41194 Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations 

1The HEOA adds a new section 140 to TILA that 

includes other restrictions regarding private 

education loans. The Board is only required to issue 

regulations to implement subsection (c) of TILA 

section 140, the prohibition on co-branding. The 

other subsections of section 140 became effective 

when the HEOA was enacted and the Board is not 

issuing regulations to implement them at this time. 

The other subsections of TILA Section 140 prohibit 

creditors from giving gifts to educational 

institutions or their employees, and prohibit 

revenue sharing between creditors and educational 

institutions. In addition, they restrict creditor 

payments to financial aid officials who serve on 

creditors’ advisory boards, and require disclosure of 

any payments made to financial aid officials for 

advisory board service expenses. Prepayment 

penalties or fees for early repayment are prohibited 

for private education loans. 

FEDERAL RESERVE SYSTEM 

12 CFR Part 226 

[Regulation Z; Docket No. R–1353] 

Truth in Lending 

AGENCY: Board of Governors of the 

Federal Reserve System. 

ACTION: Final rule; official staff 

commentary. 

SUMMARY: The Board is publishing final 

rules amending Regulation Z, which 

implements the Truth in Lending Act 

(TILA) following the passage of the 

Higher Education Opportunity Act 

(HEOA). Title X of the HEOA amends 

TILA by adding disclosure and timing 

requirements that apply to creditors 

making private education loans, which 

are defined as loans made for 

postsecondary educational expenses. 

The HEOA also amends TILA by adding 

limitations on certain practices by 

creditors, including limitations on ‘‘cobranding’’ their products with 

educational institutions in the 

marketing of private education loans. 

The HEOA requires that creditors obtain 

a self-certification form signed by the 

consumer before consummating the 

loan. It also requires creditors with 

preferred lender arrangements with 

educational institutions to provide 

certain information to those institutions. 

DATES: Effective Date: September 14, 

2009. 

Compliance Date: Compliance is 

optional until February 14, 2010. 

FOR FURTHER INFORMATION CONTACT: 

Brent Lattin, Senior Attorney, or Mandie 

Aubrey, Attorney; Division of Consumer 

and Community Affairs, Board of 

Governors of the Federal Reserve 

System, Washington, DC 20551, at (202) 

452–2412 or (202) 452–3667. For users 

of Telecommunications Device for the 

Deaf (TDD) only, contact (202) 263– 

4869. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Current Regulation Z Student Loan 

Disclosure Requirements 

Congress enacted the Truth in 

Lending Act (TILA), 15 U.S.C. 1601 et 

seq., to regulate certain credit practices 

and promote the informed use of 

consumer credit by requiring uniform 

disclosures about its costs and terms. 

Under TILA section 128, creditors must 

provide TILA disclosures to consumers 

in writing before consummation of 

certain closed-end credit transactions. 

Extensions of consumer credit over 

$25,000 are exempt from TILA with the 

exceptions of credit secured by real 

property, and, following enactment of 

the HEOA, private education loans. 

Loans made, insured, or guaranteed 

pursuant to a program authorized by 

title IV of the Higher Education Act of 

1965 (20 U.S.C. 1070 et seq.) are also 

exempt from TILA. 

TILA mandates that the Board 

prescribe regulations to carry out the 

purposes of the statute. 15 U.S.C. 

1604(a). Accordingly, the Board has 

promulgated Regulation Z, 12 CFR part 

226. An Official Staff Commentary, 12 

CFR part 226 (Supp. I) interprets the 

requirements of the regulation and 

provides guidance to creditors in 

applying the rules to specific 

transactions. 

To implement TILA section 128, 15 

U.S.C. 1638, Regulation Z requires 

disclosures for certain closed-end loans, 

including for education loans that are 

not exempt Federal education loans. 

Sections 226.17 and 226.18 require a 

creditor to provide the consumer with 

clear and conspicuous disclosures 

before consummation of the transaction. 

Current § 226.17(i) contains special 

rules for student credit plans which are 

education loans where the repayment 

amount and schedule of payments are 

not known at the time that the credit is 

advanced. In such cases, creditors may 

make all the TILA cost disclosures at the 

time credit is extended based on the 

best information available at that time, 

and state clearly that the disclosures are 

estimates. Alternatively, creditors may 

provide partial disclosures at the time 

the credit is extended and later provide 

a complete set of disclosures when the 

repayment schedule for the loan is 

established. 

B. The Higher Education Opportunity 

Act of 2008 

On August 14, 2008, the Higher 

Education Opportunity Act of 2008 

(HEOA) was enacted. Title X of the 

HEOA, entitled the ‘‘Private Student 

Loan Transparency and Improvement 

Act of 2008,’’ adds new subsection 

128(e) and section 140 to TILA. These 

TILA amendments add disclosure 

requirements and prohibit certain 

practices for creditors making ‘‘private 

education loans,’’ defined as loans made 

expressly for postsecondary educational 

expenses, but excluding open-end 

credit, real estate-secured loans, and 

Federal loans under title IV of the 

Higher Education Act of 1965. The 

HEOA also amends TILA section 104(3) 

to expressly cover private education 

loans even if the amount financed 

exceeds $25,000. 

1. Overview of the HEOA’s 

Amendments to TILA 

Substantive Restrictions. The HEOA 

prohibits a creditor from using in its 

marketing materials a covered 

educational institution’s name, logo, 

mascot, or other words or symbols 

readily identified with the educational 

institution, to imply that the 

educational institution endorses the 

loans offered by the creditor.1 With 

respect to private education loans, the 

HEOA also amends TILA in the 

following ways: 

• Creditors must give the consumer 

30 days after a private education loan 

application is approved to decide 

whether to accept the loan offered. 

During that time, the creditor may not 

change the rates or terms of the loan 

offered, except for rate changes based on 

changes in the index used for rate 

adjustments on the loan. 

• The consumer has a right to cancel 

the loan for up to three business days 

after consummation. Creditors are 

prohibited from disbursing funds until 

the three-day cancellation period has 

run. 

Disclosure Requirements. The HEOA 

adds a number of new disclosures for 

private education loans, which must be 

given at different times in the loan 

origination process. Specifically, the 

HEOA’s amendments to TILA require 

the following disclosures for private 

education loans: 

• Disclosures with applications (or 

solicitations that require no 

application). Creditors must provide 

general information about loan rates, 

fees, and terms, including an example of 

the total cost of a loan based on the 

maximum interest rate the creditor can 

charge. These disclosures must inform a 

prospective borrower of, among other 

things, the potential availability of 

Federal student loans and the interest 

rates for those loans, and that additional 

information about Federal loans may be 

obtained from the school or the 

Department of Education Web site. 

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• Disclosures when the loan is 

approved. When the creditor approves 

the consumer’s application for a private 

education loan, the creditor must give 

the consumer a set of transactionspecific disclosures, including 

information about the rate, fees and 

other terms of the loan. The creditor 

must disclose, for example, estimates of 

the total repayment amount based on 

both the current interest rate and the 

maximum interest rate that may be 

charged. The creditor must also disclose 

the monthly payment at the maximum 

rate of interest. 

• Disclosures at consummation. At 

consummation, the creditor must 

provide updated cost disclosures 

substantially similar to those provided 

at approval. The consumer’s three-day 

right to cancel the transaction must also 

be disclosed. 

Finally, once a consumer applies for 

a private education loan, the consumer 

must complete a ‘‘self-certification 

form’’ with information about the cost of 

attendance at the school that the student 

will attend or is attending. The form 

includes information about the 

availability of Federal student loans, the 

student’s cost of attendance at that 

school, the amount of any financial aid, 

and the amount the consumer can 

borrow to cover any gap. The creditor 

must obtain the signed and completed 

form before consummating the private 

education loan. The Department of 

Education has primary responsibility for 

developing the self-certification form in 

consultation with the Board. 

2. Civil Liability 

The HEOA amends TILA to provide a 

private right of action for several, but 

not all, of the disclosure requirements 

added by the HEOA. HEOA, Title X, 

Subtitle A, Section 1012 (amending 

TILA Section 130). The HEOA also 

amends TILA’s statute of limitations for 

civil liability regarding private 

education loans. Currently, TILA 

section 130(e) requires that an action be 

brought within one year of the date of 

the occurrence of the violation. Under 

the HEOA amendment, an action for a 

violation involving a private education 

loan must be brought within one year 

from the date on which the first regular 

payment of principal is due for the 

private education loan. 

The HEOA provides a safe harbor for 

any creditor that elects to use a model 

form promulgated by the Board that 

accurately reflects the terms of the 

creditor’s loans. HEOA, Title X, Subtitle 

B, Section 1021(a) (adding TILA Section 

128(e)(5)(C)). Model forms are included 

in the final rule as amendments to 

Regulation Z’s Appendix H. In addition, 

a creditor has no liability under TILA 

for failure to comply with the 

requirement that it receive the 

consumer’s self-certification form before 

consummating a private education loan. 

HEOA, Title X, Subtitle B, Section 

1021(a) (adding TILA Section 130(j)). 

C. Consumer Testing 

In October 2008, the Board retained a 

research and consulting firm 

(Rockbridge Associates) and a design 

firm (EightShapes) to help the Board 

design the model forms required under 

the HEOA and to conduct consumer 

testing to determine the most effective 

presentation of the information required 

to be disclosed. Specifically, the Board 

used consumer testing to develop model 

forms for the following: 

• Information required to be 

disclosed on or with applications or 

solicitations for private education loans 

(Application and Solicitation 

Disclosure); 

• Information required to be 

disclosed when a private education loan 

is approved (Approval Disclosure); and 

• Information required to be 

disclosed after the consumer accepts a 

private education loan and at least three 

business days before loan funds are 

disbursed (Final Disclosure). 

Initial forms design. In November 

2008, the Board worked with 

Rockbridge Associates and EightShapes 

to develop sample disclosures to be 

used in the testing, taking into account 

the specific requirements of the HEOA, 

information learned through the Board’s 

outreach efforts, and Rockbridge 

Associate’s experience in financial 

disclosure testing. 

Cognitive interviews on model 

disclosures. In December 2008, 

Rockbridge Associates worked closely 

with the Board to conduct two rounds 

of consumer testing. Each round of 

testing comprised in-person cognitive 

interviews with 10 consumers. Both 

rounds of testing were conducted within 

the Washington, DC/Baltimore 

metropolitan area. The consumer 

participants included both college 

students and parents of college students, 

representing a range of ethnicities, ages, 

educational levels, and education loan 

experience. 

The cognitive interviews consisted of 

one-on-one discussions with consumers, 

during which consumers were asked to 

view the sample Application and 

Solicitation Disclosure, the Approval 

Disclosure, and the Final Disclosure 

developed by the Board. The goals of 

these interviews were as follows: (1) To 

learn more about what information 

consumers are concerned about and 

actually read when they receive private 

education loan disclosures; (2) to 

determine how easily consumers can 

find various critical pieces of 

information in the disclosures; (3) to 

assess consumers’ understanding of the 

information that the HEOA and § 226.18 

require to be disclosed for private 

education loans, and of certain 

terminology related to private education 

loans; and (4) to determine the most 

clear and understandable way to 

disclose the required information to 

consumers. 

After the first round of cognitive 

testing, the Board worked with 

Rockbridge Associates and EightShapes 

to revise the initial drafts of the sample 

disclosures in response to findings from 

the first round of testing. Later in 

December 2008, the Board and 

Rockbridge Associates conducted a 

second round of testing in which 10 

consumers were asked to review the 

revised sample Application and 

Solicitation Disclosure, Approval 

Disclosure, and Final Disclosure. 

Additional cognitive interviews on 

model disclosures. In April and May 

2009, Rockbridge Associates worked 

closely with the Board to conduct two 

additional rounds of consumer testing. 

Each round of testing consisted of inperson cognitive interviews with 10 

consumers. One round of testing was 

conducted within the Washington, DC 

metropolitan area and the second round 

of testing was conducted within the 

Philadelphia, PA metropolitan area. The 

consumer participants included college 

students, proprietary school students 

and parents of students, representing a 

range of ethnicities, ages, educational 

levels, and education loan experience. 

The format of the cognitive interviews 

was similar to the initial rounds and the 

Board worked with Rockbridge 

Associates and EightShapes to revise the 

model disclosures in response to 

findings from the each round of testing. 

Following the conclusion of the 

comment period on the proposed rule, 

Rockbridge Associates and EightShapes 

worked with the Board to further revise 

the disclosures in response to public 

comment. In June 2009, Rockbridge 

Associates worked with the Board to 

conduct a final round of consumer 

testing comprised of in-person cognitive 

interviews with 10 consumers 

conducted in the Washington, DC 

metropolitan area. The format of the 

cognitive interviews was similar to the 

earlier rounds and the Board worked 

with Rockbridge Associates and 

EightShapes to revise the model 

disclosures in response to findings from 

the final round of testing. 

Results of testing. A report 

summarizing the results of the testing is 

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41196 Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations 

available on the Board’s Web site: 

http://www.federalreserve.gov. 

Application and Solicitation 

Disclosure. Regarding the Application 

and Solicitation Disclosure, consumers 

were confused in the initial rounds by 

seeing the required disclosure of a range 

of initial rates for which they could be 

approved. Consumers commonly 

mistook the highest rate in the range 

with the maximum possible rate for the 

life of the loan. Consequently, the model 

form was revised by providing 

information under two separate 

headings for the consumer’s ‘‘Starting 

interest rate upon approval’’ and the 

consumer’s ‘‘Interest rate during the life 

of the loan.’’ This revision improved 

consumers’ ability to understand the 

range of initial interest rates and how 

the rate would vary over time. 

Once consumers understood that the 

rates disclosed were not necessarily the 

rates that actually would apply to them, 

they consistently wanted to know how 

their own rate would be determined. 

Thus, the model form places general 

information about how the consumer’s 

rate will be determined under the 

heading about the consumer’s starting 

interest rate upon approval. Consumers 

also wanted to understand how their 

rate would vary over the life of the loan, 

but many were confused by detailed 

information about how the interest rate 

varies based on the application of a 

margin to an index. A large number of 

consumers in the initial rounds were 

confused by the reference in the model 

forms to the London Interbank Offered 

Rate (LIBOR) as the index. However, in 

the final round of testing, the model 

form referenced the LIBOR being 

published in a major newspaper which 

worked to assure consumers that the 

LIBOR is a standard index used for 

determining variable interest rates on 

loans. 

Consumer testing also indicated that 

consumers want to see specific figures 

and dollar amounts for fees that may 

apply to their loan. Thus the model 

form requires dollar amounts to be 

disclosed for each fee included on the 

form wherever possible. 

In addition, testing showed that 

consumers found the sample total cost 

information to be useful in assessing the 

potential impact of a private education 

loan on their financial future. 

Consumers indicated that the sample 

total cost was most understandable 

when the loan amount, interest rate and 

loan term were included. In addition, 

consumers found showing the sample 

total cost of a loan based on each 

payment deferral option to be useful 

information. 

Finally, consumers found the 

presentation of Federal loan 

alternatives, ‘‘Next Steps,’’ and 

reference notes to be clear and 

understandable, and the information in 

these sections to be useful. 

Approval Disclosure. Regarding the 

Approval Disclosure, testing indicated 

that consumers are most concerned 

about the rate and loan costs, and that 

the traditional TILA box style of 

presenting the key elements of a loan is 

effective even with novice consumers. 

In initial testing of the proposed model 

forms, consumers did not understand 

explanations of the difference between 

the interest rate and the APR. For this 

reason, the model forms published with 

the proposal were revised to disclose 

the interest rate more prominently than 

the APR so that consumers would focus 

on the rate they understood. In 

subsequent rounds of testing, the 

prominence of the interest rate 

disclosure and the additional context 

provided to explain the APR improved 

some consumers’ understanding of the 

concepts, although a few consumers 

continued to have difficulty 

understanding the difference between 

the APR and the interest rate. However, 

in choosing between two loans, 

consumers in the tests were more likely 

to compare the payment schedules, total 

of payments, and finance charge rather 

than relying on the interest rate alone. 

Testing also showed that consumers 

generally do not understand detailed 

explanations of how their variable rate 

changes based on a publicly available 

index. For consumers, the most 

important information regarding how 

the rate changes was simply that the 

creditor may not change the rate at will, 

and instead generally can do so only 

based on market factors out of the 

creditor’s control. 

Testing also indicated that consumers 

strongly prefer to have all fees disclosed 

with specific dollar amounts. In 

addition, the placement of the total loan 

amount in the box at the top of the form, 

along with the itemization of the 

amount financed, improved consumers’ 

understanding of the concept presented 

by the amount financed—that the 

amount of credit actually available to 

the consumer would be less than the 

total loan amount if fees applied. 

Consumers considered the monthly 

payment schedule and amounts to be 

critical information in understanding 

the financial implications of obtaining a 

private education loan. Most consumers 

felt the disclosure of the maximum 

monthly payment amounts and total 

amount for repayment at the maximum 

rate was useful information. When 

shown disclosures where a sample 

maximum rate was used because no 

maximum rate applies, consumers 

indicated that they understood the 

disclosure was only an example. 

As with the Application and 

Solicitation Disclosure, consumers 

found the presentation of Federal loan 

alternatives and ‘‘Next Steps’’ to be clear 

and understandable, and the 

information in these sections to be 

useful. 

Final Disclosure. Regarding the Final 

Disclosure, the information required to 

be disclosed under the HEOA is 

identical to that required on the 

Approval Disclosure, except for the 

right to cancel notice. Recognizing the 

importance of the right to cancel notice 

for consumers, the model Final 

Disclosure provides the right to cancel 

information as clearly and prominently 

as possible. Consumers tested 

immediately saw and read the 

information in the proposed right to 

cancel notice. 

Results from the initial rounds of 

testing indicated that consumers did not 

find the information about Federal loan 

alternatives to be useful at this stage in 

the private education loan origination 

process. Consumers stated that this 

information is redundant; they have 

already been told about these options 

two times (on the Application and 

Solicitation Disclosure and the 

Approval Disclosure) and have already 

decided at this point to obtain a private 

education loan. Consumers in the later 

rounds of testing were asked whether 

they felt the Federal loan alternatives 

should be included in the Final 

Disclosure and the majority did not feel 

such information would be useful at 

that stage. For these reasons, as 

discussed in the section-by-section 

analysis under § 226.47(b)(3), the Board 

is exercising its exception authority 

under TILA sections 105(a) and 105(f) to 

omit information about Federal loan 

alternatives from the Final Disclosure 

form. 

II. The Board’s Rulemaking Authority 

The Board has authority under the 

HEOA to issue regulations to implement 

paragraphs (1), (2), (3), (4), (6), (7), and 

(8) of new TILA section 128(e), and to 

implement section 140(c) of new TILA 

section 140. HEOA, Title X, Section 

1002. In addition to implementing the 

specific disclosure requirements in 

TILA section 128(e), the Board has 

authority under TILA sections 

128(e)(1)(R), 128(e)(2)(P), and 

128(e)(4)(B) to require disclosure of 

such other information as is necessary 

or appropriate for consumers to make 

informed borrowing decisions. 15 U.S.C. 

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Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations 41197 

1638(e)(1)(R), 15 U.S.C. 1638(e)(2)(P), 15 

U.S.C. 1638(e)(4)(B). 

TILA section 128(e)(9) provides that, 

in issuing regulations to implement the 

disclosure requirements under TILA 

section 128(e), the Board is to prevent 

duplicative disclosure requirements for 

creditors that are otherwise required to 

make disclosures under TILA. However, 

if the disclosure requirements of section 

128(e) differ or conflict with the 

disclosure requirements elsewhere 

under TILA, the requirements of section 

128(e) are controlling. 15 U.S.C. 

1638(e)(9). 

TILA also mandates that the Board 

prescribe regulations to carry out the 

purposes of the act. TILA specifically 

authorizes the Board, among other 

things, to issue regulations that contain 

such classifications, differentiations, or 

other provisions, or that provide for 

such adjustments and exceptions for 

any class of transactions, that in the 

Board’s judgment are necessary or 

proper to effectuate the purposes of 

TILA, facilitate compliance with the act, 

or prevent circumvention or evasion. 15 

U.S.C. 1604(a). 

TILA also specifically authorizes the 

Board to exempt from all or part of TILA 

any class of transactions if the Board 

determines that TILA coverage does not 

provide a meaningful benefit to 

consumers in the form of useful 

information or protection. The Board 

must consider factors identified in the 

act and publish its rationale at the time 

it proposes an exemption for comment. 

In proposing exemptions, the Board 

considered (1) The amount of the loan 

and whether the disclosure provides a 

benefit to consumers who are parties to 

the transaction involving a loan of such 

amount; (2) the extent to which the 

requirement complicates, hinders, or 

makes more expensive the credit 

process; (3) the status of the borrower, 

including any related financial 

arrangements of the borrower, the 

financial sophistication of the borrower 

relative to the type of transaction, and 

the importance to the borrower of the 

credit, related supporting property, and 

coverage under TILA; (4) whether the 

loan is secured by the principal 

residence of the borrower; and (5) 

whether the exemption would 

undermine the goal of consumer 

protection. 15 U.S.C. 1604(f). The 

rationales for these exemptions were 

explained in the proposal and are 

explained below. 

III. Overview of Comments Received 

On March 24, 2009, the Board 

published a proposed rule that would 

amend Regulation Z’s rules by adding 

disclosure and timing requirements that 

apply to creditors making private 

education loans. 74 FR 12464. The 

Board received seventy-one public 

comment letters. Several financial 

institutions and financial services trade 

associations stated that they supported 

the Board’s efforts to improve the 

disclosure of credit terms to consumers 

of private education loans and 

recognized that the Board’s proposal 

was intended to conform Regulation Z 

to TILA, as amended by the HEOA. 

These commenters requested that the 

Board provide flexibility in the timing 

of the proposed approval disclosure to 

allow creditors to approve loans 

conditioned on verification of 

information provided by the consumer 

and the educational institution. These 

commenters also stated that the Board 

should not cover loans made ‘‘in whole 

or in part’’ to finance postsecondary 

educational expenses, as proposed. 

They expressed concern that such 

coverage would increase the burden in 

complying with the rule and could 

cause some lenders to decline to 

provide consumers with credit if any 

part of the loan would be used for 

postsecondary educational expenses. 

Some of these commenters also did not 

support the proposal to make the 

disclosure of the annual percentage rate 

(APR) less prominent than the 

disclosure of the interest rate. A few 

financial institutions stated that the 

costs of the new disclosure and timing 

requirements under the HEOA outweigh 

the benefits and that consumers would 

object to delays in consummating a 

private education loan transaction. 

By contrast, consumer advocacy 

organizations generally supported the 

HEOA’s goal of providing additional 

disclosure of private education loan 

terms to consumers and in providing for 

a 30-day period for the consumer to 

accept the loan and a three-day right to 

cancel the loan. Consumer advocates 

encouraged the Board to maintain 

coverage of loans used ‘‘in whole or in 

part’’ for postsecondary educational 

expenses. Most of these commenters did 

not support the proposal to make the 

disclosure of the APR less prominent 

than the disclosure of the interest rate. 

The Board also received comments 

from educational institutions and 

financial aid administrators and trade 

associations. These commenters also 

generally supported the HEOA’s 

requirements to provide additional 

disclosure of private education loan 

credit terms to consumers. However, a 

majority of these commenters stated that 

educational institutions, or specific 

types of credit provided by education 

institutions, should be exempt from the 

proposed rules. Specifically, these 

creditors sought exemptions for credit 

in the form of tuition billing plans that 

permit the student to pay in 

installments and for short term 

‘‘emergency’’ loans provided to students 

while they await disbursement of other 

funding sources. A number of financial 

aid officers commented that the 

proposed self-certification form would 

be burdensome and requested an 

exemption to the requirement to obtain 

a self-certification form in cases where 

the creditor certifies the student’s 

financial need directly with the 

educational institution. 

Comments are discussed in detail 

below in part IV of the SUPPLEMENTARY

INFORMATION. 

IV. Section-by-Section Analysis 

Overview 

The final rule adds the following new 

disclosure requirements to Regulation Z 

for private education loans: 

(i) Disclosures with applications (or 

solicitations that require no application) 

in § 226.47(a); 

(ii) Disclosures when notice of loan 

approval is provided in § 226.47(b); and 

(iii) Disclosures before loan 

disbursement in § 226.47(c). General 

rules applicable to the new disclosure 

requirements were detailed in § 226.46 

and associated commentary. Model 

forms for these disclosures are added to 

Regulation Z’s Appendix H. 

To implement TILA’s new prohibition 

on co-branding, § 226.48 prohibits a 

creditor from using in its marketing a 

covered educational institution’s name, 

logo, mascot, or other words or symbols 

readily identified with the institution, to 

imply that the institution endorses the 

loans offered by the creditor. The final 

rule adopts an exception to this 

prohibition under the Board’s TILA 

section 105(a) authority, for creditors 

who enter into an agreement where the 

covered educational institution 

endorses the creditor’s private 

education loans. Section 226.48 also: 

Provides the consumer with 30 days 

following receipt of the approval 

disclosures to accept the loan and 

prohibits certain changes to a loan’s rate 

or terms during that time; provides the 

consumer a right to cancel the loan for 

three business days after receipt of the 

final disclosures and prohibits 

disbursement during that time; requires 

creditors to obtain a completed selfcertification form signed by the 

consumer before consummating the 

transaction; and requires creditors with 

preferred lender arrangements to 

provide certain information to 

educational institutions. 

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41198 Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations 

The final rule largely adopts the 

provisions in the Board’s March 24, 

2009 proposed rule. 74 FR 12464. The 

Board has made certain modifications to 

the proposal in response to public 

comment as described throughout this 

Section-by-Section analysis. In addition, 

the provisions in new Subpart F have 

been redesignated from proposed 

§§ 226.37, 38, and 39 to §§ 226.46, 47, 

and 48. Sections 226.37 through 226.45 

have been reserved in order to 

accommodate future rulemakings by the 

Board. 

Section 226.1—Authority, Purpose, 

Coverage, Organization, Enforcement, 

and Liability 

Section 226.1(b) describes the 

purposes of Regulation Z. The Board 

proposed to amend § 226.1(b) to refer to 

the new provisions for private education 

loans. Section 226.1(d) provides an 

outline of Regulation Z. Proposed 

paragraph (d)(6) referenced the addition 

of a new Subpart F containing rules 

relating to private education loans. 

No comments were received on these 

provisions and the Board is adopting 

them as proposed with redesignated 

cross-references. In addition, transition 

rules are added as comment 1(d)(6)–1. 

Section 226.2—Definitions and Rules of 

Construction 

Currently, § 226.2(a)(6) contains two 

definitions of ‘‘business day.’’ Under the 

general definition, a ‘‘business day’’ is a 

day on which the creditor’s offices are 

open to the public for carrying on 

substantially all of its business 

functions. However, for some purposes 

a more precise definition applies; 

‘‘business day’’ means all calendar days 

except Sundays and specified Federal 

legal public holidays, for purposes of 

§§ 226.15(e), 226.19(a)(1)(ii), 

226.19(a)(2), 226.23(a), and 226.31(c)(1) 

and (2). The Board proposed using the 

more precise definition of business day 

for all purposes in proposed §§ 226.37, 

38, and 39, including for measuring the 

period during which consumers may 

cancel a private education loan. 

Industry commenters requested that the 

Board adopt the general definition of 

‘‘business day,’’ or exclude Saturdays 

from the more precise definition of 

‘‘business day.’’ These commenters 

noted that they did not operate their 

systems for disbursing funds or 

providing disclosures on a Saturday and 

expressed concern that including 

Saturday as a business day could make 

it difficult to provide required 

disclosures to consumers in a timely 

fashion. 

Consistent with the Board’s approach 

for certain transactions secured by the 

consumer’s dwelling in § 226.19(a)(1)(i), 

the Board is adopting the more precise 

definition of business day in providing 

presumptions of when consumers 

receive mailed disclosures. The Board is 

adopting the general definition of 

‘‘business day’’ for all other purposes in 

§§ 226.46, 47, and 48, including for 

measuring the period of time in which 

the consumer may cancel the loan. The 

Board believes that allowing creditors to 

exclude Saturdays or other days on 

which the creditor’s offices are not open 

to the public for carrying on 

substantially all of its business 

functions will result in consumers being 

provided more time in which to cancel 

a private education loan. As discussed 

in the section-by-section analysis to 

§ 226.48(d), the final rule permits 

creditors to provide consumers with 

more time to cancel the loan than the 

minimum three business days. Thus, 

whichever definition of ‘‘business day’’ 

the Board were to select, creditors 

would be free to exclude Saturdays or 

other days by providing the consumer 

with more time in which to cancel. The 

final rule also requires the creditor to 

disclose prominently the precise date 

upon which the consumer’s right to 

cancel expires and, based on the 

consumer testing, the Board believes 

that consumers will be able to 

understand precisely their deadline to 

cancel. 

Section 226.3—Exempt Transactions 

TILA section 104(3) (15 U.S.C. 

1603(3)) exempts from coverage credit 

transactions in which the total amount 

financed exceeds $25,000, unless the 

loan is secured by real property or a 

consumer’s principal dwelling. The 

HEOA amends TILA section 104(3) to 

provide that private education loans 

over $25,000 are not exempt from TILA. 

The Board proposed to revise § 226.3(b) 

to reflect this change. The Board did not 

propose changes to § 226.3(f) because 

the HEOA did not affect TILA’s 

exclusion of loans made, insured, or 

guaranteed under title IV of the Higher 

Education Act of 1965. 15 U.S.C. 

1603(7). However, the Board proposed 

to revise comment 3(f)–1 to remove the 

list of Federal education loans covered 

by the exemption because it is outdated, 

and to clarify that private education 

loans are not exempt. 

The Board is adopting the revisions to 

§ 226.3 as proposed with redesignated 

cross-references. Under the final rules, 

as proposed, private education loans are 

covered by TILA and Regulation Z 

regardless of the loan’s total amount 

financed. 

Section 226.17—General Disclosure 

Requirements 

Proposed §§ 226.38(b) and (c) 

required creditors to provide the current 

§ 226.18 disclosures for private 

education loans in addition to the new 

disclosures. Consequently, the Board 

proposed to revise § 226.17 to clarify 

that the format and timing rules for 

private education loans differ slightly 

from the rules for other types of closedend credit. In addition, the Board 

proposed to remove the special rules for 

student credit plans. 

The Board is adopting the proposed 

changes to § 226.17 for the format and 

timing rules for private education loans, 

with redesignated cross-references. The 

Board is also eliminating the special 

rules for student credit plans under 

§ 226.17(i) for credit extensions made on 

or after the mandatory compliance date 

of Subpart F. However, as discussed 

more fully below, the Board is revising 

rather than removing § 226.17(i) to 

clarify that student credit extensions 

made under § 226.17(i) prior to the 

mandatory compliance date of Subpart 

F must still follow the requirements in 

§ 226.17(i). 

Current § 226.17(a)(1) requires that 

the closed-end credit disclosures under 

§ 226.18 be grouped together, segregated 

from everything else, and not contain 

any information not directly related to 

the disclosures required under § 226.18. 

It also requires that the itemization of 

the amount financed under 

§ 226.18(c)(1) must be separate from the 

other disclosures required under that 

section. The Board proposed to revise 

§ 226.17(a)(1) and comment 17(a)(1)–4 

to clarify that the information required 

under § 226.38 must be provided 

together with the information required 

under § 226.18. In addition, as 

discussed in the section-by-section 

analysis under § 226.47, the Board 

proposed to allow creditors to provide 

the itemization of the amount financed 

together with the disclosures required 

under § 226.18 for private education 

loan disclosures. 

Annual percentage rate disclosure. 

Current § 226.17(a)(2), implementing 

TILA section 122(a), requires the terms 

‘‘finance charge’’ and ‘‘annual 

percentage rate,’’ together with a 

corresponding amount or percentage 

rate, to be more conspicuous than any 

other disclosure, except the creditor’s 

identity under § 226.18(a). For private 

education loans, TILA sections 

128(e)(2)(A) and 128(e)(4)(A) require a 

disclosure of the interest rate in 

addition to the APR. The Board 

proposed to exercise its authority under 

TILA section 105(a) to except private 

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2 Jinkook Lee and Jeanne M. Hogarth, ‘‘The Price 

of Money: Consumers’ Understanding of APRs and 

Contract Interest Rates,’’ 18 J. Pub. Pol’y and 

Marketing 66, 74 (1999). 

3Rockbridge Associates, ‘‘Consumer Research 

and Testing for Private Education Loans: Final 

Report of Findings’’ at 8. 

4Rockbridge Associates, ‘‘Consumer Research 

and Testing for Private Education Loans: Final 

Report of Findings’’ at 39. 

5Rockbridge Associates, ‘‘Consumer Research 

and Testing for Private Education Loans: Final 

Report of Findings’’ at 8, 43. 

6Rockbridge Associates, ‘‘Consumer Research 

and Testing for Private Education Loans: Final 

Report of Findings’’ at 55. 

7 Jinkook Lee and Jeanne M. Hogarth, ‘‘The Price 

of Money: Consumers’ Understanding of APRs and 

Contract Interest Rates,’’ 18 J. Pub. Pol’y and 

Marketing 66, 74 (1999). 

education loans from the requirement 

that the APR be more prominent than 

other disclosures and proposed to give 

prominence to the interest rate 

disclosure that is required by the HEOA. 

The Board also proposed to exercise its 

authority under TILA section 122(a) to 

require that the interest rate be 

disclosed as prominently as the finance 

charge. See proposed § 226.37(c)(2)(iii). 

Some industry, consumer group, and 

other commenters objected to the 

proposal to give the interest rate more 

prominence than the APR. Some of the 

commenters believed the APR was a 

better tool for consumers to use to 

compare the cost of a loan than the 

interest rate. They believed that 

emphasizing the interest rate could 

mislead consumers who do not consider 

other costs of loans. Other commenters 

believed that for uniformity, the APR 

should not deviate from the prominent 

position in the model forms for other 

types of closed-end loans. Further, 

consumer group commenters argued 

that the data produced from consumer 

testing was not definitive enough to 

justify making the exception, noting that 

most consumers tested did not notice 

the difference between the APR and 

interest rate and that the testing 

involved only 20 consumers. The 

consumer groups also cited several 

studies to support retaining the 

prominence of the APR, including a 

study that found that more than 70% of 

the population reported using the APR 

to shop for closed-end credit.2

TILA section 128(e)(1)(A) requires a 

disclosure of the range of potential 

interest rates in the application and 

solicitation disclosure. In consumer 

testing, some consumers expressed 

confusion as to why the APR on the 

approval and final forms was 

inconsistent with the interest rates 

disclosed on the application form. 

Consumers tested indicated that the 

interest rate was most relevant to them 

for private education loan purposes. In 

addition, TILA section 128(e)(9), as 

added by the HEOA, directs the Board 

to implement the HEOA’s requirements 

even if those requirements differ from or 

conflict with requirements under other 

parts of TILA. The HEOA also requires 

the Board to develop model forms that 

may be used for the private education 

loan disclosures based on consumer 

testing. HEOA, Title X, Subtitle B, Sec. 

1021 (adding TILA section 128(e)(5)(A)). 

Consumer testing of private education 

loan disclosures that continued during 

and after the comment period confirmed 

that most consumers understand the 

interest rate and that it is one of the 

most important terms to them. At the 

same time, most consumers do not 

understand the APR and incorrectly 

believe that the APR is the interest rate.3

In the initial rounds of testing the APR 

was presented more prominently than 

the interest rate. Most consumers had 

difficulty reconciling the two terms and 

some consumers believed that either the 

APR or the interest rate was a mistake 

and expressed a concern about the 

accuracy of the disclosures. Consumer 

confusion was compounded with the 

private education loan disclosures. 

Under the HEOA, the application 

disclosure that the consumer receives 

first in the series of forms contains a 

range of interest rates and not APRs. 

Consumers expected to see similar 

disclosures on subsequent forms.4

By contrast, in consumer testing of the 

model forms with a less prominent APR, 

consumers were less likely to equate the 

APR with the interest rate. Rather, the 

APR’s less prominent location on the 

model form encouraged consumers to 

view it in the context of the explanatory 

text provided. This, in turn, helped 

consumers to better understand that the 

APR was a distinct disclosure that 

reflected both the interest rate and the 

fees.5

In addition, based on consumer 

testing, the Board does not believe that 

making the APR less prominent is likely 

to cause consumers to focus solely on 

the interest rate to the exclusion of other 

costs. When consumers were asked in 

testing to determine which of two 

sample loans was less expensive, they 

relied on information other than the 

interest rate and APR to make their 

determination, such as the finance 

charge or the total of payments. By 

using the other cost information all 

consumers tested were able to select the 

loan that had a lower APR, even when 

it had a higher interest rate.6

The findings from the Board’s 

consumer testing that consumers do not 

understand the APR are supported in 

other research. For example, the study 

that cited high awareness of the APR by 

mortgage borrowers also found that at 

least 40% of those borrowers did not 

understand the relationship between the 

interest rate and the APR which, the 

study concluded, ‘‘indicates a 

significant gap between awareness and 

understanding.’’ 7 Lack of understanding 

of the APR on the part of the consumer 

could result in an inaccurate 

comparison of loan terms. For example, 

a consumer comparing two loans based 

on both the APR and the fees might 

erroneously consider fees that were 

already included in the APR. 

Thus, the Board believes that an 

exception from the requirement that the 

APR be disclosed more prominently 

than other terms is necessary and proper 

to assure a meaningful disclosure of 

credit terms for consumers, and it is 

retained in the final rule. 

Timing of disclosures. Current 

§ 226.17(b) requires creditors to make 

closed-end credit disclosures before 

consummation of the transaction. As 

discussed more fully below in the 

section-by-section analysis under 

§§ 226.46 and 226.47, the Board is 

adopting as proposed revisions to 

§ 226.17(b) to require creditors to make 

the current closed-end disclosures two 

times for private education loans: Once 

with any notice of approval of a private 

education loan, and again before 

disbursement. Under current comment 

17(b)–1, the disclosures must be made 

before consummation, but need not be 

given by a particular time, except in 

certain dwelling-secured transactions. 

The Board is adopting as proposed 

revisions to comment 17(b)–1 to clarify 

that more specific timing rules would 

apply for private education loans. 

The proposed rule did not propose 

any changes to current § 226.17(f), but 

the final rule revises that section. 

Current § 226.17(f) requires redisclosure 

if disclosures are given before 

consummation of a transaction under 

certain conditions. The Board is 

excluding private education loans from 

the requirements of § 226.17(f) because 

the Board believes that the disclosure 

and other requirements for private 

education loans make redisclosures 

under § 226.17(f) unnecessary. Creditors 

must provide approval disclosures for 

private education loans and then, after 

the consumer accepts the loan and 

before funds are disbursed, provide final 

disclosures. Thus, consumers will 

always receive at least two disclosures 

in private education loan transactions. 

In addition, with few exceptions, 

creditors cannot change the loan’s rate 

or terms after providing the disclosures, 

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41200 Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations 

and § 226.48(c) requires redisclosure if 

certain permitted changes are made after 

the approval disclosure is provided. 

Creditors are permitted, however, to 

make changes to the interest rate based 

on adjustments to the index. As a result 

of interest rate fluctuations, the loan’s 

APR may vary outside of the tolerance 

in § 226.17(f)(2). The Board believes that 

requiring creditors to redisclose the 

approval or final disclosures merely 

because of fluctuations in the interest 

rate would be burdensome to creditors 

and could be confusing to consumers 

who might not understand that the 

redisclosures reflected only changes in 

the variable rate, rather than substantive 

changes in the loan terms. Accordingly, 

§ 226.17(f) in the final rule does not 

apply to private education loans. 

In addition, the final rule revises 

§ 226.17(g) which implements TILA 

section 128(c). Current § 226.17(g) 

allows for delayed delivery of 

disclosures if a creditor receives a 

purchase order or a request for an 

extension of credit by mail, telephone, 

or facsimile machine without face-toface or direct telephone solicitation. The 

creditor may delay disclosures until the 

due date of the first payment if certain 

information is made available to the 

consumer or the public before the actual 

purchase order request. The final rule 

excludes private education loans from 

§ 226.17(g) because the Board believes 

that the specific disclosure and timing 

requirements that the HEOA added to 

TILA for private education loans 

supersede TILA’s general delayed 

disclosure provisions implemented in 

§ 226.17(g). 

Special rules for student credit 

extensions. Under current § 226.17(i) 

and accompanying commentary, 

Regulation Z applies special disclosure 

rules to closed-end student loans that 

are ‘‘student credit plans.’’ The 

commentary to Regulation Z describes a 

‘‘student credit plan’’ as an extension of 

credit for educational purposes, where 

the repayment amount and schedule are 

not known at the time credit is 

advanced. The plans include loans 

made under any student credit plan not 

otherwise exempt from TILA, whether 

government or private. Comment 17(i)– 

1. The credit extended before the 

repayment period begins under these 

plans is referred to as the interim 

student credit extension. The Board 

understands that most or all private 

education loans made today are 

‘‘student credit plans.’’ 

The Board proposed to eliminate the 

special rules for student credit plans 

under § 226.17(i) and accompanying 

commentary because the new TILA 

section 128(e) disclosure rules 

effectively eliminate the disclosure 

exemptions and special rules in 

§ 226.17(i). Implementing new TILA 

section 128(e)(2)(H), proposed 

§ 226.38(b)(3)(vii) required the creditor 

to give the consumer an estimate of the 

total amount for repayment at the time 

that the loan is approved. As discussed 

further below, the Board views the total 

amount for repayment disclosure as 

duplicative of TILA’s existing total of 

payments disclosure. Proposed 

§ 226.38(b)(3)(vii) required creditors to 

disclose the total of payments before a 

definitive repayment schedule is set. 

Thus, the HEOA revisions to TILA 

eliminate the § 226.17(i) exemption for 

disclosure of the total of payments. This 

also has the effect of eliminating the 

other exemptions as well, because an 

estimate of the total of payments 

requires the creditor to estimate the 

finance charge and payment schedule. 

In addition, the Board proposed to 

apply the new private education loan 

disclosure regime to consolidation 

loans, rendering the commentary on 

consolidation loan disclosures under 

comment 17(i)–3 unnecessary. 

The Board believes that retaining two 

different disclosure regimes from which 

creditors may choose is unnecessarily 

complex and may not be useful to 

consumers and creditors. Thus, the final 

rule eliminates the special rules for 

student credit plans under § 226.17(i) 

for loans for which an application is 

received on or after the mandatory 

compliance date of §§ 226.46, 47, and 

48. 

However, in response to public 

comment the Board is not eliminating 

§ 226.17(i) in its entirety, as proposed. 

Under current comment 17(i)–1, 

creditors who choose not to make 

complete disclosures at the time the 

credit is extended must make a new set 

of complete disclosures at the time the 

creditor and consumer agree upon a 

repayment schedule for the total 

obligation. The Board is retaining and 

revising § 226.17(i) to clarify that the 

requirement to provide a complete 

disclosures at the time the creditor and 

consumer agree upon a repayment 

schedule for the total obligation remains 

in effect for student credit extensions 

made before the mandatory compliance 

date of §§ 226.46, 47, and 48, and for 

which the creditor chose not to make 

complete disclosures before 

consummation. 

For loans subject to §§ 226.46, 47, and 

48 the Board did not propose to require 

creditors to give a new set of disclosures 

once the creditor and consumer agree 

upon a repayment schedule. Consumer 

group commenters suggested that the 

Board require a new set of disclosures 

upon repayment. However, TILA as 

amended by the HEOA, does not require 

such disclosure for private education 

loans. The final rules require a complete 

disclosure at the time the credit is 

extended. In addition, new disclosures 

are required under § 226.20(a) in the 

case of a refinancing of a loan. 

