Title X: Private Student Loans and Preferred Lender List Requirements

Presented by

Debra Cross, Wells Fargo EFS Patty Peterson, PNC/Education Loan CenterSally Treadwell, SunTrust Education LoansSharon Clemente, RBS Citizens

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Higher Education Opportunity Act

• Private Loan Self Certification

• Private Loan Disclosures

• Borrower Rights

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The Fine Print

Please note that the following material is presented only for educational purposes and constitutes only the opinions of the individual presenters. The presenters are not attorneys and

the material does not constitute legal advice.

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Higher Education Opportunity Act

• On August 14, 2008, the Higher Education Opportunity Act (HEOA) was enacted. Title X of the HEOA, entitled the “Private Student Loan Transparency and Improvement Act of 2008” adds new subsections to the Truth in Lending Act (TILA) and its implementing regulation, Regulation Z.

• Proposed rules were sent out in March, 2009 with a comment period ending May 26, 2009.

• Final Rules were disclosed on August 14, 2009. Implementation of the regulations is the earlier of 6 months after publication in the Federal Register or February 14, 2010.

• There were 32 items that asked for comment.

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Self Certification

Regulations require a statement, if applicable, that before the loan may be consummated, the borrower must:

• obtain the self-certification form from either the school or the lender

• obtain the information to complete the form• sign it and submit the completed form to the

lender.

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This form will contain:

• Cost of Attendance

• Amount of Financial Aid Available

• Cost to be incurred in the future

Self Certification

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Self Certification

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Disclosures

Lenders are now required to send borrowers disclosures at three different times in the loan origination process

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Disclosures

• Application Disclosure– With application or solicitations that require no application

• Lender Must Include Information About:– Rates – APR and Interest Rate– Fees– Terms - Uniform $10,000 loan amount -normal repayment and any

graduated repayment plan– Examples of the total cost of the loan based on maximum interest

rate the lender can charge and various repayment options– Alternative FFELP Loans - including the interest rates– Federal Aid Website -

Federal Student Aid - Information on Grants, Student Loans, Scholarships and Other Financial Aid

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Disclosures

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Disclosures

• Approval Disclosure– When a loan is approved

• Lender Must Include Information About:– Transaction Specific Disclosures– Rates – APR and Interest Rate– Fees– Terms– Itemization of Amount Financed– Example of the total repayment amount based on the current

interest rate and the maximum interest rate they may be charged– Monthly payment must be disclosed at the maximum rate of

interest– The 30-day acceptance period expiration date must be

conspicuously denoted.

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Disclosures

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• Final Disclosure– When a loan is consummated

• Lender Must Include Information About:– Transaction Specific Disclosures– Rates – APR and Interest Rate– Fees– Terms– Itemization of Amount Financed– Example of the total repayment amount based on the current

interest rate and the maximum interest rate they may be charged– Monthly payment must be disclosed at the maximum rate of

interest– The 3-day right to cancel date must be conspicuously denoted.

Disclosures

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Disclosures

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Thirty Day Right of Acceptance• HEOA provides borrowers with a 30 day

period following receipt of the approval disclosures in which to accept a private education loan.

• It prohibits creditors from altering:– Rate on the loan except for changes based

on adjustments to the index– Term of the loans

Borrower Rights

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Three Day Right to Cancel• The consumer has the right to cancel a

private education loan without penalty until midnight of the third business day following receipt of the final disclosures.

• It also prohibits the lender from disbursing any funds until the expiration of the three business day period.

Borrower Rights

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The Lender Process Flows will Differ

1. The Self-certification Form:• Who provides?• How will it be returned?• Where in the process flow will it be completed?• How will student errors on the self-certification be handled?

2. Application and Approval Disclosures• How will they be presented and acknowledged?• Is there a time element involved? • Impact on the process flow• The 30 day guarantee of terms

3. Final Disclosure• Passive notification• The six day right of refusal• How will schools be notified if loan is cancelled?

