79400 Federal Register / Vol. 85, No. 238 / Thursday, December 10, 2020 / Rules and Regulations 

1Bureau of Consumer Fin. Prot., Advisory 

Opinions Policy (Nov. 2020), https:// 

files.consumerfinance.gov/f/documents/cfpb_

advisory-opinion_policy_2020-11.pdf. 

2According to data compiled by the Federal 

Reserve Bank of New York (FRBNY), the nation’s 

education indebtedness now ranks as the second 

largest source of consumer credit at the end of June 

2020. Fed. Reserve Bank of New York Consumer 

Credit Panel/Equifax, Total Debt Balance and its 

Composition, https://www.newyorkfed.org/ 

microeconomics/data.html (last visited Oct. 30, 

2020). 

3Public Law 89–392, tit. IV, 79 stat. 1219, 1232 

(1965). 

4The Direct Loan program was created by the 

Higher Education Amendments of 1992, Public Law 

102–325, 106 Stat. 448 (1992), as a pilot program 

and expanded by the Student Loan Reform Act of 

1993, Public Law 103–66, tit. IV, subtit. A, 107 stat. 

341 (1993). It was authorized by Omnibus Budget 

Reconciliation Act of 1993, Public Law 103–66, 107 

stat. 312 (1993) and amended by the Health Care 

and Education Reconciliation Act of 2010, Public 

Law111–152, 124 stat. 1029 (2010). Under this 

program, loan capital is provided by the Federal 

government while loan origination and servicing is 

handled by postsecondary institutions and private 

sector companies under contract with the 

Department of Education, see STUDENT LOANS 

OVERVIEW: Fiscal Year 2011 Budget Request, 

https://www2.ed.gov/about/overview/budget/ 

budget11/justifications/t-loansoverview.pdf (last 

visited Oct. 30, 2020). Title IV loan programs 

include, among others, Direct Federal Loans and 

federally guaranteed loans issued by private 

education creditors under the Federal Family 

Education Loan Program (FFELPP). No new FFELPP 

loans have been issued since mid-2010. U.S. Dep’t 

of Educ., Dear Colleague Letter GEN–10–05 (Apr. 2, 

2010), https://ifap.ed.gov/sites/default/files/ 

attachments/dpcletters/GEN1005.pdf (Dear 

Colleague Letter). 

5According to the Federal Reserve Board (Board), 

outstanding student loans totaled $1.7 trillion as of 

September 30, 2020. Consumer Credit G.19 (Nov. 6, 

2020), https://www.federalreserve.gov/releases/g19/ 

current/. According to the Department of Education, 

the outstanding portfolio of title IV education loans 

totaled $1.566 trillion as of September 30, 2020, see 

https://www2.ed.gov/about/reports/annual/ 

2020report/fsa-report.pdf (Federal Student Aid 

Annual Report 2020, p. 7) (last visited Oct. 30, 

2020). 

6Private loan market share data are based an 

analysis of data provided by the Federal Reserve 

Board and the Department of Education. Fed. 

Reserve Sys., G.19 Consumer Credit Series, http:// 

www.federalreserve.gov/releases/g19/current/ 

default.htm (last visited Nov. 2, 2020); Portfolio 

Summary, supra note 5; U.S. Dep’t of Educ., 

STUDENT LOANS OVERVIEW: Fiscal Year 2010 

Budget Request, at T–14, https://www2.ed.gov/ 

about/overview/budget/budget10/justifications/tloansoverview.pdf (last visited Nov. 12, 2020) 

(STUDENT LOANS OVERVIEW 2010). The G.19 

series does not provide data prior to 2006. The 

market share data are based on the outstanding 

dollar balance of education loans as of the end of 

the Federal fiscal year (September 30). The Federal 

loan data include Subsidized Stafford, 

Unsubsidized Stafford, Parent PLUS, Graduate 

PLUS, and Consolidation loans issued under the 

Federal Family Education Loan and Direct Loan 

programs, as well as Federal Perkins Loans. The 

private loan market share includes private 

consolidation and refinancing loans, but there are 

no published data for private lenders issuing 

education loans that show the mix of in-school 

loans versus consolidation and refinancing loans. 

7The Department of Education publishes annual 

origination volume for both FFELP and Direct 

Loans. See generally Title IV Program Volume 

Reports, Loan Volume, https://studentaid.gov/datacenter/student/title-iv (last visited Oct. 30, 2020). 

See also College Bd., Trends in Student Aid— 

Resource Library, https://research.collegeboard.org/ 

trends/student-aid/resource-library (last visited Oct. 

30, 2020). 

8Cong. Research Serv., Federal Student Loans 

Made Under the Federal Family Education Loan 

Program and the William D. Ford Federal Direct 

Loan Program: Terms and Conditions for Borrowers, 

at 1 (June 22, 2015), https:// 

www.everycrsreport.com/files/20150622_R40122_

706aeb5efb5ea2ec87fbd5818f32a43987639676.pdf 

(Federal Student Loans). 

9Health Care and Education Reconciliation Act of 

2010, Public Law 111–152, tit. II, section 2201, 124 

stat. 1029, 1074 (2010); Dear Colleague Letter, supra 

note 3. 

10See Fed. Student Aid, U.S. Dep’t of Educ., 

https://studentaid.gov/sites/default/files/fsawg/ 

datacenter/library/PortfolioSummary.xls (last 

visited Oct. 30, 2020) (Portfolio Summary). 

11Cong. Research Serv., Federal Student Loans 

Made Under the Federal Family Education Loan 

Program and the William D. Ford Federal Direct 

Loan Program: Terms and Conditions for Borrowers 

(June 7, 2013), https://fas.org/sgp/crs/misc/ 

R40122.pdf. 

