H IGHER E DUCATION O PPORTUNITY A CT (HEOA) Confidential and proprietary information © 2010 Sallie...

HIGHER EDUCATION OPPORTUNITY ACT (HEOA)

Confidential and proprietary information © 2010 Sallie Mae, Inc. All rights reserved.

Missouri Association of Student Financial Aid ProfessionalsNovember 8, 2010

Betsy Burton-StrunkSenior DirectorSallie Mae

AGENDA

► Overview and Legislative Timeline► Private Loans and Institutional Loans Affected► New HEOA Disclosures► Additional Disclosure Information and Preferred

Lender List Disclosures► What This Means to You► Questions

2Confidential and proprietary information © 2010 Sallie Mae, Inc. All rights reserved.


HIGHER EDUCATION OPPORTUNITY ACT (HEOA)

► Title X – The Private Student Loan Transparency and Improvement Act of 2008 was introduced to ensure that families had the information they needed to make an educated decision

► It is intended to reduce over-borrowing for students and families. It was designed to support students and families in making wise choices—which is in alignment with the goals of preferred lender lists

► Title X amended the Truth in Lending Act (TILA) to impose a new obligation on lenders to annually report private loan information to schools

► The Higher Education Act (HEA) was amended to set forth new requirements for schools when there is a preferred lender arrangement. The HEOA contains requirements for schools maintaining a preferred lender arrangement for private student loans

LEGISLATIVE TIMELINE

► Regulation Z and Truth in Lending Act (TILA)

► The Higher Education Opportunity Act of 2008, Enacted August 14, 2008

► Title X - Private Student Loan Transparency and Improvement Act of 2008; Adds new subsections to TILA governing ‘‘private education loans’’

► Effective date of new subsections of the HEOA governing private education loan disclosures went into effect on February 14, 2010


OVERVIEW OF HEOA AMENDMENTS TO TILA

LoanOriginationDisclosures

Application and Solicitation Disclosure Loan Approval Disclosure Final Disclosure (Prior to Disbursement) Safe harbor for use of model disclosure forms

Borrower Self-Certification Form

PreferredLenderArrangements

Requirements for completing annual lists with unaffiliated lenders Disclosing of maximum Title IV grant and loan aid available Publishing of a Code of Conduct Annual reporting to the U.S. Department of Education



INSTITUTIONAL LOANS

► Under TILA requirements, the definition of a private education loan includes institutional loans

► Institutional loans are subject to TILA application and three solicitation disclosures

► Self-Certification; it is the school’s responsibility to ensure: Each borrower has completed the self-certification process Self-certification forms are completed and in hand (paper or

electronic) prior to disbursement► Many schools use third-party servicers, you should

check with your institutional loan servicer to ensure how they will help you to be compliant.

EMERGENCY LOANS

7

From the FEDERAL REGISTER:Educational institution commenters also requested an exemption for ‘‘emergency’’ loans provided to a student for a short term while the student waits for other funds to bedisbursed.

The Board believes that short-term loans provided by the school benefit consumers and that the HEOA’s requirements, especially the three-day cancellation period, could impair their effectiveness by delaying disbursement of loan proceeds without providing a meaningful benefit to students.

Accordingly, the final rule exempts loans provided by the school with a term of 90 days or less.


MONTHLY PAYMENT PLANS

8

From the FEDERAL REGISTER:Credit provided by educational institutions. In addition to comments about loans that may be used for multiple purposes, the Board received a number of comments from educational institutions requesting clarification as to whether tuition billing plans were covered by the proposed rules.Under § 226.46(b)(5)(iv)(B), the Board is revising the definition of ‘‘private education loan’’ to exclude certain billing plans provided by educational institutions.

In response to public comment, the Board is exercising its authority under TILA section 105(a) to adopt a narrow exception for billing plans that do not apply an interest rate to the credit balance and have a term of one year or less, even if payable in more than four installments.


NEW HEOA DISCLOSURES


APPLICATION & SOLICITATION DISCLOSURES

Purpose of Disclosures: Provides the general range of rates and fees so that borrowers

can make informed decisions when choosing a private loan This disclosure is needed when an application is initiated or firm

offer of credit extended

Key Information: Provided with the application or firm offer of credit. Shows the available range of rates and fees for the loan Uses some standard assumptions for all lenders Unique rules apply to providing this disclosure information for

phone pre-approvals Will display in web application flow if electronic permissions are

given

NOTE: Cosigners will receive a copy of all three disclosures, as applicable, for informational purposes only.


MODEL FORM–APPLICATION SOLICITATION


LOAN APPROVAL DISCLOSURE

Purpose of Disclosure: This must be provided on or with any notice of approval. Provide the borrower with specific terms of the loan offer; disclosure

contents are specific to the individual borrower's loan offer approval

Key Information: Shows borrower-specific actual rates and fees offered Mandatory up to 30-day acceptance period Loan terms must be accepted by the borrower before the lender

can proceed – lender cannot alter any terms in any way during this time period other than for very limited purposes, such as changes in the index (LIBOR) or school certification

Certain borrower, cosigner, and school changes may require re-disclosure and, if so, will restart the clock on the 30-day acceptance period

If approval disclosure has been created and not viewed on Sallie Mae OpenNet Web Loan DeliverySM the disclosure will be mailedNOTE: Cosigners will receive a copy of all three disclosures, as applicable, for informational purposes only.


