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The Value of Private Lender Lists and Keeping It Simple. lie Moreno Rehder – ELM Resources. Agenda. Regulatory Background & Preferred Lender Arrangements (PLA ) The Value of a Lender List The Value of Private Loans Myths vs. Facts – Private loans and PLUS/Grad PLUS
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The Value of Private Lender Lists and Keeping It Simple lie Moreno Rehder – ELM Resources
Agenda • Regulatory Background & Preferred Lender Arrangements (PLA) • The Value of a Lender List • The Value of Private Loans • Myths vs. Facts – Private loans and PLUS/Grad PLUS • Tips When Choosing Lenders • School Lender List Options • ELMSelect as a Loan Selection Tool • Questions
Previous ED Guidance “… a preferred lender list can be an effective tool to help families…” “…by providing this information, schools may help students and their parents navigate the increasingly complex student loan landscape.” “…a borrower’s choice of lender may be better informed by preferred lender lists and other consumer information... …which play a useful role in assisting financial aid administrators in dealing with the large volume of requests for information and assistance, and in informing borrower choice.” Reference: DCL GEN-08-06 posted May 8, 2008 Subject: School Use of a Preferred Lender List in the FFEL Program
Preferred Lender Arrangement A Preferred Lender Arrangement exists if: • Lender provides education loans to students/families, AND • School recommends, promotes or endorses the education loan products of a lender No formal agreement required to trigger definition, Applies to the entire institution and all staff
The Value of a Lender List • Provides a starting points for families to begin researching private loans • Prevents families from choosing the wrong products • Makes it easier for families to make private loan decisions by having reliable information in one place • Allows faster private loan processing • Will open dialog with a private loan lender representative that will keep you updated and informed on product changes • Saves staff time from having to counsel each family individually on which loans is best for their situation • Shows how important it is to your institution that students are informed before making a decision.
The Value of Private Loans • MYTH:Government loans are always less expensive for borrowers than private loans. • FACT: When measuring the true cost of credit through an APR comparison, private loans often compare favorably to unsubsidized federal loans, particularly Graduate PLUS Loans. • MYTH: Private student loans are all variable products with extremely high interest rates. • FACT: Most lenders offer students the choice of fixed-rate or variable-rate products.
The Value of Private Loans • MYTH:Private student loans can pose more risk for borrowers than federal student loans. • FACT:Federal loans, in contrast to private student loans, are provided without the most basic consumer protection – a determination of the borrower’s ability to repay. • MYTH:Students and families do not receive adequate information about private student loan terms before borrowing. • FACT:Lenders provide three notices containing 18 disclosure items about private loan terms at three different times before a private loan is made. These disclosures are required by law. The Federal Reserve conducted extensive consumer testing before establishing these new disclosure requirements, which have been in effect since February 2010.
What to Look for When Choosing a Lender Program • Comprehensive product offerings • Competitive pricing: fixed & variable rates and no fee options • Borrower benefits/repayment incentives • Loan Product Features offered • Reputation & track record • Stability & longevity
What to Look for When Choosing a Lender Program Quality of Lender Customer Service & Support • Dedicated marketing/service staff • Toll free number – single point of contact • User friendly web-based services offered • Level of automated processing offered • Technical support offered • Training offered • Default management • Other value-added services
School Lender List Options • No Lender List • Comprehensive • Historical List • 3rd Party List • Preferred Lender Arrangement (PLA)
No Lender List • No information, guidance or counseling assistance is provided to prospective borrowers on any private education loan programs by any school staff • Borrowers and families are on their own to educate themselves and make informed decisions on private education loan options
Comprehensive • Provides students with a starting point • Schools can provide a neutral, comprehensive list of lenders that provided private education loans from a certain period of time • Cannot exclude any lenders unless they are no longer providing education loans • Some loan programs may not be available to your borrowers • Excluding active lenders or adding new lenders triggers PLA requirements • Terms and conditions of loans may be provided • Private loan disclosure requirements must be met
Historical • Provides students with a starting point • Schools can provide a neutral, historical list of lenders that students used in the past at their institution • Cannot exclude any lenders unless they are no longer providing private education loans • Some loan programs may not be available to your borrowers • Excluding active lenders or adding new lenders triggers PLA requirements • Terms and conditions of loans may be provided • Private loan disclosures requirements must be met
3rd Party Lender List • “[Not 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 place on the list or pay the third party entity a fee based on loan volume generated.” • School is still responsible for all compliance • Private loan disclosure requirements must be met • Some loan programs may not be available to your borrowers • Additional topics for consideration: • Loan comparison functionality • Advertising influence on 3rd party sites • Unsolicited emails to borrowers Reference: Federal Register: October 28, 2009 (Volume 74, Number 207) –Final Rule
Preferred Lender Arrangement Option • School staff can provide guidance and counseling to borrowers and families • Provides a meaningful starting point for making informed decisions on private loans • Allows for more streamlining of electronic processing • Will open dialog with a private loan lender representative who will provide customer service and keep you updated on product changes.
Information to Compile and Disclose This information is based on Discover’s review and interpretation of regulations. This document should not be construed to be legal advice. Please consult with your own compliance and legal counsel to ensure that you are in full compliance with the preferred lender arrangement requirements applicable to your school.
The ELM Solution – ELMSelect 2.0 • ELMSelect2.0 – An online lender list and comparison resource • Provides students the ability to compare lenders and lender products side-by-side • Schools establish their lender or product listing with lender approvals • Lenders establish their product details and school relationships • Direct communications between schools and lenders • Complies with current regulations • Complete self-service provided for schools and lenders with many custom options • Detailed data capture for future analytics
Disclaimer & Reference The information contained in this presentation is not comprehensive, is subject to change based on additional guidance or directives from the U.S. Department of Education (ED). It serves only as general, background information for further investigation and study related to the subject matter. Nothing in this presentation constitutes or is designed to constitute legal advice. Please consult your own counsel to ensure that you are in full compliance with requirements applicable to your institution. References: • Federal Reserve final rules for private loans – August 14, 2009 • Federal Register, 34 CRF 601- October 28, 2009
Thank you! Julie Moreno Rehder, ELM Resources jrehder@elmresources.com
