12464 Federal Register / Vol. 74, No. 55 / Tuesday, March 24, 2009 / Proposed Rules 

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 

proposing to issue 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 

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: Proposed rule; request for 

public comment. 

SUMMARY: The Board proposes to amend 

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 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. The HEOA also amends 

TILA by adding limitations on certain 

practices by creditors, including 

limitations on ‘‘co-branding’’ their 

products with educational institutions 

in the marketing of private student 

loans. The proposal 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: Comments must be received on 

or before May 26, 2009. 

ADDRESSES: You may submit comments, 

identified by Docket No. R–1353, by any 

of the following methods: 

• Agency Web Site: http:// 

www.federalreserve.gov. Follow the 

instructions for submitting comments at 

http://www.federalreserve.gov/ 

generalinfo/foia/ProposedRegs.cfm. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• E-mail: 

regs.comments@federalreserve.gov. 

Include the docket number in the 

subject line of the message. 

• Fax: (202) 452–3819 or (202) 452– 

3102. 

• Mail: Address to Jennifer J. Johnson, 

Secretary, Board of Governors of the 

Federal Reserve System, 20th Street and 

Constitution Avenue, NW., Washington, 

DC 20551. 

All public comments will be made 

available on the Board’s Web site at 

http://www.federalreserve.gov/ 

generalinfo/foia/ProposedRegs.cfm as 

submitted, unless modified for technical 

reasons. Accordingly, comments will 

not be edited to remove any identifying 

or contact information. Public 

comments may also be viewed 

electronically or in paper in Room MP– 

500 of the Board’s Martin Building (20th 

and C Streets, NW.) between 9 a.m. and 

5 p.m. on weekdays. 

FOR FURTHER INFORMATION CONTACT: 

Brent Lattin, Senior Attorney; Mandie 

Aubrey, or Lorna Neill, Attorneys; 

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: For the 

provisions of the HEOA that would be 

implemented by this proposal, the 

Board is required to issue final 

regulations under Regulation Z by 

August 14, 2009. The HEOA also 

requires the Board to issue model forms 

based on consumer testing and in 

consultation with the Department of 

Education. 

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 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. 

Section 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 

over $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 

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officials for advisory board service expenses. 

Prepayment penalties or fees for early repayment 

are prohibited for private education loans. 

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 rescission 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 on those loans, and that additional 

information about federal loans may be 

obtained from the school or the 

Department of Education Web site. 

• 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 under 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 proposal 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 

proposed 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 rounds, 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 model 

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 

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12466 Federal Register / Vol. 74, No. 55 / Tuesday, March 24, 2009 / Proposed Rules 

Solicitation Disclosure, Approval 

Disclosure, and Final Disclosure. 

Results of testing. A report 

summarizing the results of the testing is 

available on the Board’s public Web 

site: http://www.federalreserve.gov. 

Application and Solicitation 

Disclosure. Regarding the Application 

and Solicitation Disclosure, consumers 

expected to see a single rate that would 

apply to them and thus were initially 

confused by seeing the required 

disclosure of a range of initial rates that 

might apply to them. They also 

commonly mistook the rate disclosed as 

the high end of the range of initial rates 

with the maximum possible rate for the 

loan. For this reason, the proposed 

model form clarifies that the range of 

initial rates and the maximum possible 

rate are separate concepts. 

Once consumers understood that the 

rates disclosed were not necessarily the 

actual rates that would apply to them, 

they consistently wanted to know how 

their actual rate would be determined. 

Thus, the model form places basic 

information about how the consumer’s 

actual rate will be determined 

immediately adjacent to the range of 

initial rates. 

Consumer testing also indicated that 

consumers want to see specific figures 

and dollar amounts for fees that may 

apply to their loan. Thus the proposal 

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 effect of a private education 

loan on their financial future. 

Improvements to the initial sample form 

tested included clarifying the loan term 

and the interest rates used in the sample 

cost estimates. 

Finally, consumers found the 

presentation of federal loan alternatives, 

‘‘Next Steps,’’ and general eligibility 

requirements 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 drafts of the proposed model 

form, consumers did not understand 

explanations of the difference between 

the interest rate and the annual 

percentage rate (APR). 

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. 

Again, testing indicated that 

consumers strongly prefer to have all 

fees disclosed with specific dollar 

amounts. 

Consumers considered the monthly 

payment schedule and amounts to be 

critical information in understanding 

the financial implications of obtaining a 

private education loan. For this reason, 

the Board revised initial drafts of the 

model disclosure to clarify the monthly 

payment schedule and amounts under 

various payment deferral scenarios. 

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 Board revised initial 

versions of the sample Final Disclosure 

to disclose 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. The proposed form also 

reflects revisions made to address 

consumer questions about the procedure 

for exercising this right. 

Results from both rounds of testing 

were that consumers do 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. For these reasons, as 

discussed in the section-by-section 

analysis under § 226.39(b)(3), the Board 

is proposing to use its exception 

authority under TILA section 105(a) to 

omit information about federal loan 

alternatives from the proposed Final 

Disclosure form. 

Additional testing during and after 

comment period. During the comment 

period and after receiving comments 

from the public on the proposal and 

model disclosure forms, the Board will 

work with Rockbridge Associates and 

EightShapes to revise the model 

disclosures and conduct additional 

rounds of cognitive interviews to test 

the revised disclosures. Final model 

disclosures will be based on public 

comments and results of the additional 

consumer testing. 

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. 

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 also 

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 

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Federal Register / Vol. 74, No. 55 / Tuesday, March 24, 2009 / Proposed Rules 12467 

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 proposed 

exemptions are explained below. 

III. Section-by-Section Analysis 

Introduction 

The Board proposes to add the 

following new disclosure requirements 

to Regulation Z for private education 

loans: 

(i) Disclosures with applications (or 

solicitations that require no application) 

in proposed § 226.38(a); 

(ii) Disclosures when notice of loan 

approval is provided in proposed 

§ 226.38(b); and 

(iii) Disclosures before loan 

disbursement in proposed § 226.38(c). 

General rules applicable to the new 

disclosure requirements are detailed in 

proposed § 226.37 and associated 

commentary. Model forms for these 

disclosures are proposed to be added to 

Regulation Z’s Appendix H. 

To implement TILA’s new prohibition 

on co-branding, proposed § 226.39 

would amend Regulation Z to prohibit 

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 

proposal would make an exception to 

this prohibition under the Board’s TILA 

section 105(a) authority, for creditors in 

‘‘preferred lender arrangements’’ with 

covered educational institutions. 

Proposed § 226.39 would also: provide 

the consumer with 30 days following 

receipt of the approval disclosures to 

accept the loan and prohibit certain 

changes to a loan’s rate or terms during 

that time; provide the consumer a right 

to cancel the loan for three business 

days after receipt of the final disclosures 

and prohibit disbursement during that 

time; require creditors to obtain a 

completed self-certification form signed 

by the consumer before consummating 

the transaction; and require creditors 

with preferred lender arrangements to 

provide certain information to 

educational institutions. 

Section 226.1—Authority, Purpose, 

Coverage, Organization, Enforcement, 

and Liability 

Section 226.1(b) describes the 

purposes of Regulation Z. The Board 

proposes 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) would reference the proposed 

addition of a new Subpart F containing 

rules relating to private education loans. 

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), 226.23(a), 

and 226.31(c)(1) and (2). The Board also 

recently proposed adopting the more 

precise definition for purposes of the 

presumption in proposed § 226.19(a)(2) 

that consumers receive corrected 

disclosures three business days after 

they are mailed. (See 73 FR 74,989; Dec. 

10, 2008). As discussed more fully 

below in the section-by-section analysis 

under §§ 226.37, 226.38 and 226.39, the 

Board is proposing to use the more 

precise definition of business day in 

providing presumptions of when 

consumers receive mailed disclosures, 

and for measuring the period during 

which consumers have a right to cancel 

a private education loan. 

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 proposes to revise § 226.3(b) 

to reflect this change. The Board is not 

proposing changes to § 226.3(f) because 

the HEOA does 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 is 

proposing 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. 

Section 226.17—General Disclosure 

Requirements 

Proposed §§ 226.38(b) and (c) would 

require creditors to provide the current 

§ 226.18 disclosures for private 

education loans in addition to the new 

disclosures. Consequently, the Board is 

proposing 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 is 

proposing to remove the special rules 

for student credit plans. 

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 is proposing 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 § 226.38, the Board is 

proposing 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. Consumer testing 

of student loan disclosures has shown 

that consumers often do not understand 

the APR and incorrectly believe that the 

APR is the consumer’s interest rate. 

When the APR is presented prominently 

along with a less prominent disclosure 

of the interest rate, consumers 

experience added confusion. In 

consumer testing of the proposed model 

forms with a prominent APR and less 

prominent interest rate, some 

consumers believed that either the APR 

or the interest rate was a mistake and 

indicated a concern about trusting the 

accuracy of the disclosures. In addition, 

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12468 Federal Register / Vol. 74, No. 55 / Tuesday, March 24, 2009 / Proposed Rules 

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

disclosure of the range of potential 

interest rates in the application and 

solicitation disclosure. Some consumers 

expressed confusion as to why the APR 

on the approval and final forms was 

inconsistent with the interest rate 

disclosed on the application form. 

Consumers tested have indicated that 

the interest rate is most relevant to them 

for private education loan purposes. 

The Board proposes to exercise its 

authority under TILA section 105(a) to 

except private education loans from the 

requirement that the APR be more 

prominent than other disclosures. For 

the reasons discussed above, the Board 

believes that such an exception is 

necessary and proper to assure a 

meaningful disclosure of credit terms 

for consumers. 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 interest 

rate and APR disclosures differ from 

each other and the difference impairs 

consumers’ understanding of the rate 

that applies to the private education 

loan. Thus, the Board is proposing to 

give prominence to the interest rate 

disclosure that is required by the HEOA. 

The Board also proposes 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). 

The Board believes that in the context 

of private education loan disclosures 

where both the APR and the interest rate 

must be disclosed, consumers will be 

better able to avoid the uniformed use 

of credit if the interest rate is made more 

prominent and the APR made less 

prominent. 

The Board requests comment on 

whether the interest rate should be 

made more prominent and whether the 

APR should be made less prominent for 

private education loan disclosures. 

Specifically, the Board requests 

comment on the effect a less prominent 

APR may have on loan terms. For 

example, the Board requests comment 

on whether a less prominent APR may 

promote the use of low, introductory 

‘‘teaser’’ interest rates on private 

education loans, the use of alternative 

interest calculation methods, or the 

imposition of higher fees. The Board 

also requests comment on alternatives 

ways to disclose both the APR and the 

interest rate for private education loans 

in a manner that is clear to consumers. 

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 

§§ 226.37 and 226.38, creditors would 

be required to make the current closedend 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 proposes to revise § 226.17(b) 

comment 17(b)–1 to clarify that more 

specific timing rules would apply for 

private education loans. 

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.’’ 

For student credit plan loans, special 

disclosure rules apply when interim 

credit is extended, at the time that the 

creditor and consumer agree to a 

repayment schedule, and when a 

student credit plan loan is consolidated. 

Specifically, the creditor need not make 

the following closed-end loan 

disclosures at the time that interim 

credit is extended: 

• Finance charge 

• Payment schedule 

• Total of payments 

The TILA disclosures provided at the 

time of execution of the interim note 

must show two APRs, one for the 

interim period and one for the 

repayment period. See comment 17(i)– 

2. Creditors must make complete closedend TILA disclosures at the time the 

creditor and consumer agree on a 

repayment schedule for the total 

obligation. At that time, a new set of full 

TILA disclosures must be provided. 

Finally, new disclosures must be given 

when interim student credit extensions 

are consolidated through a renewal note 

with a set repayment schedule. See 

comment 17(i)–3. 

The Board proposes 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 afforded by § 226.17(i). 

Implementing new TILA section 

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

§ 226.38(b)(3)(vii) requires 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) would require 

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 new private education 

loan disclosure regime applies to 

consolidation loans, rendering the 

commentary on consolidation loan 

disclosures under comment 17(i)–3 

unnecessary. Finally, the Board believes 

that retaining two different disclosure 

regimes from which creditors may 

choose, in addition to the significant 

new disclosure requirements, is 

unnecessarily complex and may not be 

useful to consumers and creditors. 

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 HEOA does not require, 

and the Board is not proposing to 

require, creditors to give a new set of 

disclosures once the creditor and 

consumer agree upon a repayment 

schedule. The proposed rules would 

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. The Board will consider 

whether disclosures should be required 

for subsequent events as part of its 

comprehensive review of closed-end 

credit disclosures under Regulation Z. 

Section 226.18—Content of Disclosures 

As discussed more fully below, the 

Board is proposing to require that 

creditors provide the disclosures 

required in § 226.18 along with the 

disclosures required with notice of 

approval in § 226.38(b) and with the 

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2The 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. 

3The HEOA also covers persons engaged in the 

business of soliciting private education loans. 

Under proposed § 226.37(d)(1) the term solicitation 

would be defined as an offer to extend credit that 

does not require the consumer to complete an 

application. The term ‘‘solicit’’ would not include 

general advertising or invitations to apply for credit. 

final disclosures required in § 226.38(c). 

The proposed model forms in Appendix 

H–19 and H–20 show the disclosures 

required under § 226.18 as well as the 

disclosures required under §§ 226.38(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 proposing to revise 

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 

proposed §§ 226.38(b) and (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 §§ 226.38(b)(1)(ii), and (c)(1)(i), 

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. 

Proposed comment 38(b)(1)–2, 

discussed below, would provide 

guidance on how creditors are to 

disclose limitations on interest rate 

adjustments. 

The Board is also proposing to revise 

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 

would be revised to replace the 

reference to interim student credit 

extensions with a reference to private 

education loans. Proposed 

§§ 226.38(b)(3)(viii) and 226.38(c)(3) 

would 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-bysection analysis in § 226.38, 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. Proposed comment 

38(b)(1)–1 would clarify 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 is also proposing 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 would 

remove the reference to interim interest 

on a student loan as an example of what 

is not a penalty. The Board does 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. The Board believes that 

the description of what constitutes a 

penalty in the remainder of revised 

comment 18(k)(1)–1 would provide 

sufficient clarity that interim interest on 

a student loan would not be considered 

a penalty. 

Subpart F 

The Board proposes to add a new 

Subpart F to contain the rules relating 

to private education loans. 

Section 226.37—Special Disclosure 

Requirements for Private Education 

Loans 

Proposed § 226.37 contains general 

rules about the disclosure and other 

requirements contained in Subpart F. 

Section 226.37(a) would specify that 

Subpart F would apply only to private 

education loans. Paragraph 37(a)(1) 

would clarify that, except where 

specifically provided otherwise, the 

requirements and limitations of Subpart 

F would be in addition to the 

requirements of the other subparts of 

Regulation Z. 

