HIGHER EDUCATION OPPORTUNITY ACT (HEOA)
Missouri Association of Student Financial Aid
Professionals
November 8, 2010
Betsy Burton-Strunk
Senior Director
Sallie Mae
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AGENDA
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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
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HIGHER EDUCATION OPPORTUNITY ACT (HEOA)
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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
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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
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Title X amended the Truth in Lending Act (TILA) to impose a new obligation
on lenders to annually report private loan information to schools
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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
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LEGISLATIVE TIMELINE
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Regulation Z and Truth in Lending Act (TILA)
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The Higher Education Opportunity Act of 2008,
Enacted August 14, 2008
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Title X - Private Student Loan Transparency and
Improvement Act of 2008; Adds new subsections to
TILA governing ‘‘private education loans’’
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Effective date of new subsections of the HEOA
governing private education loan disclosures went
into effect on February 14, 2010
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OVERVIEW OF HEOA AMENDMENTS TO TILA
Loan
Origination
Disclosures
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Application and Solicitation Disclosure
Loan Approval Disclosure
Final Disclosure (Prior to Disbursement)
Safe harbor for use of model disclosure forms
Borrower Self-Certification Form
Preferred
Lender
Arrangements
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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
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INSTITUTIONAL LOANS
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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
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Many schools use third-party servicers, you should
check with your institutional loan servicer to ensure
how they will help you to be compliant.
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EMERGENCY LOANS
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 be
disbursed.
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.
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MONTHLY PAYMENT PLANS
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.
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NEW HEOA DISCLOSURES
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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
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NOTE: Cosigners will receive a copy of all three disclosures, as applicable, for informational
purposes only.
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MODEL FORM–APPLICATION SOLICITATION
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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 redisclosure 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 mailed
NOTE: Cosigners will receive a copy of all three disclosures, as applicable, for informational
purposes only.
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MODEL FORM–LOAN APPROVAL
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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 selfcertification 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.
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MODEL FORM – FINAL DISCLOSURE
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PDF format
Schools will be notified as they are
today when a borrower cancels a loan
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NEW SELF-CERTIFICATION FORM
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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
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SAMPLE OF SELF-CERTIFICATION FORM
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MODEL FEDERAL DISCLOSURE FORMS
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Federal Reserve Bank website has detailed requirements for
disclosure with model forms available for download.
http://www.federalreserve.gov/newsevents/press/bcreg/20090730a.htm
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ADDITIONAL DISCLOSURE
INFORMATION
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RE-DISCLOSURE SITUATIONS
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The loan approval disclosure will need to be redisclosed for the following situations:
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If any borrower, cosigner or school changes affect the
financial terms as detailed in the loan approval
disclosure
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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
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LIMITS CO-BRANDING
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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.
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Marketing does not imply endorsement if there is a
clear and conspicuous disclosure that school does
not endorse
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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
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PREFERRED LENDER
ARRANGEMENTS
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MAINTAINING A PREFERRED LENDER LIST
New Requirements:
Annual report to the Department of Education
- Disclosure information
- Statement indicating why the school participates
in a Preferred Lender Arrangement with each lender
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
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PREFERRED LENDER ARRANGEMENTS
A preferred lender arrangement exists if the school:
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Recommends, promotes or endorses a lender—even if that
recommendation is not in the form of a lender list
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Refers their students to a third-party entity that manages a
listing of private lenders on behalf of the school
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Refers their students to a third-party entity where the lenders
pay a fee based on loan volume generated
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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
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PREFERRED LENDER ARRANGEMENTS
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
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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
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ARE THERE BENEFITS TO MAINTAINING A PREFERRED
LENDER LIST?
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YES!
A preferred lender list makes it easier for families to
select the financing option that is right for them.
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
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WHAT THIS MEANS TO YOU
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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)
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QUESTIONS
For further updates visit SallieMae.com/StraightTalk
or contact your Sallie Mae account representative.
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APPENDIX - DISCLOSURES
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LENDER REPORTING REQUIREMENT DETAILS
Interest Rate Information:
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The interest rate or range of interest rates applicable to the loan
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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
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Whether the interest rates applicable to the loan are fixed or variable
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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
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Whether the applicable interest rates typically will be higher if the loan is not cosigned
or guaranteed
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LENDER REPORTING REQUIREMENT DETAILS
Fees and Default or Late Payment Costs
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An itemization of the fees or range of fees required to obtain the loan; and
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Any fees, changes to the interest rate, and adjustments to principal based on the
consumer’s defaults or late payments
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LENDER REPORTING REQUIREMENT DETAILS
Repayment Terms
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The term of the loan
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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
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A statement that if the consumer files for bankruptcy, the consumer may still be
required to pay back the loan
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LENDER REPORTING REQUIREMENT DETAILS
Cost Estimates
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
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Eligibility
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Any age or school enrollment eligibility requirements relating to the consumer
or co-signer
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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
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APPENDIX – PREFERRED LENDER
ARRANGEMENTS
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LENDER REPORTING REQUIREMENTS
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The HEOA requires lenders to provide the following information to schools
by April 1 each year:
Interest
Rates
Fees, and
default or
late
payment
costs
Repayment
Terms
Cost
Estimates
Eligibility
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In addition to disclosing this to families, schools can use this information in
selecting their preferred lenders
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Sallie Mae will be providing this information to schools annually in the form
of an Application Solicitation Disclosure
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MAINTAINING A PREFERRED LENDER LIST
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The HEOA formalized many of the best practices schools are following today.
If your school currently offers a preferred lender list for
private loans, it should continue to do so.
Current Best Practices:
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Disclose to families the method, criteria and rationale used in selecting
lenders with which your school has a “Preferred Lender Arrangement” (PLA)
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List at least two unaffiliated lenders and describe any relationship a lender
may have with another lender on your school’s list
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Remind students and families that they may have access to free or lower cost
federal loan options
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Differentiate private loan information from Title IV loan information
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Disclose that students do not have to borrow from a lender on the preferred
lender list
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DIFFERENTIATING PRIVATE LOAN LENDERS
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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?
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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
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or is designed to constitute legal advice.
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