DEVELOPING A PREFERRED LENDER LIST

1. DEVELOPING A PREFERRED LENDER LIST Sarah Bauder Director University of Maryland sbauder@umd.edu

2. AGENDA • Review Negotiated Rulemaking • Why Was Neg Reg Needed? • Lender Lists • Inducements • Define Regulations • Current Issues • Developing Your Own Process • Understanding the Current Environment • Best Practices • Questions

3. NEGOTIATED RULEMAKING What is Negotiated Rulemaking? Negotiated rulemaking is a process which brings together representatives of various interest groups and a federal agency to negotiate the text of a proposed rule. The goal of a negotiated rulemaking proceeding is for the committee to reach consensus.

4. MAIN FOCUS OF LOAN TEAM Preferred Lender Lists Section 682.212(h)(1) Inducements Section 682.200 and 682.401

5. REGULATORY LANGUAGE INDUCEMENTS – WHAT IS ALLOWED a lender may provide— Staffing services to a school on an short-term, emergency basis to assist the school with financial aid related functions; Support of and participation in a school’s or a guaranty agency’s student aid and financial literacy related outreach activities;

6. REGULATORY LANGUAGEINDUCEMENTS – WHAT IS ALLOWED • The cost of meals, refreshments, and receptions that are part of a meeting, training, or conference as long as those meals, refreshments, or receptions events are open to all meeting or conference attendees; • Meals and refreshments, reasonable as to cost, nature, and amount, that are provided in connection with lender-sponsored training of program participants; • Toll-free telephone numbers for use by schools or others to obtain information about FFEL program loans and free data transmission service, or for use by schools

7. REGULATORY LANGUAGEINDUCEMENTS – WHAT IS ALLOWED • Other benefits to a borrower under a repayment incentive program that requires, at a minimum, one or more scheduled payments to receive or retain the benefit; and • Items of a nominal value to schools, schools-affiliated organizations, and borrowers that are offered as a form of generalized marketing or advertising or to creation of good will.

8. INDUCEMENTS: WHAT IS NOT ALLOWED Schools cannot accept nor can lenders/guarantors offer anything in exchange for loan volume

9. INDUCEMENTS: WHAT IS NOT ALLOWED • Payments or other benefits provided to a school or school affiliated organization • Payment of conference or training registration, transportation, and lodging costs for an employee of a school or school affiliated organization

10. INDUCEMENTS: WHAT IS NOT ALLOWED • Payment of entertainment expenses for employees of a school or a school affiliated organization including private hospitality suites, tickets to shows or sporting events, meals, alcoholic beverages, and any lodging, rental, transportation, and other gratuities related to a lender-sponsored social activity

11. DEFINITION OF A SCHOOL AFFILIATED ORGANIZATION • …a school-affiliated organization is any organization that is directly or indirectly related to a school and includes, but is not limited to alumni organizations, foundations, athletic organizations, and social, academic, and professional organizations.

12. CONNECTION BETWEEN LENDER LISTS AND INDUCEMENT • “School affiliated organization” • Language “prohibits a lender from undertaking philanthropic activities including providing scholarships, grants, restricted gifts or financial contributions in exchange for FFEL loan volume…” • “…the Secretary applies a rebuttable presumption that the payments or activities were offered or provided to secure applications for FFEL loans or to secure FFEL loan volume…”

13. REGULATORY LANGUAGE FOR PREFERRED LENDER LISTS • Must have at least three unaffiliated lenders • Department of Education changed definition in March 2008 • Cannot impede or deny a borrower’s choice of lender – provide prominent statement on choice • Cannot include lenders who have been known to offer financial benefits (inducements) to an institution • Provide disclosure as to method used • Cannot assign a lender to a first time borrower

14. BEST PRACTICES FOR LENDER LISTS • Create a firewall around the process • Ask Questions of Lenders – RFI, RFP, Survey • Keep the lender list static each year • Know the mission of your institution for disclosure purposes • Communicate to your President

15. Create a Firewall • Committee decides lender list • Students • Staff • Director – not included but can have influence

16. Different Methods Which every method you choose, keep the questions concise. No more than 30 questions. Remember: you need to review it. • RFP – Request for Proposal (not recommended) • Creates a contract • Goes through Procurement • RFI – Request for Information • Often gives a purpose • Survey • Just asks questions

17. POTENTIAL PROCESS (see handouts) • 30 question survey • Decision is by committee • Quantitative data • Qualitative data • Letter to Lenders for Reason • Provide Disclosure to Institution and Students

18. www.financialaid.umd.edu

19. CALENDAR • Effective date: July 1, 2008

20. QUESTIONS AND ANSWERS Sarah Bauder University of Maryland College Park 301-314-8279 sbauder@umd.edu