skip to main content

S. 2894 (110th): Private Student Loan Transparency and Improvement Act of 2007


The text of the bill below is as of Apr 21, 2008 (Placed on Calendar in the Senate). The bill was not enacted into law.


II

Calendar No. 702

110th CONGRESS

2d Session

S. 2894

[Report No. 110–327]

IN THE SENATE OF THE UNITED STATES

April 21, 2008

, from the Committee on Banking, Housing, and Urban Affairs, reported the following original bill; which was read twice and placed on the calendar

A BILL

To establish requirements for private lenders to protect student borrowers receiving private educational loans, and for other purposes.

1.

Short title; table of contents

(a)

Short title

This Act may be cited as the Private Student Loan Transparency and Improvement Act of 2007.

(b)

Table of contents

The table of contents for this Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Definitions.

Sec. 3. Regulations.

Sec. 4. Effective dates.

TITLE I—Preventing unfair and deceptive private educational lending practices and eliminating conflicts of interest

Sec. 101. Amendment to the Truth in Lending Act.

Sec. 102. Civil liability.

Sec. 103. Clerical amendment.

TITLE II—Improved disclosures for private educational loans

Sec. 201. Private educational loan disclosures and limitations.

Sec. 202. Application of Truth in Lending Act to all private educational loans.

TITLE III—College Affordability

Sec. 301. Community Reinvestment Act credit for low-cost loans.

TITLE IV—Financial literacy

Sec. 401. Coordinated education efforts.

TITLE V—Study and report on nonindividual information

Sec. 501. Study and report on nonindividual information.

2.

Definitions

As used in this Act—

(1)

the term Board means the Board of Governors of the Federal Reserve System;

(2)

the term covered educational institution

(A)

means any educational institution that offers a postsecondary educational degree, certificate, or program of study (including any institution of higher education); and

(B)

includes an agent or employee of the educational institution;

(3)

the terms Federal banking agencies and appropriate Federal banking agency have the same meanings as in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813);

(4)

the term institution of higher education has the same meaning as in section 102 of the Higher Education Act of 1965 (20 U.S.C. 1002);

(5)

the term postsecondary educational expenses means any of the expenses that are included as part of the cost of attendance of a student, as defined under section 472 of the Higher Education Act of 1965 (20 U.S.C. 1087ll);

(6)

the term private educational lender means—

(A)

a financial institution, as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813) that solicits, makes, or extends private educational loans;

(B)

a Federal credit union, as defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752) that solicits, makes, or extends private educational loans; and

(C)

any other person engaged in the business of soliciting, making, or extending private educational loans; and

(7)

the term private educational loan

(A)

means a loan provided by a private educational lender that—

(i)

is not made, insured, or guaranteed under part B of title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.); and

(ii)

is issued by a private educational lender expressly for postsecondary educational expenses to a borrower, regardless of whether the loan is provided through the educational institution that the subject student attends or directly to the borrower from the lender; and

(B)

does not include an extension of credit under an open end consumer credit plan, a residential mortgage transaction (as those terms are defined in section 103 of the Truth in Lending Act), or any other loan that is secured by real property or a dwelling.

3.

Regulations

The Board shall issue final regulations to implement this Act and the amendments made by this Act not later than 180 days after the date of enactment of this Act.

4.

Effective dates

This Act and the amendments made by this Act shall become effective 180 days after the date on which regulations to carry out this Act and the amendments made by this Act are issued in final form.

I

Preventing unfair and deceptive private educational lending practices and eliminating conflicts of interest

101.

Amendment to the Truth in Lending Act

Chapter 2 of the Truth in Lending Act (15 U.S.C. 1631 et seq.) is amended by adding at the end the following new section:

140.