37(b) Definitions 

The HEOA amends TILA by adding a 

number of defined terms in new TILA 

sections 140 and 128(e). The Board 

proposes to add these definitions to 

Regulation Z in proposed § 226.37(b). 

However, for one new defined term, 

‘‘private educational lender,’’ the Board 

proposes 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.2 The 

term also includes any other person 

engaged in the business of soliciting, 

making, or extending private education 

loans. The Board believes that the 

‘‘creditor’’ definition would encompass 

persons ‘‘engaged in the business of’’ 

extending private education loans.3 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 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 is proposing to 

create an exception for depository 

institutions and federal credit unions 

that do not regularly extend consumer 

credit. 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. 

However, there may be a few instances 

where an institution that does not 

regularly extend consumer credit 

nevertheless makes an occasional 

private education loan. For such 

institutions, the compliance burden 

would appear to be significant for the 

small number of student loans that they 

may extend while still providing 

consumers with credit disclosures in a 

manner consist with TILA and the 

Board’s interpretation thereof. The 

Board believes that this exception is 

necessary and proper to facilitate 

compliance with TILA. 

The Board also proposes to exercise 

its authority under TILA section 105(f) 

by 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 

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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 requests comment on 

whether depository institutions and 

credit unions should be covered even if 

they do not meet the definition of 

‘‘creditor.’’ The Board also requests 

comment on whether there are other 

persons engaged in the business of 

extending private education loans who 

would not be creditors under Regulation 

Z. 

37(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 1002 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, 

proposed § 226.37(b)(1) would define 

‘‘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 § 226.37(b)(2), 

without regard to the institution’s 

accreditation status. Proposed comment 

37(b)(1)–1 would clarify 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 would be a ‘‘covered 

educational institution.’’ It would also 

clarify 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. A covered educational 

institution would 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 

would clarify that an ‘‘agent’’ for the 

purposes of defining a covered 

educational institution is an officer or 

employee of an institution affiliated 

organization. 

The Board requests comment on 

whether there are postsecondary 

educational institutions not covered by 

the definition of institution of higher 

education, other than unaccredited 

institutions, that should be included in 

the definition of covered educational 

institution. 

37(b)(2) Institution of Higher Education 

The HEOA defines the term 

‘‘institution of higher education’’ to 

have the same meaning as in section 

1002 of the Higher Education Act of 

1965 (20 U.S.C. 1002). Proposed 

§ 226.37(b)(2) would define ‘‘institution 

of higher education’’ with reference to 

the Higher Education Act of 1965 and to 

the implementing regulations 

promulgated by the Department of 

Education. The definition would 

encompass, among other institutions, 

colleges and universities, proprietary 

educational institutions and vocational 

educational institutions. 

37(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). Proposed 

§ 226.37(b)(3) would adopt this 

definition and provide illustrative 

examples of postsecondary educational 

expenses. Examples 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. Proposed 

comment 37(b)(3)–1 would clarify that 

the examples in the rule are not 

exhaustive. 

37(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). 

Proposed § 226.37(b)(4) would adopt 

this definition and proposed comment 

37(b)(4)–1 would clarify 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 

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. 

37(b)(5) Private Education Loan 

Proposed § 226.37(b)(5) would 

implement the HEOA’s definition of a 

‘‘private education loan.’’ A private 

education loan would be 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, 

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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 would 

exclude an open-end credit plan. It 

would also exclude any closed-end loan 

secured by real property or a dwelling. 

Comment 37(b)(5)–1 would clarify 

that a loan made ‘‘expressly for’’ 

postsecondary educational expenses 

would include loans issued explicitly 

for expenses incurred while a student is 

enrolled in a covered educational 

institution. It would also cover loans 

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

Comment 37(b)(5)–2 would address 

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. 

Creditors extending such loans, may, at 

the creditor’s option, provide the 

disclosures under § 226.38(a) on or with 

an application or solicitation. However, 

under proposed § 226.37(d)(2)(C), the 

Board would exercise its authority 

under TILA section 105(a) and except 

multi-purpose loans, from the 

application disclosure requirements of 

§ 226.38(a). As explained below, the 

Board believes that this exception is 

necessary and proper to effectuate the 

purposes of and facilitate compliance 

with TILA. 

The Board also proposes to exercise 

its authority under TILA section 105(f) 

to exempt such loans from the 

§ 226.38(a) disclosure requirements 

implementing TILA section 128(e)(1). 

The Board believes 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 

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 be complicated and burdensome 

to creditors and potentially infeasible to 

implement. Furthermore, the Board 

believes that the borrower would 

receive meaningful information about 

the loan through the subsequent 

approval and final disclosures required 

under § 226.38(b) and (c), respectively. 

The HEOA also provides borrowers with 

significant rights, such as the right to 

cancel the loan. The Board recognizes 

that such multi-purpose loans would 

not be secured by the principal 

residence of the consumer, which is a 

factor for consideration under section 

105(f). The Board believes that 

consumer protection would not be 

undermined by this exemption. 

Proposed comment 37(b)(5)–2 

clarifies 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 §§ 226.38(b) 

(approval disclosures) and (c) (final 

disclosures) and § 226.39 (including the 

30 day acceptance period and threebusiness-day right to cancel). To 

determine the purpose of the loan, 

proposed comment 37(b)(5)–2 would 

state that the creditor may rely on a 

check-box or purpose line on a loan 

application. 

Proposed comment 37(b)(5)–2 would 

also clarify 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 

believes 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 would 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 believes that 

this provision is necessary and 

appropriate to assure a meaningful 

disclosure of credit terms for 

consumers. 

The Board requests comment on 

whether the private educational loan 

application disclosures should be 

required for loans that may be used for 

multiple purposes, or, alternatively, 

whether such loans should be excepted 

from any of the other disclosure 

requirements. The Board also requests 

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. 

37(c) Form of Disclosures 

Similar to the requirements imposed 

by § 226.17 for the disclosures required 

by § 226.18, proposed § 226.37(c)(1) 

would require the disclosures for 

private student loans be made clearly 

and conspicuously. Under proposed 

§ 226.37(c)(2), the approval and final 

disclosures under §§ 226.38(b) and (c) 

would be required to be in writing in a 

form that the consumer may keep. The 

disclosures would have to be grouped 

together, be segregated from everything 

else, and not contain any information 

not directly related to the disclosures 

required under §§ 226.38(b) and (c), 

which include the disclosures required 

under § 226.18. However, the 

disclosures could include an 

acknowledgement of receipt, the date of 

the transaction, and the consumer’s 

name, address, and account number. In 

addition, the proposal would allow the 

following disclosures to 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). 

The proposal would also require 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 §§ 226.38(b)(1)(i) and (c)(1), to 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 

would not be required to be more 

prominent than other terms. 

Proposed 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. 

The HEOA requires creditors to disclose 

the principal amount of the loan. See 

proposed §§ 226.38(b)(3)(i) and 

226.38(c)(3)(i). The Board proposes to 

allow creditors to provide the disclosure 

of the loan’s principal amount as part of 

the itemization of the amount financed, 

if the creditor opts to provide an 

itemization. Consumers may be 

confused about the difference between 

the required disclosure of the amount 

financed (§ 226.18(b)) and the principal 

amount in cases where those two 

disclosures are different, and the Board 

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12472 Federal Register / Vol. 74, No. 55 / Tuesday, March 24, 2009 / Proposed Rules 

believes that providing an itemization 

may help clarify the distinction between 

the two terms. 

Proposed § 226.37(c)(2) would permit 

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 § 226.38(a) could be 

provided to the consumer in electronic 

form without regard to the consumer 

consent or other provisions of the ESign Act on or with an application or 

solicitation provided in electronic form. 

In addition, the self-certification form 

required under § 226.39(e) could be 

obtained in electronic form subject to 

the requirements in that section. 

Proposed comment 37(c)(2)–1 would 

contain guidance on the manner in 

which disclosures could be provided in 

electronic form. Electronic disclosures 

would be 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 bypassing 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. 

37(d) Timing of Disclosures 

Proposed § 226.37(d) would contain 

the rules governing the timing of the 

proposed disclosures. Comment 37(d)–1 

would clarify that disclosures are 

considered provided when received by 

the consumer. The comment contains 

additional 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 

§§ 226.37, 226.38, and 226.39, the term 

‘‘business day’’ would have 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). For example, if the 

creditor were to place the disclosures in 

the mail on Thursday, June 4, the 

disclosures would be considered 

received on Monday, June 8. 

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)). Proposed 

§ 226.37(d)(1) would implement this 

requirement. The Board proposes that 

creditors may provide the disclosures 

on or with the application or solicitation 

because the disclosures are likely to be 

longer than a single page. The proposed 

regulation would also define 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 proposed 

definition of ‘‘solicitation’’ would be 

similar to that contained in 

§ 226.5a(a)(1) for credit and charge card 

application disclosures. Proposed 

comment 37(d)(1)–1 would provide 

additional guidance that invitations to 

apply for a private education loan 

would not be considered solicitations. 

Proposed § 226.38(d)(1)()(ii) would 

deal with provision of disclosures in a 

telephone application, or solicitation, 

initiated by the creditor. The creditor 

would be allowed, but not required, to 

orally disclose the information in 

§ 226.38(a). Alternatively, if the creditor 

does not disclose orally the information 

in § 226.38(a), the creditor would be 

required to provide or place in the mail 

the disclosures no later than three 

business days after the consumer 

requests the credit. The Board believes 

that orally disclosing to consumers all of 

the information in § 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. However, the Board 

recognizes 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 would exercise its 

authority under TILA section 105(a) to 

create an exception from the 

requirement to provide the application 

disclosures under § 226.38(a) if the 

creditor does not provide oral 

application disclosures and does 

provide or place in the mail the 

approval disclosures in § 226.38(b) no 

later than three business days after the 

consumer requests the credit. As 

explained above, the Board believes that 

this exception is necessary and proper 

to assure a meaningful disclosure of 

credit terms for consumers. 

The Board would also exercise its 

authority under TILA section 105(f) in 

proposing the exemption, described 

above, from the requirement to provide 

the application disclosures under 

§ 226.38(a), as required by TILA section 

128(e)(1). The Board believes 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 thinks 

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 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 consumer. The 

Board also notes 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 

does not believe that the goal of 

consumer protection would be 

undermined by such an exemption. 

As discussed above in the section-bysection analysis under § 226.37(b)(5), 

proposed § 226.37(d)(2)(C) would create 

an exception to the application 

disclosure requirement for a loan, other 

than open-end 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. 

The Board requests comment on 

alternatives to providing application 

disclosures in telephone applications or 

solicitations initiated by the creditor. 

Approval disclosures. Proposed 

§ 226.37(d)(2) would require that the 

disclosures specified in § 226.38(b) be 

provided before consummation on or 

with any notice to the consumer that the 

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4The 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. 

creditor has approved the consumer’s 

application for a loan. If the creditor 

communicates notice of approval to the 

consumer by mail, the disclosures 

would have to be mailed at the same 

time as the notice of approval. If the 

creditor provides notice of approval by 

telephone, the creditor would be 

required to place the disclosures in the 

mail within three business days of the 

notice of approval. If the creditor 

provides notice of approval in electronic 

form, the creditor would be allowed to 

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.); otherwise, the creditor 

would be required place the disclosures 

in the mail within three business days. 

Comment 37(d)(2)–1 would clarify that 

for purposes of § 226.37(d), the more 

precise definition of business day 

(meaning all calendar days except 

Sundays and specified federal holidays) 

applies. 

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 proposed 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 requests comment on 

alternative approaches to the timing of 

the approval disclosure. 

Final disclosures. Proposed 

§ 226.37(d)(3) would require final 

disclosures 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. The proposed timing of the 

final disclosure would differ 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 

proposed timing rule would implement 

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.4 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 effect 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 proposes to interpret the 

phrase ‘‘contemporaneously with 

consummation’’ to mean the time after 

the consumer accepts the loan and at 

least three days before disbursement. 

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 proposed rule would 

accomplish the statute’s objectives 

while ensuring that creditors have 

reasonable certainty in complying with 

the rule’s timing requirement. 

The Board solicits 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. 

37(e) Basis of Disclosures and Use of 

Estimates 

Proposed § 226.37(e) would require 

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 

creditor, the creditor would be required 

to make the disclosure based on the best 

information reasonably available at the 

time the disclosure is provided and to 

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 

would be permitted to estimate a 

repayment start date based on, for 

instance, an estimate of the consumer’s 

graduation date. 

37(f) Multiple Creditors; Multiple 

Consumers 

Proposed § 226.37(f) would provide 

rules for disclosures where there are 

multiple creditors or consumers. If there 

are multiple creditors only one set of 

disclosures may be given and the 

creditors would be required to agree 

which creditor must comply. If there are 

multiple consumers, the creditor would 

be permitted to provide the disclosure 

to any consumer who is primarily liable 

on the obligation. 

37(g) Effect of Subsequent Events 

Under proposed § 226.37(g) and 

comment 37(g)–1, if an event that occurs 

after consummation renders the final 

disclosures under § 226.38(c) 

inaccurate, the inaccuracy would not be 

a violation of Regulation Z. For 

example, if the consumer initially 

chooses to defer payment of principal 

and interest while enrolled in an 

educational institution, but later 

chooses to make payments while 

enrolled, such a change would not make 

the original disclosures inaccurate. 

Creditors would still be prohibited by 

proposed § 226.39(c), discussed below, 

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12474 Federal Register / Vol. 74, No. 55 / Tuesday, March 24, 2009 / Proposed Rules 

from changing the rate or terms of the 

loan before disbursement, except for 

changes to the rate based on changes in 

the index used to determine the rate. 

Section 226.38—Content of Disclosures 

Proposed § 226.38 establishes the 

content that a creditor would be 

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) at least 

three business days prior to 

disbursement of the loan funds. 

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 required under § 226.38(a) 

do 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, closed-end loan 

disclosures are required to be provided 

only once, before consummation. For 

private education loans, however, the 

Board proposes to require the closedend loan disclosures be provided 

twice—once when the loan is approved, 

and again with the final disclosures, in 

manner shown in the proposed model 

forms in Appendix H. Specifically, the 

Board proposes to require creditors to 

provide consumers the existing § 226.18 

disclosures along with the new 

§ 226.38(b) approval disclosures. The 

Board also proposes 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 application disclosures, 

the Board believes that combining the 

existing closed-end credit TILA 

disclosures with the new private 

education loan disclosures puts at the 

consumer’s disposal the most relevant 

transaction-specific information at a 

point where the consumer is most likely 

to make the decision as to whether a 

particular private education loan meets 

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 required under § 226.38(b). 

