
the expenditures associated with the proposed regulations. Expenditures 
are classified as transfers from the Federal Government to student loan 
borrowers.

[[Page 46653]]

 Table 3--Accounting Statement: Classification of Estimated Expenditures
                ($ in Millions, 7% and 3% Discount Rates)
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Category                                         Benefits
------------------------------------------------------------------------
Improved clarity in process for
 adverse credit determinations
 for PLUS loans.................              Not quantified
------------------------------------------------------------------------
Category                                           Costs
------------------------------------------------------------------------
                                          7%                  3%
------------------------------------------------------------------------
Costs of compliance with                      $4.40               $4.43
 paperwork requirements.........
------------------------------------------------------------------------

Alternatives Considered

    The Department considered various alternatives in developing these 
proposed regulations, including different definitions of adverse credit 
history for parents and graduate students, criteria regarding the 
borrower's ability to repay as part of the adverse credit history 
definition, indexing the $2,085 amount to the rate of inflation, 
increasing the delinquency period of 90 or more days past due, and 
increasing the length of time for the look-back period for debts that 
are in collection or charged off.
    Some of the non-Federal negotiators contended that there should be 
different eligibility standards for PLUS loans for parents and 
students. These negotiators argued that graduate and professional 
students should be eligible for PLUS loans without application of the 
adverse credit history criteria.
    Alternatively, one non-Federal negotiator requested that the 
Department consider defining ``adverse credit history'' differently for 
graduate and professional student PLUS loan borrowers than for parent 
PLUS loan borrowers.
    We considered these proposals but concluded that the statutory 
requirement that a PLUS loan borrower not have an adverse credit 
history applies equally to student and parent borrowers.
    Some non-Federal negotiators recommended including criteria 
regarding the borrower's ability to repay in the ``adverse credit 
history'' definition, to prevent overborrowing of PLUS loans. However, 
the Department determined that the HEA does not currently authorize 
consideration of the borrower's ability to repay in the determination 
of an adverse credit history.
    Several of the non-Federal negotiators recommended that the 
Department index the $2,085 debt threshold amount to the rate of 
inflation. The majority of these negotiators suggested that the 
Department use the CPI, a measure of inflation determined by the Bureau 
of Labor Statistics, as the basis for the indexing.
    The Department considered using the CPI-U as the basis to index, 
but ultimately decided not to include this in the proposed regulations. 
Instead, the Department invites public comment on what an appropriate 
adjustment would be to take into account the effects of inflation, as 
well as suggestions for other bases for adjusting the $2,085 threshold 
amount over time, including measures of growth or decline in other 
types of consumer debt.
    Some of the non-Federal negotiators argued that the proposed 
delinquency period of 90 or more days past due is too short for adverse 
credit history determinations. These negotiators recommended extending 
the period to 120 days or 180 days past due. They asserted that credit 
reports often have errors that may not be corrected during a 90-day 
timeframe.
    In the absence of a consistent industry-wide standard, we decided 
to maintain the standard of 90 or more days delinquent in the proposed 
regulations. We rely on credit reports to determine whether an 
applicant is delinquent on a debt, as the number of days a debt is past 
due is included on an individual's credit report until an account is 
placed in collection. Based on our experience, most creditors send 
accounts to collection once they are 90 days' delinquent. Once an 
account is placed in collection, the number of days past due is 
generally not reflected on the credit report. Therefore, a standard 
beyond the current 90-day standard would be more difficult to track. 
And a borrower with a longer delinquency would still be able to request 
reconsideration of the PLUS loan denial under the process for 
determining if extenuating circumstances exist, which would allow the 
borrower the opportunity to explain the individual circumstances raised 
by the negotiators.
    Non-Federal negotiators made varying proposals regarding the look-
back period for debts that are in collection or charged off. Some 
negotiators recommended a one-year look-back period while other 
negotiators suggested a three-year look-back period. The Department 
considered these proposals but determined that it was appropriate to 
propose a two-year look-back period. Based on the Department's review 
of consumer credit standards, the age of a consumer's delinquent or 
defaulted debt bears significantly on a consumer's credit history. 
While varying substantially based on the type of credit infraction, 
typically most negative items have little impact after two years. 
Furthermore, as the chart from VantageScore shows below, a decline in a 
consumer's credit score from a substantially severe infraction such as 
a default can be remediated within about 18 months.

