HBCUs May Sue Obama Administration Over New Student Loan Rules

03/13/2013 05:01 pm ET | Updated Mar 14, 2013

Historically black colleges and universities are not ruling out a lawsuit against the Obama administration over new federal financial aid policies that disproportionately affect their students, the Washington Times reports.

New underwriting standards enacted in October 2011 to PLUS loans made it tougher for parents with lackluster credit to borrow money from the federal government for their child's college expenses. Families of students at HBCUs were twice as likely to use the program, according to the Associated Press, but previous borrowers were not grandfathered in with the old standards.

The change meant borrowers who currently hold loans would have their credit evaluated retroactively to cover the previous five years, rather than the previous 90 days, Inside Higher Ed reports.

With the policies now in effect and forcing some students out of college, HBCUs are considering legal action over the new rules.

"We're going to continue to pursue the legislative process to find a better solution," Johnny C. Taylor, president and CEO of the Thurgood Marshall College Fund, told the Washington Times. "[But] if at some point we determine that there is no agreement, then we may have to consider going to the courts."

HBCUs typically don't have sufficiently robust endowment funds to offer their own financial aid to replace loans. The combined endowments of all HBCUs is $1.6 billion, which is less than Ohio State University's $2 billion fund and far below Harvard's $19 billion, according to The Grio.

At the same time, the Pell Grant currently covers the smallest portion of college costs in the program's history. A 2011 FastWeb analysis found that Pell Grant recipients are more likely to be minorities [PDF], making every other source of financial aid even more critical.

HBCUs have long been concerned that rules, proposed to rein in for-profit colleges, will inadvertently harm students at black colleges.

Many students at HBCUs rely on student loans to go to college, and often end up with more debt upon graduation. Under federal law, schools that fail to keep down loan default rates could lose eligibility for federal financial aid programs.

According to U.S. Department of Education data, three of the 10 schools with the highest graduate default rates are historically black: Clinton Junior College, Southwestern Christian College and Concordia College Alabama. A vast majority of schools with the highest default rates, however, are for-profit colleges.

Mark Kantrowitz, publisher of FinAid.org, predicted to the Times that if HBCUs did want to settle the PLUS rules in court, they'd have a good chance of winning due to the speed with which the rule was changed.

"We are not itching for a fight, [but] we need to do what is necessary to protect what is the most vulnerable and fragile in our society," Taylor said.

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