What Constitutes A Preferred Lender Arrangement?: The NPRM Speaks

The Notice of Proposed Rulemaking (NPRM) is out in the Federal Register.  Comments are due by August 27th for the rules pertaining to "Institutions and Lender Requirements Relating to Education Loans, Student Assistance General Provisions, Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program."

I thought it was interesting to follow the commentary that followed a question from a non-federal negotiator about what constitutes a preferred lender list:

"The Department referred non-Federal negotiators to Dear Colleague Letter GEN-08-06 in which we stated that if a school provides to its students a neutral, comprehensive list of lenders who have made loans to students at the covered institution within a set period of time, such as three to five years, and the school provides a clear statement on the list that a borrower can choose to use any FFEL lender, not just the lenders identified on the list, the list is not a preferred lender list. 

The Department also clarified for the non-Federal negotiators that if a covered institution provides a list of lenders to students, and the list includes some lenders who lend to students at the school but not others, the Department views the covered institution as inherently showing a preference for the lenders it includes on the list. In this case, therefore, the covered institution would be considered to have created a preferred lender list. 

If a covered institution includes certain lenders on the list and leaves other lenders off the list, the Department views the covered institution as recommending, promoting, or endorsing the lenders on the list over the lenders that it has chosen to leave off the list regardless of whether the covered institution includes a disclaimer on the list, asserting that the covered institution does not recommend, promote, or endorse the lenders on its list. Unless the list is a neutral, comprehensive list of lenders who lent to students at the school, the list serves to recommend, promote, or endorse the lenders on the list, despite whatever disclaimers the school may attach to the list."

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So there you have it.  If a school provides students with a list of FFEL and/or Alternative Lenders that is NOT "a neutral, comprehensive list of lenders who have made loans to students at the covered institution within a set period of time, such as three to five years," then the Dept. of Education will consider it a preferred lender list regardless of any disclaimers accompanying the list.