[[Page 46654]]

[GRAPHIC] [TIFF OMITTED] TP08AU14.017

    The Department's adverse credit history evaluation of 90-day debt 
delinquencies, including charge-offs and collections, is based upon an 
account's current status, but it does not take into account whether the 
debts have been delinquent for a long period of time or entered 
collections or were charged off years ago. Several other State student 
lenders, Federal agencies, and some other lenders take into account the 
age of the delinquent debt in question when underwriting. For example, 
the Maine Loan, a product offered by the Maine Educational Loan 
Authority, requires that applicants have no record of a paid or unpaid 
charge-off in the last two years.\7\ Connecticut Higher Education 
Supplemental Loan Authority (CHESLA) loans contain a similar two-year 
look back for debts over 90 days delinquent as well as for charge-offs 
and collections.\8\ At the Federal level, Department of Agriculture 
farm loans for operation and ownership employ a three-year look back 
standard.\9\ Presumably, these lenders do not find that older 
delinquent debts impact the borrower's ability or willingness to repay 
a new loan.
---------------------------------------------------------------------------

    \7\ http://www.mela.net/maine-loan.php.
    \8\ http://www.chesla.org/Customer-Content/WWW/CMS/files/071137_2011_annualreport.pdf.
    \9\ http://www.rurdev.usda.gov/SupportDocuments/CA-SFH-GRHUnderwritingGuide.pdf.
---------------------------------------------------------------------------

Initial Regulatory Flexibility Analysis

    The proposed regulations will 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 proposed 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 proposed 
regulations are ``small entities,'' and we have prepared this Initial 
Regulatory Flexibility Analysis.

Description of the Reasons That Action by the Agency Is Being 
Considered

    The proposed regulations would update the standards for determining 
whether a parent or student has an adverse credit history for purposes 
of eligibility for a Direct PLUS Loan. The proposed regulations would 
require PLUS loan counseling for a parent or student with an adverse 
credit history who obtains a PLUS loan as a result of the Secretary's 
determination that extenuating circumstances exist.

Succinct Statement of the Objectives of, and Legal Basis for, the 
Regulations

    Current Direct Loan regulations (34 CFR 685.200(b) and (c)) specify 
that graduate and professional students, and parents borrowing on 
behalf of their dependent children, may borrow PLUS loans. PLUS loan 
borrowers must meet applicable eligibility requirements.

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

    The proposed regulations would affect the 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 
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, Recordkeeping, 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 proposed regulations would not change the reporting 
requirements related to PLUS loans for institutions. Accordingly, the 
Department does not expect a change in institutional burden from the 
proposed 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 would be required to complete loan counseling 
offered by the Secretary.

[[Page 46655]]

Identification, to the Extent Practicable, of all Relevant Federal 
Regulations That May Duplicate, Overlap or Conflict With the Proposed 
Regulations

    The proposed regulations are unlikely to conflict with or duplicate 
existing Federal regulations.

Alternatives Considered

    As described above, the Department conducted a negotiated 
rulemaking process to develop the proposed regulations and considered a 
number of options for some of the provisions. No alternatives were 
aimed specifically at small entities.

Paperwork Reduction Act of 1995

    As part of its continuing effort to reduce paperwork and respondent 
burden, the Department provides the general public and Federal agencies 
with an opportunity to comment on proposed and continuing collections 
of information in accordance with the Paperwork Reduction Act of 1995 
(PRA) (44 U.S.C. 3506(c)(2)(A)). This helps ensure that: The public 
understands the Department's collection instructions, respondents can 
provide the requested data in the desired format, reporting burden 
(time and financial resources) is minimized, collection instruments are 
clearly understood, and the Department can properly assess the impact 
of collection requirements on respondents. The table at the end of this 
section summarizes the estimated burden on small entities, primarily 
institutions and applicants, arising from the paperwork associated with 
the proposed regulations.
    Section 685.200 contains information collection requirements. Under 
the PRA, the Department has submitted a copy of the section, and will 
submit the Information Collections Request (ICR) to OMB for its review.
    A Federal agency may not conduct or sponsor a collection of 
information unless OMB approves the collection under the PRA and the 
corresponding information collection instrument displays a currently 
valid OMB control number. Notwithstanding any other provision of law, 
no person is required to comply with, or is subject to penalty for 
failure to comply with, a collection of information if the collection 
instrument does not display a currently valid OMB control number.
    In the final regulations, we will display the control numbers 
assigned by OMB to any information collection requirements proposed in 
this NPRM and adopted in the final regulations. The burden associated 
with the new regulatory provisions would be accounted for in a new 
information collection.
    The current regulations allow PLUS loan applicants who have been 
denied a PLUS loan due to an adverse credit history determination to 
submit documentation of extenuating circumstances to the Secretary and 
request reconsideration of the loan application. The proposed 
regulations would require that a PLUS loan applicant who is determined 
to be eligible for a PLUS loan after reconsideration complete loan 
counseling offered by the Secretary.

