Title X of HEOA – What is It? How will it impact the private loan application process, my office...

Title X of HEOA – What is It? How will it impact the private loan application process, my office and students?

Erin Gjerde-BaileyAccount Executive

The information contained herein is for informational purposes only and is not legal advice or a substitute for legal counsel.

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Discussion Agenda

Overview of Title X

NEW Disclosures w/Key Points

NEW Private Education Loan Applicant Self-Certification Form w/Key Points

School Involvement

Questions to Ask Private Loan Lenders

Appendices & Resources


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Title X Overview

Title X of the HEOA is entitled the “Private Student Loan Transparency and Improvement Act of 2008” Amended Regulation Z of TILA (Truth in Lending Act) Result of a collaborative effort between Federal Reserve

Board (FRB) and ED Focus on the CONSUMER – assure that the best interests of the

consumer/student is being served

Effective date for compliance is February 14, 2010 Requires a private education lender to:

Present three new disclosures at specific times during the private loan application process

Follow rules around acceptance, rescinding and re-disclosure Collect a private loan self-certification form prior to disbursing

funds


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Title X Overview

A private education loan–(§140 of the TILA) Is a non-title IV loan provided by a private educational lender expressly for

postsecondary educational expenses

Does not include an extension of credit under an open-end consumer credit plan or secured by real property

Does not include an extension of credit in which the educational institution is the lender if: The extension of credit is 90 days or less

Interest will not be applied to credit balance and term is one year or less, even if payable in more than 4 payments

Co-branding language (Similar to CCRAA language) Private Education Lenders cannot use the name, emblem, mascot, or logo of the

institution or affiliate or pictures, words or symbols identified with the institution or affiliate in the marketing of private education loans in a way that implies the loan is offered or made by the institution or affiliate


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Disclosures


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Background

The regulations require lenders to provide three new disclosures for all private loan products Application and Solicitation Disclosure Approval Disclosure Final Disclosure

Disclosures were designed as a result of extensive testing with consumer focus groups

Purpose of disclosures are to… Present the terms/costs of the loan in a clear and consistent manner Allow for comparison shopping and reevaluation of borrowing a private loan

during the application process Present lower cost federal options Reduce overall borrower indebtedness

During the following series of slides I plan to present the timing and unique aspects of each disclosure


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Application Disclosure

Presented with or on an application or at time a solicitation is made Lender is required to mail an application disclosure within 3 days after a

phone application is taken and credit is pulled

Provides general information about the range of rates, fees and other terms that apply


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Application Disclosure

Also includes information on federal loan options with directions to contact the financial office or Department of Education (all disclosures will include this section)


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Approval Disclosure

Presented when a lender is prepared to make a firm offer (conditionally approved/approved) and contains terms extended


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Approval Disclosure

Borrower has 30 calendar days to accept offer made by lender Disclosure can be mailed or presented electronically

Mailed disclosures are required to provide an additional 3 business days to account for mail time

Disclosure must state the acceptance date deadline and the manner in which the lender requires the borrower to accept the terms of the loan

A lender can allow the borrower to accept the terms of the loan by mail, phone or electronically (cannot be sole form of acceptance)However, electronic communication can be sole means of acceptance when the consumer has already indicated a willingness to communicate electronically by consenting to and receiving a disclosure electronically, pursuant to the E-Sign Act.


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Approval Disclosure

Lenders are prohibited from changing the terms of the loan, except for changes based on adjustments to the index, during the acceptance

period Exceptions: Fraud or if an extension of credit would be prohibited by law

Re-disclosure would not be required if there would be any “unequivocally beneficial” changes to the loan such as reduced interest rate or loan amount


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Final Disclosure

Presented to borrower after the loan has been accepted and 3 business days before the loan is disbursed (3 additional business days if mailed) – loan funds may not be disbursed during this period

The type of information disclosed in Final Disclosure is identical to Approval Disclosure except for Right to Cancel Notice Disclosure must clearly note the borrower’s right to cancel and state the

cancellation deadline and method lender accepts for cancellation


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Key Points

The lender is responsible for presenting the new disclosures to applicants at the appropriate time within their application process – burden/responsibility does not fall on school

Loan funds may not be disbursed until the day after the right to cancel period ends

Lenders will need to re-disclose disclosure(s) if there is a change that is considered materially adverse to the applicant

Schools will want to be conscious of the right to cancel period that is triggered by the Final Disclosure when certifying loans and scheduling disbursements FAOs may want to review school scheduled disbursement dates

setup with their CDA


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Private Education Loan Applicant Self-Certification Form


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Background

Regulations require lenders collect a Private Loan Self-Certification Form prior to disbursing any private loan funds Self-certification form can be received anywhere within the application

process Lenders or schools can provide the self-certification form to applicants

Electronically and/or paper The same exact federal form will be used by all lenders and schools

Consistent with the Disclosures, the purpose of the self-certification form is to… Present lower cost federal options that should be exhausted prior to

considering a private loan Direct students to the financial aid office for counseling Reduce overall borrower indebtedness by having student calculate gap