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 

loan approved 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 consumer would be best served by 

having the information required under 

§§ 226.17 and 226.18, as well as 

§ 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) 

would require that the approval 

disclosure be provided before 

consummation. Based on TILA’s 

definition of ‘‘consummation’’ in 

§ 226.2(a)(13), this means that the 

closed-end credit disclosures must be 

provided before the consumer becomes 

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 believes that providing the 

§ 226.18 disclosures a second time along 

with the final disclosures under 

§ 226.38(c) would enhance consumer 

understanding by make 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, 

requiring uniformity would likely 

enhance consumer understanding by 

promoting uniformity without unduly 

burdening creditors. Indeed, it may be 

easier for creditors to provide two 

similar forms rather than two different 

forms, because a similar operational 

process could be used to produce and 

check both forms. 

In combining the § 226.18 disclosures 

with the disclosures under §§ 226.38(b) 

and (c) in a model form, the Board 

proposes to retain many of the basic 

elements of the closed-end loan model 

form in existing Regulation Z Appendix 

H (see Appendix H–2). The proposed 

model forms are discussed further in the 

section-by-section analysis under 

Appendix H. 

Graduated payment disclosure. TILA 

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

to disclose whether monthly payments 

are graduated. This disclosure would be 

implemented 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 

proposes to merge specific § 226.18 

disclosures with the disclosures in 

§§ 226.38(b) and (c) to avoid duplicative 

disclosures are discussed throughout 

this section-by-section analysis below. 

General Disclosure Requirements 

Proposed comment 38–1 would 

clarify that the disclosures required 

under § 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. 

However, for some loans, especially for 

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 proposes to allow disclosures for 

consolidation loans to omit the 

disclosures required in §§ 226.38(a)(6), 

and (b)(4). 

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38(a) Application or Solicitation 

Disclosures 

Proposed § 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 § 226.38(a) is provided in 

proposed § 226.37, corresponding 

commentary, and in this section-bysection analysis under § 226.37. The 

Board requests comment on whether 

additional guidance on the appropriate 

delivery of the application and 

solicitation disclosures is needed. 

38(a)(1) Interest Rates 

Proposed § 226.38(a)(1) would require 

creditors to disclose information 

regarding the interest rates that apply to 

the private education loan being offered. 

Proposed § 226.38(a)(1)(i) would 

require 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 proposes 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 recognizes 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 offered 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 proposes 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, 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, if 

applicable. Proposed comment 

38(a)(1)(i)–2 would clarify that the 

disclosure does not require the creditor 

to list the factors that the creditor will 

use to determine the interest rate. If, for 

instance, the creditor will determine the 

interest rate based on the consumer’s 

credit score and the type of school the 

consumer attends, the creditor may 

state, for example, ‘‘Your interest rate 

will be based on your creditworthiness 

and other factors.’’ 

Proposed comment 38(a)(1)(i)–1 

would clarify that the rates disclosed 

must be rates that are actually offered by 

the creditor. For variable rate loans, the 

comment would provide 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 a consumer’s 

e-mail address; for disclosures made on 

an Internet Web site, rates would be 

considered actually offered when 

viewed by the public; and for 

disclosures in telephone applications or 

solicitations, rates 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 is consistent with the rules 

for variable-rate accuracy in credit and 

charge card application disclosures 

under §§ 226.5a(c), (d), and (e). 

Fixed or variable rate loans, rate 

limitations. Proposed § 226.38(a)(1)(ii) 

would require 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. Proposed 

comment 38(a)(1)(ii)–1 would clarify 

that the proposed variable rate 

disclosures would 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 would be considered fixed. 

If the interest rate may increase after 

consummation, the creditor would be 

required to disclose any limitations on 

interest rate adjustments, or, if there are 

no limitations on interest rate 

adjustments, that fact. Under proposed 

comment 38(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 

may 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 Board’s 

proposal for disclosures based on the 

maximum rate in §§ 226.38(b) and (c) 

discussed below, limitations would 

include legal limits in the nature of 

usury or rate ceilings under state or 

federal statutes or regulations. However, 

if a rate limitation in the form of a legal 

limit applies (rather than a numerical 

rate limitation in the legal obligation 

between the parties) the creditor would 

be required to disclose that the 

maximum rate is determined by law and 

may change. The creditor would also be 

required to disclose that the consumer’s 

actual interest rate may be higher or 

lower than the range of rates disclosed 

under § 226.38(a)(1)(i), if applicable. 

Co-signer or Guarantor Disclosure. 

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

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) would 

require 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 co-signer or guarantor 

would not affect the loan’s interest rate, 

the creditor would be required to 

disclose that fact. The rule would 

require only a statement and the 

creditor would not be required to 

estimate any potential changes in the 

applicable interest rates numerically. 

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

Payment Costs 

Proposed § 226.38(a)(2) would require 

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 

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5See 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. 

6See 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). 

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

the creditor would have to itemize all 

fees required to obtain the private 

education loan (§ 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 

(§ 226.38(a)(2)(ii)). 

Proposed comment 38(a)(2)–1 would 

explain 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 may 

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 

proposes 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.5 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.6

Proposed comment 38(a)(2)–2 would 

clarify 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 creditor would also be 

required 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 eliminates the word 

‘‘finance’’ and requires 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 proposes 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,’’ 

is used in § 226.38(a)(2)(ii) and in the 

corresponding provisions for other 

private education loan disclosures 

(§§ 226.38(b)(2)(ii) and 226.38(c)(2)). 

The Board is not proposing 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 educational loan, such as fees 

for exercising deferment, forbearance, or 

loan modification options. Creditors 

would not be required to disclose thirdparty fees and costs for collection- or 

default-related expenses that might be 

passed on to the consumer, as these are 

not easily predicted and may never 

apply. The Board requests comment on 

whether creditors should be required to 

disclose these or other fees. 

38(a)(3) Repayment Terms 

Proposed § 226.38(a)(3) requires 

disclosure of information related to 

repayment. 

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

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

which requires disclosure of the term of 

the private education loan. Proposed 

comment 38(a)(3)(i)–1 would clarify that 

the term of the loan is the period of time 

during which regular principal and 

interest payments must be paid 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 

longest possible repayment term. 

Payment deferral options. Proposed 

§ 226.38(a)(3)(ii) would require 

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 105(e)(1)(R) authority, the 

proposal would also require that if the 

creditor does not offer any options to 

defer payments, the creditor would be 

required to state that fact. Proposed 

comment 38(a)(3)–2 would clarify 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 

be 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 be 

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 offers payment deferral options 

that apply 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 

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deferred and added to the principal 

balance. 

Proposed comment 38(a)(3)–4 would 

explain 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 is used in the Board’s model 

form contained in Appendix H–18. 

38(a)(4) Cost Estimates 

Implementing TILA section 

128(e)(1)(K), proposed § 226.38(a)(4) 

would require a creditor to provide an 

example of the total cost to a consumer 

of a sample loan at the maximum 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 the 

Board is interpreting ‘‘total cost’’ to 

mean the total of payments disclosed in 

accordance with the rules in § 226.18(h). 

See proposed comment 38(a)(4)–1. 

Principal amount and fees. Under 

proposed § 226.38(a)(4) and comment 

38(a)(4)–2, creditors would be required 

to disclose an example of the total cost 

of the loan calculated using the 

maximum rate of interest applicable to 

the loan and the fees applicable to loans 

at the highest rate of interest that results 

in a $10,000 amount financed. 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 example. 

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)(i) and 

comment 38(a)(4)–2 would require that 

the creditor base the total cost example 

on a $10,000 principal amount plus the 

finance charges applicable to loans at 

the maximum rate of interest. For 

example, if the creditor charges a 3% 

origination fee on loans with the highest 

interest rate, and finances the 3% fee, 

the creditor would calculate the total 

cost of the loan based on a $10,300 

principal amount. However, while the 

creditor must base the calculation on 

the principal amount, the creditor must 

disclose that the example provides the 

total cost of a $10,000 amount financed, 

rather than disclosing the principal 

amount used in calculating the loan. 

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 principal amount the 

consumer will request. Rather than 

permit each creditor to choose a 

principal amount upon which to base 

the disclosure, the Board believes that 

specifying uniform assumptions about 

the principal amount will allow 

consumers more easily to compare 

different loan products. The proposal 

would allow consumers to compare the 

cost of receiving a uniform $10,000 

under different loans. 

The Board recognizes that finance 

charges could be added to the total cost 

of the loan in two different ways. The 

proposal would require creditors to 

assume that the consumer borrows more 

than $10,000 if any finance charges are 

assessed. Alternatively, the total cost 

could be calculated assuming that the 

consumer only borrows $10,000 and 

pays finance charges separately by cash 

or check, or deducts them from the 

$10,000 loan amount. Under the 

alternative approach, the total cost 

would be calculated by adding any 

finance charges to the total of payments. 

For example, if a $10,000 has a 3% 

origination fee, the creditor would 

calculate the total of payments based on 

a $10,000 loan amount and add the $300 

finance charge to the total of payments 

to calculate the total cost of the loan. By 

contrast, the proposal would require 

increasing the assumed principal 

amount to account for any finance 

charges, thereby allowing the consumer 

to compare not only the amount of the 

finance charges, but the effect on the 

loan’s total cost of repaying those 

finance charges plus interest over time. 

The Board also proposes to provide 

creditors with flexibility if they do not 

make loans of the size that the Board 

specifies. If the creditor only offers a 

particular loan for less than $10,000, the 

creditor must use a $5,000 principal 

amount. 

The Board requests comment on 

alternative ways of ensuring that the 

total cost example reflects the cost of 

loan fees. Specifically, the Board 

requests comment on whether an 

assumed principal amount of $10,000 

should be used without adding finance 

charges to the principal amount, but 

instead separately adding the finance 

charges to the total of payments. The 

Board requests comment on whether 

private education loan consumers have 

historically been more likely to add 

finance charges to the loan amount they 

request, or to deduct the finance charges 

from the principal amount requested (or 

pay them separately by cash or check). 

The Board also requests comment on 

practical limitations, if any, for creditors 

to determine the fees under 

§ 226.38(a)(2)(i) that would be 

applicable to loans where the maximum 

rate of interest applies. The Board also 

requests comment on whether the total 

cost example should be based on a 

$10,000 amount financed, as proposed, 

or on a higher or lower amount. The 

Board also requests comment on 

whether the $5,000 amount financed is 

an appropriate alternative where 

creditors do not offer loans of $10,000 

or more. 

Maximum rate. Proposed comment 

38(a)(4)–3 would clarify that the 

maximum rate of interest used to 

calculate the example of the total cost of 

the loan must be the maximum initial 

rate of interest disclosed in the range of 

rates under § 226.38(a)(1)(i). As 

discussed above in the section-bysection analysis under § 226.38(a)(1)(i), 

this would mean the maximum interest 

rate that the creditor offers at the time 

that the application or solicitation is 

provided. 

Payment deferral options. Under the 

proposed rule, the creditor would have 

to disclose total loan cost examples for 

each payment deferral option disclosed 

in § 226.38(a)(3)(iii). If a creditor offers 

a private education loan where payment 

options include, for example, (1) 

immediate repayment of both principal 

and interest upon consummation, (2) 

deferment of principal payments while 

the student is in school, or (3) deferment 

of both principal and interest payments 

while the student is in school, the 

disclosure must reflect a cost example 

for each option. 

Proposed comment 38(a)(4)–4 would 

clarify that when a creditor calculates 

an estimate of the total cost of the loan 

where interest capitalizes, the creditor 

must calculate the estimate using the 

same capitalization method that it 

would use for the loan itself. For 

example, if a creditor would capitalize 

interest on the loan on a quarterly basis, 

then each total cost estimate where 

interest is capitalized must assume 

interest capitalizes on a quarterly basis. 

Proposed comment 38(a)(4)–5 would 

provide 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 

must 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 

must assume that the consumer defers 

for the lesser of two years plus the 

maximum applicable grace period, if 

any, or the maximum time the consumer 

may defer payments under the loan 

program. The Board believes that 

consumers will be better able to 

compare loan cost examples for loans 

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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 proposes to require creditors 

assume a four-year deferral period for 

consumers applying for undergraduate 

loans. Most undergraduate programs are 

four years long, and 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 requires creditors assume a 

two year enrollment period or to use the 

maximum deferral period for the loan if 

the maximum period is less than two 

years. The Board believes that a two 

year enrollment period represents a 

term that would be applicable to most 

other postsecondary 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 requests comment on the 

proposed deferral period assumptions 

for calculating the total cost examples 

under § 226.38(a)(4). Specifically, the 

Board requests 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, 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 

requests comment on whether two years 

is an appropriate term for nonundergraduate 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 requests comments 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. 

38(a)(5) Eligibility 

Proposed § 226.38(a)(5) would 

implement TILA section 128(e)(1)(J) 

which requires disclosure of the general 

eligibility criteria for a private education 

loan. The proposal would specify 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 requests comments on 

whether other types of eligibility 

requirements should be disclosed. 

38(a)(6) Alternatives to Private 

Education Loans 

In § 226.38(a)(6), the Board proposes 

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) school-specific 

education loan benefits and terms 

potentially offered by a covered 

educational institution. 

Concerning federal education loans, a 

creditor would be 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. Proposed comment 

38(a)(6)(ii)–1 would explain that the 

disclosure must list the address of an 

appropriate U.S. Department of 

Education Web site such as 

‘‘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 is proposing 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 would label the disclosure as 

‘‘Federal Loan Alternatives.’’ See 

proposed App. H–18, H–19. For these 

reasons, and those explained further 

below, the Board believes that this 

exception is necessary and proper to 

effectuate meaningful disclosure of 

credit terms to consumers. 

The Board also proposes 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 

believes 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 believes that the borrower 

would receive meaningful information 

about federal loans through the other 

disclosures and the model form. The 

Board also recognizes 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 believes that 

consumer protection would not be 

undermined by this exemption. 

For each title IV program enumerated 

in the disclosure (e.g., Perkins, Stafford 

(both subsidized and unsubsidized), and 

PLUS loans), the creditor must disclose 

the interest rate corresponding to each 

loan program, as well as whether those 

rates are fixed or variable. The Board 

proposes to require disclosure of 

whether the federal loan rates are fixed 

or variable, under its TILA section 

128(e)(1)(R) authority. The Board 

believes this additional disclosure is 

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 have 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 rates on subsidized Stafford loans 

are currently 6.0% for loans originated 

or applied for (depending on the loan) 

before July 1, 2009. For loans after July 

1, 2009, the fixed interest rate will be 

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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 would also 

require 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 would not be 

required to state what school-specific 

education loan benefits and terms might 

be available because these may vary 

widely, but rather would be required to 

alert the consumer to the possibility that 

school-specific education loan benefits 

and terms might be available to the 

consumer. 

