private education loans options for educating borrowers & families
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Agenda Regulatory Background & Preferred
Lender Arrangements (PLA) Selection Criteria Lender List Options Scenarios Need for more counseling Evaluating Loan Selection Tools Private Loan Consolidation CFPB Questions
Previous ED Guidance on Lender Lists“… 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.”
Key Intentions of HEOA – July 2010 Greater transparency
Improved information regarding costs Ensure awareness of federal aid options Encourage consultation with school financial
aid offices Schools using preferred lender arrangements
(PLA) should do so without prejudice and for the sole benefit of their students Ensure choice of lender Selection of lenders in borrowers best interest
Private Loan Disclosures Some information required for prospective borrowers
regardless of whether a PLA exists if the school provides information about private loans Information required by Truth in Lending Act Inform prospective borrowers that they may qualify for
Title IV aid Inform prospective borrowers that the terms and
conditions of Title IV loans may be more favorable than provisions of private education loans
School must ensure private loan disclosure is distinct from Title IV information
Provide self certification form upon request
Lenders are required to clearly communicate loan information in a consistent format, facilitating comparisons between lenders and loan products by April 1 each year.
Disclosures will include the following information: Interest Rates - Low and High Loan Fees Default and Late Payment Charges Repayment Terms Cost Estimates/Examples Eligibility
In addition to disclosing this to families, schools can use this information in selecting their preferred lenders.
Lender Transparency Disclosures
Preferred Lender Arrangement (PLA) A Preferred Lender Arrangement
exists: 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
Institution Requirements for PLA Disclose and enforce Code of Conduct policy
Disclose method and criteria for lender selection including reasons for selection
Provide borrowers with at least two unaffiliated choices for private loans
Provide Truth in Lending disclosures for each loan program listed (i.e. ASD)
Disclosure statement indicating any eligible private loan request will be processed and that borrowers can choose lenders not listed
Provide annual report to ED
Lender Loan Programs Available Borrower and/or school eligibility Comprehensive product offering Competitive pricing, rates, fees or other terms and
conditions– Approval rates (percentage by tier)
Borrower benefits/repayment incentives Special uses
– Previous school charges outstanding– Application processing after the end of a semester– Less than ½ time or non-degree seeking programs– Computer purchase– Study abroad
Reputation & track record Stability & longevity Servicing Default rate Other borrower benefits
Private Loan Selection Criteria
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
Private Loan Selection Criteria
Institutional & Student Financial Aid Office Operational Needs Guide and counsel students and their families efforts
to achieve their educational potential by removing financial barriers and simplifying process
Educate students and families through quality consumer information
– Up to date product information and comparisons to promote wise choices
– Filter loan products that offer the best combination of value and service Regulatory compliance concerns and control (i.e.
HEOA) Applications assistance & financial advising for
borrowers– Application/self-certification methods– Toll free number and user friendly website– Cosigner requirements– Borrower communications
Private Loan Selection Criteria
Institutional & Student Financial Aid Office Operational Needs (Cont.)
Loan certification process– Methods (electronic, fax, paper)– Delayed certification offered
Disbursement options– Funding methods (individual check, lender EFT, central disbursing
agent)– Funding availability & scheduling to meet school preferences– Requests for additional/reduced loan amounts & cancellations– Refunds/return of funds
Other institutional needs
Private Loan Selection Criteria
School Options for Private Loans No Lender List
Comprehensive/Historical List 3rd Party List Preferred Lender Arrangement
(PLA)
No Lender List Option 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/Historical Lender
List Option 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 private education loans 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 No guidance or counseling assistance is provided to
prospective borrowers on any private education loan programs by any school staff
3rd Party lender List Option“[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.”
3rd Party lender List Option School is still responsible all applicable compliance Private loan disclosure requirements must be met No guidance or counseling assistance is provided to
prospective borrowers on any private education loan programs by any school staff (unless it is considered a PLA)
School historical and/or local lenders may be excluded 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
Preferred Lender Arrangement Option School staff can provided 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
Preferred Lender Arrangement Option Disclose and enforce Code of Conduct policy
Disclose method and criteria for lender selection including reasons for selection
Provide borrowers with at least two unaffiliated choices for private loans
Provide Truth in Lending disclosures for each loan program listed (i.e. ASD)
Disclosure statement indicating any eligible private loan request will be processed and that borrowers can choose lenders not listed
Provide annual report to ED
Which option(s) allows you to
specify or exclude lenders ? No Lender List
Comprehensive/Historical List
3rd Party List
Preferred Lender Arrangement
Which option(s) requires an annual
report to ED ? No Lender List
Comprehensive/Historical List
3rd Party List
Preferred Lender Arrangement
Which option(s) requires making the
Application and Solicitation Disclosure available?
No Lender List
Comprehensive/Historical List
3rd Party List
Preferred Lender Arrangement
Which option(s) requires an RFI or RFP?
No Lender List
Comprehensive/Historical List
3rd Party List
Preferred Lender Arrangement
NOT REQUIRED
Which option(s) allows you to
advise & counsel students? No Lender List
Comprehensive/Historical List
3rd Party List
Preferred Lender Arrangement
National Economic Research Associates
(NERA) Report (March 2012) 65% of borrowers misunderstood or were surprised by aspects of their student loans or the student loan process
Two-thirds of private loan borrowers did not understand the major differences between their private and federal options
80% obtained at least some of their student loan information from their college’s counselors or website
Evaluating Loan Selection Tools Provide sufficient information to allow
informed decisions in borrowers best interest? Comparison functionality? Level of compliance with required disclosures? Ease of application process? Financial literacy counseling? Lender neutral? Lender revenue sharing, paid
placement/ranking and/or advertising? Additional borrower solicitations?
Private Loan Consolidation $164 billion outstanding Private loans cannot be consolidated
through the federal student loan consolidation program
Some lenders have recently left the private education loan business
Few lenders are offering private consolidation loans
www.finaid.org/loans/privateconsolidation.phtml
Consumer Financial Protection
Bureau (CFPB) CFPB goal is to get a complete picture of private student lending: Information available to shop for private
student loans Role of schools in the marketplace Underwriting criteria Repayment terms and behavior Impact on choice of field of study and career
choice Servicing and loan modification Financial education and default avoidance
Consumer Financial Protection
Bureau (CFPB) CFPB sought comments about private student loans by January 17, 2012 NASFAA & NACUBO collaborated on comments
CFPB and ED To produce a report to Congress by July 21, 2012 Previously released Financial Aid Shopping Sheet draft
and Student Debt Repayment Assistant Created private student loan ombudsman New complaint system launched in March 2012
with letters to 6,000 university officials www.consumerfinance.gov
DisclaimerThe 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 Slide 4: Dear Colleague letter GEN-08-06 - May 2008
Slide 6: §152(a)(1); §601.11
Slide 9: HEA §151(8); §601.2(b)
Slide 10 & 24: HEA §487(h); §152(a) §601.10 (a)(d)(1-5) ED Annual PLA Report:: HEA §153(c)(2)(A); §601.20(a) & (b)
Slide 21: Federal Register: October 28, 2009 (Volume 74, Number 207) – Final
Rule
Federal Reserve final rules for private loans – August 14, 2009
Federal Register, 34 CRF 601 - October 28, 2009