Reg Z (R-1353) HEOA NFRM

Friday,
August 14, 2009

Part II

Federal Reserve
System

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12 CFR Part 226
Truth in Lending; Final Rule

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Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations

FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Regulation Z; Docket No. R–1353]

Truth in Lending
AGENCY: Board of Governors of the
Federal Reserve System.
ACTION: Final rule; official staff
commentary.
SUMMARY: The Board is publishing final
rules amending Regulation Z, which
implements the Truth in Lending Act
(TILA) following the passage of the
Higher Education Opportunity Act
(HEOA). Title X of the HEOA amends
TILA by adding disclosure and timing
requirements that apply to creditors
making private education loans, which
are defined as loans made for
postsecondary educational expenses.
The HEOA also amends TILA by adding
limitations on certain practices by
creditors, including limitations on ‘‘cobranding’’ their products with
educational institutions in the
marketing of private education loans.
The HEOA requires that creditors obtain
a self-certification form signed by the
consumer before consummating the
loan. It also requires creditors with
preferred lender arrangements with
educational institutions to provide
certain information to those institutions.
DATES: Effective Date: September 14,
2009.
Compliance Date: Compliance is
optional until February 14, 2010.
FOR FURTHER INFORMATION CONTACT:
Brent Lattin, Senior Attorney, or Mandie
Aubrey, Attorney; Division of Consumer
and Community Affairs, Board of
Governors of the Federal Reserve
System, Washington, DC 20551, at (202)
452–2412 or (202) 452–3667. For users
of Telecommunications Device for the
Deaf (TDD) only, contact (202) 263–
4869.
SUPPLEMENTARY INFORMATION:

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I. Background
A. Current Regulation Z Student Loan
Disclosure Requirements
Congress enacted the Truth in
Lending Act (TILA), 15 U.S.C. 1601 et
seq., to regulate certain credit practices
and promote the informed use of
consumer credit by requiring uniform
disclosures about its costs and terms.
Under TILA section 128, creditors must
provide TILA disclosures to consumers
in writing before consummation of
certain closed-end credit transactions.
Extensions of consumer credit over
$25,000 are exempt from TILA with the
exceptions of credit secured by real

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property, and, following enactment of
the HEOA, private education loans.
Loans made, insured, or guaranteed
pursuant to a program authorized by
title IV of the Higher Education Act of
1965 (20 U.S.C. 1070 et seq.) are also
exempt from TILA.
TILA mandates that the Board
prescribe regulations to carry out the
purposes of the statute. 15 U.S.C.
1604(a). Accordingly, the Board has
promulgated Regulation Z, 12 CFR part
226. An Official Staff Commentary, 12
CFR part 226 (Supp. I) interprets the
requirements of the regulation and
provides guidance to creditors in
applying the rules to specific
transactions.
To implement TILA section 128, 15
U.S.C. 1638, Regulation Z requires
disclosures for certain closed-end loans,
including for education loans that are
not exempt Federal education loans.
Sections 226.17 and 226.18 require a
creditor to provide the consumer with
clear and conspicuous disclosures
before consummation of the transaction.
Current § 226.17(i) contains special
rules for student credit plans which are
education loans where the repayment
amount and schedule of payments are
not known at the time that the credit is
advanced. In such cases, creditors may
make all the TILA cost disclosures at the
time credit is extended based on the
best information available at that time,
and state clearly that the disclosures are
estimates. Alternatively, creditors may
provide partial disclosures at the time
the credit is extended and later provide
a complete set of disclosures when the
repayment schedule for the loan is
established.
B. The Higher Education Opportunity
Act of 2008
On August 14, 2008, the Higher
Education Opportunity Act of 2008
(HEOA) was enacted. Title X of the
HEOA, entitled the ‘‘Private Student
Loan Transparency and Improvement
Act of 2008,’’ adds new subsection
128(e) and section 140 to TILA. These
TILA amendments add disclosure
requirements and prohibit certain
practices for creditors making ‘‘private
education loans,’’ defined as loans made
expressly for postsecondary educational
expenses, but excluding open-end
credit, real estate-secured loans, and
Federal loans under title IV of the
Higher Education Act of 1965. The
HEOA also amends TILA section 104(3)
to expressly cover private education
loans even if the amount financed
exceeds $25,000.

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1. Overview of the HEOA’s
Amendments to TILA
Substantive Restrictions. The HEOA
prohibits a creditor from using in its
marketing materials a covered
educational institution’s name, logo,
mascot, or other words or symbols
readily identified with the educational
institution, to imply that the
educational institution endorses the
loans offered by the creditor.1 With
respect to private education loans, the
HEOA also amends TILA in the
following ways:
• Creditors must give the consumer
30 days after a private education loan
application is approved to decide
whether to accept the loan offered.
During that time, the creditor may not
change the rates or terms of the loan
offered, except for rate changes based on
changes in the index used for rate
adjustments on the loan.
• The consumer has a right to cancel
the loan for up to three business days
after consummation. Creditors are
prohibited from disbursing funds until
the three-day cancellation period has
run.
Disclosure Requirements. The HEOA
adds a number of new disclosures for
private education loans, which must be
given at different times in the loan
origination process. Specifically, the
HEOA’s amendments to TILA require
the following disclosures for private
education loans:
• Disclosures with applications (or
solicitations that require no
application). Creditors must provide
general information about loan rates,
fees, and terms, including an example of
the total cost of a loan based on the
maximum interest rate the creditor can
charge. These disclosures must inform a
prospective borrower of, among other
things, the potential availability of
Federal student loans and the interest
rates for those loans, and that additional
information about Federal loans may be
obtained from the school or the
Department of Education Web site.
1 The HEOA adds a new section 140 to TILA that
includes other restrictions regarding private
education loans. The Board is only required to issue
regulations to implement subsection (c) of TILA
section 140, the prohibition on co-branding. The
other subsections of section 140 became effective
when the HEOA was enacted and the Board is not
issuing regulations to implement them at this time.
The other subsections of TILA Section 140 prohibit
creditors from giving gifts to educational
institutions or their employees, and prohibit
revenue sharing between creditors and educational
institutions. In addition, they restrict creditor
payments to financial aid officials who serve on
creditors’ advisory boards, and require disclosure of
any payments made to financial aid officials for
advisory board service expenses. Prepayment
penalties or fees for early repayment are prohibited
for private education loans.

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• Disclosures when the loan is
approved. When the creditor approves
the consumer’s application for a private
education loan, the creditor must give
the consumer a set of transactionspecific disclosures, including
information about the rate, fees and
other terms of the loan. The creditor
must disclose, for example, estimates of
the total repayment amount based on
both the current interest rate and the
maximum interest rate that may be
charged. The creditor must also disclose
the monthly payment at the maximum
rate of interest.
• Disclosures at consummation. At
consummation, the creditor must
provide updated cost disclosures
substantially similar to those provided
at approval. The consumer’s three-day
right to cancel the transaction must also
be disclosed.
Finally, once a consumer applies for
a private education loan, the consumer
must complete a ‘‘self-certification
form’’ with information about the cost of
attendance at the school that the student
will attend or is attending. The form
includes information about the
availability of Federal student loans, the
student’s cost of attendance at that
school, the amount of any financial aid,
and the amount the consumer can
borrow to cover any gap. The creditor
must obtain the signed and completed
form before consummating the private
education loan. The Department of
Education has primary responsibility for
developing the self-certification form in
consultation with the Board.
2. Civil Liability
The HEOA amends TILA to provide a
private right of action for several, but
not all, of the disclosure requirements
added by the HEOA. HEOA, Title X,
Subtitle A, Section 1012 (amending
TILA Section 130). The HEOA also
amends TILA’s statute of limitations for
civil liability regarding private
education loans. Currently, TILA
section 130(e) requires that an action be
brought within one year of the date of
the occurrence of the violation. Under
the HEOA amendment, an action for a
violation involving a private education
loan must be brought within one year
from the date on which the first regular
payment of principal is due for the
private education loan.
The HEOA provides a safe harbor for
any creditor that elects to use a model
form promulgated by the Board that
accurately reflects the terms of the
creditor’s loans. HEOA, Title X, Subtitle
B, Section 1021(a) (adding TILA Section
128(e)(5)(C)). Model forms are included
in the final rule as amendments to
Regulation Z’s Appendix H. In addition,

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a creditor has no liability under TILA
for failure to comply with the
requirement that it receive the
consumer’s self-certification form before
consummating a private education loan.
HEOA, Title X, Subtitle B, Section
1021(a) (adding TILA Section 130(j)).
C. Consumer Testing
In October 2008, the Board retained a
research and consulting firm
(Rockbridge Associates) and a design
firm (EightShapes) to help the Board
design the model forms required under
the HEOA and to conduct consumer
testing to determine the most effective
presentation of the information required
to be disclosed. Specifically, the Board
used consumer testing to develop model
forms for the following:
• Information required to be
disclosed on or with applications or
solicitations for private education loans
(Application and Solicitation
Disclosure);
• Information required to be
disclosed when a private education loan
is approved (Approval Disclosure); and
• Information required to be
disclosed after the consumer accepts a
private education loan and at least three
business days before loan funds are
disbursed (Final Disclosure).
Initial forms design. In November
2008, the Board worked with
Rockbridge Associates and EightShapes
to develop sample disclosures to be
used in the testing, taking into account
the specific requirements of the HEOA,
information learned through the Board’s
outreach efforts, and Rockbridge
Associate’s experience in financial
disclosure testing.
Cognitive interviews on model
disclosures. In December 2008,
Rockbridge Associates worked closely
with the Board to conduct two rounds
of consumer testing. Each round of
testing comprised in-person cognitive
interviews with 10 consumers. Both
rounds of testing were conducted within
the Washington, DC/Baltimore
metropolitan area. The consumer
participants included both college
students and parents of college students,
representing a range of ethnicities, ages,
educational levels, and education loan
experience.
The cognitive interviews consisted of
one-on-one discussions with consumers,
during which consumers were asked to
view the sample Application and
Solicitation Disclosure, the Approval
Disclosure, and the Final Disclosure
developed by the Board. The goals of
these interviews were as follows: (1) To
learn more about what information
consumers are concerned about and
actually read when they receive private

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education loan disclosures; (2) to
determine how easily consumers can
find various critical pieces of
information in the disclosures; (3) to
assess consumers’ understanding of the
information that the HEOA and § 226.18
require to be disclosed for private
education loans, and of certain
terminology related to private education
loans; and (4) to determine the most
clear and understandable way to
disclose the required information to
consumers.
After the first round of cognitive
testing, the Board worked with
Rockbridge Associates and EightShapes
to revise the initial drafts of the sample
disclosures in response to findings from
the first round of testing. Later in
December 2008, the Board and
Rockbridge Associates conducted a
second round of testing in which 10
consumers were asked to review the
revised sample Application and
Solicitation Disclosure, Approval
Disclosure, and Final Disclosure.
Additional cognitive interviews on
model disclosures. In April and May
2009, Rockbridge Associates worked
closely with the Board to conduct two
additional rounds of consumer testing.
Each round of testing consisted of inperson cognitive interviews with 10
consumers. One round of testing was
conducted within the Washington, DC
metropolitan area and the second round
of testing was conducted within the
Philadelphia, PA metropolitan area. The
consumer participants included college
students, proprietary school students
and parents of students, representing a
range of ethnicities, ages, educational
levels, and education loan experience.
The format of the cognitive interviews
was similar to the initial rounds and the
Board worked with Rockbridge
Associates and EightShapes to revise the
model disclosures in response to
findings from the each round of testing.
Following the conclusion of the
comment period on the proposed rule,
Rockbridge Associates and EightShapes
worked with the Board to further revise
the disclosures in response to public
comment. In June 2009, Rockbridge
Associates worked with the Board to
conduct a final round of consumer
testing comprised of in-person cognitive
interviews with 10 consumers
conducted in the Washington, DC
metropolitan area. The format of the
cognitive interviews was similar to the
earlier rounds and the Board worked
with Rockbridge Associates and
EightShapes to revise the model
disclosures in response to findings from
the final round of testing.
Results of testing. A report
summarizing the results of the testing is

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available on the Board’s Web site:
http://www.federalreserve.gov.
Application and Solicitation
Disclosure. Regarding the Application
and Solicitation Disclosure, consumers
were confused in the initial rounds by
seeing the required disclosure of a range
of initial rates for which they could be
approved. Consumers commonly
mistook the highest rate in the range
with the maximum possible rate for the
life of the loan. Consequently, the model
form was revised by providing
information under two separate
headings for the consumer’s ‘‘Starting
interest rate upon approval’’ and the
consumer’s ‘‘Interest rate during the life
of the loan.’’ This revision improved
consumers’ ability to understand the
range of initial interest rates and how
the rate would vary over time.
Once consumers understood that the
rates disclosed were not necessarily the
rates that actually would apply to them,
they consistently wanted to know how
their own rate would be determined.
Thus, the model form places general
information about how the consumer’s
rate will be determined under the
heading about the consumer’s starting
interest rate upon approval. Consumers
also wanted to understand how their
rate would vary over the life of the loan,
but many were confused by detailed
information about how the interest rate
varies based on the application of a
margin to an index. A large number of
consumers in the initial rounds were
confused by the reference in the model
forms to the London Interbank Offered
Rate (LIBOR) as the index. However, in
the final round of testing, the model
form referenced the LIBOR being
published in a major newspaper which
worked to assure consumers that the
LIBOR is a standard index used for
determining variable interest rates on
loans.
Consumer testing also indicated that
consumers want to see specific figures
and dollar amounts for fees that may
apply to their loan. Thus the model
form requires dollar amounts to be
disclosed for each fee included on the
form wherever possible.
In addition, testing showed that
consumers found the sample total cost
information to be useful in assessing the
potential impact of a private education
loan on their financial future.
Consumers indicated that the sample
total cost was most understandable
when the loan amount, interest rate and
loan term were included. In addition,
consumers found showing the sample
total cost of a loan based on each
payment deferral option to be useful
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Finally, consumers found the
presentation of Federal loan
alternatives, ‘‘Next Steps,’’ and
reference notes to be clear and
understandable, and the information in
these sections to be useful.
Approval Disclosure. Regarding the
Approval Disclosure, testing indicated
that consumers are most concerned
about the rate and loan costs, and that
the traditional TILA box style of
presenting the key elements of a loan is
effective even with novice consumers.
In initial testing of the proposed model
forms, consumers did not understand
explanations of the difference between
the interest rate and the APR. For this
reason, the model forms published with
the proposal were revised to disclose
the interest rate more prominently than
the APR so that consumers would focus
on the rate they understood. In
subsequent rounds of testing, the
prominence of the interest rate
disclosure and the additional context
provided to explain the APR improved
some consumers’ understanding of the
concepts, although a few consumers
continued to have difficulty
understanding the difference between
the APR and the interest rate. However,
in choosing between two loans,
consumers in the tests were more likely
to compare the payment schedules, total
of payments, and finance charge rather
than relying on the interest rate alone.
Testing also showed that consumers
generally do not understand detailed
explanations of how their variable rate
changes based on a publicly available
index. For consumers, the most
important information regarding how
the rate changes was simply that the
creditor may not change the rate at will,
and instead generally can do so only
based on market factors out of the
creditor’s control.
Testing also indicated that consumers
strongly prefer to have all fees disclosed
with specific dollar amounts. In
addition, the placement of the total loan
amount in the box at the top of the form,
along with the itemization of the
amount financed, improved consumers’
understanding of the concept presented
by the amount financed—that the
amount of credit actually available to
the consumer would be less than the
total loan amount if fees applied.
Consumers considered the monthly
payment schedule and amounts to be
critical information in understanding
the financial implications of obtaining a
private education loan. Most consumers
felt the disclosure of the maximum
monthly payment amounts and total
amount for repayment at the maximum
rate was useful information. When
shown disclosures where a sample

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maximum rate was used because no
maximum rate applies, consumers
indicated that they understood the
disclosure was only an example.
As with the Application and
Solicitation Disclosure, consumers
found the presentation of Federal loan
alternatives and ‘‘Next Steps’’ to be clear
and understandable, and the
information in these sections to be
useful.
Final Disclosure. Regarding the Final
Disclosure, the information required to
be disclosed under the HEOA is
identical to that required on the
Approval Disclosure, except for the
right to cancel notice. Recognizing the
importance of the right to cancel notice
for consumers, the model Final
Disclosure provides the right to cancel
information as clearly and prominently
as possible. Consumers tested
immediately saw and read the
information in the proposed right to
cancel notice.
Results from the initial rounds of
testing indicated that consumers did not
find the information about Federal loan
alternatives to be useful at this stage in
the private education loan origination
process. Consumers stated that this
information is redundant; they have
already been told about these options
two times (on the Application and
Solicitation Disclosure and the
Approval Disclosure) and have already
decided at this point to obtain a private
education loan. Consumers in the later
rounds of testing were asked whether
they felt the Federal loan alternatives
should be included in the Final
Disclosure and the majority did not feel
such information would be useful at
that stage. For these reasons, as
discussed in the section-by-section
analysis under § 226.47(b)(3), the Board
is exercising its exception authority
under TILA sections 105(a) and 105(f) to
omit information about Federal loan
alternatives from the Final Disclosure
form.
II. The Board’s Rulemaking Authority
The Board has authority under the
HEOA to issue regulations to implement
paragraphs (1), (2), (3), (4), (6), (7), and
(8) of new TILA section 128(e), and to
implement section 140(c) of new TILA
section 140. HEOA, Title X, Section
1002. In addition to implementing the
specific disclosure requirements in
TILA section 128(e), the Board has
authority under TILA sections
128(e)(1)(R), 128(e)(2)(P), and
128(e)(4)(B) to require disclosure of
such other information as is necessary
or appropriate for consumers to make
informed borrowing decisions. 15 U.S.C.