Section 226.18—Content of Disclosures 

As discussed more fully below, the 

Board is adopting as proposed, with 

redesignated cross-references, revisions 

to the commentary to § 226.18. The final 

rule requires that creditors provide the 

disclosures required in § 226.18 along 

with the disclosures required with 

notice of approval in § 226.47(b) and 

with the final disclosures required in 

§ 226.47(c). As proposed, the model 

forms in Appendix H–19 and H–20 

show the disclosures required under 

§ 226.18 as well as the disclosures 

required under §§ 226.47(b) and (c). 

However, as explained below, the 

HEOA’s disclosure about limitations on 

interest rate adjustments differs slightly 

from that of § 226.18(f)(1)(ii), as 

interpreted in comment 18(f)(1)(ii)–1. 

Thus the Board is revising comment 

18(f)(1)(ii)–1 to clarify that parts of the 

comment do not apply to private 

education loans. 

Current § 226.18(f)(1)(ii) requires that 

if the annual percentage rate in a closedend credit transaction not secured by 

the consumer’s principal dwelling may 

increase after consummation, the 

creditor must disclose, among other 

things, any limitations on the increase. 

Current comment 18(f)(1)(ii)–1 states 

that when there are no limitations, the 

creditor may, but need not, disclose that 

fact. By contrast, the HEOA and 

§§ 226.47(b) and 47(c) require creditors 

to disclose any limitations on interest 

rate adjustments, or the lack thereof. 

Thus, for private education loans, 

disclosure of the absence of any 

limitations on interest rate adjustments 

is required, not optional. In addition, 

under §§ 226.47(b)(1)(iii), and (c)(1), 

limitations on rate increases include, 

rather than exclude, legal limits in the 

nature of usury or rate ceilings under 

state or Federal statutes or regulations. 

Comment 47(b)(1)–2, proposed as 

comment 38(b)(1)–2, discussed below, 

provides guidance on how creditors are 

to disclose limitations on interest rate 

adjustments. 

The Board is also revising, as 

proposed, comment 18(f)(1)(iv)–2, 

which currently clarifies that for interim 

student credit extensions creditors need 

not provide a hypothetical example of 

the payment terms that would result 

from an increase in the variable rate. 

The comment is revised, with a 

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Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations 41201 

8The term ‘‘financial institution’’ is not defined 

in section 3 of the Federal Deposit Insurance Act 

(12 U.S.C. 1813), but the Board interprets this term 

to refer to the defined term ‘‘depository institution,’’ 

which is the most comprehensive definition in 

section 3 of the Federal Deposit Insurance Act. 

9The HEOA also covers persons engaged in the 

business of soliciting private education loans. 

Under § 226.46(d)(1), proposed as § 226.37(d)(1), 

the term solicitation is defined as an offer to extend 

credit that does not require the consumer to 

complete an application. The term ‘‘solicit’’ does 

not include general advertising or invitations to 

apply for credit. 

redesignated cross-reference, to replace 

the reference to interim student credit 

extensions with a reference to private 

education loans. Sections 

226.47(b)(3)(viii) and 226.47(c)(3) 

require a disclosure of the maximum 

monthly payment on a private 

education loan based on the maximum 

possible rate of interest. As discussed 

more fully in the section-by-section 

analysis in § 226.47, the Board believes 

that the required disclosure of the 

maximum monthly payment amount at 

the maximum rate satisfies the 

requirement under § 226.18(f)(1)(iv) to 

disclose a hypothetical example of the 

payment terms resulting from an 

increase in the rate. Comment 47(b)(1)– 

1, proposed as comment 38(b)(1)–1, 

clarifies that while creditors must 

disclose the maximum payment at the 

maximum possible rate, they need not 

also disclose a separate example of the 

payment terms resulting from a rate 

increase under § 226.18(f)(1)(iv). 

The Board also proposed to revise 

comment 18(k)(1)–1 which currently 

clarifies that interim interest on a 

student loan is not considered a penalty 

for purposes of the requirement in 

§ 226.18(k)(1) to disclose whether or not 

a penalty may be imposed if a loan is 

prepaid in full. The proposal removed 

the reference to interim interest on a 

student loan as an example of what is 

not a penalty. The Board did not intend 

to indicate that interim interest on a 

student loan is considered a penalty. 

Rather, with the proposed removal of 

§ 226.17(i) and associated commentary, 

the reference to interim interest on a 

student loan would no longer be clear. 

Although the Board is retaining and 

revising § 226.17(i), to avoid confusion 

between the terms ‘‘student loan’’ and 

‘‘private education loan,’’ the Board is 

adopting the proposed revision to 

comment 18(k)(1)–1. The Board believes 

that the description of what constitutes 

a penalty in the remainder of revised 

comment 18(k)(1)–1 provides sufficient 

clarity that interim interest on a student 

loan would not be considered a penalty. 

Subpart F 

The final rule, as proposed, adds a 

new Subpart F to contain the rules 

relating to private education loans. In 

the final rule, proposed §§ 226.37, 38, 

and 39 have been redesignated to 

§§ 226.46, 47, and 48. On July 23, 2009, 

the Board proposed new disclosure 

requirements for closed-end loans 

secured by real property or a dwelling. 

In order to make these proposed 

provisions contiguous with the current 

Special Rules for Certain Mortgage 

Transactions in Subpart E, the Board 

proposed to add the new disclosure 

requirements to §§ 226.37 and 226.38. In 

order to accommodate the potential for 

future rulemakings the Board is 

reserving §§ 226.39 through 226.45. 

Section 226.46 Special Disclosure 

Requirements for Private Education 

Loans 

Section 226.46, proposed as § 226.37, 

contains general rules about the 

disclosure and other requirements 

contained in Subpart F. Proposed 

§ 226.37(a) specified that Subpart F 

would apply only to private education 

loans. Section 226.46(a) of the final rule 

applies Subpart F to all extensions of 

credit that meet the definition of a 

private education loan in § 226.46(b)(5). 

The final rule also permits, but does not 

require, creditors to comply with 

Subpart F for certain extensions of 

credit subject to §§ 226.17 and 18 that 

are related to financing an education. 

Specifically, some commenters 

requested clarification as to whether 

certain loans that do not meet the 

definition of private education loan, but 

are extended to students who have 

completed graduate school for expenses 

related to relocation, medical internship 

or residency, or bar study would be 

covered. Under § 226.46(a) of the final 

rule, compliance with Subpart F is 

optional for extensions of credit that are 

extended to a consumer for expenses 

incurred after graduation from a law, 

medical, dental, veterinary or other 

graduate school and related to 

relocation, study for a bar or other 

examination, participation in an 

internship or residency program, or 

similar purposes. New comment 46(a)– 

1 clarifies that if the creditor opts to 

comply with Subpart F, it must comply 

with all the applicable requirements of 

Subpart F. It also clarifies that if the 

creditor opts not to comply with 

Subpart F it must comply with the 

requirements in §§ 226.17 and 18. 

Loans made for bar study, residency, 

or internship expenses may not meet the 

definition of ‘‘private education loan’’ in 

§ 226.46(b)(5) if the extension of credit 

will not be used, in whole or in part, for 

‘‘postsecondary educational expenses’’ 

as specified in § 226.46(b)(3). 

Consequently, under the HEOA, 

compliance with Subpart F would not 

be mandatory for such loans. However, 

the Board believes that permitting 

creditors to comply with Subpart F 

benefits both creditors and consumers. 

Creditor commenters requested the 

ability to comply with Subpart F for 

these loans because the loans are often 

made along with private education 

loans and share operational systems 

with those loans. Optional compliance 

would allow creditors to avoid the 

expense of maintaining separate 

compliance systems. The Board also 

believes that permitting creditors to 

comply with Subpart F will benefit 

consumers who will receive information 

about credit terms earlier in the lending 

process and gain the benefits of a 30-day 

acceptance period and three-day right to 

cancel. 

Comment 46(a)–1, proposed as 

comment 37(a)–1 clarifies that if any 

part of a loan used for post-graduate 

expenses is also used for postsecondary 

educational expenses, then compliance 

with Subpart F is mandatory not 

optional. It also clarifies that, except 

where specifically provided otherwise, 

the requirements and limitations of 

Subpart F are in addition to the 

requirements of the other subparts of 

Regulation Z. 

46(b) Definitions 

The HEOA amends TILA by adding a 

number of defined terms in new TILA 

sections 140 and 128(e). Section 

226.46(b), proposed as § 226.37(b), adds 

these definitions to Regulation Z. 

The Board did not propose to add a 

definition to Regulation Z for one new 

term defined in the HEOA, ‘‘private 

educational lender.’’ Instead, the Board 

proposed to use Regulation Z’s existing 

definition of ‘‘creditor’’ (12 CFR 

226.2(a)(17)). The HEOA defines the 

term ‘‘private educational lender’’ as a 

financial institution, as defined in 

section 3 of the Federal Deposit 

Insurance Act (12 U.S.C. 1813), or a 

Federal credit union, as defined in 

section 101 of the Federal Credit Union 

Act (12 U.S.C. 1752) that solicits, makes, 

or extends private education loans.8 The 

term also includes any other person 

engaged in the business of soliciting, 

making, or extending private education 

loans. In the proposal, the Board stated 

its belief that the ‘‘creditor’’ definition 

would encompass persons ‘‘engaged in 

the business of’’ extending private 

education loans.9 The term ‘‘creditor’’ 

applies to a person who regularly 

extends consumer credit, which is 

defined as credit extended more than 25 

times (or more than 5 times for 

transactions secured by a dwelling) in 

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41202 Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations 

the preceding calendar year. 12 CFR 

226.2(a)(17). 

Under the HEOA, a depository 

institution or Federal credit union 

would be covered for any private 

education loan it makes, regardless of 

whether or not the institution regularly 

extended consumer credit. By applying 

the private education loan rules only to 

‘‘creditors,’’ the Board proposed to 

create an exception for depository 

institutions and Federal credit unions 

that do not regularly extend consumer 

credit. The Board requested comment 

on whether there were instances where 

an institution that does not regularly 

extend consumer credit nevertheless 

makes an occasional private education 

loan and should be covered by the rule. 

The few commenters who addressed 

this issue did not provide specific 

examples of depository institutions or 

Federal credit unions that make private 

education loans but do not meet the 

definition of creditor. 

Under TILA section 105(a), the Board 

may provide exceptions to TILA for any 

class of transactions to facilitate 

compliance with TILA. The Board 

believes that in most cases depository 

institutions and credit unions that 

extend private education loans would 

also be creditors under Regulation Z. 

The definition of creditor applies to 

institutions that extended consumer 

credit of any type more than 25 times 

in the preceding calendar year (or more 

than 5 times for transactions secured by 

a dwelling). That is, an institution need 

not make more than 25 private 

education loans to be covered. If an 

institution makes 3 private education 

loans and 23 automobile loans, that 

institution is a creditor. For institutions 

that do not meet the definition of 

creditor, the compliance burden of the 

private education loans rules appears 

significant for the small number of loans 

that they may extend. Applying the 

private education loan rules to such 

institutions would likely dissuade them 

from providing private education loans, 

diminishing competition and consumer 

choice for those consumers who may 

have access to such loans. Thus, the 

Board believes that this exception is 

necessary and proper to facilitate 

compliance with TILA, and it is adopted 

as proposed in the final rule. 

The Board also proposed to exercise 

its authority under TILA section 105(f) 

in applying the private education loan 

rules only to ‘‘creditors,’’ as defined in 

Regulation Z, thereby exempting from 

the requirements of HEOA depository 

institutions and Federal credit unions 

that do not regularly extend consumer 

credit. The Board understands that the 

private education loan population 

contains students who may lack 

financial sophistication, and that the 

amount of the loan may be large and the 

loan itself may be important to the 

borrower. The Board believes, however, 

that because the number of instances 

where a consumer would receive a 

private education loan from an 

institution that does not regularly 

extend consumer credit is very limited, 

the burden and expenses of compliance 

that would be assumed by the 

institution are not outweighed by the 

benefit to the consumer. Furthermore, 

the Board believes that the goal of 

consumer protection would not be 

undermined by this exemption and that, 

after considering the 105(f) factors, 

coverage would not provide a 

meaningful benefit to consumers in the 

form of useful protection. 

The Board also requested comment on 

whether other persons not covered by 

the definition of ‘‘creditor’’ should be 

covered by the rule. A few commenters 

expressed concern that because the 

current definition of ‘‘creditor’’ includes 

only persons who met the thresholds for 

regularly extending consumer credit in 

the preceding calendar year, it would 

not include new entrants into the 

private education loan market in their 

first year. These commenters suggested 

that the definition be extended to 

include those persons who intend to 

regularly extend private education loans 

for the coming calendar year. 

As proposed, the final rule applies to 

persons meeting the definition of 

‘‘creditor’’ under § 226.2(a)(17). The 

current definition provides persons with 

certainty as to whether or not they are 

covered by Regulation Z. An alternative 

definition based on intent to regularly 

extend credit would be subjective and 

persons could not determine whether or 

not they must comply with Regulation 

Z until after the fact. 

46(b)(1) Covered Educational Institution 

The HEOA defines the term ‘‘covered 

educational institution’’ to mean any 

educational institution that offers a 

postsecondary educational degree, 

certificate, or program of study 

(including any institution of higher 

education) and includes an agent, 

officer, or employee of the educational 

institution. Included in the definition of 

covered educational institution are 

‘‘institutions of higher education,’’ as 

defined under section 102 of the Higher 

Education Act of 1965 (20 U.S.C. 1002). 

The Higher Education Act of 1965 

contains two definitions of the term 

‘‘institution of higher education;’’ a 

narrower definition in section 101, and 

a broader definition in section 102. See 

20 U.S.C. 1001, 1002. The HEOA 

explicitly uses the broader definition in 

section 102 of the Higher Education Act 

of 1965. HEOA Title X, Section 1001 

(adding TILA Section 140(a)(3)). The 

more expansive definition of institution 

of higher education, as interpreted by 

the Department of Education’s 

regulations (34 CFR 600), appears broad 

enough to encompass most educational 

institutions that offer postsecondary 

educational degrees, certificates, or 

programs of study. The definition of 

institution of higher education under 

section 102 of the Higher Education Act 

of 1965, however, would not include 

certain unaccredited educational 

institutions that offer postsecondary 

educational degrees, certificates, or 

programs of study. The HEOA’s 

definition of ‘‘covered educational 

institution’’ appears to be broader than 

the definition of ‘‘institution of higher 

education’’ because the former includes, 

but is not limited to, the latter. For this 

reason, § 226.46(b)(1), proposed as 

§ 226.37(b)(1), defines ‘‘covered 

educational institution’’ as an 

educational institution (as well as an 

agent, officer or employee of the 

institution) that would meet the 

definition of an institution of higher 

education as defined in § 226.46(b)(2), 

without regard to the institution’s 

accreditation status. 

Comment 46(b)(1)–1, proposed as 

comment 37(b)(1)–1, clarifies that if an 

educational institution would not be 

considered an ‘‘institution of higher 

education’’ solely on account of the 

institution’s lack of accreditation, the 

institution nonetheless would be a 

‘‘covered educational institution.’’ It 

also clarifies that a covered educational 

institution may include, for example, a 

private university or a public 

community college. It may also include 

an institution, whether accredited or 

unaccredited, that offers instruction to 

prepare students for gainful 

employment in a recognized profession 

such as flying, culinary arts, or dental 

assistance. Under the definition, a 

covered educational institution does not 

include elementary or secondary 

schools. 

Although the definition of ‘‘covered 

educational institution’’ under the Title 

X of the HEOA includes an agent, officer 

or employee of a covered educational 

institution, the term ‘‘agent’’ is not 

explicitly defined in that section of the 

HEOA. However, section 151 of the 

HEOA defines an ‘‘agent’’ as an officer 

or employee of a covered institution or 

an institution-affiliated organization and 

excluding any creditor regarding any 

private education loan made by the 

creditor. Proposed comment 37(b)(1)–2 

clarified that an ‘‘agent’’ for the 

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purposes of defining a covered 

educational institution is an officer or 

employee of an institution affiliated 

organization. Comment 46(b)(1)–2 in the 

final rule further clarifies that an 

‘‘agent’’ of a covered educational 

institution includes the institutionaffiliated organization itself, as well as 

an officer or employee of an institutionaffiliated organization. 

46(b)(2) Institution of Higher Education 

The HEOA added the term 

‘‘institution of higher education’’ to 

TILA Section 140(a)(3) and defined it to 

have the same meaning as in section 102 

of the Higher Education Act of 1965 (20 

U.S.C. 1002). The definition 

encompasses, among other institutions, 

colleges and universities, proprietary 

educational institutions and vocational 

educational institutions. Proposed 

§ 226.37(b)(2) defined ‘‘institution of 

higher education’’ with reference to 

section 102 of the Higher Education Act 

of 1965 and to the implementing 

regulations promulgated by the 

Department of Education. However, on 

May 22, 2009, after passage of the HEOA 

and publication of the Board’s proposed 

rule, the Credit Card Accountability 

Responsibility and Disclosure Act of 

2009 (‘‘Credit CARD Act’’) amended 

TILA and added a definition of the term 

‘‘institution of higher education’’ to 

TILA section 127 that differs slightly 

from the definition of ‘‘institution of 

higher education’’ in TILA section 140. 

The Credit CARD Act amendment to 

TILA defines ‘‘institution of higher 

education’’ to include both sections 101 

and 102 of the Higher Education Act of 

1965. Credit CARD Act, Title III, Section 

305 (adding TILA section 127(r)(1)(D)). 

The definition of institution of higher 

education in TILA section 127 does not 

apply to private education loans. 

However, the Credit CARD Act added 

substantive provisions that apply to 

‘‘institutions of higher education’’ to 

TILA section 127 and section 140, 

indicating that the difference between 

the two definitions was inadvertent. 

Thus, the Board believes that the two 

definitions of ‘‘institution of higher 

education’’ should be reconciled. In 

order to ensure that the definition of 

‘‘institution of higher education’’ is 

consistent throughout Regulation Z, the 

final rule adopts a definition of 

‘‘institution of higher education’’ that 

includes both sections 101 and 102 of 

the Higher Education Act of 1965. The 

Board understands, after consulting 

with the Department of Education, that 

intuitions covered under section 101 of 

the Higher Education Act of 1965 would 

also be covered under section 102 of the 

Higher Education Act. As a result, the 

Board is not expanding the coverage of 

the final rule, but rather is adopting a 

definition that is consistent with the 

most recent statutory amendment to 

TILA. The Board is adopting comment 

46(b)(2)–1, proposed as comment 

37(b)(2)–1, providing examples of 

institutions of higher education. 

46(b)(3) Postsecondary Educational 

Expenses 

The HEOA defines ‘‘postsecondary 

educational expenses’’ as any of the 

expenses that are listed as part of the 

cost of attendance of a student under 

section 472 of the Higher Education Act 

of 1965 (20 U.S.C. 1087ll). Section 

226.46(b)(3) adopts this definition as 

proposed in § 226.37(b)(3), and provides 

illustrative examples of postsecondary 

educational expenses. Examples 

included tuition and fees, books, 

supplies, miscellaneous personal 

expenses, room and board, and an 

allowance for any loan fee, origination 

fee, or insurance premium charged to a 

student or parent for a loan incurred to 

cover the cost of the student’s 

attendance. Comment 46(b)(3)–1, 

adopted as proposed in comment 

37(b)(3)–1, clarifies that the examples in 

the rule are not exhaustive. 

46(b)(4) Preferred Lender Arrangement 

The HEOA defines ‘‘preferred lender 

arrangement’’ as having the same 

meaning as in section 151 of the Higher 

Education Act of 1965 (20 U.S.C 1019). 

Section 226.46(b)(4), proposed as 

§ 226.37(b)(4), adopts this definition. 

Comment 46(b)(4)–1, proposed as 

comment 37(b)(4)–1, clarifies that the 

term refers to an arrangement or 

agreement between a creditor and a 

covered educational institution under 

which a creditor provides education 

loans to consumers for students 

attending the school and the school 

recommends, promotes, or endorses the 

creditor’s private education loans. It 

does not include arrangements or 

agreements with respect to Federal 

Direct Stafford/Ford loans, or Federal 

PLUS loans made under the Federal 

PLUS auction pilot program. 

46(b)(5) Private Education Loan 

Proposed § 226.37(b)(5) implemented 

the HEOA’s definition of a ‘‘private 

education loan.’’ Under the proposal, a 

private education loan was defined as a 

loan that is not made, insured, or 

guaranteed under title IV of the Higher 

Education Act of 1965 (20 U.S.C. 1070 

et seq.) and is extended expressly, in 

whole or in part, for postsecondary 

educational expenses to a consumer, 

regardless of whether the loan is 

provided through the educational 

institution that the student attends. A 

private education loan excluded any 

credit otherwise made under an openend credit plan. It also excluded any 

closed-end loan secured by real 

property or a dwelling. 

Proposed comment 37(b)(5)–1 

clarified that a loan made ‘‘expressly 

for’’ postsecondary educational 

expenses included loans issued 

explicitly for expenses incurred while a 

student is enrolled in a covered 

educational institution. It also covered 

loans issued to consolidate a consumer’s 

pre-existing private education loans. 

Under § 226.46(b)(5) and related 

commentary, the Board is adopting the 

definition of ‘‘private education loan’’ 

substantially as proposed, but with 

exceptions for certain credit extensions 

provided by covered educational 

institutions. Extensions of credit with a 

term of 90 days or less, and tuition 

billing plans where an interest rate will 

not be applied to a balance and the term 

of the transaction is not greater than one 

year, even if the credit is payable in 

more than four installments, are exempt. 

Loans used for multiple purposes. 

Proposed comment 37(b)(5)–2 addressed 

loans, other than open-end credit or any 

loan secured by real property or a 

dwelling, that a consumer may use for 

multiple purposes, including 

postsecondary education expenses. 

Under the proposal, creditors extending 

such loans, could, at their option, 

provide the disclosures under 

§ 226.38(a) on or with an application or 

solicitation. However, under 

§ 226.37(d)(1)(iii), the Board proposed to 

exercise its authority under TILA 

section 105(a) and except multi-purpose 

loans from the application disclosure 

requirements of proposed § 226.38(a). 

As explained below, the Board stated its 

belief that this exception is necessary 

and proper to effectuate the purposes of, 

and facilitate compliance with, TILA. 

The Board also proposed to exercise 

its authority under TILA section 105(f) 

to exempt such loans from the proposed 

§ 226.38(a) disclosure requirements 

implementing TILA section 128(e)(1). 

The Board stated its view that these 

application and solicitation disclosure 

requirements do not provide a 

meaningful benefit to consumers in the 

form of useful information or protection 

for loans that may be used for multiple 

purposes. The Board considered that the 

private education loan population 

includes many students who may lack 

financial sophistication and the size of 

the loan could be relatively significant 

and important to the borrower. 

However, with respect to loans that may 

be used for multiple purposes, the 

creditor may not know at application if 

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the consumer intends to use such loans 

for educational purposes. A requirement 

to provide a consumer with the 

proposed § 226.38(a) disclosures would 

likely have been complicated and 

burdensome to creditors and potentially 

infeasible to implement. Furthermore, 

the Board believed that the borrower 

would receive meaningful information 

about the loan through the subsequent 

approval and final disclosures required 

under proposed §§ 226.38(b) and 38(c), 

respectively. The HEOA also provides 

borrowers with significant rights, such 

as the right to cancel the loan. The 

Board recognized that such multipurpose loans would not be secured by 

the principal residence of the consumer, 

which is a factor for consideration 

under section 105(f). The Board stated 

its belief that consumer protection 

would not be undermined by this 

exemption. 

Proposed comment 37(b)(5)–2 

clarified that if the consumer expressly 

indicates on an application that the 

proceeds of the loan will be used to pay 

for postsecondary educational expenses, 

the creditor must comply with the 

disclosure requirements of proposed 

§§ 226.38(b) (approval disclosures) and 

38(c) (final disclosures) and proposed 

§ 226.39 (including the 30 day 

acceptance period and three-businessday right to cancel). To determine the 

purpose of the loan, proposed comment 

37(b)(5)–2 stated that the creditor may 

rely on a check-box or purpose line on 

a loan application. 

Proposed comment 37(b)(5)–2 also 

clarified that the creditor must base the 

disclosures on the entire amount of the 

loan, even if only a part of the proceeds 

is intended for postsecondary 

educational expenses. The Board’s view 

was that this approach would be the 

least administratively burdensome for 

creditors and would also be clearer to 

consumers. Providing disclosures based 

on a partial loan amount might cause a 

consumer to misinterpret the correct 

amount of his or her loan obligation. 

Therefore, the Board proposed to 

exercise its authority under TILA 

section 105(a) to require that the 

approval and final disclosure 

requirements of HEOA be applied to the 

portion of the loan that is not a private 

education loan. As explained above, the 

Board stated its belief that this provision 

is necessary and appropriate to assure a 

meaningful disclosure of credit terms 

for consumers. 

The Board requested comment on 

whether the private education loan 

application disclosures should be 

required for loans that may be used for 

multiple purposes, or, alternatively, 

whether such loans should be exempt 

from any of the other disclosure 

requirements. The Board also requested 

comment on whether creditors who 

make loans that may be used for 

multiple purposes should be required to 

comply with the requirement to obtain 

a self-certification form under proposed 

§ 226.39(e) and, if so, whether creditors 

should be required to obtain the selfcertification form only from consumers 

who are students, or from all 

consumers, such as parents of a student. 

The Board received numerous 

comments on the proposed application 

of the private education loan rules to 

loans that may be used for multiple 

purposes. Industry commenters, 

including both large and small 

institutions and their representatives, 

stated that applying the proposed rule to 

such loans would be burdensome. Small 

institutions stated that the additional 

disclosures and timing requirements 

would not be beneficial to their 

customers who expect to be able to 

apply for and receive installment loans 

quickly based on an existing 

relationship with the institution. Larger 

institutions noted that they often have 

dedicated student lending operations 

and that applying the rules to general 

installment loans would require them to 

update systems not only for their 

student lending divisions, but also for 

other lending divisions. Some 

commenters expressed concern that, 

rather than build systems to comply 

with the private education loan rules, 

some institutions would decline to 

make a loan if the consumer indicated 

that the funds would be used for 

postsecondary educational expenses. 

Commenters also expressed concern 

that basing the disclosures on the entire 

loan amount, rather than the amount 

used for educational expenses would 

cause confusion. 

By contrast, consumer group 

commenters supported the proposed 

inclusion of loans that may be used for 

multiple purposes, noting the concern 

that exempting such loans could create 

an opportunity for evasion of the 

proposed rules. They also supported 

basing the disclosures on the entire loan 

amount, rather than the amount used for 

educational expenses. These 

commenters suggested that creditors be 

required to inquire whether a loan 

would be used for postsecondary 

educational expenses. 

The final rule would cover 

multipurpose loans largely as proposed. 

The Board believes that coverage of 

loans that may be used for multiple 

purposes is warranted by the statutory 

inclusion of loans made ‘‘expressly,’’ 

that is, explicitly, for postsecondary 

educational expenses. The Board also 

believes that there is potential for 

evasion of the rules if creditors could 

avoid compliance by lending the 

consumer more than the amount needed 

for educational purposes. One of the 

goals of the HEOA is to prevent students 

from borrowing more than their 

financial need to finance their 

education. Comment 46(b)(5)–2 

provides that the creditor may rely on 

a check-box or purpose line in an 

application to determine the loan’s 

purpose. In addition, the creditor must 

base the disclosures on the entire 

amount of the loan, even if only part of 

the loan is to be used for postsecondary 

educational expenses. The Board 

believes that providing disclosures 

based on a partial loan amount might 

cause a consumer to misinterpret the 

correct amount of his or her loan 

obligation. The Board is also adopting 

the exception to the requirement that 

the application disclosures under 

§ 226.47(a) be provided for multiplepurpose loans. The creditor may not 

know at application if the consumer 

intends to use such loans for 

educational purposes. A requirement to 

provide a consumer with the § 226.47(a) 

disclosures would likely be complicated 

and burdensome to creditors and 

potentially infeasible to implement. 

Credit provided by educational 

institutions. In addition to comments 

about loans that may be used for 

multiple purposes, the Board received a 

number of comments from educational 

institutions requesting clarification as to 

whether tuition billing plans were 

covered by the proposed rules. These 

commenters noted that such billing 

plans do not involve a disbursement of 

funds to the consumer and do not 

involve the application of an interest 

rate to a balance. Consequently, a major 

part of the new disclosures required by 

the HEOA, such as disclosures about 

interest rates and payment amounts at 

the maximum interest rate, would not 

apply to such billing option plans. In 

addition, these commenters suggested 

that neither the 30 day acceptance 

period nor the three-day right to cancel 

would be meaningful to consumers in a 

context where no funds are disbursed to 

the consumer. Most commenters who 

addressed this issue noted that these 

billing plans usually have terms of one 

year or less. 

Under § 226.46(b)(5)(iv)(B), the Board 

is revising the definition of ‘‘private 

education loan’’ to exclude certain 

billing plans provided by educational 

institutions. If payable in more than four 

installments, these plans may be 

considered credit under Regulation Z 

and would be subject to the 

requirements of §§ 226.17 and 18. 

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However, the Board agrees with 

commenters that the additional 

disclosure and timing rules for private 

education loans would not provide 

meaningful disclosures to consumers 

and could potentially make it more 

difficult for consumers to benefit from 

flexible payment options. The Board 

believes that the disclosure 

requirements under §§ 226.17 and 18 

provide consumers with adequate 

information for these types of plans. In 

response to public comment, the Board 

is exercising its authority under TILA 

section 105(a) to adopt a narrow 

exception for billing plans that do not 

apply an interest rate to the credit 

balance and have a term of one year or 

less, even if payable in more than four 

installments. Based on public comment, 

the Board believes that the limited 

exception for billing plans of one year 

or less that do not charge interest will 

provide sufficient flexibility to schools 

to accommodate students’ payment 

needs while ensuring that extensions of 

credit that are more likely to be a 

substitute for a private education loan 

are covered. Comment 46(b)(5)–3 

clarifies that such plans may 

nevertheless be extensions of credit 

subject to §§ 226.17 and 18. As 

explained above, the Board believes that 

this exception is necessary and proper 

to effectuate the purposes of, and 

facilitate compliance with, TILA. 

Educational institution commenters 

also requested an exemption for 

‘‘emergency’’ loans provided to a 

student for a short term while the 

student waits for other funds to be 

disbursed. Most commenters that 

requested an exemption for these 

‘‘emergency’’ loans stated that they have 

a term of 90 days or less. Because these 

loans may charge interest, they would 

not fall under the exemption for billing 

payment plans. However, as with billing 

payment plans, the Board believes that 

the additional disclosures required by 

the HEOA, such as the maximum rate 

disclosures, would not provide a 

meaningful benefit to consumers taking 

out short-term loans. Creditors would 

still be obligated to provide the general 

disclosures required under Regulation 

Z. Moreover, these commenters focused 

particularly on the burden that could be 

imposed on students by the prohibition 

on disbursing funds during the threeday cancellation period. For example, if 

delayed disbursement caused the 

student to fail to meet a tuition payment 

deadline the student may not be 

allowed to enroll in school, increasing 

the time needed to graduate. The Board 

believes that short-term loans provided 

by the school benefit consumers and 

that the HEOA’s requirements, 

especially the three-day cancellation 

period, could impair their effectiveness 

by delaying disbursement of loan 

proceeds without providing a 

meaningful benefit to students. 

Accordingly, the final rule exempts 

loans provided by the school with a 

term of 90 days or less. 

Comment 46(b)(5)–3 clarifies that 

such loans are not considered private 

education loans, even if interest is 

charged on the credit balance. Because 

these loans charge interest, they are not 

covered by the exception under 

§ 226.46(b)(5)(iv)(B). However, these 

loans are extensions of credit subject to 

the requirements of §§ 226.17 and 18. 

The comment clarifies that if legal 

agreement provides that repayment is 

required when the consumer or the 

educational institution receives certain 

funds (such as by deposit into the 

consumer’s or educational institution’s 

account), the disclosures should be 

based on the creditor’s estimate of the 

time the funds will be delivered. 

The exceptions that apply when the 

covered educational institution is the 

creditor apply only when the school 

itself is the creditors and not when an 

institution-affiliated organization is the 

creditor. The definition of covered 

educational institution in § 226.46(b)(1) 

includes an agent of the institution, 

meaning and institution-affiliated 

organization. Comment 46(b)(1)–2 

clarifies that institution-affiliated 

organization does not include the 

creditor with respect to any private 

education loan made by that creditor. 

Thus, if an institution-affiliated 

organization is the creditor, it is not a 

‘‘covered educational institution’’ and 

the institution-affiliated organization’s 

loans are not exempt. 

Educational institution commenters 

also requested clarification as to 

whether state ‘‘service requirement’’ 

programs would be considered private 

education loans. Under these programs, 

money is disbursed to students who 

agree as part of the legal obligation to 

complete a service obligation, such as 

teaching or practicing medicine in an 

underserved area. If the consumer 

completes the obligation, no repayment 

of principal or interest is required. 

However, if the consumer does not 

complete the service obligation, under 

the terms of the legal obligation, the 

consumer is required to repay the funds 

with interest. 

The Board notes that the definition of 

‘‘credit’’ under § 226.2(a)(14) means the 

right to defer payment of debt or to 

incur debt and defer its payment. 

Certain ‘‘service requirement’’ programs 

may not be credit under Regulation Z if 

the terms of the legal obligation 

contemplate that the consumer will not 

be required to repay principal or interest 

on disbursed funds. If the consumer is 

required to repay disbursed funds only 

in connection with an unanticipated 

breach of the consumer’s legal 

obligation to perform a service, the 

consumer may not have a credit 

extension under Regulation Z. 

46(c) Form of Disclosures 

Similar to the requirements imposed 

by § 226.17 for the disclosures required 

by § 226.18, the Board is adopting 

§ 226.46(c)(1), proposed as 

§ 226.37(c)(1), to require the disclosures 

for private education loans be made 

clearly and conspicuously. The Board is 

also adopting § 226.46(c)(2), proposed as 

§ 226.37(c)(2), to require that the 

approval and final disclosures under 

§§ 226.47(b) and 47(c) to be in writing 

in a form that the consumer may keep. 

The disclosures must be grouped 

together, be segregated from everything 

else, and not contain any information 

not directly related to the disclosures 

required under §§ 226.47(b) and 47(c), 

which include the disclosures required 

under § 226.18. However, the 

disclosures may include an 

acknowledgement of receipt, the date of 

the transaction, and the consumer’s 

name, address, and account number. In 

addition, as proposed, the following 

disclosures may be made together with 

or separately from other required 

disclosures as permitted under current 

§ 226.17: the creditor’s identity under 

§ 226.18(a), insurance or debt 

cancellation under § 226.18(n), and 

certain security interest charges under 

§ 226.18(o). 

As proposed, the term ‘‘finance 

charge’’ and corresponding amount, 

when required to be disclosed under 

§ 226.18(d), and the interest rate 

required to be disclosed under 

§§ 226.47(b)(1)(i) and 47(c)(1), must be 

more conspicuous than any other 

disclosure, except the creditor’s identity 

under § 228.18(a). As discussed in the 

section-by-section analysis under 

§ 226.17, the annual percentage rate is 

not required to be more prominent than 

other terms. 

Comment 46(c)–1, proposed as 

comment 37(c)–1, clarifies that creditors 

may follow the rules in § 226.17 in 

complying with the requirement to 

provide the information required under 

§ 226.18, as well as the requirement that 

the disclosures be grouped together and 

segregated from everything else. 

However, in contrast to § 226.17, the 

itemization of the amount financed 

under § 226.18(c)(1) need not be 

separate from the other disclosures. 

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TILA Section 128(b)(1) requires any 

computations or itemization to be 

segregated from the disclosures required 

in TILA Section 128(a). However, the 

HEOA requires creditors to disclose a 

number of terms that are part of the 

itemization of the amount financed 

under § 226.18(b), such as the principal 

amount of the loan and an itemization 

of fees. See §§ 226.47(b)(2), 47(b)(3)(i), 

47(c)(2) and 47(c)(3)(i). Based on 

consumer testing, the Board believes 

that consumers may be confused about 

the difference between the required 

disclosure of the amount financed 

(§ 226.18(b)) and the loan’s total 

principal amount in cases where those 

two disclosures are different. Providing 

an itemization can help clarify 

distinction between the ‘‘amount 

financed’’ and the ‘‘total loan amount’’ 

by showing the consumer how the 

amount financed is derived. It can also 

provide a clear and understandable 

disclosure of certain fees. For these 

reasons, the Board is exercising its 

authority under TILA section 105(a) to 

except private education loans from the 

requirement that the itemization of the 

amount financed be segregated from the 

other disclosures. The Board believes 

that this exception is necessary and 

proper to effectuate the purposes of, and 

facilitate compliance with, TILA. 

The Board proposed to allow creditors 

to provide the disclosure of the loan’s 

total principal amount as part of the 

itemization of the amount financed, if 

the creditor opts to provide an 

itemization. However, because the final 

model disclosures provide the loan’s 

total principal amount, not the amount 

financed, prominently, the final rule 

allows the creditor to disclose the 

amount financed as part of the 

itemization if the creditor opts to 

provide an itemization. 

Section 226.46(c)(2), proposed as 

§ 226.37(c)(2), permits creditors to make 

disclosures to consumers in electronic 

form, subject to compliance with the 

consumer consent and other applicable 

provisions of the Electronic Signatures 

in Global and National Commerce Act 

(E-Sign Act) (15 U.S.C. 7001 et seq.). 

The disclosures required by § 226.47(a) 

may be provided to the consumer in 

electronic form without regard to the 

consumer consent or other provisions of 

the E-Sign Act on or with an application 

or solicitation provided in electronic 

form. The self-certification form 

required under § 226.48(e) may be 

obtained in electronic form subject to 

the requirements in that section. In 

addition, as discussed below in the 

section-by-section analysis under 

§§ 226.48(c) and (d), if creditors have 

provided the approval or final 

disclosures electronically in accordance 

with the E-Sign Act, creditors may 

accept electronic communication of 

loan acceptance or cancellation, 

respectively. 

Comment 46(c)(2)–1, proposed as 

comment 37(c)(2)–1, contains guidance 

on the manner in which disclosures 

may be provided in electronic form. 

Electronic disclosures are deemed to be 

on or with an application or solicitation 

if they—(1) Automatically appear on the 

screen when the application or 

solicitation reply form appears; (2) are 

located on the same Web ‘‘page’’ as the 

application or solicitation reply form 

and the application or reply form 

contains a clear and conspicuous 

reference to the location and content of 

the disclosures; or (3) are posted on a 

Web site and the application or 

solicitation reply form is linked to the 

disclosures in a manner that prevents 

the consumer from by-passing the 

disclosures before submitting the 

application or reply form. This 

approach is consistent with the rules for 

electronic disclosures for credit and 

charge card applications under 

comment 5a(a)(2)–1.ii. 

46(d) Timing of Disclosures 

Section 226.46(d), proposed as 

§ 226.37(d), contains the rules governing 

the timing of the proposed disclosures. 

Proposed comment 37(d)–1 contained 

guidance specifying that if the creditor 

places the disclosures in the mail, the 

consumer is considered to have received 

them three business days after they are 

mailed. For purposes of proposed 

§§ 226.37, 226.38, and 226.39, the term 

‘‘business day’’ was given the more 

precise definition used for rescission 

and other purposes, meaning all 

calendar days except Sundays and the 

Federal holidays referred to in 

§ 226.2(a)(6). 

As discussed in the section-by-section 

analysis under § 226.2(a)(6), in the final 

rule the more precise definition of 

‘‘business day’’ applies only to 

measuring the time period in which 

consumers are deemed to have received 

mailed disclosures. The final rule 

includes a new § 226.46(d)(4) providing 

that the consumer is deemed to have 

received mailed disclosures within 

three business days after they are 

mailed. Comment 46(d)–1 clarifies that 

the definition of ‘‘business day’’ used in 

§ 226.46(d)(4) means all calendar days 

except Sundays and the Federal 

holidays referred to in § 226.2(a)(6). For 

example, if the creditor places the 

disclosure in the mail on Thursday, 

June 4, the disclosures are considered 

received on Monday, June 8. 

Proposed comment 37(d)–1 stated that 

the disclosures are considered provided 

when received by the consumer. 

However, in order to clarify the timing 

of different aspects of the final rule, this 

is not adopted in comment 46(d)–1. 

Instead, as discussed in this section-bysection analysis under § 226.46, the 

final rule specifies when disclosures 

must be provided and, as discussed in 

the section-by-section analysis under 

§ 226.48, the final rule provides 

guidance on when disclosures are 

deemed to be received by the consumer 

for purposes of measuring the 30-day 

acceptance period and three-day 

cancellation period. 

Application disclosures. The HEOA 

requires creditors to provide disclosures 

in an application or in a solicitation that 

does not require the consumer to 

complete an application. HEOA, Title X, 

Subtitle B, Section 1021(a) (adding TILA 

section 128(e)(1)). Under 

§ 226.46(d)(1)(i), proposed as 

§ 226.37(d)(1), creditors are allowed to 

provide the disclosures on or with the 

application or solicitation because the 

disclosures are likely to be longer than 

a single page. The final regulation, as 

proposed, defines the term 

‘‘solicitation’’ to mean an offer of credit 

that does not require the consumer to 

complete an application. A 

‘‘solicitation’’ would also include a 

‘‘firm offer of credit’’ as defined in the 

Fair Credit Reporting Act (FCRA). 15 

U.S.C. 1681 et seq. Because consumers 

who receive ‘‘firm offers of credit’’ have 

been preapproved to receive credit and 

may be turned down only under limited 

circumstances, the Board believes that 

these preapproved offers are of the type 

intended to be captured as a 

‘‘solicitation,’’ even though consumers 

are typically asked to provide some 

additional information in connection 

with accepting the offer. The definition 

of ‘‘solicitation’’ is similar to that 

contained in § 226.5a(a)(1) for credit and 

charge card application disclosures. 

Comment 46(d)(1)–1, proposed as 

comment 37(d)(1)–1, provides 

additional guidance that invitations to 

apply for a private education loan 

would not be considered solicitations. 

Proposed § 226.37(d)(1)(ii) dealt with 

provision of disclosures in a telephone 

application or solicitation initiated by 

the creditor. The creditor was allowed, 

but not required, to orally disclose the 

information in proposed § 226.38(a). 

Alternatively, if the creditor did not 

disclose orally the information in 

§ 226.38(a), the creditor was required to 

provide or place in the mail the 

disclosures no later than three business 

days after the consumer applied for the 

credit. The Board stated its belief that 

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orally disclosing to consumers all of the 

information in proposed § 226.38(a), 

including rate and loan cost 

information, information about Federal 

loan alternatives, and loan eligibility 

requirements, may make it difficult for 

consumers to comprehend and retain 

the information. 

The Board requested comment on 

alternatives to providing application 

disclosures in telephone applications or 

solicitations initiated by the creditor. In 

response to comment, the final rule 

revises the proposal in two ways. First, 

under § 226.47(d)(1)(ii), the oral 

disclosure provisions for telephone 

applications or solicitations apply 

regardless of whether the creditor or the 

consumer initiates the communication. 

Both industry and consumer group 

commenters stated that consumers of 

private education loans often initiate 

telephone applications and suggested 

that both consumers and creditors 

would benefit if the same rules applied 

regardless of which party initiates the 

communication. 