Preventing unfair and deceptive private educational lending practices and eliminating conflicts of interest

(a)

Definitions

As used in this section—

(1)

the term covered educational institution

(A)

means any educational institution that offers a postsecondary educational degree, certificate, or program of study (including any institution of higher education); and

(B)

includes an agent or employee of the educational institution;

(2)

the term gift

(A)

means any gratuity, favor, discount, entertainment, hospitality, loan, or other item having a monetary value of more than $10, including a gift of services, transportation, lodging, or meals, whether provided in kind, by purchase of a ticket, payment in advance, or reimbursement after the expense has been incurred; and

(B)

does not include—

(i)

standard informational material related to a loan (such as a brochure);

(ii)

food, refreshments, training, or informational material furnished to an employee or agent of a covered educational institution, as an integral part of a training session or through participation in an advisory council that is designed to improve the service of the lender to the covered educational institution, if such training or participation contributes to the professional development of the employee or agent of the covered educational institution; or

(iii)

favorable terms, conditions, and borrower benefits on an educational loan provided to a student employed by the covered educational institution;

(3)

the term institution of higher education has the same meaning as in section 102 of the Higher Education Act of 1965 (20 U.S.C. 1002);

(4)

the term postsecondary educational expenses means any of the expenses that are included as part of the cost of attendance of a student, as defined under section 472 of the Higher Education Act of 1965 (20 U.S.C. 1087ll);

(5)

the term private educational lender means—

(A)

a financial institution, as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813) that solicits, makes, or extends private educational loans;

(B)

a Federal credit union, as defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752) that solicits, makes, or extends private educational loans; and

(C)

any other person engaged in the business of soliciting, making, or extending private educational loans;

(6)

the term private educational loan

(A)

means a loan provided by a private educational lender that—

(i)

is not made, insured, or guaranteed under part B of title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.); and

(ii)

is issued by a private educational lender expressly for postsecondary educational expenses to a borrower, regardless of whether the loan is provided through the educational institution that the subject student attends or directly to the borrower from the lender; and

(B)

does not include an extension of credit under an open end consumer credit plan, a residential mortgage transaction, or any other loan that is secured by real property or a dwelling; and

(7)

the term revenue sharing means an arrangement between a covered educational institution and a private educational lender under which—

(A)

a private educational lender provides or issues private educational loans to students attending the covered educational institution or to the parents of such students;

(B)

the covered educational institution recommends to students or others the private educational lender or the private educational loans of the private educational lender; and

(C)

the private educational lender pays a fee or provides other material benefits, including profit or revenue sharing, to the covered educational institution or to the officers, employees, or agents of the covered educational institution in connection with the private educational loans provided to students attending the covered educational institution or a borrower acting on behalf of a student.

(b)

Prohibition on certain gifts and arrangements

A private educational lender, including any officer or employee thereof, may not, directly or indirectly—

(1)

offer or provide any gift to a covered educational institution or a covered educational institution employee, nor may such covered educational institution, officer, or employee receive any such gift, in exchange for any advantage or consideration provided to such private educational lender related to its private educational loan activities; or

(2)

engage in revenue sharing with a covered educational institution.

(c)

Prohibition on co-branding

A private educational lender may not use the name, emblem, mascot, or logo of the covered educational institution, or other words, pictures, or symbols readily identified with the covered educational institution, in the marketing of private educational loans in any way that implies that the covered educational institution endorses the private educational loans offered by the lender.

(d)

Advisory board compensation

Any person who is employed in the financial aid office of a covered educational institution, or who otherwise has responsibilities with respect to private educational loans or other financial aid of the institution, and who serves on an advisory board, commission, or group established by a private educational lender or group of such lenders shall be prohibited from receiving anything of value from the private educational lender or group of lenders. Nothing in this subsection shall prohibit the reimbursement of reasonable expenses incurred by an employee of a covered educational institution as part of their service on an advisory board, commission, or group described in this subsection, subject to the rules of the Board.

(e)

Prohibition on prepayment or repayment fees or penalty

It shall be unlawful for any private educational lender to impose a fee or penalty on a borrower, directly or indirectly, for early repayment or prepayment, of any private educational loan.

.

102.

