The student loan marketplace has "changed significantly" since the Department issued final regulations on preferred lender lists late last year. And those changes have caused the Department to reexamine its guidance on preferred lender lists, according to Diane Auer Jones, assistant secretary for postsecondary education, in Dear Colleague Letter GEN-08-06, which was released last Friday.
What’s changed? Because of the student loan credit crunch, some schools are having difficulty finding the required minimum of three lenders to include on their preferred lender list. Even schools that can offer three today are unsure whether they'll be able to offer three in the future as more lenders continue to drop out of the FFEL program. These issues prompted the Department reinterpret some of its regulations on preferred lender lists in the following ways.
A Preferred Lender List Needs Only Three Unaffiliated Lenders
In a reversal of their previous interpretation, the Department has determined that the regulations only require at least three lenders on a school’s preferred lender list. The Department had previously issued guidance to NASFAA that all lenders would need to be unaffiliated on a preferred lender list to be in compliance with the final regulations. NASFAA President & CEO Dr. Phil Day had sent a letter to the Department pointing out several contradictions between their interpretation and the final regulations that were issued last November.
Under this new guidance schools would only need to ensure that their preferred lender list only contain three unaffiliated lenders. While not required, the Department also asks that schools take the time to clearly indicate any affiliations between lenders on a preferred lender list so borrowers have all of the information they need to make their decision.
A Minimum of Three Lenders Not Always Required
A school must still try to find three unaffiliated lenders that will make loans to its students, but if a school is unable to do so, the school may provide only the names of the lenders that have indicated that they would provide FFEL loans to the school’s students and parents, according to Jones. Schools must still tell students and parents that by providing that information they are not endorsing those lenders and that students and parents can choose any FFEL lender that is willing to make loans to them. Jones also said that the Department will take it "into consideration" in determining compliance with the regulations when schools - through no fault of their own - cannot maintain at least three unaffiliated lenders due to lenders dropping out of the FFEL program.
Comprehensive List of Lenders Allowed
Schools may also provide a comprehensive list of lenders that have made loans to students attending that school in the past three to five years (or other period) and that have indicated they will continue making loans to students at that school. Schools should not provide any additional information about those lenders, according to Jones who says details like the percentage of the school’s loans made by each lender would be inappropriate. Schools should still give students a clear statement disclosing that a borrower can choose any FFEL lender.
By Justin Draeger
NASFAA Assistant Director for Communications
Posted 05/12/08 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