Second, the Board recognized in the 

proposal that creditors may sometimes 

be able to communicate approval of the 

consumer’s application at the same time 

that the creditor would provide the 

application disclosures. Consumers may 

be confused by receiving both the 

application disclosures and the 

approval disclosures at the same time. 

Therefore, the Board proposed to 

exercise its authority under TILA 

section 105(a) to create an exception 

from the requirement to provide the 

application disclosures under proposed 

§ 226.38(a) if the creditor did not 

provide oral application disclosures but 

did provide or place in the mail the 

approval disclosures in proposed 

§ 226.38(b) no later than three business 

days after the consumer requested the 

credit. As explained above, the Board 

stated its belief that this exception is 

necessary and proper to assure a 

meaningful disclosure of credit terms 

for consumers. 

The Board also proposed to exercise 

its authority under TILA section 105(f) 

in proposing the exemption, described 

above, from the requirement to provide 

the application disclosures under 

proposed § 226.38(a), as required by 

TILA section 128(e)(1). The Board 

believed that, as described above, the 

application disclosure requirements 

would not provide a meaningful benefit 

to consumers in the form of useful 

information or protection because they 

would also contemporaneously receive 

the approval disclosures which would 

provide the consumer with adequate 

information. Moreover, the Board stated 

its view that receiving both the 

application and approval disclosures at 

the same time may complicate and 

hinder the credit process by causing 

consumer confusion. The Board 

recognized that the private education 

loan population contains students who 

may lack financial sophistication, and 

that the amount of the loan may be large 

and the loan itself may be important to 

the consumer. The Board also noted that 

private education loans are not secured 

by the consumer’s residence and that 

HEOA provides the consumer with the 

right to cancel the loan. Finally, in 

considering the last factor under section 

105(f), the Board did not believe that the 

goal of consumer protection would be 

undermined by such an exemption. 

Commenters supported this aspect of 

the proposal, but industry commenters 

also suggested that if creditor denies the 

consumer’s application within three 

business days of the telephone 

communication, the creditor should not 

be required to provide the application 

disclosures. The Board agrees that it 

would be confusing for the consumer to 

receive an adverse action notice 

simultaneously with or shortly after 

receiving the application disclosures. 

Under § 226.47(d)(1)(ii) of the final rule, 

if the creditor does not provide the 

application disclosures orally and the 

creditor denies the consumer’s 

application within three business days, 

the creditor need not send the 

application disclosures. 

As discussed above in the section-bysection analysis under § 226.46(b)(5), 

§ 226.46(d)(1)(iii) would create an 

exception to the application disclosure 

requirement for a loan, other than openend credit or any loan secured by real 

property or a dwelling, that the 

consumer may use for multiple 

purposes including, but not limited to, 

postsecondary educational expenses. 

Approval disclosures. Section 

226.46(d)(2), proposed as § 226.37(d)(2), 

requires that the disclosures specified in 

§ 226.47(b) be provided before 

consummation on or with any notice to 

the consumer that the creditor has 

approved the consumer’s application for 

a loan. If the creditor provides approval 

to the consumer by mail, the disclosures 

have to be mailed at the same time as 

the approval. If the creditor provides 

approval by telephone, the creditor 

must place the disclosures in the mail 

within three business days of the 

approval. The creditor may provide the 

disclosures solely in electronic form if 

the creditor has complied with the 

consumer consent and other applicable 

provisions of the Electronic Signatures 

in Global and National Commerce Act 

(E-Sign Act) (15 U.S.C. § 7001 et seq.); 

otherwise, the creditor must place the 

disclosures in the mail within three 

business days. 

The HEOA requires that the 

disclosures be provided 

contemporaneously with loan approval. 

However, loan approval is an internal 

process of the creditor’s and it often 

may not be feasible to provide the 

disclosures at the precise moment that 

the creditor approves the loan. The 

Board believes that by requiring the 

disclosures be provided at the time the 

creditor communicates approval to the 

consumer, the consumer will receive the 

information at the earliest opportunity 

contemporaneous with loan approval. In 

addition, the rule provides creditors 

with certainty as to when the disclosure 

must be provided. The Board believes 

that creditors are likely to notify the 

consumer that the loan has been 

approved shortly after approval is 

granted because the creditor cannot 

consummate and disburse the loan until 

the consumer has received the required 

approval disclosures and accepted the 

loan. 

The Board requested comment on 

alternative approaches to the timing of 

the approval disclosure. As discussed 

more fully in the section-by-section 

analysis under § 226.48(c), industry 

commenters requested clarification as to 

when ‘‘approval’’ occurs. They noted 

that they currently provide conditional 

notices of approval to consumers but 

that final approval does not occur until 

information provided by the consumer 

and the educational institution are 

verified. These commenters noted that 

under the prohibition on changing terms 

during the consumer’s 30-day 

acceptance period in proposed 

§ 226.39(b), they could no longer 

provide conditional approvals and 

expressed concern that final approvals 

would come too late in the process for 

the 30-day acceptance period to be 

meaningful to consumers. 

The final rule requires creditors to 

provide the approval disclosures on or 

with any notice of approval, as 

proposed. However, to ensure that the 

approval disclosure comes as early as 

reasonably possible consistent with the 

HEOA’s prohibition on the creditor 

changing the terms of the loan, 

§ 226.48(c) allows creditors to make 

certain, limited changes to loan terms 

after loan approval without providing 

another 30-day acceptance period. In 

addition, comment 46(d)(2)–1 explicitly 

permits the creditor to communicate 

that additional information is required 

from the consumer before approval may 

be granted, without triggering the 

disclosure requirements of § 226.47(b). 

Final disclosures. Proposed 

§ 226.37(d)(3) required final disclosures 

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41208 Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations 

10The comment states that when a contractual 

obligation on the consumer’s part is created is a 

matter to be determined under applicable law; 

Regulation Z does not make this determination. 

Comment 2(a)(13)–1. 

to be provided to the consumer after the 

consumer accepts the loan and at least 

three business days prior to disbursing 

the private education loan funds. 

In the final rule § 226.46(d)(3), 

requires the final disclosures to be 

provided to the consumer after the 

consumer accepts the loan, but does not 

base the timing on when the private 

education loan funds are disbursed. 

Section 226.48(d) prohibits the creditor 

from disbursing funds until at least 

three business days after the consumer 

receives the final disclosures. The 

reference in proposed § 226.37(d)(3) to 

the disbursement of funds was 

potentially confusing and did not add a 

meaningful restriction on the timing of 

providing the disclosures. 

In both the proposed and final rule, 

the timing of the final disclosure differs 

slightly from the language used in the 

HEOA. For the reasons discussed below, 

the Board believes that creditors may 

not always be able to comply with the 

literal text of the HEOA, and that the 

Board’s timing rule implements the 

purpose of the HEOA’s final disclosure. 

The HEOA requires a final disclosure 

contemporaneously with the 

consummation of a private education 

loan. HEOA, Title X, Subtitle B, Section 

1021(a) (adding TILA Section 128(e)(4)). 

Regulation Z defines ‘‘consummation’’ 

as the time that a consumer becomes 

contractually obligated on a credit 

transaction. 12 CFR 226.2(a)(13). The 

corresponding staff commentary 

provides that applicable state law 

governs in determining when a 

consumer becomes contractually 

obligated.10 The Board recognizes that 

states define when a consumer becomes 

contractually obligated in a variety of 

ways. The multiple state definitions 

could result in considerable confusion 

among creditors as to the required 

timing of the final disclosures. Under 

many current private education loan 

agreements, the consumer is not 

contractually obligated until funds are 

disbursed to the consumer. This would 

create a compliance problem for 

creditors making loans in these cases 

because, in addition to requiring 

delivery of the final disclosures 

contemporaneously with 

consummation, the HEOA forbids 

creditors from disbursing funds until 

three business days after the consumer 

receives the final disclosures. Thus, 

where the consumer is not contractually 

obligated until the funds are disbursed, 

creditors cannot comply with the literal 

language of the HEOA; a creditor cannot 

simultaneously provide a disclosure at 

the time of disbursement and not 

disburse funds until three business days 

after the disclosure is provided. The 

HEOA adds further complexity to 

determining when the consumer 

becomes contractually obligated because 

it requires creditors to provide an 

approval disclosure to the consumer 

and hold the terms open for 30 days for 

the consumer to accept. It is not clear 

how this process would affect various 

states’ interpretations of when the 

consumer becomes contractually 

obligated. Thus, creditors may face 

considerable uncertainty as to when the 

required disclosures must be provided. 

The Board interprets the phrase 

‘‘contemporaneously with 

consummation’’ to mean a time after the 

consumer accepts the loan that is at 

least three days before disbursement. 

Accordingly, the Board is adopting 

§ 226.46(d)(3) to require that the final 

disclosures be provided after the 

consumer accepts the loan and, as 

discussed in the section-by-section 

analysis below, § 226.48(d) to prohibit 

disbursement until three days after the 

consumer receives the final disclosures. 

The Board solicited comment on 

alternative approaches to the timing of 

the final disclosure that achieve the 

statutory purpose while ensuring that 

compliance is possible in all cases and 

commenters generally supported the 

Board’s approach. The Board believes 

that the purpose of the final disclosure, 

and the consumer’s three-business day 

right to cancel following receipt of that 

disclosure, is to ensure that consumers 

are given a final opportunity to evaluate 

their need for a private education loan 

after acceptance and before the funds 

are actually disbursed. The Board 

believes that rule will accomplish the 

statute’s objectives while ensuring that 

creditors have reasonable certainty in 

complying with the rule’s timing 

requirement. 

46(e) Basis of Disclosures and Use of 

Estimates 

Section 226.46(e), adopted as 

proposed in § 226.37(e), requires that 

the disclosures be based on the terms of 

the legal obligation between the parties 

and is similar to current § 226.17(e). If 

any information necessary for an 

accurate disclosure is unknown to the 

creditor, the creditor must make the 

disclosure based on the best information 

reasonably available at the time the 

disclosure is provided and state clearly 

that the disclosure is an estimate. For 

example, the creditor may not know the 

exact date that repayment will begin at 

the time that credit is advanced to the 

consumer. The creditor is permitted to 

estimate a repayment start date based 

on, for instance, an estimate of the 

consumer’s graduation date. 

46(f) Multiple Creditors; Multiple 

Consumers 

Proposed § 226.37(f), provided rules 

for disclosures where there are multiple 

creditors or consumers. If there are 

multiple creditors only one set of 

disclosures could be given and the 

creditors were required to agree which 

creditor must comply. If there are 

multiple consumers, the creditor was 

permitted to provide the disclosure to 

any consumer who is primarily liable on 

the obligation. 

Consumer group commenters urged 

the Board to require that the disclosures 

be provided to all consumers primarily 

liable on the obligation. However, 

proposed § 226.37(f) was consistent 

with the treatment of other disclosures 

under Regulation Z and the Board is 

adopting it as proposed in § 226.46(f). 

46(g) Effect of Subsequent Events 

Under proposed § 226.37(g) and 

comment 37(g)–1, if an event that 

occurred after consummation rendered 

the final disclosures under proposed 

§ 226.38(c) inaccurate, the inaccuracy 

would not be a violation of Regulation 

Z. For example, if the consumer initially 

chose to defer payment of principal and 

interest while enrolled in an 

educational institution, but later chose 

to make payments while enrolled, such 

a change would not make the original 

disclosures inaccurate. 

Proposed § 226.37(g) was modeled 

after current § 226.17(e). However, 

because only one set of disclosures are 

required under § 226.17, while two sets 

are required for private education loans, 

commenters requested clarification of 

the effect of subsequent events on the 

approval disclosures required under 

proposed § 226.38(b). Specifically, 

commenters noted that because the 

proposed rule had excepted private 

education loans from § 226.17(e), but 

provided an analogous rule in proposed 

§ 226.37(g) only for final disclosures, the 

proposal did not address the effect of 

subsequent events on approval 

disclosures. 

In the final rule, § 226.46(g) is broken 

out into separate rules for the approval 

disclosures under § 226.47(b) and the 

final disclosures under § 226.47(c). For 

approval disclosures, the rule clarifies 

that if a disclosure under § 226.47(b) 

becomes inaccurate because of an event 

that occurs after the creditor delivers the 

required disclosures, the inaccuracy is 

not a violation of Regulation Z (12 CFR 

part 226), although new disclosures may 

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be required under § 226.48(c). Comment 

46(g)–1 clarifies that although 

inaccuracies in the disclosures required 

under § 226.47(b) are not violations if 

attributable to events occurring after 

disclosures are made, creditors are 

restricted under § 226.48(c)(2) from 

making certain changes to the loan’s rate 

or terms after the creditor provides an 

approval disclosure to a consumer. 

Creditors are also required to make 

subsequent disclosures in the form of 

the final disclosures required under 

§ 226.47(c) and therefore, except as 

specified under § 226.48(c)(4), need not 

make new approval disclosures in 

response to an event that occurs after 

the creditor delivers the required 

approval disclosures. For example, at 

the time the approval disclosures are 

provided, the creditor may not know the 

precise disbursement date of the loan 

funds and must provide estimated 

disclosures based on the best 

information reasonably available. If, 

after the approval disclosures are 

provided, the creditor learns from the 

educational institution the precise 

disbursement date, new approval 

disclosures would not be required, 

unless specifically required under 

§ 226.48(c)(4) if other changes are made 

at the same time. Similarly, the creditor 

may not know the precise amounts of 

each loan to be consolidated in a 

consolidation loan transaction and 

information about the precise amounts 

would not require new approval 

disclosures, unless specifically required 

under § 226.48(c)(4) if other changes are 

made. 

For final disclosures required under 

§ 226.47(c), § 226.46(g)(2) rule clarifies 

that if a disclosure under § 226.47(c) 

becomes inaccurate because of an event 

that occurs after the creditor delivers the 

required disclosures, the inaccuracy is 

not a violation of Regulation Z (12 CFR 

part 226. For example, if the consumer 

initially chooses to defer payment of 

principal and interest while enrolled in 

a covered educational institution, but 

later chooses to make payments while 

enrolled, such a change does not make 

the original disclosures inaccurate. 

Section 226.47 Content of Disclosures 

Section 226.47, proposed as § 226.38, 

establishes the content that a creditor is 

required to include in its disclosures to 

a consumer at three different stages in 

the private education loan origination 

process: (1) On or with an application 

or a solicitation that does not require the 

consumer to complete an application, 

(2) with any notice of approval of the 

private education loan, and (3) after the 

consumer accepts the loan. 

Preventing Duplication of Existing TILA 

Disclosure Requirements 

While adding a number of disclosure 

requirements for private education 

loans, the HEOA did not eliminate a 

creditor’s obligation to provide 

consumers with the information 

required to be disclosed before 

consummation of any closed-end loan, 

in accordance with TILA sections 128(a) 

through (d). The HEOA requires the 

Board to prevent, to the extent possible, 

duplicative disclosure requirements for 

creditors making private education 

loans under TILA. HEOA, Title X, 

Subtitle B, Section 1021(a) (adding TILA 

Section 128(e)(9)). Where the disclosure 

requirements of section 128(e) differ or 

conflict with other disclosure 

requirements under TILA that apply to 

creditors, the requirements of section 

128(e) are controlling. Id. 

The new application and solicitation 

disclosures proposed under § 226.38(a) 

did not duplicate disclosures previously 

required under TILA because TILA does 

not require disclosures at the time of 

application or solicitation for closedend credit. Under TILA sections 128(a) 

through (d), as implemented by 

§§ 226.17 and 226.18, the closed-end 

loan disclosures applicable to private 

education loans are required to be 

provided only once, before 

consummation. However, the Board 

proposed to require the § 226.18 closedend loan disclosures be provided twice 

for private education loans—once when 

the loan is approved, and again with the 

final disclosures, in a manner shown in 

the proposed model forms in Appendix 

H. Specifically, the Board proposed to 

require creditors to provide consumers 

the existing § 226.18 disclosures along 

with the proposed § 226.38(b) approval 

disclosures. The Board also proposed to 

require that the § 226.18 disclosures be 

provided along with the final 

disclosures required under new TILA 

section 128(e)(4) (implemented by 

proposed § 226.38(c), discussed below). 

Under TILA sections 128(e)(2)(P) and 

128(e)(4)(B), the Board has authority to 

add such other information as necessary 

or appropriate for consumers to make 

informed borrowing decisions. With 

respect to the approval disclosures, the 

Board stated in its proposal its belief 

that combining the existing closed-end 

credit TILA disclosures with the new 

private education loan disclosures 

provided to consumers the most 

relevant transaction-specific 

information at a point where the 

consumer was most likely to make the 

decision as to whether a particular 

private education loan met the 

consumer’s needs. Once the creditor 

communicates approval to the 

consumer, the consumer has the right to 

accept the loan terms at any time within 

30 calendar days of the date the 

consumer receives the approval 

disclosures. During this time, with a few 

exceptions, the creditor may not change 

the rate and terms of the loan. As a 

result, if the consumer accepts the loan 

within that 30-day period, the rate and 

terms of the approved loan will 

generally be the rate and terms of the 

loan ultimately made to the consumer. 

To make an informed decision during 

this deliberation period, the Board 

stated that consumer would be best 

served by having the information 

required under §§ 226.17 and 226.18, as 

well as under proposed § 226.38(b). 

In addition, consistent with the 

requirement in § 226.17 that creditors 

must provide closed-end disclosures 

before consummation of the credit 

transaction, proposed § 226.37(d)(2) 

required that the approval disclosure be 

provided before consummation. Based 

on TILA’s definition of 

‘‘consummation’’ in § 226.2(a)(13), this 

meant that the closed-end credit 

disclosures must be provided before the 

consumer was contractually obligated 

on the loan. State laws may vary as to 

when consummation occurs (see 

comment 2(a)(13)–1), but the Board 

believes that the time of approval is 

likely to precede the time at which the 

consumer becomes contractually 

obligated on a loan. 

The Board believed that providing the 

§ 226.18 disclosures a second time along 

with the final disclosures under 

proposed § 226.38(c) would enhance 

consumer understanding by making it 

easier for consumers to compare the 

approval and final disclosures. By 

having two sets of disclosures that 

largely mirror each other, both in 

content and in form, consumers would 

be able to easily compare terms between 

the two sets of disclosures and likely 

would be better able to decide whether 

or not to exercise their right to cancel 

the loan. Moreover, relatively few 

disclosures could be removed from the 

final disclosure if the current TILA 

disclosures were not required, given the 

substantial overlap with the HEOA 

requirements. Thus, the Board stated 

that requiring uniformity would likely 

enhance consumer understanding 

without unduly burdening creditors. 

Commenters generally supported the 

inclusion of the information required in 

§ 226.18 along with the approval and 

final disclosures in proposed 

§§ 226.38(b) and 38(c) and the final rule 

adopts these requirements in 

§§ 226.47(b) and 47(c). In combining the 

§ 226.18 disclosures with the 

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disclosures under §§ 226.47(b) and 47(c) 

in a model form, the Board, as proposed, 

retains many of the basic elements of 

the closed-end loan model form in 

existing Regulation Z Appendix H (see 

Appendix H–2). The model forms are 

discussed further in the section-bysection analysis under Appendix H. 

Graduated payment disclosure. TILA 

section 128(e)(2)(K) requires the creditor 

to disclose whether monthly payments 

are graduated. As proposed, the Board is 

implementing this requirement as part 

of the requirement that creditors 

provide the information under § 226.18. 

Specifically, the payment schedule 

disclosure under § 226.18(g) requires 

creditors to show whether the payments 

are graduated. 

Other instances in which the Board is 

merging specific § 226.18 disclosures 

with the disclosures in §§ 226.47(b) and 

(c) to avoid duplicative disclosures are 

discussed throughout this section-bysection analysis below. 

General Disclosure Requirements 

Proposed comment 38–1 clarified that 

the disclosures required under proposed 

§ 226.38 need be provided only as 

applicable, except where specifically 

provided otherwise. For example, under 

proposed §§ 226.38(b)(1) and (c)(1) 

creditors would specifically be required 

to disclose the lack of any limitations on 

adjustments to the loan’s interest rate, 

rather than omit the disclosure as 

inapplicable. However, for some loans, 

especially loans made to consolidate a 

consumer’s existing private education 

loans, a number of the required 

disclosures may not apply. For example, 

the required disclosures about the 

availability of Federal student loans 

would generally not apply to a 

consolidation loan because Federal loan 

programs do not allow a consumer to 

consolidate private education loans. For 

this reason, the Board proposed to allow 

disclosures for consolidation loans to 

omit the disclosures required in 

proposed §§ 226.38(a)(6), and (b)(4). 

Industry commenters sought further 

clarification that disclosure of Federal 

loan alternatives would not apply to 

other types of loans for which Federal 

funding is not available. In response to 

these comments, comment 47–1 of the 

final rule also lists the transactions for 

which compliance under Subpart F is 

optional, such as medical residency or 

bar study loans, as loans for which 

§§ 226.47(a)(6) and (b)(4) are not 

applicable. 

47(a) Application or Solicitation 

Disclosures 

Section 226.47(a), proposed as 

§ 226.38(a), specifies the information 

that a creditor must disclose to a 

consumer on or with any application for 

a private education loan or any 

solicitation for a private education loan 

that does not require an application. 

The disclosures may be included either 

on the same document as the 

application or solicitation or on a 

separate document, as long as the 

creditor provides the required 

disclosures to the consumer at the 

required time. Other guidance on 

delivery of the disclosures required 

under § 226.47(a) is provided in 

§ 226.46, corresponding commentary, 

and in this section-by-section analysis 

under § 226.46. Revisions to the final 

rule regarding the provision of 

application and solicitation disclosures 

in telephone applications are discussed 

in the section-by-section analysis under 

§ 226.46(d)(1). 

47(a)(1) Interest Rates 

Section 226.47(a)(1), proposed as 

§ 226.38(a)(1), requires creditors to 

disclose information regarding the 

interest rates that apply to the private 

education loan being offered. 

Proposed § 226.38(a)(1)(i) required 

creditors to disclose the initial interest 

rate or range of rates that are being 

offered for the loan. TILA section 

128(e)(1)(A) requires disclosure of the 

potential range of rates of interest 

applicable to the loan, but does not 

clarify how this requirement should be 

applied to loans with variable interest 

rates that might change between the 

time of application and approval of the 

loan. The Board proposed to require that 

the creditor disclose the minimum and 

maximum starting rates of interest 

available at the time that the creditor 

provides the application or solicitation 

to the consumer. 

The Board recognized that these rates 

might vary based on the creditor’s 

underwriting criteria for a particular 

loan product, including a consumer’s 

credit history. Based on consumer 

testing, the Board believes that 

providing a general explanation of how 

an interest rate would be determined 

provides the context necessary for a 

consumer to understand why more than 

one rate is being disclosed and how a 

creditor would determine a consumer’s 

interest rate if the consumer were to 

apply for the loan. For this reason, the 

Board proposed to add a disclosure 

requirement under its TILA section 

128(e)(1)(R) authority. If the rate will 

depend, in part, on a later determination 

of the consumer’s creditworthiness or 

other factors, the creditor would be 

required to state that the rate for which 

the consumer may qualify will depend 

on the consumer’s creditworthiness and 

other factors. Proposed comment 

38(a)(1)(i)–2 clarified that the disclosure 

does not require the creditor to list the 

factors that the creditor will use to 

determine the interest rate. 

Section 226.47(a)(1) adopts proposed 

§ 226.38(a)(1)(i) largely as proposed. 

Comment 47(a)(1)(i)–2 clarifies that the 

creditor may, at its option, specify any 

factors other than the consumer’s credit 

history that it will use to determine the 

interest rate. For example, if the creditor 

will determine the interest rate based on 

information in the consumer’s or cosigner’s credit report and the type of 

school the consumer attends, the 

creditor may state, ‘‘Your interest rate 

will be based on your credit history and 

other factors (co-signer credit and 

school type).’’ 

Proposed comment 38(a)(1)(i)–1 

clarified that the rates disclosed must be 

rates that are actually offered by the 

creditor. For variable rate loans, the 

comment provided guidance on when a 

rate disclosure would be considered 

timely so that the disclosed rate would 

be deemed to be actually offered. For 

disclosures that are mailed, rates would 

be considered actually offered if the 

rates were in effect within 60 days 

before mailing. For disclosures in 

printed applications or solicitations 

made available to the general public, or 

for disclosures in electronic form, rates 

would be considered actually offered if 

the rates were in effect within 30 days 

before printing or within 30 days before 

the disclosures are sent to consumers 

electronically or, for disclosures made 

on an Internet Web site, within 30 days 

before being viewed by the public. For 

disclosures in telephone applications or 

solicitations, rates provided orally 

would be considered actually offered if 

the rates are currently applicable at the 

time the disclosures are provided. 

Proposed comment 38(a)(1)(i)–1 was 

consistent with the rules for variablerate accuracy in credit and charge card 

application disclosures under 

§§ 226.5a(c), (d), and (e). 

Industry commenters expressed 

concern that proposed comment 

38(a)(1)(i)–1 required interest rate 

information on an Internet Web site to 

be in effect as of the time the consumer 

viewed the information. However, the 

Board’s intent was to provide that such 

information is deemed actually offered 

if in effect within 30 days before being 

viewed by the public. Final comment 

47(a)(1)(i)–1 has been revised to clarify 

this. 

Industry, consumer group, and 

educational institution commenters all 

expressed concern that for variable-rate 

loans the interest rates disclosed under 

§ 226.47(a)(1) not be allowed to reflect 

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11See National Consumer Law Center, 

‘‘Testimony before the U.S. Senate Committee on 

Health, Education, Labor, and Pensions regarding 

‘Ensuring Access to College in a Turbulent 

Economy’ ’’ (Mar. 17, 2008), p. 8. 

12See U.S. House of Representatives, Committee 

on Education and Labor, ‘‘Higher Education 

Opportunity Act of 2008: Protecting Borrowers of 

Federal and Private Student Loans,’’ <http:// 

edlabor.house.gov/micro/coaa_protect.shtml> 

(visited Oct. 31, 2008). 

an interest rate other than the rate based 

on the index and margin used to make 

rate adjustments. For example, 

commenters pointed to certain 

‘‘borrower benefits,’’ such as a reduction 

in the interest rate for a series of on-time 

payments that creditors may offer. 

According to commenters, few 

consumers achieve these benefits and 

often the benefits are not contained in 

the legal obligation between the parties. 

Under § 226.46(e)(1), the disclosures 

must reflect the terms of the legal 

obligation between the parties. Section 

226.47(a)(1) requires a disclosure of the 

rate or rates applicable to the loan. 

Comment 47(a)(1)(i)–3 clarifies that the 

disclosure of the interest rate or range of 

rates must reflect the rate or rates 

calculated based on the index and 

margin that will be used to make 

interest rate adjustments under the loan. 

The comment also permits the creditor 

to disclose a brief description of the 

index and margin, or range of margins, 

used to make rate adjustments. 

Consumer testing conducted for the 

Board indicated that consumers’ 

understanding of how a variable-rate 

loan works is enhanced by such 

information. 

Fixed or variable rate loans, rate 

limitations. The Board is adopting 

proposed §§ 226.38(a)(1)(ii) and 

38(a)(1)(iii) as §§ 226.47(a)(1)(ii) and 

47(a)(1)(iii). Section 226.47(a)(1)(ii) 

requires the creditor to disclose whether 

the interest rate applicable to the loan 

is fixed or may increase after 

consummation of the transaction. TILA 

section 128(e)(1)(A) requires disclosure 

of whether the interest rate applicable to 

the loan is fixed or variable. Comment 

47(a)(1)(iii)–1, proposed as comment 

38(a)(1)(iii)–1 clarifies that the variable 

rate disclosures do not apply to interest 

rate increases based on delinquency 

(including late payment), default, 

assumption, or acceleration. If the loan’s 

interest rate would fluctuate solely 

because of one or more of these actions, 

but in no other circumstances, the 

interest rate is considered fixed. 

As proposed, if the interest rate may 

increase after consummation, 

§ 226.47(a)(1)(iii) requires the creditor to 

disclose any limitations on interest rate 

adjustments, or, if there are no 

limitations on interest rate adjustments, 

that fact. Under comment 47(a)(1)(iii)–2, 

when disclosing any limitations on 

interest rate adjustments, the creditor 

must disclose both: (1) The maximum 

allowable increase during a single time 

period, or the lack of such a limit, and 

(2) the maximum allowable interest rate 

over the life of the loan, or the lack of 

a maximum rate. For example, a creditor 

could disclose that the maximum 

interest rate adjustment is two percent 

in a single month and that the 

maximum interest rate on the loan can 

never exceed twenty-five percent over 

the life of the loan. Consistent with the 

disclosures based on the maximum rate 

in §§ 226.47(b) and 47(c) discussed 

below, limitations include legal limits 

in the nature of usury or rate ceilings 

under state or Federal statutes or 

regulations. However, if the applicable 

rate limitation is in form of a legal limit, 

such as a state’s usury cap (rather than 

a maximum rate specified in the legal 

obligation between the parties), the 

creditor must disclose that the 

maximum rate is determined by 

applicable law. The creditor is also 

required to disclose that the consumer’s 

actual interest rate may be higher or 

lower than the range of rates disclosed 

under § 226.47(a)(1)(i), if applicable. 

Co-signer or Guarantor Disclosure. 

Proposed § 226.38(a)(1)(iv) implemented 

TILA section 128(e)(1)(D), which 

requires disclosure of requirements for a 

‘‘co-borrower,’’ including any changes 

in the applicable interest rates that may 

apply to the loan if the loan does not 

have a ‘‘co-borrower.’’ HEOA, Title X, 

Subtitle B, Section 1021(a) (adding TILA 

Section 128(e)(1)(D)). The Board 

interprets the phrase ‘‘co-borrower,’’ to 

mean a co-signer. 

Proposed § 226.38(a)(1)(iv) required 

the creditor to state whether a co-signer 

is required and whether the applicable 

interest rates typically will be higher if 

the loan is not co-signed or guaranteed 

by a third party. If the presence of a cosigner or guarantor would not affect the 

loan’s interest rate, the creditor was 

required to disclose that fact. The rule 

required only a statement and the 

creditor was not required to estimate 

any potential changes in the applicable 

interest rates numerically. 

One industry commenter noted that 

the Board’s Regulation B, which 

implements the Equal Credit 

Opportunity Act, prohibits creditors 

from requiring co-signers unless certain 

conditions are met. 12 CFR 202.7. This 

commenter expressed concern that the 

requirement to disclose whether a cosigner is required could cause confusion 

with the requirements of Regulation B. 

The HEOA does not alter the 

prohibitions in Regulation B. 

Accordingly, § 226.47(a)(1)(iv) of the 

final rule does not adopt the 

requirement to state whether a co-signer 

is required. Rather, the final rule, as 

proposed, requires disclosure of 

whether interest rates typically will be 

higher without a co-signer. In addition, 

§ 226.47(a)(5) requires disclosure of 

certain eligibility criteria for co-signers. 

These provisions implement the 

HEOA’s requirement to disclose the 

requirements for a co-borrower. 

47(a)(2) Fees and Default or Late 

Payment Costs 

Proposed § 226.38(a)(2) required 

disclosure of the fees or range of fees 

applicable to the private education loan 

and other default or late payment costs, 

implementing the fee and penalty 

disclosures required in TILA sections 

128(e)(1)(E) and (F). Under the proposal, 

the creditor was required to itemize all 

fees required to obtain the private 

education loan (proposed 

§ 226.38(a)(2)(i)) and any applicable 

charges or fees, changes to the interest 

rate, and adjustments to principal based 

on the consumer’s default or late 

payment (proposed § 226.38(a)(2)(ii)). 

Proposed comment 38(a)(2)–1 

explained that the creditor must 

disclose the dollar amount of each fee 

required to obtain the loan, unless the 

fee is based on a percentage, in which 

case a percentage may be disclosed. If 

the exact amount of a fee is not known 

at the time of disclosure, the creditor 

could disclose the dollar amount or 

percentage for each fee as an estimated 

range and must clearly label the fee 

amount as an estimated range. 

Neither the HEOA nor its legislative 

history clarifies whether Congress 

intended the fees or range of fees 

disclosure to require an itemization of 

all fees, or rather to allow for disclosure 

of a single dollar or percentage amount 

for all fees combined. The Board 

proposed to require an itemization of 

fees, but to permit the creditor to 

provide an estimated range of the dollar 

or percentage amount of each fee if a 

single dollar or percentage amount is 

not known. Hearings preceding 

enactment of the HEOA expressly 

alerted Congress to concerns about 

excessively high origination fees and the 

charging of separate additional fees.11 In 

addition, the legislative history 

indicates that the HEOA is intended to 

require creditors of private education 

loans to provide full information to 

borrowers regarding their loans and to 

protect the interests of private education 

loan consumers by requiring creditors 

prominently to disclose all loan terms, 

conditions and incentives.12

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41212 Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations 

Proposed comment 38(a)(2)–2 

clarified that the fees to be disclosed 

include finance charges under § 226.4, 

such as loan origination fees and credit 

report fees, as well as fees not 

considered finance charges but required 

to obtain credit, such as an application 

fee charged whether or not credit is 

extended. 

Implementing TILA section 

128(e)(1)(E), the proposal also required 

the creditor to disclose fees and costs 

based on defaults or late payments of 

the consumer, including adjustments to 

the interest rate, charges, late fees, and 

adjustments to principal. The HEOA 

requires a similar disclosure at approval 

and again in the final disclosure 

required after the consumer accepts the 

loan. HEOA, Title X, Subtitle B, Section 

1021(a) (adding TILA Sections 

128(e)(2)(E) and (e)(4)(B)). 

One difference between the proposal 

and TILA section 128(e)(1)(E) is that the 

latter requires disclosure of ‘‘finance 

charges’’ based on defaults or late 

payments, whereas the Board’s 

proposed regulation eliminated the 

word ‘‘finance’’ and required 

disclosures of ‘‘charges’’ based on 

defaults or late payments. TILA section 

106(a) defines the ‘‘finance charge’’ as 

the sum of all charges, payable directly 

or indirectly by the person to whom the 

credit is extended, and imposed directly 

or indirectly by the creditor as an 

incident to the extension of credit. 15 

U.S.C. 1605. The Board has interpreted 

the definition of ‘‘finance charge’’ in 

Regulation Z to expressly exclude 

charges for late payment, delinquency, 

default, or a similar occurrence. 12 CFR 

226.4(c)(2). By contrast, the HEOA does 

not define the term ‘‘finance charges,’’ 

but simply states that ‘‘finance charges’’ 

based on the consumer’s default or late 

payment must be disclosed. HEOA, 

Title X, Subtitle B, Section 1021(a) 

(adding TILA Section 128(e)(1)(E)). 

However, under current Regulation Z, 

there are no ‘‘finance charges’’ based on 

the consumer’s default or late payment. 

To give effect to the requirements of 

HEOA, the Board proposed to use its 

authority under HEOA and impose 

additional disclosure requirements 

including charges based on defaults or 

late payments that are not covered by 

the definition of finance charge under 

Regulation Z. Therefore the word 

‘‘charges,’’ without the word ‘‘finance,’’ 

was used in proposed § 226.38(a)(2)(ii) 

and in the corresponding provisions for 

other private education loan disclosures 

(proposed §§ 226.38(b)(2)(ii) and 

38(c)(2)). 

The Board did not propose to require 

creditors to disclose fees that would 

apply if the consumer exercised an 

option after consummation under the 

agreement or promissory note for the 

private education loan, such as fees for 

exercising deferment, forbearance, or 

loan modification options. Creditors 

were not required to disclose third-party 

fees and costs for collection- or defaultrelated expenses that might be passed 

on to the consumer, as these are not 

easily predicted and may never apply. 

The Board requested comment on 

whether creditors should be required to 

disclose these or other fees. Some 

consumer group commenters suggested 

that fees for exercising deferment, 

forbearance or loan modification 

options may be important to some 

consumers. However, the final rule does 

not require the disclosure of such fees. 

Based on consumer testing, the Board 

believes that consumers are unlikely to 

shop and compare loans based on such 

fees. Given the amount of information 

required to be disclosed, the Board 

believes that disclosure of these fees 

could produce information overload and 

distract consumers from more relevant 

information. 

A few commenters also requested 

clarification as to whether fees charged 

when the consumer enters repayment of 

a loan for which payments were 

deferred during an interim period were 

fees to ‘‘obtain’’ the loan. 

The Board is adopting proposed 

§ 226.38(a)(2) as § 226.47(a)(2). In 

addition, the Board is clarifying in 

comment 47(a)(2)–2 that because 

repayment fees are considered finance 

charges, they must be disclosed as fees 

required to obtain the loan under 

§ 226.47(a)(2). 

47(a)(3) Repayment Terms 

Section 226.47(a)(3), proposed as 

§ 226.38(a)(3), requires disclosure of 

information related to repayment. 

Loan term. Proposed § 226.38(a)(3)(i) 

implemented TILA section 128(e)(1)(G), 

which requires disclosure of the term of 

the private education loan. Proposed 

comment 38(a)(3)(i)–1 clarified that the 

term of the loan is the period of time 

during which regular principal and 

interest payments must be made on the 

loan. For example, where repayment 

begins upon consummation of the 

private education loan, the disclosed 

loan term would be the same as the full 

term of the loan. By contrast, where 

repayment does not begin until, for 

instance, after the student is no longer 

enrolled, the disclosed loan term would 

be shorter than the full term of the loan. 

If more than one repayment term is 

possible, the creditor must disclose the 

loan term as the longest possible 

repayment term. Proposed 

§ 226.38(a)(3)(i) is adopted as 

§ 226.47(a)(3)(i). 

Payment deferral options. Proposed 

§ 226.38(a)(3)(ii) required disclosure of 

information relating to the options 

offered by the creditor to the consumer 

to defer payments during the life of the 

loan, implementing TILA section 

128(e)(1)(I). Under the Board’s TILA 

section 128(e)(1)(R) authority, the 

proposal also required that if the 

creditor does not offer any options to 

defer payments, the creditor must state 

that fact. Proposed comment 38(a)(3)–2 

clarified that payment deferral options 

include both options to defer payment 

while the student is enrolled and 

options for payment deferral, 

forbearance or payment modification 

during the loan’s repayment term. The 

disclosure would have been required to 

include a description of the length of 

the deferment period, the types of 

payments that may be deferred, and a 

description of any payments that are 

required during the deferment period. 

The creditor would also have been 

permitted to disclose any conditions 

applicable to the deferment option, such 

as that deferment is permitted only 

while the student is continuously 

enrolled. 

Under proposed § 226.38(a)(3)(iii) and 

proposed comment 38(a)(3)–3, if the 

creditor offered payment deferral 

options that applied while the student 

is enrolled in a covered educational 

institution, the creditor would be 

required to disclose the following 

additional information for each deferral 

option: (1) Whether interest will accrue 

while the student is enrolled in a 

covered educational institution; and (2) 

if interest accrues while the student is 

enrolled at a covered educational 

institution, whether payment of interest 

may be deferred and added to the 

principal balance. 

Proposed comment 38(a)(3)–4 

explained that disclosure of payment 

deferral options may be combined with 

the disclosure of cost estimates required 

in § 226.38(a)(4). For example, the 

creditor could describe each payment 

deferral option in the same chart or 

table that provides the cost estimates for 

each payment deferral option. This 

approach was used in the Board’s 

proposed sample form contained in 

Appendix H–21. 

A number of industry commenters 

requested clarification on the 

requirements of proposed 

§ 226.38(a)(3)(ii). That section required 

creditors to disclose options the 

consumer may have to defer payment 

after the loan’s repayment period 

begins, such as options for forbearance 

or deferral upon re-enrolling in an 

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educational program. Comment 

38(a)(3)(ii)–2 required a description of 

the length of the deferment period, the 

types of payments that may be deferred, 

and a description of any payments that 

are required during the deferment 

period for all payment deferral options, 

both in-school and after repayment 

begins. However, the Board’s proposed 

model and samples form did not 

indicate where such information was to 

be provided. Commenters stated that 

descriptions of deferral options during 

the repayment period would be lengthy 

and could detract from the other 

information provided on the model 

forms. 

The final rule adopts 

§§ 226.38(a)(3)(ii) and 38(a)(3)(iii) as 

§§ 226.47(a)(3)(ii) and 47(a)(3)(iii), 

largely as proposed. However, to 

conform to the final model and sample 

forms, the Board is clarifying in 

comment 47(a)(3)–2 that the creditor 

may disclose the length of the maximum 

initial in-school deferment period. In 

addition, comment 47(a)(3)–2 clarifies 

that if the creditor offers payment 

deferral options that may apply during 

the repayment period, the creditor need 

only disclose a statement referring the 

consumer to the legal obligation for 

more information. Comment 47(a)(3)–4 

also clarifies that the creditor may 

combine all of the disclosures required 

under § 226.47(a)(3), including the loan 

term, with the cost estimate disclosure 

required in § 226.47(a)(4). 

In addition, the final rule includes 

new § 226.47(a)(3)(iv) requiring a 

disclosure of private education loan 

discharge limitations in bankruptcy. 

The disclosure of limitations of 

discharge of private education loans in 

bankruptcy is mandated by TILA 

section 128(e)(2)(E) for the approval 

disclosures and TILA section 

128(e)(4)(B) for the final disclosures. It 

is not statutorily required in the 

application and solicitation disclosures 

prescribed by TILA section 128(e)(1)(E). 

The Board requested comment on 

whether disclosure of education loan 

discharge limitations in bankruptcy 

should be included in the application 

and solicitation disclosures as 

implemented by proposed § 226.38(a). 

Consumer group commenters supported 

including the bankruptcy disclosures 

and other commenters who addressed 

the issue did not oppose it. The Board 

believes that the bankruptcy disclosures 

will be useful to consumers earlier in 

the lending process, when consumers 

are most likely to be considering a wide 

range of education financing options. 

The Board also believes adding 

bankruptcy disclosures to the 

application and solicitation disclosures 

provides for uniformity across the 

disclosure forms. Thus, the Board is 

exercising its authority under TILA 

section 128(e)(1)(R) by adding a 

disclosure similar to the disclosures 

required under §§ 226.47(b)(3)(vi) and 

47(c)(3). 

47(a)(4) Cost Estimates 

Implementing TILA section 

128(e)(1)(K), § 226.47(a)(4), proposed as 

§ 226.38(a)(4), requires creditors to 

provide an example of the total cost to 

a consumer of a sample loan at the 

highest initial rate of interest actually 

offered by the creditor, from the time of 

consummation until the loan is repaid. 

The HEOA does not define the term 

‘‘total cost,’’ and, as proposed, the Board 

interprets ‘‘total cost’’ to mean the total 

of payments disclosed in accordance 

with the rules in § 226.18(h). See 

comment 47(a)(4)–1. 

Basis for estimates. Under proposed 

§ 226.38(a)(4) and comment 38(a)(4)–2, 

creditors were required to disclose an 

example of the total cost of the loan 

calculated using the highest initial rate 

of interest applicable to the loan and the 

fees applicable to loans at the highest 

initial rate of interest. For example, if 

the creditor offers a range of rates and 

fees that depend on the consumer’s 

creditworthiness and particular fees will 

apply to loans with the highest interest 

rate, then the creditor must include 

those fees in the total cost estimate. 

In order to provide consumers with 

information about the effect that 

financing fees has on the total cost of 

the loan, proposed § 226.38(a)(4) and 

comment 38(a)(4)–2 required that the 

creditor base the total cost estimate on 

a loan amount of $10,000 plus the 

finance charges applicable to loans at 

the highest initial rate of interest. For 

example, if the creditor charges a 3% 

origination fee on loans with the highest 

initial interest rate, and finances the 3% 

fee, under the proposal the creditor 

would calculate the total cost of the loan 

based on a $10,300 total loan amount. 