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1638(e)(1)(R), 15 U.S.C. 1638(e)(2)(P), 15
U.S.C. 1638(e)(4)(B).
TILA section 128(e)(9) provides that,
in issuing regulations to implement the
disclosure requirements under TILA
section 128(e), the Board is to prevent
duplicative disclosure requirements for
creditors that are otherwise required to
make disclosures under TILA. However,
if the disclosure requirements of section
128(e) differ or conflict with the
disclosure requirements elsewhere
under TILA, the requirements of section
128(e) are controlling. 15 U.S.C.
1638(e)(9).
TILA also mandates that the Board
prescribe regulations to carry out the
purposes of the act. TILA specifically
authorizes the Board, among other
things, to issue regulations that contain
such classifications, differentiations, or
other provisions, or that provide for
such adjustments and exceptions for
any class of transactions, that in the
Board’s judgment are necessary or
proper to effectuate the purposes of
TILA, facilitate compliance with the act,
or prevent circumvention or evasion. 15
U.S.C. 1604(a).
TILA also specifically authorizes the
Board to exempt from all or part of TILA
any class of transactions if the Board
determines that TILA coverage does not
provide a meaningful benefit to
consumers in the form of useful
information or protection. The Board
must consider factors identified in the
act and publish its rationale at the time
it proposes an exemption for comment.
In proposing exemptions, the Board
considered (1) The amount of the loan
and whether the disclosure provides a
benefit to consumers who are parties to
the transaction involving a loan of such
amount; (2) the extent to which the
requirement complicates, hinders, or
makes more expensive the credit
process; (3) the status of the borrower,
including any related financial
arrangements of the borrower, the
financial sophistication of the borrower
relative to the type of transaction, and
the importance to the borrower of the
credit, related supporting property, and
coverage under TILA; (4) whether the
loan is secured by the principal
residence of the borrower; and (5)
whether the exemption would
undermine the goal of consumer
protection. 15 U.S.C. 1604(f). The
rationales for these exemptions were
explained in the proposal and are
explained below.
III. Overview of Comments Received
On March 24, 2009, the Board
published a proposed rule that would
amend Regulation Z’s rules by adding
disclosure and timing requirements that

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apply to creditors making private
education loans. 74 FR 12464. The
Board received seventy-one public
comment letters. Several financial
institutions and financial services trade
associations stated that they supported
the Board’s efforts to improve the
disclosure of credit terms to consumers
of private education loans and
recognized that the Board’s proposal
was intended to conform Regulation Z
to TILA, as amended by the HEOA.
These commenters requested that the
Board provide flexibility in the timing
of the proposed approval disclosure to
allow creditors to approve loans
conditioned on verification of
information provided by the consumer
and the educational institution. These
commenters also stated that the Board
should not cover loans made ‘‘in whole
or in part’’ to finance postsecondary
educational expenses, as proposed.
They expressed concern that such
coverage would increase the burden in
complying with the rule and could
cause some lenders to decline to
provide consumers with credit if any
part of the loan would be used for
postsecondary educational expenses.
Some of these commenters also did not
support the proposal to make the
disclosure of the annual percentage rate
(APR) less prominent than the
disclosure of the interest rate. A few
financial institutions stated that the
costs of the new disclosure and timing
requirements under the HEOA outweigh
the benefits and that consumers would
object to delays in consummating a
private education loan transaction.
By contrast, consumer advocacy
organizations generally supported the
HEOA’s goal of providing additional
disclosure of private education loan
terms to consumers and in providing for
a 30-day period for the consumer to
accept the loan and a three-day right to
cancel the loan. Consumer advocates
encouraged the Board to maintain
coverage of loans used ‘‘in whole or in
part’’ for postsecondary educational
expenses. Most of these commenters did
not support the proposal to make the
disclosure of the APR less prominent
than the disclosure of the interest rate.
The Board also received comments
from educational institutions and
financial aid administrators and trade
associations. These commenters also
generally supported the HEOA’s
requirements to provide additional
disclosure of private education loan
credit terms to consumers. However, a
majority of these commenters stated that
educational institutions, or specific
types of credit provided by education
institutions, should be exempt from the
proposed rules. Specifically, these

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creditors sought exemptions for credit
in the form of tuition billing plans that
permit the student to pay in
installments and for short term
‘‘emergency’’ loans provided to students
while they await disbursement of other
funding sources. A number of financial
aid officers commented that the
proposed self-certification form would
be burdensome and requested an
exemption to the requirement to obtain
a self-certification form in cases where
the creditor certifies the student’s
financial need directly with the
educational institution.
Comments are discussed in detail
below in part IV of the SUPPLEMENTARY
INFORMATION.
IV. Section-by-Section Analysis
Overview
The final rule adds the following new
disclosure requirements to Regulation Z
for private education loans:
(i) Disclosures with applications (or
solicitations that require no application)
in § 226.47(a);
(ii) Disclosures when notice of loan
approval is provided in § 226.47(b); and
(iii) Disclosures before loan
disbursement in § 226.47(c). General
rules applicable to the new disclosure
requirements were detailed in § 226.46
and associated commentary. Model
forms for these disclosures are added to
Regulation Z’s Appendix H.
To implement TILA’s new prohibition
on co-branding, § 226.48 prohibits a
creditor from using in its marketing a
covered educational institution’s name,
logo, mascot, or other words or symbols
readily identified with the institution, to
imply that the institution endorses the
loans offered by the creditor. The final
rule adopts an exception to this
prohibition under the Board’s TILA
section 105(a) authority, for creditors
who enter into an agreement where the
covered educational institution
endorses the creditor’s private
education loans. Section 226.48 also:
Provides the consumer with 30 days
following receipt of the approval
disclosures to accept the loan and
prohibits certain changes to a loan’s rate
or terms during that time; provides the
consumer a right to cancel the loan for
three business days after receipt of the
final disclosures and prohibits
disbursement during that time; requires
creditors to obtain a completed selfcertification form signed by the
consumer before consummating the
transaction; and requires creditors with
preferred lender arrangements to
provide certain information to
educational institutions.

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The final rule largely adopts the
provisions in the Board’s March 24,
2009 proposed rule. 74 FR 12464. The
Board has made certain modifications to
the proposal in response to public
comment as described throughout this
Section-by-Section analysis. In addition,
the provisions in new Subpart F have
been redesignated from proposed
§§ 226.37, 38, and 39 to §§ 226.46, 47,
and 48. Sections 226.37 through 226.45
have been reserved in order to
accommodate future rulemakings by the
Board.

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Section 226.1—Authority, Purpose,
Coverage, Organization, Enforcement,
and Liability
Section 226.1(b) describes the
purposes of Regulation Z. The Board
proposed to amend § 226.1(b) to refer to
the new provisions for private education
loans. Section 226.1(d) provides an
outline of Regulation Z. Proposed
paragraph (d)(6) referenced the addition
of a new Subpart F containing rules
relating to private education loans.
No comments were received on these
provisions and the Board is adopting
them as proposed with redesignated
cross-references. In addition, transition
rules are added as comment 1(d)(6)–1.
Section 226.2—Definitions and Rules of
Construction
Currently, § 226.2(a)(6) contains two
definitions of ‘‘business day.’’ Under the
general definition, a ‘‘business day’’ is a
day on which the creditor’s offices are
open to the public for carrying on
substantially all of its business
functions. However, for some purposes
a more precise definition applies;
‘‘business day’’ means all calendar days
except Sundays and specified Federal
legal public holidays, for purposes of
§§ 226.15(e), 226.19(a)(1)(ii),
226.19(a)(2), 226.23(a), and 226.31(c)(1)
and (2). The Board proposed using the
more precise definition of business day
for all purposes in proposed §§ 226.37,
38, and 39, including for measuring the
period during which consumers may
cancel a private education loan.
Industry commenters requested that the
Board adopt the general definition of
‘‘business day,’’ or exclude Saturdays
from the more precise definition of
‘‘business day.’’ These commenters
noted that they did not operate their
systems for disbursing funds or
providing disclosures on a Saturday and
expressed concern that including
Saturday as a business day could make
it difficult to provide required
disclosures to consumers in a timely
fashion.
Consistent with the Board’s approach
for certain transactions secured by the

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consumer’s dwelling in § 226.19(a)(1)(i),
the Board is adopting the more precise
definition of business day in providing
presumptions of when consumers
receive mailed disclosures. The Board is
adopting the general definition of
‘‘business day’’ for all other purposes in
§§ 226.46, 47, and 48, including for
measuring the period of time in which
the consumer may cancel the loan. The
Board believes that allowing creditors to
exclude Saturdays or other days on
which the creditor’s offices are not open
to the public for carrying on
substantially all of its business
functions will result in consumers being
provided more time in which to cancel
a private education loan. As discussed
in the section-by-section analysis to
§ 226.48(d), the final rule permits
creditors to provide consumers with
more time to cancel the loan than the
minimum three business days. Thus,
whichever definition of ‘‘business day’’
the Board were to select, creditors
would be free to exclude Saturdays or
other days by providing the consumer
with more time in which to cancel. The
final rule also requires the creditor to
disclose prominently the precise date
upon which the consumer’s right to
cancel expires and, based on the
consumer testing, the Board believes
that consumers will be able to
understand precisely their deadline to
cancel.
Section 226.3—Exempt Transactions
TILA section 104(3) (15 U.S.C.
1603(3)) exempts from coverage credit
transactions in which the total amount
financed exceeds $25,000, unless the
loan is secured by real property or a
consumer’s principal dwelling. The
HEOA amends TILA section 104(3) to
provide that private education loans
over $25,000 are not exempt from TILA.
The Board proposed to revise § 226.3(b)
to reflect this change. The Board did not
propose changes to § 226.3(f) because
the HEOA did not affect TILA’s
exclusion of loans made, insured, or
guaranteed under title IV of the Higher
Education Act of 1965. 15 U.S.C.
1603(7). However, the Board proposed
to revise comment 3(f)–1 to remove the
list of Federal education loans covered
by the exemption because it is outdated,
and to clarify that private education
loans are not exempt.
The Board is adopting the revisions to
§ 226.3 as proposed with redesignated
cross-references. Under the final rules,
as proposed, private education loans are
covered by TILA and Regulation Z
regardless of the loan’s total amount
financed.

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Section 226.17—General Disclosure
Requirements
Proposed §§ 226.38(b) and (c)
required creditors to provide the current
§ 226.18 disclosures for private
education loans in addition to the new
disclosures. Consequently, the Board
proposed to revise § 226.17 to clarify
that the format and timing rules for
private education loans differ slightly
from the rules for other types of closedend credit. In addition, the Board
proposed to remove the special rules for
student credit plans.
The Board is adopting the proposed
changes to § 226.17 for the format and
timing rules for private education loans,
with redesignated cross-references. The
Board is also eliminating the special
rules for student credit plans under
§ 226.17(i) for credit extensions made on
or after the mandatory compliance date
of Subpart F. However, as discussed
more fully below, the Board is revising
rather than removing § 226.17(i) to
clarify that student credit extensions
made under § 226.17(i) prior to the
mandatory compliance date of Subpart
F must still follow the requirements in
§ 226.17(i).
Current § 226.17(a)(1) requires that
the closed-end credit disclosures under
§ 226.18 be grouped together, segregated
from everything else, and not contain
any information not directly related to
the disclosures required under § 226.18.
It also requires that the itemization of
the amount financed under
§ 226.18(c)(1) must be separate from the
other disclosures required under that
section. The Board proposed to revise
§ 226.17(a)(1) and comment 17(a)(1)–4
to clarify that the information required
under § 226.38 must be provided
together with the information required
under § 226.18. In addition, as
discussed in the section-by-section
analysis under § 226.47, the Board
proposed to allow creditors to provide
the itemization of the amount financed
together with the disclosures required
under § 226.18 for private education
loan disclosures.
Annual percentage rate disclosure.
Current § 226.17(a)(2), implementing
TILA section 122(a), requires the terms
‘‘finance charge’’ and ‘‘annual
percentage rate,’’ together with a
corresponding amount or percentage
rate, to be more conspicuous than any
other disclosure, except the creditor’s
identity under § 226.18(a). For private
education loans, TILA sections
128(e)(2)(A) and 128(e)(4)(A) require a
disclosure of the interest rate in
addition to the APR. The Board
proposed to exercise its authority under
TILA section 105(a) to except private

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Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations
education loans from the requirement
that the APR be more prominent than
other disclosures and proposed to give
prominence to the interest rate
disclosure that is required by the HEOA.
The Board also proposed to exercise its
authority under TILA section 122(a) to
require that the interest rate be
disclosed as prominently as the finance
charge. See proposed § 226.37(c)(2)(iii).
Some industry, consumer group, and
other commenters objected to the
proposal to give the interest rate more
prominence than the APR. Some of the
commenters believed the APR was a
better tool for consumers to use to
compare the cost of a loan than the
interest rate. They believed that
emphasizing the interest rate could
mislead consumers who do not consider
other costs of loans. Other commenters
believed that for uniformity, the APR
should not deviate from the prominent
position in the model forms for other
types of closed-end loans. Further,
consumer group commenters argued
that the data produced from consumer
testing was not definitive enough to
justify making the exception, noting that
most consumers tested did not notice
the difference between the APR and
interest rate and that the testing
involved only 20 consumers. The
consumer groups also cited several
studies to support retaining the
prominence of the APR, including a
study that found that more than 70% of
the population reported using the APR
to shop for closed-end credit.2
TILA section 128(e)(1)(A) requires a
disclosure of the range of potential
interest rates in the application and
solicitation disclosure. In consumer
testing, some consumers expressed
confusion as to why the APR on the
approval and final forms was
inconsistent with the interest rates
disclosed on the application form.
Consumers tested indicated that the
interest rate was most relevant to them
for private education loan purposes. In
addition, TILA section 128(e)(9), as
added by the HEOA, directs the Board
to implement the HEOA’s requirements
even if those requirements differ from or
conflict with requirements under other
parts of TILA. The HEOA also requires
the Board to develop model forms that
may be used for the private education
loan disclosures based on consumer
testing. HEOA, Title X, Subtitle B, Sec.
1021 (adding TILA section 128(e)(5)(A)).
Consumer testing of private education
loan disclosures that continued during
2 Jinkook Lee and Jeanne M. Hogarth, ‘‘The Price
of Money: Consumers’ Understanding of APRs and
Contract Interest Rates,’’ 18 J. Pub. Pol’y and
Marketing 66, 74 (1999).

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and after the comment period confirmed
that most consumers understand the
interest rate and that it is one of the
most important terms to them. At the
same time, most consumers do not
understand the APR and incorrectly
believe that the APR is the interest rate.3
In the initial rounds of testing the APR
was presented more prominently than
the interest rate. Most consumers had
difficulty reconciling the two terms and
some consumers believed that either the
APR or the interest rate was a mistake
and expressed a concern about the
accuracy of the disclosures. Consumer
confusion was compounded with the
private education loan disclosures.
Under the HEOA, the application
disclosure that the consumer receives
first in the series of forms contains a
range of interest rates and not APRs.
Consumers expected to see similar
disclosures on subsequent forms.4
By contrast, in consumer testing of the
model forms with a less prominent APR,
consumers were less likely to equate the
APR with the interest rate. Rather, the
APR’s less prominent location on the
model form encouraged consumers to
view it in the context of the explanatory
text provided. This, in turn, helped
consumers to better understand that the
APR was a distinct disclosure that
reflected both the interest rate and the
fees.5
In addition, based on consumer
testing, the Board does not believe that
making the APR less prominent is likely
to cause consumers to focus solely on
the interest rate to the exclusion of other
costs. When consumers were asked in
testing to determine which of two
sample loans was less expensive, they
relied on information other than the
interest rate and APR to make their
determination, such as the finance
charge or the total of payments. By
using the other cost information all
consumers tested were able to select the
loan that had a lower APR, even when
it had a higher interest rate.6
The findings from the Board’s
consumer testing that consumers do not
understand the APR are supported in
other research. For example, the study
that cited high awareness of the APR by
mortgage borrowers also found that at
least 40% of those borrowers did not
3 Rockbridge Associates, ‘‘Consumer Research
and Testing for Private Education Loans: Final
Report of Findings’’ at 8.
4 Rockbridge Associates, ‘‘Consumer Research
and Testing for Private Education Loans: Final
Report of Findings’’ at 39.
5 Rockbridge Associates, ‘‘Consumer Research
and Testing for Private Education Loans: Final
Report of Findings’’ at 8, 43.
6 Rockbridge Associates, ‘‘Consumer Research
and Testing for Private Education Loans: Final
Report of Findings’’ at 55.

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understand the relationship between the
interest rate and the APR which, the
study concluded, ‘‘indicates a
significant gap between awareness and
understanding.’’ 7 Lack of understanding
of the APR on the part of the consumer
could result in an inaccurate
comparison of loan terms. For example,
a consumer comparing two loans based
on both the APR and the fees might
erroneously consider fees that were
already included in the APR.
Thus, the Board believes that an
exception from the requirement that the
APR be disclosed more prominently
than other terms is necessary and proper
to assure a meaningful disclosure of
credit terms for consumers, and it is
retained in the final rule.
Timing of disclosures. Current
§ 226.17(b) requires creditors to make
closed-end credit disclosures before
consummation of the transaction. As
discussed more fully below in the
section-by-section analysis under
§§ 226.46 and 226.47, the Board is
adopting as proposed revisions to
§ 226.17(b) to require creditors to make
the current closed-end disclosures two
times for private education loans: Once
with any notice of approval of a private
education loan, and again before
disbursement. Under current comment
17(b)–1, the disclosures must be made
before consummation, but need not be
given by a particular time, except in
certain dwelling-secured transactions.
The Board is adopting as proposed
revisions to comment 17(b)–1 to clarify
that more specific timing rules would
apply for private education loans.
The proposed rule did not propose
any changes to current § 226.17(f), but
the final rule revises that section.
Current § 226.17(f) requires redisclosure
if disclosures are given before
consummation of a transaction under
certain conditions. The Board is
excluding private education loans from
the requirements of § 226.17(f) because
the Board believes that the disclosure
and other requirements for private
education loans make redisclosures
under § 226.17(f) unnecessary. Creditors
must provide approval disclosures for
private education loans and then, after
the consumer accepts the loan and
before funds are disbursed, provide final
disclosures. Thus, consumers will
always receive at least two disclosures
in private education loan transactions.
In addition, with few exceptions,
creditors cannot change the loan’s rate
or terms after providing the disclosures,
7 Jinkook Lee and Jeanne M. Hogarth, ‘‘The Price
of Money: Consumers’ Understanding of APRs and
Contract Interest Rates,’’ 18 J. Pub. Pol’y and
Marketing 66, 74 (1999).