38(a)(7) Rights of the Consumer 

Proposed § 226.38(a)(7) would 

implement 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) would require 

the creditor to alert the consumer 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. However, as 

discussed in the section-by-section 

analysis under § 226.39(c)(1), because 

acceptance and consummation may not 

happen at the same time, the Board is 

proposing to provide the consumer the 

full 30-day period in which to accept 

the loan, even if consummation happens 

later. 

Prohibition on loan term changes. 

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

creditor would have 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 

§ 226.38(a)(7)(i). The proposed rule 

allows the creditor to give consumers a 

period of time longer than 30 days in 

which to accept the loan and during 

which time the rates and terms offered 

could not change (except for changes 

based on adjustments to the applicable 

index). Creditors choosing to give 

consumers a period of time in which to 

accept the loan that is longer than 30 

calendar days would be required to 

disclose this alternate time period. 

As discussed in the section-by-section 

analysis in § 226.39(c), the Board is 

proposing to allow the creditor to make 

unequivocally beneficial changes, to 

make changes based on a request by the 

consumer, and is requesting comment 

on whether other changes should be 

allowed. The Board requests comment 

on whether the application disclosure 

should include more detail on possible 

changes to the rate or terms. 

38(a)(8) Self-Certification Information 

Proposed § 226.38(a)(8), which 

implements TILA section 128(e)(1)(P), 

would require a statement, if applicable, 

that before the loan may be 

consummated, the consumer must 

obtain the self-certification form 

required under § 226.39(e), and sign and 

submit the completed form to the 

creditor. 

As discussed in the section-by-section 

analysis under § 226.39(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. 

226.38(b) Approval Disclosures 

Proposed § 226.38(b) specifies the 

information that a creditor must 

disclose to a consumer on or with any 

notice of approval provided to the 

consumer. Guidance on delivery of the 

disclosures required under § 226.38(b) is 

provided in proposed § 226.37, 

corresponding commentary, and in the 

section-by-section analysis under 

§ 226.37. 

As discussed above in the section-bysection analysis under § 226.38(a), the 

creditor would be required to make the 

disclosures required under §§ 226.17 

and 226.18 as well as the disclosures 

required under § 226.38(b). 

38(b)(1) Interest Rate 

Implementing TILA section 

128(e)(2)(A), proposed § 226.38(b)(1)(i) 

would require 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) would 

require 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 would 

clarify 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 would also clarify that the 

creditor must make the other variablerate 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 would clarify 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 would clarify 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) would require 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 a rate limitation 

in the form of a legal limit applies 

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(rather than a numerical rate limitation 

in the legal obligation between the 

parties) the creditor must disclose that 

the maximum rate is determined by law 

and may change. 

38(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 would require 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 

proposed § 226.38(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. Creditors 

must disclose any charges that are 

required to be disclosed under 

§ 226.18(l) with the disclosures required 

under § 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. 

38(b)(3) Repayment Terms 

Proposed § 226.38(b)(3) requires 

disclosure of information related to 

repayment. 

Principal amount. Proposed 

§ 226.38(b)(3)(i) implements TILA 

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

disclosure of the ‘‘initial approved 

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 is 

not proposing to equate the terms 

‘‘principal loan amount’’ and ‘‘initial 

approved principal amount.’’ 

Under current Regulation Z, the 

amount financed must be calculated by 

doing the following: 

(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 creditors have the option (when the 

charges are not add-on or discount 

charges) of either including or excluding 

the amount of the finance charges. 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 HEOA’s ‘‘initial approved 

principal amount,’’ the Board’s view is 

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

‘‘initial approved principal amount’’ as 

the face amount of the note if the 

transaction occurred on the terms 

approved. The ‘‘initial approved 

principal amount’’ under 

§ 226.38(b)(3)(i) should 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 not be included if 

they would not be included in the 

amount on the face of the note. 

The Board believes that defining 

‘‘initial approved principal amount’’ in 

this way will 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 

‘‘initial approved principal amount.’’ 

Defining the ‘‘initial approved principal 

amount’’ in § 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 ‘‘initial approved 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 amount,’’ but solely in 

the discrete context of calculating the 

‘‘amount financed.’’ 

In addition, in order to minimize 

potentially duplicative disclosures, 

proposed comment 38(b)(3)–1 would 

explain that creditors may disclose the 

initial approved principal amount as 

part of the itemization of the amount 

financed. The creditor would be 

permitted to disclose the initial 

approved principal amount as part of 

the itemization of the amount financed 

only if the creditor states the approved 

principal amount as part of the 

itemization. The proposed sample form 

in Appendix H–22 provides an example 

of this disclosure. Also, as discussed 

above, § 226.17(a)(1) would be revised 

to allow the itemization of the amount 

financed to be included with the 

required disclosures, rather than 

disclosed separately. 

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

and comment 38(b)(3)–2 implement 

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

requires disclosure of the maximum 

term of the private education loan 

program. The term of the loan is the 

period of time during which regular 

principal and interest payments must be 

paid 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 longest possible repayment 

term. 

Payment deferral options. Proposed 

§ 226.38(b)(3)(iii) and proposed 

comment 38(b)(3)–3 would require the 

creditor to provide information about 

deferral options, implementing TILA 

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

similar to the requirement under 

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

in the section-by-section analysis for 

that section. The difference between 

proposed §§ 226.38(a)(3)(ii) and 

226.38(b)(3)(iii) is that the creditor must 

explain the deferral option chosen by 

the consumer, if the consumer has 

chosen a deferral option, and any 

deferral options that the consumer is 

permitted to choose in the future. The 

section-by-section analysis of the 

deferral options disclosure of 

§ 226.38(a)(3)(ii) describes the 

information that must also be included 

in the explanation of deferral options 

under § 226.38(b)(3)(iii). 

Payments required during enrollment. 

Proposed § 226.38(b)(3)(iv) and 

comment 38(b)(3)–4 would require the 

creditor to disclose to the consumer 

whether any payments are required on 

the loan while the student is enrolled, 

implementing TILA section 128(e)(2)(I). 

The creditor also must 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 § 226.38(b)(3)(iv) would be 

required to correspond to the deferral 

option chosen by the consumer. 

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Estimate of interest accruing during 

enrollment. Also implementing TILA 

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

§ 226.38(b)(3)(v) would apply only if 

interest will be 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. 

Bankruptcy limitations. Proposed 

§ 226.38(b)(3)(vi) would require 

disclosure of a statement of limitations 

on the discharge of a private education 

loan in bankruptcy. Proposed comment 

38(b)(3)–5 would state that a creditor 

may comply with § 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 proposes 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 disclosure of limitations of 

discharge of private educational 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 requests comment on 

whether disclosure of education loan 

discharge limitations in bankruptcy 

should be included in the application 

and solicitation disclosures as 

implemented by § 226.38(a)(2). 

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) would 

define 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 would clarify 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 would require 

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 would include a 

legal limit in the nature of a usury or 

rate ceiling under state or federal 

statutes or regulations, and the creditor 

would be 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 would 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 believes that such a 

rule is necessary and appropriate for 

consumers to make informed borrowing 

decisions. A rule providing a uniform 

maximum rate assumption will give 

creditors more certainty in complying 

with the regulation. The Board believes 

that the proposed rate of 21% represents 

an appropriate midpoint in the range of 

usury rate ceilings that consumers in the 

private education loan market are likely 

to face. Thus, the Board believes that 

basing the disclosure on an assumed 

maximum rate of 21% will 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 would add a 

requirement that, if the legal obligation 

between the parties does not specify a 

numeric 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 

believes that these additional 

disclosures are necessary to inform 

consumers that the examples in the 

disclosure statement are merely 

illustrative and that their loan in fact 

has no maximum rate. 

The HEOA allows the creditor to 

disclose the total amount for repayment 

under § 226.38(b)(3)(vii) as an estimate. 

Proposed § 226.38(b)(3) would also 

require only an estimated total amount 

for repayment. The Board recognizes 

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 

disclosures under § 226.38(b) must be 

provided to the consumer. However, the 

creditor would not be permitted to 

disclose an estimate of the total amount 

for repayment if the applicable rates and 

repayment schedule are known at the 

time of disclosure, such as with a 

consolidation loan. 

The Board requests 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% is the most appropriate 

rate or whether another rate should be 

used. The Board also requests comment 

on whether, if a maximum rate of 

interest is 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 requests 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. 

Maximum monthly payment. 

Proposed § 226.38(b)(3)(viii) would 

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12482 Federal Register / Vol. 74, No. 55 / Tuesday, March 24, 2009 / Proposed Rules 

implement TILA section 128(e)(2)(O) by 

requiring the creditor to disclose the 

maximum monthly payment calculated 

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 would add 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 requests comment on other 

approaches by which creditors may 

calculate a maximum payment when a 

maximum rate cannot be determined. 

38(b)(4) Alternatives to Private 

Education Loans 

Implementing TILA section 

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

§§ 226.38(b)(4)(i), (ii), and (iii) would 

require the creditor to provide the 

information about alternatives to private 

education loans for financing education 

that is also required under proposed 

§§ 226.38(a)(6)(i), (ii), and (iii) and 

explained in the section-by-section 

analysis for those sections. The Board 

again proposes 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 §§ 226.38(a)(6)(i), (ii), and 

(iii), the Board believes that this 

exception is necessary and proper to 

effectuate meaningful disclosure of 

credit terms to consumers. 

38(b)(5) Rights of the Consumer 

Implementing TILA section 

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

would require the creditor to disclose 

that the consumer has the right to accept 

the loan on the terms approved for up 

to 30 calendar days. The disclosure 

would also inform the consumer that 

the rate and terms of the loan will 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 disclosure 

would be required to include the 

specific date on which the 30-day 

period expires and indicate that the 

consumer may accept the terms of the 

loan until that date. For example, if the 

consumer received the disclosures on 

June 1, the disclosure would be required 

to state that the consumer could accept 

the loan until June 30. The Board 

believes that this disclosure is necessary 

to inform consumers of the precise date 

when the 30-day period expires because 

the date the consumer is deemed to 

receive the disclosure may differ 

slightly from the date the consumer 

actually receives the disclosure. The 

creditor would also be required to 

disclose the method or methods by 

which the consumer may communicate 

acceptance. The Board believes that this 

disclosure is necessary to ensure 

consumers understand the specific steps 

required to accept the loan. Proposed 

comment 39(c)–3, discussed below, 

would provide guidance to creditors on 

disclosing methods by which consumers 

may communicate acceptance. 

As discussed in the section-by-section 

analysis in § 226.39(c), the Board is 

proposing to allow the creditor to make 

unequivocally beneficial changes, to 

make changes based on a request by the 

consumer, and is requesting comment 

on whether other changes should be 

allowed. The Board requests comment 

on whether the disclosure should 

include more detail on possible changes 

to the rate or terms. 

38(c) Final Disclosures 

Proposed § 226.38(c) requires the 

creditor to disclose to the consumer a 

third set of disclosures after the 

consumer accepts the loan and at least 

three business days before the loan 

funds are disbursed. Proposed 

§ 226.38(c) implements TILA section 

128(e)(4), which requires the creditor to 

provide this final set of information 

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 § 226.37, 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 proposes to 

interpret ‘‘contemporaneously with 

consummation’’ to require creditors to 

provide these final disclosures after 

acceptance and at least three business 

days before loan funds are disbursed. 

38(c)(1) Interest Rate 

Proposed § 226.38(c)(1) would require 

creditors to disclose the interest rate 

that applies to the private education 

loan accepted by the consumer. 

Fixed or variable rate, rate 

limitations. Proposed § 226.38(c)(1) 

would also require the creditor to 

provide to the consumer the rate 

information required under proposed 

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

in the section-by-section analysis for 

those sections. 

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

Payment Costs 

Proposed § 226.38(c)(2) would require 

the creditor to provide to the consumer 

the fee and default or late payment 

information required under proposed 

§ 226.38(b)(2), as explained in the 

section-by-section analysis for that 

section. 

38(c)(3) Repayment Terms 

Proposed § 226.38(c)(3) would require 

the creditor to provide to the consumer 

the repayment information required 

under proposed § 226.38(b)(3), as 

explained in the section-by-section 

analysis for that section. 

38(c)(4) Cancellation Right 

Proposed § 226.38 and comment 

38(c)–1 would 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 § 226.39(d) 

expires; 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, the 

proposal would add 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. 

Proposed comment 38(c)–2 would 

clarify that the statement of the right to 

cancel must be more conspicuous than 

any other disclosure required under 

§ 226.38(c), except for the finance 

charge, the interest rate, and the 

creditor’s identity. See proposed 

§ 226.37(c)(2)(iii). Under proposed 

comment 38(c)–2, the Board would 

deem the right to cancel statement more 

conspicuous than other disclosures if 

the creditor segregated the statement 

from the other disclosures, placed the 

statement near the top of the disclosure 

document, and highlighted the 

statement in relation to other required 

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disclosures. Examples of appropriate 

highlighting given in comment 38(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 39(d)–1, and 2, discussed 

below, would provide additional 

guidance about how the creditor should 

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 is 

proposing 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 to the consumer with 

information about federal alternatives to 

private education loans. Consumers 

have 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 already 

would have made a decision as to 

whether or not to seek other loan 

alternatives. 

The Board would also 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 believes 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 recognizes 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 believes that consumer protection 

would not be undermined by this 

exemption. 

The Board requests comment on 

whether it should adopt this proposed 

exception. 

Section 226.39—Limitations on Private 

Education Loans 

Section 226.39 contains rules and 

limitations on private educational loans. 

It includes a prohibition on co-branding 

in the marketing of private educational 

loans, rules governing the 30-day 

acceptance period and three-day 

cancellation period for private 

educational 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. 

39(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) would 

implement 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 recognizes 

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 websites might provide 

links to specific creditors’ websites. 

Creditors might provide a welcome page 

to the student that references the name 

of the school that provided the link. 

Some creditors may have schoolspecific 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) would provide 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 believes 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. 

Comment 39(a)–1 would clarify the 

term ‘‘marketing’’ as used in proposed 

§ 226.39. The term would include all 

‘‘advertisements’’ as that term is defined 

in Regulation Z. 12 CFR 226.2(a)(2). The 

proposal explains 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 believes 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 (such as 

naming the loan the ‘‘University of ABC 

Loan,’’ rather than ‘‘Creditor’s Loan for 

ABC University Students’’). 

