Ted Kennedy: Senator Kennedy On House Passage Of Sunshine Act

May 9, 2007 -- WASHINGTON, D.C—Today, Senator Edward M. Kennedy, Chairman of the Health, Education, Labor and Pensions Committee, released the following statement in reaction to the House of Representatives passage of the Sunshine Act.

"I'm pleased that the House has taken swift action to pass the Student Loan Sunshine Act and applaud Chairman Miller and Rep. McKeon’s leadership. In the Senate, we've also secured bipartisan agreement on a package of student loan industry reforms that we expect to include in our upcoming Higher Education Act reauthorization bill. These reforms will include many of the measures included in the version of the Sunshine Act I introduced in February, including a ban on lender gifts, reform of "preferred lender lists," and disclosures to make the terms and conditions of education loans more transparent to students and families.”

Summary of Chairman Kennedy’s Sunshine Act

The Student Loan Sunshine Act Protects Students and Families by:

The Student Loan Sunshine Act protects students and parents from exploitation by private lenders and lenders who offer gifts to colleges as a way to secure loan business. It requires full disclosure of special arrangements that lenders and colleges have to offer loan products at the college; bans lenders from offering gifts over $10 to college employees; and encourages borrowers to maximize their borrowing through the government’s loan programs before taking out private loans with higher interest rates.

Ending Inappropriate Lender Practices.
o The Act prohibits lenders from offering any gift worth more than $10 to a college employee, including free or discounted trips, meals, invitations to entertainment events or other form of hospitality.
o It also prohibits lenders from offering services to financial aid offices that create a conflict of interest, such as lending staff during peak loan processing times.
o It prohibits college employees from serving on lender “advisory boards” or a lender’s board of directors, and prohibits college employees from entering consultancy arrangements with lenders.
o It prohibits lenders from entering arrangements with colleges that require the college to “brand” the lender’s loan product with the college’s emblem or logo.

Giving Students and Families More Information About Special Arrangements Between Lenders and Colleges, and the Terms and Conditions of Loans, and Preferred Lender Lists.
o The Act requires lenders to report any special arrangements they have with colleges to make loans to the Secretary of Education, including the terms of the arrangement related to marketing, recommending, endorsing student loans, and any benefit, direct or indirect, provided to or paid to any party in connection with the loan arrangement.
o The Act requires the Secretary of Education, together with members of the higher education community and students, to develop a clear, easy-to-use model format for reporting the terms and conditions of student loans, similar to the APR disclosure required for other types of loans.
o The Act requires colleges’ preferred lender lists to: include at least three non-affiliated lenders; clearly and fully disclose why the college has identified a lender as a preferred lender; and state that students do not have to borrow from the preferred lender list.

Encouraging Borrowing Through the Government’s Loan Programs, and Discouraging Overborrowing through Direct-to-Consumer Education Loans.
o The Act requires all lenders of direct-to-consumer private educational loans to clearly and prominently state that borrowers may qualify for low-interest loans through the Federal government’s loan programs. It also requires these lenders to clearly disclose how the interest rate is determined; sample loan costs disaggregated by type; information on any and all fees; information on collection in the case of default; and information on Better Business and state consumer agency or state attorney general complaints against the lender and their resolution.
o Before a DTC lender can offer an education loan of more than $1000, the Act requires the lender to notify the borrower’s college of the amount of the proposed loan, so the school can advise the borrower if the loan exceeds what’s necessary to cover the student’s cost of attendance after other aid sources are factored in.
o The Act bars lenders from offering a private loan through a college (also known as an “alternative loan”) until the college has informed students and parents of all their options for borrowing under the government’s Title IV loan programs -- including information on any terms and conditions of Title IV loans that are more favorable than the private loan.

Facts about Private Loans, Lender Gifts, and Preferred Lender Lists:

Private Loans
• Private student loans now total $17.3 billion, and have grown at an average rate of 27 percent per year since 2001. In 2001-02, private loans accounted for 12 percent of total education borrowing; in 2005-06, they accounted for 20 percent. Unlike loans offered through the federal government’s loan programs, private loans frequently carry much higher interest rates, especially for students without credit histories and families without strong credit ratings.
• Some lenders are increasingly using questionable methods to market private loans to students and their families and court the favor of colleges and universities. For example:
o The private loan company Loan to Learn invited college officials and their spouses to attend an all-expenses paid “education conference” in the West Indies.
o The private loan company Student Loan Xpress has offered 100% loan approval at colleges if the college agrees to “brand” the private loan with the college’s name and emblem – making the loan appear to be offered by the college, not the private lender.
o Other private loan companies encourage borrowers not to fill out the Free Application for Federal Student Aid (FAFSA) -- which allows borrowers to obtain loans at lower interest rates – while not prominently disclosing the fact that private loan interest rates are typically much higher.

Lender Gifts
o Lenders who participate in the government’s Federal Family Education Loan (FFEL) program also engage in questionable tactics, like offering “educational conferences” at luxury hotels, and offering college officials free entertainment and tickets to sporting events. Many lenders offer their staff to work in financial aid offices during peak loan processing times, print materials for financial aid offices – and even e-mail students on behalf of the financial aid office.

Preferred Lender Lists
• Most colleges maintain “preferred lender” lists and encourage students to borrow from the list. While some colleges use a rigorous process to ensure that these preferred lenders offer the best loan terms and conditions to students, others don’t – and many preferred lender lists don’t clearly state why the lenders have earned “preferred” status. Some preferred lender lists don’t offer a real choice of lenders at all – because all the names on the list are subsidiaries of the same big lender.

Source: Senator Ted Kennedy

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