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Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations

and § 226.48(c) requires redisclosure if
certain permitted changes are made after
the approval disclosure is provided.
Creditors are permitted, however, to
make changes to the interest rate based
on adjustments to the index. As a result
of interest rate fluctuations, the loan’s
APR may vary outside of the tolerance
in § 226.17(f)(2). The Board believes that
requiring creditors to redisclose the
approval or final disclosures merely
because of fluctuations in the interest
rate would be burdensome to creditors
and could be confusing to consumers
who might not understand that the
redisclosures reflected only changes in
the variable rate, rather than substantive
changes in the loan terms. Accordingly,
§ 226.17(f) in the final rule does not
apply to private education loans.
In addition, the final rule revises
§ 226.17(g) which implements TILA
section 128(c). Current § 226.17(g)
allows for delayed delivery of
disclosures if a creditor receives a
purchase order or a request for an
extension of credit by mail, telephone,
or facsimile machine without face-toface or direct telephone solicitation. The
creditor may delay disclosures until the
due date of the first payment if certain
information is made available to the
consumer or the public before the actual
purchase order request. The final rule
excludes private education loans from
§ 226.17(g) because the Board believes
that the specific disclosure and timing
requirements that the HEOA added to
TILA for private education loans
supersede TILA’s general delayed
disclosure provisions implemented in
§ 226.17(g).
Special rules for student credit
extensions. Under current § 226.17(i)
and accompanying commentary,
Regulation Z applies special disclosure
rules to closed-end student loans that
are ‘‘student credit plans.’’ The
commentary to Regulation Z describes a
‘‘student credit plan’’ as an extension of
credit for educational purposes, where
the repayment amount and schedule are
not known at the time credit is
advanced. The plans include loans
made under any student credit plan not
otherwise exempt from TILA, whether
government or private. Comment 17(i)–
1. The credit extended before the
repayment period begins under these
plans is referred to as the interim
student credit extension. The Board
understands that most or all private
education loans made today are
‘‘student credit plans.’’
The Board proposed to eliminate the
special rules for student credit plans
under § 226.17(i) and accompanying
commentary because the new TILA
section 128(e) disclosure rules

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effectively eliminate the disclosure
exemptions and special rules in
§ 226.17(i). Implementing new TILA
section 128(e)(2)(H), proposed
§ 226.38(b)(3)(vii) required the creditor
to give the consumer an estimate of the
total amount for repayment at the time
that the loan is approved. As discussed
further below, the Board views the total
amount for repayment disclosure as
duplicative of TILA’s existing total of
payments disclosure. Proposed
§ 226.38(b)(3)(vii) required creditors to
disclose the total of payments before a
definitive repayment schedule is set.
Thus, the HEOA revisions to TILA
eliminate the § 226.17(i) exemption for
disclosure of the total of payments. This
also has the effect of eliminating the
other exemptions as well, because an
estimate of the total of payments
requires the creditor to estimate the
finance charge and payment schedule.
In addition, the Board proposed to
apply the new private education loan
disclosure regime to consolidation
loans, rendering the commentary on
consolidation loan disclosures under
comment 17(i)–3 unnecessary.
The Board believes that retaining two
different disclosure regimes from which
creditors may choose is unnecessarily
complex and may not be useful to
consumers and creditors. Thus, the final
rule eliminates the special rules for
student credit plans under § 226.17(i)
for loans for which an application is
received on or after the mandatory
compliance date of §§ 226.46, 47, and
48.
However, in response to public
comment the Board is not eliminating
§ 226.17(i) in its entirety, as proposed.
Under current comment 17(i)–1,
creditors who choose not to make
complete disclosures at the time the
credit is extended must make a new set
of complete disclosures at the time the
creditor and consumer agree upon a
repayment schedule for the total
obligation. The Board is retaining and
revising § 226.17(i) to clarify that the
requirement to provide a complete
disclosures at the time the creditor and
consumer agree upon a repayment
schedule for the total obligation remains
in effect for student credit extensions
made before the mandatory compliance
date of §§ 226.46, 47, and 48, and for
which the creditor chose not to make
complete disclosures before
consummation.
For loans subject to §§ 226.46, 47, and
48 the Board did not propose to require
creditors to give a new set of disclosures
once the creditor and consumer agree
upon a repayment schedule. Consumer
group commenters suggested that the
Board require a new set of disclosures

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upon repayment. However, TILA as
amended by the HEOA, does not require
such disclosure for private education
loans. The final rules require a complete
disclosure at the time the credit is
extended. In addition, new disclosures
are required under § 226.20(a) in the
case of a refinancing of a loan.
Section 226.18—Content of Disclosures
As discussed more fully below, the
Board is adopting as proposed, with
redesignated cross-references, revisions
to the commentary to § 226.18. The final
rule requires that creditors provide the
disclosures required in § 226.18 along
with the disclosures required with
notice of approval in § 226.47(b) and
with the final disclosures required in
§ 226.47(c). As proposed, the model
forms in Appendix H–19 and H–20
show the disclosures required under
§ 226.18 as well as the disclosures
required under §§ 226.47(b) and (c).
However, as explained below, the
HEOA’s disclosure about limitations on
interest rate adjustments differs slightly
from that of § 226.18(f)(1)(ii), as
interpreted in comment 18(f)(1)(ii)–1.
Thus the Board is revising comment
18(f)(1)(ii)–1 to clarify that parts of the
comment do not apply to private
education loans.
Current § 226.18(f)(1)(ii) requires that
if the annual percentage rate in a closedend credit transaction not secured by
the consumer’s principal dwelling may
increase after consummation, the
creditor must disclose, among other
things, any limitations on the increase.
Current comment 18(f)(1)(ii)–1 states
that when there are no limitations, the
creditor may, but need not, disclose that
fact. By contrast, the HEOA and
§§ 226.47(b) and 47(c) require creditors
to disclose any limitations on interest
rate adjustments, or the lack thereof.
Thus, for private education loans,
disclosure of the absence of any
limitations on interest rate adjustments
is required, not optional. In addition,
under §§ 226.47(b)(1)(iii), and (c)(1),
limitations on rate increases include,
rather than exclude, legal limits in the
nature of usury or rate ceilings under
state or Federal statutes or regulations.
Comment 47(b)(1)–2, proposed as
comment 38(b)(1)–2, discussed below,
provides guidance on how creditors are
to disclose limitations on interest rate
adjustments.
The Board is also revising, as
proposed, comment 18(f)(1)(iv)–2,
which currently clarifies that for interim
student credit extensions creditors need
not provide a hypothetical example of
the payment terms that would result
from an increase in the variable rate.
The comment is revised, with a

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redesignated cross-reference, to replace
the reference to interim student credit
extensions with a reference to private
education loans. Sections
226.47(b)(3)(viii) and 226.47(c)(3)
require a disclosure of the maximum
monthly payment on a private
education loan based on the maximum
possible rate of interest. As discussed
more fully in the section-by-section
analysis in § 226.47, the Board believes
that the required disclosure of the
maximum monthly payment amount at
the maximum rate satisfies the
requirement under § 226.18(f)(1)(iv) to
disclose a hypothetical example of the
payment terms resulting from an
increase in the rate. Comment 47(b)(1)–
1, proposed as comment 38(b)(1)–1,
clarifies that while creditors must
disclose the maximum payment at the
maximum possible rate, they need not
also disclose a separate example of the
payment terms resulting from a rate
increase under § 226.18(f)(1)(iv).
The Board also proposed to revise
comment 18(k)(1)–1 which currently
clarifies that interim interest on a
student loan is not considered a penalty
for purposes of the requirement in
§ 226.18(k)(1) to disclose whether or not
a penalty may be imposed if a loan is
prepaid in full. The proposal removed
the reference to interim interest on a
student loan as an example of what is
not a penalty. The Board did not intend
to indicate that interim interest on a
student loan is considered a penalty.
Rather, with the proposed removal of
§ 226.17(i) and associated commentary,
the reference to interim interest on a
student loan would no longer be clear.
Although the Board is retaining and
revising § 226.17(i), to avoid confusion
between the terms ‘‘student loan’’ and
‘‘private education loan,’’ the Board is
adopting the proposed revision to
comment 18(k)(1)–1. The Board believes
that the description of what constitutes
a penalty in the remainder of revised
comment 18(k)(1)–1 provides sufficient
clarity that interim interest on a student
loan would not be considered a penalty.
Subpart F
The final rule, as proposed, adds a
new Subpart F to contain the rules
relating to private education loans. In
the final rule, proposed §§ 226.37, 38,
and 39 have been redesignated to
§§ 226.46, 47, and 48. On July 23, 2009,
the Board proposed new disclosure
requirements for closed-end loans
secured by real property or a dwelling.
In order to make these proposed
provisions contiguous with the current
Special Rules for Certain Mortgage
Transactions in Subpart E, the Board
proposed to add the new disclosure

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requirements to §§ 226.37 and 226.38. In
order to accommodate the potential for
future rulemakings the Board is
reserving §§ 226.39 through 226.45.
Section 226.46 Special Disclosure
Requirements for Private Education
Loans
Section 226.46, proposed as § 226.37,
contains general rules about the
disclosure and other requirements
contained in Subpart F. Proposed
§ 226.37(a) specified that Subpart F
would apply only to private education
loans. Section 226.46(a) of the final rule
applies Subpart F to all extensions of
credit that meet the definition of a
private education loan in § 226.46(b)(5).
The final rule also permits, but does not
require, creditors to comply with
Subpart F for certain extensions of
credit subject to §§ 226.17 and 18 that
are related to financing an education.
Specifically, some commenters
requested clarification as to whether
certain loans that do not meet the
definition of private education loan, but
are extended to students who have
completed graduate school for expenses
related to relocation, medical internship
or residency, or bar study would be
covered. Under § 226.46(a) of the final
rule, compliance with Subpart F is
optional for extensions of credit that are
extended to a consumer for expenses
incurred after graduation from a law,
medical, dental, veterinary or other
graduate school and related to
relocation, study for a bar or other
examination, participation in an
internship or residency program, or
similar purposes. New comment 46(a)–
1 clarifies that if the creditor opts to
comply with Subpart F, it must comply
with all the applicable requirements of
Subpart F. It also clarifies that if the
creditor opts not to comply with
Subpart F it must comply with the
requirements in §§ 226.17 and 18.
Loans made for bar study, residency,
or internship expenses may not meet the
definition of ‘‘private education loan’’ in
§ 226.46(b)(5) if the extension of credit
will not be used, in whole or in part, for
‘‘postsecondary educational expenses’’
as specified in § 226.46(b)(3).
Consequently, under the HEOA,
compliance with Subpart F would not
be mandatory for such loans. However,
the Board believes that permitting
creditors to comply with Subpart F
benefits both creditors and consumers.
Creditor commenters requested the
ability to comply with Subpart F for
these loans because the loans are often
made along with private education
loans and share operational systems
with those loans. Optional compliance
would allow creditors to avoid the

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expense of maintaining separate
compliance systems. The Board also
believes that permitting creditors to
comply with Subpart F will benefit
consumers who will receive information
about credit terms earlier in the lending
process and gain the benefits of a 30-day
acceptance period and three-day right to
cancel.
Comment 46(a)–1, proposed as
comment 37(a)–1 clarifies that if any
part of a loan used for post-graduate
expenses is also used for postsecondary
educational expenses, then compliance
with Subpart F is mandatory not
optional. It also clarifies that, except
where specifically provided otherwise,
the requirements and limitations of
Subpart F are in addition to the
requirements of the other subparts of
Regulation Z.
46(b) Definitions
The HEOA amends TILA by adding a
number of defined terms in new TILA
sections 140 and 128(e). Section
226.46(b), proposed as § 226.37(b), adds
these definitions to Regulation Z.
The Board did not propose to add a
definition to Regulation Z for one new
term defined in the HEOA, ‘‘private
educational lender.’’ Instead, the Board
proposed to use Regulation Z’s existing
definition of ‘‘creditor’’ (12 CFR
226.2(a)(17)). The HEOA defines the
term ‘‘private educational lender’’ as a
financial institution, as defined in
section 3 of the Federal Deposit
Insurance Act (12 U.S.C. 1813), or a
Federal credit union, as defined in
section 101 of the Federal Credit Union
Act (12 U.S.C. 1752) that solicits, makes,
or extends private education loans.8 The
term also includes any other person
engaged in the business of soliciting,
making, or extending private education
loans. In the proposal, the Board stated
its belief that the ‘‘creditor’’ definition
would encompass persons ‘‘engaged in
the business of’’ extending private
education loans.9 The term ‘‘creditor’’
applies to a person who regularly
extends consumer credit, which is
defined as credit extended more than 25
times (or more than 5 times for
transactions secured by a dwelling) in
8 The term ‘‘financial institution’’ is not defined
in section 3 of the Federal Deposit Insurance Act
(12 U.S.C. 1813), but the Board interprets this term
to refer to the defined term ‘‘depository institution,’’
which is the most comprehensive definition in
section 3 of the Federal Deposit Insurance Act.
9 The HEOA also covers persons engaged in the
business of soliciting private education loans.
Under § 226.46(d)(1), proposed as § 226.37(d)(1),
the term solicitation is defined as an offer to extend
credit that does not require the consumer to
complete an application. The term ‘‘solicit’’ does
not include general advertising or invitations to
apply for credit.

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the preceding calendar year. 12 CFR
226.2(a)(17).
Under the HEOA, a depository
institution or Federal credit union
would be covered for any private
education loan it makes, regardless of
whether or not the institution regularly
extended consumer credit. By applying
the private education loan rules only to
‘‘creditors,’’ the Board proposed to
create an exception for depository
institutions and Federal credit unions
that do not regularly extend consumer
credit. The Board requested comment
on whether there were instances where
an institution that does not regularly
extend consumer credit nevertheless
makes an occasional private education
loan and should be covered by the rule.
The few commenters who addressed
this issue did not provide specific
examples of depository institutions or
Federal credit unions that make private
education loans but do not meet the
definition of creditor.
Under TILA section 105(a), the Board
may provide exceptions to TILA for any
class of transactions to facilitate
compliance with TILA. The Board
believes that in most cases depository
institutions and credit unions that
extend private education loans would
also be creditors under Regulation Z.
The definition of creditor applies to
institutions that extended consumer
credit of any type more than 25 times
in the preceding calendar year (or more
than 5 times for transactions secured by
a dwelling). That is, an institution need
not make more than 25 private
education loans to be covered. If an
institution makes 3 private education
loans and 23 automobile loans, that
institution is a creditor. For institutions
that do not meet the definition of
creditor, the compliance burden of the
private education loans rules appears
significant for the small number of loans
that they may extend. Applying the
private education loan rules to such
institutions would likely dissuade them
from providing private education loans,
diminishing competition and consumer
choice for those consumers who may
have access to such loans. Thus, the
Board believes that this exception is
necessary and proper to facilitate
compliance with TILA, and it is adopted
as proposed in the final rule.
The Board also proposed to exercise
its authority under TILA section 105(f)
in applying the private education loan
rules only to ‘‘creditors,’’ as defined in
Regulation Z, thereby exempting from
the requirements of HEOA depository
institutions and Federal credit unions
that do not regularly extend consumer
credit. The Board understands that the
private education loan population

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contains students who may lack
financial sophistication, and that the
amount of the loan may be large and the
loan itself may be important to the
borrower. The Board believes, however,
that because the number of instances
where a consumer would receive a
private education loan from an
institution that does not regularly
extend consumer credit is very limited,
the burden and expenses of compliance
that would be assumed by the
institution are not outweighed by the
benefit to the consumer. Furthermore,
the Board believes that the goal of
consumer protection would not be
undermined by this exemption and that,
after considering the 105(f) factors,
coverage would not provide a
meaningful benefit to consumers in the
form of useful protection.
The Board also requested comment on
whether other persons not covered by
the definition of ‘‘creditor’’ should be
covered by the rule. A few commenters
expressed concern that because the
current definition of ‘‘creditor’’ includes
only persons who met the thresholds for
regularly extending consumer credit in
the preceding calendar year, it would
not include new entrants into the
private education loan market in their
first year. These commenters suggested
that the definition be extended to
include those persons who intend to
regularly extend private education loans
for the coming calendar year.
As proposed, the final rule applies to
persons meeting the definition of
‘‘creditor’’ under § 226.2(a)(17). The
current definition provides persons with
certainty as to whether or not they are
covered by Regulation Z. An alternative
definition based on intent to regularly
extend credit would be subjective and
persons could not determine whether or
not they must comply with Regulation
Z until after the fact.
46(b)(1) Covered Educational Institution
The HEOA defines the term ‘‘covered
educational institution’’ to mean any
educational institution that offers a
postsecondary educational degree,
certificate, or program of study
(including any institution of higher
education) and includes an agent,
officer, or employee of the educational
institution. Included in the definition of
covered educational institution are
‘‘institutions of higher education,’’ as
defined under section 102 of the Higher
Education Act of 1965 (20 U.S.C. 1002).
The Higher Education Act of 1965
contains two definitions of the term
‘‘institution of higher education;’’ a
narrower definition in section 101, and
a broader definition in section 102. See
20 U.S.C. 1001, 1002. The HEOA

