Federal Regulators Eye Parent PLUS Loans, Student Debit Cards
Last month, the U.S. Department of Education kicked off the latest round of negotiated rule making -- a little-known process that can result in rules and regulations that have big implications for federal student aid recipients. On the docket this time around are several issues of importance to student loan borrowers, including Parent PLUS loan eligibility and debit cards for student loan refunds.
Negotiated rule making happens on an as-needed basis. While there are years where there are more than one session and years where there are none, typically it happens at least once per year. Legislation can trigger the process, but sometimes the department chooses to hold one if there are issues that need to be addressed.
[Here are three possible student loan changes to watch in 2014.]
What many people don't realize is that when Congress passes a law, it generally only contains language describing the outcome Congress wanted to achieve. The actual regulations result from negotiated rule making, a process in which representatives of federal agencies -- in the case of student loans, it's the U.S. Department of Education -- and affected constituencies work together in a committee to reach consensus on what can ultimately become a proposed rule.
After a series of public hearings or "listening sessions" where anyone -- yes, even you -- can propose policy or procedure changes to improve the federal financial aid process, the department develops a tentative agenda of issues for negotiation.
Negotiators are then chosen from the groups most affected by the proposed change or those that have expertise in the area. For student loans, negotiations almost always include the U.S. Department of Education, loan servicers, higher education institutions, consumer advocacy groups and student groups.
The chosen negotiators hold a series of public meetings to hash out the new regulations. Sometimes they come to agreement and sometimes they don't, but the resulting regulation is almost always more meaningful than if the process hadn't taken place.
The credit criteria required for Parent PLUS loans, which are loans taken out by parents for their undergraduate students, is one issue under scrutiny during this latest negotiation.
While Parent PLUS borrowers are checked for past adverse credit, they do not have to undergo a debt-to-income or other ability to pay test in order to qualify for a loan. Consumer watchdog groups that have seen PLUS debt levels rise in recent years as parents' college savings were hit by the recession argue that Parent PLUS loans can saddle families with debt they cannot afford. They advocate for a more stringent credit check process that factors in parents' ability to pay.
[Get additional advice on how to pay for college.]
Others, particularly minority-serving institutions students who often rely on PLUS loans, feel that tighter credit criteria will be detrimental to access to higher education.
Regulations surrounding student debit cards are also at issue. Students can receive refunds from their student loan disbursements when their student loan amount exceeds tuition and fees due to the school. This money is often meant to cover books and other living expenses associated with attending college.
Some higher education institutions issue these refunds in the form of debit or stored value cards. Debit card providers recently paid millions to settle claims that they were charging students unreasonable fees to access their financial aid funds, and that their marketing techniques were predatory.
Clouding the issue even further is the fact that many debit cards carry the school's logo or mascot, which could be taken as the school's endorsement of the debit card product.
[Find out how to get rid of student loan debt without paying.]
Some negotiators at last month's session suggested protecting students by only allowing aid to be disbursed via paper check or a federally provided stored value card, while others advocated for using the process as a teaching moment to encourage students to be smart consumers.
It's a little too early to tell yet if there will be any changes to Parent PLUS credit checks or rules surrounding debit cards. There are still two more meetings and a round of comments before final regulations will be issued.
The Student Loan Ranger will keep an eye on this issue. If you're really interested in how this process works, you can come sit in the public section of the negotiated rule-making process. Or, if you really want to see how the sausage is made, come sit in the public section of the negotiated rule-making meeting itself.
Betsy Mayotte, director of regulatory compliance for American Student Assistance, regularly advises consumers on planning and paying for college. Mayotte, who received a B.S. in business communications from Bentley College, is a frequent contributor to ASA's SALT Blog; responds to public inquiries via the advice resource "Just Ask;" and is frequently quoted in traditional and social media on the topics of student loans and financial aid.
