Parent PLUS Loans: HBCU Students Face Federal Funding Crunch

The economic recession that began in 2007 significantly damaged the ability of thousands of students to afford college. But it’s also true that some student populations have been affected more than others. The economic crunch has been especially difficult for students at the nation’s more than 100 Historically Black Colleges and Universities (HBCUs). In fact, there has been so much damage that some HBCUs have been forced to close, the most recent St. Paul’s College in Virginia, due to severe financial difficulties.

Why are students at HBCUs having a much more difficult time than many other students around the country? Largely because the federal government tightened the qualifications for Parent PLUS Loans two years ago in October 2011, increasing loan denials by the thousands. This has caused a significant loss in revenue for many colleges and forced many students at HBCUs to drop out and

Parent PLUS Loans have traditionally been used by students to cover the remaining cost of their higher education after their annual Stafford Loan limits have been reached. In the past, parents could take out up to $50,000 in loans to help pay their child’s college expenses, as long as they were no more than 90 days delinquent on any debt or bill. This enabled millions of African American students to attend college, often the first in their families to do so.

Parent PLUS Loans: New Regulations Hurt Students

However, the U.S. Department of Education’s new regulations now require a credit check that effectively bars many HBCU students and their families from contracting the loans they need to pay for college. Families with foreclosures, bankruptcies, tax liens, wage garnishments, or student-loan defaults in their credit history are now denied Parent PLUS loans. According to Inside Higher Ed,

“During the 2010-11 academic year, 72 percent of Parent PLUS loan applicants were approved…Then the department, attempting to limit defaults on the loans, changed the rules so that unpaid accounts in collections, or charged off but unpaid balances, from the past five years would also count against a prospective borrower. Denials spiked.”

The results have been dramatic. As political activist Benjamin Todd Jealous explained in The Huffington Post, “In the 2012-13 school year alone, the volume of Parent PLUS loans to HBCU families dropped by 36 percent…Parents of 28,000 HBCU students were initially denied loans under the stricter standards, causing HBCU’s as a whole to lose $150 million in expected revenue.” From March to September of 2013 alone, the Parent PLUS Loan denial rate at HBCUs rose to more than 70 percent, according to The Chronicle of Higher Education.  And the loss of revenue at HBCUs has led to severe cuts to other forms of financial aid, such as Work Study programs.

The USDOE’s new rules affect students at HBCUs in greater proportions than students at other colleges because students at HBCUs traditionally come from more economically marginalized populations, which are more likely to have higher rates of financial difficulties than other groups.

In response to this crisis, the USDOE has created an appeals process for families who wish to appeal the denials, and students who cannot get financial support through Parent PLUS loans are eligible for Unsubsidized Stafford Loans. But unsubsidized loans can be a financial trap: unlike subsidized Stafford Loans, the interest on unsubsidized loans accrues throughout the life of the loan, including when a student is enrolled in college. The end result is much larger student debt—another problem crippling recent college graduates.

What You Can Do

If you are a student at or considering enrolling at an HBCU, you are going to get a top-notch education. If you can afford it, that is. It is important to think very carefully about where you enroll, your income and your family’s potential contribution, and all of your educational options. You may find that part-time enrollment works to your financial benefit and helps you avoid debt accumulation. The best next step before enrollment is to talk with your college’s financial advisors, who can direct you toward other sources of funding, such as scholarships and grants. Above all, however, don’t give up!