The 225 page report on the US department of education student loan places emphasis on more aggressive policing of the $85 billion student loan industry. The new policy comes in the wake of efforts by different states to promote more ethical practices in the disbursal of student loans.
The proposed regulation will cover only federally guaranteed loans. A guaranteed student loan is a loan given to a student but which the Government guarantees. In a guaranteed student loan plan, the government is responsible for payments on the student loan. So, if a student fails to make the payments than the Government need to pay the lending agency the amount of the student loan.
The proposed regulation identifies specific practices in student loan disbursal that will be barred. This includes "offering, directly or indirectly, any points, premiums, payments or other benefits to any school or other party to secure" student loan volume in the federally guaranteed loan program. According to the new regulation, lenders who offered inducements would run the risk of losing the federal guarantee on student loan amount.
The House has already passed a version of the Student Loan Sunshine Act, and the Senate is expected to include similar restrictions on lender-college relationships in the Higher Education Act.
In the meantime, New York State has already passed legislation that governs student loan lenders. It was the first state to do so. The Loan of Conduct that now governs student loan disbursal in this state bans colleges from receiving anything valuable from a student loan company including all expenses paid trips to exotic foreign locations. Student loan officers also cannot accept anything of value for serving on a lender's advisory board.
The need to draft a code of conduct for alternative student loan became essential because of the high competition between different student loan lenders. A lot of lending agencies were offering incentives to educational institutions so that they can be on the preferred list and gain an advantage on student loan disbursal.
The new rules on student loan announced will be published in the Federal Register and is also available on the Department of Education website.