However, while the creditor would have 

been required to base the calculation on 

the total loan amount, the creditor 

would have to disclose that the example 

provides the total cost of a $10,000 

amount financed, rather than disclosing 

the total loan amount used in 

calculating the loan cost estimate. 

The HEOA calls for an example based 

on the principal amount actually offered 

by the creditor. However, at the 

application stage, the creditor does not 

know the specific loan amount the 

consumer will request. Rather than 

permit each creditor to choose a loan 

amount upon which to base the 

disclosure, the Board believed that 

specifying uniform assumptions about 

the loan amount would allow 

consumers more easily to compare 

different loan products. The proposal 

allowed consumers to compare the cost 

of receiving a uniform $10,000 

disbursement under different loans. 

The Board also proposed to provide 

creditors with flexibility if they do not 

make loans of the size that the Board 

specified. If the creditor only offers a 

particular type of loan for less than 

$10,000, the creditor would be required 

to use a $5,000 principal amount. 

The Board requested comment on 

alternative ways of ensuring that the 

total cost example reflects the cost of 

loan fees. Specifically, the Board 

requested comment on whether an 

assumed loan amount of $10,000 should 

be used without adding fees to the loan 

amount, but instead separately adding 

the fees to the total of payments. The 

Board requested comment on whether 

private education loan consumers have 

historically been more likely to add fees 

to the loan amount they request, or to 

deduct the fees from the loan amount 

requested (or pay them separately by 

cash or check). The Board also 

requested comment on the practical 

limitations, if any, for creditors to 

determine the fees that would be 

applicable to loans where the highest 

initial rate of interest applies. In 

addition, the Board requested comment 

on whether the total cost example 

should be based on an assumed amount 

financed of $10,000, as proposed, or on 

a higher or lower amount. The Board 

also requested comment on whether the 

assumption of a $5,000 amount financed 

when creditors do not offer loans of 

$10,000 or more was an appropriate 

alternative. 

Commenters generally supported the 

Board’s proposed approach to ensuring 

that the total loan cost example 

provided a consistent basis for 

calculating the total cost so that 

consumers could accurately compare 

loans. Specifically, most commenters 

supported a calculation method that 

assumed that prepaid finance charges 

are included in the total loan amount so 

that the total cost will reflect the effect 

of the consumer paying interest on the 

finance charges. Commenters supported 

requiring creditors to use a $10,000 

amount financed or, if the creditor does 

not offer loans of $10,000 or more, a 

$5,000 amount financed. Commenters 

did not state that there were practical 

limitations on determining the amount 

of fees that would apply to loans at the 

highest rate. 

Two industry group commenters 

noted that creditors are not uniform in 

the way they calculate prepaid finance 

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charges that are based on a percentage 

of the loan amount. According to these 

commenters, the majority deduct 

prepaid finance charges from the total 

loan amount, rather than adding them to 

the loan amount. These commenters 

requested that the Board allow creditors 

to choose the method the creditor 

normally uses for assessing prepaid 

finance charges. In the alternative, the 

commenters suggested that if the Board 

imposed a uniform calculation method 

that it be based on the more common 

practice of deducting prepaid finance 

charges from the total loan amount. 

In the final rule, § 226.47(a)(4) is 

adopted largely as proposed in 

§ 226.38(a)(4), but with a change in the 

total cost calculation method. Comment 

47(a)(4)–2.i, as proposed in comment 

38(a)(4)–2, requires creditors to 

calculate the total cost estimate by 

determining all finance charges that 

would be applicable to loans with the 

highest initial rate of interest. For 

example, if a creditor charges a range of 

origination fees from 0% to 3%, but the 

3% origination fee would apply to loans 

with the highest initial interest rate, the 

lender must assume the 3% origination 

fee is charged. Comment 47(a)(4)–2.i 

also requires the creditor to base the 

total cost example on a principal 

amount that results in a $10,000 amount 

financed when all prepaid finance 

charges are financed. The creditor must 

disclose the example as reflecting the 

$10,000 disbursement, rather than the 

full loan amount. If the creditor only 

offers a particular private education 

loan for less than $10,000, the creditor 

may assume a total loan amount that 

results in a $5,000 amount financed for 

that loan. 

The Board recognizes that prepaid 

finance charges can be assessed and 

paid in different ways depending on the 

creditor’s practices and the consumer’s 

needs. However, the Board believes that 

in order for consumers to be able to 

easily compare the costs of different 

loan products using the total cost 

example on the application and 

solicitation disclosures, creditors must 

use uniform assumptions about the way 

prepaid finance charges are assessed 

and paid. 

Comment 47(a)(4)–2.i, as proposed, 

requires creditors to assume that all 

prepaid finance charges are financed by 

the consumer rather than paid 

separately by cash or check. However, 

fees based on a percentage of the loan 

amount can be assessed in two different 

ways, even when they are financed. 

Under the proposal, creditors were 

required to assume that the fee was 

assessed as a percentage of a 

hypothetical $10,000 amount financed. 

Thus, a 3% fee resulted in a $300 

charge. This charge, in turn, was added 

to the $10,000 amount financed 

resulting in a total principal loan 

amount of $10,300. Accordingly, the 

consumer would borrow $10,300 in 

order to obtain a $10,000 disbursement. 

The assumption that fees are assessed 

as a percentage of the $10,000 amount 

financed and then added to the total 

loan amount reflects the practices of 

some, but not all creditors. Another 

practice assesses fees as a percentage of 

the total loan amount and then deducts 

the fees from the loan amount. For 

example, in this case a total loan 

amount of $10,309.28, times a 3% 

origination fee results in a finance 

charge of $309.28. The creditor does 

not, however, add an extra $309.28 to 

the loan balance. Instead, the creditor 

deducts the $309.28 from the loan 

amount and disburses $10,000 to the 

consumer. The resulting amount 

financed (the $10,309.28 principal loan 

amount less the $309.28 prepaid finance 

charge) is $10,000. 

Under comment 47(a)(4)–2.ii in the 

final rule, if a prepaid finance charge is 

based on a percentage of the amount 

financed, for purposes of the example, 

the creditor must assume that the fee is 

assessed on the total loan amount, even 

if this is not the creditor’s usual 

practice. In order to ensure that 

consumers may accurately compare 

total cost examples from different 

creditors, the Board is not allowing 

creditors to choose whether to add or 

subtract prepaid finance charges. 

Rather, based on comments received, 

the final rule requires creditors to use 

the method that appears to be more 

common. 

Highest initial rate. Proposed 

§ 226.38(a)(4)(i) required creditors to 

calculate the total cost example at the 

maximum rate of interest, and proposed 

comment 38(a)(4)–3 clarified that the 

‘‘maximum’’ rate of interest meant the 

highest initial rate of interest disclosed 

in the range of rates under proposed 

§ 226.38(a)(1)(i). Some industry 

commenters requested clarification in 

the regulation that the phrase 

‘‘maximum rate of interest’’ used in 

proposed § 226.38(a)(4)(i) was the 

highest initial interest rate rather than 

the maximum possible interest rate. 

Section 226.47(a)(4)(i) is revised to 

clarify that the total cost example 

should be based on the highest rate 

required to be disclosed under 

§ 226.47(a)(1). As a result, proposed 

comment 38(a)(4)–3 is unnecessary and 

therefore is not adopted. 

Payment deferral options. Under 

comment 47(a)(4)–3, proposed as 

comment 38(a)(4)–4, the loan cost 

example must include an estimate of the 

total cost of the loan for each in-school 

deferral option disclosed in 

§ 226.47(a)(3)(iii). For example, if the 

creditor provides the consumer with the 

option to begin making principal and 

interest payments immediately, to defer 

principal payments but begin making 

interest-only payments immediately, or 

to defer all principal and interest 

payments while in school, the creditor 

is required to disclose three estimates of 

the total cost of the loan, one for each 

deferral option. 

Comment 47(a)(4)–3 also clarifies that 

if the creditor adds accrued interest to 

the loan balance (i.e., interest is 

capitalized), the estimate of the total 

loan cost should be based on the 

capitalization method that the creditor 

actually uses for the loan. For instance, 

for each deferred payment option where 

the creditor would capitalize interest on 

a quarterly basis, the total loan cost 

must be calculated assuming interest 

capitalizes on a quarterly basis. 

Proposed comment 38(a)(4)–5 

provided guidance on the assumed 

deferral period on which to base the 

total cost example. For loan programs 

intended for educational expenses of 

undergraduate students, the creditor 

would have been required to assume 

that the consumer defers payments for 

four years plus the loan’s maximum 

applicable grace period, if any. For all 

other loans the creditor would have 

been required to assume that the 

consumer defers for two years plus the 

maximum applicable grace period, if 

any, or the maximum time the consumer 

may defer payments under the loan 

program, whichever time is less. The 

Board believed that consumers would 

be better able to compare loan cost 

examples for loans that allow the 

consumer to defer payments if those 

examples are based on uniform 

assumptions about how long the 

consumer will remain in school. The 

Board proposed to require creditors 

assume a four-year deferral period for 

consumers applying for undergraduate 

loans since most undergraduate 

programs are four years long. The Board 

believed that using a four-year term 

would ensure that the disclosure is most 

meaningful to consumers who are at the 

beginning of their undergraduate 

education, and therefore likely are 

considering education loans for the first 

time. For all other types of loans, the 

proposal required creditors assume a 

two-year enrollment period (or to use 

the maximum deferral period for the 

loan, if less than two-years). The Board 

believed that a two-year enrollment 

period represented a term that would be 

applicable to most other postsecondary 

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education programs and would 

meaningfully inform consumers of the 

effect of deferring payment on the total 

costs of the loan for more than a 

minimal period of time. 

The Board requested comment on the 

proposed deferral period assumptions 

for calculating the total cost examples 

under proposed § 226.38(a)(4). 

Specifically, the Board requested 

comment on whether creditors should 

be allowed to modify the total cost 

disclosure if the creditor knows a 

consumer’s specific situation. For 

example, if the creditor knows that a 

consumer is a college senior, the Board 

asked whether the creditor should be 

allowed to provide a cost estimate based 

on a one-year deferral period, rather 

than a four-year deferral period. The 

Board also requested comment on 

whether two years is an appropriate 

term for non-undergraduate private 

education loans, or whether another 

term that would be a statistically more 

accurate representation of an average or 

median deferment period should be 

used. The Board also requested 

comment on whether lenders should be 

permitted to modify the disclosure for 

specific educational programs that are 

generally of a fixed length, such as three 

years for law school or four years for 

medical school. 

Commenters generally supported the 

proposal to use uniform assumptions for 

determining the consumer’s deferral 

period in cases where the consumer’s 

actual situation was not known. 

However, most commenters supported 

allowing creditors to use more accurate 

assumptions where more information 

was known. Commenters supported 

allowing creditors to use the specific 

duration of an educational program of a 

known length, such as three years for 

law school. In addition, commenters 

noted that the term ‘‘undergraduate’’ 

may include students in two-year 

programs and that the four-year term 

assumption would not be appropriate 

for these students. Commenters also 

supported allowing creditors to tailor 

the deferral period assumption to the 

specific consumer’s situation if known. 

Where the length of the educational 

program was not known, commenters 

did not oppose using a two-year term. 

Comment 47(a)(4)–4, proposed as 

comment 38(a)(4)–5, has been revised to 

allow the creditor to use either of two 

methods for estimating the duration of 

deferral periods. Similar to the proposed 

rule, for loan programs intended for 

educational expenses of undergraduate 

students, the creditor may assume that 

the consumer defers payments for a 

four-year matriculation period, plus the 

loan’s maximum applicable grace 

period, if any. For all other loans the 

creditor may assume that the consumer 

defers for a two-year matriculation 

period, plus the maximum applicable 

grace period, if any, or the maximum 

time the consumer may defer payments 

under the loan program, whichever is 

shorter. 

Alternatively, if the creditor knows 

that the student will be enrolled in a 

program with a standard duration, the 

creditor may assume that the consumer 

defers payments for the full duration of 

the program (plus any grace period). For 

example, if a creditor makes loans 

intended for students enrolled in a fouryear medical school degree program, the 

creditor may assume that the consumer 

defers payments for four years plus the 

loan’s maximum applicable grace 

period, if any. However, the creditor 

may not modify the disclosure to 

correspond to a particular student’s 

situation. For example, even if the 

creditor knows that a student will be a 

second-year medical school student, the 

creditor must assume a four-year 

deferral period. 

The Board believes that the use of 

standardized assumptions will assist 

consumers when shopping for a private 

education loan. Providing consistent 

deferral periods is necessary in order for 

a consumer to compare the overall costs 

of different loans for particular 

educational programs. Consumers 

enrolled in an educational program may 

have difficulty comparing the total cost 

of two loans if one disclosure uses the 

consumer’s actual deferral period and 

the other uses an assumed deferral 

period. The total cost may appear lower 

on the disclosure using the actual, 

shorter, deferral period, but the 

consumer may not be able to determine 

if the loan is actually less costly. 

Therefore, the Board is not permitting 

disclosures to be tailored to individual 

consumers. 

47(a)(5) Eligibility 

Proposed § 226.38(a)(5) implemented 

TILA section 128(e)(1)(J) which requires 

disclosure of the general eligibility 

criteria for a private education loan. The 

proposal specified the eligibility criteria 

that must be disclosed. The creditor 

would have to disclose any age or 

school enrollment eligibility 

requirements regarding the consumer or 

co-signer, if applicable. The Board 

requested comments on whether other 

types of eligibility requirements should 

be disclosed. 

A few commenters suggested that the 

Board require more information about 

eligibility requirements. However, in the 

consumer testing conducted for the 

Board, few consumers suggested that 

more such information would be 

helpful. Because the disclosure of all 

eligibility criteria could be detailed and 

lengthy, the Board believes that 

requiring additional eligibility 

information would not be meaningful to 

consumers. Therefore, the final rule 

provides that the creditor provide any 

age or school enrollment eligibility 

requirements relating to the consumer 

or co-signer. 

47(a)(6) Alternatives to Private 

Education Loans 

The Board proposed § 226.38(a)(6), to 

implement TILA sections 128(e)(1)(L), 

(M), (N), and (Q) by requiring statements 

regarding the following alternatives to 

private education loans: (1) education 

loans offered or guaranteed by the 

Federal government and (2) schoolspecific education loan benefits and 

terms potentially offered by a covered 

educational institution. 

Concerning Federal education loans, 

under the proposal, a creditor was 

required to disclose the following: (1) A 

statement that the consumer may 

qualify for Federal student financial 

assistance through a program under title 

IV of the Higher Education Act of 1965 

(20 U.S.C. 1070 et seq.), (2) the interest 

rates available under each program and 

whether the rates are fixed or variable, 

as prescribed in the Higher Education 

Act of 1965 (20 U.S.C. 1077a), and (3) 

a statement that the consumer may 

obtain additional information 

concerning Federal student financial 

assistance from the relevant institution 

of higher education, or at the Web site 

of the Department of Education, 

including an appropriate Web site 

address. After consulting with the 

Department of Education, the Board 

proposed comment 38(a)(6)(ii)–1, which 

explained that the disclosure must list 

the address of an appropriate U.S. 

Department of Education Web site such 

as ‘‘http://federalstudentaid.ed.gov.’’ 

To avoid overloading consumers with 

information and to ensure that 

consumers notice the most important 

information about Federal student 

loans, the Board proposed to exercise its 

authority under TILA section 105(a) to 

make exceptions to the statute by not 

requiring creditors to state that Federal 

loans may be obtained in lieu of or in 

addition to private education loans. 

Instead the Board’s proposed model 

forms labelled the disclosure as 

‘‘Federal Loan Alternatives.’’ See 

proposed App. H–18, H–19. The Board 

stated its belief that this exception was 

necessary and proper to effectuate 

meaningful disclosure of credit terms to 

consumers. 

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The Board also proposed to exercise 

its authority under TILA section 105(f) 

to exempt private education loans from 

the specific disclosure requirement 

about Federal loans, pursuant to the 

HOEA amendment to TILA sections 

128(e)(1)(M) and 128(e)(2)(L). The Board 

believed that this specific requirement 

does not provide a meaningful benefit to 

consumers in the form of useful 

information or protection. In testing, 

consumers’ understanding that Federal 

loans are available in lieu of or in 

addition to private education loans was 

enhanced by simply providing them a 

clear and prominent label indicating 

that the disclosures contained 

information about Federal loan 

alternatives. The Board considered that 

the private education loan population 

includes students who may lack 

financial sophistication and that the size 

of the loan could be relatively 

significant and important to the 

borrower. However, as explained above, 

the Board believed that the borrower 

would receive meaningful information 

about Federal loans through the other 

disclosures and the model form. The 

Board also recognized that private 

education loans would not be secured 

by the principal residence of the 

consumer, which is a factor for 

consideration under section 105(f). 

Furthermore, the HEOA provides 

significant rights, such as the right to 

cancel the loan. The Board believed that 

consumer protection would not be 

undermined by this exemption. 

A few consumer group commenters 

urged the Board to retain the phrase that 

Federal loans are available ‘‘in addition 

to or in lieu of’’ private education loans. 

However, the Board’s consumer testing 

during and after the comment period 

continued to indicate that consumers 

understood the disclosure about Federal 

student loans and that Federal loans are 

available in addition to or in lieu of 

private education loans. The Board 

believes that requiring additional 

verbiage to communicate something that 

consumers already understand could 

contribute to information overload, 

cause consumers to skip over the 

existing textual information about 

Federal student loans, and potentially 

cause consumers to miss more 

important information in the 

disclosures. Consumers tested found the 

information about Federal student loans 

to be clear and understandable. The 

Board is adopting proposed 

§ 226.38(a)(6), as § 226.47(a)(6). 

Under the proposal, for each title IV 

program enumerated in the disclosure 

(e.g., Perkins, Stafford (both subsidized 

and unsubsidized), and PLUS loans), 

the creditor would be required to 

disclose the interest rate corresponding 

to each loan program, as well as 

whether those rates are fixed or variable. 

The Board proposed to require 

disclosure of whether the Federal loan 

rates are fixed or variable, under its 

TILA section 128(e)(1)(R) authority. The 

Board believed this additional 

disclosure to be necessary in order to 

provide consumers with a more 

complete description of the nature of 

the Federal loans’ interest rates and to 

aid in comparison of Federal loan 

programs to private education loans. 

During the Board’s consumer testing, 

consumers indicated that the disclosure 

that Federal student loans have fixed 

rates is important information to them. 

Federal student loan interest rates are 

set by statute. Currently, Federal student 

loan interest rates are fixed rates rather 

than variable rates, but this has not 

always been the case. For this reason, 

the proposal would require a disclosure 

of whether the rates are fixed or 

variable. 

The statute that sets the Federal 

student loan interest rates currently 

contains a schedule with different fixed 

rates for loans originated at different 

times. See Higher Education Act of 1965 

(20 U.S.C. 1077a). For example, the 

fixed rate on subsidized Stafford loans 

was 6.0% for loans originated or applied 

for (depending on the loan) before July 

1, 2009. For loans after July 1, 2009, the 

current fixed interest rate is 5.6%. 

Where the interest rate for a loan varies 

depending on the date of disbursement 

or receipt of application, the creditor 

must disclose only the current interest 

rate as of the time the disclosure is 

provided. 

To implement TILA section 

128(e)(1)(L), the proposal also required 

the creditor to disclose that a covered 

educational institution may have 

school-specific education loan benefits 

and terms not detailed on the disclosure 

form. School-specific education loan 

benefits and terms might include loans 

with special terms negotiated by the 

school with particular creditors, or 

loans extended by the covered 

educational institution itself to its 

students. The creditor was not required 

to state what school-specific education 

loan benefits and terms might be 

available because these may vary 

widely, but rather was required to alert 

the consumer to the possibility that 

school-specific education loan benefits 

and terms might be available to the 

consumer. 

47(a)(7) Rights of the Consumer 

Proposed § 226.38(a)(7) implemented 

TILA section 128(e)(1)(O), by 

identifying for the consumer certain 

rights relating to the private education 

loan. 

Thirty day right of acceptance. 

Proposed § 226.38(a)(7)(i) required the 

creditor to disclose that, should the 

consumer apply for the loan and the 

loan application be approved, the 

consumer would have the right to 

accept the terms of the loan at any time 

within 30 calendar days following 

notice of loan approval. TILA section 

128(e)(1)(O)(i) requires a disclosure that 

the consumer has 30 days to accept and 

consummate the loan. 

Prohibition on loan term changes. 

Under proposed § 226.38(a)(7)(ii), the 

creditor was required to state that, 

except for changes based on adjustments 

to the index used to determine the rate 

for the loan, the creditor may not change 

the rates and terms of the loan during 

the 30-day acceptance period described 

in proposed § 226.38(a)(7)(i). Proposed 

comment 39(c)–1 allowed the creditor to 

give consumers a period of time longer 

than 30 days in which to accept the 

loan. In the preamble to the proposed 

rule, the Board stated that creditors 

choosing to give consumers a period of 

time in which to accept the loan that is 

longer than 30 calendar days were 

required to disclose this alternate time 

period. 

The Board proposed in § 226.39(c) to 

allow creditors to make changes to the 

rate and terms of the loan not only in 

response to adjustments to a variable 

rate, but also in cases where the change 

was requested by, or unequivocally 

beneficial to, the consumer. The Board 

did not propose, however, to require the 

application disclosure to state each 

possible condition under which the rate 

or terms might change. The Board 

requested comment on the appropriate 

amount of detail in the application 

disclosure. 

The Board received one comment 

about the appropriate amount of detail 

in the statement on the application 

disclosure regarding the permissible 

changes to the rate or terms of the loan 

after the loan is approved. The industry 

commenter suggested that the Board 

should not require creditors to list every 

possible reason that rates and terms may 

change because of the limited amount of 

space on the two-page disclosure. The 

commenter suggested that it would be 

appropriate to disclose the most 

common reason or reasons that the rates 

and terms may change after approval. 

The Board agrees that it is not 

necessary or useful to list each reason 

that rates and terms of a loan may 

change after approval and that a more 

general statement is sufficient to alert 

the consumer to the restrictions on 

changing the loan terms. The Board also 

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believes a less detailed statement is 

appropriate in light of the changes made 

to § 226.48(c) (proposed as § 226.39(c)), 

which includes additional exceptions to 

the prohibition on changing the terms of 

the loan. Thus, in the final rule, 

§ 226.47(a)(7) requires the creditor to 

state that if the loan for which the 

consumer is applying is approved, the 

terms of the loan will be available for 30 

days. It also requires the creditor to state 

that the terms of the loan will not 

change during this period except as a 

result of adjustments to the interest rate 

and due to other changes permitted by 

law. The requirement in the final rules 

more closely resembles the language 

that was used on the application and 

solicitation disclosures in consumer 

testing which consumers found clear 

and understandable. 

47(a)(8) Self-Certification Information 

The Board proposed § 226.38(a)(8) to 

implement TILA section 128(e)(1)(P). It 

required a statement that before the loan 

may be consummated, the consumer 

must obtain the self-certification form 

required under proposed § 226.39(e), 

and sign and submit the completed form 

to the creditor. 

The model forms used in consumer 

testing contained a basic statement that 

the consumer must complete the selfcertification form as part of the 

application process and that the form 

may be obtained from the relevant 

institution of higher education. 

Consumers found the language in the 

model form to be clear and 

understandable and the Board believes 

that the self-certification form itself will 

provide consumers with sufficient 

instruction as to the steps the consumer 

must take to complete the form. 

Accordingly, § 226.47(a)(8) of the final 

rule conforms the required disclosure to 

the text used in the proposed model 

form. 

As discussed in the section-by-section 

analysis under § 226.48(e), the 

disclosure regarding the selfcertification form is required only for 

expenses to be used by a student 

enrolled in an institution of higher 

education. It would not apply to 

consolidation loans and would not 

apply to loans to students attending 

covered educational institutions that do 

not meet the definition of institution of 

higher education. 

47(b) Approval Disclosures 

Section 226.47(b), proposed as 

§ 226.38(b), specifies the information 

that a creditor must disclose on or with 

any notice of approval provided to the 

consumer. Guidance on delivery of the 

disclosures required under § 226.47(b) is 

provided in § 226.46, corresponding 

commentary, and in the section-bysection analysis under § 226.46. 

As discussed above in the section-bysection analysis under § 226.46(a), the 

creditor must make the closed-end 

credit disclosures required under 

§§ 226.17 and 226.18 as well as the 

private education loan disclosures 

required under § 226.47(b). 

47(b)(1) Interest Rate 

Implementing TILA section 

128(e)(2)(A), § 226.47(b)(1)(i), proposed 

as § 226.38(b)(1)(i), requires a creditor to 

disclose the interest rate that applies to 

the private education loan for which the 

consumer has been approved. 

Fixed or variable rate, rate 

limitations. Implementing TILA section 

128(e)(2)(A) and (B), proposed 

§§ 226.38(b)(1)(ii) and (iii) required the 

creditor to disclose whether the interest 

rate is fixed or variable and any 

limitations, or the absence of 

limitations, on changes to the variable 

interest rate. 

Proposed comment 38(b)(1)–1 

clarified that a private education loan 

would only be considered to have a 

variable rate if the terms of the legal 

obligation allow the creditor to increase 

the rate originally disclosed to the 

consumer. However, a rate is not 

considered variable if increases result 

only from delinquency, default, 

assumption or acceleration. The 

comment also clarified that the creditor 

must make the other variable-rate 

disclosures required under 

§§ 226.18(f)(1)(i) and (iii)—the 

circumstances under which the rate may 

increase and the effect of an increase, 

respectively. The creditor would not be 

required to provide an example of the 

payment terms that would result from 

an increase under § 226.18(f)(1)(iv). 

Current comment 18(f)(1)(iv)–2 provides 

that creditors need not provide the 

hypothetical example for interim 

student credit extensions. However, the 

Board believes that the requirement to 

disclose the maximum monthly 

payment based on the maximum 

possible rate in § 226.38(b)(3)(viii) 

satisfies the requirement under 

§ 226.18(f)(1)(iv) of an example of the 

payment terms that would result from 

an increase in the rate. In order to avoid 

duplicative examples of the effect of a 

rate increase, proposed comment 

38(b)(1)–1 clarified that, although the 

creditor need not disclose a separate 

example under § 226.18(f)(1)(iv), the 

creditor is nevertheless required to 

disclose the maximum monthly 

payment in § 226.38(b)(2)(viii). 

As explained in the section-by-section 

analysis under § 226.18 (discussing the 

proposed changes to comment 

18(f)(1)(ii)–1), proposed comment 

38(b)(1)–2 clarified that the rules 

regarding disclosure of limitations on 

interest rate increases for private 

education loans differ from the general 

rules in § 226.18(f)(1)(ii) and comment 

18(f)(1)(ii)–1. Specifically, proposed 

§ 226.38(b)(1)(iii) required that creditors 

explicitly disclose the lack of any 

limitations on interest rate adjustments. 

By contrast, existing comment 

18(f)(1)(ii)–1 does not require creditors 

to disclose the absence of limits on 

interest rate adjustments. In addition, 

under proposed § 226.38(b)(1)(iii), 

limitations on rate increases include, 

rather than exclude, legal limits in the 

nature of usury or rate ceilings under 

state or Federal statutes or regulations. 

However, if the applicable rate 

limitation is in the form of a legal limit, 

such as a state’s usury cap (rather than 

a maximum rate specified in the legal 

obligation between the parties), the 

creditor must disclose that the 

maximum rate is determined by law and 

may change. 

As discussed in the section-by-section 

analysis under § 226.47(a)(1) above, 

commenters urged the Board allow 

disclosure of a variable interest rate only 

as calculated based on the index and 

margin used to make interest rate 

adjustments. The Board is adopting 

proposed § 226.38(b)(1) as § 226.47(b)(1) 

and adding new comment 47(b)(1)–3 to 

clarify that the disclosure of the interest 

rate must reflect the rate calculated 

based on the index and margin that will 

be used to make interest rate 

adjustments for the loan. 

47(b)(2) Fees and Default or Late 

Payment Costs 

Implementing TILA sections 

128(e)(2)(E) and (F), proposed 

§ 226.38(b)(2) and proposed comment 

38(b)(2)–1 required the creditor to 

provide to the consumer the fee and 

penalty information required under 

proposed § 226.38(a)(2), as explained in 

the section-by-section analysis for 

§ 226.47(a)(2). Under § 226.18(l) 

creditors are required to disclose any 

dollar or percentage charge that may be 

imposed before maturity due to late 

payment, other than a deferral or 

extension charge. Under the proposal, 

creditors were required to disclose any 

charges that must be disclosed under 

§ 226.18(l) with the disclosures required 

under proposed § 226.38(b)(2). In 

addition, if the creditor includes the 

itemization of the amount financed 

under § 226.18(c), any fees disclosed as 

part of the itemization need not be 

separately disclosed elsewhere. The 

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41218 Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations 

Board is adopting proposed 

§ 226.38(b)(2) as § 226.47(b)(2). 

47(b)(3) Repayment Terms 

Section 226.47(b)(3), proposed as 

§ 226.38(b)(3), requires disclosure of 

information related to repayment. 

Principal amount. Proposed 

§ 226.38(b)(3)(i) implemented TILA 

section 128(e)(2)(D), which requires 

disclosure of the ‘‘initial approved 

principal amount,’’ by requiring 

disclosure of the loan’s ‘‘principal 

amount.’’ 

Regulation Z currently uses the term 

‘‘principal loan amount’’ as part of its 

requirement to disclose the ‘‘amount 

financed.’’ As explained below, 

however, the Board did not propose to 

equate the terms ‘‘principal loan 

amount’’ used in comment 18(b)(3)–1 

with the ‘‘principal amount’’ disclosed 

under § 226.38(b)(3)(i). 

Under current Regulation Z, the 

amount financed must be calculated in 

the following manner: 

(1) Determining the principal loan amount 

* * * (subtracting any downpayment); 

(2) Adding any other amounts that are 

financed by the creditor and are not part of 

the finance charge; and 

(3) Subtracting any prepaid finance charge. 

12 CFR 226.18(b). 

Regarding the first part of this 

calculation, determining the ‘‘principal 

loan amount,’’ the commentary states 

that when loan fees are financed by the 

creditor, the creditor has the option 

(when the charges are not add-on or 

discount charges) of either including or 

excluding the amount of the finance 

charges in the principal loan amount. 

As the commentary points out, this 

means that the ‘‘principal loan amount’’ 

for this calculation may, but need not, 

equal the face amount of the note. 

Comment 18(b)(3)–1. If the creditor opts 

to include finance charges in the 

principal loan amount, the creditor 

should deduct these charges from the 

principal loan amount as prepaid 

finance charges when calculating the 

amount financed. Id. 

Rather than equate Regulation Z’s 

existing term ‘‘principal loan amount’’ 

with the ‘‘principal amount’’ required to 

be disclosed in proposed 

§ 226.38(b)(3)(i), the Board’s view was 

that the most straightforward and easyto-understand approach was to define 

‘‘principal amount’’ as the face amount 

of the note if the transaction occurred 

on the terms approved. The ‘‘principal 

amount’’ under proposed 

§ 226.38(b)(3)(i) was to include all 

charges incorporated in the approved 

loan amount—in other words, the total 

amount borrowed. This amount should 

reflect what the face amount of the note 

would be if the loan were given based 

on the loan amount initially approved. 

For example, prepaid finance charges, 

as defined and discussed in comment 

18(b)(3)–1, should be included if they 

would be included in the face amount 

of the note. 

The Board believed that defining 

‘‘principal amount’’ in this way would 

not cause consumer confusion with 

Regulation Z’s use of the term 

‘‘principal loan amount’’ in § 226.18(b), 

because ‘‘principal loan amount’’ is not 

currently a stand-alone disclosure in 

Regulation Z that consumers could 

confuse with the ‘‘principal amount.’’ 

Defining the ‘‘principal amount’’ in 

proposed § 226.38(b)(3)(i) as distinct 

from the term ‘‘principal loan amount’’ 

in § 226.18(b) may also reduce creditor 

confusion about whether the definition 

of ‘‘principal amount’’ changes how the 

‘‘amount financed’’ is calculated under 

§ 226.18(b). As noted above, ‘‘principal 

loan amount’’ is a term used only as part 

of the calculation of the ‘‘amount 

financed’’ disclosure. Current comment 

18(b)(3)–1 permits creditors to decide 

whether to include or exclude prepaid 

finance charges in the ‘‘principal loan 

amount,’’ but solely for purposes of 

calculating the ‘‘amount financed.’’ 

In addition, in order to minimize 

potentially duplicative disclosures, 

proposed comment 38(b)(3)–1 explained 

that creditors may disclose the principal 

amount as part of the itemization of the 

amount financed. The creditor would be 

permitted to disclose the principal 

amount as part of the itemization of the 

amount financed only if the creditor 

states the principal amount as part of 

the itemization. The proposed sample 

form in Appendix H–22 provided an 

example of this disclosure. Also, as 

discussed above, the proposal revised 

§ 226.17(a)(1) to allow the itemization of 

the amount financed to be included 

with the required disclosures, rather 

than disclosed separately. 

Some commenters expressed 

confusion as to the distinction among 

the concepts of the ‘‘principal amount’’ 

required to be disclosed in proposed 

§ 226.38(b)(3)(i), the ‘‘principal loan 

amount’’ used to calculate the amount 

financed, and the ‘‘amount financed’’ 

required to be disclosed in § 226.18(b), 

because the Board’s sample forms did 

not include non-interest finance 

charges. Commenters were unclear as to 

where and how the principal amount 

was required to be disclosed on the 

model and sample forms. 

Proposed § 226.38(b)(3)(i) is adopted 

as § 226.47(b)(3)(i). Comment 47(b)(3)–1 

has been revised to clarify that the 

principal amount required to be 

disclosed under § 226.47(b)(3)(i) should 

be labelled the ‘‘Total Loan Amount’’ 

and that this amount may be different 

from the ‘‘principal loan amount’’ used 

to calculate the amount financed under 

comment 18(b)(3)–1. In addition, the 

Board’s sample forms in Appendix H– 

22 and H–23 provide examples that 

include non-interest finance charges 

and better reflect the distinction 

between the principal amount and the 

amount financed. 

The Board is also revising the model 

and sample disclosures in Appendix H 

to make the principal amount, labelled 

the ‘‘Total Loan Amount,’’ more 

prominent by placing it in a box 

labelled ‘‘Total Loan Amount’’ at the top 

left of the disclosure, where the 

disclosure of the amount financed was 

in the proposal. The Board’s consumer 

testing indicated that consumers 

interpret the ‘‘Amount Financed’’ and 

the accompanying phrase ‘‘the amount 

of credit provided to you or on your 

behalf’’ to mean the loan’s total 

principal amount. They do not readily 

understand that the amount financed 

may not include certain finance charges 

and thus may be less than the face 

amount of the note. Consumer testing 

indicated that consumers better 

understand the amount financed if it is 

disclosed as part of the itemization of 

the amount financed because consumers 

can see how the amount financed is 

arrived at based on the total principal 

amount. 

The Board proposed to allow creditors 

to make the disclosure of the principal 

amount in § 226.47(b)(3)(i) as part of the 

itemization of the amount financed, if 

the creditor chose to include the 

itemization. However, because the final 

model forms disclose the principal 

amount more prominently, comment 

47(b)(3)–1 has been revised to permit 

the creditor to make the disclosure of 

the amount financed under 

§ 226.18(b)(3) as part of the itemization 

of the amount financed, if the creditor 

elects to include the itemization on the 

disclosures under § 228.18(c)(1). 

Loan term. Proposed § 226.38(b)(3)(ii) 

and comment 38(b)(3)–2 implemented 

TILA section 128(e)(2)(G), which 

requires disclosure of the maximum 

term of the private education loan 

program. Under the proposal, the term 

of the loan was the period of time 

during which regular principal and 

interest payments must be made on the 

loan. For example, where repayment 

begins upon consummation of the 

private education loan, the disclosed 

loan term would be the same as the full 

term of the loan. By contrast, where 

repayment does not begin until, for 

instance, after the student is no longer 

enrolled, the disclosed loan term would 

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be shorter than the full term of the loan. 

If more than one repayment term is 

possible, the creditor must disclose the 

loan term as the longest possible 

repayment term. Proposed 

§ 226.38(b)(3)(ii) is adopted as 

§ 226.47(b)(3)(ii). 

Payment deferral options. Proposed 

§ 226.38(b)(3)(iii) and proposed 

comment 38(b)(3)–3 required the 

creditor to provide information about 

deferral options, implementing TILA 

section 128(e)(2)(J). This disclosure was 

similar to the requirement under 

proposed § 226.38(a)(3)(ii), as explained 

in the section-by-section analysis for 

section § 226.47(a)(3)(ii). However, by 

the time the consumer receives the 

approval disclosure, the consumer may 

have chosen a deferral option already. 

The difference between proposed 

§§ 226.38(a)(3)(ii) and 226.38(b)(3)(iii) is 

that the creditor was required to explain 

the deferral option chosen by the 

consumer, if the consumer has chosen a 

deferral option, as well as any other 

deferral options that the consumer is 

permitted to choose in the future. The 

Board is adopting § 226.38(b)(3)(ii) as 

§ 226.47(b)(3)(ii). The section-by-section 

analysis of the deferral options 

disclosure of § 226.47(a)(3)(ii) describes 

the information that must also be 

included in the explanation of deferral 

options under § 226.47(b)(3)(iii). 

Payments required during enrollment. 

Proposed § 226.38(b)(3)(iv) and 

comment 38(b)(3)–4 required the 

creditor to disclose whether any 

payments are required on the loan while 

the student is enrolled, implementing 

TILA section 128(e)(2)(I). The creditor 

also was required to describe the 

payments required during enrollment, 

such as principal and interest payments 

or interest-only payments. The 

payments required during enrollment 

may depend on the deferral option 

chosen by the consumer. The disclosure 

under proposed § 226.38(b)(3)(iv) was 

required to correspond to the deferral 

option chosen by the consumer. The 

Board is adopting § 226.38(b)(3)(iv) as 

§ 226.47(b)(3)(iv). 

Estimate of interest accruing during 

enrollment. Also implementing TILA 

section 128(e)(2)(I), proposed 

§ 226.38(b)(3)(v) applied only if interest 

is charged on the private education loan 

while the student is enrolled, and the 

consumer will not be paying interest on 

the loan during this time. This 

disclosure would require the creditor to 

give the consumer an estimate of the 

interest that will accrue on the loan 

during enrollment. The Board is 

adopting proposed § 226.38(b)(3)(v) as 

§ 226.47(b)(3)(v). 

Bankruptcy limitations. Proposed 

§ 226.38(b)(3)(vi) required disclosure of 

a statement of limitations on the 

discharge of a private education loan in 

bankruptcy. Proposed comment 

38(b)(3)–5 stated that a creditor may 

comply with proposed § 226.38(b)(vi) by 

disclosing the following statement: ‘‘If 

you file for bankruptcy you may still be 

required to pay back this loan.’’ To 

avoid overloading the consumer with 

information, the Board proposed to 

require a general statement that student 

loans may not be dischargeable in 

bankruptcy rather than require a 

detailed disclosure of student loan 

bankruptcy rules and limitations. The 

Board is adopting proposed 

§ 226.38(b)(3)(vi) as § 226.47(b)(3)(vi). 

Total amount for repayment. TILA 

section 128(e)(2)(H) requires the creditor 

to disclose an estimate of the total 

amount for repayment calculated based 

on: (1) the interest rate in effect on the 

date of approval; and (2) the maximum 

possible rate of interest applicable to the 

loan or, if a maximum rate cannot be 

determined, a good faith estimate of the 

maximum rate. 

Proposed § 226.38(b)(3)(vii) defined 

the total amount for repayment in the 

same manner as the current Regulation 

Z closed-end credit disclosure of the 

total of payments. 12 CFR 226.18(h). 

Neither the HEOA nor its legislative 

history provides guidance on the 

definition of ‘‘total amount for 

repayment.’’ Regulation Z defines ‘‘total 

of payments’’ as the amount the 

consumer will have paid when the 

consumer has made all scheduled 

payments. 12 CFR 226.18(h). In some 

cases, the total of payments will not 

exactly match the total amount that the 

borrower must repay. For example, if 

the borrower pays prepaid finance 

charges separately in cash, the amount 

of these charges will not be reflected in 

the total of payments. However, the 

Board believes that requiring separate 

disclosures for the ‘‘total amount for 

repayment’’ and the ‘‘total of payments’’ 

would likely cause consumer confusion 

and that both terms are meant to capture 

the amount that the borrower will have 

paid after making all scheduled 

payments to repay the loan. 

Accordingly, in order to avoid 

duplication, proposed comment 

38(b)(3)–6.i clarified that compliance 

with the total of payments disclosure 

under § 226.18(h) constitutes 

compliance with the requirement to 

disclose the total amount for repayment 

at the interest rate in effect on the date 

of approval. 

Maximum rate. For the requirement 

that the creditor disclose an estimate of 

the total amount for repayment at the 

maximum possible rate of interest, 

proposed § 226.38(b)(3)(vii) and 

comment 38(b)(3)–6.ii required that 

either the maximum possible rate be 

used or, if a maximum rate cannot be 

determined, an assumed rate of 21%. 

For example, if the creditor were in a 

state without a usury limit on interest 

rates, and the legal agreement between 

the parties did not specify a maximum 

rate, the creditor would have to base the 

disclosure on a rate of 21%. 

Under proposed comment 38(b)(3)– 

6.ii, a maximum rate included a legal 

limit in the nature of a usury or rate 

ceiling under state or Federal statutes or 

regulations, and the creditor was 

required to calculate the total amount 

for repayment based on that rate, and to 

disclose that the maximum rate is 

determined by law and may change. 

TILA section 128(e)(2)(H) requires 

that, if a maximum rate cannot be 

determined, the creditor must use a 

good faith estimate of the maximum 

rate. The Board proposed to use its 

authority under the HEOA to add a 

requirement that where a maximum rate 

cannot be determined, the creditor use 

a rate of 21%. The Board stated its belief 

that such a rule is necessary and 

appropriate for consumers to make 

informed borrowing decisions. A rule 

providing a uniform maximum rate 

assumption also gives creditors more 

certainty in complying with the 

regulation. The Board proposed a rate of 

21% because the Board believed that 

21% was the most common rate within 

the range of usury rate ceilings that 

consumers in the private education loan 

market are likely to face. Thus, the 

Board believed that basing the 

disclosure on an assumed maximum 

rate of 21% would assist consumers in 

comparing different loans by providing 

consumers with an estimated total 

amount for repayment that will be 

similar between states with and without 

usury rate limitations. 

In addition, under the Board’s TILA 

section 128(e)(2)(P) and 128(e)(4)(B) 

authority, the proposal added a 

requirement that, if the legal obligation 

between the parties does not specify a 

maximum rate, the creditor must 

accompany the estimated total amount 

for repayment with a statement that: 

(1) No maximum interest rate applies to 

the private education loan; (2) the 

maximum interest rate used to calculate 

the total amount for repayment is an 

estimate; and (3) the total amount for 

repayment disclosed is an estimate and 

will be higher if the applicable interest 

rate increases. The Board believed that 

these additional disclosures were 

necessary to inform consumers that the 

examples in the disclosure statement are 

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merely illustrative and that their loan in 

fact has no maximum rate. 

The HEOA allows the creditor to 

disclose the total amount for repayment 

as an estimate. Proposed § 226.38(b)(3) 

also required only an estimated total 

amount for repayment. The Board 

recognized that permitting disclosure of 

an estimate of the total amount for 

repayment is necessary because the 

interest rates on most private education 

loans are variable and the repayment 

schedule is often not known at the time 

that the approval disclosures must be 

provided to the consumer. 