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explicitly uses the broader definition in
section 102 of the Higher Education Act
of 1965. HEOA Title X, Section 1001
(adding TILA Section 140(a)(3)). The
more expansive definition of institution
of higher education, as interpreted by
the Department of Education’s
regulations (34 CFR 600), appears broad
enough to encompass most educational
institutions that offer postsecondary
educational degrees, certificates, or
programs of study. The definition of
institution of higher education under
section 102 of the Higher Education Act
of 1965, however, would not include
certain unaccredited educational
institutions that offer postsecondary
educational degrees, certificates, or
programs of study. The HEOA’s
definition of ‘‘covered educational
institution’’ appears to be broader than
the definition of ‘‘institution of higher
education’’ because the former includes,
but is not limited to, the latter. For this
reason, § 226.46(b)(1), proposed as
§ 226.37(b)(1), defines ‘‘covered
educational institution’’ as an
educational institution (as well as an
agent, officer or employee of the
institution) that would meet the
definition of an institution of higher
education as defined in § 226.46(b)(2),
without regard to the institution’s
accreditation status.
Comment 46(b)(1)–1, proposed as
comment 37(b)(1)–1, clarifies that if an
educational institution would not be
considered an ‘‘institution of higher
education’’ solely on account of the
institution’s lack of accreditation, the
institution nonetheless would be a
‘‘covered educational institution.’’ It
also clarifies that a covered educational
institution may include, for example, a
private university or a public
community college. It may also include
an institution, whether accredited or
unaccredited, that offers instruction to
prepare students for gainful
employment in a recognized profession
such as flying, culinary arts, or dental
assistance. Under the definition, a
covered educational institution does not
include elementary or secondary
schools.
Although the definition of ‘‘covered
educational institution’’ under the Title
X of the HEOA includes an agent, officer
or employee of a covered educational
institution, the term ‘‘agent’’ is not
explicitly defined in that section of the
HEOA. However, section 151 of the
HEOA defines an ‘‘agent’’ as an officer
or employee of a covered institution or
an institution-affiliated organization and
excluding any creditor regarding any
private education loan made by the
creditor. Proposed comment 37(b)(1)–2
clarified that an ‘‘agent’’ for the

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purposes of defining a covered
educational institution is an officer or
employee of an institution affiliated
organization. Comment 46(b)(1)–2 in the
final rule further clarifies that an
‘‘agent’’ of a covered educational
institution includes the institutionaffiliated organization itself, as well as
an officer or employee of an institutionaffiliated organization.
46(b)(2) Institution of Higher Education
The HEOA added the term
‘‘institution of higher education’’ to
TILA Section 140(a)(3) and defined it to
have the same meaning as in section 102
of the Higher Education Act of 1965 (20
U.S.C. 1002). The definition
encompasses, among other institutions,
colleges and universities, proprietary
educational institutions and vocational
educational institutions. Proposed
§ 226.37(b)(2) defined ‘‘institution of
higher education’’ with reference to
section 102 of the Higher Education Act
of 1965 and to the implementing
regulations promulgated by the
Department of Education. However, on
May 22, 2009, after passage of the HEOA
and publication of the Board’s proposed
rule, the Credit Card Accountability
Responsibility and Disclosure Act of
2009 (‘‘Credit CARD Act’’) amended
TILA and added a definition of the term
‘‘institution of higher education’’ to
TILA section 127 that differs slightly
from the definition of ‘‘institution of
higher education’’ in TILA section 140.
The Credit CARD Act amendment to
TILA defines ‘‘institution of higher
education’’ to include both sections 101
and 102 of the Higher Education Act of
1965. Credit CARD Act, Title III, Section
305 (adding TILA section 127(r)(1)(D)).
The definition of institution of higher
education in TILA section 127 does not
apply to private education loans.
However, the Credit CARD Act added
substantive provisions that apply to
‘‘institutions of higher education’’ to
TILA section 127 and section 140,
indicating that the difference between
the two definitions was inadvertent.
Thus, the Board believes that the two
definitions of ‘‘institution of higher
education’’ should be reconciled. In
order to ensure that the definition of
‘‘institution of higher education’’ is
consistent throughout Regulation Z, the
final rule adopts a definition of
‘‘institution of higher education’’ that
includes both sections 101 and 102 of
the Higher Education Act of 1965. The
Board understands, after consulting
with the Department of Education, that
intuitions covered under section 101 of
the Higher Education Act of 1965 would
also be covered under section 102 of the
Higher Education Act. As a result, the

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Board is not expanding the coverage of
the final rule, but rather is adopting a
definition that is consistent with the
most recent statutory amendment to
TILA. The Board is adopting comment
46(b)(2)–1, proposed as comment
37(b)(2)–1, providing examples of
institutions of higher education.
46(b)(3) Postsecondary Educational
Expenses
The HEOA defines ‘‘postsecondary
educational expenses’’ as any of the
expenses that are listed as part of the
cost of attendance of a student under
section 472 of the Higher Education Act
of 1965 (20 U.S.C. 1087ll). Section
226.46(b)(3) adopts this definition as
proposed in § 226.37(b)(3), and provides
illustrative examples of postsecondary
educational expenses. Examples
included tuition and fees, books,
supplies, miscellaneous personal
expenses, room and board, and an
allowance for any loan fee, origination
fee, or insurance premium charged to a
student or parent for a loan incurred to
cover the cost of the student’s
attendance. Comment 46(b)(3)–1,
adopted as proposed in comment
37(b)(3)–1, clarifies that the examples in
the rule are not exhaustive.
46(b)(4) Preferred Lender Arrangement
The HEOA defines ‘‘preferred lender
arrangement’’ as having the same
meaning as in section 151 of the Higher
Education Act of 1965 (20 U.S.C 1019).
Section 226.46(b)(4), proposed as
§ 226.37(b)(4), adopts this definition.
Comment 46(b)(4)–1, proposed as
comment 37(b)(4)–1, clarifies that the
term refers to an arrangement or
agreement between a creditor and a
covered educational institution under
which a creditor provides education
loans to consumers for students
attending the school and the school
recommends, promotes, or endorses the
creditor’s private education loans. It
does not include arrangements or
agreements with respect to Federal
Direct Stafford/Ford loans, or Federal
PLUS loans made under the Federal
PLUS auction pilot program.
46(b)(5) Private Education Loan
Proposed § 226.37(b)(5) implemented
the HEOA’s definition of a ‘‘private
education loan.’’ Under the proposal, a
private education loan was defined as a
loan that is not made, insured, or
guaranteed under title IV of the Higher
Education Act of 1965 (20 U.S.C. 1070
et seq.) and is extended expressly, in
whole or in part, for postsecondary
educational expenses to a consumer,
regardless of whether the loan is
provided through the educational

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institution that the student attends. A
private education loan excluded any
credit otherwise made under an openend credit plan. It also excluded any
closed-end loan secured by real
property or a dwelling.
Proposed comment 37(b)(5)–1
clarified that a loan made ‘‘expressly
for’’ postsecondary educational
expenses included loans issued
explicitly for expenses incurred while a
student is enrolled in a covered
educational institution. It also covered
loans issued to consolidate a consumer’s
pre-existing private education loans.
Under § 226.46(b)(5) and related
commentary, the Board is adopting the
definition of ‘‘private education loan’’
substantially as proposed, but with
exceptions for certain credit extensions
provided by covered educational
institutions. Extensions of credit with a
term of 90 days or less, and tuition
billing plans where an interest rate will
not be applied to a balance and the term
of the transaction is not greater than one
year, even if the credit is payable in
more than four installments, are exempt.
Loans used for multiple purposes.
Proposed comment 37(b)(5)–2 addressed
loans, other than open-end credit or any
loan secured by real property or a
dwelling, that a consumer may use for
multiple purposes, including
postsecondary education expenses.
Under the proposal, creditors extending
such loans, could, at their option,
provide the disclosures under
§ 226.38(a) on or with an application or
solicitation. However, under
§ 226.37(d)(1)(iii), the Board proposed to
exercise its authority under TILA
section 105(a) and except multi-purpose
loans from the application disclosure
requirements of proposed § 226.38(a).
As explained below, the Board stated its
belief that this exception is necessary
and proper to effectuate the purposes of,
and facilitate compliance with, TILA.
The Board also proposed to exercise
its authority under TILA section 105(f)
to exempt such loans from the proposed
§ 226.38(a) disclosure requirements
implementing TILA section 128(e)(1).
The Board stated its view that these
application and solicitation disclosure
requirements do not provide a
meaningful benefit to consumers in the
form of useful information or protection
for loans that may be used for multiple
purposes. The Board considered that the
private education loan population
includes many students who may lack
financial sophistication and the size of
the loan could be relatively significant
and important to the borrower.
However, with respect to loans that may
be used for multiple purposes, the
creditor may not know at application if

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the consumer intends to use such loans
for educational purposes. A requirement
to provide a consumer with the
proposed § 226.38(a) disclosures would
likely have been complicated and
burdensome to creditors and potentially
infeasible to implement. Furthermore,
the Board believed that the borrower
would receive meaningful information
about the loan through the subsequent
approval and final disclosures required
under proposed §§ 226.38(b) and 38(c),
respectively. The HEOA also provides
borrowers with significant rights, such
as the right to cancel the loan. The
Board recognized that such multipurpose loans would not be secured by
the principal residence of the consumer,
which is a factor for consideration
under section 105(f). The Board stated
its belief that consumer protection
would not be undermined by this
exemption.
Proposed comment 37(b)(5)–2
clarified that if the consumer expressly
indicates on an application that the
proceeds of the loan will be used to pay
for postsecondary educational expenses,
the creditor must comply with the
disclosure requirements of proposed
§§ 226.38(b) (approval disclosures) and
38(c) (final disclosures) and proposed
§ 226.39 (including the 30 day
acceptance period and three-businessday right to cancel). To determine the
purpose of the loan, proposed comment
37(b)(5)–2 stated that the creditor may
rely on a check-box or purpose line on
a loan application.
Proposed comment 37(b)(5)–2 also
clarified that the creditor must base the
disclosures on the entire amount of the
loan, even if only a part of the proceeds
is intended for postsecondary
educational expenses. The Board’s view
was that this approach would be the
least administratively burdensome for
creditors and would also be clearer to
consumers. Providing disclosures based
on a partial loan amount might cause a
consumer to misinterpret the correct
amount of his or her loan obligation.
Therefore, the Board proposed to
exercise its authority under TILA
section 105(a) to require that the
approval and final disclosure
requirements of HEOA be applied to the
portion of the loan that is not a private
education loan. As explained above, the
Board stated its belief that this provision
is necessary and appropriate to assure a
meaningful disclosure of credit terms
for consumers.
The Board requested comment on
whether the private education loan
application disclosures should be
required for loans that may be used for
multiple purposes, or, alternatively,
whether such loans should be exempt

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from any of the other disclosure
requirements. The Board also requested
comment on whether creditors who
make loans that may be used for
multiple purposes should be required to
comply with the requirement to obtain
a self-certification form under proposed
§ 226.39(e) and, if so, whether creditors
should be required to obtain the selfcertification form only from consumers
who are students, or from all
consumers, such as parents of a student.
The Board received numerous
comments on the proposed application
of the private education loan rules to
loans that may be used for multiple
purposes. Industry commenters,
including both large and small
institutions and their representatives,
stated that applying the proposed rule to
such loans would be burdensome. Small
institutions stated that the additional
disclosures and timing requirements
would not be beneficial to their
customers who expect to be able to
apply for and receive installment loans
quickly based on an existing
relationship with the institution. Larger
institutions noted that they often have
dedicated student lending operations
and that applying the rules to general
installment loans would require them to
update systems not only for their
student lending divisions, but also for
other lending divisions. Some
commenters expressed concern that,
rather than build systems to comply
with the private education loan rules,
some institutions would decline to
make a loan if the consumer indicated
that the funds would be used for
postsecondary educational expenses.
Commenters also expressed concern
that basing the disclosures on the entire
loan amount, rather than the amount
used for educational expenses would
cause confusion.
By contrast, consumer group
commenters supported the proposed
inclusion of loans that may be used for
multiple purposes, noting the concern
that exempting such loans could create
an opportunity for evasion of the
proposed rules. They also supported
basing the disclosures on the entire loan
amount, rather than the amount used for
educational expenses. These
commenters suggested that creditors be
required to inquire whether a loan
would be used for postsecondary
educational expenses.
The final rule would cover
multipurpose loans largely as proposed.
The Board believes that coverage of
loans that may be used for multiple
purposes is warranted by the statutory
inclusion of loans made ‘‘expressly,’’
that is, explicitly, for postsecondary
educational expenses. The Board also

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believes that there is potential for
evasion of the rules if creditors could
avoid compliance by lending the
consumer more than the amount needed
for educational purposes. One of the
goals of the HEOA is to prevent students
from borrowing more than their
financial need to finance their
education. Comment 46(b)(5)–2
provides that the creditor may rely on
a check-box or purpose line in an
application to determine the loan’s
purpose. In addition, the creditor must
base the disclosures on the entire
amount of the loan, even if only part of
the loan is to be used for postsecondary
educational expenses. The Board
believes that providing disclosures
based on a partial loan amount might
cause a consumer to misinterpret the
correct amount of his or her loan
obligation. The Board is also adopting
the exception to the requirement that
the application disclosures under
§ 226.47(a) be provided for multiplepurpose loans. The creditor may not
know at application if the consumer
intends to use such loans for
educational purposes. A requirement to
provide a consumer with the § 226.47(a)
disclosures would likely be complicated
and burdensome to creditors and
potentially infeasible to implement.
Credit provided by educational
institutions. In addition to comments
about loans that may be used for
multiple purposes, the Board received a
number of comments from educational
institutions requesting clarification as to
whether tuition billing plans were
covered by the proposed rules. These
commenters noted that such billing
plans do not involve a disbursement of
funds to the consumer and do not
involve the application of an interest
rate to a balance. Consequently, a major
part of the new disclosures required by
the HEOA, such as disclosures about
interest rates and payment amounts at
the maximum interest rate, would not
apply to such billing option plans. In
addition, these commenters suggested
that neither the 30 day acceptance
period nor the three-day right to cancel
would be meaningful to consumers in a
context where no funds are disbursed to
the consumer. Most commenters who
addressed this issue noted that these
billing plans usually have terms of one
year or less.
Under § 226.46(b)(5)(iv)(B), the Board
is revising the definition of ‘‘private
education loan’’ to exclude certain
billing plans provided by educational
institutions. If payable in more than four
installments, these plans may be
considered credit under Regulation Z
and would be subject to the
requirements of §§ 226.17 and 18.

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However, the Board agrees with
commenters that the additional
disclosure and timing rules for private
education loans would not provide
meaningful disclosures to consumers
and could potentially make it more
difficult for consumers to benefit from
flexible payment options. The Board
believes that the disclosure
requirements under §§ 226.17 and 18
provide consumers with adequate
information for these types of plans. In
response to public comment, the Board
is exercising its authority under TILA
section 105(a) to adopt a narrow
exception for billing plans that do not
apply an interest rate to the credit
balance and have a term of one year or
less, even if payable in more than four
installments. Based on public comment,
the Board believes that the limited
exception for billing plans of one year
or less that do not charge interest will
provide sufficient flexibility to schools
to accommodate students’ payment
needs while ensuring that extensions of
credit that are more likely to be a
substitute for a private education loan
are covered. Comment 46(b)(5)–3
clarifies that such plans may
nevertheless be extensions of credit
subject to §§ 226.17 and 18. As
explained above, the Board believes that
this exception is necessary and proper
to effectuate the purposes of, and
facilitate compliance with, TILA.
Educational institution commenters
also requested an exemption for
‘‘emergency’’ loans provided to a
student for a short term while the
student waits for other funds to be
disbursed. Most commenters that
requested an exemption for these
‘‘emergency’’ loans stated that they have
a term of 90 days or less. Because these
loans may charge interest, they would
not fall under the exemption for billing
payment plans. However, as with billing
payment plans, the Board believes that
the additional disclosures required by
the HEOA, such as the maximum rate
disclosures, would not provide a
meaningful benefit to consumers taking
out short-term loans. Creditors would
still be obligated to provide the general
disclosures required under Regulation
Z. Moreover, these commenters focused
particularly on the burden that could be
imposed on students by the prohibition
on disbursing funds during the threeday cancellation period. For example, if
delayed disbursement caused the
student to fail to meet a tuition payment
deadline the student may not be
allowed to enroll in school, increasing
the time needed to graduate. The Board
believes that short-term loans provided
by the school benefit consumers and

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that the HEOA’s requirements,
especially the three-day cancellation
period, could impair their effectiveness
by delaying disbursement of loan
proceeds without providing a
meaningful benefit to students.
Accordingly, the final rule exempts
loans provided by the school with a
term of 90 days or less.
Comment 46(b)(5)–3 clarifies that
such loans are not considered private
education loans, even if interest is
charged on the credit balance. Because
these loans charge interest, they are not
covered by the exception under
§ 226.46(b)(5)(iv)(B). However, these
loans are extensions of credit subject to
the requirements of §§ 226.17 and 18.
The comment clarifies that if legal
agreement provides that repayment is
required when the consumer or the
educational institution receives certain
funds (such as by deposit into the
consumer’s or educational institution’s
account), the disclosures should be
based on the creditor’s estimate of the
time the funds will be delivered.
The exceptions that apply when the
covered educational institution is the
creditor apply only when the school
itself is the creditors and not when an
institution-affiliated organization is the
creditor. The definition of covered
educational institution in § 226.46(b)(1)
includes an agent of the institution,
meaning and institution-affiliated
organization. Comment 46(b)(1)–2
clarifies that institution-affiliated
organization does not include the
creditor with respect to any private
education loan made by that creditor.
Thus, if an institution-affiliated
organization is the creditor, it is not a
‘‘covered educational institution’’ and
the institution-affiliated organization’s
loans are not exempt.
Educational institution commenters
also requested clarification as to
whether state ‘‘service requirement’’
programs would be considered private
education loans. Under these programs,
money is disbursed to students who
agree as part of the legal obligation to
complete a service obligation, such as
teaching or practicing medicine in an
underserved area. If the consumer
completes the obligation, no repayment
of principal or interest is required.
However, if the consumer does not
complete the service obligation, under
the terms of the legal obligation, the
consumer is required to repay the funds
with interest.
The Board notes that the definition of
‘‘credit’’ under § 226.2(a)(14) means the
right to defer payment of debt or to
incur debt and defer its payment.
Certain ‘‘service requirement’’ programs
may not be credit under Regulation Z if

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the terms of the legal obligation
contemplate that the consumer will not
be required to repay principal or interest
on disbursed funds. If the consumer is
required to repay disbursed funds only
in connection with an unanticipated
breach of the consumer’s legal
obligation to perform a service, the
consumer may not have a credit
extension under Regulation Z.
46(c) Form of Disclosures
Similar to the requirements imposed
by § 226.17 for the disclosures required
by § 226.18, the Board is adopting
§ 226.46(c)(1), proposed as
§ 226.37(c)(1), to require the disclosures
for private education loans be made
clearly and conspicuously. The Board is
also adopting § 226.46(c)(2), proposed as
§ 226.37(c)(2), to require that the
approval and final disclosures under
§§ 226.47(b) and 47(c) to be in writing
in a form that the consumer may keep.
The disclosures must be grouped
together, be segregated from everything
else, and not contain any information
not directly related to the disclosures
required under §§ 226.47(b) and 47(c),
which include the disclosures required
under § 226.18. However, the
disclosures may include an
acknowledgement of receipt, the date of
the transaction, and the consumer’s
name, address, and account number. In
addition, as proposed, the following
disclosures may be made together with
or separately from other required
disclosures as permitted under current
§ 226.17: the creditor’s identity under
§ 226.18(a), insurance or debt
cancellation under § 226.18(n), and
certain security interest charges under
§ 226.18(o).
As proposed, the term ‘‘finance
charge’’ and corresponding amount,
when required to be disclosed under
§ 226.18(d), and the interest rate
required to be disclosed under
§§ 226.47(b)(1)(i) and 47(c)(1), must be
more conspicuous than any other
disclosure, except the creditor’s identity
under § 228.18(a). As discussed in the
section-by-section analysis under
§ 226.17, the annual percentage rate is
not required to be more prominent than
other terms.
Comment 46(c)–1, proposed as
comment 37(c)–1, clarifies that creditors
may follow the rules in § 226.17 in
complying with the requirement to
provide the information required under
§ 226.18, as well as the requirement that
the disclosures be grouped together and
segregated from everything else.
However, in contrast to § 226.17, the
itemization of the amount financed
under § 226.18(c)(1) need not be
separate from the other disclosures.

