[Federal Register Volume 85, Number 238 (Thursday, December 10, 2020)]
[Rules and Regulations]
[Pages 79400-79404]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26662]



[[Page 79400]]

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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1026


Truth in Lending (Regulation Z); Private Education Loans

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Advisory opinion.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is 
issuing this advisory opinion to clarify that loan products that 
refinance or consolidate a consumer's pre-existing Federal, or Federal 
and private, education loans meet the definition of ``private education 
loan'' in the Truth in Lending Act and Regulation Z and are subject to 
the disclosure and consumer protection requirements in subpart F of 
Regulation Z. This advisory opinion is an interpretive rule under the 
Administrative Procedure Act.

DATES: This Advisory Opinion is effective on December 10, 2020.

FOR FURTHER INFORMATION CONTACT: Shelley Thompson, Counsel, Office of 
Regulations, at 202-435-7700 or https://reginquiries.consumerfinance.gov/. If you require this document in an 
alternative electronic format, please contact 
[email protected].

SUPPLEMENTARY INFORMATION: The Bureau is issuing this advisory opinion 
through the procedures for its Advisory Opinions Policy.\1\ Refer to 
those procedures for more information.
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    \1\ Bureau of Consumer Fin. Prot., Advisory Opinions Policy 
(Nov. 2020), https://files.consumerfinance.gov/f/documents/cfpb_advisory-opinion_policy_2020-11.pdf.
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I. Advisory Opinion

A. Background

1. Growth of the Postsecondary Education Loan Market
    The postsecondary education loan market has swelled in the past 
decade and education debt has become an increasingly large share of 
total household debt, from 5 percent in 2008 to 11 percent in 2020.\2\ 
Education loans issued or guaranteed by the Federal government, through 
title IV of the Higher Education Act of 1965,\3\ which are administered 
by the U.S. Department of Education,\4\ currently comprise over 92 
percent of the education loan market.\5\ Between 2006 and 2012, the 
share of non-Federal education loans issued by private lenders ranged 
from 9 percent to 13 percent, and since then, the share of total 
outstanding education loans held by private lenders has been about 8 
percent.\6\
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    \2\ According to data compiled by the Federal Reserve Bank of 
New York (FRBNY), the nation's education indebtedness now ranks as 
the second largest source of consumer credit at the end of June 
2020. Fed. Reserve Bank of New York Consumer Credit Panel/Equifax, 
Total Debt Balance and its Composition, https://www.newyorkfed.org/microeconomics/data.html (last visited Oct. 30, 2020).
    \3\ Public Law 89-392, tit. IV, 79 stat. 1219, 1232 (1965).
    \4\ The Direct Loan program was created by the Higher Education 
Amendments of 1992, Public Law 102-325, 106 Stat. 448 (1992), as a 
pilot program and expanded by the Student Loan Reform Act of 1993, 
Public Law 103-66, tit. IV, subtit. A, 107 stat. 341 (1993). It was 
authorized by Omnibus Budget Reconciliation Act of 1993, Public Law 
103-66, 107 stat. 312 (1993) and amended by the Health Care and 
Education Reconciliation Act of 2010, Public Law111-152, 124 stat. 
1029 (2010). Under this program, loan capital is provided by the 
Federal government while loan origination and servicing is handled 
by postsecondary institutions and private sector companies under 
contract with the Department of Education, see STUDENT LOANS 
OVERVIEW: Fiscal Year 2011 Budget Request, https://www2.ed.gov/about/overview/budget/budget11/justifications/t-loansoverview.pdf 
(last visited Oct. 30, 2020). Title IV loan programs include, among 
others, Direct Federal Loans and federally guaranteed loans issued 
by private education creditors under the Federal Family Education 
Loan Program (FFELPP). No new FFELPP loans have been issued since 
mid-2010. U.S. Dep't of Educ., Dear Colleague Letter GEN-10-05 (Apr. 
2, 2010), https://ifap.ed.gov/sites/default/files/attachments/dpcletters/GEN1005.pdf (Dear Colleague Letter).