Civil liability

Section 130 of the Truth in Lending Act (15 U.S.C. 1640) is amended—

(1)

in subsection (a)—

(A)

in paragraph (3), by inserting or section 128(e)(6) after section 125; and

(B)

in the fourth sentence of the undesignated matter at the end—

(i)

by striking 125 or and inserting 125,; and

(ii)

by inserting or of section 128(e), before or for failing; and

(2)

in subsection (e), by inserting before the first period, the following: or, in the case of a violation involving a private educational loan, 1 year from the date on which the first regular payment of principal is due under the loan.

103.

Clerical amendment

The table of sections for chapter 2 of title I of the Truth in Lending Act (15 U.S.C. 1631 et seq.) is amended by adding at the end the following:

140. Preventing unfair and deceptive private educational lending practices and eliminating conflicts of interest..

II

Improved disclosures for private educational loans

201.

Private educational loan disclosures and limitations

Section 128 of the Truth in Lending Act (15 U.S.C. 1638) is amended by adding at the end the following:

(e)

Terms and disclosure with respect to private educational loans

(1)

Disclosures required in private educational loan applications and solicitations

In any application for a private educational loan, or a solicitation for a private educational loan without requiring an application, the lender shall disclose to the borrower, clearly and conspicuously—

(A)

the potential range of rates of interest applicable to the private educational loan;

(B)

whether the rate of interest applicable to the private educational loan is fixed or variable;

(C)

limitations on interest rate adjustments, both in terms of frequency and amount, or the lack thereof;

(D)

requirements for a co-borrower, including any changes in the applicable interest rates without a co-borrower;

(E)

potential finance charges, late fees, penalties, and adjustments to principal, based on defaults or late payments of the borrower;

(F)

fees or range of fees applicable to the private educational loan;

(G)

the term of the private educational loan;

(H)

whether interest will accrue while the student to whom the private educational loan relates is enrolled at an institution of higher education;

(I)

payment deferral options, including whether the deferment would apply to interest or principal, or both;

(J)

general eligibility criteria for the private educational loan;

(K)

an example of the total cost of the private educational loan over the life of the loan—

(i)

which shall be calculated using the principal amount and the maximum rate of interest actually offered by the lender; and

(ii)

calculated both with and without capitalization of interest, if that is an option for postponing interest payments;

(L)

a statement that an institution of higher education may have school-specific educational loan benefits and terms not detailed on the disclosure form;

(M)

that the borrower may qualify for Federal financial assistance through a program under title IV of the Higher Education Act of 1965, in lieu of, or in addition to, a loan from a non-Federal source;

(N)

the interest rates available with respect to such Federal financial assistance through a program under title IV of the Higher Education Act of 1965;

(O)

that, as provided in paragraph (5)—

(i)

the borrower shall have up to 30 calendar days following the date on which the application for the private educational loan is approved and the borrower receives the disclosure documents required under this subsection for the loan to accept the terms of the private educational loan and consummate the transaction; and

(ii)

except for changes based on adjustments to the index used for a loan, the rates and terms of the loan may not be changed by the lender during that 30-day period; and

(P)

such other information as the Board shall prescribe, by rule, as necessary or appropriate for consumers to make informed borrowing decisions.

(2)

Disclosures at the time of private educational loan approval

Subject to the rules of the Board, contemporaneously with the approval of a private educational loan application, and before the loan transaction is consummated, the lender shall disclose to the borrower, clearly and conspicuously—

(A)

the applicable rate of interest in effect on the date of approval;

(B)

whether the rate of interest applicable to the private educational loan is fixed or variable;

(C)

limitations on interest rate adjustments, both in terms of frequency and amount, or the lack thereof;

(D)

the initial approved principal amount;

(E)

applicable finance charges, late fees, penalties, and adjustments to principal, based upon borrower defaults or late payments;

(F)

the maximum term under the private educational loan program;

(G)

an estimate of the total amount for repayment, at both the interest rate in effect on the date of approval and at the maximum possible rate of interest actually offered by the lender, to the extent that such maximum rate may be determined, or if not, a good faith estimate thereof;