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TILA Section 128(b)(1) requires any
computations or itemization to be
segregated from the disclosures required
in TILA Section 128(a). However, the
HEOA requires creditors to disclose a
number of terms that are part of the
itemization of the amount financed
under § 226.18(b), such as the principal
amount of the loan and an itemization
of fees. See §§ 226.47(b)(2), 47(b)(3)(i),
47(c)(2) and 47(c)(3)(i). Based on
consumer testing, the Board believes
that consumers may be confused about
the difference between the required
disclosure of the amount financed
(§ 226.18(b)) and the loan’s total
principal amount in cases where those
two disclosures are different. Providing
an itemization can help clarify
distinction between the ‘‘amount
financed’’ and the ‘‘total loan amount’’
by showing the consumer how the
amount financed is derived. It can also
provide a clear and understandable
disclosure of certain fees. For these
reasons, the Board is exercising its
authority under TILA section 105(a) to
except private education loans from the
requirement that the itemization of the
amount financed be segregated from the
other disclosures. The Board believes
that this exception is necessary and
proper to effectuate the purposes of, and
facilitate compliance with, TILA.
The Board proposed to allow creditors
to provide the disclosure of the loan’s
total principal amount as part of the
itemization of the amount financed, if
the creditor opts to provide an
itemization. However, because the final
model disclosures provide the loan’s
total principal amount, not the amount
financed, prominently, the final rule
allows the creditor to disclose the
amount financed as part of the
itemization if the creditor opts to
provide an itemization.
Section 226.46(c)(2), proposed as
§ 226.37(c)(2), permits creditors to make
disclosures to consumers in electronic
form, subject to compliance with the
consumer consent and other applicable
provisions of the Electronic Signatures
in Global and National Commerce Act
(E-Sign Act) (15 U.S.C. 7001 et seq.).
The disclosures required by § 226.47(a)
may be provided to the consumer in
electronic form without regard to the
consumer consent or other provisions of
the E-Sign Act on or with an application
or solicitation provided in electronic
form. The self-certification form
required under § 226.48(e) may be
obtained in electronic form subject to
the requirements in that section. In
addition, as discussed below in the
section-by-section analysis under
§§ 226.48(c) and (d), if creditors have
provided the approval or final

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disclosures electronically in accordance
with the E-Sign Act, creditors may
accept electronic communication of
loan acceptance or cancellation,
respectively.
Comment 46(c)(2)–1, proposed as
comment 37(c)(2)–1, contains guidance
on the manner in which disclosures
may be provided in electronic form.
Electronic disclosures are deemed to be
on or with an application or solicitation
if they—(1) Automatically appear on the
screen when the application or
solicitation reply form appears; (2) are
located on the same Web ‘‘page’’ as the
application or solicitation reply form
and the application or reply form
contains a clear and conspicuous
reference to the location and content of
the disclosures; or (3) are posted on a
Web site and the application or
solicitation reply form is linked to the
disclosures in a manner that prevents
the consumer from by-passing the
disclosures before submitting the
application or reply form. This
approach is consistent with the rules for
electronic disclosures for credit and
charge card applications under
comment 5a(a)(2)–1.ii.
46(d) Timing of Disclosures
Section 226.46(d), proposed as
§ 226.37(d), contains the rules governing
the timing of the proposed disclosures.
Proposed comment 37(d)–1 contained
guidance specifying that if the creditor
places the disclosures in the mail, the
consumer is considered to have received
them three business days after they are
mailed. For purposes of proposed
§§ 226.37, 226.38, and 226.39, the term
‘‘business day’’ was given the more
precise definition used for rescission
and other purposes, meaning all
calendar days except Sundays and the
Federal holidays referred to in
§ 226.2(a)(6).
As discussed in the section-by-section
analysis under § 226.2(a)(6), in the final
rule the more precise definition of
‘‘business day’’ applies only to
measuring the time period in which
consumers are deemed to have received
mailed disclosures. The final rule
includes a new § 226.46(d)(4) providing
that the consumer is deemed to have
received mailed disclosures within
three business days after they are
mailed. Comment 46(d)–1 clarifies that
the definition of ‘‘business day’’ used in
§ 226.46(d)(4) means all calendar days
except Sundays and the Federal
holidays referred to in § 226.2(a)(6). For
example, if the creditor places the
disclosure in the mail on Thursday,
June 4, the disclosures are considered
received on Monday, June 8.

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Proposed comment 37(d)–1 stated that
the disclosures are considered provided
when received by the consumer.
However, in order to clarify the timing
of different aspects of the final rule, this
is not adopted in comment 46(d)–1.
Instead, as discussed in this section-bysection analysis under § 226.46, the
final rule specifies when disclosures
must be provided and, as discussed in
the section-by-section analysis under
§ 226.48, the final rule provides
guidance on when disclosures are
deemed to be received by the consumer
for purposes of measuring the 30-day
acceptance period and three-day
cancellation period.
Application disclosures. The HEOA
requires creditors to provide disclosures
in an application or in a solicitation that
does not require the consumer to
complete an application. HEOA, Title X,
Subtitle B, Section 1021(a) (adding TILA
section 128(e)(1)). Under
§ 226.46(d)(1)(i), proposed as
§ 226.37(d)(1), creditors are allowed to
provide the disclosures on or with the
application or solicitation because the
disclosures are likely to be longer than
a single page. The final regulation, as
proposed, defines the term
‘‘solicitation’’ to mean an offer of credit
that does not require the consumer to
complete an application. A
‘‘solicitation’’ would also include a
‘‘firm offer of credit’’ as defined in the
Fair Credit Reporting Act (FCRA). 15
U.S.C. 1681 et seq. Because consumers
who receive ‘‘firm offers of credit’’ have
been preapproved to receive credit and
may be turned down only under limited
circumstances, the Board believes that
these preapproved offers are of the type
intended to be captured as a
‘‘solicitation,’’ even though consumers
are typically asked to provide some
additional information in connection
with accepting the offer. The definition
of ‘‘solicitation’’ is similar to that
contained in § 226.5a(a)(1) for credit and
charge card application disclosures.
Comment 46(d)(1)–1, proposed as
comment 37(d)(1)–1, provides
additional guidance that invitations to
apply for a private education loan
would not be considered solicitations.
Proposed § 226.37(d)(1)(ii) dealt with
provision of disclosures in a telephone
application or solicitation initiated by
the creditor. The creditor was allowed,
but not required, to orally disclose the
information in proposed § 226.38(a).
Alternatively, if the creditor did not
disclose orally the information in
§ 226.38(a), the creditor was required to
provide or place in the mail the
disclosures no later than three business
days after the consumer applied for the
credit. The Board stated its belief that

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orally disclosing to consumers all of the
information in proposed § 226.38(a),
including rate and loan cost
information, information about Federal
loan alternatives, and loan eligibility
requirements, may make it difficult for
consumers to comprehend and retain
the information.
The Board requested comment on
alternatives to providing application
disclosures in telephone applications or
solicitations initiated by the creditor. In
response to comment, the final rule
revises the proposal in two ways. First,
under § 226.47(d)(1)(ii), the oral
disclosure provisions for telephone
applications or solicitations apply
regardless of whether the creditor or the
consumer initiates the communication.
Both industry and consumer group
commenters stated that consumers of
private education loans often initiate
telephone applications and suggested
that both consumers and creditors
would benefit if the same rules applied
regardless of which party initiates the
communication.
Second, the Board recognized in the
proposal that creditors may sometimes
be able to communicate approval of the
consumer’s application at the same time
that the creditor would provide the
application disclosures. Consumers may
be confused by receiving both the
application disclosures and the
approval disclosures at the same time.
Therefore, the Board proposed to
exercise its authority under TILA
section 105(a) to create an exception
from the requirement to provide the
application disclosures under proposed
§ 226.38(a) if the creditor did not
provide oral application disclosures but
did provide or place in the mail the
approval disclosures in proposed
§ 226.38(b) no later than three business
days after the consumer requested the
credit. As explained above, the Board
stated its belief that this exception is
necessary and proper to assure a
meaningful disclosure of credit terms
for consumers.
The Board also proposed to exercise
its authority under TILA section 105(f)
in proposing the exemption, described
above, from the requirement to provide
the application disclosures under
proposed § 226.38(a), as required by
TILA section 128(e)(1). The Board
believed that, as described above, the
application disclosure requirements
would not provide a meaningful benefit
to consumers in the form of useful
information or protection because they
would also contemporaneously receive
the approval disclosures which would
provide the consumer with adequate
information. Moreover, the Board stated
its view that receiving both the

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application and approval disclosures at
the same time may complicate and
hinder the credit process by causing
consumer confusion. The Board
recognized that the private education
loan population contains students who
may lack financial sophistication, and
that the amount of the loan may be large
and the loan itself may be important to
the consumer. The Board also noted that
private education loans are not secured
by the consumer’s residence and that
HEOA provides the consumer with the
right to cancel the loan. Finally, in
considering the last factor under section
105(f), the Board did not believe that the
goal of consumer protection would be
undermined by such an exemption.
Commenters supported this aspect of
the proposal, but industry commenters
also suggested that if creditor denies the
consumer’s application within three
business days of the telephone
communication, the creditor should not
be required to provide the application
disclosures. The Board agrees that it
would be confusing for the consumer to
receive an adverse action notice
simultaneously with or shortly after
receiving the application disclosures.
Under § 226.47(d)(1)(ii) of the final rule,
if the creditor does not provide the
application disclosures orally and the
creditor denies the consumer’s
application within three business days,
the creditor need not send the
application disclosures.
As discussed above in the section-bysection analysis under § 226.46(b)(5),
§ 226.46(d)(1)(iii) would create an
exception to the application disclosure
requirement for a loan, other than openend credit or any loan secured by real
property or a dwelling, that the
consumer may use for multiple
purposes including, but not limited to,
postsecondary educational expenses.
Approval disclosures. Section
226.46(d)(2), proposed as § 226.37(d)(2),
requires that the disclosures specified in
§ 226.47(b) be provided before
consummation on or with any notice to
the consumer that the creditor has
approved the consumer’s application for
a loan. If the creditor provides approval
to the consumer by mail, the disclosures
have to be mailed at the same time as
the approval. If the creditor provides
approval by telephone, the creditor
must place the disclosures in the mail
within three business days of the
approval. The creditor may provide the
disclosures solely in electronic form if
the creditor has complied with the
consumer consent and other applicable
provisions of the Electronic Signatures
in Global and National Commerce Act
(E-Sign Act) (15 U.S.C. § 7001 et seq.);
otherwise, the creditor must place the

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41207

disclosures in the mail within three
business days.
The HEOA requires that the
disclosures be provided
contemporaneously with loan approval.
However, loan approval is an internal
process of the creditor’s and it often
may not be feasible to provide the
disclosures at the precise moment that
the creditor approves the loan. The
Board believes that by requiring the
disclosures be provided at the time the
creditor communicates approval to the
consumer, the consumer will receive the
information at the earliest opportunity
contemporaneous with loan approval. In
addition, the rule provides creditors
with certainty as to when the disclosure
must be provided. The Board believes
that creditors are likely to notify the
consumer that the loan has been
approved shortly after approval is
granted because the creditor cannot
consummate and disburse the loan until
the consumer has received the required
approval disclosures and accepted the
loan.
The Board requested comment on
alternative approaches to the timing of
the approval disclosure. As discussed
more fully in the section-by-section
analysis under § 226.48(c), industry
commenters requested clarification as to
when ‘‘approval’’ occurs. They noted
that they currently provide conditional
notices of approval to consumers but
that final approval does not occur until
information provided by the consumer
and the educational institution are
verified. These commenters noted that
under the prohibition on changing terms
during the consumer’s 30-day
acceptance period in proposed
§ 226.39(b), they could no longer
provide conditional approvals and
expressed concern that final approvals
would come too late in the process for
the 30-day acceptance period to be
meaningful to consumers.
The final rule requires creditors to
provide the approval disclosures on or
with any notice of approval, as
proposed. However, to ensure that the
approval disclosure comes as early as
reasonably possible consistent with the
HEOA’s prohibition on the creditor
changing the terms of the loan,
§ 226.48(c) allows creditors to make
certain, limited changes to loan terms
after loan approval without providing
another 30-day acceptance period. In
addition, comment 46(d)(2)–1 explicitly
permits the creditor to communicate
that additional information is required
from the consumer before approval may
be granted, without triggering the
disclosure requirements of § 226.47(b).
Final disclosures. Proposed
§ 226.37(d)(3) required final disclosures

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to be provided to the consumer after the
consumer accepts the loan and at least
three business days prior to disbursing
the private education loan funds.
In the final rule § 226.46(d)(3),
requires the final disclosures to be
provided to the consumer after the
consumer accepts the loan, but does not
base the timing on when the private
education loan funds are disbursed.
Section 226.48(d) prohibits the creditor
from disbursing funds until at least
three business days after the consumer
receives the final disclosures. The
reference in proposed § 226.37(d)(3) to
the disbursement of funds was
potentially confusing and did not add a
meaningful restriction on the timing of
providing the disclosures.
In both the proposed and final rule,
the timing of the final disclosure differs
slightly from the language used in the
HEOA. For the reasons discussed below,
the Board believes that creditors may
not always be able to comply with the
literal text of the HEOA, and that the
Board’s timing rule implements the
purpose of the HEOA’s final disclosure.
The HEOA requires a final disclosure
contemporaneously with the
consummation of a private education
loan. HEOA, Title X, Subtitle B, Section
1021(a) (adding TILA Section 128(e)(4)).
Regulation Z defines ‘‘consummation’’
as the time that a consumer becomes
contractually obligated on a credit
transaction. 12 CFR 226.2(a)(13). The
corresponding staff commentary
provides that applicable state law
governs in determining when a
consumer becomes contractually
obligated.10 The Board recognizes that
states define when a consumer becomes
contractually obligated in a variety of
ways. The multiple state definitions
could result in considerable confusion
among creditors as to the required
timing of the final disclosures. Under
many current private education loan
agreements, the consumer is not
contractually obligated until funds are
disbursed to the consumer. This would
create a compliance problem for
creditors making loans in these cases
because, in addition to requiring
delivery of the final disclosures
contemporaneously with
consummation, the HEOA forbids
creditors from disbursing funds until
three business days after the consumer
receives the final disclosures. Thus,
where the consumer is not contractually
obligated until the funds are disbursed,
creditors cannot comply with the literal
10 The comment states that when a contractual
obligation on the consumer’s part is created is a
matter to be determined under applicable law;
Regulation Z does not make this determination.
Comment 2(a)(13)–1.

