In late May, the Economic Growth, Regulatory Relief, and Consumer Protection Act (aka Bill S.2155) was signed into law. The act covers a wide range of issues related to banking and lending regulations (which are currently being discussed in depth on Thompson Coburn’s Bank Check blog). While the act primarily affects banks and financial institutions, changes to the Truth in Lending Act (TILA) and the Fair Credit Reporting Act will impact the way that schools manage institutional loans as well. Read the text of the bill here, under TITLE VI: Protections for Student Borrowers.
What do the changes mean for your school? Here are the three important sections of the legislation you need to understand.
The details: The bill amends TILA to prospectively revise provisions relating to co-signers of private student loans. Specifically, the bill: (1) prohibits a creditor from declaring a default or accelerating the debt of a private student loan on the sole basis of the death or bankruptcy of a co-signer to such a loan, and (2) directs loan holders to release co-signers from any obligation upon the death of the student borrower.
Things to consider: It would be extremely problematic for a creditor to accelerate debt based on those factors as the primary borrower has not yet defaulted. As for part (2), a creditor would likely approach this situation as they would a bankruptcy judgment, and should work with counsel familiar with the federal bankruptcy laws to address the obligation of co-signers.
The details: The bill amends the Fair Credit Reporting Act to allow a person to request the removal of a previously reported default regarding a private education loan from a consumer report if: (1) the lender chooses to offer a loan-rehabilitation program that requires a number of consecutive on-time monthly payments demonstrating renewed ability and willingness to repay the loan, and (2) the consumer meets those requirements. A consumer may obtain such rehabilitation benefits only once per loan.
Things to consider: Higher education schools should work with their counsel to handle monthly reports to credit bureaus and assess student requests for removal from consumer reports. Counsel selected should have experience in this highly technical area of the law.
The details: The bill amends the Financial Literacy and Education Improvement Act to direct the Financial Literacy and Education Commission to establish best practices for teaching financial literacy skills at institutions of higher education.
Things to consider: This measure shouldn’t affect overall lending practices for higher ed lenders, but offers an opportunity to provide students with financial literacy programs—a helpful offering for all students, regardless of their debt levels.