The Board requested comment on 

whether a specific maximum rate 

assumption should be used for 

disclosures where a maximum rate 

cannot be determined, and, if so, 

whether 21% was the most appropriate 

rate or whether another rate should be 

used. The Board also requested 

comment on whether, if a maximum 

rate of interest was to be specified, the 

Board should publish the rate 

periodically, based on a median or a 

commonly used usury rate applicable to 

private education loans in various 

states. The Board also requested 

comment on alternative approaches by 

which creditors may make a good faith 

estimate of a maximum possible rate 

when a maximum rate cannot be 

determined. 

The Board received a number of 

comments on the proposal to require 

disclosure of the total amount for 

repayment at an assumed rate of 21% if 

a maximum interest rate could not be 

determined. Commenters generally 

supported the approach used in the 

proposed rule although a few 

commenters suggested specific higher or 

lower rates to be used as a maximum 

rate assumption, or to require a creditor 

to use its actual interest rate history. For 

example, consumer group commenters 

suggested that a rate of 36% represented 

an average of state law usury ceilings, 

but cited in support a study of payday 

lending laws. By contrast, some 

industry commenters suggested that 

historically a rate of 21% was higher 

than had actually been charged to 

consumers for private education loans. 

One government agency supported 

using the greater of 21% or the highest 

rate actually charged by the creditor 

during a recent period of time. One 

industry commenter stated that it was 

subject to a state usury ceiling of 25% 

and expressed concern that allowing 

other lenders with no rate cap to base 

the disclosure example on a maximum 

rate of 21% was unfair to creditors in 

states with higher usury ceilings. The 

commenter expressed concern that some 

consumers would incorrectly conclude 

that it was preferable to take a loan from 

a creditor in a state with no usury 

ceiling than from a creditor in a state 

with a ceiling greater than 21%. Some 

commenters also suggested that the 

Board should publish from time to time 

an assumed rate to be used in 

calculating the total for repayment 

where a maximum rate cannot be 

determined. 

The Board is adopting proposed 

§ 226.38(b)(3)(vii) as § 226.47(b)(3)(vii) 

largely as proposed, but the final rule 

requires a disclosure based on an 

assumed rate of 25% where a maximum 

rate cannot be determined, rather than 

21%. The Board proposed using a rate 

of 21% based on the most common rate 

in the range of usury rate ceilings that 

consumers in the private education loan 

market are likely to face. However, the 

Board believes that basing the example 

on the most common state usury rate 

could disadvantage creditors in states 

with higher usury ceilings. The highest 

state law usury rate actually applicable 

to student loans mentioned by 

commenters was 25%. In addition, 

consumers shown a disclosure where no 

maximum rate applied understood in 

testing that the example used only an 

assumed rate of 21%. However, a few 

consumers stated that they usually 

expect an assumption to be a ‘‘round 

number’’ such as 20% or 25%, not a 

number like 21%. Based on consumer 

testing results, the Board also believes 

that using an assumed rate of 25% will 

help indicate to consumers that the 

disclosure is based on an example. The 

Board is not publishing a rate because 

commenters did not suggest a 

methodology by which the Board could 

choose a more appropriate rate. In 

addition, the Board believes that 

requiring all creditors to use the same 

assumption, rather than historic rates, 

will better assist consumers in 

comparing loans because a creditor’s 

past interest rates may not be predictive 

of future interest rates. 

In response to one state education 

loan provider’s comment, the Board is 

adding comment 47(b)(3)–6.iii to clarify 

that if terms of the legal obligation 

provide a limitation on the amount that 

the interest rate may increase at any one 

time, the creditor may reflect the effect 

of the interest rate limitation in 

calculating the total cost example. For 

example, if the legal obligation provides 

that the interest rate may not increase by 

more than three percentage points each 

year, the creditor may, at its option, 

assume that the rate increases by three 

percentage points each year until it 

reaches that maximum possible rate, or 

if a maximum rate cannot be 

determined, an interest rate of 25%. 

Maximum monthly payment. 

Proposed § 226.38(b)(3)(viii) 

implemented TILA section 128(e)(2)(O) 

by requiring the creditor to disclose the 

maximum monthly payment based on 

the maximum rate of interest applicable 

to the loan or, if a maximum rate cannot 

be determined, for the reasons discussed 

above, an assumed rate of 21%. In 

addition, as discussed above, under the 

Board’s TILA section 128(e)(2)(P) and 

128(e)(4)(B) authority, the proposal 

added a requirement that the creditor 

state that: (1) No maximum interest rate 

applies to the loan; (2) the maximum 

interest rate used to calculate the 

maximum monthly payment amount is 

an estimate; and (3) the maximum 

monthly payment amount is an estimate 

and will be higher if the applicable 

interest rate increases. 

As with proposed § 226.38(b)(3)(vii), 

the Board requested comment on other 

approaches by which creditors may 

calculate a maximum payment when a 

maximum rate cannot be determined. 

Commenters combined their comments 

on proposed § 226.38(b)(3)(viii) with 

their comments on proposed 

§ 226.38(b)(3)(vii). 

For the reasons discussed above, the 

Board is adopting proposed 

§ 226.38(b)(3)(viii) as § 226. 47(b)(3)(viii) 

largely as proposed except that if a 

maximum rate cannot be determined, an 

assumed rate of 25% must be used. 

47(b)(4) Alternatives to Private 

Education Loans 

Implementing TILA section 

128(e)(2)(M), the Board proposed 

§§ 226.38(b)(4) to require the creditor to 

provide the information about 

alternatives to private education loans 

for financing education that were also 

required under proposed 

§§ 226.38(a)(6)(i)–(iii) and explained in 

the section-by-section analysis for 

§§ 226.47(a)(6). The Board proposed to 

use its authority under TILA sections 

105(a) and 105(f) to make exceptions to 

the statute by not requiring creditors to 

state that Federal loans may be obtained 

in lieu of or in addition to private 

education loans. As explained in the 

section-by-section analysis for 

§§ 226.47(a)(6), the Board believes that 

this exception is necessary and proper 

to effectuate meaningful disclosure of 

credit terms to consumers. The Board is 

adopting §§ 226.38(a)(6) as 

§§ 226.47(a)(6). 

47(b)(5) Rights of the Consumer 

In implementing TILA section 

128(e)(2)(L), proposed § 226.38(b)(5) 

required a creditor to disclose that the 

consumer had the right to accept the 

loan on the terms approved for up to 30 

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calendar days. The proposed disclosure 

also informed the consumer that the rate 

and terms of the loan would not change 

during this period, except for changes to 

the rate based on adjustments to the 

index used for the loan. 

Under the Board’s TILA section 

128(e)(2)(P) authority, the proposed 

disclosure required a creditor to include 

the specific date on which the 30-day 

period expired and to indicate that the 

consumer may accept the terms of the 

loan until that date. For example, under 

the proposal, if the consumer received 

the disclosures on June 1, the disclosure 

was required to state that the consumer 

could accept the loan until July 1. The 

Board believed that this disclosure was 

necessary to inform consumers of the 

precise date when the 30-day period 

expired because the date the consumer 

was deemed to receive the disclosure 

may have differed slightly from the date 

the consumer actually received the 

disclosure. The creditor was also 

required to disclose the method or 

methods by which the consumer could 

communicate acceptance. The Board 

believed that this disclosure was 

necessary to ensure consumers 

understood the specific steps required 

to accept the loan. Proposed comment 

39(c)–3, discussed below, provided 

guidance to creditors on disclosing 

methods by which consumers may 

communicate acceptance. 

Section 226.47(b)(5) of the final rule 

requires a statement that the consumer 

may accept the terms of the loan until 

the acceptance period under 

§ 226.48(c)(1) has expired. As discussed 

in the section-by-section analysis in 

§ 226.47(a)(7), the disclosure also 

requires a statement similar to the 

statement in the application disclosure 

that, except for changes as a result of 

adjustments to the interest rate and 

other changes permitted by law, the 

rates and terms of the loan may not be 

changed by the creditor during the 

acceptance period. As in the application 

disclosure, the requirements of this 

provision more closely resemble the 

language used on the approval 

disclosures in consumer testing, which 

consumers found to be clear and 

understandable. 

Section 226.47(b)(5) also requires the 

creditor to include the specific date on 

which the acceptance period expires, 

based upon the date on which the 

consumer receives the disclosures. It 

further requires the disclosure to specify 

the method or methods by which the 

consumer may accept the loan, such as 

by telephone or by mailing a signed 

acceptance. 

47(c) Final Disclosures 

Section 226.47(c), proposed as 

§ 226.38(c), requires the creditor to 

disclose to the consumer a third set of 

disclosures after the consumer accepts 

the loan in accordance with 

§ 226.48(c)(1). Section 226.47(c) 

implements TILA section 128(e)(4), 

which requires the creditor to provide 

this final set of disclosures 

contemporaneously with 

consummation. Regulation Z defines 

‘‘consummation’’ as the time that a 

consumer becomes contractually 

obligated on a credit transaction. See 12 

CFR 226.2(a)(13). The corresponding 

commentary defers to state law to 

determine when consummation occurs. 

See comment 2(a)(13)–1. As discussed 

earlier in the section-by-section analysis 

under § 226.46, to avoid confusion 

about when the final private education 

loan disclosures should be given due to 

differing state law definitions of 

consummation, and to ensure that 

consumers have a meaningful 

opportunity to exercise their 

cancellation right under TILA section 

128(c)(8), the Board interprets 

‘‘contemporaneously with 

consummation’’ to require creditors to 

provide these final disclosures after 

acceptance and, under § 226.48(d), at 

least three days before disbursement. 

47(c)(1) Interest Rate 

Section 226.47(c)(1), proposed as 

§ 226.38(c)(1), requires creditors to 

disclose the interest rate that applies to 

the private education loan accepted by 

the consumer. 

Fixed or variable rate, rate 

limitations. As proposed in 

§ 226.38(c)(1), § 226.47(c)(1) requires the 

creditor to provide to the consumer the 

rate information required under 

§§ 226.47(b)(1)(ii) and (iii), as explained 

in the section-by-section analysis for 

those sections. 

47(c)(2) Fees and Default or Late 

Payment Costs 

As proposed in § 226.38(c)(2), 

§ 226.47(c)(2) requires the creditor to 

provide to the consumer the fee and 

default or late payment information 

required under § 226.47(b)(2), as 

explained in the section-by-section 

analysis for that section. 

47(c)(3) Repayment Terms 

As proposed in § 226.38(c)(3), 

§ 226.47(c)(3) requires the creditor to 

provide to the consumer the repayment 

information required under 

§ 226.47(b)(3), as explained in the 

section-by-section analysis for that 

section. 

47(c)(4) Cancellation Right 

Section 226.47(c)(4) is adopted as 

proposed in § 226.38(c)(4). Section 

226.47(c)(4) and comment 47(c)–1 

implement TILA section 128(e)(4)(C) by 

requiring the creditor to disclose to the 

consumer the following information: 

(i) The consumer has the right to 

cancel the loan, without being 

penalized, at any time before the 

cancellation period under § 226.48(d) 

has expired; and 

(ii) Loan proceeds will not be 

disbursed until after the cancellation 

period expires. 

Under the Board’s TILA section 

128(e)(4)(B) authority, § 226.47(c)(4) 

adds a requirement that creditor 

disclose the specific date on which the 

cancellation period expires and include 

the methods or methods by which the 

consumer may cancel the loan. 

Comment 47(c)–2, proposed as 

comment 38(c)–2, clarifies that the 

statement of the right to cancel must be 

more conspicuous than any other 

disclosure required under § 226.47(c), 

except for the finance charge, the 

interest rate, and the creditor’s identity. 

See § 226.46(c)(2)(iii). Under comment 

47(c)–2, the right to cancel statement is 

deemed more conspicuous than other 

disclosures if the creditor segregates the 

statement from other the disclosures, 

places the statement at or near the top 

of the disclosure document, and 

highlights the statement in relation to 

other required disclosures. Examples of 

appropriate highlighting given in 

comment 47(c)–2 are that the statement 

may be outlined with a prominent, 

noticeable box; printed in contrasting 

color; printed in larger type, bold print 

or different type face; underlined; or set 

off with asterisks. Comments 48(d)–1, 

and 2, discussed below in the sectionby-section analysis under § 226.48(d), 

provide additional guidance about how 

the creditor must notify the consumer of 

the cancellation right and how the 

consumer may exercise this right. 

Alternatives to Private Education Loans 

Based on the results of the Board’s 

consumer testing, the Board proposed to 

use its authority under TILA section 

105(a) to create an exception from the 

requirement in TILA section 128(e)(4)(b) 

that the creditor provide the consumer 

with information about Federal 

alternatives to private education loans. 

Consumers overwhelmingly indicated 

that this information would not be 

meaningful or useful to them at the time 

when they would receive the final 

disclosures. Consumers indicated that 

by the time they had applied for and 

accepted a private education loan, they 

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41222 Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations 

13See Joint Explanatory Statement of the 

Committee of Conference on H.R. 4137, Title X, 

Subtitle A, § 1011. The Conference Report states 

that the prohibition is not intended to prohibit a 

credit union whose name includes the name of a 

covered educational institution from using its own 

name in marketing its private education loans. In 

addition, it is not intended to prohibit states or 

already would have made a decision as 

to whether or not to seek other loan 

alternatives. 

The Board also proposed to exercise 

its authority under TILA section 105(f) 

to exempt private education loans from 

the specific requirement to disclose 

information about Federal loan 

alternatives in the final disclosure form. 

The Board believed that this disclosure 

requirement does not provide a 

meaningful benefit to consumers in the 

form of useful information or protection. 

The Board considered that the private 

education loan consumer population 

may contain students who lack financial 

sophistication and that the size of the 

loan could be relatively significant and 

important to the borrower. However, as 

explained above, consumers tested 

indicated that this disclosure was not 

useful at this final stage in the loan 

process. Borrowers would receive the 

information about Federal loans at 

application and approval. The Board 

also recognized that private education 

loans would not be secured by the 

principal residence of the consumer, 

which is a factor for consideration 

under section 105(f). Furthermore, the 

HEOA provides significant rights, such 

as the right to cancel the loan. The 

Board believed that consumer 

protection would not be undermined by 

this exemption. 

The Board requested comment on 

whether it should adopt this proposed 

exception. Some consumer group 

commenters urged the Board to retain 

the disclosures about Federal loan 

alternatives stating a concern that 

consumers in a testing context received 

the various private education loan 

disclosure forms close together in time, 

but that consumers in the marketplace 

would receive them at different times 

and may not recall the information 

about Federal loan alternatives. 

For the reasons stated in the proposal, 

the Board is not requiring disclosure of 

Federal loan alternatives on the final 

disclosure form. The Board’s consumer 

testing conducted after the proposed 

rule was issued confirmed that 

consumers would not find this 

information beneficial at the stage in the 

lending process where they receive the 

final disclosure form. 

Section 226.48 Limitations on Private 

Education Loans 

Section 226.48, proposed as § 226.39, 

contains rules and limitations on private 

education loans. It includes a 

prohibition on co-branding in the 

marketing of private education loans, 

rules governing the 30-day acceptance 

period and three-day cancellation 

period for private education loans, the 

requirement that the creditor obtain a 

self-certification form from the 

consumer before consummating a 

private education loan, and the 

requirement that creditors in preferred 

lender arrangements provide certain 

information to covered educational 

institutions. 

48(a) Co-Branding Prohibited 

The HEOA prohibits creditors from 

using the name, emblem, mascot, or 

logo of a covered educational 

institution, or other words, pictures, or 

symbols readily identified with a 

covered educational institution in the 

marketing of private education loans in 

any way that implies that the covered 

educational institution endorses the 

creditor’s loans. 

Proposed § 226.39(a)(1) implemented 

this prohibition by prohibiting creditors 

from referencing a covered educational 

institution in a way that implies that the 

educational institution endorses the 

creditor’s loans. At the same time, the 

Board recognized that a creditor may at 

times have legitimate reasons for using 

the name of a covered educational 

institution. For instance, some 

educational institutions’ financial aid 

Web sites might provide links to 

specific creditors’ Web sites. Creditors 

might provide a welcome page to the 

student that references the name of the 

school that provided the link. Some 

creditors may have school-specific 

terms or benefits and may need to use 

the name of the school to provide 

accurate information to consumers 

about the nature and availability of its 

loan products. 

For these reasons, proposed 

§ 226.39(a)(2) provided creditors with 

the following safe harbor for those cases 

where the creditor’s marketing does 

make reference to an educational 

institution. Marketing that refers to an 

educational institution would not be 

deemed to imply endorsement if the 

marketing clearly and conspicuously 

discloses that the educational 

institution does not endorse the 

creditor’s loans, and that the creditor is 

not affiliated with the educational 

institution. This safe harbor approach is 

consistent with the views expressed in 

the Conference Report to the HEOA, 

which states that the conferees intended 

that creditors could demonstrate that 

they are not implying endorsement by 

the covered educational institution by 

providing a clear and conspicuous 

disclaimer that the use of the name, 

emblem, mascot, or logo of a covered 

educational institution, or other words, 

pictures, or symbols readily identified 

with a covered educational institution, 

in no way implies endorsement by the 

covered educational institution of the 

creditor’s private education loans and 

that the creditor is not affiliated with 

the covered educational institution. The 

Board stated its belief that this safe 

harbor approach will inform consumers 

that a reference to a covered educational 

institution does not mean that the 

institution endorses the loan being 

marketed while also providing clarity 

about how to market private education 

loans without violating TILA and 

Regulation Z. 

Proposed comment 39(a)–1 clarified 

the term ‘‘marketing’’ as used in 

proposed § 226.39. The term included 

all ‘‘advertisements’’ as that term is 

defined in Regulation Z. 12 CFR 

226.2(a)(2). The proposal explained that 

the term marketing is broader than 

advertisement, however, and includes 

documents that are part of the 

negotiation of the specific private 

education loan transaction. For 

example, applications or solicitations, 

promissory notes or contract documents 

would be considered marketing. The 

Board believed that a broader meaning 

of marketing is needed to cover 

documents, such as promissory notes, 

that are not considered advertisements, 

but that may use the name of the 

educational institution prominently in a 

potentially misleading way. For 

example, naming the loan the 

‘‘University of ABC Loan’’ could 

mislead consumers into believing that 

the loan was offered by the educational 

institution. 

Proposed comment 39(a)–2 clarified 

that referencing a covered educational 

institution in a way that implies that the 

educational institution, rather than the 

creditor, is offering or making the loan 

is a form of implying that the 

educational institution endorses the 

loan and was therefore not permitted 

under proposed § 226.39(a)(1). However, 

the use of a creditor’s own name, even 

if that name includes the name of a 

covered educational institution, would 

not imply endorsement. For example, a 

credit union whose name includes the 

name of a covered educational 

institution would not be prohibited 

from using its own name. In addition, 

authorized use of a state seal by a state 

or an institution of higher education in 

the marketing of state education loan 

products would not imply 

endorsement.13

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Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations 41223 

institutions of higher education from using state 

seals, with appropriate authorization, in the 

marketing of state education loan products. 

Proposed comment 39(a)–3.i provided 

a model clause that creditors may use in 

complying with the safe harbor 

proposed in § 226.39(a)(2). The creditor 

would be considered to have complied 

with proposed § 226.39(a)(2) if the 

creditor includes a clear and 

conspicuous statement, using the 

creditor’s name and the covered 

educational institution’s name, that 

‘‘[Name of creditor]’s loans are not 

endorsed by [name of school] and [name 

of creditor] is not affiliated with [name 

of school].’’ 

The Board received comments from 

educational institutions arguing that the 

prohibition on co-branding should not 

apply if the educational institution is 

itself the creditor. The Board also 

received comments from creditors 

suggesting that use of the educational 

institution’s name on the promissory 

note, if no more conspicuous than the 

text of the promissory note does not 

imply endorsement and should not be 

prohibited. By contrast, consumer 

groups suggested that the Board engage 

in consumer testing to ensure that the 

proposed disclosures were effective in 

indicating that a private education loan 

was not endorsed by the educational 

institution. 

Proposed §§ 226.39(a)(1) and 39(a)(2) 

are adopted as §§ 226.48(a)(1) and 

48(a)(2) largely as proposed. However, 

consistent with comment 47–2, which 

permits a creditor to use its own name, 

§ 226.48(a)(1) has been clarified to not 

apply to a covered educational 

institution if the institution is the 

creditor. In addition, comments 47(d)– 

3.i and 47(d)–3.ii of the final rule 

require the safe harbor model clauses be 

provided with equal prominence and in 

close proximity to the reference to the 

school. Consistent with the Board’s 

interpretation of the equal prominence 

and close proximity standards in the 

advertising rules in §§ 226.16 and 24, 

the statement would be deemed equally 

prominent and closely proximate if it is 

the same type size and is located 

immediately next to or directly above or 

below the reference to the school, 

without any intervening text or 

graphical displays. The Board believes 

that requiring equal prominence and 

close proximity for the use of the safe 

harbor statements will ensure that 

marketing material clearly 

communicates to consumers the identity 

of the creditor making the loan and, if 

applicable, that the school does not 

endorse the creditor’s loans. 

The final rule does not exclude use of 

the school’s name in the promissory 

note from the general rule, even if the 

school’s name is no more prominent 

than other text. The Board does not 

believe that the relative prominence of 

the school’s name within the 

promissory note, by itself, determines 

whether or not the use of the school’s 

name is misleading. 

48(b) Preferred Lender Arrangements 

In the proposal, the Board recognized 

that in certain instances the prohibition 

on creditors’ implying endorsement 

from covered educational institutions 

would not be appropriate because it 

would not be factually correct. The 

HEOA specifically allows covered 

educational institutions to endorse the 

private education loans of creditors with 

which they have a ‘‘preferred lender 

arrangement.’’ The HEOA defines a 

‘‘preferred lender arrangement’’ as an 

arrangement or agreement between a 

creditor and a school under which the 

creditor provides loans to the school’s 

students or their families, and the 

school recommends, promotes, or 

endorses the creditor’s loans. HEOA, 

Title I, § 120 (adding Section 152 to the 

Higher Education Act). Thus, where a 

creditor and a covered educational 

institution have a preferred lender 

arrangement, a creditor’s statement that 

a school did not endorse its loans would 

be misleading. 

The Board proposed to exercise its 

authority under TILA section 105(a) to 

provide an exception to the co-branding 

prohibition for creditors that have 

preferred lender arrangements. As 

explained above, the Board believes that 

this provision is necessary and proper to 

assure an accurate and meaningful 

disclosure to consumers of the 

relationship between the creditor and 

the educational institution. Proposed 

§ 226.39(b) allowed the creditor to refer 

to the covered educational institution, 

but required that the creditor clearly 

and conspicuously disclose that the 

loan is not being offered or made by the 

educational institution, but rather by the 

creditor. The Board believes that a 

disclosure that the loan is provided by 

a creditor and not by the school would 

address consumer confusion about 

whether the loan was actually made by 

the school, or merely endorsed by the 

school. 

The proposed requirement that 

creditors with preferred lender 

arrangements make a disclosure when 

referring to a school follows a 

prohibition on co-branding for preferred 

lenders contained in section 152 of the 

Higher Education Act, as added by the 

HEOA, which is similar to the newly 

added co-branding prohibition in TILA. 

Section 152 of the Higher Education Act 

prohibits a creditor in a preferred lender 

arrangement from making a reference to 

a covered educational institution in any 

way that implies that the loan is offered 

or made by such institution or 

organization instead of the creditor. 

HEOA, Title I, Section 120 (adding 

Section 152(a)(2) to the Higher 

Education Act). Thus, proposed 

§ 226.39(b) reconciled the two cobranding prohibitions contained in the 

HEOA. 

Proposed comment 39(a)–3.ii 

provided a model clause that creditors 

could use in complying with proposed 

§ 226.39(b). The creditor would be 

considered to have complied with 

proposed § 226.39(b) if the creditor 

included a clear and conspicuous 

statement, using the name of the 

creditor’s loan or loan program, the 

creditor’s name and the covered 

educational institution’s name, that 

‘‘[Name of loan or loan program] is not 

being offered or made by [name of 

school], but by [name of creditor].’’ 

The Board requested comment on 

whether creditors should be offered a 

safe harbor from the prohibition on cobranding, and, if so, whether other types 

of safe harbors should be considered. 

The Board also requested comment on 

how the co-branding prohibition should 

apply to creditors with preferred lender 

arrangements with covered educational 

institutions. The Board also requested 

comment on whether there are other 

examples of marketing that should be 

included in the co-branding prohibition. 

The Board received comments from 

educational institutions and some 

lenders indicating that the proposed 

exception to the co-branding prohibition 

might conflict the Department of 

Education’s, or other state law code-ofconduct provisions. Some educational 

institutions expressed concern that the 

proposed rule would permit the creditor 

to claim endorsement without the 

educational institution’s consent if the 

educational institution merely placed a 

creditor on a suggested list of lenders 

provided to students. 

The Board is adopting § 226.48(b) 

largely as proposed in § 226.39(b). 

However, the final rule clarifies that it 

does not authorize creditors to claim 

endorsement by an educational 

institution without the institution’s 

having actually endorsed the creditor’s 

loan program. After consulting with the 

Department of Education, the Board still 

believes that such endorsements may be 

permissible. The final rule has also been 

clarified to apply only when an 

endorsement of the creditor’s loans by 

the educational institution is not 

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41224 Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations 

prohibited by other applicable law or 

regulation. In addition, the statement 

that must accompany the reference to 

the educational institution must be 

equally prominent and closely 

proximate as discussed in the sectionby-section analysis under § 226.48(a) 

above. 

48(c) Consumer’s Right To Accept 

The HEOA provides consumers with 

a 30-day period following receipt of the 

approval disclosures in which to accept 

a private education loan. It also 

prohibits creditors from changing the 

rate or terms of the loan, except for 

changes based on adjustments to the 

index used for the loan, until the 30-day 

period has expired. Section 226.48(c), 

proposed as § 226.39(c), implements the 

30-day acceptance period for private 

education loans. 

Under the proposal, the 30-day period 

began following the consumer’s receipt 

of the approval disclosures required in 

proposed § 226.38(b). Proposed 

comment 39(c)–1 required creditors to 

provide at least 30 days from the date 

the consumer received the disclosures 

required under proposed § 226.38(b) for 

the consumer to accept a private 

education loan. It also allowed creditors 

to provide a longer period of time at the 

creditor’s option. It clarified that if the 

creditor placed the disclosures in the 

mail, the consumer was considered to 

have received them three business days 

after they were mailed. The proposed 

comment also clarified that the 

consumer could accept the loan at any 

time before the end of the 30 day period. 

Commenters agreed with the proposal 

requiring a minimum 30-day acceptance 

period and the provision that a 

consumer could accept the loan at any 

time within the 30-day period. 

Therefore, proposed § 226.39(c) and 

comment 39(c)–1 are adopted as 

§ 226.48(c) and comment 48(c)–1, 

respectively. 

The HEOA does not specify the 

method by which the consumer may 

accept the terms of the loan. Proposed 

comment 39(c)–2 allowed the creditor to 

specify a method or methods by which 

acceptance could occur. Under the 

proposal, the creditor could specify that 

acceptance be made orally or in writing 

or could permit either form of 

acceptance. The creditor could also 

allow the consumer to accept 

electronically, but could not make 

electronic acceptance the sole form of 

acceptance. 

Commenters generally agreed with the 

proposed comment on permissible 

methods of acceptance. However, some 

commenters suggested that creditors 

should be permitted to require 

electronic communication to be the only 

means of acceptance if the creditor 

provided the approval disclosure to the 

consumer electronically. The Board 

believes that requiring a form of 

acceptance in addition to electronic 

communication is generally appropriate 

because not all consumers have access 

to electronic forms of communication. 

However, the Board agrees with 

commenters that electronic 

communication could be permissible as 

the only means of acceptance when the 

consumer has already indicated a 

willingness to communicate 

electronically by consenting to and 

receiving a disclosure electronically, 

pursuant to the E-Sign Act. Comment 

48(c)–2, proposed as comment 39(c)–2, 

is adopted and revised to permit 

electronic communication as the only 

means of acceptance if the creditor has 

provided the approval disclosure 

electronically in compliance with the 

consumer consent and other applicable 

provisions of the E-Sign Act. 

Proposed § 226.39(c)(2) prohibited 

creditors from changing the terms of the 

loan, with a few specified exceptions, 

before the loan disbursement, or the 

expiration of the 30-day acceptance 

period if the consumer did not accept 

the loan during that time. To ensure that 

consumers receive the benefit of the 

entire 30-day period in which to accept 

the loan, the Board proposed to prohibit 

creditors from changing the rate and 

terms of the loan until the date of 

disbursement, if the consumer accepted 

within the 30-day period. 

Proposed § 226.39(c)(2) prohibited 

only those changes that would affect the 

rate or terms required to be disclosed 

under proposed §§ 226.38(b) and (c), the 

approval and final disclosures, 

respectively. The Board interpreted the 

prohibition on changes to the rate or 

terms of the loan to cover only the 

disclosed terms. 

In the proposal, the Board provided 

three exceptions to the provision that 

the rate and terms of private education 

loans required to be disclosed could not 

be changed. Proposed § 226.39(c)(2) did 

not prohibit changes based on 

adjustments to the index used for a loan, 

implementing TILA section 128(e)(6)(B). 

In addition, in the proposal, the Board 

exercised its authority under TILA 

section 105(a) to make exceptions to 

effectuate the purposes of the statute to 

allow the creditor to make changes that 

would unequivocally benefit the 

consumer, similar to the rule for homeequity plans in § 226.5b(f)(3)(iv). The 

Board also proposed to exercise its 

authority under TILA section 105(f) in 

permitting unequivocally beneficial 

changes by exempting creditors from 

HEOA’s prohibition on making changes 

to the loan prior to the date of 

acceptance of the terms of the loan and 

consummation of the transaction. 

HEOA, Title X, Subtitle B, Section 

1021(a) (adding TILA Section 

128(e)(6)(B)). 

The proposal also did not prohibit 

changes made in connection with 

accommodating a request by the 

consumer. Proposed § 226.39(c)(3) and 

proposed comment 39(c)–3 allowed 

creditors to change a loan’s rate or terms 

in response to a request from a 

consumer. The proposed rule did not 

limit the changes that could be made. 

For example, the creditor was permitted 

to provide for a shorter repayment term 

as a condition of granting the 

consumer’s request to borrow a lesser 

loan amount. However, under the 

proposal if the creditor chose to modify 

the terms of the loan in response to a 

consumer’s request, the creditor needed 

to provide a new set of approval 

disclosures and provide the consumer 

with a new 30-day acceptance period. 

The HEOA provides that a consumer 

has 30 days in which to accept the terms 

of a private education loan and 

consummate the transaction, and that 

the creditor may not change the rate and 

terms of the loan during this time. The 

statute does not explicitly state under 

what conditions, if any, a creditor could 

withdraw the loan offer or change the 

loan’s terms in response to a change in 

a material condition of the loan. The 

Board requested comment on whether 

there were instances where a material 

condition of the loan offer was not met 

such that the creditor should be 

permitted to withdraw the offer or 

change the terms of the loan. 

Commenters generally agreed with the 

permissible exceptions to the 

restrictions on changes to the loan’s rate 

and terms. Industry commenters, 

however, suggested that creditors 

should be permitted to give approval 

disclosures at a conditional approval 

stage, and be allowed to change the 

terms of the loan based upon 

information received later, such as 

verification of income, verification of 

citizenship, validation of co-borrower 

information, and validation that the 

loan transaction is in compliance with 

applicable laws. Industry commenters 

also argued for an exception to enable 

creditors to change the terms of a loan 

based on revised information regarding 

a consumer’s educational expenses and 

financial need provided in a school 

certification or other communication 

from a school. They argued that if 

creditors were not permitted to give 

approval disclosures at a conditional 

approval stage, loan approvals and 

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Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations 41225 

14Title X, Subtitle A, § 1021(a) (amending TILA 

Section 128(e)). 

approval disclosures would be delayed 

while verifications, compliance checks, 

and school certifications were 

completed. 

The Board agrees that it is important 

to inform consumers of a loan approval 

and the applicable rates and terms early 

in the loan process, so that consumers 

have as much time as possible to shop 

for a private education loan with the 

most favorable terms. However, the 

HEOA provides that the rates and terms 

of the private education loan may not be 

changed by a creditor during the 30-day 

period in which the consumer has the 

right to accept the loan terms and 

consummate the transaction, except for 

changes based on adjustments to the 

index used for a loan.14 Thus, 

permitting conditions contemplated by 

the commenters would require the 

Board to make multiple exceptions, 

which could undermine the statutory 

provision. This would also prevent the 

consumer from being able to adequately 

shop for the best loan terms because the 

consumer would not know the final 

terms of the offer until the final 

disclosure was provided. Moreover, the 

Board believes that while private 

education loan approvals may be 

delayed in order for creditors to verify 

certain information, creditors will still 

have an incentive to approve the loans 

expeditiously in order to respond to the 

needs of their customers. 

However, the Board does believe that 

two of the exceptions suggested by the 

industry commenters are appropriate, in 

addition to those exceptions provided in 

the proposed rules and, for the reasons 

stated below, is adopting them pursuant 

to its TILA Section 105(a) authority in 

order to effectuate the purposes of and 

facilitate compliance with TILA. In 

response to concerns that the provision 

would require creditors to consummate 

a loan that is legally impermissible, in 

§ 226.48(c)(3) and comment 48(c)–4 in 

the final rules, the Board makes clear 

that a creditor may withdraw an offer 

prior to consummation if the extension 

of credit would be prohibited by law. 

The creditor also may withdraw an offer 

prior to consummation if the creditor 

has reason to believe that the consumer 

has committed fraud in connection with 

the application. 

The Board also understands that it is 

common for students’ financial 

assistance packages to change in a short 

time period for a variety of reasons, 

such as changes to the student’s and 

family’s financial situation or the 

availability of grants. The Board shares 

commenters’ concerns that those whose 

financial assistance amount increases 

after their private education loan has 

been approved could end up overborrowing, which, among other things, 

could adversely affect a student’s 

eligibility for Federal student loans. 

Thus, section 226.48(c)(3) and comment 

48(c)–4 permit the creditor to reduce the 

loan amount based upon a certification 

or other information received from a 

covered educational institution or from 

the consumer that indicates the 

student’s cost of attendance has 

decreased or that other financial aid has 

increased. A creditor may make 

corresponding changes to the rate and 

other terms, but only to the extent that 

the consumer would have received the 

changed terms if the consumer had 

applied for the reduced loan amount. 

For example, assume a consumer 

applies for, and is approved for, a 

$10,000 loan at a 7% interest rate. 

However, the consumer’s school 

certifies that the consumer’s financial 

need is only $8,000. The creditor may 

reduce the loan amount for which the 

consumer is approved to $8,000. The 

creditor may also, for example, increase 

the interest rate on the loan to 7.125%, 

but only if the consumer would have 

received a rate of 7.125% if the 

consumer had originally applied for a 

$8,000 loan. 

The Board is also adopting the 

exceptions to the restrictions on 

changing the rates and terms of the loan 

that were set forth in the proposed rules. 

The Board continues to believe a 

permissible change that would 

unequivocally benefit the consumer is 

appropriate. Disallowing such a change 

could complicate the credit process and 

unnecessarily increase costs for 

consumers and creditors who, for 

example, would otherwise have to 

repeat the application process in order 

to change the terms. In addition, 

consumers retain their right under 

HEOA to cancel the loan. Therefore, the 

Board is adopting the exception 

proposed in § 226.39(c)(2) and comment 

39(c)–3 that permits a creditor to make 

changes if they will unequivocally 

benefit the consumer in the final rules 

as § 226.48(c)(3) and comment 48(c)–4. 

The final rules clarify that the 

permissible changes may be made to 

both the interest rate and the terms of 

the loan. For example, a creditor is 

permitted to reduce the interest rate or 

lower the amount of a fee. 

The Board is also adopting proposed 

§ 226.39(c)(2) as § 226.48(c)(3) in the 

final rules, permitting changes based on 

adjustments to the index used for a loan, 

as mandated in the HEOA. The final 

rules clarify that while changes to the 

interest rate are permissible under this 

exception, changes to other loan terms 

based on adjustments to the index used 

for a loan are not permissible. 

The Board has clarified in 

§ 226.48(c)(3)(ii) and comment 48(c)–4 

that if the creditor changes the rate or 

terms of the loan under § 226.48(c)(3), 

the creditor need not provide the 

approval disclosures required under 

§ 226.47(b) for the changed loan terms, 

nor must the creditor provide an 

additional 30 days to accept the new 

terms of the loan. However, the creditor 

must provide the final disclosures 

required under § 226.47(c). 

In addition to the changes to the rates 

and terms of the loan permitted in 

§ 226.48(c)(3), the Board also continues 

to believe that it is in the consumer’s 

interest to be able to request changes to 

specific terms of the loan, even if this 

results in changes to the rate or other 

terms. The Board understands that it is 

common for a consumer’s private 

education loan needs to change even 

until immediately prior to 

consummation of the loan. For example, 

a consumer may seek to defer 

repayment during enrollment in school 

after the consumer has already applied 

for the loan. The Board seeks to ensure 

that consumers retain the benefit of the 

30-day acceptance period while also 

providing consumers with flexibility to 

move forward with a transaction with a 

creditor without having to cancel a loan, 

or loan offer, and expend time and 

money re-applying. Thus, the Board is 

also adopting proposed § 226.39(c)(3) 

and comment 39(c)–4 as § 226.48(c)(4) 

and comment 48(c)–5 to permit a 

creditor, at its option, to change the rate 

or terms of a loan in order to 

accommodate a request from a 

consumer. The final rule also clarifies 

that, except for the permissible changes 

to the rates and terms in § 226.48(c)(3) 

discussed above, a creditor may not 

withdraw or change the rate or terms of 

the original loan for which the 

consumer was approved unless the 

consumer accepts the terms of the loan 

offered in response to the consumer’s 

request. For example, assume a 

consumer applies for a $10,000 loan and 

is approved for the $10,000 amount at 

an interest rate of 6%. After the creditor 

has provided the approval disclosures, 

the consumer’s financial need increases, 

and the consumer requests to a loan 

amount of $15,000. In this situation, the 

creditor is permitted to offer a $15,000 

loan, and to make any other changes 

such as raising the interest rate to 7%, 

in response to the consumer’s request. 

However, because the consumer may 

choose not to accept the offer for the 

$15,000 loan at the higher interest rate, 

the creditor may not withdraw or 

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41226 Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations 

change the rate or terms of the offer for 

the $10,000 loan, except as permitted 

under § 226.48(c)(3), unless the 

consumer accepts the $15,000 loan. 

The Board believes that consumers 

could be discouraged from requesting 

changes to loan terms unless the 

original offer for which the consumer 

was approved is held open until the 

consumer accepts the counter-offer. For 

similar reasons, the Board has clarified 

in § 226.48(c)(4)(ii) that if the creditor 

offers to make changes based on a 

request from the consumer, the creditor 

must provide the disclosures required 

under § 226.47(b) for the new loan 

terms. The creditor must also provide 

the consumer with an additional 30 

days to accept the new terms of the loan 

and must not change the new loan’s rate 

and terms except as specified in 

§§ 226.48(c)(3) and 226.48(c)(4). 

48(d) Consumer’s Right To Cancel 

Section 226.48(d), adopted 

substantially as proposed in § 226.39(d), 

provides the consumer with the right to 

cancel a private education loan without 

penalty until midnight of the third 

business day following receipt of the 

final disclosures required in § 226.47(c). 

It also prohibits the creditor from 

disbursing any funds until the 

expiration of the three-business day 

period. As proposed, the consumer’s 

right to cancel applies regardless of 

whether or not the consumer is legally 

obligated on the loan at the time that the 

final disclosures were provided. 

Comment 48(d)–1, proposed as 

comment 39(d)–1, provides guidance on 

calculating the three-business day time 

period and when a consumer’s request 

to cancel would be considered timely. It 

also clarifies that the creditor may 

provide a period of time longer than 

three business days in which the 

consumer may cancel, and that the 

creditor may disburse funds after the 

minimum three-business day period so 

long as the creditor honors the 

consumer’s later timely cancellation 

request. Comment 48(d)–2, proposed as 

comment 39(d)–2, provides guidance to 

creditors on specifying a method or 

methods by which the consumer may 

cancel the loan. The creditor is 

permitted to require cancellation be 

communicated orally or in writing. 

Under the proposal, the creditor was 

also permitted to allow cancellation to 

be communicated electronically, but 

was not permitted to require only 

electronic communication because the 

Board believed that not all consumers 

have access to electronic 

communication. In the final rule, 

comment 48(d)–2 clarifies that if the 

creditor has provided the final 

disclosure electronically in accordance 

with the E-Sign Act, the creditor may 

allow electronic communication as the 

only means of acceptance. 

Comment 48(d)–3, proposed as 

comment 39(d)–3 clarifies the 

requirement that the creditor allow 

cancellation without penalty. The 

prohibition extended only to fees 

charged specifically for canceling the 

loan. The creditor is not required to 

refund fees, such as an application fee, 

when charged to all consumers whether 

loans are cancelled or not. 

The Board requested comment on 

whether creditors should be required to 

accept cancellation requests until 

midnight, or whether they should be 

allowed to set a reasonable deadline for 

communicating cancellation on the 

third business day. The Board also 

requested comment on whether 

creditors should be allowed to provide 

for a longer period during which 

consumers may cancel the loan, and, if 

so, whether creditors should be allowed 

to disburse funds after the minimum 

three-business-day period. 

Commenters generally supported 

permitting creditors to provide a period 

longer than three days in which to 

cancel the loan and allowing loan funds 

to be disbursed after the third day if the 

creditor provides additional time in 

which to cancel. A few industry 

commenters suggested that creditors be 

allowed to set a reasonable cut-off time 

for cancellation requests on the third 

business day, such as 5 p.m. However, 

because the final rule allows creditors to 

provide the consumer with more than 

three days in which to cancel, the final 

rule adopts the midnight cutoff time on 

the third day. 

48(e) Self-Certification Form 

The HEOA requires that, before a 

creditor may consummate a private 

education loan, it obtain from the 

consumer a self-certification form. 

Proposed § 226.39(e) implemented this 

requirement. The HEOA requires that a 

creditor obtain the self-certification 

form only from consumers of private 

education loans intended for students 

attending an institution of higher 

education. HEOA, Title X, Subtitle B, 

Section 1021(a) (adding TILA Section 

128(e)(3)). Thus, the proposal did not 

require a self-certification form with 

respect to every covered educational 

institution, but only those that met the 

definition of an institution of higher 

education in proposed § 226.37(b)(2). 

Moreover, proposed comment 39(e)–1 

clarified that the requirement applied 

even if the student was not currently 

attending an institution of higher 

education, but would use the loan 

proceeds for postsecondary educational 

expenses while attending such 

institution. For example, a creditor 

would have been required to obtain the 

form before consummating a private 

education loan provided to a high 

school senior for expenses to be 

incurred during the consumer’s first 

year of college. At the same time, 

proposed comment 39(e)–1 clarified that 

the self-certification requirement would 

not apply to loans where the selfcertification information would not be 

applicable, such as loans intended to 

consolidate existing education loans. 

The self-certification form provides the 

consumer with information about the 

student’s education costs to be incurred 

in the future (such as the cost of 

attendance and the amount of financial 

aid available). Even if the student were 

still enrolled, the information on the 

self-certification form would not apply 

to a consolidation loan, because the 

consolidation loan would cover 

expenses the student incurred in the 

past. 