12Currently, the interest rate for Direct Loans is 

determined annually for all loans first disbursed 

during any 12-month period beginning on July 1 

and ending on June 30, and is equal to the high 

yield of the 10-year Treasury notes auctioned at the 

final auction held before June 1 of that 12-month 

period, plus a statutory add-on percentage that 

varies depending on the loan type and, for Direct 

Unsubsidized Loans, whether the loan was made to 

an undergraduate or graduate student. Loans first 

disbursed during different 12-month periods may 

have different interest rates, but the rate determined 

for any loan is a fixed interest rate for the life of 

the loan. For each loan type, the calculated interest 

rate may not exceed a maximum rate specified in 

the Higher Education Act of 1965. The maximum 

interest rates are 8.25 percent for Direct Subsidized 

Loans and Direct Unsubsidized Loans made to 

undergraduate students, 9.50 percent for Direct 

Unsubsidized Loans made to graduate and 

professional students, and 10.50 percent for Direct 

PLUS Loans made to parents of dependent 

undergraduate students or to graduate or 

professional students. U.S. Dep’t of Educ., Federal 

Student Aid; Interest Rates for Direct Loans First 

Disbursed Between July 1, 2020 and June 30, 2021 

BUREAU OF CONSUMER FINANCIAL 

PROTECTION 

12 CFR Part 1026 

Truth in Lending (Regulation Z); 

Private Education Loans 

AGENCY: Bureau of Consumer Financial 

Protection. 

ACTION: Advisory opinion. 

SUMMARY: The Bureau of Consumer 

Financial Protection (Bureau) is issuing 

this advisory opinion to clarify that loan 

products that refinance or consolidate a 

consumer’s pre-existing Federal, or 

Federal and private, education loans 

meet the definition of ‘‘private 

education loan’’ in the Truth in Lending 

Act and Regulation Z and are subject to 

the disclosure and consumer protection 

requirements in subpart F of Regulation 

Z. This advisory opinion is an 

interpretive rule under the 

Administrative Procedure Act. 

DATES: This Advisory Opinion is 

effective on December 10, 2020. 

FOR FURTHER INFORMATION CONTACT: 

Shelley Thompson, Counsel, Office of 

Regulations, at 202–435–7700 or https:// 

reginquiries.consumerfinance.gov/. If 

you require this document in an 

alternative electronic format, please 

contact CFPB_Accessibility@cfpb.gov. 

SUPPLEMENTARY INFORMATION: The 

Bureau is issuing this advisory opinion 

through the procedures for its Advisory 

Opinions Policy.1 Refer to those 

procedures for more information. 

I. Advisory Opinion 

A. Background 

1. Growth of the Postsecondary 

Education Loan Market 

The postsecondary education loan 

market has swelled in the past decade 

and education debt has become an 

increasingly large share of total 

household debt, from 5 percent in 2008 

to 11 percent in 2020.2 Education loans 

issued or guaranteed by the Federal 

government, through title IV of the 

Higher Education Act of 1965,3 which 

are administered by the U.S. 

Department of Education,4 currently 

comprise over 92 percent of the 

education loan market.5 Between 2006 

and 2012, the share of non-Federal 

education loans issued by private 

lenders ranged from 9 percent to 13 

percent, and since then, the share of 

total outstanding education loans held 

by private lenders has been about 8 

percent.6

Prior to 2010, education loans were 

primarily issued through the Federal 

Family Education Loan Program 

(FFELP).7 Under the FFELP, banks and 

other private creditors issued education 

loans that were subsidized and 

guaranteed by the Federal government.8

The Health Care and Education 

Reconciliation Act of 2010 prohibited 

the origination of new FFELP loans after 

June 30, 2010, at which point Direct 

Loans issued under the William D. Ford 

Direct Loan Program became the 

predominant type of Federal education 

loan.9 Direct Loans are issued and 

owned by the U.S. Department of 

Education.10 FFELP loans, Direct Loans, 

and other title IV loans are administered 

by the Department of Education and 

include borrower protections such as 

postponement options, income-driven 

repayment options, in-school deferrals, 

no prepayment penalties, and loan 

forgiveness.11

Most FFELP and Direct loans have 

fixed interest rates that are determined 

by Federal statute.12 Between 2006 and 


jbell on DSKJLSW7X2PROD with RULES
Federal Register / Vol. 85, No. 238 / Thursday, December 10, 2020 / Rules and Regulations 79401 

(May 15, 2020), https://ifap.ed.gov/electronicannouncements/051520InterRatesforDLFirstDisb

Betw070120and063021 (last visited Oct. 30, 2020). 

Most Stafford and PLUS loans issued prior to July 

2006 carry variable rates, Annual Notice of Interest 

Rates for Variable-Rate Federal Student Loans 

Made Under the William D. Ford Federal Direct 

Loan Program (Jan. 15, 2020), https:// 

www.federalregister.gov/documents/2020/01/15/ 

2020-00572/annual-notice-of-interest-rates-forvariable-rate-federal-student-loans-made-under-thewilliam-d. Interest rate formulas for FFELP loans 

can be found here: https://ifap.ed.gov/ffel-variableinterest-rates/061220FFELVarIntRate

PeriodJuly1June30. 

13 Direct PLUS Loans are Federal loans that 

graduate or professional students and parents of 

dependent undergraduate students use to help pay 

for education expenses. See https://studentaid.gov/ 

help-center/answers/topic/glossary/article/directplus-loan (last visited Nov. 12, 2020). 

14U.S. Dep’t of Educ., Federal Student Aid; 

Understand how interest is calculated and what 

fees are associated with your Federal student loan, 

https://studentaid.gov/understand-aid/types/loans/ 

interest-rates (last visited Oct. 30, 2020). 

