Education Discrimination: Minority Schools Hit Hard by PLUS Loan Denials
April 17, 2013

President Obama promised in his most recent State of the Union address to keep college affordable for all Americans who wanted to pursue higher education. But quiet changes by the Department of Education on how PLUS loans are screened has many minority students strapped for funds and being forced to drop out of school in droves. To be clear, this was not a change in the law concerning PLUS loans, but rather a change in interpretation of the law driven by the US Secretary of Education and the Obama Administration.

PLUS loans are loans to finance college taken out by parents rather than students. For students attending more costly colleges, these loans are a necessity because standard student loans and Pell Grants will not meet financial needs. The approval process for PLUS loans has been historically lenient, but in October 2011, the Department of Education made changes to the approval process that have seen PLUS loan approval rates at historically black colleges and universities (HBCUs) plummet.

There was no public notification or debate about the change in credit approval determinations for PLUS loans – the policy was just changed. The law says there should not be any “adverse credit history” for PLUS loan recipients, but does add:

Nothing in this paragraph precludes the lender from establishing more restrictive credit standards to determine whether the applicant has an adverse credit history.

Last fall, nearly 15,000 students at HBCUs were denied PLUS loans. Clark Atlanta University had to send 475 students home – that represents a staggering 12% of their student body that could not return for the 2012-2013 school year. HBCU advocacy groups see this as a discriminatory practice in lending that targets minorities and have discussed a lawsuit against the federal government.

The lawsuit was tabled in light of the 2012 presidential election because it could have been an embarrassment for American’s first black president to be sued by black colleges for discrimination, but it is now being revisited as a means to reverse this policy. To make things worse, HBCUs have recently been hard hit by the sequester which has cost them over 5.1% in budget cuts. And it seems the government is not offering meaningful solutions to this discriminatory dilemma.

Late last month, Arne Duncan, US Education Secretary offered an 800 number and website where denied parents could reapply for PLUS loans, but of the nearly 15,000 denied in the fall, just 1,900 were approved via this offering. That still left over 13,000 minority students without the funding they so desperately need.

This is tragic for the many students who have nearly completed their degrees and are now ousted from college without the funds to complete their education. And for those students that have also taken out personal student loans alongside their parent’s PLUS loans, this is doubly detrimental. With so many student loans in deferment, default and delinquent, can’t the administration see that by disenfranchising these HBCU students they are making it statistically likely that they will not be able to pay back their loans?

If a student cannot complete their degree, they are less likely to be able to pay back their loans. The Department of Education tightened the credit restrictions because of recession-driven defaults on PLUS loans, but if that change increases defaults in other student loans, how is this a winning proposal for anyone?

If you want to raise your voice about this discriminatory lending practice, join the chatter on Twitter under these hashtags: #BarackCallArne  #LeaveHBCUsAlone  #Fightfor14000

You can also contact your Senators or contact your Representative and let them know you disagree with the change in the PLUS loan approval process. And if you’re really energetic and devoted to this cause, perhaps you can be the one to launch a viral t-shirt campaign to protest the impact this change has had on HBCUs and their students.

If you have student loans, whether you are just starting college, have graduated or have been forced to temporarily leave school because of changes like the PLUS loan debacle, try Tuition.io’s free tool to manage, track and optimize your student loan debt, check out repayment programs and contact your lenders.

Here are some other recent blogs on related topics of college affordability and access:

New Budget Will Make Life Worse for Student Loan Borrowers

Sticker Shock: Student Loan Rates Set to Double this Year!

State of the Union: President Obama Talks Affordable Education But Little About Student Loans

Obama’s Student Loan Proposal – Pros and Cons

High Cost of Dropping Out – If You Don’t Graduate, Student Loan Debt Hits Even Harder