The fourth and final negotiated rulemaking session on student loans concluded early Friday afternoon with negotiators unable to reach unanimous consent on the package of draft proposed regulatory language.
U.S. Department of Education officials effectively ended the session by indicating that they were not authorized to make any more substantial changes to the draft proposed language. Because negotiators would only consent to the package if substantial changes were made, both parties reached the conclusion that it was pointless to continue. Negotiators expressed frustration that it seemed as though the "real" Department negotiators were not present at the negotiated rulemaking session since the Department officials did not have authority to make substantial changes.
Negotiators reached tentative agreement on the majority of the language, but could not consent to language proposed by the Department for preferred lender lists, prohibited inducements, and some other lending issues that affect institutions with Perkins Loans programs.
With the current scrutiny of the relationship between lenders and institutions, the Department attempted to create regulatory language to eliminate any conflicts of interest or perceived conflicts of interest without eliminating the benefits provided to students as a result of the relationships institutions have with guarantee agencies and lenders. However, negotiators felt the language they presented would have the effect of limiting critical activities that help borrowers.
For example, negotiators noted that the proposed restrictions placed on guarantee agencies would restrict their relationships with institutions so much that it would make it impossible for them to accomplish the early college awareness and default prevention activities that benefit countless students. Department officials agreed that this was clearly neither the intent of the law nor the draft proposed regulations, but never provided alternative language for negotiators to consider. Because there was not unanimous consent on the package, it remains unclear if the Department will make changes when they publish proposed regulatory language in the Federal Register.
An issue that could have a huge impact on how higher education associations help institutions involved the draft proposed regulatory language on eligible lender trustees. The language attempted to ensure that no school or school related entity is able to originate loans as in school-as-lender or eligible lender trustee arrangements. To ensure this, the language forbids any "school-affiliated organization" to contract with a lender to originate loans. The language provides a very broad definition of "school-affiliated organization" to ensure that institutions cannot find another way around the regulations to act as a lender. Associations like NASFAA and the United Negro College Fund (UNCF) would fall under the draft proposed regulatory language's definition of a "school-affiliated organization." This is irrelevant in the section on eligible lender trustees because these organizations do not make loans, but it is relevant in the prohibited inducements section.
The prohibited inducements section also uses the "school-affiliated organization" term. Negotiators argued that organizations like NASFAA could be seen as providing prohibited inducements under the draft proposed regulatory language for perfectly acceptable practices that benefit students. For example, if an member of an institution attends a NASFAA conference and wins scholarship funds provided by a lender that happens to be on its preferred lender list, it could be seen as a prohibited inducement. Similarly, if the UNCF raises money from a lender and distributes it to a historically black college that has that lender on its preferred lender list, it could be seen as a violation.
Department officials agreed that this was not the intent of the law or the language, but because there was no consent on the package it is unclear how or if the Department will solve this problem.
These are just two examples of the debate on the draft proposed language that focused how institutions, guarantee agencies, and lenders could continue to provide the same benefits and services to students while complying with regulations designed to limit their relationships to eliminate actual or perceived conflicts of interest.
NASFAA will provide a complete summary of the issues and discussions of the final sessions of negotiated rulemaking on loans in the near future.
Department of Education Materials
Materials for the April 18-20 Negotiating Session MS Word (24K) - PDF (15K)
Issue: FFEL/DL Identity Theft Discharge MS Word (370K) - PDF (321K)
Issue: FFEL - Institutional Preferred Lenders MS Word (114K) - PDF (68K)
Scorecard - 2006-2007 Negotiated Rulemaking Loans Team MS Excel (24K) - PDF (19K)
Additional Media Coverage
Panel's Negotiations Over Preferred-Lender Lists End in Stalemate (The Chronicle of Higher Education)
Updates on the Loan Scandal (Inside Higher Ed)
By Haley Chitty
NASFAA Assistant Director for Communications
Posted 04/23/07 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