    \5\ According to the Federal Reserve Board (Board), outstanding 
student loans totaled $1.7 trillion as of September 30, 2020. 
Consumer Credit G.19 (Nov. 6, 2020), https://www.federalreserve.gov/releases/g19/current/. According to the Department of Education, the 
outstanding portfolio of title IV education loans totaled $1.566 
trillion as of September 30, 2020, see https://www2.ed.gov/about/reports/annual/2020report/fsa-report.pdf (Federal Student Aid Annual 
Report 2020, p. 7) (last visited Oct. 30, 2020).
    \6\ Private loan market share data are based an analysis of data 
provided by the Federal Reserve Board and the Department of 
Education. Fed. Reserve Sys., G.19 Consumer Credit Series, http://www.federalreserve.gov/releases/g19/current/default.htm (last 
visited Nov. 2, 2020); Portfolio Summary, supra note 5; U.S. Dep't 
of Educ., STUDENT LOANS OVERVIEW: Fiscal Year 2010 Budget Request, 
at T-14, https://www2.ed.gov/about/overview/budget/budget10/justifications/t-loansoverview.pdf (last visited Nov. 12, 2020) 
(STUDENT LOANS OVERVIEW 2010). The G.19 series does not provide data 
prior to 2006. The market share data are based on the outstanding 
dollar balance of education loans as of the end of the Federal 
fiscal year (September 30). The Federal loan data include Subsidized 
Stafford, Unsubsidized Stafford, Parent PLUS, Graduate PLUS, and 
Consolidation loans issued under the Federal Family Education Loan 
and Direct Loan programs, as well as Federal Perkins Loans. The 
private loan market share includes private consolidation and 
refinancing loans, but there are no published data for private 
lenders issuing education loans that show the mix of in-school loans 
versus consolidation and refinancing loans.
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    Prior to 2010, education loans were primarily issued through the 
Federal Family Education Loan Program (FFELP).\7\ Under the FFELP, 
banks and other private creditors issued education loans that were 
subsidized and guaranteed by the Federal government.\8\ The Health Care 
and Education Reconciliation Act of 2010 prohibited the origination of 
new FFELP loans after June 30, 2010, at which point Direct Loans issued 
under the William D. Ford Direct Loan Program became the predominant 
type of Federal education loan.\9\ Direct Loans are issued and owned by 
the U.S. Department of Education.\10\ FFELP loans, Direct Loans, and 
other title IV loans are administered by the Department of Education 
and include borrower protections such as postponement options, income-
driven repayment options, in-school deferrals, no prepayment penalties, 
and loan forgiveness.\11\
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    \7\ The Department of Education publishes annual origination 
volume for both FFELP and Direct Loans. See generally Title IV 
Program Volume Reports, Loan Volume, https://studentaid.gov/data-center/student/title-iv (last visited Oct. 30, 2020). See also 
College Bd., Trends in Student Aid--Resource Library, https://research.collegeboard.org/trends/student-aid/resource-library (last 
visited Oct. 30, 2020).
    \8\ Cong. Research Serv., Federal Student Loans Made Under the 
Federal Family Education Loan Program and the William D. Ford 
Federal Direct Loan Program: Terms and Conditions for Borrowers, at 
1 (June 22, 2015), https://www.everycrsreport.com/files/20150622_R40122_706aeb5efb5ea2ec87fbd5818f32a43987639676.pdf 
(Federal Student Loans).
    \9\ Health Care and Education Reconciliation Act of 2010, Public 
Law 111-152, tit. II, section 2201, 124 stat. 1029, 1074 (2010); 
Dear Colleague Letter, supra note 3.
    \10\ See Fed. Student Aid, U.S. Dep't of Educ., https://studentaid.gov/sites/default/files/fsawg/datacenter/library/PortfolioSummary.xls (last visited Oct. 30, 2020) (Portfolio 
Summary).
    \11\ Cong. Research Serv., Federal Student Loans Made Under the 
Federal Family Education Loan Program and the William D. Ford 
Federal Direct Loan Program: Terms and Conditions for Borrowers 
(June 7, 2013), https://fas.org/sgp/crs/misc/R40122.pdf.
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    Most FFELP and Direct loans have fixed interest rates that are 
determined by Federal statute.\12\ Between 2006 and