During the following series of slides I plan to review various sections of the self-certification form and the responsibilities of the school, lender and borrower


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Private Education Loan Applicant Self-Certification Form Final version published on February 14, 2010

Section 1 contains notice to applicant Lower-cost aid options

Directs students to financial aid office for counseling and financial data to complete form

At the request of the applicant, the school is required to provide counseling

Top right section of the form can be used by lender


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Private Education Loan Applicant Self-Certification Form Section 2 of the form asks for financial data so the applicant can

calculate the gap School is required to make this information available to private loan

applicants (if available)

This data needs to be student specific and accurately depict the student’s cost and financial aid picture at the time the form is completed

Lender is not required to validate data or use the calculated gap as the amount the student is requesting to borrow


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Private Education Loan Applicant Self-Certification Form Section 3 asks for applicant’s demographic information

Student name and DOB fields must be completed if applicant is not the student

No unique identifier to assist lender in matching up form with application

Section 4 asks the applicant to certify the accuracy of the information provided by signing the form Form can be signed and returned to lender electronically (e-sign) or with wet

signature (fax or mail)


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Key Points

Applicant is required to complete one new requirement before loan funds can be disbursed – Self-Certification Form

Schools can provide lenders with the requested information so that a pre-populated form can be provided to the applicant

As a general rule, the self-certification form should not be returned to a lender until the application is initiated

Financial aid office is likely to see an increase in phone calls and walk-ins due to self-certification form

Impact of proposed amendment to H.R. 4173 (Wall Street Reform and Consumer Protection Act)???


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School Involvement

How your office wants to educate students regarding the private loan self-certification requirement will depend on your office’s philosophy and/or need for private loans

Reactive approach – sensitive to increasing awareness of private loans Provide directions when office is contacted by student

One off e-mails Require counseling

Proactive approach – minimize number of phone calls and/or walk-ins to the financial aid office Award package/letter, FAMS and IVR Lender materials/application instructions Private loan lender listing or school private loan request form

Vanderbilt (example) Ole Miss (example) University of North Dakota (example)

Online tutorials (website) Ferris State University (example)


http://wfefs.wellsfargo.com/jump/PrivateLoanProcess.pdf

http://www.vanderbilt.edu/financialaid/private-alternative-loan-options.htm

http://www.olemiss.edu/depts/financial_aid/alternativeintro.html

http://www.und.edu/dept/finaid/Self-Certification_Form_Instructions.html

http://www.ferris.edu/admissions/financialaid/webvideos/selfcertification/index.htm

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When and how will you make the private loan self-certification form available to borrowers?

How do you plan on collecting the private loan self-certification form? What options are available to the school to send the form/data on behalf of the borrower?

What impact do these new regulatory requirements have on your credit-pull policy?

When do you plan on requesting school certification (before or after you receive the self-certification form)? What options may exist?


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Will there be any outstanding borrower stipulations (i.e. additional disclosure requirements) that need to be met after we receive a certification request that could further delay disbursement?

When and how do you plan on presenting the Final Disclosure to the borrower (i.e. offered online, via direct mail, etc)?

How many days after the Final Disclosure is presented will funds be available for disbursement?


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Questions


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Appendices


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Application Disclosure (front)


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Application Disclosure (back)


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Approval Disclosure (front)


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Approval Disclosure (back)


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Final Disclosure (front)


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Final Disclosure (back)


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Private Education Loan Applicant Self-Certification Form (front)


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Private Education Loan Applicant Self-Certification Form (back)


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Resources

Federal Register and model disclosure forms and samples:http://www.federalreserve.gov/newsevents/press/bcreg/20090730a.htm

Implementing New TILA Disclosures with Institutional and Non-Title IV Federal Loanshttp://www.nasfaa.org/publications/2010/tila021010.html

What to expect during the private student loan application processhttp://wfefs.wellsfargo.com/jump/PrivateLoanProcess.pdf

NACUBO – Truth in Lending Act Compliance Checklist http://www.nacubo.org/Business_and_Policy_Areas/Student_Financial_Services/News/TILA_Compliance_Checklist_Available.html

The final Applicant Self-Certification Form http://www.ifap.ed.gov/dpcletters/GEN1001.html Ferris State University online tutorial

http://www.ferris.edu/admissions/financialaid/webvideos/selfcertification/index.htm Proposed amendment to H.R. 4173:

http://www.rules.house.gov/111/AmndmentsSubmitted/hr4173/polis155_hr4173.pdf

NCHELP e-Library HEOA

P.L. 110-315, integrated HEA, side-by-side analysis documents:http://nchelp.org/elibrary/index.cfm?parent=1945

Regulations NPRM, Final Rule, integrated regulations, side-by-side analysis documents: http://nchelp.org/elibrary/index.cfm?

parent=2023


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Title X of HEOA – What is It? How will it impact the private loan application process, my office...

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