(H)

any principal and interest payments required while the student to whom the private educational loan relates is enrolled at an institution of higher education and interest which will accrue during such enrollment;

(I)

payment deferral options, including whether the deferment would apply to interest or principal, or both;

(J)

whether monthly payments are graduated;

(K)

that, as provided in paragraph (5)—

(i)

the borrower shall have up to 30 calendar days following the date on which the application for the private educational loan is approved and the borrower receives the disclosure documents required under this subsection for the loan to accept the terms of the private educational loan and consummate the transaction; and

(ii)

except for changes based on adjustments to the index used for a loan, the rates and terms of the loan may not be changed by the lender during that 30-day period;

(L)

that the borrower may qualify for Federal financial assistance through a program under title IV of the Higher Education Act of 1965, in lieu of, or in addition to, a loan from a non-Federal source;

(M)

the interest rates available with respect to such Federal financial assistance through a program under title IV of the Higher Education Act of 1965;

(N)

the maximum monthly payment, calculated using the maximum rate of interest actually offered by the lender, to the extent that such maximum rate may be determined, or if not, a good faith estimate thereof; and

(O)

such other information as the Board shall prescribe, by rule, as necessary or appropriate for consumers to make informed borrowing decisions.

(3)

Disclosures at the time of private educational loan consummation

Subject to the rules of the Board, contemporaneously with the consummation of a private educational loan, the lender shall make each of the disclosures described in subparagraphs (A) through (J) and (L) through (O) of paragraph (2) to the borrower.

(4)

Format of disclosures

Disclosures required under paragraphs (1), (2), and (3) shall appear in a clearly legible, uniform format, subject to section 122(c).

(5)

Effective period of approved rate of interest and loan terms

(A)

In general

With respect to a private educational loan, the borrower shall have the right to accept the terms of the loan and consummate the transaction at any time within 30 calendar days following the date on which the application for the private educational loan is approved and the borrower receives the disclosure documents required under this subsection for the loan, and the rates and terms of the loan may not be changed by the lender during that period, subject to the rules of the Board.

(B)

Prohibition on changes

Except for changes based on adjustments to the index used for a loan, the rates and terms of the loan may not be changed by the lender prior to the earlier of—

(i)

the date of acceptance of the terms of the loan and consummation of the transaction by the borrower, as described in subparagraph (A); or

(ii)

the expiration of the 30-day period referred to in subparagraph (A).

(C)

Prohibition on disbursement

No funds may be disbursed with respect to a private educational loan until acceptance of the loan by the borrower under subparagraph (A) and the expiration of the 3-day period under paragraph (6).

(6)

Right to cancel

With respect to a private educational loan, the borrower may cancel the loan, without penalty to the borrower, at any time within 3 business days of the date on which the loan is consummated, subject to the rules of the Board. No funds may be transferred to the borrower during that 3-day period.

(7)

Definitions

For purposes of this subsection—

(A)

the term institution of higher education has the same meaning as in section 102 of the Higher Education Act of 1965 (20 U.S.C. 1002);

(B)

the term private educational lender means—

(i)

a financial institution, as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813) that solicits, makes, or extends private educational loans;

(ii)

a Federal credit union, as defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752) that solicits, makes, or extends private educational loans; and

(iii)

any other person engaged in the business of soliciting, making, or extending private educational loans; and

(C)

the term private educational loan

(i)

means a loan provided by a private educational lender that—

(I)

is not made, insured, or guaranteed under part B of title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.); and

(II)

is issued by a private educational lender expressly for postsecondary educational expenses to a borrower, regardless of whether the loan is provided through the educational institution that the subject student attends or directly to the borrower from the lender; and

(ii)

does not include an extension of credit under an open end consumer credit plan, a residential mortgage transaction, or any other loan that is secured by real property or a dwelling.

.

202.

