On Feb. 1, Senators Edward Kennedy (D-MA) and Richard Durbin (D-IL) introduced the Student Loan Sunshine Act "to protect students and parents from exploitation by private lenders and lenders who offer gifts to colleges as a way to secure loan business." According to Kennedy, the Sunshine Act was introduced in response to recent reports about questionable tactics used by lenders with colleges to increase their private loan volume.

Kennedy feels that the Sunshine Act will also stem the incredible increase in private lending over the past five years. Alternative loans have increased rapidly over the last five years and estimates place the total private student loan volume above $17 billion. Private loans offer little of the protection that federal student loans offer and may include stiff penalties and exorbitant interest rates.

"Going to college is hard enough. Students shouldn’t have to worry about being exploited when they take out student loans," Kennedy said.

"We need to shine a bright light on the incentive-based relationships that exist between some universities and lenders," Durbin added. "We want college officials to look out for the interests of their students instead of looking forward to the next gift or all-expenses paid exotic vacation. The first obligation of any college or university is to help its students, not the lenders."

As outlined in a Kennedy press release, the Sunshine Act:

• Requires full disclosure of special arrangements that lenders and institutions of higher education have to offer loan products at the institution;
• Bans lenders from offering gifts worth more than $10 to college employees, including travel, lodging, entertainment, and in-kind services that lenders provide to college financial aid offices;
• Requires full disclosure of the reasons why an institution of higher education has selected a lender for its "preferred lender" list, including any special arrangements the lender has with the school;
• Encourages borrowers to maximize their borrowing through the government’s loan programs before taking out alternative loans and direct-to-consumer loans with higher interest rates.

NASFAA will review the Sunshine Act in more detail in the coming days. The complete text of Student Loan Sunshine Act is available online.

By Justin Draeger
NASFAA Assistant Director for Communications

Posted 02/02/07 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.