Private Education LoansOptions for Educating Borrowers & Families

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

Regulatory Background & Private Loan Arrangements

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

Application and Solicitation Disclosure (ASD)

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

Private Lender & Loan Program Selection Criteria

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

Options for Educating Borrowers and Families on Private Loan Options

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

Google “Private Education Loan”

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

General Evaluation of Your School Lender List Options

Lender List Option Scenarios

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

Is More Counseling Needed?

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

Related Private Loan Topics

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

Questions?

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

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