15 ‘‘[R]ates for PSL borrowers vary widely with 

their credit scores. In terms of recent (December 31, 

2011) offerings, the Sample Lenders reported lowend variable rates of 2.98% to 3.55%.’’ Bureau of 

Consumer Fin. Prot., Private Student Loans, at 12 

(Aug. 29, 2012), https://files.consumerfinance.gov/ 

f/201207_cfpb_Reports_Private-Student-Loans.pdf. 

16 ‘‘A favorable interest rate environment and 

highly competitive marketing resulted in a dramatic 

surge in FFEL Consolidation Loan volume from FY 

2001 to FY 2006 where volume grew from $9.4 

billion to a record high $72 billion. Direct Loan 

Consolidation Loan volume also increased 

significantly during this period, growing from $7.8 

billion in FY 2001 to over $19 billion in FY 2006. 

While the Direct Loan increase was not as large as 

FFEL, borrowers in both programs sought to lock in 

lower interest rates through consolidation, prior to 

the annual variable in-repayment interest rate 

jumping from 5.3 percent to 7.14 percent as of July 

1, 2006. However, FFEL Consolidation Loan volume 

decreased substantially in FY 2007 and FY 2008 

reflecting a saturated marketplace, an end to ‘twostep consolidation,’ and the statutory change to 

fixed borrower interest rates. Consolidation volume 

in Direct Loans also decreased substantially in FY 

2007, but has been increasing since then. . . .’’ 

STUDENT LOANS OVERVIEW 2010, supra note 6, 

at T–14. 

17Specifically, the interest rate is the weighted 

average of interest rates on the loans consolidated, 

rounded to the nearest higher one-eighth of 1 

percent (and capped at 8.25 percent for the 2001– 

2006 time period discussed), Federal Student 

Loans, supra note 8. 

18STUDENT LOANS OVERVIEW 2010, supra 

note 6, at T–14. See also Federal Student Loans, 

supra note 7. See also http:// 

www.nelnetinvestors.com/news/press-releasedetails/2004/Families-Benefit-From-Record-LowStudent-Loan-Interest-Rates/default.aspx. 

19Repayment plans, deferment and forbearance 

options, and loan discharge benefits are detailed in 

the promissory notes for Direct Loans. These can be 

found at: https://ifap.ed.gov/sites/default/files/ 

attachments/2020-04/SubUnsubMPN.pdf, https:// 

ifap.ed.gov/sites/default/files/attachments/2020-04/ 

PLUSMPN.pdf, and https://studentaid.gov/appstatic/images/ApplicationAndPromissoryNote.pdf 

(all last visited Nov. 18, 2020). 

20Natalie Cox, Pricing, Selection, and Welfare in 

the Student Loan Market: Evidence from Borrower 

Repayment Decisions, at 3 n.5 (Jan. 12, 2017). See 

also Sallie Mae SLM CORPORATION ANNUAL 

REPORT 2005, at 5 (2005), https:// 

www.salliemae.com/assets/investors/shareholder/ 

annual-reports/ 

SallieMaeFY2005AnnualReport1.pdf; The 2007 

UNITED STATES SECURITIES AND EXCHANGE 

COMMISSION Form-10K, at 5, 13, https:// 

www.salliemae.com/assets/investors/shareholder/ 

annual-reports/200610K.pdf (last visited Nov. 2, 

2020); see The 2007 UNITED STATES SECURITIES 

AND EXCHANGE COMMISSION Form-10K, at 28, 

https://www.salliemae.com/assets/investors/ 

shareholder/annual-reports/BOW76911BOW024_

BITS_N_1548.pdf (last visited Nov. 2, 2020). Bureau 

of Consumer Fin. Prot., Private Student Loans at 

12–13 (Aug. 29, 2013), https:// 

files.consumerfinance.gov/f/201207_cfpb_Reports_

Private-Student-Loans.pdf. 

21Forbes, Tips On Consolidating Student Loans 

(Apr. 15, 2009), https://www.forbes.com/2009/04/ 

15/student-loans-moneybuilder-personal-financeconsolidate.html?sh=ddb7c2714e50. 

22Legislation enacted in 2002 authorized the 

transition of Federal student loan interest rates from 

formula-based, variable rates to fixed rates, 

beginning in July 2006 and set a fixed rate of 6.8 

percent for Stafford loans and 7.9 percent for PLUS 

loans. The Student Loan Interest Rates Act of 2002, 

Public Law 107–139, 116 stat. 9 (2002). 2005 

legislation increased the PLUS loan rate to 8.5 

percent for PLUS loans issued under the Federal 

Family Education Loan Program. The Deficit 

Reduction Act of 2005, Public Law 109–171, 120 

stat. 159 (2006). In 2007, Congress gradually 

lowered the fixed rates for subsidized Stafford loans 

issued to undergraduate students, starting with 6 

percent for the 2007–2008 financial aid award year, 

and dropping to 3.4 percent for the 2011–12 award 

year. The rate for subsidized loans for graduate 

students and all unsubsidized Stafford loans (for 

undergraduate and graduate students) remained at 

6.8 percent. The College Cost Reduction and Access 

Act of 2007, Public Law 110–84, 121 stat. 784, 790– 

791 (2007). 

23 Direct Loan consolidations still remain popular 

for the benefits they provide such as access to 

income-driven repayment and loan forgiveness 

programs. (FFELP consolidation origination 

authority ceased as of July 1, 2010.) The Department 

of Education provides a guide to loan terms, 

including repayment plans, deferment and 

forbearance options, loan discharge and forgiveness 

programs, see Fed. Student Aid, U.S. Dep’t of Educ., 

Understanding Student Loan Repayment, https:// 

studentaid.gov/h/manage-loans (last visited Nov. 

12, 2020); U.S. Dep’t of Educ., Important 

Information for Student Borrowers on U.S. Treasury 

Changes to Federal Student Loan Interest Rates, 

https://www2.ed.gov/students/college/repay/2006- 

changes.html (last modified June 6, 2006). 

