TASFAA Conference 2012

1. TASFAA Conference 2012 Private Loans 101 Melet Leafgreen

2. Private Loans 101 Melet LeafgreenAssistant Director of Loan Programs Texas Christian Universitym.leafgreen@tcu.edu

3. Private Loans 101 - Agenda • Code of Conduct & PPA • What is a private loan, and what isn’t? • The three disclosures, and Self-Certification • Private Loans that aren’t really private • Preferred Lender Lists • What is it, do I need it, and how do I get it? • What is required if I have one? • Comparison: Private Loans, CAL, and PLUS • Terms, borrowers, and risks • APR • Private Loan Consolidation • New News & Coming Up

4. Code of Conduct • Institution that participates in Title IV loan programs must develop, publish, administer, and enforce a code of conduct prohibiting: • Revenue Sharing programs • Opportunity Pool Loans • Conflicts of interest • FA office employees from receiving gifts from lender, guarantor, servicer • Consulting/ contracting arrangements • School cannot request or accept assistance with call center or staffing from a lender

5. Code of Conduct • COC must prohibit directing borrowers to particular lenders • For first-time borrowers, you cannot assign (through packaging or other methods) the borrower’s loan to a particular lender • Prohibit delaying loan certification • Cannot refuse to certify, or delay certification of, any loan based on borrower’s lender selection

6. Code of Conduct • Must publish COC prominently on website • Must administer and enforce by annually notifying covered institution’s agents of the code’s provisions

7. Sample Code of Conduct

8. Program Participation Agreement & Standards for Administrative Capability Institution must: • Have a code of conduct • For any year you have a PLA, annually compile a list • Provide the self-cert form and data to complete it to students • Report annually to ED any reasonable reimbursements paid by lender to employee • Include with any information about private loans the TILA disclosure info (regardless of PLA) • Inform borrowers of Title IV eligibility and that Title IV terms & conditions MAY be more favorable than private • Must present private loan info in a manner distinct from Title IV loan info

9. Private Loans 101 - Agenda • Code of Conduct & PPA • What is a private loan, and what isn’t? • The three disclosures, and Self-Certification • Private Loans that aren’t really private • Preferred Lender Lists • What is it, do I need it, and how do I get it? • What is required if I have one? • Comparison: Private Loans, CAL, and PLUS • Terms, borrowers, and risks • APR • Private Loan Consolidation • New News & Coming Up

10. What is a private loan? • HEOA (2008): “A loan provided by a private educational lender that is not a Title IV loan and that is issued expressly for postsecondary education expenses to a borrower, regardless of whether the loan is provided through the institution that the student attends or directly to the borrower. • TILA amendments: “a closed-end loan extended expressly, in whole or in part, for postsecondary educational expenses”

11. What is NOT a private loan? • Title IV loans • Emergency loans given by institutions where term is 90 days or less (does not apply to affiliated organizations) • Tuition payment plans IF no interest charge and term is 1 year or less (does not apply to affiliated organizations)

12. Is it a private loan for TILA purposes? • Sallie Mae Signature Loan • Grad PLUS Loan • Nursing Student Loan • Big Bear College Student Loan • Be-On-Time Loan • Discover Student Loan • Big Bear College Payment Plan • College Access Loan

13. Private Loans 101 - Agenda • Code of Conduct & PPA • What is a private loan, and what isn’t? • The three disclosures, and Self-Certification • Private Loans that aren’t really private • Preferred Lender Lists • What is it, do I need it, and how do I get it? • What is required if I have one? • Comparison: Private Loans, CAL, and PLUS • Terms, borrowers, and risks • APR • Private Loan Consolidation • New News & Coming Up

14. The 3 Disclosures from Lenders • App/Solicitation Disclosure • on or with application • Not required if approval disclosure sent within 3 business days of credit request • Approval Disclosure • On or with notice of approval • Must provide student with 30 days to accept the loan with no change in terms (begins day student receives disclosure) • Final Disclosure • After consumer accepts the loan • Requires lender to provide student with 3 days to cancel the loan following borrower receipt of the FD (funding not permitted until 3 day period has expired)