[[Page 79401]]

2013, these statutes set fixed interest rates for most loans issued to 
undergraduate students at 6.8 percent; Federal PLUS loan \13\ rates 
were set at 8.5 percent for FFELP loans and 7.9 percent for Direct 
Loans at 7.9 percent.\14\ In contrast, by late 2011, private education 
creditors were offering interest rates of 2.98 percent to 3.55 percent 
for borrowers with prime or super prime credit scores.\15\ This 
interest rate differential created incentives for prime and super prime 
borrowers with high fixed-rate Federal education loans to consolidate 
or refinance their loans into a lower rate education loan product.
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    \12\ Currently, the interest rate for Direct Loans is determined 
annually for all loans first disbursed during any 12-month period 
beginning on July 1 and ending on June 30, and is equal to the high 
yield of the 10-year Treasury notes auctioned at the final auction 
held before June 1 of that 12-month period, plus a statutory add-on 
percentage that varies depending on the loan type and, for Direct 
Unsubsidized Loans, whether the loan was made to an undergraduate or 
graduate student. Loans first disbursed during different 12-month 
periods may have different interest rates, but the rate determined 
for any loan is a fixed interest rate for the life of the loan. For 
each loan type, the calculated interest rate may not exceed a 
maximum rate specified in the Higher Education Act of 1965. The 
maximum interest rates are 8.25 percent for Direct Subsidized Loans 
and Direct Unsubsidized Loans made to undergraduate students, 9.50 
percent for Direct Unsubsidized Loans made to graduate and 
professional students, and 10.50 percent for Direct PLUS Loans made 
to parents of dependent undergraduate students or to graduate or 
professional students. U.S. Dep't of Educ., Federal Student Aid; 
Interest Rates for Direct Loans First Disbursed Between July 1, 2020 
and June 30, 2021 (May 15, 2020), https://ifap.ed.gov/electronic-announcements/051520InterRatesforDLFirstDisbBetw070120and063021 
(last visited Oct. 30, 2020). Most Stafford and PLUS loans issued 
prior to July 2006 carry variable rates, Annual Notice of Interest 
Rates for Variable-Rate Federal Student Loans Made Under the William 
D. Ford Federal Direct Loan Program (Jan. 15, 2020), https://www.federalregister.gov/documents/2020/01/15/2020-00572/annual-notice-of-interest-rates-for-variable-rate-federal-student-loans-made-under-the-william-d. Interest rate formulas for FFELP loans can 
be found here: https://ifap.ed.gov/ffel-variable-interest-rates/061220FFELVarIntRatePeriodJuly1June30.
    \13\ Direct PLUS Loans are Federal loans that graduate or 
professional students and parents of dependent undergraduate 
students use to help pay for education expenses. See https://studentaid.gov/help-center/answers/topic/glossary/article/direct-plus-loan (last visited Nov. 12, 2020).
    \14\ U.S. Dep't of Educ., Federal Student Aid; Understand how 
interest is calculated and what fees are associated with your 
Federal student loan, https://studentaid.gov/understand-aid/types/loans/interest-rates (last visited Oct. 30, 2020).
    \15\ ``[R]ates for PSL borrowers vary widely with their credit 
scores. In terms of recent (December 31, 2011) offerings, the Sample 
Lenders reported low-end variable rates of 2.98% to 3.55%.'' Bureau 
of Consumer Fin. Prot., Private Student Loans, at 12 (Aug. 29, 
2012), https://files.consumerfinance.gov/f/201207_cfpb_Reports_Private-Student-Loans.pdf.
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2. Consolidation of Education Loans
    The market for consolidation or refinance of Federal education 
loans by private lenders largely did not exist prior to 2006, because 
there was little to no demand for such a private product. Between 2001 
and 2006, nearly all consolidations of Federal education loans were 
through the Federal government's loan consolidation program.\16\ The 
interest rate on Federal consolidation loans is generally the weighted 
average of interest rates on the loans consolidated.\17\ Because most 
Federal loans issued prior to July 1, 2006 charged variable rates, 
Federal consolidation loans allowed borrowers to take advantage of a 
downturn in interest rates to lock in fixed interest rates as low as 
2.875 percent.\18\ Federal consolidation loans also generally offer the 
same deferment, forbearance, and discharge benefits available on the 
underlying Federal loans and a wide range of repayment options, 
including income-driven repayment.\19\ The few private creditors who 
offered education consolidation and refinance loans during this period 
typically offered variable-rate loans and did not offer the wide range 
of Federal loan repayment, deferment, forbearance, and discharge 
options.\20\ In addition, education consolidation and refinance loans 
offered by private creditors typically did not allow borrowers to 
consolidate or refinance any Federal loans.\21\ However, in 2006, 
legislative changes took effect which changed interest rates for 
Federal loans from variable rates to fixed rates, initially ranging 
from 6.8 percent to 8.5 percent, depending on the type of loan and 
whether the loan was issued under the Direct or FFELP program.\22\ 
Thus, for loans originated after June 2006, a borrower no longer had 
the ability to take advantage of a drop in market interest rates to 
lock in a low interest rate through a Federal loan consolidation.\23\
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    \16\ ``A favorable interest rate environment and highly 
