New Road Blocks to Getting Student Loans

Michael Lux Blog, News, Student Loans 0 Comments

Over the past year the Federal Government has made getting Parent PLUS loans more difficult.  Specifically, they now check to see if the parent (the borrower) has any unpaid debts or debts that have been written off.  In short, it is now more difficult for parents to borrow money from the government to pay for their students education.  At present, Parent PLUS loans are the only federal loans that do not have set limits for borrowing for undergraduate students.  For many students these loans are the only way to fund their education.

NPR recently did a piece about these changes (Note: this is audio only).  They did a great job talking to many individuals affected by the policy change.  Specifically, they discussed the changes with college students, administrators, and government officials.

One interesting aspect of these new regulations is that they seem to be hitting historically black colleges especially hard.  A Howard University student explained that though her parents qualified when she was a freshman, as a sophomore under the new requirements, she could not get the loans she needed to attend school.  She now attends a community college in New Jersey.  Morgan State University attributes their lower enrollment numbers to the new policy.

Similarly, first generation students have also been hit hard with the new policy.

According to Secretary of Education Arne Duncan, the government wants to avoid loaning people money that they won’t be able to pay back.  He also said that the government’s goal was to give all students access to higher education.  He noted that students who cannot get PLUS loans will qualify for many grants, which now are better funded.

Last month education department began reconsidering some denials and plans on revisiting this issue in the spring.

What is this significant?

Even if you don’t rely upon Parent PLUS loans or have graduated college.  There are some critical policy questions at play here.

The government financial aid system was created so that all Americans could have access to higher education.  This goal has largely been accomplished.  However, many argue that because so many people are able to go to college and because the money is so easy to get, prices have risen.  These increased prices have created a situation where the cost of attendance is greater than the value of the degree.  There are now over a trillion dollars in government loans alone, and many graduates cannot afford their large debt.

How should we handle this situation?  If we make loans more difficult to get, students will be less likely to end up with debt they can’t afford.  However, stricter lending limits college opportunity.  These changes seem to be hitting certain groups of Americans harder than others.

Readers: What do you think?  Is there a way to lend more responsibly without limiting access to college?