The November 1, 2007 Final Rules for the Title IV Loan Programs published in the Federal Register, and effective on July 1, 2008, contain new provisions addressing the use of preferred lender lists by institutions participating in the Federal Family Education Loan (FFEL) Program. Included in the new regulations is a provision requiring that lenders who appear on a preferred list not be affiliated with each other. Specifically, 34 CFR 682.212(h)(1)(ii) states:

(h)(1)A school may, at its option, make available a list of recommended or suggested lenders, in print or any other medium or form, for use by the school's students or their parents, provided such a list - (ii)Does not contain fewer than three lenders that are not affiliated with each other and that will make loans to borrowers or students attending the school;

NASFAA recently received guidance from the Department of Education clarifying the meaning of "three lenders that are not affiliated with each other;" specifically if this requirement applied to only the first three lenders on a preferred lender list or if it applied to all preferred lenders. The Department is interpreting this provision to apply to all lenders that an institution places on its preferred list.

As a general requirement, all lenders on a preferred list must be unaffiliated with each other. The use of the number "three" refers only to the minimum number of lenders which must appear on a preferred lender list if an institution chooses to make such a list available to its borrowers.

By Jennifer Martin
NASFAA Assistant Director for Professional Assessment, Training, and Regulatory Assistance

Posted 04/01/08 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.