competitive marketing resulted in a dramatic surge in FFEL 
Consolidation Loan volume from FY 2001 to FY 2006 where volume grew 
from $9.4 billion to a record high $72 billion. Direct Loan 
Consolidation Loan volume also increased significantly during this 
period, growing from $7.8 billion in FY 2001 to over $19 billion in 
FY 2006. While the Direct Loan increase was not as large as FFEL, 
borrowers in both programs sought to lock in lower interest rates 
through consolidation, prior to the annual variable in-repayment 
interest rate jumping from 5.3 percent to 7.14 percent as of July 1, 
2006. However, FFEL Consolidation Loan volume decreased 
substantially in FY 2007 and FY 2008 reflecting a saturated 
marketplace, an end to `two-step consolidation,' and the statutory 
change to fixed borrower interest rates. Consolidation volume in 
Direct Loans also decreased substantially in FY 2007, but has been 
increasing since then. . . .'' STUDENT LOANS OVERVIEW 2010, supra 
note 6, at T-14.
    \17\ Specifically, the interest rate is the weighted average of 
interest rates on the loans consolidated, rounded to the nearest 
higher one-eighth of 1 percent (and capped at 8.25 percent for the 
2001-2006 time period discussed), Federal Student Loans, supra note 
8.
    \18\ STUDENT LOANS OVERVIEW 2010, supra note 6, at T-14. See 
also Federal Student Loans, supra note 7. See also http://www.nelnetinvestors.com/news/press-release-details/2004/Families-Benefit-From-Record-Low-Student-Loan-Interest-Rates/default.aspx.
    \19\ Repayment plans, deferment and forbearance options, and 
loan discharge benefits are detailed in the promissory notes for 
Direct Loans. These can be found at: https://ifap.ed.gov/sites/default/files/attachments/2020-04/SubUnsubMPN.pdf, https://ifap.ed.gov/sites/default/files/attachments/2020-04/PLUSMPN.pdf, and 
https://studentaid.gov/app-static/images/ApplicationAndPromissoryNote.pdf (all last visited Nov. 18, 2020).
    \20\ Natalie Cox, Pricing, Selection, and Welfare in the Student 
Loan Market: Evidence from Borrower Repayment Decisions, at 3 n.5 
(Jan. 12, 2017). See also Sallie Mae SLM CORPORATION ANNUAL REPORT 
2005, at 5 (2005), https://www.salliemae.com/assets/investors/shareholder/annual-reports/SallieMaeFY2005AnnualReport1.pdf; The 
2007 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Form-10K, at 
5, 13, https://www.salliemae.com/assets/investors/shareholder/annual-reports/200610K.pdf (last visited Nov. 2, 2020); see The 2007 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Form-10K, at 28, 
https://www.salliemae.com/assets/investors/shareholder/annual-reports/BOW76911BOW024_BITS_N_1548.pdf (last visited Nov. 2, 2020). 
Bureau of Consumer Fin. Prot., Private Student Loans at 12-13 (Aug. 
29, 2013), https://files.consumerfinance.gov/f/201207_cfpb_Reports_Private-Student-Loans.pdf.
    \21\ Forbes, Tips On Consolidating Student Loans (Apr. 15, 
2009), https://www.forbes.com/2009/04/15/student-loans-moneybuilder-personal-finance-consolidate.html?sh=ddb7c2714e50.
    \22\ Legislation enacted in 2002 authorized the transition of 
Federal student loan interest rates from formula-based, variable 
rates to fixed rates, beginning in July 2006 and set a fixed rate of 
6.8 percent for Stafford loans and 7.9 percent for PLUS loans. The 
Student Loan Interest Rates Act of 2002, Public Law 107-139, 116 
stat. 9 (2002). 2005 legislation increased the PLUS loan rate to 8.5 
percent for PLUS loans issued under the Federal Family Education 
Loan Program. The Deficit Reduction Act of 2005, Public Law 109-171, 
120 stat. 159 (2006). In 2007, Congress gradually lowered the fixed 
rates for subsidized Stafford loans issued to undergraduate 
students, starting with 6 percent for the 2007-2008 financial aid 
award year, and dropping to 3.4 percent for the 2011-12 award year. 
The rate for subsidized loans for graduate students and all 
unsubsidized Stafford loans (for undergraduate and graduate 
students) remained at 6.8 percent. The College Cost Reduction and 
Access Act of 2007, Public Law 110-84, 121 stat. 784, 790-791 
(2007).
    \23\ Direct Loan consolidations still remain popular for the 
benefits they provide such as access to income-driven repayment and 
loan forgiveness programs. (FFELP consolidation origination 
authority ceased as of July 1, 2010.) The Department of Education 
provides a guide to loan terms, including repayment plans, deferment 
and forbearance options, loan discharge and forgiveness programs, 
see Fed. Student Aid, U.S. Dep't of Educ., Understanding Student 
Loan Repayment, https://studentaid.gov/h/manage-loans (last visited 
Nov. 12, 2020); U.S. Dep't of Educ., Important Information for 
Student Borrowers on U.S. Treasury Changes to Federal Student Loan 
Interest Rates, https://www2.ed.gov/students/college/repay/2006-changes.html (last modified June 6, 2006).
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    This change from variable to fixed rates on Federal loans led to an 
opening in the market for private lenders to offer a product that would 
allow borrowers with high fixed interest rate Federal loans to 
consolidate or refinance those loans and obtain a lower interest rate. 
In 2012, a few private creditors began offering private loan 
consolidation and refinance products that allowed borrowers who had 
graduated and were in repayment to consolidate or refinance their 
Federal education loans to reduce their interest rate.\24\ These 
products are marketed to consumers with both high interest rate Federal 
education loans (which were generally issued or extended beginning in 
2006) and prime

