PUBLIC SUBMISSION | As of: November 20, 2009 Tracking No. 802678f6 Comments Due: August 13, 2007 |
Docket: ED-2007-OPE-0133
Title IV Loans
Comment On: ED-2007-OPE-0133-0001
Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program
Document: ED-2007-OPE-0133-0011
Comment on FR Doc # E7-10826
Pittsburgh, PA,
Organization: FinAid.orgThe proposed regulations on preferred lender lists in 34 CFR 682.212(h)(1)(ii)
require a minimum of three unaffiliated lenders. Unfortunately, the definition
of "affiliate" is defined in 34 CFR 682.212(h)(3) in terms of ownership or control. It
does not contemplate "forward purchase agreements" in which one lender has
agreed, in advance, to sell all its loans to another lender. Since the loan discounts
and servicing on such loans are usually provided by the purchasing lender and not
the originating lender, allowing such relationships to count toward the three lender
minimum does not provide the prospective borrower with a meaningful choice of
lender.
At the NASFAA National Conference in the July 9, 2007 federal update session,
Jeff Baker stated that the Department would consider forward purchase
agreements to be an affiliate relationship. A preferred lender list that contained
only three lenders all of which sold their loans to the same lender through forward
purchase agreements would not be considered as satisfying the requirement to
have at least three lenders on the preferred lender list.
This treatment should be explicitly encoded into the proposed regulations by
adding a new sentence to 34 CFR 682.212(h)(3). The purpose of these regulations
is to provide clarity on what is considered appropriate and inappropriate. As such,
a significant and material distinction like this should be explicitly encoded, instead
of being left to interpretation. Perhaps the following sentence should be added: "(v)
the lenders have an a forward purchase agreement or other advance agreement or
understanding for one to sell the loans to the other".
The Department should also consider increasing the required minimum number of
lenders from three to five. Preferred lender lists make general recommendations
that are best for students and parents in general. They do not, however, consider
the individual circumstances and behaviors of the specific prospective borrower. No
one discount is best for all borrowers. In order to ensure that each borrower has a
meaningful choice of lenders, including lenders that are likely to provide discounts
and other services of benefit to each individual borrower, it is necessary that the
preferred lender list contain a critical mass of lenders. Given the great variety of
student loan discounting schemes -- principal reductions based on the current or
original loan balance, interest rate reductions, forgiveness of the last six
payments, fee waivers, auto debit discounts, cash graduation gifts -- with various
delayed onsets and prompt payment requirements or not, it seems that a
minimum of three lenders is insufficient to ensure adequate coverage of the
student loan discount universe. A minimum of five lenders would be barely enough
to provide a representative sample, although seven would be better.