MODEL FORM–LOAN APPROVAL


FINAL DISCLOSURE

Purpose of Disclosure: Sent after loan terms are accepted and school has certified the loan.

The Final Disclosure gives the customer a three business day right to cancel period

Funds may not be disbursed until the right to cancel period has passed

Key Information: Regulations require a three business day right to cancel period. If

the final disclosure is mailed, the borrower will have an additional four days

Final disclosure and cover letter to be sent to borrowers and cosigners

Provided at final loan approval, prior to which the lender must have received school certification and the signed borrower self-certification form and the borrower must have accepted the terms of the loan

NOTE: Cosigners will receive a copy of all three disclosures, as applicable, for informational purposes only.


MODEL FORM – FINAL DISCLOSURE

► PDF format► Schools will be notified as they are

today when a borrower cancels a loan


NEW SELF-CERTIFICATION FORM


SELF-CERTIFICATION FORM

Purpose of Disclosure: Helps the consumers identify their gap funding needs and Federal

financial aid alternatives.

Key Information: A new mandatory self-certification form created by the Department of

Education Form may be provided to the borrower by the school or the lender Lender is required to obtain the signed completed form before

disbursing the loan Key data elements: specific borrower’s cost of attendance and

estimated financial assistance, the cost of attendance minus estimated financial assistance, and a signature

Must be hand signed or e-Signed This information is available through the school financial aid office


SAMPLE OF SELF-CERTIFICATION FORM



MODEL FEDERAL DISCLOSURE FORMS

► Federal Reserve Bank website has detailed requirements for disclosure with model forms available for download.

http://www.federalreserve.gov/newsevents/press/bcreg/20090730a.htm

ADDITIONAL DISCLOSURE INFORMATION


RE-DISCLOSURE SITUATIONS

► The loan approval disclosure will need to be re-disclosed for the following situations: If any borrower, cosigner or school changes affect the

financial terms as detailed in the loan approval disclosure• Exceptions include a school certification lowering the total

requested loan amount and a change to a disbursement date

► Re-disclosure requires: 30-day acceptance period clock to be reset Borrower to “re-accept” terms of the loan


LIMITS CO-BRANDING

► Lenders cannot use the name, emblem, mascot, symbol, picture or logo of a school in marketing in a way that could imply the school endorses that lender.

► Marketing does not imply endorsement if there is a clear and conspicuous disclosure that school does not endorse

► If a lender’s loan product is endorsed by the school, clear and conspicuous disclosure disclaimers are necessary that creditor and not school is making loan


PREFERRED LENDER ARRANGEMENTS



MAINTAINING A PREFERRED LENDER LIST

New Requirements:

Truth in Lending Act disclosure reporting to families- Sallie Mae provided this information to schools in the form of an Application Solicitation Disclosure on March 17 and will continue to provide the Disclosure annually

Annual report to the Department of Education- Disclosure information

- Statement indicating why the school participates in a Preferred Lender Arrangement with each lender



A preferred lender arrangement exists if the school:

► Recommends, promotes or endorses a lender—even if that recommendation is not in the form of a lender list

► Refers their students to a third-party entity that manages a listing of private lenders on behalf of the school

► Refers their students to a third-party entity where the lenders pay a fee based on loan volume generated

► Provides a list of lenders that is not a neutral, comprehensive list Please refer to 34 CFR 601 of the October 28, 2009 Federal Register

for the specific preferred lender arrangement requirements.

Available at SallieMae.com/StraightTalkHEOA

REMINDERA preferred lender arrangement is not limited to activities of the financial aid office. New rules may apply to activities of other offices on campus or affiliated organizations.



Scenarios NOT considered to be a preferred lender arrangement:► If a school provides a neutral, comprehensive list of lenders who lent

at the school in the past The school cannot use judgment regarding which lenders to include on

the list and the school cannot rank, recommend, promote, or endorse any of these lenders

It must also reference that a student is free to choose any lender

► If a school refers its students to a third-party entity that maintains a comprehensive, neutral listing of private education lenders The school must ensure that the listing is broad in scope and cannot

endorse or recommend any of the lenders on the list

The lenders on the list cannot pay the third-party entity to be placed on the list or pay the third-party entity a fee based on any loan volume generated


ARE THERE BENEFITS TO MAINTAINING A PREFERRED LENDER LIST?

A preferred lender list:► Allows schools to act as an advocate for families, providing

relevant and meaningful lender and product information in one consolidated source

► Allows schools to better guide students and families through the entire loan process -- from start to finish

► Allows offices across campus the flexibility to discuss private loans with students and families

► Provides students and families with an opportunity to compare products in a consistent manner

► Helps families navigate through a school's preferred process -- from application to certification to disbursement

YES! A preferred lender list makes it easier for families to select the financing option that is right for them.