[[Page 79402]]

or super prime \25\ credit scores.\26\ The market for private 
consolidation and refinancing of Federal education loans has continued 
to expand in recent years.\27\ In 2019, annual originations of private 
consolidation and refinance education loan products reached an 
estimated $16 billion,\28\ which was larger than that year's 
originations for private education loans by currently enrolled 
students.\29\
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    \24\ U.S. Dep't of Treasury, Opportunities and Challenges in 
Online Marketplace Lending, at 9-10, 14-19 (May 10, 2016), https://home.treasury.gov/system/files/231/Opportunities_and_Challenges_in_Online_Marketplace_Lending_white_paper.pdf.
    \25\ There are variations in prime and super prime ranges. The 
Bureau's Consumer Credit Card Market Report identified prime range 
as 660-719 and super prime at 720 and above. Bureau of Consumer Fin. 
Prot., The Consumer Credit Card Market (Aug. 2019), https://files.consumerfinance.gov/f/documents/cfpb_consumer-credit-card-market-report_2019.pdf. Consumer credit data published on the 
Bureau's website identified prime range as 620 to 719 and super 
prime at 720 and above. Bureau of Consumer Fin. Prot., Borrower Risk 
Profiles, https://www.consumerfinance.gov/data-research/consumer-
credit-trends/student-loans/borrower-risk-profiles/
#:~:text=Subprime%20(credit%20scores%20of%20580,scores%20of%20720%20o
r%20above) (last visited Nov. 12, 2020).
    \26\ This is also true for borrowers with high interest rate 
private loans. U.S. Dep't of Treasury, Opportunities and Challenges 
in Online Marketplace Lending, at 9, 14-19 (May 10, 2016), https://home.treasury.gov/system/files/231/Opportunities_and_Challenges_in_Online_Marketplace_Lending_white_paper.pdf.
    \27\ DBRS, Commentary, DBRS Student Loan ABS Quarterly Update, 
at 7 (July 2017), https://lending-times.com/wp-content/uploads/2017/07/DBRS-Student-Loan-ABS-Update-Commentary-8.pdf.
    \28\ Navient 2020 2nd Quarter Investor Deck, slide 7 (Aug. 6, 
2020), https://navient.com/assets/about/investors/webcasts/2020-Q2-Investor-Slides-Final.pdf.
    \29\ The preliminary estimate for in-school student loan 
originations for the 2019-20 academic year is $14.4 billion. The 
total for the 2018-19 academic year was $13.3 billion. College Bd., 
Trends in College Pricing and Student Aid 2020 (Oct. 2020), https://research.collegeboard.org/pdf/trends-college-pricing-student-aid-2020.pdf. Navient 2020 2nd Quarter Investor Deck (Aug. 6, 2020), 
https://navient.com/assets/about/investors/webcasts/2020-Q2-Investor-Slides-Final.pdf.
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    As the market for private consolidations and refinancings of 
Federal student loans has grown, some industry participants have 
expressed uncertainty about the application of Regulation Z, which 
implements the Truth in Lending Act (TILA), to these loan products. 
Questions have arisen regarding whether consolidation and refinance 
products that satisfy and replace a consumer's existing Federal loans 
(or existing Federal and private loans) are considered ``private 
education loans'' such that the disclosures and other protections under 
subpart F of Regulation Z \30\ are required. Specifically, creditors 
need to know whether they are required to provide disclosures under 
TILA and Regulation Z, and if so, which disclosures they are required 
to provide. If the loan is not considered a private education loan and 
is over $50,000, then the loan is not covered under TILA and Regulation 
Z, and a creditor is not required to provide any disclosures to the 
consumer.\31\ For loans under $50,000, whether a loan is a ``private 
education loan'' determines whether creditors must comply with either 
the private education loan disclosure requirements or installment loan 
disclosure requirements, because it is impossible to comply with both 
sets of requirements simultaneously.\32\
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    \30\ See 12 CFR 1026.46, 1026.48(a) through (f).
    \31\ 15 U.S.C. 1603(3).
    \32\ For example, the required prominence of the annual 
percentage rate disclosure differs between private education loans 
and installment loans. Regulation Z requires that installment loan 
disclosures display the terms ``finance charge'' and ``annual 
percentage rate'' more conspicuously than any other disclosure, 
except the creditor's identity. By contrast, in the private 
education loan disclosures under Regulation Z, the term ``annual 
percentage rate'' and the corresponding percentage rate must be less 
conspicuous than the term ``finance charge,'' the interest rate, and 
the notice of the right to cancel. 12 CFR 1026.17(a)(2).
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B. Coverage

    This advisory opinion generally covers private loan consolidation 
products that satisfy and replace multiple Federal, or Federal and 
private, loans, as well as private loan refinance products that satisfy 
and replace a single Federal or private loan. This advisory opinion 
does not cover loans that are made, insured, or guaranteed by the 
Federal government under title IV of the Higher Education Act of 1965. 
For purposes of this advisory opinion, the terms ``private creditor'' 
or ``private education creditor'' broadly refer to creditors (other 
than the U.S. Department of Education) who offer refinance or 
consolidation products for education loans, regardless of whether the 
creditors themselves are private persons or institutions and whether 
they offer products other than education loans.

