A school has two payment plans. One payment plan has no interest and does not extend beyond a year. The other payment plan is serviced by a third party, charges interest, and can extend beyond a year. Do the regulations consider the second plan a private loan and if so does it have to be included as estimated financial assistance (EFA)?
Yes. Please see the following from 34 CFR 601.2:
"Private education loan: As the term is defined in 12 CFR 226.46(b)(5), a loan provided by a private educational lender that is not a title IV loan and that is issued expressly for postsecondary education expenses to a borrower, regardless of whether the loan is provided through the educational institution that the student attends or directly to the borrower from the private educational lender. A private education loan does not include—
(1) An extension of credit under an open end consumer credit plan, a reverse mortgage transaction, a residential mortgage transaction, or any other loan that is secured by real property or a dwelling; or
(2) An extension of credit in which the educational institution is the lender if—
(i) The term of the extension of credit is 90 days or less; or
(ii) An interest rate will not be applied to the credit balance and the term of the extension of credit is one year or less, even if the credit is payable in more than four installments."
By this definition the second type of payment plan could be considered a private education loan and the regulations do speak to this. Please see the following from 673.5(c)(2)(iii):
"(2) The Secretary does not consider as estimated financial assistance—
(iii) Those amounts used to replace EFC, including the amounts of any TEACH Grants, unsubsidized Federal Stafford or Direct Loans, Federal PLUS or Federal Direct PLUS Loans, and non-federal non-need-based loans, including private, state-sponsored, and institutional loans. However, if the sum of the amounts received that are being used to replace the student’s EFC actually exceed the EFC, the excess amount must be treated as estimated financial assistance;"
Any amount that does not replace the EFC is considered EFA.
Publication Date: 12/14/2022
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