Section 685.200 Borrower Eligibility

    Requirements: Under proposed regulations in Sec.  685.200(b)(5) and 
(c)(2)(viii)(A)(3), we have proposed that, in addition to providing 
documentation to the Secretary demonstrating that extenuating 
circumstances exist, an applicant who is determined to have an adverse 
credit history would also have to complete PLUS loan counseling to 
receive the PLUS loan. We believe loan counseling would help these PLUS 
loan applicants to understand the ramifications of incurring this 
additional debt.
    Burden Calculation: We estimate that during the 2013-14 award year 
there were 785,734 PLUS loan denials. Our records indicate that, of 
those PLUS loan denials, 147,400 PLUS loans were approved after 
reconsideration based on extenuating circumstances. While the total 
number of requests for reconsideration (whether approved or 
disapproved) is not available at this time, we estimate that the total 
number of approved requests, divided by 90 percent, approximates the 
total number. We estimate that, on average, each borrower's submission 
of documentation for the Secretary's consideration would take 1 hour 
per submission.
    Our 2013-14 data show that there were 8,452 requests from graduate 
or professional students at private for-profit institutions for 
reconsideration of a PLUS loan application based on extenuating 
circumstances; therefore, we estimate the burden would increase by 
8,452 hours (7,607 approved reconsideration requests, divided by 90 
percent, multiplied by 1 hour per request) under OMB Control Number 
1845-NEW1.
    Our 2013-14 data show that there were 23,804 requests from graduate 
or professional students at private nonprofit institutions for 
reconsideration of a PLUS loan application based on extenuating 
circumstances; therefore, we estimate the burden would increase by 
23,804 hours (21,424 approved requests for reconsideration, divided by 
90 percent, multiplied by 1 hour per request) under OMB Control Number 
1845-NEW1.
    Our 2013-14 data show that there were 14,056 requests from graduate 
or professional students for reconsideration of a PLUS loan application 
based on extenuating circumstances; therefore, we estimate the burden 
would increase by 14,056 hours (12,650 approved requests for 
reconsideration, divided by 90 percent, multiplied by 1 hour per 
request) under OMB Control Number 1845-NEW1.
    Our 2013-14 data show that there were 1,672 requests from graduate 
or professional students at foreign institutions for reconsideration of 
a PLUS loan application based on extenuating circumstances; therefore, 
we estimate the burden would increase by 1,672 hours (1,505 approved 
requests for reconsideration, divided by 90 percent, multiplied by 1 
hour per request) under OMB Control Number 1845-NEW1.
    The total increase in burden for Sec.  685.200(b)(5) would be 
47,984 hours under OMB Control Number 1845-NEW1.
    Our 2013-14 data show that there were 8,458 submissions from 
parents of students at private for-profit institutions for 
reconsideration of a PLUS loan application based on extenuating 
circumstances; therefore, we estimate the burden would increase by 
8,458 hours (7,612 approved requests for reconsideration, divided by 90 
percent, multiplied by 1 hour per request) under OMB Control Number 
1845-NEW1.
    Our 2013-14 data show that there were 43,008 submissions from the 
parents of students at private nonprofit institutions for 
reconsideration based on extenuating circumstances; therefore, we 
estimate the burden would increase by 43,008 hours (38,707 approved 
requests for reconsideration, divided by 90 percent, multiplied by 1 
hour per request) under OMB Control Number 1845-NEW1.
    Our 2013-14 data show that there were 64,118 requests from parents 
of students at public institutions for reconsideration based on 
extenuating circumstances; therefore, we estimate the burden would 
increase by 64,118 hours (57,706 approved requests for reconsideration, 
divided by 90 percent, multiplied by 1 hour per request) under OMB 
Control Number 1845-NEW1.
    Our 2013-14 data show that there were 210 requests from parents of 
students at foreign institutions for reconsideration based on 
extenuating circumstances; therefore, we estimate the burden would 
increase by 210 hours