Section 155(a)(2) of the Higher 

Education Act of 1965, as added by the 

HEOA, provides that the form shall be 

made available to the consumer by the 

relevant institution of higher education. 

HEOA, Title X, Subtitle B, Sec. 1021(b). 

Although the HEOA requires that the 

creditor obtain the completed and 

signed self-certification form before 

consummating the loan, it does not 

specify that the creditor must obtain the 

form directly from the consumer. 

Proposed comment 39(e)–1 allowed the 

creditor to obtain the self-certification 

form either directly from the consumer 

or through the institution of higher 

education. Compliance with the selfcertification requirement may be 

simplified for all parties if the 

educational institution is permitted to 

obtain the completed form from the 

consumer and forward it to the creditor. 

The consumer may find it easier to 

return the form to the educational 

institution as part of the institution’s 

overall financial aid process. The 

creditor and educational institution may 

also find it easier to include the selfcertification form as part of a larger 

package of information communicated 

by the institution to the creditor about 

the student’s eligibility and cost of 

attendance. 

Both Section 128(e)(3) of TILA and 

Section 155 of the Higher Education Act 

of 1965 provide that the selfcertification form may be provided to 

the consumer in electronic form. Under 

Section 155 of the Higher Education Act 

of 1965, the Department of Education 

must develop the form and ensure that 

institutions of higher education make it 

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Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations 41227 

available to consumers in written or 

electronic form. Because the form will 

be provided by educational institutions 

to consumers, the Board did not propose 

to impose consumer consent or other 

requirements on creditors in order to 

accept the form in electronic form. The 

self-certification form may also be 

signed by the consumer in electronic 

form. Under Section 155(a)(5) of the 

Higher Education Act of 1965, the 

Department of Education must provide 

a place on the form for the applicant’s 

written or electronic signature. 

Proposed comment 39(e)–2 provided 

that a consumer’s electronic signature is 

considered valid if it meets the 

requirements promulgated by the 

Department of Education under Section 

155(a)(5) of the Higher Education Act of 

1965. 

The Board received numerous 

comments from industry, educational 

institutions, and individual financial 

aid officers and their representatives 

about the self-certification requirement. 

These comments requested that the 

Board exempt from the self-certification 

requirement any private education loan 

for which the creditor certifies the 

borrower’s cost of attendance, other 

financial aid, and financial need 

information with the school. 

Commenters expressed concern that the 

self-certification requirement would be 

duplicative of the current school 

certification process when that process 

is used. In particular, individual 

financial aid officers expressed concern 

that the self-certification process would 

greatly increase the burden on financial 

aid offices with few staff. Educational 

institutions also suggested that the selfcertification process was likely to be 

less meaningful when the educational 

institution is the creditor because the 

educational institution provides the 

form as well as the information the 

consumer must use to complete the 

form, but must also receive the form 

back from the consumer. 

Section 226.48(e) of the final rule 

does not provide an exception from the 

self-certification requirement for schoolcertified loans. The HEOA requires 

creditors to obtain the self-certification 

form in all cases. The Board believes 

that self-certification form is intended 

not only to ensure that the educational 

institution and creditor are aware of the 

cost of attendance at the educational 

institution and about the consumer’s 

other financial aid and need, but also to 

provide the consumer with this 

information. Thus, even where the 

school and the creditor share this 

information directly, the selfcertification form seeks to ensure 

consumers are aware of their own 

educational expenses, the financial aid 

for which they qualify, and their 

remaining financial need. 

The final rule does, however, permit 

creditors to provide the self-certification 

form directly to the consumer with the 

information the consumer requires in 

order to complete the form. Nothing in 

the HEOA prohibits creditors or anyone 

else from providing the form to the 

consumer and the Board notes that the 

form necessarily will be provided by the 

creditor when the creditor is the 

educational institution. The HEOA 

requires a statement on the selfcertification form that the consumer is 

encouraged to communicate with the 

financial aid office about the availability 

of other financial aid. The Board 

believes that allowing the creditor to 

provide the form will ensure that 

creditors have the ability to 

consummate private education loans 

and disburse loan funds in a timely 

manner and that this will benefit 

consumers, especially if financial aid 

offices are unable to process selfcertification requests. 

48(f) Provision of Information by 

Preferred Lenders 

The HEOA requires a creditor that has 

a preferred lender arrangement with a 

covered educational institution to 

provide the educational institution 

annually, by a date determined by the 

Board in consultation with the Secretary 

of Education, with the information 

required to be disclosed on ‘‘the model 

form’’ developed by the Board for each 

type of private education loan the 

creditor plans to offer for the next award 

year (meaning the period from July 1 of 

the current calendar year to June 30 of 

the next year). HEOA, Title X, Subtitle 

B, Section 1021(a) (adding TILA Section 

128(e)(11)). TILA Section 128(e)(11) 

refers to the information on ‘‘the model 

form’’ but the HEOA requires the Board 

to develop three model forms and 

Section 128(e)(11) does not specify 

which of the model forms the creditor 

should use. However, the approval and 

consummation forms contain 

transaction-specific data that cannot be 

known for the next year. Thus, the final 

rule requires, as proposed, that the 

creditor provide the general loan 

information required on the application 

form in § 226.47(a), rather than the 

transaction-specific information 

required in the approval and final 

disclosure forms. 

After consultation with the 

Department of Education, the Board 

proposed to require that creditors 

provide information by January 1 of 

each year. Proposed § 226.39(f) required 

that the creditor provide only the 

information about rates, terms and 

eligibility that are applicable to the 

creditor’s specific loan products. The 

Board did not believe that educational 

institutions needed the other 

information required to be disclosed in 

§ 226.38(a), such as information about 

the availability of Federal student loans. 

In addition, the Board believed that 

educational institutions could perform 

their own calculations of the total cost 

of the creditors’ loans and did not need 

the cost estimate disclosure required 

under § 226.38(a)(4). Comment 39(f)–1 

provided creditors with the flexibility to 

comply with this requirement by 

providing educational institutions with 

copies of their application disclosure 

forms if they chose, or to provide only 

the required information. 

The Board requested comment on the 

appropriate date by which creditors 

must provide the required information 

and on what information should be 

required. Industry and educational 

institution commenters suggested that 

April 1 of each year would be a more 

appropriate date. Commenters stated 

that creditors often do not settle on 

credit terms for the upcoming school 

year and schools do not compile 

preferred lender lists until closer to 

April 1. In addition, commenters noted 

that under the Department of 

Education’s negotiated rulemaking, the 

definition of preferred lender 

arrangement was likely to be very broad 

and that creditors may not know by 

April 1, or at all, that they are on a 

school’s preferred lender list and thus 

party to a preferred lender arrangement. 

These commenters requested that they 

be required to provide the information 

by April 1 or within 30 days of learning 

that they were party to a preferred 

lender arrangement. Educational 

institution commenters also requested 

that the Board require disclosure of the 

total cost examples contained in the 

application forms, stating they may not 

always have the information or 

resources necessary to reproduce the 

calculations. 

Under § 226.48(e), the final rule 

requires creditors to provide the 

required information by April 1 of each 

calendar year or within 30 days of 

entering into, or learning that the 

creditor is a party to, a preferred lender 

arrangement. The information must 

cover private education loans that the 

creditor plans to offer students for the 

period from July 1 of the current 

calendar year to June 30 of the next 

calendar year (that is, the next award 

year). In addition, the creditor is 

required to provide the information 

required in §§ 226.47(a)(1)–(5), which 

includes the total cost examples. 

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41228 Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations 

15The disclosure of the interest rate and annual 

percentage rate is discussed in the section-bysection analysis in § 226.17. 

16 In addition, the Board notes that current 

comment app. H–1 specifically permits creditors to 

rearrange the order of the finance charge and 

amount financed boxes in model forms H–1 and 

H–2. 

Comment 48(e)–1 clarifies that a 

creditor is not required to comply if the 

creditor is not aware that it is a party to 

a preferred lender arrangement. For 

example, if a creditor is placed on a 

covered educational institution’s 

preferred lender list without the 

creditor’s knowledge, the creditor is not 

required to comply with § 226.48(f). 

Appendix H—Closed-End Model Forms 

and Clauses 

Appendix H to part 226 contains 

model forms, model clauses and sample 

forms applicable to closed-end loans. 

Although use of the model forms and 

clauses is not required, creditors using 

them properly will be deemed to be in 

compliance with the regulation with 

regard to those disclosures. The Board 

proposed to add several model and 

sample forms to Appendix H to part 

226. The Board also proposed to add 

commentary to the model and sample 

forms in Appendix H to part 226, as 

discussed below. 

Current model form H–2 contains 

boxes at the top of the form with 

disclosures in the following order: the 

annual percentage rate, the finance 

charge, the amount financed, and the 

total of payments. Proposed model 

forms H–19, and H–20 contain a similar 

box-style arrangement, but reordered the 

disclosures as follows: The amount 

financed, the interest rate, the finance 

charge and the total of payments.15 The 

proposed order reflected a mathematical 

progression of the disclosures that 

consumer testing indicates may enhance 

understanding of these terms: the 

consumer borrows the amount financed, 

is charged interest which, along with 

fees, yields a finance charge and a total 

of payments. While the Board believed 

that proposed order may enhance 

consumer understanding in the context 

of private education loans, the Board 

also recognized that consumers may be 

accustomed to the current order from 

other loan contexts. The Board 

requested comment on whether it 

should maintain a uniform order for the 

disclosures, or whether it should adopt 

the proposed order for private education 

loans. 

A few industry and consumer group 

commenters suggested that the Board 

maintain the boxes in the order 

provided in model form H–1. However, 

the final model forms H–19 and H–20 

contain further changes to the boxes 

displayed at the top of the forms. In the 

final model forms, the amount financed 

is disclosed as part of the itemization of 

the amount financed and the total loan 

amount is in the top left box where the 

amount financed was in the proposed 

forms. Consumer testing indicated that 

disclosing the total loan amount, 

interest rate, finance charge and total of 

payments in this manner enhanced 

consumer understanding. Consumers 

were able to follow the mathematical 

progression of the terms and understand 

the finance charge and total of payments 

based on the total loan amount, interest 

rate and itemization of the amount 

financed. For these reasons the Board is 

maintaining the order of the boxes as 

proposed.16

Permissible changes to the model and 

sample forms. The commentary to 

Appendices G and H to part 226 

currently states that creditors may make 

certain changes in the format and 

content of the model forms and clauses 

and may delete any disclosures that are 

inapplicable to a transaction or a plan 

without losing the act’s protection from 

liability. See comment app. G and H–1. 

However, the Board proposed to adopt 

format requirements with respect to the 

model forms for disclosures applicable 

to private education loans, such as 

requiring certain disclosures be grouped 

together under specific headings. 

Proposed comment app. H–25.i 

provided a list of acceptable changes to 

the model forms. Proposed comment 

app. H–25.ii provided guidance on the 

design of the model forms that would 

not be required but would be 

encouraged. 

The Board also proposed sample 

forms H–21, H–22, and H–23 to 

illustrate various ways of adapting the 

model forms to the individual 

transactions described in the 

commentary to appendix H. The 

deletions and rearrangements shown 

relate only to the specific transactions 

described in proposed comments app. 

H–26, H–27, and H–28. As a result, the 

samples do not provide the general 

protection from civil liability provided 

by the model forms. 

The Board conducted consumer 

testing on the proposed forms and on 

later revisions of the proposed forms. 

The Board also received comments on 

the proposed forms requesting 

clarification as to whether certain 

changes could be made. For example, 

commenters requested the ability to 

move the notice of the right to cancel to 

accommodate a form that could be used 

with windowed envelopes. 

The Board is adopting final model 

forms H–18, H–19, and H–20, and final 

sample forms H–21, H–22, and H–23, 

that have been revised to reflect the 

consumer testing conducted for the 

Board and public comment. The Board 

is also adopting comment H–25 to 

provide a list of acceptable changes to 

the model forms and guidance on the 

design of the forms. For example, in 

response to public comment, the Board 

tested a version of the sample final form 

with the notice of the right to cancel in 

the top right instead of the top left and 

consumers did not find the notice less 

conspicuous. The final rule allows 

creditors to place the notice of the right 

to cancel in the top right of the form to 

accommodate windowed envelopes. 

V. Effective Date 

The HEOA’s amendments to TILA 

have various effective dates. The TILA 

amendments for which the Board is not 

required to issue regulations became 

effective on the date of the HEOA’s 

enactment, August 14, 2008. HEOA 

Section 1003. 

The Board is required to issue 

regulations for paragraphs (1), (2), (3), 

(4), (6), (7), and (8) of section 128(e) and 

section 140(c) of TILA. The Board’s 

regulations are to have an effective date 

not later than six months after their 

issuance. HEOA Section 1002. However, 

the HEOA’s amendments to TILA for 

which the Board must issue regulations 

take effect on the earlier of the date on 

which the Board’s regulations become 

effective or 18 months after the date of 

the HEOA’s enactment. HEOA Section 

1003. Consequently, the latest date at 

which the provisions of the HEOA 

described above could become effective 

is February 14, 2010. 

The Board requested comment on 

whether six months would be an 

appropriate implementation period for 

the proposed rules or whether the Board 

should specify a shorter implementation 

period. Commenters stated that 

compliance with the proposed rule 

would require significant updates to 

disclosure systems, processes, and 

training, and requested that the Board 

provide no less than a six-month 

implementation period. The final rule 

provides creditors until February 14, 

2010 to comply. 

Compliance with the final rules is 

mandatory for private education loans 

for which the creditor receives an 

application on or after February 14, 

2010. Transition rules are provided for 

private education loans for which 

applications were received before the 

mandatory compliance date in comment 

1(d)(6)–2. 

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Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations 41229 

17The increase of 270 hours corrects a 

transposition of 231,474 hours published in the 

proposed rules. 

18The burden estimate for this rulemaking 

includes the burden addressing changes to 

implement provisions of the Mortgage Disclosure 

Improvement Act of 2008, as announced in a 

separate final rulemaking. See 74 FR 23,289 (May 

19, 2009). 

19http://www.sba.gov/idc/groups/public/ 

documents/sba_homepage/serv_sstd_tablepdf.pdf. 

In addition, TILA section 128(e)(5) 

requires the Board to develop model 

forms for the disclosures required under 

TILA section 128(e) within two years of 

the HEOA’s date of enactment. The 

Board is adopting model forms along 

with this final rule. The Board is also 

adopting a rule to implement TILA 

section 128(e)(11) which requires 

lenders to provide certain information 

to covered educational institutions with 

which they have preferred lender 

arrangements. 

VI. Paperwork Reduction Act 

In accordance with the Paperwork 

Reduction Act (PRA) of 1995 (44 U.S.C. 

3506; 5 CFR Part 1320 Appendix A.1), 

the Board reviewed the final rule under 

the authority delegated to the Board by 

the Office of Management and Budget 

(OMB). In addition, the Board, under 

OMB delegated authority, will extend 

for three years the current 

recordkeeping and disclosure 

requirements in connection with 

Regulation Z. The collection of 

information that is required by this final 

rule is found in 12 CFR part 226. The 

Board may not conduct or sponsor, and 

an organization is not required to 

respond to, this information collection 

unless the information collection 

displays a currently valid OMB control 

number. The OMB control number is 

7100–0199. 

This information collection is 

required to provide benefits for 

consumers and is mandatory (15 U.S.C. 

1601 et seq.). Since the Board does not 

collect any information, no issue of 

confidentiality arises. The respondents/ 

recordkeepers are creditors and other 

entities subject to Regulation Z, 

including for-profit financial 

institutions and small businesses. 

TILA and Regulation Z are intended 

to ensure effective disclosure of the 

costs and terms of credit to consumers. 

For open-end credit, creditors are 

required to, among other things, 

disclose information about the initial 

costs and terms and to provide periodic 

statements of account activity, notice of 

changes in terms, and statements of 

rights concerning billing error 

procedures. Regulation Z requires 

specific types of disclosures for credit 

and charge card accounts and home 

equity plans. For closed-end loans, such 

as mortgage and installment loans, cost 

disclosures are required to be provided 

prior to consummation. Special 

disclosures are required in connection 

with certain products, such as reverse 

mortgages, certain variable-rate loans, 

and certain mortgages with rates and 

fees above specified thresholds. TILA 

and Regulation Z also contain rules 

concerning credit advertising. Creditors 

are required to retain evidence of 

compliance for twenty-four months 

(§ 226.25), but Regulation Z does not 

specify the types of records that must be 

retained. 

Under the PRA, the Board accounts 

for the paperwork burden associated 

with Regulation Z for the state member 

banks and other creditors supervised by 

the Board that engage in lending 

covered by Regulation Z and, therefore, 

are respondents under the PRA. 

Appendix I of Regulation Z defines the 

Board-regulated institutions as: state 

member banks, branches and agencies of 

foreign banks (other than Federal 

branches, Federal agencies, and insured 

state branches of foreign banks), 

commercial lending companies owned 

or controlled by foreign banks, and 

organizations operating under section 

25 or 25A of the Federal Reserve Act. 

Other Federal agencies account for the 

paperwork burden imposed on the 

entities for which they have 

administrative enforcement authority. 

To ease the burden and cost of 

complying with Regulation Z 

(particularly for small entities), the 

Board provides model forms, which are 

appended to the regulation. 

As discussed above, on March 24, 

2009, the Board published in the 

Federal Register a notice of proposed 

rulemaking to implement the HEOA (74 

FR 12,464). The comment period for this 

notice expired May 26, 2009. No 

comments that specifically addressed 

current or proposed paperwork burden 

estimates were received. The final rule 

will impose a one-time increase in the 

total annual burden under Regulation Z 

by 45,440 hours from 734,127 to 

779,567 hours. In addition, the Board 

estimates that, on a continuing basis, the 

requirements will increase the annual 

burden by 231,744 hours 17 from 

734,127 to 965,871 hours. The total 

annual burden will increase by 277,184 

hours, from 734,127 to 1,011,311 

hours.18 This burden increase will affect 

all Board-regulated institutions that are 

deemed to be respondents for the 

purposes of the PRA. 

The Board has a continuing interest in 

the public’s opinions of its collections 

of information. At any time, comments 

regarding the burden estimate or any 

other aspect of this collection of 

information, including suggestions for 

reducing the burden, may be sent to: 

Secretary, Board of Governors of the 

Federal Reserve System, 20th and C 

Streets, NW., Washington, DC 20551; 

and to the Office of Management and 

Budget, Paperwork Reduction Project 

(7100–0199), Washington, DC 20503. 

VII. Regulatory Flexibility Analysis 

In accordance with Section 3(a) of the 

Regulatory Flexibility Act (5 U.S.C. 

601–612) (RFA), the Board is publishing 

a final regulatory flexibility analysis for 

the proposed amendments to Regulation 

Z. The RFA requires an agency either to 

provide a final regulatory flexibility 

analysis with a final rule or certify that 

the final rule will not have a significant 

economic impact on a substantial 

number of small entities. The Small 

Business Administration (SBA) 

establishes size standards that define 

which entities are small businesses for 

purposes of the RFA.19 The size 

standard to be considered a small 

business is: $175 million or less in 

assets for banks and other depository 

institutions; $25.5 million or less in 

annual revenues for flight training 

schools; and $7.0 million or less in 

annual revenues for all other non-bank 

entities that are likely to be subject to 

the final regulations. 

The Board believes that this final rule 

will not have a significant economic 

impact on a substantial number of small 

entities. The final amendments to 

Regulation Z are narrowly designed to 

implement the revisions to TILA made 

by the HEOA. Creditors must comply 

with the HEOA’s requirements by 

February 14, 2010, whether or not the 

Board amends Regulation Z to conform 

the regulation to the statute. The Board’s 

final rule is intended to facilitate 

compliance by eliminating duplication 

between Regulation Z’s existing 

requirements and the statutory 

requirements imposed by the HEOA and 

to provide guidance on compliance with 

the HEOA’s requirements. 

A. Statement of the Need for, and 

Objectives of, the Final Rule 

Section 1002 of the HEOA requires 

the Board to prescribe regulations 

prohibiting creditors from co-branding 

and requiring creditors to make certain 

disclosures and perform related 

requirements when making private 

education loans. More specifically, the 

regulations must address, but are not 

limited to, the following aspects of 

sections 128 and 140 of the TILA: (i) 

Prohibiting a creditor from marketing 

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20Federal Financial Institutions Examination 

Council (FFIEC) Consolidated Reports of Condition 

and Income (Call Reports) (FFIEC 031 & 041), Thrift 

Financial Report (1313), and NCUA Call Reports 

(NCUA 5300). 

21Of these small accredited postsecondary 

schools, 396 are public institutions, 678 are private 

not-for-profit institutions, and 2,085 are private forprofit institutions. 

private education loans in any way that 

implies that the covered educational 

institution endorses the private 

education loans it offers; (ii) requiring a 

creditor to make certain disclosures to 

the consumer in an application (or 

solicitation without requiring an 

application), with the approval, and 

with the consummation of the private 

education loan; (iii) requiring the 

creditor to obtain from the consumer a 

self-certification form prior to 

consummation; (iv) allowing at least 30 

days following receipt of the approval 

disclosures for the consumer to accept 

and consummate the loan, and 

prohibiting certain changes in rates and 

terms until either consummation or 

expiration of such period of time; and 

(v) requiring a three-day right to cancel 

following consummation and 

prohibiting disbursement of funds until 

the three-day period expires. 

Moreover, section 1021(a)(5) of the 

HEOA requires the Board, in 

consultation with the Secretary of 

Education, to develop and issue model 

disclosure forms that may be used to 

comply with the amended section 128 

of the TILA. 

In addition, the regulations interpret 

certain definitions included in title X of 

the HEOA to clarify the meaning of 

terms used in section 1011(a) of the 

HEOA, including the definitions of 

private education loan, and covered 

educational institution. The HEOA does 

not require the Board to issue 

regulations to implement these 

definitions, but the definitions are 

intended to clarify the required 

regulations pursuant to the Board’s 

authority under section 105(a) of the 

TILA. 

The Board is issuing the final 

regulations and model forms both to 

fulfill its statutory duty to implement 

the provisions of sections 1002 and 

1021(a)(5) of the HEOA and, in the case 

of the definition interpretations, to 

better clarify the requirements under the 

aforementioned sections. Parts I and IV 

of the SUPPLEMENTARY INFORMATION

describe in detail the reasons, 

objectives, and legal basis for each 

component of the final rule. 

B. Summary of Issues Raised by 

Comments in Response to the Initial 

Regulatory Flexibility Analysis 

In connection with the proposed rule 

to implement the HEOA, the Board 

sought information and comment on 

any costs, compliance requirements, or 

changes in operating procedures arising 

from the application of the rule to small 

institutions. The Board received several 

comments from small banks, credit 

unions, and educational institutions and 

trade associations that represent them. 

The commenters asserted that 

compliance with a final rule to 

implement the HEOA would increase 

costs and delay consummation of 

private education loans. However, these 

comments did not contain specific 

information about costs that will be 

incurred or changes in operating 

procedures that will be required to 

comply with the final rule. In general, 

the comments discussed the impact of 

statutory requirements rather than any 

impact that the Board’s proposed rule 

itself would generate. 

C. Description and Estimate of Small 

Entities to Which the Regulation Applies 

The final regulations apply to any 

‘‘creditor’’ as defined in Regulation Z 

(12 CFR 226.2(a)(17)) that extends a 

private education loan. 

The total number of small entities 

likely to be affected by the final rule is 

unknown because the Board does not 

have data on the number of small 

creditors that make private education 

loans. The rule has broad applicability, 

applying to any creditor that makes 

loans expressly for postsecondary 

educational expenses, but excluding 

open-end credit, real estate-secured 

loans, and loans made, insured, or 

guaranteed by the Federal government 

under title IV of the Higher Education 

Act of 1965. It could apply not only to 

depository institutions and finance 

companies, but also schools that meet 

the creditor definition and extend 

private education loans to their 

students. The Board requested but did 

not receive specific comment regarding 

the number and type of small entities 

that would be affected by the proposed 

rule. 

Based on the best information 

available, the Board makes the following 

estimate of small entities that would be 

affected by this final rule: Based on an 

average of data reported in Call 

Reports 20 at quarter end between April 

1, 2008 and March 31, 2009, 

approximately 4,362 banks, 393 thrifts, 

and 7,038 credit unions, totaling 11,793 

institutions, would be considered small 

entities that are subject to the final 

rules. The Board cannot identify the 

percentage of these small institutions 

that extend private education loans and 

thus are subject to the rulemaking. 

However, because the final rules cover 

all private education loans regardless of 

their size or whether they are for 

multiple purposes, the Board believes a 

majority of the 11,793 institutions 

would be covered by the final rules. 

The Board is not aware of data that 

provides information regarding finance 

companies’ size in terms of annual 

revenues, and therefore cannot identify 

with certainty the number of small 

finance companies that extend private 

education loans that would be subject to 

the final rule. However, the size 

standard for these companies is $7.0 

million or less in annual revenues 

(rather than assets), and the Board 

believes the size standard for depository 

institutions—$175 million or less in 

asset size—is likely to provide a 

comparable estimate. A 2005 

compilation of surveys conducted by 

the Board indicates that 211 finance 

companies have an asset size of $100 

million or less, and an additional 36 

finance companies have an asset size 

between $100 million and $1 billion. 

Thus, the Board estimates that there are 

no more than a total of 247 small 

finance companies. The Board is unable, 

however, to locate data demonstrating 

the number of these small finance 

companies that extend private 

education loans. 

The final rule would also apply to 

covered educational institutions that 

extend private education loans to their 

students, including flight training 

schools. Accordingly to information on 

the Federal Aviation Administration 

Web site, there are approximately 588 

flight training schools nationwide. The 

Board is unaware of data that shows 

how many of those flight training 

schools would be deemed small 

institutions and, of those small flight 

schools, how many extend private 

education loans. 

The final rule would also apply to 

other types of postsecondary schools, 

including both accredited and 

unaccredited postsecondary schools. In 

order to calculate an estimate of small 

accredited postsecondary schools, the 

Board relied on data collected by the 

Department of Education through its 

Integrated Postsecondary Education 

Data System (IPEDS). The Board used 

IPEDS data showing the revenue of all 

schools that participate in the 

Department’s financial aid programs for 

postsecondary students, all of which are 

accredited. According to this IPEDS 

data, the estimated number of small 

accredited postsecondary schools is 

3,159.21

The Board is not aware of sources of 

data on either the number of nonmstockstill on DSKH9S0YB1PROD with RULES2

Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations 41231 

22This approximation is supported by similar 

estimates provided by representatives of several 

state associations of for-profit schools, who 

estimated that 90 to 95 percent of their institutions 

would qualify as small businesses. 

23While the numbers of accredited and 

unaccredited postsecondary schools include flight 

training schools, the Board could not locate sources 

of data that would prevent this overlap. 

accredited postsecondary schools 

nationwide or their revenues. However, 

based on estimates provided by several 

trade organizations representing forprofit postsecondary schools, the Board 

believes that the number of nonaccredited for-profit schools is 

approximately three times the number 

of accredited for-profit schools. Based 

on the assumption that all nonaccredited schools are for-profit 

institutions, and using the IPEDS data 

showing that there were approximately 

2,600 accredited for-profit 

postsecondary schools in 2005, the 

Board estimates there are 7,800 nonaccredited postsecondary schools 

nationwide. 

In order to approximate how many of 

those 7,800 non-accredited 

postsecondary schools are small 

entities, the Board believes that 

available data on for-profit schools with 

programs less than two years is likely to 

provide the closest comparable data to 

that of non-accredited postsecondary 

schools. According to this data, 

approximately 95 percent of for-profit 

schools with programs less than two 

years—and therefore approximately 95 

percent of non-accredited postsecondary 

schools—have $7 million or less in 

revenue.22 Thus, the Board estimates 

that 7,410 non-accredited postsecondary 

schools qualify as small entities.23

With respect to both accredited and 

unaccredited postsecondary schools, the 

Board is not aware of a source of data 

regarding the number of these small 

institutions that extend private 

education loans. Anecdotal information 

and informal survey results from 

representatives of several state 

associations of for-profit schools 

produced conflicting results regarding 

how many small schools extend private 

education loans. 

D. Reporting, Recordkeeping and Other 

Compliance Requirements 

The compliance requirements of the 

final regulations are described in detail 

in parts I and IV of the SUPPLEMENTARY

INFORMATION above. 

The final regulations generally 

prohibit a creditor from marketing 

private education loans in a way that 

implies that the covered educational 

institution endorses the private 

education loans it offers. A creditor will 

need to analyze the regulations, 

determine whether it is engaging in 

marketing private education loans, and 

establish procedures to ensure the 

marketing does not imply such 

endorsement. 

The final regulations also require 

creditors to make certain disclosures to 

the consumer on or with an application 

(or solicitation without requiring an 

application), with the approval, and 

with the consummation of the private 

education loan. The creditor is also 

required to obtain a self-certification 

form prior to consummation. The 

creditor must allow at least 30 days 

following the consumer’s receipt of the 

approval disclosure documents for the 

consumer to accept the loan and must 

not change certain rates and terms until 

either consummation or expiration of 

such period of time. A creditor also 

must provide a three-day right to cancel 

following consummation and is 

generally prohibited from disbursing 

funds until the three-day period expires. 

A creditor will need to analyze the 

regulations, determine when and to 

whom such notices must be given, and 

design, generate, and provide those 

notices in the appropriate 

circumstances. The creditor must also 

ensure the receipt of the selfcertification form prior to 

consummation and that the applicable 

rates and terms do not change in the 

period of time following the consumer’s 

receipt of the approval disclosure 

documents. 

The Board requested but did not 

receive specific information and 

comment on any costs, compliance 

requirements, or changes in operating 

procedures arising from the application 

of the proposed rule to small 

institutions. The precise costs to small 

entities of updating their systems and 

disclosures are difficult to predict. 

These costs will depend on a number of 

unknown factors, including, among 

other things, the specifications of the 

current systems used by such entities to 

prepare and provide disclosures. 

E. Steps Taken To Minimize the 

Economic Impact on Small Entities 

The steps the Board has taken to 

minimize the economic impact and 

compliance burden on small entities, 

including the factual, policy, and legal 

reasons for selecting any alternatives 

adopted and why certain alternatives 

were not accepted, are described in the 

in parts I and IV of the SUPPLEMENTARY

INFORMATION above. The Board believes 

that these changes minimize the 

significant economic impact on small 

entities while still meeting the 

requirements of the HEOA. 

List of Subjects in 12 CFR Part 226 

Advertising, Consumer protection, 

Federal Reserve System, Mortgages, 

Reporting and recordkeeping 

requirements, Truth in lending. 

Authority and Issuance 

■ For the reasons set forth in the 

preamble, the Board amends Regulation 

Z, 12 CFR part 226, as set forth below: 

PART 226—TRUTH IN LENDING 

(REGULATION Z) 

■ 1. The authority citation for part 226 

continues to read as follows: 

Authority: 12 U.S.C. 3806; 15 U.S.C. 1604 

and 1637(c)(5). 

Subpart A—General 

■ 2. Section 226.1 is amended by 

revising paragraph (b), redesignating 

paragraph (d)(6) as paragraph (d)(7), and 

adding new paragraph (d)(6) to read as 

follows: 

§ 226.1 Authority, purpose, coverage, 

organization, enforcement and liability. 

* * * * * 

(b) Purpose. The purpose of this 

regulation is to promote the informed 

use of consumer credit by requiring 

disclosures about its terms and cost. The 

regulation also gives consumers the 

right to cancel certain credit 

transactions that involve a lien on a 

consumer’s principal dwelling, 

regulates certain credit card practices, 

and provides a means for fair and timely 

resolution of credit billing disputes. The 

regulation does not govern charges for 

consumer credit. The regulation 

requires a maximum interest rate to be 

stated in variable-rate contracts secured 

by the consumer’s dwelling. It also 

imposes limitations on home-equity 

plans that are subject to the 

requirements of § 226.5b and mortgages 

that are subject to the requirements of 

§ 226.32. The regulation prohibits 

certain acts or practices in connection 

with credit secured by a consumer’s 

principal dwelling. The regulation also 

regulates certain practices of creditors 

who extend private education loans as 

defined in § 226.46(b)(5). 

* * * * * 

(d) * * * 

(6) Subpart F relates to private 

education loans. It contains rules on 

disclosures, limitations on changes in 

terms after approval, the right to cancel 

the loan, and limitations on co-branding 

in the marketing of private education 

loans. 

* * * * * 

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41232 Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations 

37The disclosures may include an 

acknowledgment of receipt, the date of the 

transaction, and the consumer’s name, address, and 

account number. 38The following disclosures may be made 

together with or separately from other required 

disclosures: the creditor’s identity under 

§ 226.18(a), the variable rate example under 

§ 226.18(f)(1)(iv), insurance or debt cancellation 

under § 226.18(n), and certain security interest 

charges under § 226.18(o). 39 [Reserved.] 

■ 2. Section 226.2 is amended by 

revising paragraph (a)(6) to read as 

follows: 

§ 226.2 Definitions and rules of 

construction. 

(a) * * * 

(6) Business Day means a day on 

which the creditor’s offices are open to 

the public for carrying on substantially 

all of its business functions. However, 

for purposes of rescission under 

§§ 226.15 and 226.23, and for purposes 

of § 226.19(a)(1)(ii), § 226.19(a)(2), 

§ 226.31, and § 226.46(d)(4), the term 

means all calendar days except Sundays 

and the legal public holidays specified 

in 5 U.S.C. 6103(a), such as New Year’s 

Day, the Birthday of Martin Luther King, 

Jr., Washington’s Birthday, Memorial 

Day, Independence Day, Labor Day, 

Columbus Day, Veterans Day, 

Thanksgiving Day, and Christmas Day. 

* * * * * 

■ 3. Section 226.3 is amended by 

revising paragraph (b) to read as follows: 

§ 226.3 Exempt transactions. 

* * * * * 

(b) Credit over $25,000. An extension 

of credit in which the amount financed 

exceeds $25,000 or in which there is an 

express written commitment to extend 

credit in excess of $25,000, unless the 

extension of credit is: 

(1) Secured by real property, or by 

personal property used or expected to 

be used as the principal dwelling of the 

consumer; or 

(2) A private education loan as 

defined in § 226.46(b)(5). 

* * * * * 

Subpart C—Closed-End Credit 

■ 4. Section 226.17 is amended by 

revising paragraphs (a), (b), (e), (f), (g) 

and (i) to read as follows: 

§ 226.17 General disclosure requirements. 

(a) Form of disclosures. (1) The 

creditor shall make the disclosures 

required by this subpart clearly and 

conspicuously in writing, in a form that 

the consumer may keep. The disclosures 

required by this subpart may be 

provided to the consumer in electronic 

form, subject to compliance with the 

consumer consent and other applicable 

provisions of the Electronic Signatures 

in Global and National Commerce Act 

(E-Sign Act) (15 U.S.C. 7001 et seq.). 

The disclosures required by 

§§ 226.17(g), 226.19(b), and 226.24 may 

be provided to the consumer in 

electronic form without regard to the 

consumer consent or other provisions of 

the E-Sign Act in the circumstances set 

forth in those sections. The disclosures 

shall be grouped together, shall be 

segregated from everything else, and 

shall not contain any information not 

directly related 37 to the disclosures 

required under § 226.18 or § 226.47.38

The itemization of the amount financed 

under § 226.18(c)(1) must be separate 

from the other disclosures under 

§ 226.18, except for private education 

loan disclosures made in compliance 

with § 226.47. 

(2) Except for private education loan 

disclosures made in compliance with 

§ 226.47, the terms ‘‘finance charge’’ and 

‘‘annual percentage rate,’’ when 

required to be disclosed under § 226.18 

(d) and (e) together with a 

corresponding amount or percentage 

rate, shall be more conspicuous than 

any other disclosure, except the 

creditor’s identity under § 226.18(a). For 

private education loan disclosures made 

in compliance with § 226.47, the term 

‘‘annual percentage rate,’’ and the 

corresponding percentage rate must be 

less conspicuous than the term ‘‘finance 

charge’’ and corresponding amount 

under § 226.18(d), the interest rate 

under §§ 226.47(b)(1)(i) and (c)(1), and 

the notice of the right to cancel under 

§ 226.47(c)(4). 

(b) Time of disclosures. The creditor 

shall make disclosures before 

consummation of the transaction. In 

certain residential mortgage 

transactions, special timing 

requirements are set forth in § 226.19(a). 

In certain variable-rate transactions, 

special timing requirements for variablerate disclosures are set forth in 

§ 226.19(b) and § 226.20(c). For private 

education loan disclosures made in 

compliance with § 226.47, special 

timing requirements are set forth in 

§ 226.46(d). In certain transactions 

involving mail or telephone orders or a 

series of sales, the timing of disclosures 

may be delayed in accordance with 

paragraphs (g) and (h) of this section. 

* * * * * 

(e) Effect of subsequent events. If a 

disclosure becomes inaccurate because 

of an event that occurs after the creditor 

delivers the required disclosures, the 

inaccuracy is not a violation of this 

regulation, although new disclosures 

may be required under paragraph (f) of 

this section, § 226.19, § 226.20, or 

§ 226.48(c)(4). 

(f) Early disclosures. Except for 

private education loan disclosures made 

in compliance with § 226.47, if 

disclosures required by this subpart are 

given before the date of consummation 

of a transaction and a subsequent event 

makes them inaccurate, the creditor 

shall disclose before consummation 

(subject to the provisions of 

§ 226.19(a)(2) and § 226.19(a)(5)(iii)): 39

(1) * * * 

(2) * * * 

(g) Mail or telephone orders—delay in 

disclosures. Except for private education 

loan disclosures made in compliance 

with § 226.47, if a creditor receives a 

purchase order or a request for an 

extension of credit by mail, telephone, 

or facsimile machine without face-toface or direct telephone solicitation, the 

creditor may delay the disclosures until 

the due date of the first payment, if the 

following information for representative 

amounts or ranges of credit is made 

available in written form or in electronic 

form to the consumer or to the public 

before the actual purchase order or 

request: 

(1) * * * 

(2) * * * 

* * * * * 

(i) Interim student credit extensions. 

For transactions involving an interim 

credit extension under a student credit 

program for which an application is 

received prior to the mandatory 

compliance date of §§ 226.46, 47, and 

48, the creditor need not make the 

following disclosures: the finance 

charge under § 226.18(d), the payment 

schedule under § 226.18(g), the total of 

payments under § 226.18(h), or the total 

sale price under § 226.18(j) at the time 

the credit is actually extended. The 

creditor must make complete 

disclosures at the time the creditor and 

consumer agree upon the repayment 

schedule for the total obligation. At that 

time, a new set of disclosures must be 

made of all applicable items under 

§ 226.18. 

* * * * * 

§§ 226.37–226.45 [Reserved.] 

■ 5. Sections 226.37 through 226.45 are 

reserved. 

■ 6. A new Subpart F consisting of 

§§ 226.46, 226.47, and 226.48 are added 

to read as follows: 

Subpart F—Special Rules for Private 

Education Loans 

Sec. 

226.46 Special disclosure requirements for 

private education loans. 

226.47 Content of disclosures. 

226.48 Limitations on private education 

loans. 

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Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations 41233 

Subpart F—Special Rules for Private 

Education Loans 

§ 226.46 Special disclosure requirements 

for private education loans. 

(a) Coverage. The requirements of this 

subpart apply to private education loans 

as defined in § 226.46(b)(5). A creditor 

may, at its option, comply with the 

requirements of this subpart for an 

extension of credit subject to §§ 226.17 

and 226.18 that is extended to a 

consumer for expenses incurred after 

graduation from a law, medical, dental, 

veterinary, or other graduate school and 

related to relocation, study for a bar or 

other examination, participation in an 

internship or residency program, or 

similar purposes. 

(1) Relation to other subparts in this 

part. Except as otherwise specifically 

provided, the requirements and 

limitations of this subpart are in 

addition to and not in lieu of those 

contained in other subparts of this Part. 

(b) Definitions. For purposes of this 

subpart, the following definitions apply: 

(1) Covered educational institution 

means: 

(i) An educational institution that 

meets the definition of an institution of 

higher education, as defined in 

paragraph (b)(2) of this section, without 

regard to the institution’s accreditation 

status; and 

(ii) Includes an agent, officer, or 

employee of the institution of higher 

education. An agent means an 

institution-affiliated organization as 

defined by section 151 of the Higher 

Education Act of 1965 (20 U.S.C. 1019) 

or an officer or employee of an 

institution-affiliated organization. 

(2) Institution of higher education has 

the same meaning as in sections 101 and 

102 of the Higher Education Act of 1965 

(20 U.S.C. 1001–1002) and the 

implementing regulations published by 

the U.S. Department of Education. 

(3) Postsecondary educational 

expenses means any of the expenses 

that are listed as part of the cost of 

attendance, as defined under section 

472 of the Higher Education Act of 1965 

(20 U.S.C. 1087ll), of a student at a 

covered educational institution. These 

expenses include tuition and fees, 

books, supplies, miscellaneous personal 

expenses, room and board, and an 

allowance for any loan fee, origination 

fee, or insurance premium charged to a 

student or parent for a loan incurred to 

cover the cost of the student’s 

attendance. 

(4) Preferred lender arrangement has 

the same meaning as in section 151 of 

the Higher Education Act of 1965 (20 

U.S.C. 1019). 

(5) Private education loan means an 

extension of credit that: 

(i) Is not made, insured, or guaranteed 

under title IV of the Higher Education 

Act of 1965 (20 U.S.C. 1070 et seq.); 

(ii) Is extended to a consumer 

expressly, in whole or in part, for 

postsecondary educational expenses, 

regardless of whether the loan is 

provided by the educational institution 

that the student attends; 

(iii) Does not include open-end credit 

any loan that is secured by real property 

or a dwelling; and 

(iv) Does not include an extension of 

credit in which the covered educational 

institution is the creditor if: 

(A) The term of the extension of credit 

is 90 days or less; or 

(B) an interest rate will not be applied 

to the credit balance and the term of the 

extension of credit is one year or less, 

even if the credit is payable in more 

than four installments. 

(c) Form of disclosures—(1) Clear and 

conspicuous. The disclosures required 

by this subpart shall be made clearly 

and conspicuously. 

(2) Transaction disclosures. (i) The 

disclosures required under §§ 226.47(b) 

and (c) shall be made in writing, in a 

form that the consumer may keep. The 

disclosures shall be grouped together, 

shall be segregated from everything else, 

and shall not contain any information 

not directly related to the disclosures 

required under §§ 226.47(b) and (c), 

which include the disclosures required 

under § 226.18. 

(ii) The disclosures may include an 

acknowledgement of receipt, the date of 

the transaction, and the consumer’s 

name, address, and account number. 

The following disclosures may be made 

together with or separately from other 

required disclosures: the creditor’s 

identity under § 226.18(a), insurance or 

debt cancellation under § 226.18(n), and 

certain security interest charges under 

§ 226.18(o). 

(iii) The term ‘‘finance charge’’ and 

corresponding amount, when required 

to be disclosed under § 226.18(d), and 

the interest rate required to be disclosed 

under §§ 226.47(b)(1)(i) and (c)(1), shall 

be more conspicuous than any other 

disclosure, except the creditor’s identity 

under § 228.18(a). 

(3) Electronic disclosures. The 

disclosures required under §§ 226.47(b) 

and (c) may be provided to the 

consumer in electronic form, subject to 

compliance with the consumer consent 

and other applicable provisions of the 

Electronic Signatures in Global and 

National Commerce Act (E-Sign Act) (15 

U.S.C. 7001 et seq.). The disclosures 

required by § 226.47(a) may be provided 

to the consumer in electronic form on or 

with an application or solicitation that 

is accessed by the consumer in 

electronic form without regard to the 

consumer consent or other provisions of 

the E-Sign Act. The form required to be 

received under § 226.48(e) may be 

accepted by the creditor in electronic 

form as provided for in that section. 

