Navigating Student Loan Disclosures

1. Navigating Student Loan Disclosures Melet Leafgreen Assistant Director, Loan Programs TCU David Garza Senior Policy Advisor TG Policy and Regulatory Affairs

2. Outline • Review statutory and regulatory background • Explore definitions applicable to education loans under 34 CFR 601 • Discuss the private education loan applicant self-certification form • Learn about the private education loan disclosure requirements under 12 CFR 226 (Regulation Z)

3. Statutory and Regulatory Background

4. Statutory background • The Higher Education Opportunity Act (HEOA): • Amended the Higher Education Act (HEA) and created new school-based disclosure requirements • Amended the Truth-In-Lending Act (TILA) and created new private education loan disclosures • The amendments left the need for new regulations

5. Regulatory background • Under negotiated rulemaking, the Department of Education (ED) created rules for the required disclosures on Title IV loans and private education loans. • These final rules were published on 10/28/2009 in the Federal Register which created 34 CFR 601 • Effective date for rules: 7/01/2010

6. Regulatory background • For the rules related to private loan disclosures, the Board of Governors of the Federal Reserve System created certain disclosures and defined key terminology related to private loans. • The Federal Reserve Board (FRB) published final rules on 8/14/2009 in the Federal Register which amended 12 CFR 226 • Effective date for rules: 2/14/2010

7. Goal associated with statutory and regulatory requirements • New requirements allow for: • Borrowers to receive meaningful information about the terms and conditions of federal and private education loans • Preferred lender arrangements to be established in the best interest of the borrower • More transparent and higher ethical standards instudent lending

8. Exploring 34 CFR 601 • Institutional and Lender Requirements Related to Education Loans

9. Requirements for education loans • Final rules published on 10/29/2009 created a new Part 601 • This part governs school and lender requirements associated with education loans

10. Requirements for education loans • The new subparts cover the following areas: • Definitions • Disclosures pertaining to preferred lender arrangements, private education loans, the self-certification form, and use of school and lender names • School responsibilities associated with annual reporting and code of conduct • FDLP school disclosures • Lender disclosures and reporting

11. Definitions under 34 CFR 601 • Covered institution: • Any institution of higher education, proprietary institution of higher education, postsecondary vocational institution, or institution outside the United States

12. Definitions under 34 CFR 601 • Institution-affiliated organization (IAO): • Any organization that: • Is directly or indirectly related to a covered institution, and • Is engaged in the practice of promoting, endorsing, or recommending education loans for students attending such covered institutions or the families of such students

13. Definitions under 34 CFR 601 • Lender: • A FFELP lender • ED • A private lender as defined in section 140 of the Truth-in-Lending Act (TILA) • Any other person engaged in the business of securing, making, or extending education loans on behalf of the lender

14. Definitions under 34 CFR 601 • Education loan: • A FFELP, • FDLP, or • Private education loan • A non-Title IV loan that is issued expressly, in whole or part, for postsecondary education expenses to a borrower; or issued to consolidate a consumer’s pre-existing private education loans • Only exceptions: A short-term or emergency loan of 90 days or less, or an interest-free tuition billing plan where the term is not greater than one year

15. Definitions under 34 CFR 601 • Preferred lender arrangement: • An arrangement or agreement between a lender and a covered institution or an IAO • Lender provides or otherwise issues education loans to the students attending such covered institution or the families of such students; and • Covered institution or IAO recommends, promotes, or endorses the education loan products offered by the lender

16. Pop quiz • If a covered institution makes available a neutral list of lenders who have made either FFELP or private loans to students within a set period of time, is that considered a preferred lender arrangement? • What does a covered institution need to do if it has a preferred lender arrangement for FFELP or private loans?

17. Pop quiz answer • If the covered institution makes available a neutral list of lenders who have made either FFELP or private loans to students within a set period of time, such a list is not considered a preferred lender arrangement. • The above guidance can be referenced in DCL GEN-08-06 and applies to a list of lenders who have also made private education loans.

