The Department of Education Has the Authority to Adopt an Ability-to-Pay Metric for Parent PLUS Loans

In 1992, in an effort to make PLUS loans available to more parents, legislators eliminated the annual borrowing limit for parent borrowers who have no adverse credit history.[1] The definition of “adverse credit history” currently used by the Department was designed to prevent parents from borrowing loans they might not be able to afford, but it fails to take into account the most important metric: parents’ ability to repay PLUS loans. At the most recent negotiated rulemaking session, the Department suggested it did not believe it has the statutory authority to adopt an ability-to-repay metric for parent PLUS borrowers; however, it is well within the Department’s power to interpret the exclusion of borrowers with an adverse credit history to authorize an ability-to repay criterion, and we urge the Department to do so now.

·  In the Higher Education Act of 1965, Congress gives authority to borrow funds to parents of a dependent who “do not have an adverse credit history as determined pursuant to regulations promulgated by the Secretary.”[2] The Supreme Court has repeatedly asserted that an executive agency has broad authority to construe those statutory schemes that Congress entrusts it to administer.[3]

·  Courts generally assume that the words of a statute mean what an ordinary or reasonable person would understand them to mean. Plain meaning should not be confused with the literal meaning of a statute or the strict construction of a statute both of which imply a narrow understanding of the words used as opposed to their common, everyday meaning.[4]

·  There is no single legal definition of “credit history;” however “credit history” is often associated with creditworthiness:

o  Merriam-Webster defines “creditworthy” as “considered able to repay borrowed money.”[5]

o  Under the Fair Credit Reporting Act, Congress defined “consumer report” to mean “any . . . communication of any information by a consumer reporting agency bearing on a consumer’s credit worthiness, credit standing, credit capacity . . . .”[6]

o  The Department’s own website states that “[a] credit history is a summary of your financial strength, including your history of paying bills and your ability to repay future loans.”[7]

o  Investopedia defines “Credit History” as “[a] record of a consumer's ability to repay debts and demonstrated responsibility in repaying debts.”[8]

·  Other federal agencies recognize the value of repayment ability metrics: Department of the Treasury regulations declare that “a current, stable earnings record may be the most reliable indicator of creditworthiness.”[9]

The Department has the authority to add an ability-to-pay metric to the Parent PLUS credit check and should do so: it will help the Department to better evaluate whether parents have the resources to pay back their loans and will help to ensure that parents aren’t over-borrowing to send their kids to college.

[1] February 27, 1992, P.L. 102-325, HIGHER EDUCATION AMENDMENTS OF 1992, H.R. REP. 102-447, 48.

[2] Higher Education Act of 1965, 20 U.S.C. 1078-2(a)(1)(A) (emphasis added).

[3] See Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 104 S. Ct. 2778, 81 L. Ed. 2d 694 (1984)

[4] Bob Jones University v. United States, 461 U.S. 574, 586, 103 S.Ct. 2017, 2025, 76 L.Ed.2d 157 (1983) (“It is a well-established canon of statutory construction that a court should go beyond the literal language of a statute if reliance on that language would defeat the plain purpose of the statute”).

[5] Merriam-Webster definition of “creditworthy,” http://www.merriam-webster.com/dictionary/creditworthy.

[6] Fair Credit Reporting Act, 15 U.S.C. § 1681a(d)(1).

[7] Dep’t of Educ., Glossary: Adverse Credit History, http://studentaid.ed.gov/glossary#letter_a.

[8] Investopedia, Definition of “Credit History,” http://www.investopedia.com/terms/c/credit-history.asp.

[9] 12 C.F.R. § 528.9(c)(5)(iii).