Proposed comment 39(a)–2 clarifies 

that referencing a covered educational 

institution in a way that implies that the 

educational institution is offering or 

making the loan rather than the creditor 

is a form of implying that the 

educational institution endorses the 

loan and is therefore not permitted 

under § 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, a 

state’s or an institution of higher 

education’s use of a state seal, with 

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7See 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 

institutions of higher education from using state 

seals, with appropriate authorization, in the 

marketing of state education loan products. 

appropriate authorization, in the 

marketing of state education loan 

products does not imply endorsement.7

Proposed comment 39(a)–3.i provides 

a model clause that creditors may use in 

complying with the safe harbor in 

§ 226.39(a)(2). The creditor would be 

considered to have complied with 

§ 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].’’ 

39(b) Preferred Lender Arrangements 

The Board recognizes 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 proposes 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) would allow the creditor to 

refer to the covered educational 

institution, but would require 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 (emphasis 

added) (adding Section 152(a)(2) to the 

Higher Education Act). Thus, proposed 

§ 226.39(b) would reconcile the two cobranding prohibitions contained in the 

HEOA. 

Proposed comment 39(a)–3.ii 

provides a model clause that creditors 

may use in complying with § 226.39(b). 

The creditor would be considered to 

have complied with § 226.39(b) if the 

creditor includes 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 requests comment on 

whether creditors should be offered a 

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

alternative safe harbor should be 

considered. The Board also requests 

comment on how the co-branding 

prohibition should apply to creditors 

with preferred lender arrangements with 

covered educational institutions. The 

Board also requests comment on 

whether there are other examples of 

marketing that should be included in 

the co-branding prohibition. 

39(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. 

Proposed § 226.39(c) would 

implement the 30-day acceptance 

period for private educational loans. 

The 30-day period would begin 

following the consumer’s receipt of the 

approval disclosures required in 

§ 226.38(b). 

Proposed comment 39(c)–1 would 

require creditors to provide at least 30 

days from the date the consumer 

receives the disclosures required under 

§ 226.38(b) for the consumer to accept a 

private education loan. It would also 

allow creditors to provide a longer 

period of time at the creditor’s option. 

It would clarify 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. The proposed comment would 

also clarify that the consumer may 

accept the loan at any time before the 

end of the 30 day period. 

The HEOA does not specify the 

method by which the consumer may 

accept the terms of the loan. Proposed 

comment 39(c)–2 would allow the 

creditor to specify a method or methods 

by which acceptance may occur. The 

creditor may specify that acceptance be 

made orally or in writing or may permit 

either form of acceptance. The creditor 

may also allow the consumer to accept 

electronically, but may not make 

electronic acceptance the sole form of 

acceptance. The Board believes that not 

all consumers have access to electronic 

forms of communication and that a form 

of acceptance in addition to electronic 

communication is appropriate. 

Proposed § 226.39(c)(2) would 

prohibit 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 has not accepted the loan 

during that time. 

The proposal differs slightly from the 

language used in the HEOA in order to 

provide creditors with certainty about 

the precise time period during which 

changes are prohibited. The HEOA 

prohibits the creditor from changing the 

terms of the loan prior to 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 literal language of the 

HEOA assumes that acceptance and 

consummation happen at the same time. 

As discussed in the section-by-section 

analysis under § 226.37, this may not 

always be the case. To ensure that 

consumers receive the benefit of the 

entire 30-day period in which to accept 

the loan, the Board proposes to prohibit 

creditors from changing the rate and 

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terms of the loan until the date of 

disbursement, if the consumer accepts 

within the 30-day period. 

Proposed § 226.39(c)(2) would 

prohibit only those changes that would 

affect the rate or terms required to be 

disclosed under §§ 226.38(b) and (c). 

The Board interprets the prohibition on 

changes to the rate or terms of the loan 

to cover only the disclosed terms. The 

Board believes that changes to terms 

that are not required to be disclosed to 

the consumer are unlikely to affect the 

consumer’s decision whether or not to 

accept a private education loan. 

Proposed § 226.39(c)(2) would not 

prohibit changes based on adjustments 

to the index used for a loan, 

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

In addition, the Board would exercise 

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 will 

unequivocally benefit the consumer, 

similar to the rule for home-equity plans 

in § 226.5b(f)(3)(iv). For example, a 

creditor would be permitted to reduce 

the interest rate or lower the amount of 

a fee, so long as no other change that 

would not unequivocally benefit the 

consumer were made. The Board 

believes that allowing such changes 

would be in the interest of both the 

creditor and the consumer. The Board 

would also 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 Board 

believes that the prohibition in the 

HEOA may complicate the credit 

process and could unnecessarily 

increase costs for consumers and 

creditors who, for example, would 

otherwise have to repeat the application 

process in order to change the terms. 

The Board recognizes that financial 

sophistication among student 

consumers seeking private education 

loan may be lacking, and that the size 

and importance of the loan may be 

significant to the consumer. The Board 

believes, however, that consumer 

protection would not be undermined 

because the permissible change would 

have to ‘‘unequivocally benefit the 

consumer.’’ Consumers would not 

receive a meaningful benefit in the form 

of protection if the Board were to 

prevent creditors from altering the loan 

in a manner that unequivocally benefits 

the consumer. In addition, consumers 

would retain their right under HEOA to 

cancel the loan. 

The HEOA prohibits changes to the 

loan’s rate or terms made by the 

creditor. The proposal would not 

prohibit changes made in connection 

with accommodating a request by the 

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

proposed comment 39(c)–3 would allow 

creditors to change a loan’s rate or terms 

in response to a request from a 

consumer. For example, a consumer 

may learn that his or her financial 

assistance package has changed and 

may wish to request a higher or lower 

principal amount. The creditor would 

be allowed, at its option, to make 

changes to the rate and terms of the loan 

in response to this request. The rule 

would not limit the changes that could 

be made. For example, the creditor may 

provide for a shorter repayment term as 

a condition of granting the consumer’s 

request to borrow a lesser principal 

amount. 

The Board believes that it is in the 

consumer’s interest to be able to request 

changes to the rate or terms of the loan. 

The Board 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. Students whose 

financial assistance amount decreases 

after being approved for a private 

education loan face the problem of 

having insufficient funds for their 

education. Those whose financial 

assistance amount increases after their 

private education loan has been 

approved may end up borrowing, and 

paying interest and fees on, more than 

they require. Over-borrowing in the 

private education loan market can 

adversely affect a student’s eligibility for 

federal student loans. With proposed 

§ 226.39(c)(3) and comment 39(c)–3, 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. 

If the creditor chooses to modify the 

terms of the loan in response to a 

consumer’s request, the creditor would 

need to provide a new set of approval 

disclosures under § 226.38(b) and 

provide the consumer with a new 30- 

day acceptance period under 

§ 226.39(c). Because the consumer may 

accept at any time during the 30 day 

period, the Board does not believe that 

this will unduly inhibit consumers from 

proceeding with a loan modified in 

response a request. However, the Board 

requests comment on whether 

consumers should be allowed to accept 

loans before receiving the updated 

disclosures. The Board also requests 

comment on alternative means of 

ensuring that consumers retain the 

benefits of the 30-day acceptance period 

while providing them with flexibility in 

cases where the amount of private 

education loan funds a consumer needs 

changes. 

The HEOA provides that the 

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 believes that there 

may be limited instances where it 

would appropriate for a creditor to 

withdraw a loan offer prior to 

disbursement, such as if the creditor 

learns that the consumer or a co-signer 

has committed fraud in filling out the 

application. The Board also requests 

comment on whether there are other 

instances where a material condition of 

the loan offer is not met such that the 

creditor should be permitted to 

withdraw the offer or change the terms 

of the loan. For example, the creditor 

may approve the loan contingent upon 

the consumer maintaining full-time 

enrollment, but the consumer may 

ultimately only register as a part-time 

student. The Board also requests 

comment on whether it is operationally 

feasible to determine the existence of a 

change in a material circumstance by 

comparing the terms for which the 

consumer was actually approved with 

the terms for which the creditor would 

have approved the consumer (or 

whether the creditor would have denied 

the consumer’s loan application), if the 

material circumstance was known to the 

creditor before the loan was approved. 

39(d) Consumer’s Right To Cancel 

Proposed § 226.39(d) would provide 

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 § 226.38(c). It would also 

prohibit the creditor from disbursing 

any funds until the expiration of the 

three-business day period. The 

consumer’s right to cancel would apply 

regardless of whether or not the 

consumer was legally obligated on the 

loan at the time that the final 

disclosures were provided. 

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Proposed comment 39(d)–1 would 

provide guidance on calculating the 

three-business day time period and on 

when a consumer’s request to cancel 

would be considered timely. It would 

also clarify that the creditor would be 

allowed to provide a period of time 

longer than three business days in 

which the consumer may cancel, and 

that the creditor would be allowed to 

disburse funds after the minimum threebusiness day period so long as the 

creditor honored the consumer’s later 

timely cancellation request. Proposed 

comment 39(d)–2 would provide 

guidance to creditors on specifying a 

method or methods by which the 

consumer may cancel the loan. The 

creditor would be permitted to require 

cancellation be communicated orally or 

in writing. The creditor would also be 

permitted to allow cancellation to be 

communicated electronically, but would 

not be permitted to require only 

electronic communication because the 

Board believes that not all consumers 

have access to electronic 

communication. 

Proposed comment 39(d)–3 would 

clarify the requirement that the creditor 

allow cancellation without penalty. The 

prohibition would extend only to fees 

charged specifically for canceling the 

loan. The creditor would not be 

required to refund fees, such as an 

application fee, charged to consumers 

for loans that are not cancelled. 

The Board requests 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 

requests 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 threebusiness-day period. 

39(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) would implement 

this requirement. The HEOA requires 

that a creditor obtain the selfcertification 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, a selfcertification form will not be required 

with respect to every covered 

educational institution, but only those 

that meet the definition of an institution 

of higher education in proposed 

§ 226.37(b)(2). Moreover, proposed 

comment 39(e)–1 would clarify that 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. At the 

same time, comment 39(e)–1 would 

clarify that the self-certification 

requirement would not apply to loans 

where the self-certification 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 selfcertification form would not apply to a 

consolidation loan, because the 

consolidation loan would cover 

expenses the student paid 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 would allow 

the creditor to obtain the selfcertification form either directly from 

the consumer or through the institution 

of higher education. Compliance with 

the self-certification 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 

available to consumers in written or 

electronic form. Because the form will 

be provided by educational institutions 

to consumers, the Board does 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 would 

provide 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. 

39(f) Provision of Information by 

Preferred Lenders 

The HEOA requires that a creditor 

that has a preferred lender arrangement 

with a covered educational institution 

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 to 

June 30 of the following year). HEOA, 

Title X, Subtitle B, Section 

1021(a)(adding TILA Section 

128(e)(11)). The HEOA does not specify 

which of the model forms that the 

creditor should use. However, the 

approval and consummation forms 

contain transaction-specific data that 

cannot be known for the next year. 

Thus, the Board proposes to require that 

the creditor provide the general loan 

information required on the application 

form in § 226.38(a), rather than the 

transaction-specific information 

required in the approval and final 

disclosure forms. 

After consultation with the 

Department of Education, the Board 

proposes to require that creditors 

provide information by January 1 of 

each year. Proposed § 226.39(f) would 

require that the creditor provide only 

the information about rates, terms and 

eligibility that are applicable to the 

creditor’s specific loan products. The 

Board does not believe that educational 

institutions need the other information 

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8The proposed disclosure of the interest rate and 

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

required to be disclosed in § 226.38(a), 

such as information about the 

availability of federal student loans. In 

addition, the Board believes that 

educational institutions can perform 

their own calculations of the total cost 

of the creditors’ loans and do not need 

the cost estimate disclosure required 

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

would provide creditors with the 

flexibility to comply with this 

requirement by providing educational 

institutions with copies of their 

application disclosure forms if they 

choose, or to provide only the required 

information. 

The Board requests comment on the 

appropriate date by which creditors 

must provide the required information 

and on what information should be 

required. 

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 

proposes to add several model and 

sample forms to Appendix H to part 

226. The Board also proposes 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 would 

reorder the disclosures as follows: the 

amount financed, the interest rate, the 

finance charge and the total of 

payments.8 The proposed order reflects 

a 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 proposed order 

may enhance consumer understanding 

in the context of private education 

loans, the Board recognizes that 

consumers may be accustomed to the 

current order from other loan contexts. 

The Board requests comment on 

whether it should maintain a uniform 

order for the disclosures, or whether it 

should adopt the proposed order for 

private education loans. 

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 proposes 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 would 

provide a list of acceptable changes to 

the model forms. Proposed comment 

app. H–25.ii would provide guidance on 

the design of the model forms that 

would not be required but would be 

encouraged. 

The Board is also proposing 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 rearrangments 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. 

IV. 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 

requests 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. 

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 proposing model forms along 

with this proposed rule. The Board is 

also proposing to issue 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. The Board requests 

comment on whether the model forms 

and the rule implementing TILA section 

128(e)(11) should be issued in final form 

at the same time as the other proposed 

rules. 

V. 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 proposed rule 

under the authority delegated to the 

Board by the Office of Management and 

Budget (OMB). The Federal Reserve also 

proposes to extend for three years the 

current recordkeeping and disclosure 

requirements in connection with 

Regulation Z. The collection of 

information that is required by this 

proposed rule is found in 12 CFR part 

226. The Federal Reserve 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 Federal Reserve 

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 

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12488 Federal Register / Vol. 74, No. 55 / Tuesday, March 24, 2009 / Proposed Rules 

9The number of Federal Reserve-supervised 

respondents was obtained from numbers published 

in the Board of Governors of the Federal Reserve 

System 94th Annual Report 2007: 878 State member 

banks, 258 Branches & agencies of foreign banks, 

and 2 Commercial lending companies. 

10 878 State member banks and 258 Branches & 

agencies of foreign banks. 

11Appendix I to Part 226—Federal Enforcement 

Agencies of Regulation Z lists those federal agencies 

that enforce the regulation for particular classes of 

business. The federal financial agencies include: the 

Office of the Comptroller of the Currency, Federal 

Deposit Insurance Corporation, Office of Thrift 

Supervision, and National Credit Union 

Administration. The federal non-financial agencies 

include: Department of Transportation, Packers and 

Stockyards Administration, Farm Credit 

Administration, and Federal Trade Commission. 

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 Federal Reserve 

accounts for the paperwork burden 

associated with Regulation Z for the 

state member banks and other creditors 

supervised by the Federal Reserve that 

engage in lending covered by Regulation 

Z and, therefore, are respondents under 

the PRA. Appendix I of Regulation Z 

defines the Federal Reserve-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. The current total 

annual burden to comply with the 

provisions of Regulation Z is estimated 

to be 688,607 hours for the 1,138 

Federal Reserve-regulated institutions 9

that are deemed to be respondents for 

the purposes of the PRA. To ease the 

burden and cost of complying with 

Regulation Z (particularly for small 

entities), the Federal Reserve provides 

model forms, which are appended to the 

regulation. 

