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Managing America: Education

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Week Ending May 11, 2006

H.R.890 To establish requirements for lenders and institutions of higher education in order to protect students and other borrowers receiving educational loans.

In the wake of several scandals surrounding lenders of student loans this bill would require accountability by lenders through an annual report on details of lending arrangements with schools, through thorough explanation of borrowing option to students and by ceasing to indicate that the school endorses the lender’s program. Gifts to school employees are prohibited. Schools must report to students when the loan they have purchased exceeds the expected expense of their education and must provide the borrowers with preferred lending lists that they may or may not use. The bill governs lending to students at schools that participate in the Title IV loan program and those that do not.

A lender participating in one or more educational loan arrangements shall prepare and submit to the Department of Education annually with loan data including the loan date and length, a summary of the terms used to market, recommend or endorse the loans, full details of the loan, borrower and school and any direct benefit paid to any party in the arrangement. They will provide the information in a format approved by the Secretary of education.

Lenders may not provide a private educational loan to a student at an institution that the lender has an educational loan arrangement until the school tells the student or parents of all loan options. If the lender has such an arrangement it may not use, when marketing the loans, the name, emblem, mascot or logo of the school or other words, pictures or symbols that identify with the school or give the impression that the school endorses the lender.

The Secretary of Education will produce a report in 180 days on the adequacy of the information provided to students and parents after consulting with students, schools and lenders. The report will include the provision of information on applicable interest rates, terms and other provisions of the loans, annual percentage rate, average amount borrowed and previous year rates.

The schools that provide loan information to students and parents will inform them of eligibility, terms and conditions. The school will provide the student or parents with a clearly and fully disclosed lender list, attributes of preferred lenders and that those lenders need not be used. At least three lenders must be on the list. To make the list the lender must provide highly competitive interest rates, terms or conditions, high-quality servicing for loans or additional benefits beyond the standards contract.

A lender or guarantor of educational loans shall not offer any gift to an employee or agent of a school and the employees or agents are required to report such an offer to the Department Inspector General who will then investigate. A gift is any gratuity, discount, entertainment, hospitality. Loan or an the item worth more than $10.00. Standard information material, food refreshments, training or information provided as apart of training.

On an extension of credit over $1,000 the lender must notify the schools in writing of the amount and terms who will then notify the borrower if the cost of the extension exceeds the cost of attendance.

Should a lender not comply with the new rules, after a hearing and a determination of a violation the lender may face a fine of up to $25,000 to lenders who are not part of the Title IV loan program. For participants in Title IV the result may be limiting involvement in the program, terminating or suspending the lenders’ authorization to participate.

The GAO is directed o report on the prevalence of gifts to schools from lenders, any improper inducements to get to do business with a school and if competitive interest rates are supported.

Sponsor:  Rep. George Miller (D-CA-7^th)

Vote: Passed House 414 to 3 May 9, 2007 (RC 313)

Cost to the taxpayers:

Earmark Certification:  

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