Here are some of the comments that have recently posted on the Federal Reserve website:
(Please note that I have only included excerpts of the Comment Letters. Click on the links to review the letters in their entirety.)
- Office of Thrift Supervision (OTS) suggests taking a different approach to determining the "maximum rate" that will be used to calculate total and monthly payments:
"OTS suggests that the Board adopt a different approach. For the "maximum rate" we propose that a creditor use the higher of 21 % or the maximum rate at which that creditor actually made a comparable private educational loan during a reasonably recent period of time, e.g., two years prior to the borrower's application. Otherwise, a creditor with a history of charging rates above common usury limits will be permitted to significantly understate its disclosures. Moreover, it is questionable whether an estimate based on a 21% rate could be deemed a "good faith estimate" for such a creditor. In addition to eliminating the risk that disclosures will be understated, the alternative approach might also encourage creditors that are not subject to usury limits to specify a maximum rate in their legal agreements, which would benefit consumers."
- Minnesota Office of Higher Education which offers a state-owned and operated alternative loan program, the SELF Loan program, highlighted the following issues:
- Maximum interest rate of 21% as proposed would not be a reasonable estimate and could mislead consumers: "We are concerned that requirements to provide examples of loan repayments at the maximum interest rate will be very misleading to students if the proposed rate of 21 percent is required to be used. The current SELF IV rate is 4.7 percent, so it would be approximately five years before the interest rate could reach 21 percent even if it went up the maximum amount of 3 percent every year."
- Seeks to minimize information about eligibility: "The criteria required to be disclosed should be confined to age and enrollment status of half- or full-time."
- Requests that schools have flexibility to provide links to non-preferred lenders: "Schools should be allowed to provide web site links to creditors not covered under a preferred lender arrangement. It need not be listed as an endorsed loan but could be listed under loans previously utilized by students at the school."
- NASFAA highlighted these issues in their Comment Letter (which was written on behalf of the National Association of Student Financial Aid Administrators, the National
Association of College and University Business Officers, the American Council on Education, the Coalition of Higher Education Assistance Organizations, and the National Association of Independent Colleges and Universities):- Asks to exempt institutional loans with this language: "Does not include loans made by a covered institution that is funded by the covered institution's own funds or funded by donor-directed contributions, with an interest rate capped at a rate no greater than an unsubsidized Stafford loan; no up-front or hidden fees; no requirement to pay on loan principal until the student ceases to be enrolled at least half-time, no interest capitalization while enrolled, and no prepayment penalty."
- Objects to Federal Reserve proposal regarding co-branding: "...we object to the Federal Reserve's proposal to ignore the statutory ban on co-branding in cases of
a preferred lender arrangement. This would be in direct contradiction to statutory intent, Department of Education regulations, and the desire of most colleges and universities." - Seek exception to self-certification form: "We also seek an exception to the self-certification form for schools that are already providing direct certifications to lenders. Currently, if a private educational loan certification request is sent to a school by a lender, the school provides the information that would be required by the self-certification form, as well as additional information such as the student's enrollment status and anticipated graduation date. Since this information is already being provided directly from the school to lenders, there is no need to provide
another form for a student to certify the same information." - Seeks to require creditors to disclose their weighted average interest rate: "Therefore, we feel it is also important for creditors to disclose the weighted average rate borrowers currently receive on their loans."
- Asks that creditors be required to disclose all fees: "The proposed rules would require an itemization of the fees or range of fees required "to obtain" the private educational loan as well as fees or adjustments due to "defaults or late payments." However, some lenders charge fees for borrowers to request deferments, forbearances, or other services. Allowing lenders to skip this disclosure could open a doorway for increases in deferment and forbearance fees. To promote full disclosure to borrowers, creditors should be required to disclose all fees, no matter when they are charged."
- Education Finance Council, an association of state-based and non-profit lenders highlighted the following issues in their Comment Letter:
- Urges Board to publish final regs. as close to August 14th as possible: "...so that private education lenders will have the full six-month implementation period in order to reprogram systems, make necessary modifications to any A P R calculation required in order to comply with the removal of the interim student credit extension rule, change workflow and internal procedures, and redraft applications, loan agreements, and disclosures.
- Self-certification form should only apply to direct-to-consumer loans: "EFC supports the requirement to obtain a self-certification form from the consumer if a private education loan is a direct-to-consumer loan without a school certification requirement. However, EFC members strongly believe that where there is a process in place for schools to certify loans directly with the creditor for an amount that does not exceed the cost of attendance minus other aid and federal loans, such school-certified loans should be exempt from the self-certification requirement in 226.39(e)."
- Disagrees with Fed's proposal to make interest rate more prominent than A.P.R.: "We believe the confusion over APR could be alleviated by having a better explanation of what it is. The current descriptor, "The cost of your credit as a yearly rate," is incomplete in that it doesn't convey to consumers that the cost of interest and certain fees is spread over the life of the loan. Consumers don't understand that the reference to "cost of credit" means interest plus certain other fees and that's why the APR is generally higher than the interest rate."
- Recommends requiring lenders to provide disclosure on "other fees:" "Other fees, such as late charges, insufficient funds charges, default and collection charges, and fees for deferment, forbearance or loan modification may or may not ever apply, depending on the borrower's behavior. While we believe that these kinds of fees should be disclosed, it is unlikely that these fees and charges are considered in shopping for a loan. Therefore, in order to simplify the disclosure forms, we would recommend that fees that are not required in order to "obtain" the loan and are not relevant in determining the cost of the loan for purposes of the disclosure forms, be disclosed in the "Reference Notes" section at the end of the forms."
- Would like to see Federal Reserve disclose that federal loans also have bankruptcy limitations: "EFC has no objection to the continued disclosure of bankruptcy limitations relevant to student loans. This limitation is a unique characteristic of student loans, and while it is a characteristic which ultimately allows creditors to pass cost savings on to consumers it is a characteristic with the potential to have a significant impact on a consumer's future. The disclosure of it is reasonable. Furthermore, we wish to point out that this characteristic of education loans is not unique to private education loans but extends also to federal education loans. EFC would like the Board to make clear that lenders may also disclose the fact that federal loans have the same limitations on bankruptcy as do private education
loans." - Not comfortable with 21% as maximum interest rate: "The EFC membership believes that 21% would represent an excessively high disclosure compared to their historical rates and would, therefore, give an unlikely if not inaccurate representation to consumers.
- Suggest April 1st as appropriate time for lenders to provide loan disclosures to schools: "EFC believes that the proposed time frame of January 1 is inappropriately early and will be difficult to comply with. Based on current practices with schools, a more appropriate date would be April 1st of each year. There is a general process for awarding financial aid that typically involves packaging financial aid by schools during February, providing financial aid award letters to students in the March/April time frame, and consulting with students and families regarding financial aid and options beginning in April and continuing throughout the academic year. In addition, lenders are generally determining private loan program attributes, financing, etc. for the upcoming academic year to be ready for this traditional financial aid awarding schedule. An April 1 time frame fits within the current timeline for providing schools with information about pricing and other private education loan attributes and will result in more accurate loan disclosures from schools to students."
- Given importance of cosigner, EFC suggests making that disclosure more prominent: "Because the use of a co-borrower is typical in private education loans, and is an important tool in helping to reduce the interest rate on a loan, we would urge the Board to consider moving the coborrower disclosure from the "Reference Notes" section up to the interest rate disclosure. It can be included in the text under "your starting rate."
--------------------------------
To be continued...
Comments
You can follow this conversation by subscribing to the comment feed for this post.