The student lending market has attracted negative attention, and the relationship between schools' financial aid offices and lenders has prompted numerous investigations. Congress took notice and responded with H.R. 890, the Student Loan Sunshine Act ("Sunshine Act") and H.R. 1994, the Financial Aid Accountability and Transparency Act. Although both Acts were expected by many in the industry to change the face of student lending practices, the bills have not moved since 2007. In examining student lending legislation, Daniel J. Laudicina and Maya P. Hill of Hudson Cook, LLP discuss the Higher Education Act of 1965, the Sunshine Act and the Financial Aid Accountability and Transparency Act. They write:
The primary federal statute governing student lending practices is the Higher Education Act of 1965 (“HEA”) (20 U.S.C. §§ 1001 et seq.) The HEA sets forth rules regarding relationships between lenders, guarantee agencies, and schools and focuses on this idea of “illegal inducements”—arrangements between these entities that are not disclosed to students but that might have an effect on the loan products that students are exposed to through the school’s financial aid office. Illegal inducement guidance is found in the HEA itself, as well as in “Dear Colleague Letters.”
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The Sunshine Act amends the Higher Education Act of 1965 in that it:
1. Requires full disclosure of special arrangements that lenders and institutions of higher education have with respect to offering loan products at the institution;
2. Bans lenders from offering gifts worth more than $10 to college employees, including travel, lodging, entertainment, and in-kind services that lenders provide to college financial aid offices;
3. Requires full disclosure of the reasons why an institution of higher education has selected a lender for its “preferred lender” list, including any special arrangements the lender has with the school; and
4. Encourages borrowers to maximize their borrowing through the government’s loan programs before taking out alternative loans and direct-to-consumer loans with higher interest rates. (H.R, 890)
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The Financial Act Accountability and Transparency Act (“FAATA”) was introduced in the House of Representatives on April 23, 2007. The legislative intent of FAATA is to provide more transparency in the financial aid process and to ensure that students receive the best information about financial aid opportunities. FAATA amends Title I of the Higher Education Act of 1965 by imposing requirements regarding preferred lender lists, disclosures, rules about gifts, and the imposition of a code of conduct.
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