C. Legal Analysis

    The Higher Education Opportunity Act of 2008 (HEOA) amended TILA by 
adding new requirements that apply to creditors making ``private 
education loans.'' \33\ For example, HEOA's amendments to TILA require 
creditors making ``private education loans'' to provide special 
disclosures; \34\ prohibits creditors from co-branding with schools; 
\35\ requires creditors to provide a 30-day rumination period; \36\ and 
mandates that borrowers have a right to cancel within three days of 
fund disbursement.\37\
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    \33\ Public Law 110-315, 122 Stat. 3078 (2008).
    \34\ 15 U.S.C. 1650(b) and 12 CFR 1026.46.
    \35\ 15 U.S.C. 1650(d) and 12 CFR 1026.48(a).
    \36\ A creditor must give a borrower 30 days after a private 
education loan application is approved to decide whether to accept 
the loan. During that time, the creditor may not change the rates or 
terms of the offer, except in limited circumstances. See 15 U.S.C. 
1650(d) and 12 CFR 1026.48(c).
    \37\ This is a non-exhaustive list of requirements and 
protections for private education loans under Regulation Z. See 12 
CFR 1026.48. In addition, TILA contains some limitations concerning 
its applicability to private education loans. See, e.g., 15 U.S.C. 
1650(b) and (d).
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    HEOA amended TILA such that private education loans over a certain 
threshold--$25,000 at the time of HEOA was passed, and $50,000 after 
the passage of the Dodd-Frank Act \38\--were no longer excluded from 
coverage.\39\ In relevant part, HOEA defined a ``private education 
loan'' under TILA as a loan that is (1) not ``made, insured, or 
guaranteed under title IV of the Higher Education Act of 1965,'' and 
(2) ``issued expressly for postsecondary educational expenses to a 
borrower, regardless of whether the loan is provided through the 
educational institution that the subject student attends or directly to 
the borrower from the private educational lender.'' \40\ On August 14, 
2009, the Board issued final amendments to TILA's implementing 
regulation, Regulation Z. The Board also issued commentary to those 
amendments, including subpart F, which interpreted the term ``private 
education loan'' to include ``loans extended to consolidate a 
consumer's pre-existing private education loans.'' \41\
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    \38\ Section 1100E(a)(1): Section 104(3) of the Truth in Lending 
Act (15 U.S.C. 1603(3)) is amended by striking ``$25,000'' and 
inserting ``$50,000.''
    \39\ HOEPA section 1022, 122 stat. 3488 (titled ``Application of 
Truth in Lending Act to All Private Education Loans'').
    \40\ 15 U.S.C. 1650(a)(8)(A)(ii). Regulation Z, at 12 CFR 
1026.46(b)(5) adopts similar language but replaces ``borrower'' with 
``consumer'' and provides that the express purpose of the loan may 
be ``in whole or in part'' for postsecondary educational expenses. 
For ease of reading, the remainder of this advisory opinion will use 
the statutory phrasing, unless explicitly referencing Regulation Z, 
in which case the quotation, ``expressly [ ] for postsecondary 
educational expenses'' will be used. TILA and Regulation Z include 
other requirements not relevant here, such as that the loan does not 
include an open-ended extension of credit or a loan secured by real 
property.
    \41\ 12 CFR part 1026, supp. I, comment 46(b)(5)(1).
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    Questions have arisen regarding whether the refinance and 
consolidation loans covered by this advisory opinion are ``private 
education loans'' under the two conditions set forth in HEOA. The first 
condition is met because these loans are originated by private 
education creditors and are not originated or insured by the Federal 
government or otherwise under title IV of the Higher Education Act of 
1965. Thus, this advisory opinion focuses on whether such loans meet 
the second condition--that is, are they issued or extended by creditors 
``expressly for postsecondary educational

[[Page 79403]]

