The Value of Private Lender Lists and Keeping It Simple

© 2012 ELM Resources – Confidential Not for Distribution

The Value of Private Lender Lists and Keeping It SimpleJulie Moreno Rehder – ELM Resources

Michael McFarlane – Charter One


Agenda

• Regulatory Background & Preferred Lender Arrangements (PLA)

• The Value of a Lender List• The Value of Private Loans

• Myths vs. Facts – Private loans and PLUS/Grad PLUS• Tips When Choosing Lenders• School Lender List Options• ELMSelect as a Loan Selection Tool• Questions


Regulatory Background and Private Loan Arrangements


Previous ED Guidance

“… a preferred lender list can be an effective tool to help families…”

“…by providing this information, schools may help students and their parents navigate the increasingly complex student loan landscape.”

“…a borrower’s choice of lender may be better informed by preferred lender lists and other consumer information... …which play a useful role in assisting financial aid administrators in dealing with the large volume of requests for information and assistance, and in informing borrower choice.”

Reference: DCL GEN-08-06 posted May 8, 2008Subject: School Use of a Preferred Lender List in the FFEL

Program


Preferred Lender Arrangement

A Preferred Lender Arrangement exists if:

Lender provides education loans to students/families, AND

School recommends, promotes or endorses the education loan products of a lender

No formal agreement required to trigger definition, Applies to the entire institution and all staff


The Value of a Lender List and The Value of Private Loans


The Value of a Lender List

• Provides a starting points for families to begin researching private loans

• Prevents families from choosing the wrong products• Makes it easier for families to make private loan

decisions by having reliable information in one place• Allows faster private loan processing• Will open dialog with a private loan lender

representative that will keep you updated and informed on product changes

• Saves staff time from having to counsel each family individually on which loans is best for their situation

• Shows how important it is to your institution that students are informed before making a decision.


The Value of Private Loans

MYTH: Government loans are always less expensive for borrowers than private loans.

FACT: When measuring the true cost of credit through an APR comparison, private loans often compare favorably to unsubsidized federal loans, particularly Graduate PLUS Loans.

MYTH: Private student loans are all variable products with extremely high interest rates.

FACT: Most lenders offer students the choice of fixed-rate or variable-rate products.


The Value of Private Loans

MYTH: Private student loans can pose more risk for borrowers than federal student loans.

FACT: Federal loans, in contrast to private student loans, are provided without the most basic consumer protection – a determination of the borrower’s ability to repay.

MYTH: Students and families do not receive adequate information about private student loan terms before borrowing.

FACT: Lenders provide three notices containing 18 disclosure items about private loan terms at three different times before a private loan is made. These disclosures are required by law. The Federal Reserve conducted extensive consumer testing before establishing these new disclosure requirements, which have been in effect since February 2010.


What to Look for When Choosing a Lender Program

• Comprehensive product offerings• Competitive pricing: fixed & variable rates

and no fee options• Borrower benefits/repayment incentives• Loan Product Features offered• Reputation & track record• Stability & longevity


What to Look for When Choosing a Lender Program

Quality of Lender Customer Service & Support• Dedicated marketing/service staff• Toll free number – single point of contact• User friendly web-based services offered• Level of automated processing offered• Technical support offered• Training offered• Default management• Other value-added services


School Lender List Options


School Lender List Options

• No Lender List• Comprehensive• Historical List• 3rd Party List• Preferred Lender Arrangement (PLA)


No Lender List

• No information, guidance or counseling assistance is provided to prospective borrowers on any private education loan programs by any school staff

• Borrowers and families are on their own to educate themselves and make informed decisions on private education loan options


Comprehensive

• Provides students with a starting point• Schools can provide a neutral, comprehensive list

of lenders that provided private education loans from a certain period of time

• Cannot exclude any lenders unless they are no longer providing education loans

• Some loan programs may not be available to your borrowers

• Excluding active lenders or adding new lenders triggers PLA requirements

• Terms and conditions of loans may be provided• Private loan disclosure requirements must be met


Historical

• Provides students with a starting point• Schools can provide a neutral, historical list of

lenders that students used in the past at their institution

• Cannot exclude any lenders unless they are no longer providing private education loans

• Some loan programs may not be available to your borrowers

• Excluding active lenders or adding new lenders triggers PLA requirements

• Terms and conditions of loans may be provided• Private loan disclosures requirements must be met


3rd Party Lender List

• “[Not a PLA] as long as the institution ensures that the listing is broad in scope, does not endorse or recommend any of the lenders on the list and the lenders on the list do not pay the third party entity to be place on the list or pay the third party entity a fee based on loan volume generated.”

• School is still responsible for all compliance• Private loan disclosure requirements must be met• Some loan programs may not be available to your

borrowers• Additional topics for consideration:

– Loan comparison functionality– Advertising influence on 3rd party sites– Unsolicited emails to borrowers

Reference: Federal Register: October 28, 2009 (Volume 74, Number 207) –Final Rule


Preferred Lender Arrangement Option

• School staff can provide guidance and counseling to borrowers and families

• Provides a meaningful starting point for making informed decisions on private loans

• Allows for more streamlining of electronic processing• Will open dialog with a private loan lender

representative who will provide customer service and keep you updated on product changes.


Information to Compile and Disclose

Requirement Suggestions To Meet Requirement

Code of Conduct Post prominently on website and post on or link to on lender list

Information on Title IV funding alternatives

Publish statement advising students of federal loan/ grant aid available and advise to exhaust these funds first

Disclose rates, fees, loan cost, repayment terms, eligibility for each lender

Obtain PDFs of Application and Solicitation Disclosure forms from chosen lenders. Make available to students based on school lender list format (electronic, paper). A link to forms on the lender website may also be included.

List at least two unaffiliated lenders Make sure to inquire of lenders if they are affiliated

State reasons lenders are included, with respect to loan terms/conditions favorable to borrower

Publish on website the reason why the school included these lenders (loan terms and conditions favorable to the borrower)

Method/Criteria used to select lenders Publish methodology and criteria to your website

Advise students are free to choose any lenders, not limited to list

Publish a statement on website/ lender list

Submit an annual report Once defined by the Department

This information is based on Discover’s review and interpretation of regulations. This document should not be construed to be legal advice. Please consult with your own compliance and legal counsel to ensure that you are

in full compliance with the preferred lender arrangement requirements applicable to your school.


ELMSelect a a lender list option


The ELM Solution - ELMSelect

ELMSelect – An online lender list and comparison resource Provides students the ability to compare lenders and

lender products side-by-side Schools establish their lender or product listing with

lender approvals Lenders establish their product details and school

relationships Direct communications between schools and lenders Complies with current regulations Complete self-service provided for schools and lenders

with many custom options Detailed data capture for future analytics


ELMSelect

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ELMSelect

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ELMSelect

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ELMSelect

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ELMSelect

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Disclaimer & Reference

The information contained in this presentation is not comprehensive, is subject to change based on additional guidance or directives from the U.S. Department of Education (ED). It serves only as general, background information for further investigation and study related to the subject matter. Nothing in this presentation constitutes or is designed to constitute legal advice.

Please consult your own counsel to ensure that you are in full compliance with requirements applicable to your institution.

References:• Federal Reserve final rules for private loans – August 14,

2009• Federal Register, 34 CRF 601- October 28, 2009


Questions


Contact Information for Presenters:

Julie Moreno Rehder, ELM Resources: [email protected]

Michael McFarlane, Charter One: [email protected]

mailto:[email protected]



The Value of Private Lender Lists and Keeping It Simple

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