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Summary: Borrower Choice of FFEL Lender

Publication Date: July 16, 2007

Author: Victoria Edwards, Chief Compliance Officer, Federal Student Aid

Summary: Borrower Choice of FFEL Lender

Posted on 07-16-2007

As you may be aware, the Department has recently published a Notice of Proposed Rulemaking (NPRM) that includes proposals related to the use of preferred lender lists by schools and prohibited inducements by lenders and guaranty agencies. The NPRM also includes provisions to clarify and reinforce existing rules related to borrower choice of lender in the FFEL Program.

While the new regulations, if finalized, will not be effective until July 1, 2008, we believe that it is important to remind all program participants of the clear existing requirement related to a borrower's choice of FFEL lender. The statutory and regulatory provisions governing the FFEL Program allow the borrower to choose their FFEL lender and prohibit a school from refusing to certify a FFEL loan based upon the borrower's choice of lender or guaranty agency or coercing, directly or indirectly, a borrower to choose a specific lender. This prohibition applies to all schools that participate in the FFEL Program; including schools that are FFEL lenders or that participate in an eligible lender trustee relationship with an eligible lender.

On March 29, 2007, we posted to our Information for Financial Aid Professionals (IFAP) website (www.ifap.ed.gov) a Dear Colleague Letter (DCL GEN-07-01, FP-07-04) that specifically reminded schools of their obligations to certify an FFEL loan. We strongly recommend that you review that Dear Colleague Letter as well as your institution's FFEL loan certification procedures and consumer information to ensure compliance with FFEL Program rules. A school's failure to comply with the statutory and regulatory requirement that it certify a loan to the lender chosen by the borrower may result in the Department imposing a fine or taking other administrative actions, as appropriate.

Thank you for your cooperation in ensuring that this important borrower choice requirement is maintained.

Last Modified: 07/15/2007