4. School Certification• Where in the process flow will it be completed?

5. Loan Disbursement

Preferred Lender Arrangements and ListsPresented by

Sally G. Treadwell, SunTrust Education Loans

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Preferred Lender Arrangements

• A “preferred lender arrangement” is an arrangement or agreement between a lender and a covered institution…under which the lender provides education loans to the covered institution’s students or their families, and that relates to the covered institution recommending, promoting, or endorsing the lender’s education loan products.1

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Preferred Lender Arrangements

• “Any action that a [school] takes to recommend, promote, or endorse the education loan products of a lender that provides…education loans to students attending the [school] triggers the preferred lender arrangement requirements. The actions a [school] may take to recommend, promote, or endorse the education loan products of a lender are not limited to including the lender on a preferred lender list.”2 – This may be either intentional or unintentional by the school. – If you have a disproportionate private loan volume from one

or two lenders, you may have unintended PLA’s with that lender or lenders.

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Preferred Lender Arrangements

• Schools who furnish private loan lender lists to their students and parents are considered to have Preferred Lender Arrangements with those lenders included on the list.

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Approaches to Lender Recommendations

1. Comprehensive Lender List2. Third Party/Neutral List3. No referral process whatsoever4. Actual PLA/Preferred Lender List

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The Comprehensive List Approach

“…a school that wants to provide basic information to the school’s students and their parents may provide a comprehensive list of lenders that have made loans to the school’s students or parents in the past three to five years (or some other period) and that have indicated that they would continue to make such loans. The school should not provide any additional information about the lender, including, for example, the percentage of the school’s loans made by the lender.

The school must provide a clear statement that a borrower can choose to use any…lender.”3

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The Comprehensive List Approach

• “…if a [school] includes certain lenders on the list and leaves other lenders off the list, the Department views the [school] as recommending, promoting, or endorsing the lenders on the list over the lenders that it has chosen to leave off the list regardless of whether the [school] includes a disclaimer on the list, asserting that the [school] does not recommend, promote, or endorse the lenders on its list, despite whatever disclaimers the school may attach to the list.”4

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Third Party/Neutral Lists

“The Department does not consider an institution that refers its students to a third party entity that maintains a comprehensive, neutral listing of private education lenders to be participating in a [PLA] as long as the institution ensures that the listing is broad in scope, does not endorse or recommend any of the lenders on the list and the lenders on the list do not pay the third party entity to be placed on the list or pay the third party entity a fee based on any loan volume generated. However, if an institution retains a third party entity to develop a customized lender list for the institution to provide to its students as a resource…the Department does consider the institution to be participating in, and subject to the requirements of, a [PLA].”13

DISCUSSION

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No Referral Approach

?

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No Referral Approach

Remember: • “Any action that a [school] takes to

recommend, promote, or endorse… education loan products…triggers the preferred lender arrangement requirements.”2

• This includes no literature or brochures.• No one at your institution may ever discuss

any lender with prospective student families. The same rules apply to the comprehensive list providers.

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Is that the easiest approach?

• If you are not permitted to display any brochures…

• If no employee of your school is permitted to utter a word about any loan program without triggering the PLA requirements…

• If you’re concerned about the level of customer service you’re providing to students and parents…

…then what are your other options?

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The “411” on PLA’s

PLA’s

School Requirements

Effective July 1, 2010

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Disclosures

• Must include the following disclosures on your school’s website and any other private loan informational materials distributed to students. Schools must separate private loan disclosures from any federal loan disclosures.