24U.S. Dep’t of Treasury, Opportunities and 

Challenges in Online Marketplace Lending, at 9–10, 

14–19 (May 10, 2016), https://home.treasury.gov/ 

system/files/231/Opportunities_and_Challenges_in_

Online_Marketplace_Lending_white_paper.pdf. 

2013, these statutes set fixed interest 

rates for most loans issued to 

undergraduate students at 6.8 percent; 

Federal PLUS loan 13 rates were set at 

8.5 percent for FFELP loans and 7.9 

percent for Direct Loans at 7.9 percent.14

In contrast, by late 2011, private 

education creditors were offering 

interest rates of 2.98 percent to 3.55 

percent for borrowers with prime or 

super prime credit scores.15 This 

interest rate differential created 

incentives for prime and super prime 

borrowers with high fixed-rate Federal 

education loans to consolidate or 

refinance their loans into a lower rate 

education loan product. 

2. Consolidation of Education Loans 

The market for consolidation or 

refinance of Federal education loans by 

private lenders largely did not exist 

prior to 2006, because there was little to 

no demand for such a private product. 

Between 2001 and 2006, nearly all 

consolidations of Federal education 

loans were through the Federal 

government’s loan consolidation 

program.16 The interest rate on Federal 

consolidation loans is generally the 

weighted average of interest rates on the 

loans consolidated.17 Because most 

Federal loans issued prior to July 1, 

2006 charged variable rates, Federal 

consolidation loans allowed borrowers 

to take advantage of a downturn in 

interest rates to lock in fixed interest 

rates as low as 2.875 percent.18 Federal 

consolidation loans also generally offer 

the same deferment, forbearance, and 

discharge benefits available on the 

underlying Federal loans and a wide 

range of repayment options, including 

income-driven repayment.19 The few 

private creditors who offered education 

consolidation and refinance loans 

during this period typically offered 

variable-rate loans and did not offer the 

wide range of Federal loan repayment, 

deferment, forbearance, and discharge 

options.20 In addition, education 

consolidation and refinance loans 

offered by private creditors typically did 

not allow borrowers to consolidate or 

refinance any Federal loans.21 However, 

in 2006, legislative changes took effect 

which changed interest rates for Federal 

loans from variable rates to fixed rates, 

initially ranging from 6.8 percent to 8.5 

percent, depending on the type of loan 

and whether the loan was issued under 

the Direct or FFELP program.22 Thus, 

for loans originated after June 2006, a 

borrower no longer had the ability to 

take advantage of a drop in market 

interest rates to lock in a low interest 

rate through a Federal loan 

consolidation.23

This change from variable to fixed 

rates on Federal loans led to an opening 

in the market for private lenders to offer 

a product that would allow borrowers 

with high fixed interest rate Federal 

loans to consolidate or refinance those 

loans and obtain a lower interest rate. In 

2012, a few private creditors began 

offering private loan consolidation and 

refinance products that allowed 

borrowers who had graduated and were 

in repayment to consolidate or refinance 

their Federal education loans to reduce 

their interest rate.24 These products are 

marketed to consumers with both high 

interest rate Federal education loans 

(which were generally issued or 

extended beginning in 2006) and prime 


jbell on DSKJLSW7X2PROD with RULES
79402 Federal Register / Vol. 85, No. 238 / Thursday, December 10, 2020 / Rules and Regulations 

25There are variations in prime and super prime 

ranges. The Bureau’s Consumer Credit Card Market 

Report identified prime range as 660–719 and super 

prime at 720 and above. Bureau of Consumer Fin. 

Prot., The Consumer Credit Card Market (Aug. 

2019), https://files.consumerfinance.gov/f/ 

documents/cfpb_consumer-credit-card-marketreport_2019.pdf. Consumer credit data published 

on the Bureau’s website identified prime range as 

620 to 719 and super prime at 720 and above. 

Bureau of Consumer Fin. Prot., Borrower Risk 

Profiles, https://www.consumerfinance.gov/dataresearch/consumer-credit-trends/student-loans/ 

borrower-risk-profiles/#:∼:text=Subprime%20

(credit%20scores%20of%20580,scores%20

of%20720%20or%20above) (last visited Nov. 12, 

2020). 

26This is also true for borrowers with high 

interest rate private loans. U.S. Dep’t of Treasury, 

Opportunities and Challenges in Online 

Marketplace Lending, at 9, 14–19 (May 10, 2016), 

https://home.treasury.gov/system/files/231/ 

Opportunities_and_Challenges_in_Online_

Marketplace_Lending_white_paper.pdf. 

27 DBRS, Commentary, DBRS Student Loan ABS 

Quarterly Update, at 7 (July 2017), https://lendingtimes.com/wp-content/uploads/2017/07/DBRSStudent-Loan-ABS-Update-Commentary-8.pdf. 

28Navient 2020 2nd Quarter Investor Deck, slide 

7 (Aug. 6, 2020), https://navient.com/assets/about/ 

investors/webcasts/2020-Q2-Investor-SlidesFinal.pdf. 

29The preliminary estimate for in-school student 

loan originations for the 2019–20 academic year is 

$14.4 billion. The total for the 2018–19 academic 

year was $13.3 billion. College Bd., Trends in 

College Pricing and Student Aid 2020 (Oct. 2020), 

https://research.collegeboard.org/pdf/trendscollege-pricing-student-aid-2020.pdf. Navient 2020 

2nd Quarter Investor Deck (Aug. 6, 2020), https:// 

navient.com/assets/about/investors/webcasts/2020- 

Q2-Investor-Slides-Final.pdf. 

30See 12 CFR 1026.46, 1026.48(a) through (f). 

31 15 U.S.C. 1603(3). 

32For example, the required prominence of the 

annual percentage rate disclosure differs between 

private education loans and installment loans. 

