Preferred Lender List Requirements

As schools consider sharing information with students about private student loans, they should be aware of federal regulations that cover institution and lender requirements relating to these loans.1 Preferred lender arrangements (PLAs) are an agreement between a lender and an institution, in which a lender provides education loans to students, and the school recommends the loan products of the lenders. Institutions that provide this endorsement often provide students with preferred lender lists (PLLs) that should be based solely on borrowers’ best interest.

Federal regulations require covered institutions and any institution-affiliated organization (IAOs) (i.e., alumni groups, foundations) and lenders to follow these regulations. Institution and IAO requirements are covered primarily in Subparts B and C of the regulations:

Ğ Subpart B outlines disclosure obligations including PLA disclosure requirements, loan disclosures and selfcertification forms, and use of institution/lender names.

Ğ Subpart C covers institution responsibilities including annual reporting and code of conduct.

For further information on key components of PLLs that align with federal regulations, see the table below.

Essential Components of a Preferred Lender List

Clear Selection Criteria

Transparency in Disclosure

Administrators must show that their lender selection is objective and borrower-focused. Lenders should be assessed with the same criteria before moving forward with PLAs and including them in a PLL.

Common borrower benefits to consider in PLA:

• Total borrower cost (annual percentage rate (APR) ranges, origination fees, rate caps)

• Repayment options (deferment, forbearance, income-based alternatives)

• Approval rates and average time to decision/funding for students

PLLs help guide borrowers through challenging loan processes. They are most beneficial when grounded in unbiased research that helps simplify complex loan offerings.

While PLL are intended to help students navigate the private loan market, they also should be aware that they have a wide range of options.

As required in Subpart B, PLLs must clearly inform students that they are not required to use nor are they limited to the listed lenders

Include Multiple Lender Options

Exclusive arrangements are discouraged by federal guidance as they are not in borrowers’ best interest.

Institutions should list at least three to five lenders to demonstrate fair consideration and provide students with diverse lender options.

Preferred Lender List Requirements

Annual Review

Code of Conduct

Clear Communication

Each institution and IAO must prepare and submit an annual report that includes a clear explanation as to why the institution participates in a PLA with each lender.

Common components of annual reviews:

• Confirm that at least two unaffiliated lenders remain on PLL

• Reassess selection criteria against current data

Check for any changes in terms or servicing

• Republish disclosures on their website and in handbook

As mentioned in Subpart C, the report must be made available to the public (e.g., published on website) and provided to current and incoming students and families.

Institutions and IAOs must develop a code of conduct with respect to private education loans with which administrators must comply.

The code of conduct must:

• Prohibit conflicts of interest

• Be publicly available on institution’s website

• Forbid revenue-sharing agreements with any lender

• Ban administrators from soliciting or accepting any gifts from lenders

Students and families should be able to easily find and understand the PLL. The list should be published as a tool to guide students through the private loan process.

Institutions often publish their PLL on the university financial aid website or other easily accessible online resource.

It is important to note that states may have additional and more stringent requirements than those required by federal law. Be sure to check your state’s regulations for additional information.