17. The 3 Disclosures from Lenders • App/Solicitation Disclosure • on or with application • Not required if approval disclosure sent within 3 business days of credit request • Approval Disclosure • On or with notice of approval • Must provide student with 30 days to accept the loan with no change in terms (begins day student receives disclosure) • Final Disclosure • After consumer accepts the loan • Requires lender to provide student with 3 days to cancel the loan following borrower receipt of the FD (funding not permitted until 3 day period has expired)

18. Approval Disclosure (#2)

19. The 3 Disclosures from Lenders • App/Solicitation Disclosure • on or with application • Not required if approval disclosure sent within 3 business days of credit request • Approval Disclosure • On or with notice of approval • Must provide student with 30 days to accept the loan with no change in terms (begins day student receives disclosure) • Final Disclosure • After consumer accepts the loan • Requires lender to provide student with 3 days to cancel the loan following borrower receipt of the FD (funding not permitted until 3 day period has expired)

20. Final Disclosure (#3)

21. Self-Certification Form • ED and Federal Reserve jointly designed the form; ED released form on 2/14/10 • Lender required (enforced by Federal Reserve) to obtain completed and signed self-certification form from the applicant • All schools are required to, at the request of the applicant, provide the form as well as the information needed to complete the form (COA and EFA). • Form also includes language about using Title IV aid or other lower cost aid first

22. Self-Certification Form

23. Private Loans that aren’t really Private DCL GEN-10-01 Schools which make loans to students must comply with self-cert requirements applicable to lenders and institutions; specifically includes institutional loans and the Title VII and VIII loans (Federal Nursing Loan, Nurse Faculty Loan, etc.) If the school is the lender, the loan is probably subject to the self-cert rules. State loans not excluded.

24. Private Loans 101 - Agenda • Code of Conduct & PPA • What is a private loan, and what isn’t? • The three disclosures, and Self-Certification • Private Loans that aren’t really private • Preferred Lender Lists • What is it, do I need it, and how do I get it? • What is required if I have one? • Comparison: Private Loans, CAL, and PLUS • Terms, borrowers, and risks • APR • Private Loan Consolidation • New News & Coming Up

25. Preferred Lender Arrangement (PLA) Definition: Any arrangement between a lender and a covered institution or an institution-affiliated organization of such covered institution (a) under which a lender provides or otherwise issues education loans to students attending such institution or the students’ families and (b) that relates to such covered institution or such institution-affiliated organization recommending, promoting, or endorsing the education loan products of the lender

26. Preferred Lender Arrangement (PLA) Exemptions • Institutional loans where loan is funded from institution’s (or IAO’s) own funds • Made under Title VII or Title VIII of the Public Health Services Act • Made under a state-funded financial aid program, if loan includes public service loan forgiveness component

27. Preferred Lender Arrangement (PLA) When you have a LIST that is NOT a PLA- If you provide a neutral, comprehensive list of lenders that have made loans to students at your school within a specified period of time, such as 3-5 years, and that provides a clear statement that a borrower can select any lender. [DCL GEN-08-06]

28. So what if I have a PLA – the list: • First, you must disclose that you have a PLA to your students and families before they borrow- at least annually: compile, maintain, and make available a list of the specific lenders you recommend, promote, or endorse • On the Preferred Lender List, schools must provide: • the App/Solic. Disclosure for every loan listed • a description of the process, method, and criteria used to determine who made the list; identify reasons for selecting each lender, particularly with respect to loan terms/ conditions favorable to borrower • Not less than two unaffiliated lenders

29. Sample Lender List online

30. So what if I have a PLA – the list: • First, you must disclose that you have a PLA to your students and families before they borrow- at least annually: compile, maintain, and make available a list of the specific lenders you recommend, promote, or endorse • On the Preferred Lender List, schools must provide: • Terms & conditions for every loan listed • identify reasons for selecting each lender, particularly with respect to loan terms/ conditions favorable to borrower • Not less than two unaffiliated lenders • a description of the process, method, and criteria used to determine who made the list