Regulation Z requires that installment loan 

disclosures display the terms ‘‘finance charge’’ and 

‘‘annual percentage rate’’ more conspicuously than 

any other disclosure, except the creditor’s identity. 

By contrast, in the private education loan 

disclosures under Regulation Z, the term ‘‘annual 

percentage rate’’ and the corresponding percentage 

rate must be less conspicuous than the term 

‘‘finance charge,’’ the interest rate, and the notice 

of the right to cancel. 12 CFR 1026.17(a)(2). 

33Public Law 110–315, 122 Stat. 3078 (2008). 

34 15 U.S.C. 1650(b) and 12 CFR 1026.46. 

35 15 U.S.C. 1650(d) and 12 CFR 1026.48(a). 

36A creditor must give a borrower 30 days after 

a private education loan application is approved to 

decide whether to accept the loan. During that time, 

the creditor may not change the rates or terms of 

the offer, except in limited circumstances. See 15 

U.S.C. 1650(d) and 12 CFR 1026.48(c). 

37This is a non-exhaustive list of requirements 

and protections for private education loans under 

Regulation Z. See 12 CFR 1026.48. In addition, 

TILA contains some limitations concerning its 

applicability to private education loans. See, e.g., 15 

U.S.C. 1650(b) and (d). 38Section 1100E(a)(1): Section 104(3) of the Truth 

in Lending Act (15 U.S.C. 1603(3)) is amended by 

striking ‘‘$25,000’’ and inserting ‘‘$50,000.’’ 39HOEPA section 1022, 122 stat. 3488 (titled 

‘‘Application of Truth in Lending Act to All Private 

Education Loans’’). 

40 15 U.S.C. 1650(a)(8)(A)(ii). Regulation Z, at 12 

CFR 1026.46(b)(5) adopts similar language but 

replaces ‘‘borrower’’ with ‘‘consumer’’ and provides 

that the express purpose of the loan may be ‘‘in 

whole or in part’’ for postsecondary educational 

expenses. For ease of reading, the remainder of this 

advisory opinion will use the statutory phrasing, 

unless explicitly referencing Regulation Z, in which 

case the quotation, ‘‘expressly [ ] for postsecondary 

educational expenses’’ will be used. TILA and 

Regulation Z include other requirements not 

relevant here, such as that the loan does not include 

an open-ended extension of credit or a loan secured 

by real property. 

41 12 CFR part 1026, supp. I, comment 46(b)(5)(1). 

or super prime 25 credit scores.26 The 

market for private consolidation and 

refinancing of Federal education loans 

has continued to expand in recent 

years.27 In 2019, annual originations of 

private consolidation and refinance 

education loan products reached an 

estimated $16 billion,28 which was 

larger than that year’s originations for 

private education loans by currently 

enrolled students.29

As the market for private 

consolidations and refinancings of 

Federal student loans has grown, some 

industry participants have expressed 

uncertainty about the application of 

Regulation Z, which implements the 

Truth in Lending Act (TILA), to these 

loan products. Questions have arisen 

regarding whether consolidation and 

refinance products that satisfy and 

replace a consumer’s existing Federal 

loans (or existing Federal and private 

loans) are considered ‘‘private education 

loans’’ such that the disclosures and 

other protections under subpart F of 

Regulation Z 30 are required. 

Specifically, creditors need to know 

whether they are required to provide 

disclosures under TILA and Regulation 

Z, and if so, which disclosures they are 

required to provide. If the loan is not 

considered a private education loan and 

is over $50,000, then the loan is not 

covered under TILA and Regulation Z, 

and a creditor is not required to provide 

any disclosures to the consumer.31 For 

loans under $50,000, whether a loan is 

a ‘‘private education loan’’ determines 

whether creditors must comply with 

either the private education loan 

disclosure requirements or installment 

loan disclosure requirements, because it 

is impossible to comply with both sets 

of requirements simultaneously.32

B. Coverage 

This advisory opinion generally 

covers private loan consolidation 

products that satisfy and replace 

multiple Federal, or Federal and private, 

loans, as well as private loan refinance 

products that satisfy and replace a 

single Federal or private loan. This 

advisory opinion does not cover loans 

that are made, insured, or guaranteed by 

the Federal government under title IV of 

the Higher Education Act of 1965. For 

purposes of this advisory opinion, the 

terms ‘‘private creditor’’ or ‘‘private 

education creditor’’ broadly refer to 

creditors (other than the U.S. 

Department of Education) who offer 

refinance or consolidation products for 

education loans, regardless of whether 

the creditors themselves are private 

persons or institutions and whether they 

offer products other than education 

loans. 

C. Legal Analysis 

The Higher Education Opportunity 

Act of 2008 (HEOA) amended TILA by 

adding new requirements that apply to 

creditors making ‘‘private education 

loans.’’ 33 For example, HEOA’s 

amendments to TILA require creditors 

making ‘‘private education loans’’ to 

provide special disclosures; 34 prohibits 

creditors from co-branding with 

schools; 35 requires creditors to provide 

a 30-day rumination period; 36 and 

mandates that borrowers have a right to 

cancel within three days of fund 

disbursement.37

HEOA amended TILA such that 

private education loans over a certain 

threshold—$25,000 at the time of HEOA 

was passed, and $50,000 after the 

passage of the Dodd-Frank Act 38—were 

no longer excluded from coverage.39 In 

relevant part, HOEA defined a ‘‘private 

education loan’’ under TILA as a loan 

that is (1) not ‘‘made, insured, or 

guaranteed under title IV of the Higher 

Education Act of 1965,’’ and (2) ‘‘issued 

expressly for postsecondary educational 

expenses to a borrower, regardless of 

whether the loan is provided through 

the educational institution that the 

subject student attends or directly to the 

borrower from the private educational 

lender.’’ 40 On August 14, 2009, the 

Board issued final amendments to 

TILA’s implementing regulation, 

Regulation Z. The Board also issued 

commentary to those amendments, 

including subpart F, which interpreted 

the term ‘‘private education loan’’ to 

include ‘‘loans extended to consolidate 

a consumer’s pre-existing private 

education loans.’’ 41

Questions have arisen regarding 

whether the refinance and consolidation 

loans covered by this advisory opinion 

are ‘‘private education loans’’ under the 

two conditions set forth in HEOA. The 

first condition is met because these 

loans are originated by private 

education creditors and are not 

originated or insured by the Federal 

government or otherwise under title IV 

of the Higher Education Act of 1965. 