The total estimated burden increase, 

as well as the estimates of the burden 

increase associated with each major 

section of the proposed rule as set forth 

below, represents averages for all 

respondents regulated by the Federal 

Reserve. The Federal Reserve expects 

that the amount of time required to 

implement each of the proposed 

changes for a given institution may vary 

based on the size and complexity of the 

respondent. Furthermore, the burden 

estimate for this rulemaking does not 

include the burden addressing changes 

to implement provisions of the Mortgage 

Disclosure Improvement Act of 2008 

(MDIA), as announced in a separate 

proposed rulemaking (Docket No. R– 

1340). 

As discussed in the preamble, the 

Federal Reserve proposes to add three 

new disclosures for private education 

loans, which must be given at different 

times in the loan origination process: (1) 

Application or Solicitation Disclosures 

(Section 226.38(a)) would require 

private educational lenders to provide 

on or with a solicitation or an 

application for a private education loan 

general information about the rate, fees, 

and loan terms, including an example of 

the total cost of the 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 on those loans; (2) Approval 

Disclosures (Section 226.38(b)) would 

require the private educational lender to 

provide on or with any notice of 

approval a set of transaction-specific 

disclosures containing information 

about the rate, fees and other terms of 

the loan. The consumer has at least 30 

days in which to accept the terms of the 

loan offered, and the private educational 

lender may not change the rate or terms 

of the loan, except for changes to the 

rate based on an index, during that time; 

and (3) Final Disclosures (Section 

226.38(c)) would require the private 

educational lender to provide at least 

three business days prior to disbursing 

the loan funds an updated cost 

disclosure that is substantially similar to 

the form provided at approval. The 

consumer has three business days in 

which to cancel the loan and funds may 

not be disbursed until the three-day 

period has expired. 

The proposed rule would impose a 

one-time increase in the total annual 

burden under Regulation Z for all 

respondents regulated by the Federal 

Reserve by 45,440 hours, from 688,607 

to 734,047 hours. In addition, the 

Federal Reserve estimates that, on a 

continuing basis, the proposed 

requirements would increase the total 

annual burden by 231,474 hours from 

688,607 to 920,081 hours. 

The Federal Reserve estimates that 

1,136 respondents 10 regulated by the 

Federal Reserve would take, on average, 

40 hours (one business week) to update 

their systems to comply with the 

proposed disclosure requirements in 

Sections 226.38(a), 226.38(b), and 

226.38(c). This one-time revision would 

increase the burden by 45,440 hours. In 

addition, the Federal Reserve estimates 

that, on a continuing basis, these 

respondents would take on average 1 

hour (monthly) to comply with each of 

the proposed disclosure requirements in 

Sections 226.38(a) and 8 hours 

(monthly) to comply with the proposed 

disclosure requirements in Sections 

226.38(b) and 226.38(c). The Federal 

Reserve estimates the annual burden to 

be 13,362 hours and 231,474, hours 

respectively. 

To ease the burden and cost of 

complying with the proposed 

disclosures the Federal Reserve 

provided model forms for each of the 

three new disclosures: Appendix H–17 

for the application or solicitation 

disclosures required in § 226.38(a), 

Appendix H–18 for the approval 

disclosures required in § 226.38(b), and 

Appendix H–19 for the final disclosures 

required in § 226.38(c). 

The other federal agencies are 

responsible for estimating and reporting 

to OMB the total paperwork burden for 

the institutions for which they have 

administrative enforcement authority.11

They may, but are not required to, use 

the Federal Reserve’s burden estimation 

methodology. Using the Federal 

Reserve’s method, the total current 

estimated annual burden for institutions 

regulated by the federal financial 

agencies, including Federal Reservesupervised institutions, would be 

approximately 13,568,725 hours. The 

proposed rule would impose a one-time 

increase in the estimated annual burden 

for all institutions subject to Regulation 

Z by 688,000 hours to 14,256,725 hours. 

On a continuing basis the estimated 

total annual burden would increase by 

3,508,800 hours from 13,568,725 to 

17,077,525 hours. The above estimates 

represent an average across all 

respondents and reflect variations 

between institutions based on their size, 

complexity, and practices. All covered 

institutions, of which there are 

approximately 17,200, potentially are 

affected by this collection of 

information, and thus are respondents 

for purposes of the PRA. 

Comments are invited on: (1) Whether 

the proposed collection of information 

is necessary for the proper performance 

of the Federal Reserve’s functions; 

including whether the information has 

practical utility; (2) the accuracy of the 

Federal Reserve’s estimate of the burden 

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12http://www.sba.gov/idc/groups/public/ 

documents/sba_homepage/serv_sstd_tablepdf.pdf. 

13Federal 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). 

of the proposed information collection, 

including the cost of compliance; (3) 

ways to enhance the quality, utility, and 

clarity of the information to be 

collected; and (4) ways to minimize the 

burden of information collection on 

respondents, including through the use 

of automated collection techniques or 

other forms of information technology. 

Comments on the collection of 

information should be sent to Michelle 

Shore, Federal Reserve Board Clearance 

Officer, Division of Research and 

Statistics, Mail Stop 151–A, Board of 

Governors of the Federal Reserve 

System, Washington, DC 20551, with 

copies of such comments sent to the 

Office of Management and Budget, 

Paperwork Reduction Project (7100– 

0199), Washington, DC 20503. 

VI. Initial Regulatory Flexibility 

Analysis 

The Regulatory Flexibility Act (RFA) 

(5 U.S.C. 601 et seq.) requires an agency 

either to provide an initial regulatory 

flexibility analysis with a proposed rule 

or certify that the proposed rule will not 

have a significant economic impact on 

a substantial number of small entities. 

The proposed regulations cover certain 

banks, other depository institutions, and 

non-bank entities that extend private 

education loans to consumers. The 

Small Business Administration (SBA) 

establishes size standards that define 

which entities are small businesses for 

purposes of the RFA.12

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 proposed regulations. The Board 

requests public comment in the 

following areas. 

A. Reasons for the Proposed 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 

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 

disclosure documents 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 proposed 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 proposed 

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. 

B. Statement of Objectives and Legal 

Basis 

The SUPPLEMENTARY INFORMATION

above contains this information. The 

legal basis for the proposed regulations 

is section 1002 of the HEOA and section 

105(a) of the TILA. 

C. Description of Small Entities to 

Which the Regulation Applies 

The proposed regulations would 

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 proposal 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 can, however, identify 

through data from Call Reports13

approximate numbers of small 

depository institutions that could be 

subject to the proposed rules. Based on 

an average of data reported at quarter 

end between October 1, 2007 and 

September 30, 2008, approximately 

4,481 banks, 401 thrifts, and 7,221 

credit unions, totaling 12,103 

institutions, would be considered small 

entities that are potentially subject to 

the proposed rule. The Board cannot 

identify the percentage of these small 

institutions that extend private 

education loans and thus would be 

subject to a rulemaking. However, 

because the proposed regulation would 

cover all private education loans 

regardless of their size or whether they 

are for multiple purposes, the Board 

believes a majority of the 12,103 

institutions would be covered by this 

proposed rulemaking. 

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 proposed 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 

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12490 Federal Register / Vol. 74, No. 55 / Tuesday, March 24, 2009 / Proposed Rules 

14Of these small accredited postsecondary 

schools, 396 are public institutions, 678 are private 

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

15This 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. 

16While the numbers of accredited and 

unaccredited postsecondary schools includes flight 

training schools, the Board could not locate sources 

of data that would prevent this overlap. 

companies that extend private 

education loans. 

The proposed rule would also apply 

to covered educational institutions that 

extend private education loans to their 

students, including flight training 

schools. According 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 proposed 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 

3,159.14

The Board is not aware of sources of 

data on either the number of nonaccredited 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.15 Thus, the Board estimates 

that 7,410 non-accredited postsecondary 

schools qualify as small entities.16

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. 

The Board invites comment regarding 

the number and type of small entities 

that would be affected by the proposed 

rule. 

D. Projected Reporting, Recordkeeping 

and Other Compliance Requirements 

The compliance requirements of the 

proposed regulations are described in 

detail in the SUPPLEMENTARY

INFORMATION above. 

The proposed 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 

would 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 proposed regulations also 

generally require a creditor 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. It also must provide a 

three-day right to cancel following 

consummation and is prohibited from 

disbursing funds until the three-day 

period expires. A creditor would 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 

given period of time following the 

consumer’s receipt of the approval 

disclosure documents. 

The Board seeks information and 

comment on any costs, compliance 

requirements, or changes in operating 

procedures arising from the application 

of the proposed rule to small 

institutions. 

E. Identification of Duplicative, 

Overlapping, or Conflicting Federal 

Regulations 

The Board has not identified any 

federal statutes or regulations that 

would duplicate, overlap, or conflict 

with the proposed regulations. Pursuant 

to section 1021(a)(9) of the HEOA, the 

proposed disclosures given at the time 

of approval and before disbursement of 

the private education loan have been 

designed to prevent, to the extent 

possible, duplication with the existing 

disclosure requirements of the TILA. 

The Board seeks comment regarding any 

statutes or regulations, including state 

or local statutes or regulations that 

would duplicate, overlap, or conflict 

with the proposed regulations. 

F. Discussion of Significant Alternatives 

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 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. 

The Board welcomes comments on 

any significant alternatives, consistent 

with section 1002 of the HEOA that 

would minimize the impact of the 

proposed regulations on small entities. 

List of Subjects in 12 CFR Part 226 

Advertising, Consumer protection, 

Federal Reserve System, Mortgages, 

Reporting and recordkeeping 

requirements, Truth in lending. 

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Federal Register / Vol. 74, No. 55 / Tuesday, March 24, 2009 / Proposed Rules 12491 

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). 

Text of Proposed Revisions 

Certain conventions have been used 

to highlight the proposed revisions. 

New language is shown inside bold 

arrows, and language that would be 

deleted is set off with bold brackets. 

Authority and Issuance 

For the reasons set forth in the 

preamble, the Board proposes to amend 

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. flThe regulation 

also regulates certain practices of 

creditors who extend private education 

loans as defined in § 226.37(b)(5).fi 

(d) * * * 

fl(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. 

ø(6)¿(7)fi 

* * * * * 

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)fl, § 226.19(a)(2),fi 

øand¿ § 226.31, fland §§ 226.37, 

226.38, and 226.39,fi 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 [not secured 

by real property or a dwelling]. An 

extension of credit ønot secured by real 

property, or by personal property used 

or expected to be used as the principal 

dwelling of the consumer,¿ in which the 

amount financed exceeds $25,000 or in 

which there is an express written 

commitment to extend credit in excess 

of $25,000ø.¿fl, 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 § 226.37(b)(5).fi 

* * * * * 

Subpart C—Closed-End Credit 

4. Section 226.17 is amended by 

revising paragraphs (a), (b), and (e) and 

removing paragraph (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 flor 

§ 226.38fi.38 The itemization of the 

amount financed under § 226.18(c)(1) 

must be separate from the other 

disclosures under that section flexcept 

for private education loan disclosures 

under § 226.38fi. 

(2) flExcept for private education 

loans, tfiøT¿he 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). 

flFor private education loans, 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 §§ 226.38(b)(1)(i) and (c)(1), and 

the notice of the right to cancel under 

§ 226.38(c)(4).fi 

(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). flFor 

private education loan transactions, 

special timing requirements are set forth 

in § 226.37(d).fi 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. 

flExcept for the disclosures required in 

§ 226.38(b), ifiøI¿f a disclosure 

becomes inaccurate because of an event 

that occurs after the creditor delivers the 

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12492 Federal Register / Vol. 74, No. 55 / Tuesday, March 24, 2009 / Proposed Rules 

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, or § 226.20. 

* * * * * 

ø(i) Interim student credit extensions. 

For each transaction involving an 

interim credit extension under a student 

credit program, 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).¿ 

* * * * * 

5. A new Subpart F consisting of 

§§ 226.37, 226.38, and 226.39 are added 

to read as follows: 

Subpart F—Special Rules for Private 

Education Loans 

Sec. 

226.37 Special Disclosure Requirements for 

Private Education Loans. 

226.38 Content of Disclosures. 

226.39 Limitations on Private Educational 

Loans. 

flSubpart F—Special Rules for Private 

Education Loans 

§ 226.37 Special Disclosure Requirements 

for Private Education Loans 

(a) Coverage. The requirements of this 

subpart apply to private education loans 

as defined in § 226.37(b)(5). 

(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. 

(2) Institution of higher education has 

the same meaning as in section 102 of 

the Higher Education Act of 1965 (20 

U.S.C. 1002) and the implementing 

regulations published by the 

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 a 

loan 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; and 

(iii) Does not include open-end credit 

or any loan that is secured by real 

property or a dwelling. 

(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 §§ 226.38(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 §§ 226.38(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 §§ 226.38(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 §§ 226.38(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 § 226.38(a) may be provided 

to the consumer in electronic form on or 

with an application or solicitation 

provided in electronic form without 

regard to the consumer consent or other 

provisions of the E-Sign Act. The form 

required to be received under 

§ 226.39(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 

§ 226.38(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 

§ 226.38(a) in a telephone application, 

or solicitation, initiated by the creditor. 

Alternatively, if the creditor does not 

disclose orally the information in 

§ 226.38(a), the creditor must provide 

the disclosures or place them in the 

mail no later than three business days 

after the consumer requests the credit, 

except that, if the creditor provides or 

places in the mail the disclosures in 

§ 226.38(b) no later than three business 

days after the consumer requests the 

credit, the creditor need not also 

provide the § 226.38(a) disclosures. 

(iii) For a loan, other than open-end 

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, 

the creditor need not also provide 

§ 226.38(a) disclosures. 

(2) Approval disclosures. The creditor 

shall provide the disclosures required 

by § 226.38(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; otherwise the creditor 

must mail the disclosures within three 

business days of communicating the 

notice of approval. 

(3) Final disclosures. The disclosures 

required by § 226.38(c) shall be 

provided after the consumer accepts the 

loan and at least three business days 

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prior to disbursing the private education 

loan funds. 

(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 must 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. If a 

disclosure under § 226.38(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). 

§ 226.38 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, 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, and 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. 

(iv) Whether a co-signer or guarantor 

is required and 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; and 

(ii) Any applicable charges or 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. 

(ii) 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. 

(4) Cost estimates. An example of the 

total cost of the loan over the life of the 

loan, calculated as the total of 

payments: 

(i) using the maximum rate of interest 

and a principal amount of $10,000, or 

$5000 if the creditor only offers the loan 

for less than $10,000, plus the finance 

charges applicable to loans at the 

maximum rate of interest; and 

(ii) calculated both for any option that 

allows for deferral of interest payments 

and for any option that does not allow 

for deferral of interest payments. 

