House Votes for One-Year Delay of PLUS Loan Auction

The U.S. House has approved legislation delaying an auction of parent PLUS loans for one year. The provision is included in legislation making technical corrections to the Higher Education Act.

The measure would delay until 2010 the implementation of a pilot auction of rights to make parent PLUS loans.

The U.S. Department of Education has been moving forward to implement the auction provisions, which were enacted as part of the College Cost Reduction and Access Act of 2007. Earlier this month the Department issued an announcement that scheduled the auction for April 15. On Monday, the Department issued answers to questions about the PLUS auction. 

The auction plan calls for two lenders in each state to be awarded exclusive rights to make parent PLUS loans to new borrowers, for loan periods beginning July 1, 2009,  based on the results of the auction. Due to the global credit crunch, however, major education lenders, including Sallie Mae, Nelnet and J.P. Morgan Chase, had announced that they would not participate in the auction.

The technical correction bill also contains provisions to help defaulted student loan borrowers rehabilitate their loans. The measure would permit student loan guarantors to assign loans eligible for rehabilitation to the Department of Education if the guarantor cannot find a lender willing to purchase the rehabilitation and if the secretary of education determines market conditions unduly limit the sale of those loans. Because of the credit crunch and the fact that defaulted loans are not eligible for the Department’s loan purchase and participation programs, lenders have been unwilling to purchase rehabilitation loans.

Loan rehabilitation permits defaulted borrowers to restore their loans to repayment status and remove the default from their credit record.

The technical corrections bill now moves to the U.S. Senate.