(d) Timing of disclosures—(1) 

Application or solicitation disclosures. 

(i) The disclosures required by 

§ 226.47(a) shall be provided on or with 

any application or solicitation. For 

purposes of this subpart, the term 

solicitation means an offer of credit that 

does not require the consumer to 

complete an application. A ‘‘firm offer 

of credit’’ as defined in section 603(l) of 

the Fair Credit Reporting Act (15 U.S.C. 

1681a(l)) is a solicitation for purposes of 

this section. 

(ii) The creditor may, at its option, 

disclose orally the information in 

§ 226.47(a) in a telephone application or 

solicitation. Alternatively, if the creditor 

does not disclose orally the information 

in § 226.47(a), the creditor must provide 

the disclosures or place them in the 

mail no later than three business days 

after the consumer has applied for the 

credit, except that, if the creditor either 

denies the consumer’s application or 

provides or places in the mail the 

disclosures in § 226.47(b) no later than 

three business days after the consumer 

requests the credit, the creditor need not 

also provide the § 226.47(a) disclosures. 

(iii) Notwithstanding paragraph 

(d)(1)(i), for a loan that the consumer 

may use for multiple purposes 

including, but not limited to, 

postsecondary educational expenses, 

the creditor need not provide the 

disclosures required by § 226.47(a). 

(2) Approval disclosures. The creditor 

shall provide the disclosures required 

by § 226.47(b) before consummation on 

or with any notice of approval provided 

to the consumer. If the creditor mails 

notice of approval, the disclosures must 

be mailed with the notice. If the creditor 

communicates notice of approval by 

telephone, the creditor must mail the 

disclosures within three business days 

of providing the notice of approval. If 

the creditor communicates notice of 

approval electronically, the creditor 

may provide the disclosures in 

electronic form in accordance with 

§ 226.46(d)(3); otherwise the creditor 

must mail the disclosures within three 

business days of communicating the 

notice of approval. If the creditor 

communicates approval in person, the 

creditor must provide the disclosures to 

the consumer at that time. 

(3) Final disclosures. The disclosures 

required by § 226.47(c) shall be 

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41234 Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations 

provided after the consumer accepts the 

loan in accordance with § 226.48(c)(1). 

(4) Receipt of mailed disclosures. If 

the disclosures under paragraphs (d)(1), 

(d)(2) or (d)(3), are mailed to the 

consumer, the consumer is considered 

to have received them three business 

days after they are mailed. 

(e) Basis of disclosures and use of 

estimates—(1) Legal obligation. 

Disclosures shall reflect the terms of the 

legal obligation between the parties. 

(2) Estimates. If any information 

necessary for an accurate disclosure is 

unknown to the creditor, the creditor 

shall make the disclosure based on the 

best information reasonably available at 

the time the disclosure is provided, and 

shall state clearly that the disclosure is 

an estimate. 

(f) Multiple creditors; multiple 

consumers. If a transaction involves 

more than one creditor, only one set of 

disclosures shall be given and the 

creditors shall agree among themselves 

which creditor will comply with the 

requirements that this part imposes on 

any or all of them. If there is more than 

one consumer, the disclosures may be 

made to any consumer who is primarily 

liable on the obligation. 

(g) Effect of subsequent events—(1) 

Approval disclosures. If a disclosure 

under § 226.47(b) becomes inaccurate 

because of an event that occurs after the 

creditor delivers the required 

disclosures, the inaccuracy is not a 

violation of Regulation Z (12 CFR part 

226), although new disclosures may be 

required under § 226.48(c). 

(2) Final disclosures. If a disclosure 

under § 226.47(c) becomes inaccurate 

because of an event that occurs after the 

creditor delivers the required 

disclosures, the inaccuracy is not a 

violation of Regulation Z (12 CFR part 

226). 

§ 226.47 Content of disclosures. 

(a) Application or solicitation 

disclosures. A creditor shall provide the 

disclosures required under paragraph (a) 

of this section on or with a solicitation 

or an application for a private education 

loan. 

(1) Interest Rates. 

(i) The interest rate or range of interest 

rates applicable to the loan and actually 

offered by the creditor at the time of 

application or solicitation. If the rate 

will depend, in part, on a later 

determination of the consumer’s 

creditworthiness or other factors, a 

statement that the rate for which the 

consumer may qualify will depend on 

the consumer’s creditworthiness and 

other factors, if applicable. 

(ii) Whether the interest rates 

applicable to the loan are fixed or 

variable. 

(iii) If the interest rate may increase 

after consummation of the transaction, 

any limitations on the interest rate 

adjustments, or lack thereof; a statement 

that the consumer’s actual rate could be 

higher or lower than the rates disclosed 

under paragraph (a)(1)(i) of this section, 

if applicable; and, if the limitation is 

determined by applicable law, that fact. 

(iv) Whether the applicable interest 

rates typically will be higher if the loan 

is not co-signed or guaranteed. 

(2) Fees and default or late payment 

costs. 

(i) An itemization of the fees or range 

of fees required to obtain the private 

education loan. 

(ii) Any fees, changes to the interest 

rate, and adjustments to principal based 

on the consumer’s defaults or late 

payments. 

(3) Repayment terms. 

(i) The term of the loan, which is the 

period during which regularly 

scheduled payments of principal and 

interest will be due. 

(ii) A description of any payment 

deferral options, or, if the consumer 

does not have the option to defer 

payments, that fact. 

(iii) For each payment deferral option 

applicable while the student is enrolled 

at a covered educational institution: 

(A) Whether interest will accrue 

during the deferral period; and 

(B) If interest accrues, whether 

payment of interest may be deferred and 

added to the principal balance. 

(iv) A statement that if the consumer 

files for bankruptcy, the consumer may 

still be required to pay back the loan. 

(4) Cost estimates. An example of the 

total cost of the loan calculated as the 

total of payments over the term of the 

loan: 

(i) Using the highest rate of interest 

disclosed under paragraph (a)(1) of this 

section and including all finance 

charges applicable to loans at that rate; 

(ii) Using an amount financed of 

$10,000, or $5000 if the creditor only 

offers loans of this type for less than 

$10,000; and 

(iii) Calculated for each payment 

option. 

(5) Eligibility. Any age or school 

enrollment eligibility requirements 

relating to the consumer or co-signer. 

(6) Alternatives to private education 

loans. 

(i) A statement that the consumer may 

qualify for Federal student financial 

assistance through a program under title 

IV of the Higher Education Act of 1965 

(20 U.S.C. 1070 et seq.). 

(ii) The interest rates available under 

each program under title IV of the 

Higher Education Act of 1965 (20 U.S.C. 

1070 et seq.) and whether the rates are 

fixed or variable. 

(iii) A statement that the consumer 

may obtain additional information 

concerning Federal student financial 

assistance from the institution of higher 

education that the student attends, or at 

the Web site of the U.S. Department of 

Education, including an appropriate 

Web site address. 

(iv) A statement that a covered 

educational institution may have 

school-specific education loan benefits 

and terms not detailed on the disclosure 

form. 

(7) Rights of the consumer. A 

statement that if the loan is approved, 

the terms of the loan will be available 

and will not change for 30 days except 

as a result of adjustments to the interest 

rate and other changes permitted by 

law. 

(8) Self-certification information. A 

statement that, before the loan may be 

consummated, the consumer must 

complete the self-certification form and 

that the form may be obtained from the 

institution of higher education that the 

student attends. 

(b) Approval disclosures. On or with 

any notice of approval provided to the 

consumer, the creditor shall disclose the 

information required under § 226.18 and 

the following information: 

(1) Interest rate. 

(i) The interest rate applicable to the 

loan. 

(ii) Whether the interest rate is fixed 

or variable. 

(iii) If the interest rate may increase 

after consummation of the transaction, 

any limitations on the rate adjustments, 

or lack thereof. 

(2) Fees and default or late payment 

costs. 

(i) An itemization of the fees or range 

of fees required to obtain the private 

education loan. 

(ii) Any fees, changes to the interest 

rate, and adjustments to principal based 

on the consumer’s defaults or late 

payments. 

(3) Repayment terms. 

(i) The principal amount of the loan 

for which the consumer has been 

approved. 

(ii) The term of the loan, which is the 

period during which regularly 

scheduled payments of principal and 

interest will be due. 

(iii) A description of the payment 

deferral option chosen by the consumer, 

if applicable, and any other payment 

deferral options that the consumer may 

elect at a later time. 

(iv) Any payments required while the 

student is enrolled at a covered 

educational institution, based on the 

deferral option chosen by the consumer. 

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(v) The amount of any unpaid interest 

that will accrue while the student is 

enrolled at a covered educational 

institution, based on the deferral option 

chosen by the consumer. 

(vi) A statement that if the consumer 

files for bankruptcy, the consumer may 

still be required to pay back the loan. 

(vii) An estimate of the total amount 

of payments calculated based on: 

(A) The interest rate applicable to the 

loan. Compliance with § 226.18(h) 

constitutes compliance with this 

requirement. 

(B) The maximum possible rate of 

interest for the loan or, if a maximum 

rate cannot be determined, a rate of 

25%. 

(C) If a maximum rate cannot be 

determined, the estimate of the total 

amount for repayment must include a 

statement that there is no maximum rate 

and that the total amount for repayment 

disclosed under paragraph (b)(3)(vii)(B) 

of this section is an estimate and will be 

higher if the applicable interest rate 

increases. 

(viii) The maximum monthly payment 

based on the maximum rate of interest 

for the loan or, if a maximum rate 

cannot be determined, a rate of 25%. If 

a maximum cannot be determined, a 

statement that there is no maximum rate 

and that the monthly payment amount 

disclosed is an estimate and will be 

higher if the applicable interest rate 

increases. 

(4) Alternatives to private education 

loans. 

(i) A statement that the consumer may 

qualify for Federal student financial 

assistance through a program under title 

IV of the Higher Education Act of 1965 

(20 U.S.C. 1070 et seq.). 

(ii) The interest rates available under 

each program under title IV of the 

Higher Education Act of 1965 (20 U.S.C. 

1070 et seq.), and whether the rates are 

fixed or variable. 

(iii) A statement that the consumer 

may obtain additional information 

concerning Federal student financial 

assistance from the institution of higher 

education that the student attends, or at 

the Web site of the U.S. Department of 

Education, including an appropriate 

Web site address. 

(5) Rights of the consumer. 

(i) A statement that the consumer may 

accept the terms of the loan until the 

acceptance period under § 226.48(c)(1) 

has expired. The statement must 

include the specific date on which the 

acceptance period expires, based on the 

date upon which the consumer receives 

the disclosures required under this 

subsection for the loan. The disclosure 

must also specify the method or 

methods by which the consumer may 

communicate acceptance. 

(ii) A statement that, except for 

changes to the interest rate and other 

changes permitted by law, the rates and 

terms of the loan may not be changed 

by the creditor during the period 

described in paragraph (b)(5)(i) of this 

section. 

(c) Final disclosures. After the 

consumer has accepted the loan in 

accordance with § 226.48(c)(1), the 

creditor shall disclose to the consumer 

the information required by § 226.18 

and the following information: 

(1) Interest rate. Information required 

to be disclosed under §§ 226.47(b)(1). 

(2) Fees and default or late payment 

costs. Information required to be 

disclosed under § 226.47(b)(2). 

(3) Repayment terms. Information 

required to be disclosed under 

§ 226.47(b)(3). 

(4) Cancellation right. A statement 

that: 

(i) the consumer has the right to 

cancel the loan, without penalty, at any 

time before the cancellation period 

under § 226.48(d) expires, and 

(ii) loan proceeds will not be 

disbursed until after the cancellation 

period under § 226.48(d) expires. The 

statement must include the specific date 

on which the cancellation period 

expires and state that the consumer may 

cancel by that date. The statement must 

also specify the method or methods by 

which the consumer may cancel. If the 

creditor permits cancellation by mail, 

the statement must specify that the 

consumer’s mailed request will be 

deemed timely if placed in the mail not 

later than the cancellation date specified 

on the disclosure. The disclosures 

required by this paragraph (c)(4) must 

be made more conspicuous than any 

other disclosure required under this 

section, except for the finance charge, 

the interest rate, and the creditor’s 

identity, which must be disclosed in 

accordance with the requirements of 

§ 226.46(c)(2)(iii). 

§ 226.48 Limitations on private education 

loans. 

(a) Co-branding prohibited. (1) Except 

as provided in paragraph (b) of this 

section, a creditor, other than the 

covered educational institution itself, 

shall not use the name, emblem, mascot, 

or logo of a covered educational 

institution, or other words, pictures, or 

symbols identified with a covered 

educational institution, in the marketing 

of private education loans in a way that 

implies that the covered education 

institution endorses the creditor’s loans. 

(2) A creditor’s marketing of private 

education loans does not imply that the 

covered education institution endorses 

the creditor’s loans if the marketing 

includes a clear and conspicuous 

disclosure that is equally prominent and 

closely proximate to the reference to the 

covered educational institution that the 

covered educational institution does not 

endorse the creditor’s loans and that the 

creditor is not affiliated with the 

covered educational institution. 

(b) Endorsed lender arrangements. If 

a creditor and a covered educational 

institution have entered into an 

arrangement where the covered 

educational institution agrees to endorse 

the creditor’s private education loans, 

and such arrangement is not prohibited 

by other applicable law or regulation, 

paragraph (a)(1) of this section does not 

apply if the private education loan 

marketing includes a clear and 

conspicuous disclosure that is equally 

prominent and closely proximate to the 

reference to the covered educational 

institution that the creditor’s loans are 

not offered or made by the covered 

educational institution, but are made by 

the creditor. 

(c) Consumer’s right to accept. (1) The 

consumer has the right to accept the 

terms of a private education loan at any 

time within 30 calendar days following 

the date on which the consumer 

receives the disclosures required under 

§ 226.47(b). 

(2) Except for changes permitted 

under paragraphs (c)(3) and (c)(4), the 

rate and terms of the private education 

loan that are required to be disclosed 

under §§ 226.47(b) and (c) may not be 

changed by the creditor prior to the 

earlier of: 

(i) The date of disbursement of the 

loan; or 

(ii) The expiration of the 30 calendar 

day period described in paragraph (c)(1) 

of this section if the consumer has not 

accepted the loan within that time. 

(3) Exceptions not requiring redisclosure. (i) Notwithstanding 

paragraph (c)(2) of this section, nothing 

in this section prevents the creditor 

from: 

(A) Withdrawing an offer before 

consummation of the transaction if the 

extension of credit would be prohibited 

by law or if the creditor has reason to 

believe that the consumer has 

committed fraud in connection with the 

loan application; 

(B) Changing the interest rate based 

on adjustments to the index used for a 

loan; 

(C) Changing the interest rate and 

terms if the change will unequivocally 

benefit the consumer; or 

(D) Reducing the loan amount based 

upon a certification or other information 

received from the covered educational 

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institution, or from the consumer, 

indicating that the student’s cost of 

attendance has decreased or the 

consumer’s other financial aid has 

increased. A creditor may make 

corresponding changes to the rate and 

other terms only to the extent that the 

consumer would have received the 

terms if the consumer had applied for 

the reduced loan amount. 

(ii) If the creditor changes the rate or 

terms of the loan under this paragraph 

(c)(3), the creditor need not provide the 

disclosures required under § 228.47(b) 

for the new loan terms, nor need the 

creditor provide an additional 30-day 

period to the consumer to accept the 

new terms of the loan under paragraph 

(c)(1) of this section. 

(4) Exceptions requiring re-disclosure. 

(i) Notwithstanding paragraphs (c)(2) or 

(c)(3) of this section, nothing in this 

section prevents the creditor, at its 

option, from changing the rate or terms 

of the loan to accommodate a specific 

request by the consumer. For example, 

if the consumer requests a different 

repayment option, the creditor may, but 

need not, offer to provide the requested 

repayment option and make any other 

changes to the rate and terms. 

(ii) If the creditor changes the rate or 

terms of the loan under this paragraph 

(c)(4), the creditor shall provide the 

disclosures required under § 228.47(b) 

and shall provide the consumer the 30- 

day period to accept the loan under 

paragraph (c)(1) of this section. The 

creditor shall not make further changes 

to the rates and terms of the loan, except 

as specified in paragraphs (c)(3) and (4) 

of this section. Except as permitted 

under § 226.48(c)(3), unless the 

consumer accepts the loan offered by 

the creditor in response to the 

consumer’s request, the creditor may 

not withdraw or change the rates or 

terms of the loan for which the 

consumer was approved prior to the 

consumer’s request for a change in loan 

terms. 

(d) Consumer’s right to cancel. The 

consumer may cancel a private 

education loan, without penalty, until 

midnight of the third business day 

following the date on which the 

consumer receives the disclosures 

required by § 226.47(c). No funds may 

be disbursed for a private education 

loan until the three-business day period 

has expired. 

(e) Self-certification form. For a 

private education loan intended to be 

used for the postsecondary educational 

expenses of a student while the student 

is attending an institution of higher 

education, the creditor shall obtain from 

the consumer or the institution of higher 

education the form developed by the 

Secretary of Education under section 

155 of the Higher Education Act of 

1965, signed by the consumer, in 

written or electronic form, before 

consummating the private education 

loan. 

(f) Provision of information by 

preferred lenders. A creditor that has a 

preferred lender arrangement with a 

covered educational institution shall 

provide to the covered educational 

institution the information required 

under §§ 226.47(a)(1) through (5), for 

each type of private education loan that 

the lender plans to offer to consumers 

for students attending the covered 

educational institution for the period 

beginning July 1 of the current year and 

ending June 30 of the following year. 

The creditor shall provide the 

information annually by the later of the 

1st day of April, or within 30 days after 

entering into, or learning the creditor is 

a party to, a preferred lender 

arrangement. 

■ 7. In Part 226, Appendix H is 

amended by adding new entries H–18 

through H–23 to the table of contents at 

the beginning of the appendix, and 

adding new Forms H–18, H–19, H–20, 

H–21, H–22, and H–23. 

Appendix H to Part 226—Closed-End 

Model Forms and Clauses 

* * * * * 

H–18 Private Education Loan Application 

and Solicitation Model Form 

H–19 Private Education Loan Approval 

Model Form 

H–20 Private Education Loan Final Model 

Form 

H–21 Private Education Loan Application 

and Solicitation Sample 

H–22 Private Education Loan Approval 

Sample 

H–23 Private Education Loan Final Sample 

* * * * * 

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■ 8. In Supplement I to Part 226: 

■ a. Under Section 226.1 paragraph 

1(d)(6) is revised and new paragraph 

(1)(d)(7) is added. 

■ b. Under Section 226.2, paragraph 2(a) 

Definitions, 2(a)(6) Business day, 

paragraph 2(a)(6)–2 is revised. 

■ c. Under Section 226.3, the heading to 

3(b) Credit Over $25,000 Not Secured by 

Real Property or a Dwelling, and 

heading to 3(f) Student Loan Programs, 

are revised. 

■ d. Under Section 226.17: 

■ (i) In paragraph 17(a) Form of 

Disclosures, paragraphs 17(a)(1)–4, 

17(a)(1)–6, 17(a)(2) are revised; 

■ (ii) In paragraph 17(b) Time of 

Disclosures, paragraph 17(b)–1 is 

revised; 

■ (iii) In paragraph 17(i) Interim Student 

Credit Extensions, paragraph 17(i)–1 is 

revised and new paragraph 17(i)–2 is 

added; 

■ (iv) Paragraphs 17(i)–2, 17(i)–3, and 

17(i)–4 are redesignated as paragraphs 

17(i)–3, 17(i)–4, and 17(i)–5, 

respectively. 

■ e. Under Section 226.18, paragraph 

18(f)(1)(ii), paragraph 18(f)(1)(iv)–2, and 

paragraph 18(k)(1) are revised. 

■ f. The following new paragraphs are 

added: 

■ (i) Subpart F—Special Rules for 

Private Education Loans is added, 

■ (ii) Section 226.46—Requirements for 

Private Education Loans, is added 

■ (iii) Section 226.47—Content of 

Disclosures, is added; and 

■ (iv) Section 226.48—Limitations on 

Private Education Loans is added. 

■ g. Under the heading, Appendixes G 

and H—Open-End and Closed-End 

Model Forms and Clauses, paragraph 1 

is revised. 

■ h. Under Appendix H—Closed-End 

Model Forms and Clauses, paragraphs 

21 through 24 are revised, and 

paragraphs 25 through 28 are added. 

Supplement I to Part 226—Official Staff 

Interpretations 

* * * * * 

Subpart A—General 

* * * * * 

Section 226.1—Authority, Purpose, 

Coverage, Organization, Enforcement 

and Liability 

* * * * * 

Paragraph 1(d)(6) 

1. Mandatory compliance dates. 

Compliance with the Board’s revisions to 

Regulation Z published on August 14, 2009 

is mandatory for private education loans for 

which the creditor receives an application on 

or after February 14, 2010. Compliance with 

the final rules on co-branding in §§ 226.48(a) 

and (b) is mandatory for marketing occurring 

on or after February 14, 2010. Compliance 

with the final rules is optional for private 

education loan transactions for which an 

application was received prior to February 

14, 2010, even if consummated after the 

mandatory compliance date. 

2. Optional compliance. A creditor may, at 

its option, provide the approval and final 

disclosures required under §§ 226.47(b) or (c) 

for private education loans where an 

application was received prior to the 

mandatory compliance date. If the creditor 

opts to provide the disclosures, the creditor 

must also comply with the applicable timing 

and other rules in §§ 226.46 and 226.48 

(including providing the consumer with the 

30-day acceptance period under § 226.48(c), 

and the right to cancel under § 226.48(d)). 

For example if the creditor receives an 

application on January 25, 2010 and 

approves the consumer’s application on or 

after February 14, 2010, the creditor may, at 

its option, provide the approval disclosures 

under § 226.47(b), the final disclosures under 

§ 226.47(c) and comply with the applicable 

requirements §§ 226.46 and 226.48. The 

creditor must also obtain the self-certification 

form as required in § 226.48(e), if applicable. 

Or, for example, if the creditor receives an 

application on January 25, 2010 and 

approves the consumer’s application before 

February 14, 2010, the creditor may, at its 

option, provide the final disclosure under 

§ 226.47(c) and comply with the applicable 

timing and other requirements of §§ 226.46 

and 226.48, including providing the 

consumer with the right to cancel under 

§ 226.48(d). The creditor must also obtain the 

self-certification form as required in 

§ 226.48(e), if applicable. 

Paragraph 1(d)(7) 

1. [Reserved.] 

Section 226.2—Definitions and Rules of 

Construction 

2(a) Definitions. 

* * * * * 

2(a)(6) Business day. 

* * * * * 

2. Rule for rescission, disclosures for 

certain mortgage transactions, and private 

education loans. A more precise rule for 

what is a business day (all calendar days 

except Sundays and the Federal legal 

holidays specified in 5 U.S.C. 6103(a)) 

applies when the right of rescission, the 

receipt of disclosures for certain dwellingsecured mortgage transactions under 

§§ 226.19(a)(1)(ii), 226.19(a)(2), 226.31(c), or 

the receipt of disclosures for private 

education loans under § 226.46(d)(4) is 

involved. Four Federal legal holidays are 

identified in 5 U.S.C. 6103(a) by a specific 

date: New Year’s Day, January 1; 

Independence Day, July 4; Veterans Day, 

November 11; and Christmas Day, December 

25. When one of these holidays (July 4, for 

example) falls on a Saturday, Federal offices 

and other entities might observe the holiday 

on the preceding Friday (July 3). In cases 

where the more precise rule applies, the 

observed holiday (in the example, July 3) is 

a business day. 

* * * * * 

Section 226.3—Exempt Transactions 

* * * * * 

3(b) Credit over $25,000. 

* * * * * 


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3(f) Student Loan Programs 

1. Coverage. This exemption applies to 

loans made, insured, or guaranteed under 

title IV of the Higher Education Act of 1965 

(20 U.S.C. 1070 et seq.). This exemption does 

not apply to private education loans as 

defined by § 226.46(b)(5). 

* * * * * 

Subpart C—Closed-End Credit 

Section 226.17—General Disclosure 

Requirements 

* * * * * 

17(a) Form of Disclosures 

Paragraph 17(a)(1) 

* * * * * 

4. Content of segregated disclosures. 

Footnotes 37 and 38 contain exceptions to 

the requirement that the disclosures under 

§ 226.18 be segregated from material that is 

not directly related to those disclosures. 

Footnote 37 lists the items that may be added 

to the segregated disclosures, even though 

not directly related to those disclosures. 

Footnote 38 lists the items required under 

§ 226.18 that may be deleted from the 

segregated disclosures and appear elsewhere. 

Any one or more of these additions or 

deletions may be combined and appear either 

together with or separate from the segregated 

disclosures. The itemization of the amount 

financed under § 226.18(c), however, must be 

separate from the other segregated 

disclosures under § 226.18, except for private 

education loan disclosures made in 

compliance with § 226.47. If a creditor 

chooses to include the security interest 

charges required to be itemized under 

§ 226.4(e) and § 226.18(o) in the amount 

financed itemization, it need not list these 

charges elsewhere. 

* * * * * 

6. Multiple-purpose forms. The creditor 

may design a disclosure statement that can be 

used for more than one type of transaction, 

so long as the required disclosures for 

individual transactions are clear and 

conspicuous. (See the Commentary to 

appendices G and H for a discussion of the 

treatment of disclosures that do not apply to 

specific transactions.) Any disclosure listed 

in § 226.18 (except the itemization of the 

amount financed under § 226.18(c) for 

transactions other than private education 

loans) may be included on a standard 

disclosure statement even though not all of 

the creditor’s transactions include those 

features. For example, the statement may 

include: 

• The variable rate disclosure under 

§ 226.18(f). 

• The demand feature disclosure under 

§ 226.18(i). 

• A reference to the possibility of a 

security interest arising from a spreader 

clause, under § 226.18(m). 

• The assumption policy disclosure under 

§ 226.18(q). 

• The required deposit disclosure under 

§ 226.18(r). 

* * * * * 

Paragraph 17(a)(2) 

1. When disclosures must be more 

conspicuous. The following rules apply to 

the requirement that the terms ‘‘annual 

percentage rate’’ (except for private education 

loan disclosures made in compliance with 

§ 226.47) and ‘‘finance charge’’ be shown 

more conspicuously: 

• The terms must be more conspicuous 

only in relation to the other required 

disclosures under § 226.18. For example, 

when the disclosures are included on the 

contract document, those two terms need not 

be more conspicuous as compared to the 

heading on the contract document or 

information required by state law. 

• The terms need not be more conspicuous 

except as part of the finance charge and 

annual percentage rate disclosures under 

§ 226.18 (d) and (e), although they may, at the 

creditor’s option, be highlighted wherever 

used in the required disclosures. For 

example, the terms may, but need not, be 

highlighted when used in disclosing a 

prepayment penalty under § 226.18(k) or a 

required deposit under § 226.18(r). 

• The creditor’s identity under § 226.18(a) 

may, but need not, be more prominently 

displayed than the finance charge and annual 

percentage rate. 

• The terms need not be more conspicuous 

than figures (including, for example, 

numbers, percentages, and dollar signs). 

2. Making disclosures more conspicuous. 

The terms ‘‘finance charge’’ and (except for 

private education loan disclosures made in 

compliance with § 226.47) ‘‘annual 

percentage rate’’ may be made more 

conspicuous in any way that highlights them 

in relation to the other required disclosures. 

For example, they may be: 

• Capitalized when other disclosures are 

printed in capital and lower case. 

• Printed in larger type, bold print or 

different type face. 

• Printed in a contrasting color. 

• Underlined. 

• Set off with asterisks. 

17(b) Time of Disclosures 

1. Consummation. As a general rule, 

disclosures must be made before 

‘‘consummation’’ of the transaction. The 

disclosures need not be given by any 

particular time before consummation, except 

in certain mortgage transactions and variablerate transactions secured by the consumer’s 

principal dwelling with a term greater than 

one year under § 226.19, and in private 

education loan transactions disclosed in 

compliance with §§ 226.46 and 226.47. (See 

the commentary to § 226.2(a)(13) regarding 

the definition of consummation.) 

* * * * * 

17(i) Interim Student Credit Extensions 

1. Definition. Student credit plans involve 

extensions of credit for education purposes 

where the repayment amount and schedule 

are not known at the time credit is advanced. 

These plans include loans made under any 

student credit plan, whether government or 

private, where the repayment period does not 

begin immediately. (Certain student credit 

plans that meet this definition are exempt 

from Regulation Z. See § 226.3(f).) 

2. Relation to other sections. For 

disclosures made before the mandatory 

compliance date of the disclosures required 

under §§ 226.46, 47, and 48, paragraph 17(i) 

permitted creditors to omit from the 

disclosures the terms set forth in that 

paragraph at the time the credit was actually 

extended. However, creditors were required 

to make complete disclosures at the time the 

creditor and consumer agreed upon the 

repayment schedule for the total obligation. 

At that time, a new set of disclosures of all 

applicable items under § 226.18 was 

required. Most student credit plans are 

subject to the requirements in §§ 226.46, 47, 

and 48. Consequently, for applications for 

student credit plans received on or after the 

mandatory compliance date of §§ 226.46, 47, 

and 48, the creditor may not omit from the 

disclosures the terms set forth in paragraph 

17(i). Instead, the creditor must comply with 

§§ 226.46, 47, and 48, if applicable, or with 

§§ 226.17 and 226.18. 

3. Basis of disclosures. * * * 

4. Consolidation. * * * 

5. Approved student credit forms. See the 

commentary to appendix H regarding 

disclosure forms approved for use in certain 

student credit programs for which 

applications were received prior to the 

mandatory compliance date of §§ 226.46, 47, 

and 48. 

* * * * * 

Section 226.18—Content of Disclosures 

* * * * * 

Paragraph 18(f)(1)(ii) 

1. Limitations. This includes any 

maximum imposed on the amount of an 

increase in the rate at any time, as well as 

any maximum on the total increase over the 

life of the transaction. Except for private 

education loans disclosures, when there are 

no limitations, the creditor may, but need 

not, disclose that fact, and limitations do not 

include legal limits in the nature of usury or 

rate ceilings under State or Federal statutes 

or regulations. (See § 226.30 for the rule 

requiring that a maximum interest rate be 

included in certain variable-rate 

transactions.) For disclosures with respect to 

private education loan disclosures, see 

comment 47(b)(1)–2. 

* * * * * 

Paragraph 18(f)(1)(iv) 

* * * * * 

2. Hypothetical example not required. The 

creditor need not provide a hypothetical 

example in the following transactions with a 

variable-rate feature: 

• Demand obligations with no alternate 

maturity date. 

• Private education loans as defined in 

§ 226.46(b)(5). 

• Multiple-advance construction loans 

disclosed pursuant to appendix D, Part I. 

* * * * * 

Paragraph 18(k)(1) 

1. Penalty. This applies only to those 

transactions in which the interest calculation 

takes account of all scheduled reductions in 

principal, as well as transactions in which 

interest calculations are made daily. The 

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term penalty as used here encompasses only 

those charges that are assessed strictly 

because of the prepayment in full of a 

simple-interest obligation, as an addition to 

all other amounts. Items which are penalties 

include, for example: 

• Interest charges for any period after 

prepayment in full is made. (See the 

commentary to § 226.17(a)(1) regarding 

disclosure of interest charges assessed for 

periods after prepayment in full as directly 

related information.) 

• A minimum finance charge in a simpleinterest transaction. (See the commentary to 

§ 226.17(a)(1) regarding the disclosure of a 

minimum finance charge as directly related 

information.) Items which are not penalties 

include, for example, loan guarantee fees. 

* * * * * 

Subpart F—Special Rules for Private 

Education Loans 

Section 226.46—Special Disclosure 

Requirements for Private Education 

Loans 

46(a) Coverage 

1. Coverage. This subpart applies to all 

private education loans as defined in 

§ 226.46(b)(5). Coverage under this subpart is 

optional for certain extensions of credit that 

do not meet the definition of ‘‘private 

education loan’’ because the credit is not 

extended, in whole or in part, for 

‘‘postsecondary educational expenses’’ 

defined in § 226.46(b)(3). If a transaction is 

not covered and a creditor opts to comply 

with any section of this subpart, the creditor 

must comply with all applicable sections of 

this subpart. If a transaction is not covered 

and a creditor opts not to comply with this 

subpart, the creditor must comply with all 

applicable requirements under §§ 226.17 and 

226.18. Compliance with this subpart is 

optional for an extension of credit for 

expenses incurred after graduation from a 

law, medical, dental, veterinary, or other 

graduate school and related to relocation, 

study for a bar or other examination, 

participation in an internship or residency 

program, or similar purposes. However, if 

any part of such loan is used for 

postsecondary educational expenses as 

defined in § 226.46(b)(3), then compliance 

with Subpart F is mandatory not optional. 

46(b) Definitions 

46(b)(1) Covered Educational Institution 

1. General. A covered educational 

institution includes any educational 

institution that meets the definition of an 

institution of higher education in 

§ 226.46(b)(2). An institution is also a 

covered educational institution if it 

otherwise meets the definition of an 

institution of higher education, except for its 

lack of accreditation. Such an institution may 

include, for example, a university or 

community college. It may also include an 

institution, whether accredited or 

unaccredited, offering instruction to prepare 

students for gainful employment in a 

recognized profession, such as flying, 

culinary arts, or dental assistance. A covered 

educational institution does not include 

elementary or secondary schools. 

2. Agent. For purposes of § 226.46(b)(1), 

the term agent means an institution-affiliated 

organization as defined by section 151 of the 

Higher Education Act of 1965 (20 U.S.C 

1019) or an officer or employee of an 

institution-affiliated organization. Under 

section 151 of the Higher Education Act, an 

institution-affiliated organization means any 

organization that is directly or indirectly 

related to a covered institution and is 

engaged in the practice of recommending, 

promoting, or endorsing education loans for 

students attending the covered institution or 

the families of such students. An institutionaffiliated organization may include an 

alumni organization, athletic organization, 

foundation, or social, academic, or 

professional organization, of a covered 

institution, but does not include any creditor 

with respect to any private education loan 

made by that creditor. 

46(b)(2) Institution of higher education. 

1. General. An institution of higher 

education includes any institution that meets 

the definitions contained in sections 101 and 

102 of the Higher Education Act of 1965 (20 

U.S.C. 1001–1002) and implementing 

Department of Education regulations (34 CFR 

600). Such an institution may include, for 

example, a university or community college. 

It may also include an institution offering 

instruction to prepare students for gainful 

employment in a recognized profession, such 

as flying, culinary arts, or dental assistance. 

An institution of higher education does not 

include elementary or secondary schools. 

46(b)(3) Postsecondary educational 

expenses. 

1. General. The examples listed in 

§ 226.46(b)(3) are illustrative only. The full 

list of postsecondary educational expenses is 

contained in section 472 of the Higher 

Education Act of 1965 (20 U.S.C. 1087ll). 

46(b)(4) Preferred lender arrangement. 

1. General. The term ‘‘preferred lender 

arrangement’’ is defined in section 151 of the 

Higher Education Act of 1965 (20 U.S.C 

1019). The term refers to an arrangement or 

agreement between a creditor and a covered 

educational institution (or an institutionaffiliated organization as defined by section 

151 of the Higher Education Act of 1965 (20 

U.S.C 1019)) under which a creditor provides 

private education loans to consumers for 

students attending the covered educational 

institution and the covered educational 

institution recommends, promotes, or 

endorses the private education loan products 

of the creditor. It does not include 

arrangements or agreements with respect to 

Federal Direct Stafford/Ford loans, or Federal 

PLUS loans made under the Federal PLUS 

auction pilot program. 

46(b)(5) Private education loan. 

1. Extended expressly for postsecondary 

educational expenses. A private education 

loan is one that is extended expressly for 

postsecondary educational expenses. The 

term includes loans extended for 

postsecondary educational expenses incurred 

while a student is enrolled in a covered 

educational institution as well as loans 

extended to consolidate a consumer’s preexisting private education loans. 

2. Multiple-purpose loans. i. Definition. A 

private education loan may include an 

extension of credit not excluded under 

§ 226.46(b)(5) that the consumer may use for 

multiple purposes including, but not limited 

to, postsecondary educational expenses. If 

the consumer expressly indicates that the 

proceeds of the loan will be used to pay for 

postsecondary educational expenses by 

indicating the loan’s purpose on an 

application, the loan is a private education 

loan. 

ii. Coverage. A creditor generally will not 

know before an application is received 

whether the consumer intends to use the loan 

for postsecondary educational expenses. For 

this reason, the creditor need not provide the 

disclosures required by § 226.47(a) on or with 

the application or solicitation for a loan that 

may be used for multiple purposes. See 

§ 226.47(d)(1)(i). However, if the consumer 

expressly indicates that the proceeds of the 

loan will be used to pay for postsecondary 

educational expenses, the creditor must 

comply with §§ 226.47(b) and (c) and 

§ 226.48. For purposes of the required 

disclosures, the creditor must calculate the 

disclosures based on the entire amount of the 

loan, even if only a part of the proceeds is 

intended for postsecondary educational 

expenses. The creditor may rely solely on a 

check-box, or a purpose line, on a loan 

application to determine whether or not the 

applicant intends to use loan proceeds for 

postsecondary educational expenses. 

iii. Examples. The creditor must comply 

only if the extension of credit also meets the 

other parts of the definition of private 

education loan. For example, if the creditor 

uses a single application form for both openend and closed-end credit, and the consumer 

applies for open-end credit to be used for 

postsecondary educational expenses, the 

extension of credit is not covered. Similarly, 

if the consumer indicates the extension of 

credit will be used for educational expenses 

that are not postsecondary educational 

expenses, such as elementary or secondary 

educational expenses, the extension of credit 

is not covered. These examples are only 

illustrative, not exhaustive. 

3. Short-term loans. Some covered 

educational institutions offer loans to 

students with terms of 90 days or less to 

assist the student in paying for educational 

expenses, usually while the student waits for 

other funds to be disbursed. Under 

§ 226.46(b)(5)(iv)(A) such loans are not 

considered private education loans, even if 

interest is charged on the credit balance. 

(Because these loans charge interest, they are 

not covered by the exception under 

§ 226.46(b)(5)(iv)(B).) However, these loans 

are extensions of credit subject to the 

requirements of §§ 226.17 and 18. The legal 

agreement may provide that repayment is 

required when the consumer or the 

educational institution receives certain 

funds. If, under the terms of the legal 

obligation, repayment of the loan is required 

when the certain funds are received by the 

consumer or the educational institution (such 

as by deposit into the consumer’s or 

educational institution’s account), the 

disclosures should be based on the creditor’s 

estimate of the time the funds will be 

delivered. 

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4. Billing plans. Some covered educational 

institutions offer billing plans that permit a 

consumer to make payments in installments. 

Such plans are not considered private 

education loans, if an interest rate will not 

be applied to the credit balance and the term 

of the extension of credit is one year or less, 

even if the plan is payable in more than four 

installments. However, such plans may be 

extensions of credit subject to the 

requirements of §§ 226.17 and 18. 

46(c) Form of Disclosures 

1. Form of disclosures—relation to other 

sections. Creditors must make the disclosures 

required under this subpart in accordance 

with § 226.46(c). Section 226.46(c)(2) 

requires that the disclosures be grouped 

together and segregated from everything else. 

In complying with this requirement, creditors 

may follow the rules in § 226.17, except 

where specifically provided otherwise. For 

example, although § 226.17(b) requires 

creditors to provide only one set of 

disclosures before consummation of the 

transaction, §§ 226.47(b) and (c) require that 

the creditor provide the disclosures under 

§ 226.18 both upon approval and after the 

consumer accepts the loan. 

Paragraph 46(c)(3) 

1. Application and solicitation 

disclosures—electronic disclosures. If the 

disclosures required under § 226.47(a) are 

provided electronically, they must be 

provided on or with the application or 

solicitation reply form. Electronic disclosures 

are deemed to be on or with an application 

or solicitation if they meet one of the 

following conditions: 

i. They automatically appear on the screen 

when the application or solicitation reply 

form appears; 

ii. They are located on the same Web 

‘‘page’’ as the application or solicitation reply 

form without necessarily appearing on the 

initial screen, if the application or reply form 

contains a clear and conspicuous reference to 

the location of the disclosures and indicates 

that the disclosures contain rate, fee, and 

other cost information, as applicable; or 

iii. They are posted on a Web site and the 

application or solicitation reply form is 

linked to the disclosures in a manner that 

prevents the consumer from by passing the 

disclosures before submitting the application 

or reply form. 

46(d) Timing of Disclosures 

1. Receipt of disclosures. Under 

§ 226.46(d)(4), if the creditor places the 

disclosures in the mail, the consumer is 

considered to have received them three 

business days after they are mailed. For 

purposes of § 226.46(d)(4), ‘‘business day’’ 

means all calendar days except Sundays and 

the legal public holidays referred to in 

§ 226.2(a)(6). See comment 2(a)(6)–2. For 

example, if the creditor places the 

disclosures in the mail on Thursday, June 4, 

the disclosures are considered received on 

Monday, June 8. 

Paragraph 46(d)(1) 

1. Invitations to apply. A creditor may 

contact a consumer who has not been preselected for a private education loan about 

taking out a loan (whether by direct mail, 

telephone, or other means) and invite the 

consumer to complete an application. Such 

a contact does not meet the definition of 

solicitation, nor is it covered by this subpart, 

unless the contact itself includes the 

following: 

i. An application form in a direct mailing, 

electronic communication or a single 

application form as a ‘‘take-one’’ (in racks in 

public locations, for example); 

ii. An oral application in a telephone 

contact; or 

iii. An application in an in-person contact. 

Paragraph 46(d)(2) 

1. Timing. The creditor must provide the 

disclosures required by § 226.47(b) at the 

time the creditor provides to the consumer 

any notice that the loan has been approved. 

However, nothing in this section prevents the 

creditor from communicating to the 

consumer that additional information is 

required from the consumer before approval 

may be granted. In such a case, a creditor is 

not required to provide the disclosures at that 

time. If the creditor communicates notice of 

approval to the consumer by mail, the 

disclosures must be mailed at the same time 

as the notice of approval. If the creditor 

communicates notice of approval by 

telephone, the creditor must place the 

disclosures in the mail within three business 

days of the telephone call. If the creditor 

communicates notice of approval in 

electronic form, the creditor may provide the 

disclosures in electronic form. If the creditor 

has complied with the consumer consent and 

other applicable provisions of the Electronic 

Signatures in Global and National Commerce 

Act (E-Sign Act) (15 U.S.C. 7001 et seq.) the 

creditor may provide the disclosures solely 

in electronic form; otherwise, the creditor 

must place the disclosures in the mail within 

three business days of the communication. 

46(g) Effect of subsequent events 

1. Approval disclosures. Inaccuracies in 

the disclosures required under § 226.47(b) are 

not violations if attributable to events 

occurring after disclosures are made, 

although creditors are restricted under 

§ 226.48(c)(2) from making certain changes to 

the loan’s rate or terms after the creditor 

provides an approval disclosure to a 

consumer. Since creditors are required 

provide the final disclosures under 

§ 226.47(c), they need not make new 

approval disclosures in response to an event 

that occurs after the creditor delivers the 

required approval disclosures, except as 

specified under § 226.48(c)(4). For example, 

at the time the approval disclosures are 

provided, the creditor may not know the 

precise disbursement date of the loan funds 

and must provide estimated disclosures 

based on the best information reasonably 

available and labelled as an estimate. If, after 

the approval disclosures are provided, the 

creditor learns from the educational 

institution the precise disbursement date, 

new approval disclosures would not be 

required, unless specifically required under 

§ 226.48(c)(4) if other changes are made. 