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language of the HEOA; a creditor cannot
simultaneously provide a disclosure at
the time of disbursement and not
disburse funds until three business days
after the disclosure is provided. The
HEOA adds further complexity to
determining when the consumer
becomes contractually obligated because
it requires creditors to provide an
approval disclosure to the consumer
and hold the terms open for 30 days for
the consumer to accept. It is not clear
how this process would affect various
states’ interpretations of when the
consumer becomes contractually
obligated. Thus, creditors may face
considerable uncertainty as to when the
required disclosures must be provided.
The Board interprets the phrase
‘‘contemporaneously with
consummation’’ to mean a time after the
consumer accepts the loan that is at
least three days before disbursement.
Accordingly, the Board is adopting
§ 226.46(d)(3) to require that the final
disclosures be provided after the
consumer accepts the loan and, as
discussed in the section-by-section
analysis below, § 226.48(d) to prohibit
disbursement until three days after the
consumer receives the final disclosures.
The Board solicited comment on
alternative approaches to the timing of
the final disclosure that achieve the
statutory purpose while ensuring that
compliance is possible in all cases and
commenters generally supported the
Board’s approach. The Board believes
that the purpose of the final disclosure,
and the consumer’s three-business day
right to cancel following receipt of that
disclosure, is to ensure that consumers
are given a final opportunity to evaluate
their need for a private education loan
after acceptance and before the funds
are actually disbursed. The Board
believes that rule will accomplish the
statute’s objectives while ensuring that
creditors have reasonable certainty in
complying with the rule’s timing
requirement.
46(e) Basis of Disclosures and Use of
Estimates
Section 226.46(e), adopted as
proposed in § 226.37(e), requires that
the disclosures be based on the terms of
the legal obligation between the parties
and is similar to current § 226.17(e). If
any information necessary for an
accurate disclosure is unknown to the
creditor, the creditor must make the
disclosure based on the best information
reasonably available at the time the
disclosure is provided and state clearly
that the disclosure is an estimate. For
example, the creditor may not know the
exact date that repayment will begin at
the time that credit is advanced to the

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consumer. The creditor is permitted to
estimate a repayment start date based
on, for instance, an estimate of the
consumer’s graduation date.
46(f) Multiple Creditors; Multiple
Consumers
Proposed § 226.37(f), provided rules
for disclosures where there are multiple
creditors or consumers. If there are
multiple creditors only one set of
disclosures could be given and the
creditors were required to agree which
creditor must comply. If there are
multiple consumers, the creditor was
permitted to provide the disclosure to
any consumer who is primarily liable on
the obligation.
Consumer group commenters urged
the Board to require that the disclosures
be provided to all consumers primarily
liable on the obligation. However,
proposed § 226.37(f) was consistent
with the treatment of other disclosures
under Regulation Z and the Board is
adopting it as proposed in § 226.46(f).
46(g) Effect of Subsequent Events
Under proposed § 226.37(g) and
comment 37(g)–1, if an event that
occurred after consummation rendered
the final disclosures under proposed
§ 226.38(c) inaccurate, the inaccuracy
would not be a violation of Regulation
Z. For example, if the consumer initially
chose to defer payment of principal and
interest while enrolled in an
educational institution, but later chose
to make payments while enrolled, such
a change would not make the original
disclosures inaccurate.
Proposed § 226.37(g) was modeled
after current § 226.17(e). However,
because only one set of disclosures are
required under § 226.17, while two sets
are required for private education loans,
commenters requested clarification of
the effect of subsequent events on the
approval disclosures required under
proposed § 226.38(b). Specifically,
commenters noted that because the
proposed rule had excepted private
education loans from § 226.17(e), but
provided an analogous rule in proposed
§ 226.37(g) only for final disclosures, the
proposal did not address the effect of
subsequent events on approval
disclosures.
In the final rule, § 226.46(g) is broken
out into separate rules for the approval
disclosures under § 226.47(b) and the
final disclosures under § 226.47(c). For
approval disclosures, the rule clarifies
that if a disclosure under § 226.47(b)
becomes inaccurate because of an event
that occurs after the creditor delivers the
required disclosures, the inaccuracy is
not a violation of Regulation Z (12 CFR
part 226), although new disclosures may

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be required under § 226.48(c). Comment
46(g)–1 clarifies that although
inaccuracies in the disclosures required
under § 226.47(b) are not violations if
attributable to events occurring after
disclosures are made, creditors are
restricted under § 226.48(c)(2) from
making certain changes to the loan’s rate
or terms after the creditor provides an
approval disclosure to a consumer.
Creditors are also required to make
subsequent disclosures in the form of
the final disclosures required under
§ 226.47(c) and therefore, except as
specified under § 226.48(c)(4), need not
make new approval disclosures in
response to an event that occurs after
the creditor delivers the required
approval disclosures. For example, at
the time the approval disclosures are
provided, the creditor may not know the
precise disbursement date of the loan
funds and must provide estimated
disclosures based on the best
information reasonably available. If,
after the approval disclosures are
provided, the creditor learns from the
educational institution the precise
disbursement date, new approval
disclosures would not be required,
unless specifically required under
§ 226.48(c)(4) if other changes are made
at the same time. Similarly, the creditor
may not know the precise amounts of
each loan to be consolidated in a
consolidation loan transaction and
information about the precise amounts
would not require new approval
disclosures, unless specifically required
under § 226.48(c)(4) if other changes are
made.
For final disclosures required under
§ 226.47(c), § 226.46(g)(2) rule clarifies
that if a disclosure under § 226.47(c)
becomes inaccurate because of an event
that occurs after the creditor delivers the
required disclosures, the inaccuracy is
not a violation of Regulation Z (12 CFR
part 226. For example, if the consumer
initially chooses to defer payment of
principal and interest while enrolled in
a covered educational institution, but
later chooses to make payments while
enrolled, such a change does not make
the original disclosures inaccurate.

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Section 226.47

Content of Disclosures

Section 226.47, proposed as § 226.38,
establishes the content that a creditor is
required to include in its disclosures to
a consumer at three different stages in
the private education loan origination
process: (1) On or with an application
or a solicitation that does not require the
consumer to complete an application,
(2) with any notice of approval of the
private education loan, and (3) after the
consumer accepts the loan.

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Preventing Duplication of Existing TILA
Disclosure Requirements
While adding a number of disclosure
requirements for private education
loans, the HEOA did not eliminate a
creditor’s obligation to provide
consumers with the information
required to be disclosed before
consummation of any closed-end loan,
in accordance with TILA sections 128(a)
through (d). The HEOA requires the
Board to prevent, to the extent possible,
duplicative disclosure requirements for
creditors making private education
loans under TILA. HEOA, Title X,
Subtitle B, Section 1021(a) (adding TILA
Section 128(e)(9)). Where the disclosure
requirements of section 128(e) differ or
conflict with other disclosure
requirements under TILA that apply to
creditors, the requirements of section
128(e) are controlling. Id.
The new application and solicitation
disclosures proposed under § 226.38(a)
did not duplicate disclosures previously
required under TILA because TILA does
not require disclosures at the time of
application or solicitation for closedend credit. Under TILA sections 128(a)
through (d), as implemented by
§§ 226.17 and 226.18, the closed-end
loan disclosures applicable to private
education loans are required to be
provided only once, before
consummation. However, the Board
proposed to require the § 226.18 closedend loan disclosures be provided twice
for private education loans—once when
the loan is approved, and again with the
final disclosures, in a manner shown in
the proposed model forms in Appendix
H. Specifically, the Board proposed to
require creditors to provide consumers
the existing § 226.18 disclosures along
with the proposed § 226.38(b) approval
disclosures. The Board also proposed to
require that the § 226.18 disclosures be
provided along with the final
disclosures required under new TILA
section 128(e)(4) (implemented by
proposed § 226.38(c), discussed below).
Under TILA sections 128(e)(2)(P) and
128(e)(4)(B), the Board has authority to
add such other information as necessary
or appropriate for consumers to make
informed borrowing decisions. With
respect to the approval disclosures, the
Board stated in its proposal its belief
that combining the existing closed-end
credit TILA disclosures with the new
private education loan disclosures
provided to consumers the most
relevant transaction-specific
information at a point where the
consumer was most likely to make the
decision as to whether a particular
private education loan met the
consumer’s needs. Once the creditor

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communicates approval to the
consumer, the consumer has the right to
accept the loan terms at any time within
30 calendar days of the date the
consumer receives the approval
disclosures. During this time, with a few
exceptions, the creditor may not change
the rate and terms of the loan. As a
result, if the consumer accepts the loan
within that 30-day period, the rate and
terms of the approved loan will
generally be the rate and terms of the
loan ultimately made to the consumer.
To make an informed decision during
this deliberation period, the Board
stated that consumer would be best
served by having the information
required under §§ 226.17 and 226.18, as
well as under proposed § 226.38(b).
In addition, consistent with the
requirement in § 226.17 that creditors
must provide closed-end disclosures
before consummation of the credit
transaction, proposed § 226.37(d)(2)
required that the approval disclosure be
provided before consummation. Based
on TILA’s definition of
‘‘consummation’’ in § 226.2(a)(13), this
meant that the closed-end credit
disclosures must be provided before the
consumer was contractually obligated
on the loan. State laws may vary as to
when consummation occurs (see
comment 2(a)(13)–1), but the Board
believes that the time of approval is
likely to precede the time at which the
consumer becomes contractually
obligated on a loan.
The Board believed that providing the
§ 226.18 disclosures a second time along
with the final disclosures under
proposed § 226.38(c) would enhance
consumer understanding by making it
easier for consumers to compare the
approval and final disclosures. By
having two sets of disclosures that
largely mirror each other, both in
content and in form, consumers would
be able to easily compare terms between
the two sets of disclosures and likely
would be better able to decide whether
or not to exercise their right to cancel
the loan. Moreover, relatively few
disclosures could be removed from the
final disclosure if the current TILA
disclosures were not required, given the
substantial overlap with the HEOA
requirements. Thus, the Board stated
that requiring uniformity would likely
enhance consumer understanding
without unduly burdening creditors.
Commenters generally supported the
inclusion of the information required in
§ 226.18 along with the approval and
final disclosures in proposed
§§ 226.38(b) and 38(c) and the final rule
adopts these requirements in
§§ 226.47(b) and 47(c). In combining the
§ 226.18 disclosures with the

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disclosures under §§ 226.47(b) and 47(c)
in a model form, the Board, as proposed,
retains many of the basic elements of
the closed-end loan model form in
existing Regulation Z Appendix H (see
Appendix H–2). The model forms are
discussed further in the section-bysection analysis under Appendix H.
Graduated payment disclosure. TILA
section 128(e)(2)(K) requires the creditor
to disclose whether monthly payments
are graduated. As proposed, the Board is
implementing this requirement as part
of the requirement that creditors
provide the information under § 226.18.
Specifically, the payment schedule
disclosure under § 226.18(g) requires
creditors to show whether the payments
are graduated.
Other instances in which the Board is
merging specific § 226.18 disclosures
with the disclosures in §§ 226.47(b) and
(c) to avoid duplicative disclosures are
discussed throughout this section-bysection analysis below.
General Disclosure Requirements
Proposed comment 38–1 clarified that
the disclosures required under proposed
§ 226.38 need be provided only as
applicable, except where specifically
provided otherwise. For example, under
proposed §§ 226.38(b)(1) and (c)(1)
creditors would specifically be required
to disclose the lack of any limitations on
adjustments to the loan’s interest rate,
rather than omit the disclosure as
inapplicable. However, for some loans,
especially loans made to consolidate a
consumer’s existing private education
loans, a number of the required
disclosures may not apply. For example,
the required disclosures about the
availability of Federal student loans
would generally not apply to a
consolidation loan because Federal loan
programs do not allow a consumer to
consolidate private education loans. For
this reason, the Board proposed to allow
disclosures for consolidation loans to
omit the disclosures required in
proposed §§ 226.38(a)(6), and (b)(4).
Industry commenters sought further
clarification that disclosure of Federal
loan alternatives would not apply to
other types of loans for which Federal
funding is not available. In response to
these comments, comment 47–1 of the
final rule also lists the transactions for
which compliance under Subpart F is
optional, such as medical residency or
bar study loans, as loans for which
§§ 226.47(a)(6) and (b)(4) are not
applicable.
47(a) Application or Solicitation
Disclosures
Section 226.47(a), proposed as
§ 226.38(a), specifies the information

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that a creditor must disclose to a
consumer on or with any application for
a private education loan or any
solicitation for a private education loan
that does not require an application.
The disclosures may be included either
on the same document as the
application or solicitation or on a
separate document, as long as the
creditor provides the required
disclosures to the consumer at the
required time. Other guidance on
delivery of the disclosures required
under § 226.47(a) is provided in
§ 226.46, corresponding commentary,
and in this section-by-section analysis
under § 226.46. Revisions to the final
rule regarding the provision of
application and solicitation disclosures
in telephone applications are discussed
in the section-by-section analysis under
§ 226.46(d)(1).
47(a)(1) Interest Rates
Section 226.47(a)(1), proposed as
§ 226.38(a)(1), requires creditors to
disclose information regarding the
interest rates that apply to the private
education loan being offered.
Proposed § 226.38(a)(1)(i) required
creditors to disclose the initial interest
rate or range of rates that are being
offered for the loan. TILA section
128(e)(1)(A) requires disclosure of the
potential range of rates of interest
applicable to the loan, but does not
clarify how this requirement should be
applied to loans with variable interest
rates that might change between the
time of application and approval of the
loan. The Board proposed to require that
the creditor disclose the minimum and
maximum starting rates of interest
available at the time that the creditor
provides the application or solicitation
to the consumer.
The Board recognized that these rates
might vary based on the creditor’s
underwriting criteria for a particular
loan product, including a consumer’s
credit history. Based on consumer
testing, the Board believes that
providing a general explanation of how
an interest rate would be determined
provides the context necessary for a
consumer to understand why more than
one rate is being disclosed and how a
creditor would determine a consumer’s
interest rate if the consumer were to
apply for the loan. For this reason, the
Board proposed to add a disclosure
requirement under its TILA section
128(e)(1)(R) authority. If the rate will
depend, in part, on a later determination
of the consumer’s creditworthiness or
other factors, the creditor would be
required to state that the rate for which
the consumer may qualify will depend
on the consumer’s creditworthiness and

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other factors. Proposed comment
38(a)(1)(i)–2 clarified that the disclosure
does not require the creditor to list the
factors that the creditor will use to
determine the interest rate.
Section 226.47(a)(1) adopts proposed
§ 226.38(a)(1)(i) largely as proposed.
Comment 47(a)(1)(i)–2 clarifies that the
creditor may, at its option, specify any
factors other than the consumer’s credit
history that it will use to determine the
interest rate. For example, if the creditor
will determine the interest rate based on
information in the consumer’s or cosigner’s credit report and the type of
school the consumer attends, the
creditor may state, ‘‘Your interest rate
will be based on your credit history and
other factors (co-signer credit and
school type).’’
Proposed comment 38(a)(1)(i)–1
clarified that the rates disclosed must be
rates that are actually offered by the
creditor. For variable rate loans, the
comment provided guidance on when a
rate disclosure would be considered
timely so that the disclosed rate would
be deemed to be actually offered. For
disclosures that are mailed, rates would
be considered actually offered if the
rates were in effect within 60 days
before mailing. For disclosures in
printed applications or solicitations
made available to the general public, or
for disclosures in electronic form, rates
would be considered actually offered if
the rates were in effect within 30 days
before printing or within 30 days before
the disclosures are sent to consumers
electronically or, for disclosures made
on an Internet Web site, within 30 days
before being viewed by the public. For
disclosures in telephone applications or
solicitations, rates provided orally
would be considered actually offered if
the rates are currently applicable at the
time the disclosures are provided.
Proposed comment 38(a)(1)(i)–1 was
consistent with the rules for variablerate accuracy in credit and charge card
application disclosures under
§§ 226.5a(c), (d), and (e).
Industry commenters expressed
concern that proposed comment
38(a)(1)(i)–1 required interest rate
information on an Internet Web site to
be in effect as of the time the consumer
viewed the information. However, the
Board’s intent was to provide that such
information is deemed actually offered
if in effect within 30 days before being
viewed by the public. Final comment
47(a)(1)(i)–1 has been revised to clarify
this.
Industry, consumer group, and
educational institution commenters all
expressed concern that for variable-rate
loans the interest rates disclosed under
§ 226.47(a)(1) not be allowed to reflect

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an interest rate other than the rate based
on the index and margin used to make
rate adjustments. For example,
commenters pointed to certain
‘‘borrower benefits,’’ such as a reduction
in the interest rate for a series of on-time
payments that creditors may offer.
According to commenters, few
consumers achieve these benefits and
often the benefits are not contained in
the legal obligation between the parties.
Under § 226.46(e)(1), the disclosures
must reflect the terms of the legal
obligation between the parties. Section
226.47(a)(1) requires a disclosure of the
rate or rates applicable to the loan.
Comment 47(a)(1)(i)–3 clarifies that the
disclosure of the interest rate or range of
rates must reflect the rate or rates
calculated based on the index and
margin that will be used to make
interest rate adjustments under the loan.
The comment also permits the creditor
to disclose a brief description of the
index and margin, or range of margins,
used to make rate adjustments.
Consumer testing conducted for the
Board indicated that consumers’
understanding of how a variable-rate
loan works is enhanced by such
information.
Fixed or variable rate loans, rate
limitations. The Board is adopting
proposed §§ 226.38(a)(1)(ii) and
38(a)(1)(iii) as §§ 226.47(a)(1)(ii) and
47(a)(1)(iii). Section 226.47(a)(1)(ii)
requires the creditor to disclose whether
the interest rate applicable to the loan
is fixed or may increase after
consummation of the transaction. TILA
section 128(e)(1)(A) requires disclosure
of whether the interest rate applicable to
the loan is fixed or variable. Comment
47(a)(1)(iii)–1, proposed as comment
38(a)(1)(iii)–1 clarifies that the variable
rate disclosures do not apply to interest
rate increases based on delinquency
(including late payment), default,
assumption, or acceleration. If the loan’s
interest rate would fluctuate solely
because of one or more of these actions,
but in no other circumstances, the
interest rate is considered fixed.
As proposed, if the interest rate may
increase after consummation,
§ 226.47(a)(1)(iii) requires the creditor to
disclose any limitations on interest rate
adjustments, or, if there are no
limitations on interest rate adjustments,
that fact. Under comment 47(a)(1)(iii)–2,
when disclosing any limitations on
interest rate adjustments, the creditor
must disclose both: (1) The maximum
allowable increase during a single time
period, or the lack of such a limit, and
(2) the maximum allowable interest rate
over the life of the loan, or the lack of
a maximum rate. For example, a creditor
could disclose that the maximum

