Preferred Lender List Guidance

The Department of Education has issued guidance to institutions that use preferred lender lists to assist their students in selecting a FFEL student loan lender.

As you are aware, institutions using a preferred lender list must have, at minimum, three unaffiliated lenders on the list. The ongoing student lending crisis has made it difficult for some institutions to find three lenders who will work with the institution as a “preferred lender” and other schools have had lenders on their list withdraw from the FFEL program, leaving them with fewer than the required three lenders.

Per the Department’s guidance letter, GEN-08-06, issued on May 9, 2008, an institution “that has been unable to identify at least three lenders that will make loans to its students or parents sufficient to meet the requirements of a preferred lender list may provide the names of the lenders that have indicated that they would provide FFEL loans to the school’s students and their parents. In providing this information, the school must make it clear that it is not endorsing the lenders, and that the borrower can choose to use any FFEL lender that will make loans to the borrower for attendance at that institution.”

Institutions are also permitted to provide students and parents with a comprehensive list of lenders that have made loans to the school’s students or parents over some period of time (three to five years is given as an example) who have indicated they would continue to make loans at the institution. Again, this list must be comprehensive, and the school must provide a clear statement with this information that the borrower can choose to use any FFEL lender.

The Department has also provided guidance on the definition of “unaffiliated lenders” on a lender list. The regulation states that a preferred lender list must contain, at a minimum, three unaffiliated lenders. The Department has determined this to mean that at least three lenders on the school’s PLL must be unaffiliated with each other regardless of the number of lenders on that list. While not required, the Department feels it would be helpful to borrowers for a school to identify, as part of the PLL disclosures and affiliations among the lenders on the institution’s preferred lender list.

Finally, CCA has received guidance from the Department advising that if an institution participates in both the FFEL program and the Direct Loan program, the Department of Education’s Direct Loan program may not be included on a preferred lender list as counting towards the three lender minimum (meaning DL and two unaffiliated FFEL lenders cannot count as the three lender minimum). As the preferred lender list regulations speak to lenders participating in the FFEL program, only FFEL lenders may count towards the three lender minimum.