18. Disclosure requirements for preferred lender arrangements • If the covered institution has a preferred lender arrangement for FFELP or private loans, it must: • Disclose on preferred lender list (PLL) • Describe process used to develop PLL • Deliver information to students and families • Develop a code of conduct • Provide additional reporting to ED

19. Code of conduct requirements • Program participation agreement instructs all schools participating in Title IV loan programs to • Develop, publish, administer, and enforce a code of conduct which must be done in accordance with §601.21 • §601.21 impacts all schools that have a preferred lending arrangement for FFEL and/or private education loans • Inform officers, employees, and agents with loan responsibilities of the code annually

20. Model disclosure form • ED, in consultation with the Federal Reserve, must determine the minimum information that covered institutions, IAOs, and lenders in a preferred lending arrangement for FFELP loans must disclose to prospective borrowers • HEOA requires that the determination of the minimum information must be completed by 02/14/2010 • Minimum content must also include, but is not limited to: • Interest rate • Annual and aggregate loan limits • Origination and federal default fee

21. Model disclosure form • Based on information collected, ED will create model disclosure form for those participating in a FFELP preferred lender arrangement as described in §601.10(a)(1)(ii) • Not later than 180 days after developing the model disclosure form, ED must use it as the basis to build a model disclosure form and provide it to FDLP schools for use as described in §601.30

22. Private Education Loan Applicant Self-Certification Form

23. Private Education Loan Applicant Self-Certification Form • Purpose of form is to prevent over-borrowing and educate consumers about private education loans • Form developed by ED and Federal Reserve • Made available on 2/14/2010 • Dear Colleague Letter GEN-10-01 • Effective date for implementation: 2/14/2010

24. Private education loan applicant self-certification form • Upon enrolled or admitted student’s request for a private loan, a school must make the form available • See Sec. 487(a)(28) of the HEA and §668.14(b)(29) of the regulations • The form may be provided in written or electronic format • A lender may provide form to applicant

25. Private education loan applicant self-certification form • To the extent the school has the information, it must provide the applicant with the following information to complete the form: • Cost of attendance (COA) • Estimated financial assistance (EFA) • Difference between the COA and EFA • Lender must obtain a signed, completed self-certification form prior to “consummation” of private education loan funds

26. Pop quiz • If the school packages or offers loans to students under Title VII or Title VIII of the Public Service Health Act, is it required to collect the Private Education Loan Applicant Self-Certification Form?

27. Pop quiz answer • Under Federal Reserve Board rules, 12 CFR 226, schools that make loans to students or parents (including Title VII or Title VIII of the Public Service Health Act) are generally considered private educational lenders. • The loans described above meet the definition of a private education loan. The school must obtain the self-certification form from the applicant prior to consummating the private education loan.

28. Overview of 12 CFR 226 • Regulation Z—Special Rules for Private Education Loans

29. Requirements for private education loans • Truth in Lending Final Rules were published in the Federal Register on 08/14/2009 • New rules added disclosure requirements and prohibited certain practices for creditors making private education loans.

30. Definitions • Covered educational institutions (CEI): • Includes all institutions of higher education as defined in Sec. 101 & 102 of the HEA without regard to the institution’s accreditation status, • An agent, officer, and employee of the institution of higher education fall under this definition

31. Definitions under 12 CFR 226 • Creditor: • Applies to a person who regularly extends consumer credit that is subject to a finance charge; or payable by written agreement in more than four installments • Regularly extending credit is defined as extending credit more than 25 times in the preceding calendar year. • Encompasses persons that are engaged in the business of extending private education loans

32. Definitions under 12 CFR 226 • Private education loan: • An extension of credit that is made to a consumer expressly, in whole or in part, for postsecondary educational expenses regardless of whether the loan is provided by the educational institutional the student attends • It does notinclude: • A short-term or emergency loan of 90 days or less • An interest-free tuition billing plan where the term is not greater than one year • A Title IV loan • Open-ended credit • Real-estate secured loans

33. Disclosure requirements for private education loans • New disclosures that affect consumers receiving private education loans were established by the Federal Reserve. The following disclosures must be provided: • Application/solicitation disclosure • Approval disclosure • Final disclosure • Disclosures must be implemented for loan applications on or after 02/14/2010.