expenses'' ? \42\ TILA is silent on the question, and the courts have 
not considered it. The commentary to Regulation Z states that the 
phrase ``extended expressly [ ] for postsecondary educational 
expenses'' includes ``loans extended to consolidate a consumer's pre-
existing private education loans,'' \43\ but it does not address loans 
that consolidate existing Federal education loans, nor does it refer to 
loans that refinance a single existing loan, whether private or 
Federal.
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    \42\ TILA defines ``postsecondary educational expenses'' as 
``any of the expenses that are included as part of the cost of 
attendance of a student, as set forth in the Higher Education Act of 
1965.'' That Act, in turn, defines those expenses by providing a 
lengthy and detailed list of expenses, including a broad range of 
items such as tuition and fees, books and supplies, room and board, 
and some dependent care expenses, among others. 20 U.S.C. 1087ll.
    \43\ 12 CFR part 1026, supp. I ] 46(b)(5)-1 (emphasis added).
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    With respect to consolidation loans, the Bureau believes that TILA 
and Regulation Z are ambiguous as to whether a loan that consolidates 
existing Federal education loans is issued or extended ``expressly for 
postsecondary educational expenses to a borrower.'' In other words, it 
is ambiguous whether the educational purpose of the underlying loans is 
transferred to the consolidation loan, or if instead the express 
purpose of the consolidation loan is to manage existing debt, benefit 
from more favorable interest rates, or some other purpose. The 
commentary to Regulation Z resolves this ambiguity only for loans 
consolidating existing private education loans.
    The Bureau believes that the best reading of TILA and Regulation Z 
is that a loan that consolidates Federal loans or a loan that 
refinances a Federal loan incurred expressly for postsecondary 
educational expenses is, itself, ``expressly for postsecondary 
educational expenses.'' Borrowers apply for these loans explicitly to 
consolidate loans that were originated expressly for postsecondary 
educational expenses, and a creditor issues them pursuant to an 
explicit understanding that they will be used to satisfy debt incurred 
expressly for postsecondary educational expenses. Thus, these loans, 
from the perspective of both the borrower and the creditor, are 
``expressly for'' postsecondary education expenses.\44\ Additionally, 
Congress included the term ``borrower'' (and the Board included the 
term ``consumer'') in its definition of ``private education loan,'' 
instead of referring solely to a ``student,'' as in other sections of 
TILA.\45\ This choice suggests that the statute can best be implemented 
by construing ``private education loan'' to include loans originated to 
consumers other than those currently in school, such as former 
students.\46\
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    \44\ The Bureau believes that the word ``for'' incorporates a 
broad understanding of the purpose of the loan. See generally 
Merriam-Webster Dictionary (defining ``for'' as indicating 
``purpose,'' ``an intended goal,'' or ``the object or recipient of a 
perception, desire, or activity''). Congress and the Board could 
have, but did not, use narrower language that would focus more 
precisely on the initial transaction between the borrower and the 
educational institution regarding those expenses. Congress and the 
Board also could have, but did not, include refinancings and 
consolidations among the exclusions to ``private education loans'' 
that are enumerated in 15 U.S.C. 1650(a)(7)(B) and 12 CFR 
1026.46(b)(5)(iii)-(iv).
    \45\ See, e.g., 15 U.S.C. 1650(a)(9).
    \46\ See Norman J. Singer & Shambie Singer, Sutherland Statutes 
and Statutory Construction Sec.  46:6 (7th ed. 2020) (stating that 
the omission of the same term or phrase from a similar section 
demonstrates a different legislative intent). This word could be 
read to mean that subpart F applies to loans taken out by parents or 
other non-students, at the time period when the borrower is in 
school.
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    This reading also best implements one of the general purposes of 
TILA, which Congress amended in HEOA, ``to assure a meaningful 
disclosure of credit terms so that the consumer will be able to compare 
more readily the various credit terms available to him and avoid the 
uninformed use of credit.'' \47\ Prior to HEOA, borrowers seeking 
credit relating to postsecondary educational expenses would receive 
comprehensive disclosures if they were seeking Federal loans originated 
pursuant to title IV of the Higher Education Act of 1965,\48\ but they 
would not receive even ordinary TILA disclosures for education loans 
over $25,000.\49\ As a result, pre-HEOA borrowers were less able to 
compare their options. But with the TILA amendments in HEOA, Congress 
made more robust comparisons possible for all ``private education 
loans,'' regardless of their size.
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    \47\ 15 U.S.C. 1601(A).
    \48\ See, e.g., 20 U.S.C. 1087e; 34 CFR 685.202; Fed. Student 
Aid, U.S. Dep't of Educ., Sample Master Promissory Notes, https://ifap.ed.gov/sites/default/files/attachments/2019-07/DLMPNsandComms.pdf (last visited Nov. 18, 2020); Fed. Student Aid, 
U.S. Dep't of Educ., Understand how interest is calculated and what 
fees are associated with your federal student loan, https://studentaid.gov/understand-aid/types/loans/interest-rates (last 
visited Nov. 18, 2020); Fed. Student Aid, U.S. Dep't of Educ., 
Federal Student Aid: Choose the federal student loan repayment plan 
that's best for you, https://studentaid.gov/manage-loans/repayment/plans (last visited Nov. 18, 2020).
    \49\ 15 U.S.C. 1603(3). As noted above, the Dodd-Frank Act 
raised the TILA exemption threshold to $50,000.
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    Additionally, this reading is most consistent with the statement in 
the Regulation Z commentary that ``loans extended to consolidate a 
consumer's pre-existing private education loans'' are themselves 
private education loans originated ``expressly [ ] for postsecondary 
educational purposes.'' Nothing in the text of TILA or Regulation Z 
supports concluding that private education loans retain their purpose 
as ``expressly for postsecondary educational expenses'' when they are 
consolidated but that Federal education loans originated for the same 
expenses do not.\50\
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    \50\ Because the definition of ``private education loan'' 
requires that the loan is not made, insured, or guaranteed under 
title IV, the Bureau does not believe the general exclusion for 
title IV loans in TILA and Regulation Z is relevant to the analysis. 
See 15 U.S.C. 1603(7), 12 CFR 1026.3(b)(1)(i)(B).
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    The Bureau also does not believe that the Comment's specific 
mention of ``pre-existing private education loans'' precludes the 
interpretation that consolidated pre-existing Federal loans are 
covered. The Board issued the commentary to Regulation Z, which 
interpreted the term ``private education loan,'' in 2009.\51\ As 
discussed in the Background section, while there was a small market for 
consolidating private education loans in 2009, the private market for 
consolidation of Federal loans did not emerge until 2012. The Board did 
not receive any comments on its proposed rule that indicated the 
existence of such a market and no commenters sought clarity on the 
application of the proposed rule to Federal education loan 
consolidations.\52\ Additionally, the relevant Comment to Regulation Z 
indicates that it is intended to be illustrative rather than exhaustive 
because it states that ``[t]he term includes'' loans consolidating 
private loans as well as loans extended for expenses incurred while the 
student is enrolled.\53\
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    \51\ TILA mandated that the Board prescribe regulations to carry 
out the purposes of the statute. 15 U.S.C. 1604(a); 12 CFR part 
1026, supp. I, comment 46(b)(5)(1). The Bureau itself adopted these 
regulations and the accompanying commentary without substantive 
change in an interim final rule, later finalized in 2017. See 81 FR 
25323 (Apr. 28, 2016). Additionally, when the Bureau reissued the 
rule and commentary via an interim final rule in 2011, it merely 
reflected the transfer of authority to the Bureau; the Bureau did 
not make any substantive changes either at that time or when the 
Bureau finalized its interim final rule in 2017. See generally 76 FR 
79768, 79769 (Dec. 22, 2011) and 81 FR 252323, 25324 (Apr. 28, 
2016).
    \52\ See generally 74 FR 41194, 41201-09 (Aug. 14, 2009).
    \53\ 12 CFR part 1026, supp. I ] 46(b)(5)-1 (emphasis added).
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    The above analysis addressing the consolidation of multiple Federal 
education loans also applies to loans that refinance a single pre-
existing loan that was originated expressly for