Thus, this advisory opinion focuses on 

whether such loans meet the second 

condition—that is, are they issued or 

extended by creditors ‘‘expressly for 

postsecondary educational 


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Federal Register / Vol. 85, No. 238 / Thursday, December 10, 2020 / Rules and Regulations 79403 

42TILA defines ‘‘postsecondary educational 

expenses’’ as ‘‘any of the expenses that are included 

as part of the cost of attendance of a student, as set 

forth in the Higher Education Act of 1965.’’ That 

Act, in turn, defines those expenses by providing 

a lengthy and detailed list of expenses, including 

a broad range of items such as tuition and fees, 

books and supplies, room and board, and some 

dependent care expenses, among others. 20 U.S.C. 

1087ll. 

43 12 CFR part 1026, supp. I ¶ 46(b)(5)–1 

(emphasis added). 

44The Bureau believes that the word ‘‘for’’ 

incorporates a broad understanding of the purpose 

of the loan. See generally Merriam-Webster 

Dictionary (defining ‘‘for’’ as indicating ‘‘purpose,’’ 

‘‘an intended goal,’’ or ‘‘the object or recipient of 

a perception, desire, or activity’’). Congress and the 

Board could have, but did not, use narrower 

language that would focus more precisely on the 

initial transaction between the borrower and the 

educational institution regarding those expenses. 

Congress and the Board also could have, but did 

not, include refinancings and consolidations among 

the exclusions to ‘‘private education loans’’ that are 

enumerated in 15 U.S.C. 1650(a)(7)(B) and 12 CFR 

1026.46(b)(5)(iii)–(iv). 

45See, e.g., 15 U.S.C. 1650(a)(9). 

46See Norman J. Singer & Shambie Singer, 

Sutherland Statutes and Statutory Construction 

§ 46:6 (7th ed. 2020) (stating that the omission of 

the same term or phrase from a similar section 

demonstrates a different legislative intent). This 

word could be read to mean that subpart F applies 

to loans taken out by parents or other non-students, 

at the time period when the borrower is in school. 

47 15 U.S.C. 1601(A). 

48See, e.g., 20 U.S.C. 1087e; 34 CFR 685.202; Fed. 

Student Aid, U.S. Dep’t of Educ., Sample Master 

Promissory Notes, https://ifap.ed.gov/sites/default/ 

files/attachments/2019-07/DLMPNsandComms.pdf 

(last visited Nov. 18, 2020); Fed. Student Aid, U.S. 

Dep’t of Educ., Understand how interest is 

calculated and what fees are associated with your 

federal student loan, https://studentaid.gov/ 

understand-aid/types/loans/interest-rates (last 

visited Nov. 18, 2020); Fed. Student Aid, U.S. Dep’t 

of Educ., Federal Student Aid: Choose the federal 

student loan repayment plan that’s best for you, 

https://studentaid.gov/manage-loans/repayment/ 

plans (last visited Nov. 18, 2020). 

49 15 U.S.C. 1603(3). As noted above, the DoddFrank Act raised the TILA exemption threshold to 

$50,000. 

50Because the definition of ‘‘private education 

loan’’ requires that the loan is not made, insured, 

or guaranteed under title IV, the Bureau does not 

believe the general exclusion for title IV loans in 

TILA and Regulation Z is relevant to the analysis. 

See 15 U.S.C. 1603(7), 12 CFR 1026.3(b)(1)(i)(B). 

51TILA mandated that the Board prescribe 

regulations to carry out the purposes of the statute. 

15 U.S.C. 1604(a); 12 CFR part 1026, supp. I, 

comment 46(b)(5)(1). The Bureau itself adopted 

these regulations and the accompanying 

commentary without substantive change in an 

interim final rule, later finalized in 2017. See 81 FR 

25323 (Apr. 28, 2016). Additionally, when the 

Bureau reissued the rule and commentary via an 

interim final rule in 2011, it merely reflected the 

transfer of authority to the Bureau; the Bureau did 

not make any substantive changes either at that 

time or when the Bureau finalized its interim final 

rule in 2017. See generally 76 FR 79768, 79769 

(Dec. 22, 2011) and 81 FR 252323, 25324 (Apr. 28, 

2016). 

52See generally 74 FR 41194, 41201–09 (Aug. 14, 

2009). 

53 12 CFR part 1026, supp. I ¶ 46(b)(5)–1 

(emphasis added). 

expenses’’ ? 42 TILA is silent on the 

question, and the courts have not 

considered it. The commentary to 

Regulation Z states that the phrase 

‘‘extended expressly [ ] for 

postsecondary educational expenses’’ 

includes ‘‘loans extended to consolidate 

a consumer’s pre-existing private 

education loans,’’ 43 but it does not 

address loans that consolidate existing 

Federal education loans, nor does it 

refer to loans that refinance a single 

existing loan, whether private or 

Federal. 

With respect to consolidation loans, 

the Bureau believes that TILA and 

Regulation Z are ambiguous as to 

whether a loan that consolidates 

existing Federal education loans is 

issued or extended ‘‘expressly for 

postsecondary educational expenses to a 

borrower.’’ In other words, it is 

ambiguous whether the educational 

purpose of the underlying loans is 

transferred to the consolidation loan, or 

if instead the express purpose of the 

consolidation loan is to manage existing 

debt, benefit from more favorable 

interest rates, or some other purpose. 