WHAT THIS MEANS TO YOU

► Your office should understand how TILA impacts your payment plan offering, especially if you offer payment plans > 12 months or charge interest

► Work with your billing servicer to ensure you are meeting disclosure requirements for institutional loans

► Understand what decisions your financial aid office is making in regards to preferred lenders

► Understand the right to cancel period as it could delay disbursements longer than in the past

► Develop plans for students that have challenges with the new process (e.g. be prepared for students having an outstanding balance because they didn’t re-accept the terms of the loan)

QUESTIONS

For further updates visit SallieMae.com/StraightTalkor contact your Sallie Mae account representative.


APPENDIX - DISCLOSURES



LENDER REPORTING REQUIREMENT DETAILS

► The interest rate or range of interest rates applicable to the loan

► If the rate will depend on the consumer’s creditworthiness or other factors, a statement that the rate for which the consumer may qualify will depend on the consumer’s creditworthiness and other factors

► Whether the interest rates applicable to the loan are fixed or variable

► If the interest rate may increase after consummation of the transaction, any limitations on the interest rate adjustments and a statement that the consumer’s actual rate could be higher or lower than the rates disclosed

► Whether the applicable interest rates typically will be higher if the loan is not cosigned or guaranteed

Interest Rate Information:



► An itemization of the fees or range of fees required to obtain the loan; and

► Any fees, changes to the interest rate, and adjustments to principal based on the consumer’s defaults or late payments

Fees and Default or Late Payment Costs



► The term of the loan

► Any payment deferral options, or, if the consumer does not have the option to defer payments, that fact For each payment deferral option applicable while the student is enrolled

at a covered educational institution:• whether interest will accrue during the deferral period; and• if interest accrues, whether payment of interest may be deferred and

added to the principal balance

► A statement that if the consumer files for bankruptcy, the consumer may still be required to pay back the loan

Repayment Terms



► Provide an example of the total cost of the loan calculated as the total of payments over the term of the loan: Using the highest rate of interest disclosed and including all finance

charges applicable to loans at that rate; Using an amount financed of $10,000, or $5,000 if the creditor only

offers loans for less than $10,000; and Calculated for each payment option

► Any age or school enrollment eligibility requirements relating to the consumer or co-signer

Cost Estimates

Eligibility


RECAP EXAMPLE

School Awards and Student Accepts► ABC University awards John Jones a $1,000 institutional Loan► ABC University sends John his award letter and then separately sends

him his application/solicitation and approval disclosures simultaneously.

► Within a week, John logs into his school account and accepts all of the financial aid awarded to him, including the institutional loan.

► Using this as his acceptance, ABC University sends John a private student loan self-certification form with the information needed to complete the form.

► Under estimated financial assistance, ABC University has not included the institutional loan for which the form is being used.

► John sends the signed form back to ABC University.► Prior to disbursement, ABC University sends John his disbursement

disclosure, waits three days, and then disburses the loan

APPENDIX – PREFERRED LENDER ARRANGEMENTS



LENDER REPORTING REQUIREMENTS

► The HEOA requires lenders to provide the following information to schools by April 1 each year:

► In addition to disclosing this to families, schools can use this information in selecting their preferred lenders

► Sallie Mae will be providing this information to schools annually in the form of an Application Solicitation Disclosure

Interest Rates

Fees, and default or

late payment

costs

Repayment

Terms

CostEstimate

s

Eligibility


MAINTAINING A PREFERRED LENDER LIST

► The HEOA formalized many of the best practices schools are following today.

Current Best Practices:

► Disclose to families the method, criteria and rationale used in selecting lenders with which your school has a “Preferred Lender Arrangement” (PLA)

► List at least two unaffiliated lenders and describe any relationship a lender may have with another lender on your school’s list

► Remind students and families that they may have access to free or lower cost federal loan options

► Differentiate private loan information from Title IV loan information

► Disclose that students do not have to borrow from a lender on the preferred lender list

If your school currently offers a preferred lender list forprivate loans, it should continue to do so.


DIFFERENTIATING PRIVATE LOAN LENDERS

► Schools should also consider the following when selecting a private loan provider to be included on a preferred lender list:

What is the provider’s financial strength and longevity in the industry?

Do they have superior customer service for families?

Do they have an account management team?

Are there low cost funding options available?

Is pricing available that rewards applicants who have maintained good

credit? And/or students with a cosigner?

Are they HEOA fully compliant in their online loan delivery process?

Do they have an electronic self-certification process?

40

The information contained in this presentation is not

comprehensive, is subject to constant change, and

therefore should serve only as general, background

information for further investigation and study

related to the subject matter and the specific

factual circumstances being considered or

evaluated. Nothing in this presentation constitutes

or is designed to constitute legal advice.


H IGHER E DUCATION O PPORTUNITY A CT (HEOA) Confidential and proprietary information © 2010 Sallie...

Documents

Transcript of H IGHER E DUCATION O PPORTUNITY A CT (HEOA) Confidential and proprietary information © 2010 Sallie...