Similarly, the creditor may not know the 

precise amounts of each loan to be 

consolidated in a consolidation loan 

transaction and information about the precise 

amounts would not require new approval 

disclosures, unless specifically required 

under § 226.48(c)(4) if other changes are 

made. 

2. Final disclosures. Inaccuracies in the 

disclosures required under § 226.47(c) are not 

violations if attributable to events occurring 

after disclosures are made. For example, if 

the consumer initially chooses to defer 

payment of principal and interest while 

enrolled in a covered educational institution, 

but later chooses to make payments while 

enrolled, such a change does not make the 

original disclosures inaccurate. 

Section 226.47—Content of Disclosures 

1. As applicable. The disclosures required 

by this subpart need be made only as 

applicable, unless specifically required 

otherwise. The creditor need not provide any 

disclosure that is not applicable to a 

particular transaction. For example, in a 

transaction consolidating private education 

loans, or in transactions under § 226.46(a) for 

which compliance with this subpart is 

optional, the creditor need not disclose the 

information under §§ 226.47(a)(6), and (b)(4), 

and any other information otherwise required 

to be disclosed under this subpart that is not 

applicable to the transaction. Similarly, 

creditors making loans to consumers where 

the student is not attending an institution of 

higher education, as defined in 

§ 226.46(b)(2), need not provide the 

disclosures regarding the self-certification 

form in § 226.47(a)(8). 

47(a) Application or Solicitation Disclosures 

Paragraph 47(a)(1)(i) 

1. Rates actually offered. The disclosure 

may state only those rates that the creditor 

is actually prepared to offer. For example, a 

creditor may not disclose a very low interest 

rate that will not in fact be offered at any 

time. For a loan with variable interest rates, 

the ranges of rates will be considered actually 

offered if: 

i. For disclosures in applications or 

solicitations sent by direct mail, the rates 

were in effect within 60 days before mailing; 

ii. For disclosures in applications or 

solicitations in electronic form, the rates 

were in effect within 30 days before the 

disclosures are sent to a consumer, or for 

disclosures made on an Internet Web site, 

within 30 days before being viewed by the 

public; 

iii. For disclosures in printed applications 

or solicitations made available to the general 

public, the rates were in effect within 30 days 

before printing; or 

iv. For disclosures provided orally in 

telephone applications or solicitations, the 

rates are currently available at the time the 

disclosures are provided. 

2. Creditworthiness and other factors. If the 

rate will depend, at least in part, on a later 

determination of the consumer’s 

creditworthiness or other factors, the 

disclosure must include a statement that the 

rate for which the consumer may qualify at 

approval will depend on the consumer’s 

creditworthiness and other factors. The 

creditor may, but is not required to, specify 

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any additional factors that it will use to 

determine the interest rate. For example, if 

the creditor will determine the interest rate 

based on information in the consumer’s or 

co-signer’s credit report and the type of 

school the consumer attends, the creditor 

may state, ‘‘Your interest rate will be based 

on your credit history and other factors (cosigner credit and school type).’’ 

3. Rates applicable to the loan. For a 

variable-rate private education loan, the 

disclosure of the interest rate or range of rates 

must reflect the rate or rates calculated based 

on the index and margin that will be used to 

make interest rate adjustments for the loan. 

The creditor may provide a description of the 

index and margin or range of margins used 

to make interest rate adjustments, including 

a reference to a source, such as a newspaper, 

where the consumer may look up the index. 

Paragraph 47(a)(1)(iii) 

1. Coverage. The interest rate is considered 

variable if the terms of the legal obligation 

allow the creditor to increase the interest rate 

originally disclosed to the consumer and the 

requirements of section 226.47(a)(1)(iii) 

apply to all such transactions. The provisions 

do not apply to increases resulting from 

delinquency (including late payment), 

default, assumption, or acceleration. 

2. Limitations. The creditor must disclose 

how often the rate may change and any limit 

on the amount that the rate may increase at 

any one time. The creditor must also disclose 

any maximum rate over the life of the 

transaction. If the legal obligation between 

the parties does specify a maximum rate, the 

creditor must disclose any legal limits in the 

nature of usury or rate ceilings under state or 

Federal statutes or regulations. However, if 

the applicable maximum rate is in the form 

of a legal limit, such as a state’s usury cap 

(rather than a maximum rate specified in the 

legal obligation between the parties), the 

creditor must disclose that the maximum rate 

is determined by applicable law. The creditor 

must also disclose that the consumer’s actual 

rate may be higher or lower than the initial 

rates disclosed under § 226.47(a)(1)(i), if 

applicable. 

Paragraph 47(a)(1)(iv) 

1. Co-signer or guarantor—changes in 

applicable interest rate. The creditor must 

state whether the interest rate typically will 

be higher if the loan is not co-signed or 

guaranteed by a third party. The creditor is 

required to provide a statement of the effect 

on the interest rate and is not required to 

provide a numerical estimate of the effect on 

the interest rate. For example, a creditor may 

state: ‘‘Rates are typically higher without a 

co-signer.’’ 

47(a)(2) Fees and Default or Late Payment 

Costs 

1. Fees or range of fees. The creditor must 

itemize fees required to obtain the private 

education loan. The creditor must give a 

single dollar amount for each fee, unless the 

fee is based on a percentage, in which case 

a percentage must be stated. If the exact 

amount of the fee is not known at the time 

of disclosure, the creditor may disclose the 

dollar amount or percentage for each fee as 

an estimated range. 

2. Fees required to obtain the private 

education loan. The creditor must itemize 

the fees that the consumer must pay to obtain 

the private education loan. Fees disclosed 

include all finance charges under § 226.4, 

such as loan origination fees, credit report 

fees, and fees charged upon entering 

repayment, as well as fees not considered 

finance charges but required to obtain credit, 

such as application fees that are charged 

whether or not credit is extended. Fees 

disclosed include those paid by the 

consumer directly to the creditor and fees 

paid to third parties by the creditor on the 

consumer’s behalf. Creditors are not required 

to disclose fees that apply if the consumer 

exercises an option under the loan agreement 

after consummation, such as fees for 

deferment, forbearance, or loan modification. 

47(a)(3) Repayment Terms 

1. Loan term. The term of the loan is the 

maximum period of time during which 

regularly scheduled payments of principal 

and interest will be due on the loan. 

2. Payment deferral options—general. The 

creditor must describe the options that the 

consumer has under the loan agreement to 

defer payment on the loan. When there is no 

deferment option provided for the loan, the 

creditor must disclose that fact. Payment 

deferral options required to be disclosed 

include options for immediate deferral of 

payments, such as when the student is 

currently enrolled at a covered educational 

institution. The description may include of 

the length of the maximum initial in-school 

deferment period, the types of payments that 

may be deferred, and a description of any 

payments that are required during the 

deferment period. The creditor may, but need 

not, disclose any conditions applicable to the 

deferment option, such as that deferment is 

permitted only while the student is 

continuously enrolled in school. If payment 

deferral is not an option while the student is 

enrolled in school, the creditor may disclose 

that the consumer must begin repayment 

upon disbursement of the loan and that the 

consumer may not defer repayment while 

enrolled in school. If the creditor offers 

payment deferral options that may apply 

during the repayment period, such as an 

option to defer payments if the student 

returns to school to pursue an additional 

degree, the creditor must include a statement 

referring the consumer to the contract 

document or promissory note for more 

information. 

3. Payment deferral options—in school 

deferment. For each payment deferral option 

applicable while the student is enrolled at a 

covered educational institution the creditor 

must disclose whether interest will accrue 

while the student is enrolled at a covered 

educational institution and, if interest does 

accrue, whether payment of interest may be 

deferred and added to the principal balance. 

4. Combination with cost estimate 

disclosure. The disclosures of the loan term 

under § 226.47(a)(3)(i) and of the payment 

deferral options applicable while the student 

is enrolled at a covered educational 

institution under §§ 226.47(a)(3)(ii) and (iii) 

may be combined with the disclosure of cost 

estimates required in § 226.47(a)(4). For 

example, the creditor may describe each 

payment deferral option in the same chart or 

table that provides the cost estimates for each 

payment deferral option. See Appendix H– 

21. 

5. Bankruptcy limitations. The creditor 

may comply with § 226.47(a)(3)(iv) by 

disclosing the following statement: ‘‘If you 

file for bankruptcy you may still be required 

to pay back this loan.’’ 

47(a)(4) Cost Estimates 

1. Total cost of the loan. For purposes of 

§ 226.47(a)(4), the creditor must calculate the 

example of the total cost of the loan in 

accordance with the rules in § 226.18(h) for 

calculating the loan’s total of payments. 

2. Basis for estimates. i. The creditor must 

calculate the total cost estimate by 

determining all finance charges that would 

be applicable to loans with the highest rate 

of interest required to be disclosed under 

§ 226.47(a)(1)(i). For example, if a creditor 

charges a range of origination fees from 0% 

to 3%, but the 3% origination fee would 

apply to loans with the highest initial rate, 

the lender must assume the 3% origination 

fee is charged. The creditor must base the 

total cost estimate on a total loan amount that 

includes all prepaid finance charges and 

results in a $10,000 amount financed. For 

example, if the prepaid finance charges are 

$600, the creditor must base the estimate on 

a $10,600 total loan amount and an amount 

financed of $10,000. The example must 

reflect an amount provided of $10,000. If the 

creditor only offers a particular private 

education loan for less than $10,000, the 

creditor may assume a loan amount that 

results in a $5,000 amount financed for that 

loan. 

ii. If a prepaid finance charge is 

determined as a percentage of the amount 

financed, for purposes of the example, the 

creditor should assume that the fee is 

determined as a percentage of the total loan 

amount, even if this is not the creditor’s 

usual practice. For example, suppose the 

consumer requires a disbursement of $10,000 

and the creditor charges a 3% origination fee. 

In order to calculate the total cost example, 

the creditor must determine the loan amount 

that will result in a $10,000 amount financed 

after the 3% fee is assessed. In this example, 

the resulting loan amount would be 

$10,309.28. Assessing the 3% origination fee 

on the loan amount of $10,309.28 results in 

an origination fee of $309.28, which is 

withheld from the loan funds disbursed to 

the consumer. The principal loan amount of 

$10,309.28 minus the prepaid finance charge 

of $309.28 results in an amount financed of 

$10,000. 

3. Calculated for each option to defer 

interest payments. The example must include 

an estimate of the total cost of the loan for 

each in-school deferral option disclosed in 

§ 226.47(a)(3)(iii). For example, if the creditor 

provides the consumer with the option to 

begin making principal and interest 

payments immediately, to defer principal 

payments but begin making interest-only 

payments immediately, or to defer all 

principal and interest payments while in 

school, the creditor is required to disclose 

three estimates of the total cost of the loan, 

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one for each deferral option. If the creditor 

adds accrued interest to the loan balance (i.e., 

interest is capitalized), the estimate of the 

total loan cost should be based on the 

capitalization method that the creditor 

actually uses for the loan. For instance, for 

each deferred payment option where the 

creditor would capitalize interest on a 

quarterly basis, the total loan cost must be 

calculated assuming interest capitalizes on a 

quarterly basis. 

4. Deferment period assumptions. Creditors 

may use either of the following two methods 

for estimating the duration of in-school 

deferment periods: 

i. For loan programs intended for 

educational expenses of undergraduate 

students, the creditor may assume that the 

consumer defers payments for a four-year 

matriculation period, plus the loan’s 

maximum applicable grace period, if any. For 

all other loans, the creditor may assume that 

the consumer defers for a two-year 

matriculation period, plus the maximum 

applicable grace period, if any, or the 

maximum time the consumer may defer 

payments under the loan program, whichever 

is shorter. 

ii. Alternatively, if the creditor knows that 

the student will be enrolled in a program 

with a standard duration, the creditor may 

assume that the consumer defers payments 

for the full duration of the program (plus any 

grace period). For example, if a creditor 

makes loans intended for students enrolled 

in a four-year medical school degree 

program, the creditor may assume that the 

consumer defers payments for four years plus 

the loan’s maximum applicable grace period, 

if any. However, the creditor may not modify 

the disclosure to correspond to a particular 

student’s situation. For example, even if the 

creditor knows that a student will be a 

second-year medical school student, the 

creditor must assume a four-year deferral 

period. 

47(a)(6)(ii) 

1. Terms of Federal student loans. The 

creditor must disclose the interest rates 

available under each program under title IV 

of the Higher Education Act of 1965 and 

whether the rates are fixed or variable, as 

prescribed in the Higher Education Act of 

1965 (20 U.S.C. 1077a). Where the fixed 

interest rate for a loan varies by statute 

depending on the date of disbursement or 

receipt of application, the creditor must 

disclose only the interest rate as of the time 

the disclosure is provided. 

47(a)(6)(iii) 

1. Web site address. The creditor must 

include with this disclosure an appropriate 

U.S. Department of Education Web site 

address such as ‘‘Federalstudentaid.ed.gov.’’ 

47(b) Approval Disclosures 

47(b)(1) Interest Rate 

1. Variable rate disclosures. The interest 

rate is considered variable if the terms of the 

legal obligation allow the creditor to increase 

the interest rate originally disclosed to the 

consumer. The provisions do not apply to 

increases resulting from delinquency 

(including late payment), default, 

assumption, or acceleration. In addition to 

disclosing the information required under 

§§ 226.47(b)(ii) and (iii), the creditor must 

disclose the information required under 

§§ 226.18(f)(1)(i) and (iii)—the circumstances 

under which the rate may increase and the 

effect of an increase, respectively. The 

creditor is required to disclose the maximum 

monthly payment based on the maximum 

possible rate in § 226.47(b)(3)(viii), and the 

creditor need not disclose a separate example 

of the payment terms that would result from 

an increase under § 226.18(f)(1)(iv). 

2. Limitations on rate adjustments. The 

creditor must disclose how often the rate may 

change and any limit on the amount that the 

rate may increase at any one time. The 

creditor must also disclose any maximum 

rate over the life of the transaction. If the 

legal obligation between the parties does 

provide a maximum rate, the creditor must 

disclose any legal limits in the nature of 

usury or rate ceilings under state or Federal 

statutes or regulations. However, if the 

applicable maximum rate is in the form of a 

legal limit, such as a State’s usury cap (rather 

than a maximum rate specified in the legal 

obligation between the parties), the creditor 

must disclose that the maximum rate is 

determined by applicable law. Compliance 

with § 226.18(f)(1)(ii) (requiring disclosure of 

any limitations on the increase of the interest 

rate) does not necessarily constitute 

compliance with this section. Specifically, 

this section requires that if there are no 

limitations on interest rate increases, the 

creditor must disclose that fact. By contrast, 

comment 18(f)(1)(ii)–1 states that if there are 

no limitations the creditor need not disclose 

that fact. In addition, under this section, 

limitations on rate increases include, rather 

than exclude, legal limits in the nature of 

usury or rate ceilings under state or Federal 

statutes or regulations. 

3. Rates applicable to the loan. For a 

variable-rate loan, the disclosure of the 

interest rate must reflect the index and 

margin that will be used to make interest rate 

adjustments for the loan. The creditor may 

provide a description of the index and 

margin or range of margins used to make 

interest rate adjustments, including a 

reference to a source, such as a newspaper, 

where the consumer may look up the index. 

Paragraph 47(b)(2) 

1. Fees and default or late payment costs. 

Creditors may follow the commentary for 

§ 226.47(a)(2) in complying with 

§ 226.47(b)(2). Creditors must disclose the 

late payment fees required to be disclosed 

under § 226.18(l) as part of the disclosure 

required under § 226.47(b)(2)(ii). If the 

creditor includes the itemization of the 

amount financed under § 226.18(c)(1), any 

fees disclosed as part of the itemization need 

not be separately disclosed elsewhere. 

47(b)(3) Repayment Terms 

1. Principal amount. The principal amount 

must equal what the face amount of the note 

would be as of the time of approval, and it 

must be labeled ‘‘Total Loan Amount.’’ See 

Appendix H–18. This amount may be 

different from the ‘‘principal loan amount’’ 

used to calculate the amount financed under 

comment 18(b)(3)–1, because the creditor has 

the option under that comment of using a 

‘‘principal loan amount’’ that is different 

from the face amount of the note. If the 

creditor elects to provide an itemization of 

the amount financed under § 226.18(c)(1) the 

creditor need not disclose the amount 

financed elsewhere. 

2. Loan term. The term of the loan is the 

maximum period of time during which 

regularly scheduled payments of principal 

and interest are due on the loan. 

3. Payment deferral options applicable to 

the consumer. Creditors may follow the 

commentary for § 226.47(a)(3)(ii) in 

complying with § 226.47(b)(3)(iii). 

4. Payments required during enrollment. 

Required payments that must be disclosed 

include payments of interest and principal, 

interest only, or other payments that the 

consumer must make during the time that the 

student is enrolled. Compliance with 

§ 226.18(g) constitutes compliance with 

§ 226.47(b)(3)(iv). 

5. Bankruptcy limitations. The creditor 

may comply with § 226.47(b)(3)(vi) by 

disclosing the following statement: ‘‘If you 

file for bankruptcy you may still be required 

to pay back this loan.’’ 

6. An estimate of the total amount for 

repayment. The creditor must disclose an 

estimate of the total amount for repayment at 

two interest rates: 

i. The interest rate in effect on the date of 

approval. Compliance with the total of 

payments disclosure requirement of 

§ 226.18(h) constitutes compliance with this 

requirement. 

ii. The maximum possible rate of interest 

applicable to the loan or, if the maximum 

rate cannot be determined, a rate of 25%. If 

the legal obligation between the parties 

specifies a maximum rate of interest, the 

creditor must calculate the total amount for 

repayment based on that rate. If the legal 

obligation does not specify a maximum rate 

but a usury or rate ceiling under State or 

Federal statutes or regulations applies, the 

creditor must use that rate. If a there is no 

maximum rate in the legal obligation or 

under a usury or rate ceiling, the creditor 

must base the disclosure on a rate of 25% 

and must disclose that there is no maximum 

rate and that the total amount for repayment 

disclosed under § 226.47(b)(3)(vii)(B) is an 

estimate and will be higher if the applicable 

interest rate increases. 

iii. If terms of the legal obligation provide 

a limitation on the amount that the interest 

rate may increase at any one time, the 

creditor may reflect the effect of the interest 

rate limitation in calculating the total cost 

example. For example, if the legal obligation 

provides that the interest rate may not 

increase by more than three percentage 

points each year, the creditor may assume 

that the rate increases by three percentage 

points each year until it reaches that 

maximum possible rate, or if a maximum rate 

cannot be determined, an interest rate of 

25%. 

7. The maximum monthly payment. The 

creditor must disclose the maximum 

payment that the consumer could be required 

to make under the loan agreement, calculated 

using the maximum rate of interest 

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applicable to the loan, or if the maximum 

rate cannot be determined, a rate of 25%. The 

creditor must determine and disclose the 

maximum rate of interest in accordance with 

comments 47(b)(3)–6.ii and 47(b)(3)–6.iii. In 

addition, if a maximum rate cannot be 

determined, the creditor must state that there 

is no maximum rate and that the monthly 

payment amounts disclosed under 

§ 226.47(b)(3)(viii) are estimates and will be 

higher if the applicable interest rate 

increases. 

47(b)(4) Alternatives to Private Education 

Loans 

1. General. Creditors may use the guidance 

provided in the commentary for 

§ 226.47(a)(6) in complying with 

§ 226.47(b)(4). 

47(b)(5) Rights of the Consumer 

1. Notice of acceptance period. The 

disclosure that the consumer may accept the 

terms of the loan until the acceptance period 

under § 226.48(c)(1) has expired must 

include the specific date on which the 

acceptance period expires and state that the 

consumer may accept the terms of the loan 

until that date. Under § 226.48(c)(1), the date 

on which the acceptance period expires is 

based on when the consumer receives the 

disclosures. If the creditor mails the 

disclosures, the consumer is considered to 

have received them three business days after 

the creditor places the disclosures in the mail 

See § 226.46(d)(4). If the creditor provides an 

acceptance period longer than the minimum 

30 calendar days, the disclosure must reflect 

the later date. The disclosure must also 

specify the method or methods by which the 

consumer may communicate acceptance. 

47(c) Final Disclosures 

1. Notice of right to cancel. The disclosure 

of the right to cancel must include the 

specific date on which the three-day 

cancellation period expires and state that the 

consumer has a right to cancel by that date. 

See comments 48(d)–1 and 2. For example, 

if the disclosures were mailed to the 

consumer on Friday, June 1, and the 

consumer is deemed to receive them on 

Tuesday, June 5, the creditor could state: 

‘‘You have a right to cancel this transaction, 

without penalty, by midnight on June 8, 

2009. No funds will be disbursed to you or 

to your school until after this time. You may 

cancel by calling us at 800–XXX–XXXX.’’ If 

the creditor permits cancellation by mail, the 

statement must specify that the consumer’s 

mailed request will be deemed timely if 

placed in the mail not later than the 

cancellation date specified on the disclosure. 

The disclosure must also specify the method 

or methods by which the consumer may 

cancel. 

2. More conspicuous. The statement of the 

right to cancel must be more conspicuous 

than any other disclosure required under this 

section except for the finance charge, the 

interest rate, and the creditor’s identity. See 

§ 226.46(c)(2)(iii). The statement will be 

deemed to be made more conspicuous if it is 

segregated from other disclosures, placed 

near or at the top of the disclosure document, 

and highlighted in relation to other required 

disclosures. For example, the statement may 

be outlined with a prominent, noticeable box; 

printed in contrasting color; printed in larger 

type, bold print, or different type face; 

underlined; or set off with asterisks. 

Section 226.48—Limitations on Private 

Education Loans 

1. Co-branding—definition of marketing. 

The prohibition on co-branding in 

§§ 226.48(a) and (b) applies to the marketing 

of private education loans. The term 

marketing includes any advertisement under 

§ 226.2(a)(2). In addition, the term marketing 

includes any document provided by the 

creditor to the consumer related to a specific 

transaction, such as an application or 

solicitation, a promissory note or a contract 

provided to the consumer. For example, 

prominently displaying the name of the 

educational institution at the top of the 

application form or promissory note without 

mentioning the name of the creditor, such as 

by naming the loan product the ‘‘University 

of ABC Loan,’’ would be prohibited. 

2. Implied endorsement. A suggestion that 

a private education loan is offered or made 

by the covered educational institution 

instead of by the creditor is included in the 

prohibition on implying that the covered 

educational institution endorses the private 

education loan under § 226.48(a)(1). For 

example, naming the loan the ‘‘University of 

ABC Loan,’’ suggests that the loan is offered 

by the educational institution. However, the 

use of a creditor’s full name, even if that 

name includes the name of a covered 

educational institution, does not imply 

endorsement. For example, a credit union 

whose name includes the name of a covered 

educational institution is not prohibited from 

using its own name. In addition, the 

authorized use of a state seal by a state or an 

institution of higher education in the 

marketing of state education loan products 

does not imply endorsement. 

3. Disclosure. i. A creditor is considered to 

have complied with § 226.48(a)(2) if the 

creditor’s marketing contains a clear and 

conspicuous statement, equally prominent 

and closely proximate to the reference to the 

covered educational institution, using the 

name of the creditor and the name of the 

covered educational institution that the 

covered educational institution does not 

endorse the creditor’s loans and that the 

creditor is not affiliated with the covered 

educational institution. For example, ‘‘[Name 

of creditor]’s loans are not endorsed by [name 

of school] and [name of creditor] is not 

affiliated with [name of school].’’ The 

statement is considered to be equally 

prominent and closely proximate if it is the 

same type size and is located immediately 

next to or directly above or below the 

reference to the educational institution, 

without any intervening text or graphical 

displays. 

ii. A creditor is considered to have 

complied with § 226.48(b) if the creditor’s 

marketing contains a clear and conspicuous 

statement, equally prominent and closely 

proximate to the reference to the covered 

educational institution, using the name of the 

creditor’s loan or loan program, the name of 

the covered educational institution, and the 

name of the creditor, that the creditor’s loans 

are not offered or made by the covered 

educational institution, but are made by the 

creditor. For example, ‘‘[Name of loan or loan 

program] is not being offered or made by 

[name of school], but by [name of creditor].’’ 

The statement is considered to be equally 

prominent and closely proximate if it is the 

same type size and is located immediately 

next to or directly above or below the 

reference to the educational institution, 

without any intervening text or graphical 

displays. 

Paragraph 48(c) 

1. 30 day acceptance period. The creditor 

must provide the consumer with at least 30 

calendar days from the date the consumer 

receives the disclosures required under 

§ 226.47(b) to accept the terms of the loan. 

The creditor may provide the consumer with 

a longer period of time. If the creditor places 

the disclosures in the mail, the consumer is 

considered to have received them three 

business days after they are mailed under 

§ 226.46(d)(4). For purposes of determining 

when a consumer receives mailed 

disclosures, ‘‘business day’’ means all 

calendar days except Sundays and the legal 

public holidays referred to in § 226.2(a)(6). 

See comment 46(d)–1. The consumer may 

accept the loan at any time before the end of 

the 30 day period. 

2. Method of acceptance. The creditor must 

specify a method or methods by which the 

consumer can accept the loan at any time 

within the 30-day acceptance period. The 

creditor may require the consumer to 

communicate acceptance orally or in writing. 

Acceptance may also be communicated 

electronically, but electronic communication 

must not be the only means provided for the 

consumer to communicate acceptance unless 

the creditor has provided the approval 

disclosure electronically in compliance with 

the consumer consent and other applicable 

provisions of the Electronic Signatures in 

Global and National Commerce Act (E–Sign 

Act) (15 U.S.C. § 7001 et seq.). If acceptance 

by mail is allowed, the consumer’s 

communication of acceptance is considered 

timely if placed in the mail within the 30- 

day period. 

3. Prohibition on changes to rates and 

terms. The prohibition on changes to the 

rates and terms of the loan applies to changes 

that affect those terms that are required to be 

disclosed under §§ 226.47(b) and (c). The 

creditor is permitted to make changes that do 

not affect any of the terms disclosed to the 

consumer under those sections. 

4. Permissible changes to rates and terms— 

re-disclosure not required. Creditors are not 

required to consummate a loan where the 

extension of credit would be prohibited by 

law or where the creditor has reason to 

believe that the consumer has committed 

fraud. A creditor may make changes to the 

rate based on adjustments to the index used 

for the loan and changes that will 

unequivocally benefit the consumer. For 

example, a creditor is permitted to reduce the 

interest rate or lower the amount of a fee. A 

creditor may also reduce the loan amount 

based on a certification or other information 

received from a covered educational 

institution or from the consumer indicating 

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that the student’s cost of attendance has 

decreased or the amount of other financial 

aid has increased. A creditor may also 

withdraw the loan approval based on a 

certification or other information received 

from a covered educational institution or 

from the consumer indicating that the 

student is not enrolled in the institution. For 

these changes permitted by § 226.48(c)(3), the 

creditor is not required to provide a new set 

of approval disclosures required under 

§ 226.47(b) or provide the consumer with a 

new 30-day acceptance period under 

§ 226.48(c)(1). The creditor must provide the 

final disclosures under § 226.47(c). 

5. Permissible changes to rates and terms— 

school certification. If the creditor reduces 

the loan amount based on information that 

the student’s cost of attendance has 

decreased or the amount of other financial 

aid has increased, the creditor may make 

certain corresponding changes to the rate and 

terms. The creditor may change the rate or 

terms to those that the consumer would have 

received if the consumer had applied for the 

reduced loan amount. For example, assume 

a consumer applies for, and is approved for, 

a $10,000 loan at a 7% interest rate. 

However, after the consumer receives the 

approval disclosures, the consumer’s school 

certifies that the consumer’s financial need is 

only $8,000. The creditor may reduce the 

loan amount for which the consumer is 

approved to $8,000. The creditor may also, 

for example, increase the interest rate on the 

loan to 7.125%, but only if the consumer 

would have received a rate of 7.125% if the 

consumer had originally applied for an 

$8,000 loan. 

5. Permissible changes to rates and terms— 

re-disclosure required. A creditor may make 

changes to the interest rate or terms to 

accommodate a request from a consumer. For 

example, assume a consumer applies for a 

$10,000 loan and is approved for the $10,000 

amount at an interest rate of 6%. After the 

creditor has provided the approval 

disclosures, the consumer’s financial need 

increases, and the consumer requests to a 

loan amount of $15,000. In this situation, the 

creditor is permitted to offer a $15,000 loan, 

and to make any other changes such as 

raising the interest rate to 7%, in response to 

the consumer’s request. The creditor must 

provide a new set of disclosures under 

§ 226.47(b) and provide the consumer with 

30 days to accept the offer under § 226.48(c) 

for the $15,000 loan offered in response to 

the consumer’s request. However, because 

the consumer may choose not to accept the 

offer for the $15,000 loan at the higher 

interest rate, the creditor may not withdraw 

or change the rate or terms of the offer for 

the $10,000 loan, except as permitted under 

§ 226.48(c)(3), unless the consumer accepts 

the $15,000 loan. 

Paragraph 48(d) 

1. Right to cancel. If the creditor mails the 

disclosures, the disclosures are considered 

received by the consumer three business days 

after the disclosures were mailed. For 

purposes of determining when the consumer 

receives the disclosures, the term ‘‘business 

day’’ is defined as all calendar days except 

Sunday and the legal public holidays referred 

to in § 226.2(a)(6). See § 226.46(d)(4). The 

consumer has three business days from the 

date on which the disclosures are deemed 

received to cancel the loan. For example, if 

the creditor places the disclosures in the mail 

on Thursday, June 4, the disclosures are 

considered received on Monday, June 8. The 

consumer may cancel any time before 

midnight Thursday, June 11. The creditor 

may provide the consumer with more time to 

cancel the loan than the minimum three 

business days required under this section. If 

the creditor provides the consumer with a 

longer period of time in which to cancel the 

loan, the creditor may disburse the funds 

three business days after the consumer has 

received the disclosures required under this 

section, but the creditor must honor the 

consumer’s later timely cancellation request. 

2. Method of cancellation. The creditor 

must specify a method or methods by which 

the consumer may cancel. For example, the 

creditor may require the consumer to 

communicate cancellation orally or in 

writing. Cancellation may also be 

communicated electronically, but electronic 

communication must not be the only means 

by which the consumer may cancel unless 

the creditor provided the final disclosure 

electronically in compliance with the 

consumer consent and other applicable 

provisions of the Electronic Signatures in 

Global and National Commerce Act (E–Sign 

Act) (15 U.S.C. 7001 et seq.). If the creditor 

allows cancellation by mail, the creditor 

must specify an address or the name and 

address of an agent of the creditor to receive 

notice of cancellation. The creditor must wait 

to disburse funds until it is reasonably 

satisfied that the consumer has not canceled. 

For example, the creditor may satisfy itself by 

waiting a reasonable time after expiration of 

the cancellation period to allow for delivery 

of a mailed notice. The creditor may also 

satisfy itself by obtaining a written statement 

from the consumer, which must be provided 

to and signed by the consumer only at the 

end of the three-day period, that the right has 

not been exercised. 

3. Cancellation without penalty. The 

creditor may not charge the consumer a fee 

for exercising the right to cancel under 

§ 226.48(d). The prohibition extends only to 

fees charged specifically for canceling the 

loan. The creditor is not required to refund 

fees, such as an application fee, that are 

charged to all consumers whether or not the 

consumer cancels the loan. 

Paragraph 48(e) 

1. General. Section 226.48(e) requires that 

the creditor obtain the self-certification form, 

signed by the consumer, before 

consummating the private education loan. 

The rule applies only to private education 

loans that will be used for the postsecondary 

educational expenses of a student while that 

student is attending an institution of higher 

education as defined in § 226.46(b)(2). It does 

not apply to all covered educational 

institutions. The requirement applies even if 

the student is not currently attending an 

institution of higher education, but will use 

the loan proceeds for postsecondary 

educational expenses while attending such 

institution. For example, a creditor is 

required to obtain the form before 

consummating a private education loan 

provided to a high school senior for expenses 

to be incurred during the consumer’s first 

year of college. This provision does not 

require that the creditor obtain the selfcertification form in instances where the loan 

is not intended for a student attending an 

institution of higher education, such as when 

the consumer is consolidating loans after 

graduation. Section 155(a)(2) of the Higher 

Education Act of 1965 provides that the form 

shall be made available to the consumer by 

the relevant institution of higher education. 

However, § 226.48(e) provides flexibility to 

institutions of higher education and creditors 

as to how the completed self-certification 

form is provided to the lender. The creditor 

may receive the form directly from the 

consumer, or the creditor may receive the 

form from the consumer through the 

institution of higher education. In addition, 

the creditor may provide the form, and the 

information the consumer will require to 

complete the form, directly to the consumer. 

2. Electronic signature. Under Section 

155(a)(2) of the Higher Education Act of 

1965, the institution of higher education may 

provide the self-certification form to the 

consumer in written or electronic form. 

Under Section 155(a)(5) of the Higher 

Education Act of 1965, the form may be 

signed electronically by the consumer. A 

creditor may accept the self-certification form 

from the consumer in electronic form. A 

consumer’s electronic signature is considered 

valid if it meets the requirements issued by 

the Department of Education under Section 

155(a)(5) of the Higher Education Act of 

1965. 

Paragraph 48(f) 

1. General. Section 226.48(f) does not 

specify the format in which creditors must 

provide the required information to the 

covered educational institution. Creditors 

may choose to provide only the required 

information or may provide copies of the 

form or forms the lender uses to comply with 

§ 226.47(a). A creditor is only required to 

provide the required information if the 

creditor is aware that it is a party to a 

preferred lender arrangement. For example, if 

a creditor is placed on a covered educational 

institution’s preferred lender list without the 

creditor’s knowledge, the creditor is not 

required to comply with § 226.48(f). 

* * * * * 

Appendixes G and H—Open-End and 

Closed-End Model Forms and Clauses 

1. Permissible changes. Although use of the 

model forms and clauses is not required, 

creditors using them properly will be deemed 

to be in compliance with the regulation with 

regard to those disclosures. Creditors may 

make certain changes in the format or content 

of the forms and clauses and may delete any 

disclosures that are inapplicable to a 

transaction or a plan without losing the act’s 

protection from liability, except formatting 

changes may not be made to model forms and 

samples in H–18, H–19, H–20, H–21, H–22, 

H–23, G–2(A), G–3(A), G–4(A), G–10(A)–(E), 

G–17(A)–(D), G–18(A) (except as permitted 

pursuant to § 226.7(b)(2)), G–18(B)–(C), G–19, 

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G–20, and G–21. The rearrangement of the 

model forms and clauses may not be so 

extensive as to affect the substance, clarity, 

or meaningful sequence of the forms and 

clauses. Creditors making revisions with that 

effect will lose their protection from civil 

liability. Except as otherwise specifically 

required, acceptable changes include, for 

example: 

i. Using the first person, instead of the 

second person, in referring to the borrower. 

ii. Using ‘‘borrower’’ and ‘‘creditor’’ 

instead of pronouns. 

iii. Rearranging the sequences of the 

disclosures. 

iv. Not using bold type for headings. 

v. Incorporating certain state ‘‘plain 

English’’ requirements. 

vi. Deleting inapplicable disclosures by 

whiting out, blocking out, filling in ‘‘N/A’’ 

(not applicable) or ‘‘0,’’ crossing out, leaving 

blanks, checking a box for applicable items, 

or circling applicable items. (This should 

permit use of multipurpose standard forms.) 

vii. Using a vertical, rather than a 

horizontal, format for the boxes in the closedend disclosures. 

Appendix H—Closed-End Model Forms 

and Clauses 

21. HRSA–500–1 9–82. Pursuant to section 

113(a) of the Truth in Lending Act, Form 

HRSA–500–1 9–82 issued by the U.S. 

Department of Health and Human Services 

for certain student loans has been approved 

for use for loans made prior to the mandatory 

compliance date of the disclosures required 

under Subpart F. The form was approved for 

all Health Education Assistance Loans 

(HEAL) with a variable interest rate that were 

considered interim student credit extensions 

as defined in Regulation Z. 

22. HRSA–500–2 9–82. Pursuant to section 

113(a) of the Truth in Lending Act, Form 

HRSA–500–2 9–82 issued by the U.S. 

Department of Health and Human Services 

for certain student loans has been approved 

for use for loans made prior to the mandatory 

compliance date of the disclosures required 

under Subpart F. The form was approved for 

all HEAL loans with a fixed interest rate that 

were considered interim student credit 

extensions as defined in Regulation Z. 

23. HRSA–502–1 9–82. Pursuant to section 

113(a) of the Truth in Lending Act, Form 

HRSA–502–1 9–82 issued by the U.S. 

Department of Health and Human Services 

for certain student loans has been approved 

for use for loans made prior to the mandatory 

compliance date of the disclosures required 

under Subpart F. The form was approved for 

all HEAL loans with a variable interest rate 

in which the borrower has reached 

repayment status and is making payments of 

both interest and principal. 

24. HRSA–502–2 9–82. Pursuant to section 

113(a) of the Truth in Lending Act, Form 

HRSA–502–2 9–82 issued by the U.S. 

Department of Health and Human Services 

for certain student loans has been approved 

for use for loans made prior to the mandatory 

compliance date of the disclosures required 

under Subpart F. The form was approved for 

all HEAL loans with a fixed interest rate in 

which the borrower has reached repayment 

status and is making payments of both 

interest and principal. 

25. Models H–18, H–19, H–20. 

i. These model forms illustrate disclosures 

required under § 226.47 on or with an 

application or solicitation, at approval, and 

after acceptance of a private education loan. 

Although use of the model forms is not 

required, creditors using them properly will 

be deemed to be in compliance with the 

regulation with regard to private education 

loan disclosures. Creditors may make certain 

types of changes to private education loan 

model forms H–18 (application and 

solicitation), H–19 (approval), and H–20 

(final) and still be deemed to be in 

compliance with the regulation, provided 

that the required disclosures are made clearly 

and conspicuously. The model forms 

aggregate disclosures into groups under 

specific headings. Changes may not include 

rearranging the sequence of disclosures, for 

instance, by rearranging which disclosures 

are provided under each heading or by 

rearranging the sequence of the headings and 

grouping of disclosures. Changes to the 

model forms may not be so extensive as to 

affect the substance or clarity of the forms. 

Creditors making revisions with that effect 

will lose their protection from civil liability. 

The creditor may delete inapplicable 

disclosures, such as: 

• The Federal student financial assistance 

alternatives disclosures 

• The self-certification disclosure 

Other permissible changes include, for 

example: 

• Adding the creditor’s address, telephone 

number, or Web site 

• Adding loan identification information, 

such as a loan identification number 

• Adding the date on which the form was 

printed or produced 

• Placing the notice of the right to cancel 

in the top left or top right of the disclosure 

to accommodate a window envelope 

• Combining required terms where several 

numerical disclosures are the same. For 

instance, if the itemization of the amount 

financed is provided, the amount financed 

need not be separately disclosed 

• Combining the disclosure of loan term 

and payment deferral options required in 

§ 226.47(a)(3) with the disclosure of cost 

estimates required in § 226.47(a)(4) in the 

same chart or table (See comment 47(a)(3)– 

4.) 

• Using the first person, instead of the 

second person, in referring to the borrower 

• Using ‘‘borrower’’ and ‘‘creditor’’ instead 

of pronouns 

• Incorporating certain state ‘‘plain 

English’’ requirements 

• Deleting inapplicable disclosures by 

whiting out, blocking out, filling in ‘‘N/A’’ 

(not applicable) or ‘‘0,’’ crossing out, leaving 

blanks, checking a box for applicable items, 

or circling applicable items 

ii. Although creditors are not required to 

use a certain paper size in disclosing the 

§§ 226.47(a), (b) and (c) disclosures, samples 

H–21, H–22, and H–23 are designed to be 

printed on two 81⁄2 x 11 inch sheets of paper. 

A creditor may use a larger sheet of paper, 

such as 81⁄2 x 14 inch sheets of paper, or may 

use multiple pages. If the disclosures are 

provided on two sides of a single sheet of 

paper, the creditor must include a reference 

or references, such as ‘‘SEE BACK OF PAGE’’ 

at the bottom of each page indicating that the 

disclosures continue onto the back of the 

page. If the disclosures are on two or more 

pages, a creditor may not include any 

intervening information between portions of 

the disclosure. In addition, the following 

formatting techniques were used in 

presenting the information in the sample 

tables to ensure that the information is 

readable: 

A. A readable font style and font size (10- 

point Helvetica font style for body text). 

B. Sufficient spacing between lines of the 

text. 

C. Standard spacing between words and 

characters. In other words, the body text was 

not compressed to appear smaller than the 

10-point type size. 

D. Sufficient white space around the text 

of the information in each row, by providing 

sufficient margins above, below and to the 

sides of the text. 

E. Sufficient contrast between the text and 

the background. Generally, black text was 

used on white paper. 

iii. While the Board is not requiring issuers 

to use the above formatting techniques in 

presenting information in the disclosure, the 

Board encourages issuers to consider these 

techniques when deciding how to disclose 

information in the disclosure to ensure that 

the information is presented in a readable 

format. 

iv. Creditors are allowed to use color, 

shading and similar graphic techniques in 

the disclosures, so long as the disclosures 

remain substantially similar to the model and 

sample forms in appendix H. 

26. Sample H–21. This sample illustrates a 

disclosure required under § 226.47(a). The 

sample assumes a range of interest rates 

between 7.375% and 17.375%. The sample 

assumes a variable interest rate that will 

never exceed 25% over the life of the loan. 

The term of the sample loan is 20 years for 

an amount up to $20,000 and 30 years for an 

amount more than $20,000. The repayment 

options and sample costs have been 

combined into a single table, as permitted in 

the commentary to § 226.47(a)(3). It 

demonstrates the loan amount, interest rate, 

and total paid when a consumer makes loan 

payments while in school, pays only interest 

while in school, and defers all payments 

while in school. 

27. Sample H–22. This sample illustrates a 

disclosure required under § 226.47(b). The 

sample assumes the consumer financed 

$10,000 at an 8.23% annual percentage rate. 

The sample assumes a variable interest rate 

that will never exceed 25% over the life of 

the loan. The payment schedule and terms 

assumes a 20-year loan term and that the 

consumer elected to defer payments while 

enrolled in school. This includes a sample 

disclosure of a total loan amount of $10,600 

and prepaid finance charges totaling $600, 

for a total amount financed of $10,000. 

28. Sample H–22. This sample illustrates a 

disclosure required under § 226.47(c). The 

sample assumes the consumer financed 

$10,000 at an 8.23% annual percentage rate. 

The sample assumes a variable annual 

percentage rate in an instance where there is 

no maximum interest rate. The sample 

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Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations 41257 

demonstrates disclosure of an assumed 

maximum rate, and the statement that the 

consumer’s actual maximum rate and 

payment amount could be higher. The 

payment schedule and terms assumes a 20- 

year loan term, the assumed maximum 

interest rate, and that the consumer elected 

to defer payments while enrolled in school. 

This includes a sample disclosure of a total 

loan amount of $10,600 and prepaid finance 

charges totaling $600, for a total amount 

financed of $10,000. 

By order of the Board of Governors of the 

Federal Reserve System. 

Jennifer J. Johnson, 

Secretary of the Board. 

[FR Doc. E9–18548 Filed 8–13–09; 8:45 am] 

BILLING CODE 6210–01–P 

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