[September 23, 2014]

Fitch: Student Loan Loosening Positive for US Colleges

Looser lending standards for Federal Parent Loan for Undergraduate Students (PLUS) loans could boost enrollment and related revenues at many colleges and universities in the 2015-2016 academic year, Fitch Ratings says.

We believe the political discussion surrounding the PLUS loans underscored the importance that regulatory changes could have on the colleges and universities. In our view, schools with a significant number of students that rely on federal financial aid could see student demand negatively affected if federal funds are reduced. Conversely, should proposed changes like this be adopted, student access may be enhanced.

The proposed revisions to underwriting standards for PLUS loans are intended to improve access to borrowing under the program. One of the most substantial revisions will be to shorten the credit history analysis review from the past five years to the last two. Delinquent debts below $2,085 would be excluded from the analysis. According to the College Board's 2013 Trends in Student Aid report, Parent Plus loans represented 9% of federal and non-federal loan dollars disbursed to students and parents in academic year 2012-2013.

The move represents a policy shift from more stringent credit standards for the PLUS loans implemented by the U.S. Department of Education (DOE) beginning in fall 2011, which caused a significant increase in loan denials. According to a January 2014 report from the New Amerca Foundation, non-profit colleges and universities realized a 15% decline in the number of Parent PLUS loan recipients in academic year 2012-2013. Historically Black colleges and universities, which tend to serve a meaningful share of low income students, saw a 46% decrease over the same time horizon. The DOE revised its appeal process for PLUS loans in academic year 2013-2014, which helped some previously denied applicants receive loan approval.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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