[[Page 46656]]

(189 approved requests for reconsideration, divided by 90 percent, 
multiplied by 1 hour per request) under OMB Control Number 1845-NEW1.
    The total increase in burden for Sec.  685.200(c)(2)(viii)(A)(3) 
would be 115,794 hours under OMB Control Number 1845-NEW1.
    We estimate the burden associated with the loan counseling 
requirement under proposed Sec.  685.200(c)(2)(viii)(A)(3). All 
graduate and professional students are currently required to undergo 
PLUS loan entrance counseling. We estimate that the additional loan 
counseling requirements for graduate and professional students who 
qualify for PLUS loans under extenuating circumstances would, on 
average, increase loan counseling by 0.17 hours (10 minutes) for each 
graduate or professional PLUS loan applicant who qualifies for a PLUS 
loan due to extenuating circumstances.
    Our 2013-14 data show that there were 7,607 approved requests for 
reconsideration based on extenuating circumstances from graduate or 
professional students at private for-profit institutions; therefore, we 
estimate the burden would increase by 1,293 hours (7,607 approved 
requests for reconsideration multiplied by 0.17 hours per additional 
counseling components) under OMB Control Number 1845-NEW1.
    Under proposed Sec.  685.200(b)(5), our 2013-14 data show that 
there were 21,424 approved requests for reconsideration based on 
extenuating circumstances from graduate or professional students at 
private nonprofit institutions; therefore, we estimate the burden would 
increase by 3,642 hours (21,424 approved requests for reconsideration 
multiplied by 0.17 hours per additional counseling components) under 
OMB Control Number 1845-NEW1.
    Our 2013-14 data show that there were 12,650 approved requests for 
reconsideration based on extenuating circumstances from graduate or 
professional students at public institutions; therefore, we estimate 
the burden would increase by 2,151 hours (12,650 approved requests for 
reconsideration multiplied by 0.17 hours per additional counseling 
components) under OMB Control Number 1845-NEW1.
    Our 2013-14 data show that there were 1,505 approved requests for 
reconsideration based on extenuating circumstances from graduate or 
professional students at foreign institutions; therefore, we estimate 
the burden would increase by 256 hours (1,505 approved requests for 
reconsideration multiplied by 0.17 hours per additional counseling 
components) under OMB Control Number 1845-NEW1.
    The total increase in burden for Sec.  685.200(b)(5) would be 7,342 
hours under OMB Control Number 1845-NEW1.
    Under the proposed regulations, there would be a new requirement 
that a parent PLUS loan applicant who is determined to be eligible for 
a loan based on extenuating circumstances would need to participate in 
loan counseling before receiving a loan. Therefore, we estimate that, 
on average, each parent PLUS loan borrower who is determined to be 
eligible on the basis of extenuating circumstances would take 45 
minutes to complete a PLUS loan counseling session.
    Our 2013-14 data show that there were 7,612 approved requests for 
reconsideration from parents of students at private for-profit 
institutions based on extenuating circumstances; therefore, we estimate 
the burden would increase by 5,709 hours (7,612 approved requests for 
reconsideration multiplied by 0.75 hours per PLUS loan counseling 
session) under OMB Control Number 1845-NEW1.
    Our 2013-14 data show that there were 38,707 approved requests for 
reconsideration from the parents of students at private nonprofit 
institutions based on extenuating circumstances; therefore, we estimate 
the burden would increase by 29,030 hours (38,707 approved requests for 
reconsideration times 0.75 hours per PLUS loan counseling session) 
under OMB Control Number 1845-NEW1.
    Our 2013-14 data show that there were 57,706 approved requests for 
reconsideration from parents of students at public institutions based 
on extenuating circumstances; therefore, we estimate the burden would 
increase by 43,280 hours (57,706 approved requests for reconsideration 
multiplied by 0.75 hours per PLUS loan counseling session) under OMB 
Control Number 1845-NEW1.
    Our 2013-14 data show that there were 189 approved requests for 
reconsideration from parents of students at foreign institutions based 
on extenuating circumstances; therefore, we estimate the burden would 
increase by 142 hours (189 approved requests for reconsideration 
multiplied by 0.75 hours per PLUS loan counseling session) under OMB 
Control Number 1845-NEW1.
    The total increase in burden for Sec.  685.200(c)(2)(viii)(A)(3) 
would be 78,161 hours under OMB Control Number 1845-NEW1.
    Overall, burden would increase by 249,281 hours under OMB Control 
Number 1845-NEW1.
    Consistent with the discussion above, the following chart describes 
the sections of the proposed regulations involving information 
collections, the information being collected, and the collections that 
the Department will submit to OMB for approval and public comment under 
the PRA, and the estimated costs associated with the information 
collections. The monetized net costs of the increased burden on 
applicants and borrowers, using wage data developed using BLS data, 
available at www.bls.gov/ncs/ect/sp/ecsuphst.pdf, is $4,063,280, as 
shown in the chart below. This cost was based on an hourly rate of 
$16.30 for applicants and borrowers.