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interest rate adjustment is two percent
in a single month and that the
maximum interest rate on the loan can
never exceed twenty-five percent over
the life of the loan. Consistent with the
disclosures based on the maximum rate
in §§ 226.47(b) and 47(c) discussed
below, limitations include legal limits
in the nature of usury or rate ceilings
under state or Federal statutes or
regulations. However, if the applicable
rate limitation is in form of a legal limit,
such as a state’s usury cap (rather than
a maximum rate specified in the legal
obligation between the parties), the
creditor must disclose that the
maximum rate is determined by
applicable law. The creditor is also
required to disclose that the consumer’s
actual interest rate may be higher or
lower than the range of rates disclosed
under § 226.47(a)(1)(i), if applicable.
Co-signer or Guarantor Disclosure.
Proposed § 226.38(a)(1)(iv) implemented
TILA section 128(e)(1)(D), which
requires disclosure of requirements for a
‘‘co-borrower,’’ including any changes
in the applicable interest rates that may
apply to the loan if the loan does not
have a ‘‘co-borrower.’’ HEOA, Title X,
Subtitle B, Section 1021(a) (adding TILA
Section 128(e)(1)(D)). The Board
interprets the phrase ‘‘co-borrower,’’ to
mean a co-signer.
Proposed § 226.38(a)(1)(iv) required
the creditor to state whether a co-signer
is required and whether the applicable
interest rates typically will be higher if
the loan is not co-signed or guaranteed
by a third party. If the presence of a cosigner or guarantor would not affect the
loan’s interest rate, the creditor was
required to disclose that fact. The rule
required only a statement and the
creditor was not required to estimate
any potential changes in the applicable
interest rates numerically.
One industry commenter noted that
the Board’s Regulation B, which
implements the Equal Credit
Opportunity Act, prohibits creditors
from requiring co-signers unless certain
conditions are met. 12 CFR 202.7. This
commenter expressed concern that the
requirement to disclose whether a cosigner is required could cause confusion
with the requirements of Regulation B.
The HEOA does not alter the
prohibitions in Regulation B.
Accordingly, § 226.47(a)(1)(iv) of the
final rule does not adopt the
requirement to state whether a co-signer
is required. Rather, the final rule, as
proposed, requires disclosure of
whether interest rates typically will be
higher without a co-signer. In addition,
§ 226.47(a)(5) requires disclosure of
certain eligibility criteria for co-signers.
These provisions implement the

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HEOA’s requirement to disclose the
requirements for a co-borrower.
47(a)(2) Fees and Default or Late
Payment Costs
Proposed § 226.38(a)(2) required
disclosure of the fees or range of fees
applicable to the private education loan
and other default or late payment costs,
implementing the fee and penalty
disclosures required in TILA sections
128(e)(1)(E) and (F). Under the proposal,
the creditor was required to itemize all
fees required to obtain the private
education loan (proposed
§ 226.38(a)(2)(i)) and any applicable
charges or fees, changes to the interest
rate, and adjustments to principal based
on the consumer’s default or late
payment (proposed § 226.38(a)(2)(ii)).
Proposed comment 38(a)(2)–1
explained that the creditor must
disclose the dollar amount of each fee
required to obtain the loan, unless the
fee is based on a percentage, in which
case a percentage may be disclosed. If
the exact amount of a fee is not known
at the time of disclosure, the creditor
could disclose the dollar amount or
percentage for each fee as an estimated
range and must clearly label the fee
amount as an estimated range.
Neither the HEOA nor its legislative
history clarifies whether Congress
intended the fees or range of fees
disclosure to require an itemization of
all fees, or rather to allow for disclosure
of a single dollar or percentage amount
for all fees combined. The Board
proposed to require an itemization of
fees, but to permit the creditor to
provide an estimated range of the dollar
or percentage amount of each fee if a
single dollar or percentage amount is
not known. Hearings preceding
enactment of the HEOA expressly
alerted Congress to concerns about
excessively high origination fees and the
charging of separate additional fees.11 In
addition, the legislative history
indicates that the HEOA is intended to
require creditors of private education
loans to provide full information to
borrowers regarding their loans and to
protect the interests of private education
loan consumers by requiring creditors
prominently to disclose all loan terms,
conditions and incentives.12
11 See National Consumer Law Center,
‘‘Testimony before the U.S. Senate Committee on
Health, Education, Labor, and Pensions regarding
‘Ensuring Access to College in a Turbulent
Economy’ ’’ (Mar. 17, 2008), p. 8.
12 See U.S. House of Representatives, Committee
on Education and Labor, ‘‘Higher Education
Opportunity Act of 2008: Protecting Borrowers of
Federal and Private Student Loans,’’
(visited Oct. 31, 2008).

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Proposed comment 38(a)(2)–2
clarified that the fees to be disclosed
include finance charges under § 226.4,
such as loan origination fees and credit
report fees, as well as fees not
considered finance charges but required
to obtain credit, such as an application
fee charged whether or not credit is
extended.
Implementing TILA section
128(e)(1)(E), the proposal also required
the creditor to disclose fees and costs
based on defaults or late payments of
the consumer, including adjustments to
the interest rate, charges, late fees, and
adjustments to principal. The HEOA
requires a similar disclosure at approval
and again in the final disclosure
required after the consumer accepts the
loan. HEOA, Title X, Subtitle B, Section
1021(a) (adding TILA Sections
128(e)(2)(E) and (e)(4)(B)).
One difference between the proposal
and TILA section 128(e)(1)(E) is that the
latter requires disclosure of ‘‘finance
charges’’ based on defaults or late
payments, whereas the Board’s
proposed regulation eliminated the
word ‘‘finance’’ and required
disclosures of ‘‘charges’’ based on
defaults or late payments. TILA section
106(a) defines the ‘‘finance charge’’ as
the sum of all charges, payable directly
or indirectly by the person to whom the
credit is extended, and imposed directly
or indirectly by the creditor as an
incident to the extension of credit. 15
U.S.C. 1605. The Board has interpreted
the definition of ‘‘finance charge’’ in
Regulation Z to expressly exclude
charges for late payment, delinquency,
default, or a similar occurrence. 12 CFR
226.4(c)(2). By contrast, the HEOA does
not define the term ‘‘finance charges,’’
but simply states that ‘‘finance charges’’
based on the consumer’s default or late
payment must be disclosed. HEOA,
Title X, Subtitle B, Section 1021(a)
(adding TILA Section 128(e)(1)(E)).
However, under current Regulation Z,
there are no ‘‘finance charges’’ based on
the consumer’s default or late payment.
To give effect to the requirements of
HEOA, the Board proposed to use its
authority under HEOA and impose
additional disclosure requirements
including charges based on defaults or
late payments that are not covered by
the definition of finance charge under
Regulation Z. Therefore the word
‘‘charges,’’ without the word ‘‘finance,’’
was used in proposed § 226.38(a)(2)(ii)
and in the corresponding provisions for
other private education loan disclosures
(proposed §§ 226.38(b)(2)(ii) and
38(c)(2)).
The Board did not propose to require
creditors to disclose fees that would
apply if the consumer exercised an

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option after consummation under the
agreement or promissory note for the
private education loan, such as fees for
exercising deferment, forbearance, or
loan modification options. Creditors
were not required to disclose third-party
fees and costs for collection- or defaultrelated expenses that might be passed
on to the consumer, as these are not
easily predicted and may never apply.
The Board requested comment on
whether creditors should be required to
disclose these or other fees. Some
consumer group commenters suggested
that fees for exercising deferment,
forbearance or loan modification
options may be important to some
consumers. However, the final rule does
not require the disclosure of such fees.
Based on consumer testing, the Board
believes that consumers are unlikely to
shop and compare loans based on such
fees. Given the amount of information
required to be disclosed, the Board
believes that disclosure of these fees
could produce information overload and
distract consumers from more relevant
information.
A few commenters also requested
clarification as to whether fees charged
when the consumer enters repayment of
a loan for which payments were
deferred during an interim period were
fees to ‘‘obtain’’ the loan.
The Board is adopting proposed
§ 226.38(a)(2) as § 226.47(a)(2). In
addition, the Board is clarifying in
comment 47(a)(2)–2 that because
repayment fees are considered finance
charges, they must be disclosed as fees
required to obtain the loan under
§ 226.47(a)(2).
47(a)(3) Repayment Terms
Section 226.47(a)(3), proposed as
§ 226.38(a)(3), requires disclosure of
information related to repayment.
Loan term. Proposed § 226.38(a)(3)(i)
implemented TILA section 128(e)(1)(G),
which requires disclosure of the term of
the private education loan. Proposed
comment 38(a)(3)(i)–1 clarified that the
term of the loan is the period of time
during which regular principal and
interest payments must be made on the
loan. For example, where repayment
begins upon consummation of the
private education loan, the disclosed
loan term would be the same as the full
term of the loan. By contrast, where
repayment does not begin until, for
instance, after the student is no longer
enrolled, the disclosed loan term would
be shorter than the full term of the loan.
If more than one repayment term is
possible, the creditor must disclose the
loan term as the longest possible
repayment term. Proposed

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§ 226.38(a)(3)(i) is adopted as
§ 226.47(a)(3)(i).
Payment deferral options. Proposed
§ 226.38(a)(3)(ii) required disclosure of
information relating to the options
offered by the creditor to the consumer
to defer payments during the life of the
loan, implementing TILA section
128(e)(1)(I). Under the Board’s TILA
section 128(e)(1)(R) authority, the
proposal also required that if the
creditor does not offer any options to
defer payments, the creditor must state
that fact. Proposed comment 38(a)(3)–2
clarified that payment deferral options
include both options to defer payment
while the student is enrolled and
options for payment deferral,
forbearance or payment modification
during the loan’s repayment term. The
disclosure would have been required to
include a description of the length of
the deferment period, the types of
payments that may be deferred, and a
description of any payments that are
required during the deferment period.
The creditor would also have been
permitted to disclose any conditions
applicable to the deferment option, such
as that deferment is permitted only
while the student is continuously
enrolled.
Under proposed § 226.38(a)(3)(iii) and
proposed comment 38(a)(3)–3, if the
creditor offered payment deferral
options that applied while the student
is enrolled in a covered educational
institution, the creditor would be
required to disclose the following
additional information for each deferral
option: (1) Whether interest will accrue
while the student is enrolled in a
covered educational institution; and (2)
if interest accrues while the student is
enrolled at a covered educational
institution, whether payment of interest
may be deferred and added to the
principal balance.
Proposed comment 38(a)(3)–4
explained that disclosure of payment
deferral options may be combined with
the disclosure of cost estimates required
in § 226.38(a)(4). For example, the
creditor could describe each payment
deferral option in the same chart or
table that provides the cost estimates for
each payment deferral option. This
approach was used in the Board’s
proposed sample form contained in
Appendix H–21.
A number of industry commenters
requested clarification on the
requirements of proposed
§ 226.38(a)(3)(ii). That section required
creditors to disclose options the
consumer may have to defer payment
after the loan’s repayment period
begins, such as options for forbearance
or deferral upon re-enrolling in an

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educational program. Comment
38(a)(3)(ii)–2 required a description of
the length of the deferment period, the
types of payments that may be deferred,
and a description of any payments that
are required during the deferment
period for all payment deferral options,
both in-school and after repayment
begins. However, the Board’s proposed
model and samples form did not
indicate where such information was to
be provided. Commenters stated that
descriptions of deferral options during
the repayment period would be lengthy
and could detract from the other
information provided on the model
forms.
The final rule adopts
§§ 226.38(a)(3)(ii) and 38(a)(3)(iii) as
§§ 226.47(a)(3)(ii) and 47(a)(3)(iii),
largely as proposed. However, to
conform to the final model and sample
forms, the Board is clarifying in
comment 47(a)(3)–2 that the creditor
may disclose the length of the maximum
initial in-school deferment period. In
addition, comment 47(a)(3)–2 clarifies
that if the creditor offers payment
deferral options that may apply during
the repayment period, the creditor need
only disclose a statement referring the
consumer to the legal obligation for
more information. Comment 47(a)(3)–4
also clarifies that the creditor may
combine all of the disclosures required
under § 226.47(a)(3), including the loan
term, with the cost estimate disclosure
required in § 226.47(a)(4).
In addition, the final rule includes
new § 226.47(a)(3)(iv) requiring a
disclosure of private education loan
discharge limitations in bankruptcy.
The disclosure of limitations of
discharge of private education loans in
bankruptcy is mandated by TILA
section 128(e)(2)(E) for the approval
disclosures and TILA section
128(e)(4)(B) for the final disclosures. It
is not statutorily required in the
application and solicitation disclosures
prescribed by TILA section 128(e)(1)(E).
The Board requested comment on
whether disclosure of education loan
discharge limitations in bankruptcy
should be included in the application
and solicitation disclosures as
implemented by proposed § 226.38(a).
Consumer group commenters supported
including the bankruptcy disclosures
and other commenters who addressed
the issue did not oppose it. The Board
believes that the bankruptcy disclosures
will be useful to consumers earlier in
the lending process, when consumers
are most likely to be considering a wide
range of education financing options.
The Board also believes adding
bankruptcy disclosures to the
application and solicitation disclosures

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provides for uniformity across the
disclosure forms. Thus, the Board is
exercising its authority under TILA
section 128(e)(1)(R) by adding a
disclosure similar to the disclosures
required under §§ 226.47(b)(3)(vi) and
47(c)(3).
47(a)(4) Cost Estimates
Implementing TILA section
128(e)(1)(K), § 226.47(a)(4), proposed as
§ 226.38(a)(4), requires creditors to
provide an example of the total cost to
a consumer of a sample loan at the
highest initial rate of interest actually
offered by the creditor, from the time of
consummation until the loan is repaid.
The HEOA does not define the term
‘‘total cost,’’ and, as proposed, the Board
interprets ‘‘total cost’’ to mean the total
of payments disclosed in accordance
with the rules in § 226.18(h). See
comment 47(a)(4)–1.
Basis for estimates. Under proposed
§ 226.38(a)(4) and comment 38(a)(4)–2,
creditors were required to disclose an
example of the total cost of the loan
calculated using the highest initial rate
of interest applicable to the loan and the
fees applicable to loans at the highest
initial rate of interest. For example, if
the creditor offers a range of rates and
fees that depend on the consumer’s
creditworthiness and particular fees will
apply to loans with the highest interest
rate, then the creditor must include
those fees in the total cost estimate.
In order to provide consumers with
information about the effect that
financing fees has on the total cost of
the loan, proposed § 226.38(a)(4) and
comment 38(a)(4)–2 required that the
creditor base the total cost estimate on
a loan amount of $10,000 plus the
finance charges applicable to loans at
the highest initial rate of interest. For
example, if the creditor charges a 3%
origination fee on loans with the highest
initial interest rate, and finances the 3%
fee, under the proposal the creditor
would calculate the total cost of the loan
based on a $10,300 total loan amount.
However, while the creditor would have
been required to base the calculation on
the total loan amount, the creditor
would have to disclose that the example
provides the total cost of a $10,000
amount financed, rather than disclosing
the total loan amount used in
calculating the loan cost estimate.
The HEOA calls for an example based
on the principal amount actually offered
by the creditor. However, at the
application stage, the creditor does not
know the specific loan amount the
consumer will request. Rather than
permit each creditor to choose a loan
amount upon which to base the
disclosure, the Board believed that

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specifying uniform assumptions about
the loan amount would allow
consumers more easily to compare
different loan products. The proposal
allowed consumers to compare the cost
of receiving a uniform $10,000
disbursement under different loans.
The Board also proposed to provide
creditors with flexibility if they do not
make loans of the size that the Board
specified. If the creditor only offers a
particular type of loan for less than
$10,000, the creditor would be required
to use a $5,000 principal amount.
The Board requested comment on
alternative ways of ensuring that the
total cost example reflects the cost of
loan fees. Specifically, the Board
requested comment on whether an
assumed loan amount of $10,000 should
be used without adding fees to the loan
amount, but instead separately adding
the fees to the total of payments. The
Board requested comment on whether
private education loan consumers have
historically been more likely to add fees
to the loan amount they request, or to
deduct the fees from the loan amount
requested (or pay them separately by
cash or check). The Board also
requested comment on the practical
limitations, if any, for creditors to
determine the fees that would be
applicable to loans where the highest
initial rate of interest applies. In
addition, the Board requested comment
on whether the total cost example
should be based on an assumed amount
financed of $10,000, as proposed, or on
a higher or lower amount. The Board
also requested comment on whether the
assumption of a $5,000 amount financed
when creditors do not offer loans of
$10,000 or more was an appropriate
alternative.
Commenters generally supported the
Board’s proposed approach to ensuring
that the total loan cost example
provided a consistent basis for
calculating the total cost so that
consumers could accurately compare
loans. Specifically, most commenters
supported a calculation method that
assumed that prepaid finance charges
are included in the total loan amount so
that the total cost will reflect the effect
of the consumer paying interest on the
finance charges. Commenters supported
requiring creditors to use a $10,000
amount financed or, if the creditor does
not offer loans of $10,000 or more, a
$5,000 amount financed. Commenters
did not state that there were practical
limitations on determining the amount
of fees that would apply to loans at the
highest rate.
Two industry group commenters
noted that creditors are not uniform in
the way they calculate prepaid finance

