Senate Panel Approves Tighter Regulation of Private Student Loans

The U.S. Senate Committee on Banking, Housing and Urban Affairs has approved legislation that would tighten regulations on private student loans. The Private Student Loan Transparency and Improvement Act contains the following new requirements:

• Lenders would have to provide clear and concise disclosures regarding the Annual Percentage Rate, and other terms and conditions of private education loans.
• Borrowers would be entitled to a 30-day window following loan approval to shop for better terms, and a three-day “cooling-off” period after consummation of the loan.
• Lenders would be required to inform loan applicants of their eligibility for lower-cost federal loans.

The legislation also contains prohibitions against revenue-sharing and co-branding arrangements between colleges and lenders, the offering of gifts to school employees in exchange for preferential consideration of loan products, and payments — other than reimbursement for reasonable expenses — to school officials for serving on lender advisory boards.

Although the bill does not prohibit lenders from considering institutional default rates in setting private-loan interest rates and other terms, it does call for a federal study of the practice of using factors unrelated to individual borrowers as underwriting criteria for private loans.

Senate Banking Committee Chair Sen. Christopher Dodd, D-Conn., said the legislation moves a “step closer to ensuring that students understand the products they are buying to help finance their education.”