• 1. Maximum amount of federal grant and loan aid available, and statement that terms and conditions for federal loans may be more favorable than private loans

• 2. Student may choose any lender, including one not on the preferred lender list

• 3. Information regarding certain terms and conditions for each loan program, required to be disclosed on or with any loan application or solicitation5

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Annual Report

• File an Annual Report with ED that includes for each PLA all disclosures provided on the preferred lender list, and why their loans are beneficial to students

• This should be same information that is disclosed on annual basis for students and parents and should be made available to the public

• “…needs to include an explanation of why the terms, conditions, and provisions of each [loan is] beneficial to students…or families of students.”6

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Code of Conduct

• You are required to have a Code of Conduct- your institution probably has adopted one in light of the 2007 Sunshine regulations

• Created to avoid conflicts of interest by school employees or their agents7

• Must be prominently displayed on school’s website7

• All school agents must be annually informed of the provisions of the code of conduct

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Code of Conduct

• Minimum Code of Conduct Current Requirements:8

– No revenue sharing with any lender– No soliciting or accepting gifts from any lender, servicer, or

guarantor• Anything having more than a de minimus amount10

• Standard material, activities, or programs on issues related to a loan, default aversion, default prevention, or financial literacy, such as a brochure, a workshop, or training.10

– No accepting any compensation from any contractual (or otherwise) consulting or serving on any advisory board for any lender

– No assigning any first-time borrower loan to a particular lender– No refusing to certify or delaying certification of loan requests (this

applies more to FFEL)– No requesting loan funds or opportunity pools for loan volume or

PLA’s granted– No requesting or accepting staffing assistance

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Code of Conduct

• Exceptions to Requesting or Accepting Staffing Assistance9

– Professional development or training– Providing educational counseling materials– Providing short-term, nonrecurring staffing

assistance during disasters or emergencies• The latter is subject to such wide interpretation that many

lenders prefer not to subject themselves and their school partners to scrutiny

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Use of Names

• Lenders may not use school:– Name– Emblem– Mascot– Logo

to imply that the loan is offered or made by the school instead of the lender

• Schools must use lender name in all information and documentation pertaining to the loan11

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Additional Requirements for Maintaining Preferred Lender Lists12

• Compile the list with care and without prejudice for the sole benefit of students and their families

• For private loans, schools must list at least two unaffiliated lenders on list– Specifically indicate whether a lender is or is not an affiliate of each

other lender on the list– If lenders are affiliated, the school must describe the nature of the

affiliation• Disclose detailed information about the terms and conditions of the

loans• Disclose that students do not have to borrow from a lender on the

preferred lender list• Disclose why it entered into an arrangement with each lender,

particularly with respect to terms and conditions or provisions favorable to the borrower

• Prominently disclose the method and criteria used in selecting the lenders

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So….to RFI or Not to RFI?

• Three of the criteria required in compiling a Preferred Lender List require you to explain your choices.

• There is no language per se about the necessity to issue an RFI

• However, you will need to have evidence that you have made informed decisions

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So….to RFI or Not to RFI?Competing Priorities

Everyone has competing priorities…

• Normal peak processing

• System conversions

• ….and a little something called Direct Loans

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So….to RFI or Not to RFI?Some Easy Ideas

Not All RFI’s have to be Doctoral Dissertations!

• Think of 8 – 10 questions about private loans that are important to you and create a one-pager

• Ask your lender partners to share other school questions with you

• Ask your lender partners for their “boilerplate”- their pre-prepared RFI response, customized for your school

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Your Students and Families are Counting on Your Expertise

Thank you for your time and consideration.

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Footnotes/References1. HEOA, p. 40

2. Fed. Register 10/28/09, page 55630, col. 2, last paragraph

3. DCL ID: GEN-09-08

4. Fed. Register 10/28/09, page 55630, col. 1, last paragraph

5. Fed. Register 10/28/09, § 601.10(a) through (c)

6. Fed. Register 10/28/09, § 601.20(a) and (b)

7. Fed. Register 10/28/09, § 601.21(a)(2)(ii) and (iii)

8. Fed. Register 10/28/09, § 601.21(c)

9. Fed. Register 10/28/09, § 601.21(c)(6)

10. Fed. Register 10/28/09, § 601.21(c)(2)(ii)

11. Fed. Register 10/28/09, §601.12(b)

12. HEOA, p. 71

13. Fed. Register 10/28/09, page 55630, col. 2, second paragraph