(5) Eligibility. Any age or school 

enrollment eligibility requirements 

relating to the consumer or co-signer, if 

applicable. 

(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 website of the U.S. Department of 

Education, including an appropriate 

website address; and 

(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. (i) A 

statement that if the loan is approved, 

the consumer will have the right to 

accept the terms of the loan at any time 

within 30 calendar days following 

receipt of the approval disclosures in 

§ 226.38(b). 

(ii) A statement that except for 

changes based on adjustments to the 

index used to determine the rate for the 

loan, the rates and terms of the loan may 

not be changed by the creditor during 

the 30-day period described in 

paragraph (a)(7)(i) of this section. 

(8) Self-certification information. A 

statement that, before the loan may be 

consummated, the consumer must 

obtain from the relevant institution of 

higher education the self-certification 

form required under § 226.39(e), and 

complete, sign and submit the form to 

the creditor, if applicable. 

(b) Approval disclosures. On or with 

any notice of approval provided to the 

consumer, the creditor shall disclose to 

the consumer 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; and 

(ii) Any applicable charges or 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. 

(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. 

(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 

21%. 

(C) If a maximum rate cannot be 

determined, the estimate of the total 

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amount for repayment must include a 

statement that there is no maximum rate 

and that the total amount for repayment 

disclosed under § 226.38(b)(3)(vii)(A) 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 21%. If 

a maximum cannot be determined, a 

statement of 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; and 

(iii) A statement that the consumer 

may obtain additional information 

concerning Federal student financial 

assistance from the institution of higher 

education that the subject student 

attends, or at the website of the U.S. 

Department of Education, including an 

appropriate website address. 

(5) Rights of the consumer. (i) A 

statement that the consumer has the 

right to accept the terms of the loan at 

any time within 30 calendar days 

following notice of loan approval. The 

disclosure must include the specific 

date on which the 30-day period 

expires, based on the date upon which 

the consumer receives the disclosures 

required under this subsection for the 

loan, and indicate that the consumer 

may accept the terms of the loan until 

that date. The disclosure must also 

specify the method or methods by 

which the consumer may communicate 

acceptance. 

(ii) A statement that, except for 

changes based on adjustments to the 

index used for a loan, the rates and 

terms of the loan may not be changed 

by the creditor during the period 

described in paragraph (b)(5)(i). 

(c) Final disclosures. At least three 

business days prior to disbursing the 

loan funds, 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 §§ 226.38(b)(1). 

(2) Fees and default or late payment 

costs. Information required to be 

disclosed under § 226.38(b)(2). 

(3) Repayment terms. Information 

required to be disclosed under 

§ 226.38(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 § 226.39(d) expires, and 

(ii) loan proceeds will not be 

disbursed until after the cancellation 

period under § 226.39(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. 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 § 226.37(c)(2)(iii). 

§ 226.39 Limitations on private educational 

loans. 

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

as provided in paragraph (b) of this 

section, a creditor 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 the covered educational 

institution does not endorse the 

creditor’s loans and that the creditor is 

not affiliated with the covered 

educational institution. 

(b) Preferred lender arrangements. If a 

creditor and a covered educational 

institution have entered into a preferred 

lender arrangement, as defined by 

§ 226.37(b)(4), paragraph (a)(1) of this 

section does not apply if the private 

education loan marketing includes a 

clear and conspicuous disclosure 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 

§ 226.38(b). 

(2) Except for changes based on 

adjustments to the index used for a loan, 

or changes that will unequivocally 

benefit the consumer, the rate and terms 

of the private education loan that are 

required to be disclosed under 

§§ 226.38(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) Notwithstanding paragraph (c)(2) 

of this section, nothing in this section 

prevents the creditor from changing the 

rate or terms of the loan, at the creditor’s 

option, in connection with 

accommodating a specific request by the 

consumer. For example, if the consumer 

requests a higher or lower principal 

amount of the loan following a change 

in the amount of the consumer’s other 

available financial assistance, the 

creditor may, but need not, provide the 

requested principal amount and make 

any other changes to the rate or terms. 

If the consumer requests a change to the 

terms of the loan, the creditor shall 

provide the disclosures required under 

§ 228.38(b)(2) for the new loan terms 

and shall provide the consumer with an 

additional 30 days to accept the new 

rates and terms of the loan, and shall 

not make changes to the rates and terms 

except as specified in paragraphs (c)(2) 

and (3) of this section. 

(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 § 226.38(c). No funds may 

be disbursed with respect to a private 

education loan until after the expiration 

of the three-business day period. 

(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, a 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 annually by the 1st day of 

January, the information required under 

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§§ 226.38(a)(1), (2), (3) and (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 and ending June 30 of 

the following year.fi 

6. 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 

* * * * * 

flH–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 

Samplefi 

* * * * * 

flH–18 Private Education Loan 

Application and Solicitation Model Form 

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H–19 Private Education Loan Approval 

Model Form 


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H–20 Private Education Loan Final Model 

Form 


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H–21 Private Education Loan Application 

and Solicitation Sample 


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H–22 Private Education Loan Approval 

Sample 


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H–23 Private Education Loan Final Sample 


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BILLING CODE 6210–01–C 


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7. In Supplement I to Part 226: 

a. Under Section 226.2—Definitions and 

Rules of Construction, 2(a) Definitions, 

2(a)(6) Business day, paragraph 2(a)(6)–2 is 

revised. 

b. Under Section 226.3—Exempt 

Transactions, the heading to 3(b) Credit Over 

$25,000 Not Secured by Real Property or a 

Dwelling, and 3(f) Student Loan Programs, 

are revised. 

c. Under Section 226.17—General 

Disclosure Requirements, under 17(a) Form 

of Disclosures, paragraphs (17)(a)(1)–4, 

(17)(a)(1)–6, (a)(2) and 17(b) Time of 

Disclosures, are revised, and 17(i) Interim 

Student Credit Extensions, is removed. 

d. Under Section 226.18—Content of 

Disclosures, Paragraph 18(f)(1)(ii), Paragraph 

18(f)(1)(iv)–2, and Paragraph 18(k)(1) are 

revised. 

e. A new Subpart F—Special Rules for 

Private Student Loans is added, and new 

Section 226.37—Requirements for Private 

Student Loans, Section 226.38—Content of 

Disclosures, and Section 226.39—Limitations 

on Private Educational Loans are added. 

f. Under the heading, Appendixes G and 

H—Open-End and Closed-End Model Forms 

and Clauses, paragraph 1. is revised. 

g. Under Appendix H—Closed-End Model 

Forms and Clauses, paragraphs 21 through 24 

are revised, and paragraphs 25 through 28 are 

revised. 

Supplement I to Part 226—Official Staff 

Interpretations 

* * * * * 

Subpart A—General 

* * * * * 

Section 226.2—Definitions and Rules of 

Construction 

2(a) Definitions 

* * * * * 

2(a)(6) Business day. 

* * * * * 

2. [Rescission rule]fl Rule for rescission, 

disclosures for certain mortgage transactions, 

and private education loansfi. 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 [or]fl,fi 

the receipt of disclosures for certain 

fldwelling-securedfi mortgage transactions 

under §§ 226.19(a)(1)(ii), fl226.19(a)(2),fi 

[or mortgages subject to § 226.32 are] 

226.31(c) fl, or the receipt of disclosures and 

the right to cancel private education loans 

under §§ 226.37, 226.38, and 226.39 isfi 

involved. [(See also comment 31(c)(1)–1.)] 

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). [The]flIn cases where the 

more precise rule applies, thefi observed 

holiday (in the example, July 3) is a business 

day [for purposes of rescission or the delivery 

of disclosures for certain high-cost mortgages 

covered by § 226.32]. 

* * * * * 

Section 226.3—Exempt Transactions 

* * * * * 

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

Real Property or a Dwelling] 

* * * * * 

3(f) Student Loan Programs 

1. Coverage. This exemption applies to [the 

Guaranteed Student Loan program 

(administered by the Federal government, 

State, and private non-profit agencies), the 

Auxiliary Loans to Assist Students (also 

known as PLUS) program, and the National 

Direct Student Loan program.] flloans 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 

§ 226.37(b)(5).fi 

* * * * * 

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 § 226.18fl, except for 

private education loan disclosures under 

§ 226.38fi. 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) flfor 

transactions other than private education 

loansfi) 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’’ fl(except for private 

education loans)fi 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 fl(except for 

private education loans)fi ‘‘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 § 226.19fl, and in private 

education loan transactions under §§ 226.37 

and 226.38fi. (See the commentary to 

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§ 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).) Creditors 

in interim student credit extensions need not 

disclose the terms set forth in this paragraph 

at the time the credit is actually extended but 

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. 

2. Basis of disclosures. The disclosures 

given at the time of execution of the interim 

note should reflect two annual percentage 

rates, one for the interim period and one for 

the repayment period. The use of § 226.17(i) 

in making disclosures does not, by itself, 

make those disclosures estimates. Any 

portion of the finance charge, such as 

statutory interest, that is attributable to the 

interim period and is paid by the student 

(either as a prepaid finance charge, 

periodically during the interim period, in one 

payment at the end of the interim period, or 

capitalized at the beginning of the repayment 

period) must be reflected in the interim 

annual percentage rate. Interest subsidies, 

such as payments made by either a state or 

the Federal government on an interim loan, 

must be excluded in computing the annual 

percentage rate on the interim obligation, 

when the consumer has no contingent 

liability for payment of those amounts. Any 

finance charges that are paid separately by 

the student at the outset or withheld from the 

proceeds of the loan are prepaid finance 

charges. An example of this type of charge is 

the loan guarantee fee. The sum of the 

prepaid finance charges is deducted from the 

loan proceeds to determine the amount 

financed and included in the calculation of 

the finance charge. 

3. Consolidation. Consolidation of the 

interim student credit extensions through a 

renewal note with a set repayment schedule 

is treated as a new transaction with 

disclosures made as they would be for a 

refinancing. Any unearned portion of the 

finance charge must be reflected in the new 

finance charge and annual percentage rate, 

and is not added to the new amount 

financed. In itemizing the amount financed 

under § 226.18(c), the creditor may combine 

the principal balances remaining on the 

interim extensions at the time of 

consolidation and categorize them as the 

amount paid on the consumer’s account. 

4. Approved student credit forms. See the 

commentary to appendix H regarding 

disclosure forms approved for use in certain 

student credit programs.] 

* * * * * 

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. flExcept for private 

education loans disclosures, fi[W]flwfihen 

there are no limitations, the creditor may, but 

need not, disclose that fact[. L]fl, and 

lfiimitations 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.) flFor limitations 

with respect to private education loan 

disclosures, see comment 38(b)(1)–2.fi 

* * * * * 

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. 

• [Interim student credit 

extensions]flPrivate education loans as 

defined in § 226.37(b)(5)fi. 

• 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 

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[: 

• L]fl, lfioan guarantee feesfl.fi 

[• Interim interest on a student loan] 

* * * * * 

Subpart F—Special Rules for Private 

Education Loans 

Section 226.37—Special Disclosure 

Requirements for Private Education Loans 

37(b) Definitions 

37(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 

§ 226.37(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 § 226.37(b)(1), 

the term agent means an officer or employee 

of an institution-affiliated organization as 

defined by section 151 of the Higher 

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

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. 

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

1. General. An institution of higher 

education includes any institution that meets 

the definitions contained in section 102 of 

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

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. 

37(b)(3) Postsecondary educational 

expenses. 

1. General. The examples listed in 

§ 226.37(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). 

37(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. 

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37(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. For a loan, other 

than open-end 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, the creditor need not 

provide the disclosures required by 

§ 226.38(a) on or with the application or 

solicitation. See § 226.38(d)(1)(i). However, 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 creditor must comply with 

§§ 226.38(b) and (c) and § 226.39. The 

creditor may rely 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. For 

purposes of the required disclosures, 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. 

37(c) Form of Disclosures 

1. Form of disclosures—relation to other 

sections. Creditors must make the disclosures 

required under this subpart in accordance 

with § 226.37(c)(1). To comply with the 

requirement under §§ 226.38(b) and (c) that 

private education lenders disclose the 

information required under § 226.18, as well 

as the requirement that the disclosures be 

grouped together and segregated from 

everything else, creditors may follow the 

rules in § 226.17, except where specifically 

provided otherwise. Although § 226.17(b) 

requires creditors to provide only one set of 

disclosures before consummation of the 

transaction, §§ 226.38(b) and (c) require that 

the creditor provide the disclosures under 

§ 226.18 both upon approval and prior to 

disbursing the loan. 

Paragraph 37(c)(3) 

1. Application and solicitation 

disclosures—electronic disclosures. If the 

disclosures required under § 226.38(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. 

37(d) Timing of Disclosures 

1. Providing disclosures. Disclosures are 

considered provided when received by the 

consumer. 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 §§ 226.37, 226.38, and 226.39, 

‘‘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 37(d)(1) 

1. Invitations to apply. A creditor may 

contact a consumer who has not been 

preapproved for a private educational 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 initiated by the creditor; or 

iii. An application in an in-person contact 

initiated by the creditor. 

Paragraph 37(d)(2) 

1. Timing. The creditor must provide the 

disclosures required by § 226.38(b) at the 

time the creditor provides to the consumer 

any notice that the loan has been approved. 

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 notice of approval. 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.); 

otherwise, the creditor must place the 

disclosures in the mail within three business 

days of the communication. For purposes of 

§ 226.37(d), the more precise definition of 

business day (meaning all calendar days 

except Sundays and specified federal 

holidays) applies. See comment 2(a)(6)–2. 

37(g) Effect of Subsequent Events 

1. Inaccuracies in the disclosures required 

under § 226.38(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 226.38—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, the creditor need not disclose the 

information under §§ 226.38(a)(6), and (b)(4), 

and any other information otherwise required 

to be disclosed under this subpart that is not 

applicable to the loan consolidation 

transaction. 

38(a) Application or Solicitation Disclosures 

Paragraph 38(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’s e-mail 

address, or for disclosures made on an 

Internet Web site, when 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 applicable 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, 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, if applicable. The creditor 

is not required to list the 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 credit report and the type of 

school the consumer attends, the creditor 

may state, ‘‘Your interest rate will be based 

on your creditworthiness and other factors.’’ 

Paragraph 38(a)(1)(iii) 

1. Coverage. The requirements of section 

226.38(a)(1)(iii) apply to all transactions in 

which 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. 

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2. Limitations. The creditor must disclose 

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. When there are no 

limitations, the creditor must disclose that 

fact. Limitations include legal limits in the 

nature of usury or rate ceilings under state or 

federal statutes or regulations. However, if a 

rate limitation in the form of a legal limit 

applies (rather than a numerical rate 

limitation in the legal obligation between the 

parties) the creditor must disclose that the 

maximum rate is determined by applicable 

law and may change. The creditor must also 

disclose that the consumer’s actual rate may 

be higher or lower than the initial rates 

disclosed under § 226.38(a)(1)(i), if 

applicable. 

