Our Free Compliance Guide and Webinar Cover What You Need to Know
In the spring of 2007, New York’s Attorney General initiated a high-profile investigation into what he characterized as unethical conduct across the student loan industry. Regulators in other states quickly followed suit. Within months, a full-blown “student loan scandal” had emerged, drawing scrutiny from Congress, the U.S. Department of Education (the “Department”), multiple state Attorneys General, and the national media. The focus was squarely on the relationships between schools and lenders, and calls for reform came from every direction.
Facing sustained pressure from Congress and other stakeholders, the Department significantly expanded its regulatory oversight of school-lender relationships, issuing new rules effective July 1, 2008. Congress followed by reauthorizing the Higher Education Act of 1965 (“HEA”), as amended, effective August 14, 2008, introducing comprehensive requirements around private education loans and preferred lender arrangements, including specific mandates for the form and content of preferred lender lists. The Department subsequently released a second round of regulations, effective July 1, 2010 (the “2010 Rules”), to implement and build upon this new statutory framework and its detailed requirements for preferred lender arrangements and lists.
Around the same time, a series of developments fundamentally reshaped the private lending market. The Direct Graduate PLUS loan program launched in 2006, enabling most graduate students to cover the full cost of their education through federal loans. The Great Recession hit in 2008 on the heels of the housing market collapse. And in 2010, the Federal Family Education Loan Program (“FFEL”) was eliminated, removing private lenders from the federal student loan ecosystem altogether.
Together, these developments pushed many private lenders out of the student loan market entirely. Institutions of higher education, in turn, largely stopped maintaining preferred lender arrangements. Most shifted to providing students with a “historical lender list,” relying on guidance in the commentary accompanying the Department’s 2010 Rules. Although the regulatory framework for private education loans and preferred lender arrangements remained in effect, its day-to-day significance faded as the majority of students were able to finance their education through federal programs.
A Generation That Has Never Seen These Rules
For roughly fifteen years, from 2010 to the present, most institutions had little reason to focus on private education loans. Between the Grad PLUS program and higher Direct Loan limits, the vast majority of students — especially those in graduate and professional programs — were able to fund their education entirely with federal aid.
As a result, a whole generation of higher education lawyers and compliance professionals has come up without ever encountering these rules. Many are unaware they are on the books at all. The HEA’s preferred lender arrangement provisions, the 2010 Rules, the code of conduct requirements, the disclosure obligations — all have sat largely untouched while an entirely new wave of professionals entered the field.
That is now changing. In 2025, Congress enacted the One Big Beautiful Bill Act, which, among other things, terminates the Graduate PLUS loan program effective July 1, 2026, and imposes new annual and aggregate borrowing limits for undergraduate, graduate, and professional degree students. The practical impact is straightforward: federal student aid will shrink for many borrowers, and private loans will become a necessary part of financing higher education for a significant number of students.
The implications for institutions are both immediate and substantial. Students will soon be looking to financial aid offices for guidance on how to fill the funding gap. Schools will need to help students access private education loans — in many cases for the first time in nearly two decades. And the regulatory framework that has been effectively dormant since 2010 is suddenly front and center again.
What Institutions Need to Know
At the highest level, there are four general approaches an institution might consider for facilitating student access to private education loans: (1) maintaining a historical lender list; (2) creating a preferred lender list, but without any agreement with a lender; (3) entering into an agreement with a lender; and (4) engaging in institutional lending.
Each of these approaches carries different levels of legal and regulatory risk. A historical lender list, which simply identifies all lenders that have historically made loans to the institution’s students without any endorsement or recommendation, is the lightest-touch approach and carries the fewest compliance obligations. We note, however, that there are certain foundational disclosure requirements that an institution must satisfy if it is providing students with information relating to private education loans, even if it is only providing that information in the form of a historical lender list. See, 34 C.F.R. § 601.11.
Should an institution “curate” a list of lenders, or otherwise recommend, promote, or endorse the education loan products of a particular lender or lenders, it likely would be deemed to have a “preferred lender arrangement” and be required to comply with a range of disclosure and reporting requirements. This is true even if the institution does not have an oral or written agreement with any of the lenders on the list. The additional disclosure and reporting requirements include:
- Creating and maintaining a preferred lender list that meets specific content requirements, including detailed disclosures about each lender and the criteria used for selection;
- Developing, publishing, and enforcing a financial aid code of conduct that addresses conflicts of interest, revenue sharing, gifts, staffing arrangements, and advisory board participation relating to private education loans;
- Making website and materials disclosures as required by TILA Section 128(e)(11) (15 U.S.C. §1638(e)(11), and by applicable provisions of CFPB’s Regulation Z, ensuring that students receive the information necessary to make informed borrowing decisions;
- Submitting an annual report to the U.S. Department of Education; and
- Complying with restrictions on institutional name, logo, and brand use in lender marketing materials, designed to prevent students from being confused about the source or endorsement of a private loan product.
These requirements are detailed, prescriptive, and in many cases, not intuitive. They were developed in 2007–2010 in response to specific abuses and are designed to ensure transparency and prevent conflicts of interest between institutions and private lenders. But because they have been dormant for so long, institutional knowledge of these requirements has largely evaporated.
Institutions that go further – entering into lender partnerships or engaging in institutional lending – face additional and more complex layers of regulatory exposure. These arrangements can trigger direct obligations under the Truth in Lending Act (“TILA”) and Regulation Z, the Equal Credit Opportunity Act (“ECOA”), the Consumer Financial Protection Act’s prohibition on unfair, deceptive, or abusive acts or practices (“UDAAP”), and a web of state consumer finance and servicing statutes. The compliance burden is substantially greater, and the risks of enforcement action or litigation are real.
Getting Up to Speed
The good news is that the regulatory framework, while complex, is knowable. Institutions that begin planning now can be well positioned to serve their students while managing legal risk.
Thompson Coburn has developed a detailed compliance guide, including a preferred lender list requirements chart, designed to help institutions navigate these obligations efficiently. The guide walks through each layer of compliance, from the threshold question of whether an arrangement qualifies as a “preferred lender arrangement” to the specific content, disclosure, and reporting requirements that follow.
We also walked through these requirements during a webinar we presented on May 13, appropriately titled “Private Loans, Preferred Lenders, & Prohibited Inducements are Back!”. We encourage in-house counsel, compliance officers, and financial aid leaders to watch.
Institutions with questions regarding the reporting requirements set out above are welcome to contact Scott Goldschmidt ([email protected]) or Aaron Lacey ([email protected]).
Download Our Compliance Guide:
Preferred Lender Arrangements: Compliance Requirements and Considerations
Watch Our Webinar:
Private Loans, Preferred Lenders, & Prohibited Inducements are Back!
