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What is “adverse credit” when applying for a PLUS loan?

Earlier this month, the Department of Education’s rule making committee came to a tentative agreement on the definition of adverse credit for PLUS loans.  PLUS loans are offered to parents of students to help pay tuition and expenses at a college or university and they’re often used to fill the gap left when other Federal student loans don’t cover all the necessary expenses.

The new definition of adverse credit defines exactly how bad someone’s credit has to be for them to not qualify for a PLUS loan.  The definition is important because a PLUS borrower needs to be credit worthy in order to take out a PLUS loan.  A major reason for the need for credit worthiness is that the Department of Education has quite powerful collection methods at its disposal, such as the ability to take a person’s tax refunds, as well as the ability to garnish wages and Social Security benefits.  In addition, the PLUS loan program has fewer protections than other student loans; for example, income-based repayment is not available for these loans, unlike other Federal student loan programs.

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