The commentary to Regulation Z 

resolves this ambiguity only for loans 

consolidating existing private education 

loans. 

The Bureau believes that the best 

reading of TILA and Regulation Z is that 

a loan that consolidates Federal loans or 

a loan that refinances a Federal loan 

incurred expressly for postsecondary 

educational expenses is, itself, 

‘‘expressly for postsecondary 

educational expenses.’’ Borrowers apply 

for these loans explicitly to consolidate 

loans that were originated expressly for 

postsecondary educational expenses, 

and a creditor issues them pursuant to 

an explicit understanding that they will 

be used to satisfy debt incurred 

expressly for postsecondary educational 

expenses. Thus, these loans, from the 

perspective of both the borrower and the 

creditor, are ‘‘expressly for’’ 

postsecondary education expenses.44

Additionally, Congress included the 

term ‘‘borrower’’ (and the Board 

included the term ‘‘consumer’’) in its 

definition of ‘‘private education loan,’’ 

instead of referring solely to a 

‘‘student,’’ as in other sections of 

TILA.45 This choice suggests that the 

statute can best be implemented by 

construing ‘‘private education loan’’ to 

include loans originated to consumers 

other than those currently in school, 

such as former students.46

This reading also best implements one 

of the general purposes of TILA, which 

Congress amended in HEOA, ‘‘to assure 

a meaningful disclosure of credit terms 

so that the consumer will be able to 

compare more readily the various credit 

terms available to him and avoid the 

uninformed use of credit.’’ 47 Prior to 

HEOA, borrowers seeking credit relating 

to postsecondary educational expenses 

would receive comprehensive 

disclosures if they were seeking Federal 

loans originated pursuant to title IV of 

the Higher Education Act of 1965,48 but 

they would not receive even ordinary 

TILA disclosures for education loans 

over $25,000.49 As a result, pre-HEOA 

borrowers were less able to compare 

their options. But with the TILA 

amendments in HEOA, Congress made 

more robust comparisons possible for all 

‘‘private education loans,’’ regardless of 

their size. 

Additionally, this reading is most 

consistent with the statement in the 

Regulation Z commentary that ‘‘loans 

extended to consolidate a consumer’s 

pre-existing private education loans’’ 

are themselves private education loans 

originated ‘‘expressly [ ] for 

postsecondary educational purposes.’’ 

Nothing in the text of TILA or 

Regulation Z supports concluding that 

private education loans retain their 

purpose as ‘‘expressly for postsecondary 

educational expenses’’ when they are 

consolidated but that Federal education 

loans originated for the same expenses 

do not.50

The Bureau also does not believe that 

the Comment’s specific mention of ‘‘preexisting private education loans’’ 

precludes the interpretation that 

consolidated pre-existing Federal loans 

are covered. The Board issued the 

commentary to Regulation Z, which 

interpreted the term ‘‘private education 

loan,’’ in 2009.51 As discussed in the 

Background section, while there was a 

small market for consolidating private 

education loans in 2009, the private 

market for consolidation of Federal 

loans did not emerge until 2012. The 

Board did not receive any comments on 

its proposed rule that indicated the 

existence of such a market and no 

commenters sought clarity on the 

application of the proposed rule to 

Federal education loan 

consolidations.52 Additionally, the 

relevant Comment to Regulation Z 

indicates that it is intended to be 

illustrative rather than exhaustive 

because it states that ‘‘[t]he term 

includes’’ loans consolidating private 

loans as well as loans extended for 

expenses incurred while the student is 

enrolled.53

The above analysis addressing the 

consolidation of multiple Federal 

education loans also applies to loans 

that refinance a single pre-existing loan 

that was originated expressly for 


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79404 Federal Register / Vol. 85, No. 238 / Thursday, December 10, 2020 / Rules and Regulations 

54See also 12 CFR part 1026, Supp. I, 

introduction comment 3(a) (‘‘Rules of construction. 

Lists that appear in the commentary may be 

exhaustive or illustrative; the appropriate 

construction should be clear from the context. In 

most cases, illustrative lists are introduced by 

phrases such as ‘including, but not limited to,’ 

‘among other things,’ ‘for example,’ or ‘such as.’ ’’). 

55 12 CFR part 1026, supp. I ¶ 46(b)(5)–1. 

56Public Law 111–203, 124 Stat. 1376 (2010). 

57 12 U.S.C. 5512(b)(1). 

58 15 U.S.C. 1640(f). 

59 5 U.S.C. 553(b). 

60 5 U.S.C. 603(a), 604(a). 

61 44 U.S.C. 3501 et seq. 

62 5 U.S.C. 801 et seq. 

1Bureau of Consumer Fin. Prot., Advisory 

Opinions Policy (Nov. 2020), https:// 

files.consumerfinance.gov/f/documents/cfpb_

advisory-opinion_policy_2020-11.pdf. 

2Bureau of Labor Statistics, Length of Pay Periods 

in the Current Employment Statistics Survey (last 

modified Aug. 29, 2019), https://www.bls.gov/ces/ 

publications/length-pay-period.htm. 

3Rob Levy & Joshua Sledge, Ctr. for Fin. Serv. 

Innovation, A Complex Portrait: An Examination of 

Small-Dollar Credit Consumers, at 6 (2012), https:// 

s3.amazonaws.com/cfsi-innovation-files/wpcontent/uploads/2017/01/31163518/A-ComplexPortrait-An-Examination-of-Small-Dollar-CreditConsumers.pdf. (Center for Financial Services 

Innovation became the Financial Health Network in 

2019, check the Fin. Health Network’s about page, 

https://finhealthnetwork.org/about/ (last visited 

Nov. 16, 2020).) 

postsecondary education expenses, 

regardless of whether the pre-existing 

loan was a private or Federal loan. 

