Alarm Raised by Plan to Ease Credit Norms on U.S. Parent Loans (Bloomberg News)

Parents whose financial standing disqualify them from most loans may have an easier time borrowing to pay their children’s college costs under a U.S. government proposal to ease credit standards.

The plan doesn’t sit well with consumer advocates and economists, who are sounding an alarm. The Education Department wants to look at “adverse credit” over two years instead of five and consider approving loans even if parents have delinquent credit balances, according to an agency document released this month.

Consumer advocates say loosening the norms for parent PLUS loans will only hurt borrowers, and default rates, already on the rise, will continue to climb. Just 45 percent of the outstanding $62 billion in parent loans are being actively repaid, mostly because borrowers don’t need to make payments until six months after their children graduate or leave college, according to department data. Families are struggling to pay for college as the costs increase faster than the rate of inflation.

“Some of these loan characteristics -- potential payment shocks and not verifying a borrower’s income -- certainly strongly contributed to the mortgage crisis,” said Katie Buitrago, senior policy analyst with the Woodstock Institute, a Chicago-based nonprofit group focused on fair-lending issues. “If you are deferring for 4 1/2 years, that’s a lot of time for your financial situation to change.”

Read the full article