                                            Collection of Information
----------------------------------------------------------------------------------------------------------------
                                                                             OMB control number and
       Regulatory section                  Information collection               estimated burden      Estimated
                                                                               [change in burden]       costs
----------------------------------------------------------------------------------------------------------------
Sec.   685.200 (b)(5) and        Revises language requiring documentation    OMB 1845-NEW1. We        $4,063,280
 685.200 (c)(1) (viii)(A)(3)      for extenuating circumstances and           estimate that the
 Borrower Eligibility.            augments PLUS loan counseling for           burden would increase
                                  graduate and professional students to       by 249,281 hours.
                                  increase student financial literacy. The
                                  proposed regulations also require parent
                                  PLUS loan counseling.
----------------------------------------------------------------------------------------------------------------

    If you want to comment on the proposed information collection 
requirements, please send your comments to the Office of Information 
and Regulatory Affairs, OMB, Attention: Desk Officer for U.S. 
Department of

[[Page 46657]]

Education, by fax to (202) 395-6974 or send your comments by email to 
OIRA_DOCKET@omb.eop.gov. You may also send a copy of these comments to 
the Department contact named in the ADDRESSES section of this preamble.
    We have prepared an Information Collection Request (ICR) for this 
collection. In preparing your comments you may want to review the ICR, 
which is available at www.reginfo.gov. On www.reginfo.gov, click on 
``Information Collection Review.'' This proposed collection is 
identified as proposed collection 1845-NEW1.
    We consider your comments on this proposed collection of 
information in--
     Deciding whether the proposed collection is necessary for 
the proper performance of our functions, including whether the 
information will have practical use;
     Evaluating the accuracy of our estimate of the burden of 
the proposed collection, including the validity of our methodology and 
assumptions;
     Enhancing the quality, usefulness, and clarity of the 
information we collect; and
     Minimizing the burden on those who must respond. This 
includes exploring the use of appropriate automated, electronic, 
mechanical, or other technological collection techniques.
    OMB is required to make a decision concerning the collection of 
information contained in these proposed regulations between 30 and 60 
days after publication of this document in the Federal Register. 
Therefore, to ensure that OMB gives your comments full consideration, 
it is important that OMB receives your comments by September 8, 2014. 
This does not affect the deadline for your comments to us on the 
proposed regulations.

Intergovernmental Review

    These programs are not subject to Executive Order 12372 and the 
regulations in 34 CFR part 79.

Assessment of Educational Impact

    In accordance with section 411 of the General Education Provisions 
Act, 20 U.S.C. 1221e-4, the Secretary particularly requests comments on 
whether the proposed regulations would require transmission of 
information that any other agency or authority of the United States 
gathers or makes available.
    Accessible Format: Individuals with disabilities can obtain this 
document in an accessible format (e.g., braille, large print, 
audiotape, or compact disc) on request to one of the persons listed 
under FOR FURTHER INFORMATION CONTACT.
    Electronic Access to This Document: The official version of this 
document is the document published in the Federal Register. Free 
Internet access to the official edition of the Federal Register and the 
Code of Federal Regulations is available via the Federal Digital System 
at: www.gpo.gov/fdsys. At this site you can view this document, as well 
as all other documents of the Department published in the Federal 
Register, in text or Adobe Portable Document Format (PDF). To use PDF 
you must have Adobe Acrobat Reader, which is available free at the 
site.
    You may also access documents of the Department published in the 
Federal Register by using the article search feature at: 
www.federalregister.gov. Specifically, through the advanced search 
feature at this site, you can limit your search to documents published 
by the Department.

(Catalog of Federal Domestic Assistance Number: 84.268 William D. 
Ford Federal Direct Loan Program)

List of Subjects in 34 CFR Part 685

    Administrative practice and procedure, Colleges and universities, 
Consumer protection, Grant programs--education, Loan programs--
education, Reporting and recordkeeping requirements, Student aid, 
Vocational education.