[[Page 79404]]

postsecondary education expenses, regardless of whether the pre-
existing loan was a private or Federal loan. While the commentary 
refers only to consolidation of multiple pre-existing loans, the 
commentary is not intended to be exhaustive,\54\ and the Bureau does 
not believe there is any principled reason to conclude that the 
postsecondary education purpose of multiple loans may transfer to a new 
loan, while the postsecondary purpose of a single loan transferred to a 
new loan may not.\55\
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    \54\ See also 12 CFR part 1026, Supp. I, introduction comment 
3(a) (``Rules of construction. Lists that appear in the commentary 
may be exhaustive or illustrative; the appropriate construction 
should be clear from the context. In most cases, illustrative lists 
are introduced by phrases such as `including, but not limited to,' 
`among other things,' `for example,' or `such as.' '').
    \55\ 12 CFR part 1026, supp. I ] 46(b)(5)-1.
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    Accordingly, the Bureau interprets the commentary's reference to 
loans that ``consolidate a consumer's pre-existing private education 
loans'' as simply referencing the type of consolidation loan that 
existed at the time the commentary was issued by the Board. Thus, for 
the reasons discussed in this advisory opinion, the Bureau interprets 
the phrase ``expressly for postsecondary educational expenses'' to 
include loans that either consolidate Federal education loans that were 
themselves originated expressly for postsecondary education expenses or 
to refinance a single private or Federal education loan that was 
originated for such purpose.
    As a result, these consolidation or refinance loans are covered 
under the term ``private education loan'' in TILA and Regulation Z and 
are therefore subject to TILA and Regulation Z's requirements in 
subpart F (including Regulation Z's disclosures, prohibition on co-
branding, 30-day rumination period, and a right to cancel).

II. Regulatory Matters

    This advisory opinion is an interpretive rule issued under the 
Bureau's authority to interpret TILA and Regulation Z, including under 
section 1022(b)(1) of the Dodd-Frank Act Wall Street Reform and 
Consumer Protection Act,\56\ which authorizes guidance as may be 
necessary or appropriate to enable the Bureau to administer and carry 
out the purposes and objectives of Federal consumer financial laws.\57\
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    \56\ Public Law 111-203, 124 Stat. 1376 (2010).
    \57\ 12 U.S.C. 5512(b)(1).
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    By operation of TILA section 130(f), no provision of TILA sections 
130, 108(b), 108(c), 108(e), or 112 imposing any liability applies to 
any act done or omitted in good faith in conformity with this 
interpretive rule, notwithstanding that after such act or omission has 
occurred, the interpretive rule is amended, rescinded, or determined by 
judicial or other authority to be invalid for any reason.\58\
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    \58\ 15 U.S.C. 1640(f).
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    As an interpretive rule, this advisory opinion is exempt from the 
notice-and-comment rulemaking requirements of the Administrative 
Procedure Act.\59\ Because no notice of proposed rulemaking is 
required, the Regulatory Flexibility Act does not require an initial or 
final regulatory flexibility analysis.\60\ The Bureau has also 
determined that this advisory opinion does not impose any new or revise 
any existing recordkeeping, reporting, or disclosure requirements on 
covered entities or members of the public that would be collections of 
information requiring approval by the Office of Management and Budget 
under the Paperwork Reduction Act.\61\
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    \59\ 5 U.S.C. 553(b).
    \60\ 5 U.S.C. 603(a), 604(a).
    \61\ 44 U.S.C. 3501 et seq.
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    Pursuant to the Congressional Review Act,\62\ the Bureau will 
submit a report containing this interpretive rule and other required 
information to the United States Senate, the United States House of 
Representatives, and the Comptroller General of the United States prior 
to the rule's published effective date. The Office of Information and 
Regulatory Affairs has designated this interpretive rule as not a 
``major rule'' as defined by 5 U.S.C. 804(2).
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    \62\ 5 U.S.C. 801 et seq.
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III. Signing Authority

    The Director of the Bureau, Kathleen L. Kraninger, having reviewed 
and approved this document, is delegating the authority to 
electronically sign this document to Grace Feola, a Bureau Federal 
Register Liaison, for purposes of publication in the Federal Register.

    Dated: November 30, 2020.
Grace Feola,
Federal Register Liaison, Bureau of Consumer Financial Protection.
[FR Doc. 2020-26662 Filed 12-9-20; 8:45 am]
BILLING CODE 4810-AM-P