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Democrats and Republicans in the House of Representatives finally found something they could agree on: the need to reform the relationships among the student loan industry, institutions of higher education, and students and parents. The Student Loan Sunshine Act passed under expedited rules on May 9, with only three dissenting votes. The bill would impose additional reporting requirements on lenders and institutions, set new standards for preferred lender lists, and require new disclosures to borrowers of private educational loans.

The Senate has not yet taken up its version of the Student Loan Sunshine Act  (S.486) introduced by Sen. Edward Kennedy (D-MA), chair of the Health, Education, Labor, and Pensions Committee.  Sen. Mike Enzi (R-WY), ranking member of the committee, recently introduced another bill (S.1262) along the same lines, which would also terminate authority for the School-As-Lender program by June 30, 2008.  Kennedy has said that the Senate will consider these bills as part of its work on the reauthorization of the Higher Education Act, which the committee expects to tackle in June.

Provisions in the Student Loan Sunshine Act as passed by the House are summarized below.

For preferred lender arrangements:

  • If an institution maintains a preferred lender list in any form, it would have to include at least three non-affiliated lenders, the specifics of any affiliations between lenders, the reasons for including the lender, and the process that the institution uses to prepare the list. The institution would have a duty to compile the list for the sole benefit of the student. 
  • The Department of Education, in consultation with various parties, would be tasked with developing a model disclosure form to be used by lenders and institutions to provide information to students and parents about educational loans.
  • Institutions would have to file an annual report with the Secretary of Education that details for each "preferred" lender the information included on the model disclosure form for each type of educational loan provided. Also necessary would be a "detailed explanation of why the covered institution believes the terms and conditions of each type of educational loan provided pursuant to the [preferred lender] agreement are beneficial for students." The report must also be made available to students and parents.
  • Lenders would be prohibited from making a private educational loan to a student or parent until the institution has informed them of their options for borrowing under Title IV, including terms and conditions of such loans.
  • Institutions could not let preferred lenders of alternative loans use the institution's name, logo, or other symbols identified with the institution in marketing loans.
  • Institutions would have to disclose on their Web sites and other informational materials all of the information on the model disclosure form for any lender recommended by the institution for federal or private educational loans. This would include a statement that students are free to use any eligible lender.

For all institutions:

  • If a college or university provides information to students or parents regarding a private educational loan the institution would also have to provide information about Title IV eligibility and demonstrate how the loan's terms compare to those of a private loan.
  • Each institution would have to develop, and publish, a code of conduct that prohibits conflicts of interest, with respect to student loans, and bans gifts, staffing assistance, or payment of fees from lenders. Opportunity pool arrangements and staff participation on lender advisory committees would also be prohibited.


Liz Clark

Vice President, Policy and Research


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