    Dated: August 4, 2014.
Arne Duncan
Secretary of Education.
    For the reasons discussed in the preamble, the Secretary of 
Education proposes to amend part 685 of title 34 of the Code of Federal 
Regulations as follows:

PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM

0
1. The authority citation for part 685 continues to read as follows:

    Authority:  20 U.S.C. 1070g, 1087a, et seq., unless otherwise 
noted.

0
2. Section 685.200 is amended by:
0
a. In paragraph (b)(5), removing the words ``of paragraph (c)(1)(vii)'' 
and adding, in their place, the words ``that apply to a parent under 
paragraphs (c)(2)(viii)(A) through (D)''; and
0
b. Revising paragraph (c) to read as follows:

Sec.  685.200  Borrower eligibility.

* * * * *
    (c) Parent PLUS borrower--(1) Definitions. The following 
definitions apply to this paragraph (c):
    (i) Charged off means a debt that a creditor has written off as a 
loss, but that is still subject to collection action.
    (ii) In collection means a debt that has been placed with a 
collection agency by a creditor or that is subject to more intensive 
efforts by a creditor to recover amounts owed from a borrower who has 
not responded satisfactorily to the demands routinely made as part of 
the creditor's billing procedures.
    (2) Eligibility. A parent is eligible to receive a Direct PLUS Loan 
if the parent meets the following requirements:
    (i) The parent is borrowing to pay for the educational costs of a 
dependent undergraduate student who meets the requirements for an 
eligible student under 34 CFR part 668.
    (ii) The parent provides his or her and the student's social 
security number.
    (iii) The parent meets the requirements pertaining to citizenship 
and residency that apply to the student under 34 CFR 668.33.
    (iv) The parent meets the requirements concerning defaults and 
overpayments that apply to the student in 34 CFR 668.32(g).
    (v) The parent complies with the requirements for submission of a 
Statement of Educational Purpose that apply to the student under 34 CFR 
part 668, except for the completion of a Statement of Selective Service 
Registration Status.
    (vi) The parent meets the requirements that apply to a student 
under paragraph (a)(1)(iv) of this section.
    (vii) The parent has completed repayment of any title IV, HEA 
program assistance obtained by fraud, if the parent has been convicted 
of, or has pled nolo contendere or guilty to, a crime involving fraud 
in obtaining title IV, HEA program assistance.
    (viii)(A) The parent--
    (1) Does not have an adverse credit history;
    (2) Has an adverse credit history but has obtained an endorser who 
does not have an adverse credit history; or
    (3) Has an adverse credit history but documents to the satisfaction 
of the Secretary that extenuating circumstances exist and completes 
PLUS loan counseling offered by the Secretary.
    (B) For purposes of this paragraph (c), an adverse credit history 
means that the parent--
    (1) Has one or more debts with a total combined outstanding balance 
greater than $2,085, as may be adjusted over time on a basis determined 
by the Secretary, that are 90 or more days delinquent as of the date of 
the credit report, or that have been placed in

[[Page 46658]]

collection or charged off, as defined in paragraph (c)(1) of this 
section, during the two years preceding the date of the credit report; 
or
    (2) Has been the subject of a default determination, bankruptcy 
discharge, foreclosure, repossession, tax lien, wage garnishment, or 
write-off of a debt under title IV of the Act during the five years 
preceding the date of the credit report.
    (C) For purposes of this paragraph (c), the Secretary does not 
consider the absence of a credit history as an adverse credit history 
and does not deny a Direct PLUS loan on that basis.
    (D) For purposes of this paragraph (c), the Secretary may determine 
that extenuating circumstances exist based on documentation that may 
include, but is not limited to--
    (1) An updated credit report for the parent; or
    (2) A statement from the creditor that the parent has repaid or 
made satisfactory arrangements to repay a debt that was considered in 
determining that the parent has an adverse credit history.
    (3) For purposes of paragraph (c)(2) of this section, a ``parent'' 
includes the individuals described in the definition of ``parent'' in 
34 CFR 668.2 and the spouse of a parent who remarried, if that spouse's 
income and assets would have been taken into account when calculating a 
dependent student's expected family contribution.

[FR Doc. 2014-18673 Filed 8-7-14; 8:45 am]
BILLING CODE 4000-01-P
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