Be Careful With Student Loans
By Steve Doty
On February 14, 2010, the requirements of the Higher Education Opportunity Act took effect. These rules affect any financial institution that makes private loans for post-secondary education expenses (with a few exceptions). We've been hearing from our clients that the software vendors are getting up to speed (or will be soon) to support the required disclosures. If your institution makes loans that fall under this category it is very good news to know that you will have that support. However, make sure you know exactly what you are getting. For example, we have been told that some software providers are only supporting two of the required three disclosures. The rules require a disclosure with the application/solicitation, when the loan is approved, and when the loan is closed.
There also appears to be some confusion as to when these rules apply. Some have concluded that the rules only apply if ALL the loan proceeds will be used for post-secondary education expenses. However, in our opinion, the rules clearly apply if ANY of the loan proceeds will be used for post-secondary education expenses. The final rule provides the following:
- In the preamble it states, with emphasis added "The final rule would cover multipurpose loans largely as proposed. The Board believes that coverage of loans that may be used for multiple purposes is warranted by the statutory inclusion of loans made "expressly," that is explicitly, for postsecondary education expenses.
- The definition of "private education loan" [226.46(b)(5)] includes any extension of credit that is extended to a consumer expressly, in whole or in part, for postsecondary educational expenses. This section also provides the exemptions to these requirements (for example, federal student loans, open-end credit, dwelling secured loans, etc.)