Adverse Credit History
The borrower of a Federal PLUS loan must not have an adverse credit history.
Definition of Adverse Credit History
A borrower is considered to have an adverse credit history if they meet any of the following:
- The borrower has a current delinquency of 90 or more days, or debt in collections or charged off in the last two years, on total debt of more than $2,085, or
- The borrower has had a bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, default determination or a write-off of a federal student loan in the last five years preceding the date of the credit report
The definition of an adverse credit history is backward looking, based on the borrower’s past financial difficulty. It does not consider factors related to the borrower’s future ability to repay the debt. It is not based on the borrower’s credit scores, annual income or debt-to-income or debt-service-to-income ratios.
Options for Addressing an Adverse Credit History
If a borrower is denied a Federal PLUS loan because of an adverse credit history, the borrower can qualify for a Federal PLUS loan by getting an endorser (cosigner) who does not have an adverse credit history.
If the adverse credit history was due solely to a 90-day delinquency, the borrower could cure the adverse credit history by bringing the account current.
The borrower also can cure an adverse credit history by demonstrating that the credit report contains an error that lead to the adverse credit history determination.
Otherwise, the borrower must appeal the adverse credit history determination based on extenuating circumstances. Borrowers can file an appeal by calling 1-800-557-7394. Borrowers can document extenuating circumstances by logging into StudentLoans.gov.
Extenuating circumstances include:
- The borrower has repaid the debt in full, rehabilitated federal student loan debt or made satisfactory arrangements to repay the debt. If a federal student loan was paid in full through federal consolidation, the consolidation loan must not be delinquent. If the borrower has made satisfactory arrangements to repay the debt, the borrower must have made at least six qualifying, consecutive, voluntary, on-time full monthly payments.
- The borrower demonstrates that he or she was not responsible for repaying the debt. For example, the borrower was an authorized user of a credit card account but not the primary cardholder. Another common example involves divorced borrowers who show that the divorce decree required the borrower’s spouse to repay the debt.
- The debt was discharged in a Chapter 13 bankruptcy and not discharged in a Chapter 7, 11 or 12 bankruptcy.
- The derogatory event that resulted in an adverse credit history has been reversed or released. For example, the foreclosure process has ended through loan modification or a short sale, the tax lien has been released or wage garnishment has been lifted.
- The borrower demonstrates errors in the credit report, such as timing errors demonstrating that the derogatory event occurred more than five years ago.