Paragraph 38(a)(1)(iv) 

1. Co-signer or guarantor—changes in 

applicable interest rate. The creditor must 

disclose whether a co-signer or guarantor is 

required to obtain the loan. The creditor must 

also 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 only 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.’’ 

38(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 

the 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 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 

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. Fees 

disclosed do not include those that apply if 

the consumer exercises an option after 

consummation under the agreement or 

promissory note for the private educational 

loan, such as fees for exercising deferment, 

forbearance, or loan modification options. 

38(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 private education 

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. Payment deferral 

options also include any 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 disclosure must 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 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, the creditor must 

disclose that the consumer must begin 

repayment upon consummating the loan and 

may not defer repayment at any time. 

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 additional information. 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 disclosure of payment 

deferral options applicable while the student 

is enrolled at a covered educational 

institution under §§ 226.38(a)(3)(ii) and (iii) 

may be combined with the disclosure of cost 

estimates required in § 226.38(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– 

18. 

38(a)(4) Cost Estimates. 

1. Total cost of the loan. For purposes of 

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

example of the total cost of the loan in 

accordance with the rules under § 226.18(h) 

for calculating the loan’s total of payments. 

2. Principal amount and fees. The creditor 

must calculate the principal amount by 

starting with a $10,000 amount and adding 

all finance charges that would be applicable 

to loans with that maximum 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 interest rate, the lender must add the 

3% origination fee to the starting $10,000 

principal amount, resulting in a $10,300 

principal amount. Although the creditor 

must calculate the example using the 

principal amount described above, the 

creditor must disclose that the example 

provides the total cost of a $10,000 amount 

financed, rather than disclosing the principal 

amount used in calculating the loan. If the 

creditor only offers a particular private 

education loan for less than $10,000, the 

creditor may assume a principal amount that 

results in a $5,000 amount financed for that 

loan. 

3. Maximum interest rate. For purposes of 

§ 226.38(a)(4), the maximum rate of interest 

used to calculate the example of the total cost 

of the loan must be the maximum initial rate 

of interest disclosed in the range of rates 

under § 226.38(a)(1)(i). 

4. Calculated for each option to defer 

interest payments. The creditor must provide 

an example of the total cost of the loan for 

each in-school deferral option disclosed in 

§ 226.38(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, the creditor 

is required to disclose three estimates of the 

total cost of the loan, one for each deferral 

option. In calculating each estimate of the 

total cost of the loan where interest 

capitalizes, the creditor must calculate the 

estimate using the same capitalization 

method that it would use if that loan were 

to be made. For instance, if a creditor would 

capitalize interest on the loan being offered 

on a quarterly basis, each estimate of the total 

cost of the loan where interest capitalizes 

must be calculated assuming interest 

capitalizes on a quarterly basis. 

5. Deferment period assumptions. For loan 

programs intended for educational expenses 

of undergraduate students, the creditor must 

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 must assume that the 

consumer defers for the lesser of two years 

plus the maximum applicable grace period, 

if any, or the maximum time the consumer 

may defer payments under the loan program. 

38(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. 

38(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.’’ 

38(b) Approval Disclosures. 

38(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 

§§ 226.38(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 

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possible rate in § 226.38(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. 

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 § 226.38(b)(1)(iii) 

(requiring disclosure of any limitations on 

the interest rate adjustments, or lack thereof), 

because the rules under § 226.38(b)(1)(iii) 

differ from the rules under § 226.18(f)(1)(ii) 

as described in comment 18(f)(1)(ii)–1. 

Specifically, § 226.38(b)(1)(iii), but not 

§ 226.18(f)(1)(ii), requires that if there are no 

limitations on interest rate increases, the 

creditor must disclose that fact. In addition, 

under § 226.38(b)(1)(iii), but not under 

§ 226.18(f)(1)(ii), 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. Under 

§ 226.38(b)(1)(iii), if a rate limitation in the 

form of a legal limit applies (rather than a 

numerical rate limitation in the legal 

obligation between the parties) the creditor 

must disclose that the maximum rate is 

determined by law and may change. 

Paragraph 38(b)(2) 

1. Fees and default or late payment costs. 

Creditors may follow the commentary for 

§ 226.38(a)(2) in complying with 

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

late payment fees required to be disclosed 

under § 226.18(l) as part of the disclosure 

required under § 226.38(b)(2)(ii). 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. 

38(b)(3) Repayment Terms. 

1. Approved principal amount. The 

principal amount for which the consumer 

has been approved should include all charges 

incorporated in the approved loan amount. 

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. Prepaid finance charges should 

not be included in the initial approved 

principal amount disclosed if they would not 

be included in the amount on the face of the 

note. See comment 18(b)(3)–1. If the creditor 

elects to provide an itemization of the 

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

the itemization states the approved principal 

amount, the creditor need not list the 

approved principal amount 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. If the 

payment schedule disclosed in accordance 

with § 226.18(g) reflects the maximum 

repayment term, then compliance with 

§ 226.18(g) constitutes compliance with 

§ 38(b)(3)(ii). 

3. Payment deferral options applicable to 

the consumer. Creditors may follow the 

commentary for § 226.38(a)(3)(ii) in 

complying with § 226.38(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 pay during the time that the 

student is enrolled. If the payment schedule 

disclosed in accordance with § 226.18(g) 

reflects payments required while the student 

is enrolled, then compliance with § 226.18(g) 

constitutes compliance with § 38(b)(3)(iv). 

5. Bankruptcy limitations. The creditor 

may comply with § 226.38(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 private education loan or, 

if the maximum rate cannot be determined, 

a rate of 21%. If the legal obligation between 

the parties specifies a numeric maximum rate 

of interest beyond which the interest rate on 

the loan may not increase, the creditor must 

calculate the total amount for repayment 

based on that rate. If the legal obligation does 

not specify a numeric maximum rate, but a 

limitation on interest rate increases exists in 

the form of a legal limit in the nature of a 

usury or rate ceiling under state or federal 

statutes or regulations, the creditor must 

calculate the total amount for repayment 

based on that rate, and the creditor must 

disclose that the maximum rate is 

determined by law and may change. If a 

maximum rate cannot be determined, the 

creditor must base the disclosure on a rate of 

21% and must disclose that there is no 

maximum rate and that the total amount for 

repayment disclosed under 

§ 226.38(b)(3)(vii)(A) is an estimate and will 

be higher if the applicable interest rate 

increases. 

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 

applicable to the private education loan, or 

if the maximum rate cannot be determined, 

a rate of 21%. The creditor should follow 

comment 38(b)(3)–6.ii in determining and 

disclosing the maximum rate of interest. 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 

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

higher if the applicable interest rate 

increases. 

38(b)(4) Alternatives to Private Education 

Loans. 

1. General. Creditors may follow the 

commentary for § 226.38(a)(6) in complying 

with § 226.38(b)(4). 

38(b)(5) Rights of the Consumer. 

1. Notice of 30 day acceptance period. The 

disclosure must include the specific date on 

which the 30 day acceptance period expires 

and state that the consumer may accept the 

terms of the loan until that date. The 

disclosure must also specify the method or 

methods by which the consumer may cancel. 

38(c) Final Disclosures 

1. Notice of right to cancel. The disclosure 

must include the specific date on which the 

three-business day cancellation period 

expires and state that the consumer has a 

right to cancel by that date. See comments 

39(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 requires 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 

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

deemed to be made more conspicuous if it is 

segregated from other disclosures, placed 

near 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 226.39—Limitations on Private 

Educational Loans 

1. Co-branding—definition of marketing. 

The prohibition on co-branding in 

§§ 226.39(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 to the 

consumer related to a specific transaction. 

For example, the term marketing includes an 

application or solicitation, a promissory note 

or a contract provided to the consumer. 

2. Implied endorsement. An implication 

that a private student 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 

educational loan under § 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, 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, a state’s or an institution of higher 

education’s use of a state seal, with 

appropriate authorization, in the marketing 

of state education loan products does not 

imply endorsement. 

3. Disclosure. 

i. A creditor is considered to have 

complied with § 226.39(a)(2) if the creditor’s 

marketing contains a clear and conspicuous 

statement using the name of the creditor and 

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Federal Register / Vol. 74, No. 55 / Tuesday, March 24, 2009 / Proposed Rules 12513 

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].’’ 

ii. A creditor is considered to have 

complied with § 226.39(b) if the creditor’s 

marketing contains a clear and conspicuous 

statement, 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].’’ 

Paragraph 39(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 

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

The creditor may provide the consumer with 

a period of time longer than 30 days after the 

consumer receives the disclosures for the 

consumer to accept the transaction. 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 § 226.37(c), 

‘‘business day’’ means all calendar days 

except Sundays and the legal public holidays 

referred to in § 226.2(a)(6). See comment 

37(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. If 

acceptance by mail is allowed, the 

consumer’s communication of acceptance is 

considered timely if placed in the mail not 

later than 30 calendar days following the date 

the consumer received the disclosure 

required under § 226.39(b). 

3. Prohibition on changes to rates and 

terms. Except as specified in § 226.39(c)(2), 

the creditor may not change the rates and 

terms of the loan that are required to be 

disclosed under § 226.38(b) until the 30-day 

acceptance period has expired with the 

consumer having accepted the loan, or until 

loan funds are disbursed. The creditor is 

permitted to make changes that do not affect 

any of the terms disclosed to the consumer 

under § 226.38(b). Changes to the rate based 

on adjustments to the index used for the loan 

and changes that will unequivocally benefit 

the consumer are not prohibited. For 

example, a creditor is permitted to reduce the 

interest rate or lower the amount of a fee. 

4. Changes to rates and terms based on 

request by consumer. The prohibition on 

changes to the rate and terms of the loan in 

§ 226.39(c)(2) applies only to changes made 

in the absence of a request from the 

consumer. The creditor may make changes to 

the rate and terms of the private education 

loan in connection with accommodating a 

request from the consumer. For example, the 

consumer may request a lower principal 

amount upon receiving additional financial 

assistance from another source after the 

consumer applied for the private educational 

loan. In this situation, the creditor is 

permitted to provide a lower principal 

amount, and to make any other changes such 

as a different repayment term, in response to 

the consumer’s request. However, the 

creditor would need to provide a new set of 

approval disclosures under § 226.38(b) and 

provide the consumer with a new 30-day 

acceptance period under § 226.39(c). 

Paragraph 39(d) 

1. Right to cancel. If the creditor mails the 

disclosures including the statement of the 

right to cancel, the disclosures are considered 

received by the consumer within three 

business days from the date on which the 

creditor mailed the statement. See comment 

37–2. The consumer has three business days 

from the date on which the disclosures are 

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 and 

the consumer may cancel any time before 

midnight Wednesday, June 10. 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. If the 

creditor allows cancellation by mail, the 

creditor must specify the address of the 

creditor’s place of business or the name and 

address of an agent of the creditor to receive 

notice of cancellation. The creditor must also 

specify that the consumer’s mailed request 

will be deemed timely if placed in the mail 

before the expiration of the cancellation 

period. 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 either waiting a 

reasonable time after expiration of the 

cancellation period to allow for delivery of a 

mailed notice or by obtaining a written 

statement from the consumer 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 

§ 226.39(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, charged to 

consumers for loans that are not cancelled. 

Paragraph 39(e) 

1. General. Section 226.39(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 educational 

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 § 226.37(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, § 226.39(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. 

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 39(f) 

1. General. Section 226.39(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 

§ 226.38(a).fi 

* * * * * 

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 

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12514 Federal Register / Vol. 74, No. 55 / Tuesday, March 24, 2009 / Proposed Rules 

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 flH–18, H–19, H–20,fi 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, 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[.] 

flfor use for loans made prior to the effective 

date of the disclosures required under 

Subpart Ffi. The form [may be used] flwas 

approved fi for all Health Education 

Assistance Loans (HEAL) with a variable 

interest rate that [are]flwere consideredfi 

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[.] 

flfor use for loans made prior to the effective 

date of the disclosures required under 

Subpart Ffi. The form [may be used] flwas 

approvedfi for all HEAL loans with a fixed 

interest rate that [are]flwere 

consideredfiinterim 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[.] 

flfor use for loans made prior to the effective 

date of the disclosures required under 

Subpart Ffi. The form [may be used] flwas 

approvedfi 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[.] 

flfor use for loans made prior to the effective 

date of the disclosures required under 

Subpart Ffi. The form [may be used] flwas 

approvedfi 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. 

fl25. Models H–18, H–19, H–20. 

i. These model forms illustrate disclosures 

required under § 226.38 on or with an 

application or solicitation, at approval, and 

before disbursement 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 

• Combining required terms where several 

numerical disclosures are the same, for 

instance, if the initial approved principal 

amount is included in an itemization of the 

amount financed 

• Combining the disclosure of payment 

deferral options required in § 226.38(a)(3) 

with the disclosure of cost estimates required 

in § 226.38(a)(4) in the same chart or table 

(See comment 38(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 

§§ 226.38(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. 

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. 

B. Sufficient spacing between lines of the 

text. 

C. Standard spacing between words and 

characters. In other words, the text was not 

compressed to appear smaller than 8-point 

type. 

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 § 226.38(a). The 

sample assumes a range of interest rates 

between 7.375 and 17.375 percent. The 

sample assumes a variable interest rate that 

will never exceed 25 percent 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 

§ 226.38(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 § 226.38(b). The 

sample assumes the consumer financed 

$10,000 at a 7.059 annual percentage rate. 

The sample assumes a variable interest rate 

that will never exceed 25 percent 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 the student is enrolled in school. This 

includes a sample disclosure of a loan 

amount of $10,000 and an origination fee of 

$0, for a total amount financed of $10,000. 

28. Sample H–22. This sample illustrates a 

disclosure required under § 226.38(c). The 

sample assumes the consumer financed 

$10,000 at a 7.059 annual percentage rate. 

The sample assumes a variable annual 

percentage rate in an instance where there is 

no maximum interest rate. The sample 

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 

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Federal Register / Vol. 74, No. 55 / Tuesday, March 24, 2009 / Proposed Rules 12515 

year loan term, the assumed maximum 

interest rate, and that the consumer elected 

to defer payments while the student relates 

is enrolled in school. This includes a sample 

disclosure of a loan amount of $10,000 and 

an origination fee of $0, for a total amount 

financed of $10,000.fi 

By order of the Board of Governors of the 

Federal Reserve System. 

Jennifer J. Johnson, 

Secretary of the Board. 

[FR Doc. E9–5561 Filed 3–23–09; 8:45 am] 

BILLING CODE 6210–01–P 

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