By Ben Miller and Stephen Burd
The Federal Reserve Board has proposed regulations that could significantly weaken a federal law that aims to protect students from being misled into taking out high cost private student loans. In a notice in the Federal Register on March 24, the agency said that it is considering including exemptions, or "safe harbors," to a provision Congress added to the Higher Education Act last year that prohibits lenders from using a college's name, mascot, logo, or emblem to market private loans to students.
Under the Federal Reserve's proposal, a lender would be able to continue engaging in these practices as long as it disclosed "in a clear and prominent way" that the college it is referring to "does not endorse the creditor's loans, and that the creditor is not affiliated with the educational institution." The agency says that this "safe harbor approach" is needed because a lender "may at times have legitimate reasons for using the name of a covered educational institution" in its marketing materials.
The Federal Reserve also proposes widening this exemption even further for private student loan providers that appear on a college's preferred lender list. In those cases, the agency says, it "would be misleading" for a lender to state that a school has not endorsed its loan products. Instead, it would simply require that the lender "clearly and conspicuously disclose that the loan is not being offered or made by the educational institution."
At Higher Ed Watch, we believe that these proposals would completely undermine both the letter of the law and its intent. But we don't believe that the fault for offering these misguided proposals rests entirely with the Federal Reserve. Congress is also to blame for sending mixed signals to the agency about how this provision should be enacted.