While the commentary refers only to 

consolidation of multiple pre-existing 

loans, the commentary is not intended 

to be exhaustive,54 and the Bureau does 

not believe there is any principled 

reason to conclude that the 

postsecondary education purpose of 

multiple loans may transfer to a new 

loan, while the postsecondary purpose 

of a single loan transferred to a new loan 

may not.55

Accordingly, the Bureau interprets the 

commentary’s reference to loans that 

‘‘consolidate a consumer’s pre-existing 

private education loans’’ as simply 

referencing the type of consolidation 

loan that existed at the time the 

commentary was issued by the Board. 

Thus, for the reasons discussed in this 

advisory opinion, the Bureau interprets 

the phrase ‘‘expressly for postsecondary 

educational expenses’’ to include loans 

that either consolidate Federal 

education loans that were themselves 

originated expressly for postsecondary 

education expenses or to refinance a 

single private or Federal education loan 

that was originated for such purpose. 

As a result, these consolidation or 

refinance loans are covered under the 

term ‘‘private education loan’’ in TILA 

and Regulation Z and are therefore 

subject to TILA and Regulation Z’s 

requirements in subpart F (including 

Regulation Z’s disclosures, prohibition 

on co-branding, 30-day rumination 

period, and a right to cancel). 

II. Regulatory Matters 

This advisory opinion is an 

interpretive rule issued under the 

Bureau’s authority to interpret TILA and 

Regulation Z, including under section 

1022(b)(1) of the Dodd-Frank Act Wall 

Street Reform and Consumer Protection 

Act,56 which authorizes guidance as 

may be necessary or appropriate to 

enable the Bureau to administer and 

carry out the purposes and objectives of 

Federal consumer financial laws.57

By operation of TILA section 130(f), 

no provision of TILA sections 130, 

108(b), 108(c), 108(e), or 112 imposing 

any liability applies to any act done or 

omitted in good faith in conformity with 

this interpretive rule, notwithstanding 

that after such act or omission has 

occurred, the interpretive rule is 

amended, rescinded, or determined by 

judicial or other authority to be invalid 

for any reason.58

As an interpretive rule, this advisory 

opinion is exempt from the notice-andcomment rulemaking requirements of 

the Administrative Procedure Act.59

Because no notice of proposed 

rulemaking is required, the Regulatory 

Flexibility Act does not require an 

initial or final regulatory flexibility 

analysis.60 The Bureau has also 

determined that this advisory opinion 

does not impose any new or revise any 

existing recordkeeping, reporting, or 

disclosure requirements on covered 

entities or members of the public that 

would be collections of information 

requiring approval by the Office of 

Management and Budget under the 

Paperwork Reduction Act.61

Pursuant to the Congressional Review 

Act,62 the Bureau will submit a report 

containing this interpretive rule and 

other required information to the United 

States Senate, the United States House 

of Representatives, and the Comptroller 

General of the United States prior to the 

rule’s published effective date. The 

Office of Information and Regulatory 

Affairs has designated this interpretive 

rule as not a ‘‘major rule’’ as defined by 

5 U.S.C. 804(2). 

III. Signing Authority 

The Director of the Bureau, Kathleen 

L. Kraninger, having reviewed and 

approved this document, is delegating 

the authority to electronically sign this 

document to Grace Feola, a Bureau 

Federal Register Liaison, for purposes of 

publication in the Federal Register. 

Dated: November 30, 2020. 

Grace Feola, 

Federal Register Liaison, Bureau of Consumer 

Financial Protection. 

[FR Doc. 2020–26662 Filed 12–9–20; 8:45 am] 

BILLING CODE 4810–AM–P 

BUREAU OF CONSUMER FINANCIAL 

PROTECTION 

12 CFR Part 1026 

Truth in Lending (Regulation Z); 

Earned Wage Access Programs 

AGENCY: Bureau of Consumer Financial 

Protection. 

ACTION: Advisory opinion. 

SUMMARY: The Bureau of Consumer 

Financial Protection (Bureau) is issuing 

this advisory opinion to resolve 

regulatory uncertainty regarding the 

applicability of the definition of credit 

under Regulation Z, which implements 

the Truth in Lending Act (TILA), to 

certain earned wage access (EWA) 

programs that conform to the summary 

of material facts provided in part I.B of 

this advisory opinion. 

DATES: This advisory opinion is 

effective on December 10, 2020. 

FOR FURTHER INFORMATION CONTACT: 

Edward Blatnik, Acting Assistant 

Director; Will Wade-Gery, Senior 

Advisor; or Nathalie Prescott, Attorney; 

Office of Innovation, at 

officeofinnovation@cfpb.gov or 202– 

435–7000. If you require this document 

in an alternative electronic format, 

please contact CFPB_Accessibility@

cfpb.gov. 

SUPPLEMENTARY INFORMATION: The 

Bureau is issuing this advisory opinion 

through the procedures for its Advisory 

Opinions Policy.1 Refer to those 

procedures for more information. 

I. Advisory Opinion 

A. Background 

According to the Bureau of Labor 

Statistics, nearly two-thirds of U.S. 

private businesses use biweekly, 

semimonthly, or monthly pay periods.2

The Bureau understands that the 

interval of time between hours worked 

and receiving a paycheck can contribute 

to employees’ financial distress, 

particularly for new hires when the 

length of time between the first day of 

employment and the first paycheck may 

be longer than subsequent paycheck 

intervals, depending on where the hire 

date falls in a pay cycle. A study by the 

Financial Health Network found that 38 

percent of respondents cited timing 

mismatches between income and 

expenses as a reason for using shortterm, small-dollar credit.3


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