Four other higher education associations joined with NASFAA Tuesday in submitting comments to the Federal Reserve on proposed Truth in Lending regulations resulting from the Higher Education Opportunity Act (HEOA) of 2008.
Title X of the HEOA amends TILA by adding disclosure and timing requirements that apply to creditors making private education loans. The HEOA also amends TILA by adding limitations on certain practices by creditors, including limitations on co-branding. The proposal requires that creditors obtain a self-certification form signed by the consumer before consummating the loan. It also requires creditors with preferred lender arrangements with educational institutions to provide certain information to those institutions.
NASFAA recommended that several categories of loans be excluded from the definition of private education loan because the additional administrative burden of covering those loans would not provide commensurate benefits to students. For example, many low-cost institutional loans are often offered to students up front - as another form of aid - because they offer significant benefits to students. In addition, they are not marketed to students like traditional loan products. Instead, they are offered or awarded to students as part of a financial aid package or tuition payment option to help fill gaps in funding when they have already reached federal borrowing limits, but still have unmet need. Schools use these loans in the aid awarding process to reduce or eliminate remaining need and to provide borrowers an alternative to costlier private loan options.
Other requirements, like self-certification, are redundant or nonsensical since the schools would be asking students to self-certify information the school itself already has. Consequently, NASFAA recommended that the self-certification form only be used for direct-to-consumer (DTC) loans.
"The duplicative and nonsensical nature of these categories of loans will add significant administrative burdens to schools with little to no added benefits to students," the letter states. "The additional disclosure requirements would add a new layer of requirements, for students and schools, over and above those that are already met, and could delay or prevent students from receiving the funds they need. The resources schools will spend on meeting these requirements for these categories of loans or payment plans would be better spent counseling and working with students to help them find the resources they need to cover their educational costs."
NASFAA made recommendations on several other aspects of the proposed rule as well. Those areas of concern included:
- Ensuring that institutions are not prohibited from marketing or promoting their own loans (co-branding)
- Requiring lenders to disclose the interest rates the majority of their borrowers are receiving on their loan products
- Requiring lenders to provide specific, clear language about alternatives to private education loans
- Requiring lenders to include all fees in their disclosures
- Including both the APR and finance charges applicable to loans
- Requiring disclosures relating to bankruptcy during the application and solicitation phases of the loan process
- Additional disclosures for lenders to schools with whom they have a preferred lender arrangement
The entire letter of recommendations are available online.
By Justin Draeger
Vice President of Public Policy, Advocacy, and Research
Posted 05/28/09 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web site questions or comments to Web@NASFAA.org.