Application of Truth in Lending Act to all private educational loans

Section 104(3) of the Truth in Lending Act (15 U.S.C. 1603(3)) is amended by inserting and other than private educational loans (as that term is defined in section 140(a)) after consumer.

III

College Affordability

301.

Community Reinvestment Act credit for low-cost loans

(a)

In general

The appropriate Federal financial supervisory agency shall give a private educational lender credit toward meeting the credit needs of its community for purposes of the Community Reinvestment Act of 1977, for making low-cost private educational loans to low-income borrowers.

(b)

Regulations

The Board shall develop regulations determining which private educational loans are available for the credit under this section.

(c)

Definition

As used in this section, the term appropriate Federal financial supervisory agency has the same meaning as in section 803 of the Community Reinvestment Act of 1977 (12 U.S.C. 2902).

IV

Financial literacy

401.

Coordinated education efforts

(a)

In general

The Secretary of the Treasury (in this section referred to as the Secretary), in coordination with the Secretary of Education, the Secretary of Agriculture (with respect to land grant covered educational institutions), and any other appropriate agency that is a member of the Financial Literacy and Education Commission established under the Financial Literacy and Education Improvement Act (20 U.S.C. 9701 et seq.), shall seek to enhance financial literacy among students at institutions of higher education through—

(1)

the development of initiatives, programs, and curricula that improve student awareness of the short- and long-term costs associated with educational loans and other debt assumed while in college, their repayment obligations, and their rights as borrowers; and

(2)

assisting such students in navigating the financial aid process.

(b)

Duties

For purposes of this section, the Secretary, working in conjunction with the Secretary of Education, the Secretary of Agriculture, and the Financial Literacy and Education Commission, shall—

(1)

identify programs that promote or enhance financial literacy for college students, with specific emphasis on programs that impart the knowledge and ability for students to best navigate the financial aid process, including those that involve partnerships between nonprofit organizations, colleges and universities, State and local governments, and student organizations;

(2)

evaluate the effectiveness of such programs in terms of measured results, including positive behavioral change among college students;

(3)

promote the programs identified as being the most effective; and

(4)

encourage institutions of higher education to implement financial education programs for their students, including those that have the highest evaluations.

(c)

Report

(1)

In general

Not later than 2 years after the date of enactment of this Act, the Financial Literacy and Education Commission shall submit a report to Congress on the state of financial education among students at institutions of higher education.

(2)

Content

The report required by this subsection shall include a description of progress made in enhancing financial education with respect to student understanding of financial aid, including the programs and evaluations required by this section.

(3)

Appearance before Congress

The Secretary shall, upon request, provide testimony before the Committee on Banking, Housing, and Urban Affairs of the Senate concerning the report required by this subsection.

V

Study and report on nonindividual information

501.

Study and report on nonindividual information

(a)

Study

The Comptroller General of the United States (in this section referred to as the Comptroller) conduct a study—

(1)

on the impact on and benefits to borrowers of the inclusion of nonindividual factors, including cohort default rate, accreditation, and graduation rate at institutions of higher education, used in the underwriting criteria to determine the pricing of private educational loans;

(2)

to examine whether and to what extent the inclusion of such nonindividual factors—

(A)

increases access to private educational loans for borrowers who lack credit history or results in less favorable rates for such borrowers; and

(B)

impacts the types of private educational loan products and rates available at certain institutions of higher education, including a comparison of such impact—

(i)

on private and public institutions; and

(ii)

on historically Black colleges and universities (defined for purposes of this section as a part B institution, within the meaning of section 322 of the Higher Education Act of 1965 (20 U.S.C. 1061)) and other colleges and universities; and

(3)

to assess the extent to which the use of such nonindividual factors in underwriting may have a disparate impact on the pricing of private educational loans, based on gender, race, income level, and institution of higher education.

(b)

Report

Not later than 1 year after the date of enactment of this Act, the Comptroller shall submit a report to Congress on the results of the study required by this section.

April 21, 2008

Read twice and placed on the calendar