34. Application/solicitation disclosure • The application/solicitation disclosure: • Must be provided on or with the private education loan application (or stand alone in the case where there is no application) • Contains information about terms and conditions of the loan including but not limited to interest rates, fees, and eligibility requirements • Reminds applicants about the availability of Title IV loans (described as “Federal Loan Alternatives”)

35. Approval disclosure • The approval disclosure: • Must be provided after approval on or with any notice of approval to the private education loan applicant • Provides the applicant’s specific conditions and terms associated with the private education loan including but not limited to: interest rate, fees, and repayment term • Informs the applicant of the specific steps that must be taken to secure the loan • States an exact date on which the offer expires

36. Final disclosure • The final disclosure: • Provides information concerning terms and conditions of the loan including, but not limited to: • Interest rate, fees, default costs, late payment costs, and repayment terms • Informs consumers of the right to cancel • Within three business days of receipt of the final disclosure • Disclosure will describe specific method(s) in which consumer may cancel the loan and provide a specific date on which the cancellation period ends

37. Sample illustration: Disclosures made during origination of a private education loan (creditor is lender) Applicant applies for a private loan with lender Applicant is determined creditworthy and approved for private loan with lender Applicant signs promissory note; school loan certification occurs, if applicable Lender disburses loan funds to school for delivery to borrower, or disburses funds to borrower directly PROCESS 1. Lender provides application/ solicitation disclosure Borrower completes self-certification form and submits it to lender (Lender must have this form on file in order to disburse funds) 2. Lender provides approval disclosure 3. Lender provides final disclosure three days prior to disbursement — Borrower has three business days from date of consummation to cancel loan without penalty DISCLOSURES The sample above is intended to illustrate when the appropriate disclosures and self-certification form are provided during loan origination. Depending upon the creditor’s origination process, the timing of the disclosures may vary.

38. Sample illustration: Creditor is a school and awards institutional loan that is considered private education loan School sends award letter and includes a private loan as part of aid package Student accepts private loan and returns award letter to school Student signs promissory note for the school PROCESS School disburses loan funds to the borrower 1. School provides application/ solicitation disclosure Borrower completes self-certification form and submits it to school (School must have this form on file in order to disburse funds) 2. School provides approval disclosure 3. School provides final disclosure three days prior to disbursement — Borrower has three business days from date of consummation to cancel loan without penalty DISCLOSURES The sample above is intended to illustrate when the appropriate disclosures and self-certification form are provided during loan origination. Depending upon the creditor’s origination process, the timing of the disclosures may vary.

39. Limitations on private education loans • Co-branding is prohibited • A creditor, other than the CEI, shall not use the name, emblem, mascot, logo, other words, pictures, or symbols to market the private education loans in a way that implies the CEI endorses the creditor’s loans • Marketing of such loans does not imply that the CEI endorses the creditor’s loan if the marketing provides a clear and conspicuous disclosure that the CEI does not endorse the loan

40. Limitations on private education loans • If a creditor and CEI have entered into an arrangement where the CEI endorses the creditor and such arrangement is permissible, an endorsement of the loan is not prohibited provided that marketing include a clear and conspicuous disclosure that the creditor, and not the school, is making the loan.

41. Resources • TG resources • Integrated HEA (includes HEOA provisions): http://www.tgslc.org/policy/hea.cfm • HEOA analysis document (includes GEN-08-12): http://www.tgslc.org/policy/index.cfm • Shoptalk: subscribe at http://www.tgslc.org/subscribe/

42. Resources • 34 Code of Federal Regulations 601 • 12 Code of Federal Regulations 226 • Dear Colleague Letter, GEN-10-01 • 2009 Federal Student Aid Conference Presentation on Student Loan Consumerism • "Information Required to Be Disclosed Under the Higher Education Act of 1965:Suggestions for Dissemination." National Postsecondary Education Cooperative. 2009. • http://nces.ed.gov/pubsearch/pubsinfo.asp?pubid=2010831rev