31. Sample Lender List online

32. So what if I have a PLA – the list: • First, you must disclose that you have a PLA to your students and families before they borrow- at least annually: compile, maintain, and make available a list of the specific lenders you recommend, promote, or endorse • On the Preferred Lender List, schools must provide: • Terms & conditions for every loan listed • identify reasons for selecting each lender, particularly with respect to loan terms/ conditions favorable to borrower • Not less than two unaffiliated lenders • a description of the process, method, and criteria used to determine who made the list

33. Sample Disclosure of lender selection process

34. Sample of criteria used

35. So what if I have a PLA • You must compile the list without prejudice and for sole benefit of students and families • Institution must not deny , impede or unnecessarily delay loan certification for borrowers who choose a lender not included on the list • Cannot agree to use of school’s name, emblem, mascot, logo, colors, etc. by lenders which might imply loan is offered by school (co-branding) • Must ensure lender name is displayed on all information and documentation related to the loan

36. So what if I have a PLA - reporting • Annual report to ED detailing method and criteria used to select: must include why terms and conditions of selected loans are beneficial to borrowers • This report has to be made available to the public, and current and prospective students.

37. Should you have a lender list? What is scary cumbersome irritating too much work risky about having a Preferred Lender List? If you don’t have one, why don’t you? If you do have one, why do you?

38. Student Loans online search

39. Private Student Loans online search

40. How do I make a lender list? • Figure out what is important to your population. • Invite lenders to answer questions about it. • Document their answers. • Select lenders who are the best fit for your students and families based on their answers. Keep the documentation forever. Guiding Questions: • Do my borrowers benefit? • Can I prove it? (Is it documentable?)

42. How do I make a lender list? • Figure out what is important to your students and families. How do you do that??? • Survey students • Survey parents • Survey FA Staff (and other offices) • Ask other schools for best practices • Possible tools from guarantor, servicers, etc. • Associations (NASFAA, TASFAA, SWASFAA, etc.)

43. How do I make a lender list? 2. Invite lenders to answer questions about it. 3. Document their answers. RFI, RFP , questionnaire, survey • Evaluate lenders for their ability/ willingness to respond to needs of students & schools, so you can… • Provide students & families with the options that will benefit them the most, and be able to… • Document and disclose both the process and the outcome.

44. How do I make a lender list? 4. Select lenders who are the best fit for your students and families based on their answers Make sure you would be able to justify the choices you make by logic, scores, & comments Always use the same basic criteria for all participants The Goalis to make sure than anyone who wants to know (your VP, a student or parent, an attorney general) can tell easily from your documentation how you conducted the process and how your decisions were made. A bonus: this makes it easier to explain to a non-listed lender why their shop didn’t make the cut.

45. Private Loans 101 - Agenda • Code of Conduct & PPA • What is a private loan, and what isn’t? • The three disclosures, and Self-Certification • Private Loans that aren’t really private • Preferred Lender Lists • What is it, do I need it, and how do I get it? • What is required if I have one? • Comparison: Private Loans, CAL, and PLUS • Terms, borrowers, and risks • APR • Private Loan Consolidation • New News & Coming Up

46. Which loan is right for me? Questions to ask: • Who is the borrower? • Who is the lender? Do I have a choice? • Is there a yearly/ aggregate loan limit? • Do I need a cosigner or endorser? • Can this cosigner/ endorser be released? • What’s the interest rate and fee? • When is interest capitalized?

47. Which loan is right for me? Questions to ask (more): • How long does the application process take? • What are the credit requirements? • Can I consolidate this loan? • What type of repayment plans are available? • Could I postpone my payments if I need to? • Is there any way to have this loan forgiven?

48. Comparing costs • Calculate a simple APR – different than interest rate because it helps you take into account any up-front fees • Example: $10,000 loan, 120 mo. repayment 5.25% fixed rate 8% fixed rate 5% fee 0% fee APR = 6.38% APR = 8%

49. Comparing costs APR calculator http://banking.about.com/library/calculators/bl_APR_calculator_load.htm Note: Most simple online APR calculators are made for use with a fixed rate loan.

50. Comparing costs Another comparison: $10,000 loan, 120 month repayment term 5.25% fixed rate 5% fee APR = 6.38% 8% fixed rate 0% fee APR = 8% 7.9% fixed rate 4% fee APR = 8.88%