Every month, HESC’s “Question and Answer” Web feature includes an interesting question presented to the Office of Counsel and Regulatory Compliance staff. This month’s winning question is:

A lender denied a parent PLUS loan due to adverse credit. A credit bureau report indicated the parent is currently 120 days past due on their mortgage. Does the parent have any recourse other than securing a creditworthy endorser?

Federal regulations require a lender to obtain a credit report before approving a PLUS loan. An applicant with an adverse credit history, as defined by the US Department of Education (Department), will generally be unable to obtain a loan.

An applicant is considered to have an adverse credit history if they are 90 days or more delinquent on the repayment of any debt. However, federal law allows a lender to determine that extenuating circumstances exist and still consider an applicant with adverse credit eligible for PLUS if, between January 1, 2007 and December 31, 2009, the delinquent debt is a mortgage and the delinquency does not exceed 180 days.

The parent applicant should contact their lender to find out if they can appeal the denial based on extenuating circumstances.

Bear in mind that an FFEL lender is permitted to have stricter credit standards than those defined by the Department.

Direct questions regarding this guidance to the Office of Counsel and Regulatory Compliance at 518-473-3986; or toll-free at 1-866-431-HESC (1-866-431-4372), press 6; or via email at askpolicy@hesc.org.