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charges that are based on a percentage
of the loan amount. According to these
commenters, the majority deduct
prepaid finance charges from the total
loan amount, rather than adding them to
the loan amount. These commenters
requested that the Board allow creditors
to choose the method the creditor
normally uses for assessing prepaid
finance charges. In the alternative, the
commenters suggested that if the Board
imposed a uniform calculation method
that it be based on the more common
practice of deducting prepaid finance
charges from the total loan amount.
In the final rule, § 226.47(a)(4) is
adopted largely as proposed in
§ 226.38(a)(4), but with a change in the
total cost calculation method. Comment
47(a)(4)–2.i, as proposed in comment
38(a)(4)–2, requires creditors to
calculate the total cost estimate by
determining all finance charges that
would be applicable to loans with the
highest initial rate of interest. For
example, if a creditor charges a range of
origination fees from 0% to 3%, but the
3% origination fee would apply to loans
with the highest initial interest rate, the
lender must assume the 3% origination
fee is charged. Comment 47(a)(4)–2.i
also requires the creditor to base the
total cost example on a principal
amount that results in a $10,000 amount
financed when all prepaid finance
charges are financed. The creditor must
disclose the example as reflecting the
$10,000 disbursement, rather than the
full loan amount. If the creditor only
offers a particular private education
loan for less than $10,000, the creditor
may assume a total loan amount that
results in a $5,000 amount financed for
that loan.
The Board recognizes that prepaid
finance charges can be assessed and
paid in different ways depending on the
creditor’s practices and the consumer’s
needs. However, the Board believes that
in order for consumers to be able to
easily compare the costs of different
loan products using the total cost
example on the application and
solicitation disclosures, creditors must
use uniform assumptions about the way
prepaid finance charges are assessed
and paid.
Comment 47(a)(4)–2.i, as proposed,
requires creditors to assume that all
prepaid finance charges are financed by
the consumer rather than paid
separately by cash or check. However,
fees based on a percentage of the loan
amount can be assessed in two different
ways, even when they are financed.
Under the proposal, creditors were
required to assume that the fee was
assessed as a percentage of a
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Thus, a 3% fee resulted in a $300
charge. This charge, in turn, was added
to the $10,000 amount financed
resulting in a total principal loan
amount of $10,300. Accordingly, the
consumer would borrow $10,300 in
order to obtain a $10,000 disbursement.
The assumption that fees are assessed
as a percentage of the $10,000 amount
financed and then added to the total
loan amount reflects the practices of
some, but not all creditors. Another
practice assesses fees as a percentage of
the total loan amount and then deducts
the fees from the loan amount. For
example, in this case a total loan
amount of $10,309.28, times a 3%
origination fee results in a finance
charge of $309.28. The creditor does
not, however, add an extra $309.28 to
the loan balance. Instead, the creditor
deducts the $309.28 from the loan
amount and disburses $10,000 to the
consumer. The resulting amount
financed (the $10,309.28 principal loan
amount less the $309.28 prepaid finance
charge) is $10,000.
Under comment 47(a)(4)–2.ii in the
final rule, if a prepaid finance charge is
based on a percentage of the amount
financed, for purposes of the example,
the creditor must assume that the fee is
assessed on the total loan amount, even
if this is not the creditor’s usual
practice. In order to ensure that
consumers may accurately compare
total cost examples from different
creditors, the Board is not allowing
creditors to choose whether to add or
subtract prepaid finance charges.
Rather, based on comments received,
the final rule requires creditors to use
the method that appears to be more
common.
Highest initial rate. Proposed
§ 226.38(a)(4)(i) required creditors to
calculate the total cost example at the
maximum rate of interest, and proposed
comment 38(a)(4)–3 clarified that the
‘‘maximum’’ rate of interest meant the
highest initial rate of interest disclosed
in the range of rates under proposed
§ 226.38(a)(1)(i). Some industry
commenters requested clarification in
the regulation that the phrase
‘‘maximum rate of interest’’ used in
proposed § 226.38(a)(4)(i) was the
highest initial interest rate rather than
the maximum possible interest rate.
Section 226.47(a)(4)(i) is revised to
clarify that the total cost example
should be based on the highest rate
required to be disclosed under
§ 226.47(a)(1). As a result, proposed
comment 38(a)(4)–3 is unnecessary and
therefore is not adopted.
Payment deferral options. Under
comment 47(a)(4)–3, proposed as
comment 38(a)(4)–4, the loan cost

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example must include an estimate of the
total cost of the loan for each in-school
deferral option disclosed in
§ 226.47(a)(3)(iii). For example, if the
creditor provides the consumer with the
option to begin making principal and
interest payments immediately, to defer
principal payments but begin making
interest-only payments immediately, or
to defer all principal and interest
payments while in school, the creditor
is required to disclose three estimates of
the total cost of the loan, one for each
deferral option.
Comment 47(a)(4)–3 also clarifies that
if the creditor adds accrued interest to
the loan balance (i.e., interest is
capitalized), the estimate of the total
loan cost should be based on the
capitalization method that the creditor
actually uses for the loan. For instance,
for each deferred payment option where
the creditor would capitalize interest on
a quarterly basis, the total loan cost
must be calculated assuming interest
capitalizes on a quarterly basis.
Proposed comment 38(a)(4)–5
provided guidance on the assumed
deferral period on which to base the
total cost example. For loan programs
intended for educational expenses of
undergraduate students, the creditor
would have been required to assume
that the consumer defers payments for
four years plus the loan’s maximum
applicable grace period, if any. For all
other loans the creditor would have
been required to assume that the
consumer defers for two years plus the
maximum applicable grace period, if
any, or the maximum time the consumer
may defer payments under the loan
program, whichever time is less. The
Board believed that consumers would
be better able to compare loan cost
examples for loans that allow the
consumer to defer payments if those
examples are based on uniform
assumptions about how long the
consumer will remain in school. The
Board proposed to require creditors
assume a four-year deferral period for
consumers applying for undergraduate
loans since most undergraduate
programs are four years long. The Board
believed that using a four-year term
would ensure that the disclosure is most
meaningful to consumers who are at the
beginning of their undergraduate
education, and therefore likely are
considering education loans for the first
time. For all other types of loans, the
proposal required creditors assume a
two-year enrollment period (or to use
the maximum deferral period for the
loan, if less than two-years). The Board
believed that a two-year enrollment
period represented a term that would be
applicable to most other postsecondary

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Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations
education programs and would
meaningfully inform consumers of the
effect of deferring payment on the total
costs of the loan for more than a
minimal period of time.
The Board requested comment on the
proposed deferral period assumptions
for calculating the total cost examples
under proposed § 226.38(a)(4).
Specifically, the Board requested
comment on whether creditors should
be allowed to modify the total cost
disclosure if the creditor knows a
consumer’s specific situation. For
example, if the creditor knows that a
consumer is a college senior, the Board
asked whether the creditor should be
allowed to provide a cost estimate based
on a one-year deferral period, rather
than a four-year deferral period. The
Board also requested comment on
whether two years is an appropriate
term for non-undergraduate private
education loans, or whether another
term that would be a statistically more
accurate representation of an average or
median deferment period should be
used. The Board also requested
comment on whether lenders should be
permitted to modify the disclosure for
specific educational programs that are
generally of a fixed length, such as three
years for law school or four years for
medical school.
Commenters generally supported the
proposal to use uniform assumptions for
determining the consumer’s deferral
period in cases where the consumer’s
actual situation was not known.
However, most commenters supported
allowing creditors to use more accurate
assumptions where more information
was known. Commenters supported
allowing creditors to use the specific
duration of an educational program of a
known length, such as three years for
law school. In addition, commenters
noted that the term ‘‘undergraduate’’
may include students in two-year
programs and that the four-year term
assumption would not be appropriate
for these students. Commenters also
supported allowing creditors to tailor
the deferral period assumption to the
specific consumer’s situation if known.
Where the length of the educational
program was not known, commenters
did not oppose using a two-year term.
Comment 47(a)(4)–4, proposed as
comment 38(a)(4)–5, has been revised to
allow the creditor to use either of two
methods for estimating the duration of
deferral periods. Similar to the proposed
rule, for loan programs intended for
educational expenses of undergraduate
students, the creditor may assume that
the consumer defers payments for a
four-year matriculation period, plus the
loan’s maximum applicable grace

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period, if any. For all other loans the
creditor may assume that the consumer
defers for a two-year matriculation
period, plus the maximum applicable
grace period, if any, or the maximum
time the consumer may defer payments
under the loan program, whichever is
shorter.
Alternatively, if the creditor knows
that the student will be enrolled in a
program with a standard duration, the
creditor may assume that the consumer
defers payments for the full duration of
the program (plus any grace period). For
example, if a creditor makes loans
intended for students enrolled in a fouryear medical school degree program, the
creditor may assume that the consumer
defers payments for four years plus the
loan’s maximum applicable grace
period, if any. However, the creditor
may not modify the disclosure to
correspond to a particular student’s
situation. For example, even if the
creditor knows that a student will be a
second-year medical school student, the
creditor must assume a four-year
deferral period.
The Board believes that the use of
standardized assumptions will assist
consumers when shopping for a private
education loan. Providing consistent
deferral periods is necessary in order for
a consumer to compare the overall costs
of different loans for particular
educational programs. Consumers
enrolled in an educational program may
have difficulty comparing the total cost
of two loans if one disclosure uses the
consumer’s actual deferral period and
the other uses an assumed deferral
period. The total cost may appear lower
on the disclosure using the actual,
shorter, deferral period, but the
consumer may not be able to determine
if the loan is actually less costly.
Therefore, the Board is not permitting
disclosures to be tailored to individual
consumers.
47(a)(5) Eligibility
Proposed § 226.38(a)(5) implemented
TILA section 128(e)(1)(J) which requires
disclosure of the general eligibility
criteria for a private education loan. The
proposal specified the eligibility criteria
that must be disclosed. The creditor
would have to disclose any age or
school enrollment eligibility
requirements regarding the consumer or
co-signer, if applicable. The Board
requested comments on whether other
types of eligibility requirements should
be disclosed.
A few commenters suggested that the
Board require more information about
eligibility requirements. However, in the
consumer testing conducted for the
Board, few consumers suggested that

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more such information would be
helpful. Because the disclosure of all
eligibility criteria could be detailed and
lengthy, the Board believes that
requiring additional eligibility
information would not be meaningful to
consumers. Therefore, the final rule
provides that the creditor provide any
age or school enrollment eligibility
requirements relating to the consumer
or co-signer.
47(a)(6) Alternatives to Private
Education Loans
The Board proposed § 226.38(a)(6), to
implement TILA sections 128(e)(1)(L),
(M), (N), and (Q) by requiring statements
regarding the following alternatives to
private education loans: (1) education
loans offered or guaranteed by the
Federal government and (2) schoolspecific education loan benefits and
terms potentially offered by a covered
educational institution.
Concerning Federal education loans,
under the proposal, a creditor was
required to disclose the following: (1) A
statement that the consumer may
qualify for Federal student financial
assistance through a program under title
IV of the Higher Education Act of 1965
(20 U.S.C. 1070 et seq.), (2) the interest
rates available under each program and
whether the rates are fixed or variable,
as prescribed in the Higher Education
Act of 1965 (20 U.S.C. 1077a), and (3)
a statement that the consumer may
obtain additional information
concerning Federal student financial
assistance from the relevant institution
of higher education, or at the Web site
of the Department of Education,
including an appropriate Web site
address. After consulting with the
Department of Education, the Board
proposed comment 38(a)(6)(ii)–1, which
explained that the disclosure must list
the address of an appropriate U.S.
Department of Education Web site such
as ‘‘http://federalstudentaid.ed.gov.’’
To avoid overloading consumers with
information and to ensure that
consumers notice the most important
information about Federal student
loans, the Board proposed to exercise its
authority under TILA section 105(a) to
make exceptions to the statute by not
requiring creditors to state that Federal
loans may be obtained in lieu of or in
addition to private education loans.
Instead the Board’s proposed model
forms labelled the disclosure as
‘‘Federal Loan Alternatives.’’ See
proposed App. H–18, H–19. The Board
stated its belief that this exception was
necessary and proper to effectuate
meaningful disclosure of credit terms to
consumers.

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The Board also proposed to exercise
its authority under TILA section 105(f)
to exempt private education loans from
the specific disclosure requirement
about Federal loans, pursuant to the
HOEA amendment to TILA sections
128(e)(1)(M) and 128(e)(2)(L). The Board
believed that this specific requirement
does not provide a meaningful benefit to
consumers in the form of useful
information or protection. In testing,
consumers’ understanding that Federal
loans are available in lieu of or in
addition to private education loans was
enhanced by simply providing them a
clear and prominent label indicating
that the disclosures contained
information about Federal loan
alternatives. The Board considered that
the private education loan population
includes students who may lack
financial sophistication and that the size
of the loan could be relatively
significant and important to the
borrower. However, as explained above,
the Board believed that the borrower
would receive meaningful information
about Federal loans through the other
disclosures and the model form. The
Board also recognized that private
education loans would not be secured
by the principal residence of the
consumer, which is a factor for
consideration under section 105(f).
Furthermore, the HEOA provides
significant rights, such as the right to
cancel the loan. The Board believed that
consumer protection would not be
undermined by this exemption.
A few consumer group commenters
urged the Board to retain the phrase that
Federal loans are available ‘‘in addition
to or in lieu of’’ private education loans.
However, the Board’s consumer testing
during and after the comment period
continued to indicate that consumers
understood the disclosure about Federal
student loans and that Federal loans are
available in addition to or in lieu of
private education loans. The Board
believes that requiring additional
verbiage to communicate something that
consumers already understand could
contribute to information overload,
cause consumers to skip over the
existing textual information about
Federal student loans, and potentially
cause consumers to miss more
important information in the
disclosures. Consumers tested found the
information about Federal student loans
to be clear and understandable. The
Board is adopting proposed
§ 226.38(a)(6), as § 226.47(a)(6).
Under the proposal, for each title IV
program enumerated in the disclosure
(e.g., Perkins, Stafford (both subsidized
and unsubsidized), and PLUS loans),
the creditor would be required to

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disclose the interest rate corresponding
to each loan program, as well as
whether those rates are fixed or variable.
The Board proposed to require
disclosure of whether the Federal loan
rates are fixed or variable, under its
TILA section 128(e)(1)(R) authority. The
Board believed this additional
disclosure to be necessary in order to
provide consumers with a more
complete description of the nature of
the Federal loans’ interest rates and to
aid in comparison of Federal loan
programs to private education loans.
During the Board’s consumer testing,
consumers indicated that the disclosure
that Federal student loans have fixed
rates is important information to them.
Federal student loan interest rates are
set by statute. Currently, Federal student
loan interest rates are fixed rates rather
than variable rates, but this has not
always been the case. For this reason,
the proposal would require a disclosure
of whether the rates are fixed or
variable.
The statute that sets the Federal
student loan interest rates currently
contains a schedule with different fixed
rates for loans originated at different
times. See Higher Education Act of 1965
(20 U.S.C. 1077a). For example, the
fixed rate on subsidized Stafford loans
was 6.0% for loans originated or applied
for (depending on the loan) before July
1, 2009. For loans after July 1, 2009, the
current fixed interest rate is 5.6%.
Where the interest rate for a loan varies
depending on the date of disbursement
or receipt of application, the creditor
must disclose only the current interest
rate as of the time the disclosure is
provided.
To implement TILA section
128(e)(1)(L), the proposal also required
the creditor to disclose that a covered
educational institution may have
school-specific education loan benefits
and terms not detailed on the disclosure
form. School-specific education loan
benefits and terms might include loans
with special terms negotiated by the
school with particular creditors, or
loans extended by the covered
educational institution itself to its
students. The creditor was not required
to state what school-specific education
loan benefits and terms might be
available because these may vary
widely, but rather was required to alert
the consumer to the possibility that
school-specific education loan benefits
and terms might be available to the
consumer.
47(a)(7) Rights of the Consumer
Proposed § 226.38(a)(7) implemented
TILA section 128(e)(1)(O), by
identifying for the consumer certain

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rights relating to the private education
loan.
Thirty day right of acceptance.
Proposed § 226.38(a)(7)(i) required the
creditor to disclose that, should the
consumer apply for the loan and the
loan application be approved, the
consumer would have the right to
accept the terms of the loan at any time
within 30 calendar days following
notice of loan approval. TILA section
128(e)(1)(O)(i) requires a disclosure that
the consumer has 30 days to accept and
consummate the loan.
Prohibition on loan term changes.
Under proposed § 226.38(a)(7)(ii), the
creditor was required to state that,
except for changes based on adjustments
to the index used to determine the rate
for the loan, the creditor may not change
the rates and terms of the loan during
the 30-day acceptance period described
in proposed § 226.38(a)(7)(i). Proposed
comment 39(c)–1 allowed the creditor to
give consumers a period of time longer
than 30 days in which to accept the
loan. In the preamble to the proposed
rule, the Board stated that creditors
choosing to give consumers a period of
time in which to accept the loan that is
longer than 30 calendar days were
required to disclose this alternate time
period.
The Board proposed in § 226.39(c) to
allow creditors to make changes to the
rate and terms of the loan not only in
response to adjustments to a variable
rate, but also in cases where the change
was requested by, or unequivocally
beneficial to, the consumer. The Board
did not propose, however, to require the
application disclosure to state each
possible condition under which the rate
or terms might change. The Board
requested comment on the appropriate
amount of detail in the application
disclosure.
The Board received one comment
about the appropriate amount of detail
in the statement on the application
disclosure regarding the permissible
changes to the rate or terms of the loan
after the loan is approved. The industry
commenter suggested that the Board
should not require creditors to list every
possible reason that rates and terms may
change because of the limited amount of
space on the two-page disclosure. The
commenter suggested that it would be
appropriate to disclose the most
common reason or reasons that the rates
and terms may change after approval.
The Board agrees that it is not
necessary or useful to list each reason
that rates and terms of a loan may
change after approval and that a more
general statement is sufficient to alert
the consumer to the restrictions on
changing the loan terms. The Board also

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believes a less detailed statement is
appropriate in light of the changes made
to § 226.48(c) (proposed as § 226.39(c)),
which includes additional exceptions to
the prohibition on changing the terms of
the loan. Thus, in the final rule,
§ 226.47(a)(7) requires the creditor to
state that if the loan for which the
consumer is applying is approved, the
terms of the loan will be available for 30
days. It also requires the creditor to state
that the terms of the loan will not
change during this period except as a
result of adjustments to the interest rate
and due to other changes permitted by
law. The requirement in the final rules
more closely resembles the language
that was used on the application and
solicitation disclosures in consumer
testing which consumers found clear
and understandable.

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47(a)(8) Self-Certification Information
The Board proposed § 226.38(a)(8) to
implement TILA section 128(e)(1)(P). It
required a statement that before the loan
may be consummated, the consumer
must obtain the self-certification form
required under proposed § 226.39(e),
and sign and submit the completed form
to the creditor.
The model forms used in consumer
testing contained a basic statement that
the consumer must complete the selfcertification form as part of the
application process and that the form
may be obtained from the relevant
institution of higher education.
Consumers found the language in the
model form to be clear and
understandable and the Board believes
that the self-certification form itself will
provide consumers with sufficient
instruction as to the steps the consumer
must take to complete the form.
Accordingly, § 226.47(a)(8) of the final
rule conforms the required disclosure to
the text used in the proposed model
form.
As discussed in the section-by-section
analysis under § 226.48(e), the
disclosure regarding the selfcertification form is required only for
expenses to be used by a student
enrolled in an institution of higher
education. It would not apply to
consolidation loans and would not
apply to loans to students attending
covered educational institutions that do
not meet the definition of institution of
higher education.
47(b) Approval Disclosures
Section 226.47(b), proposed as
§ 226.38(b), specifies the information
that a creditor must disclose on or with
any notice of approval provided to the
consumer. Guidance on delivery of the
disclosures required under § 226.47(b) is

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provided in § 226.46, corresponding
commentary, and in the section-bysection analysis under § 226.46.
As discussed above in the section-bysection analysis under § 226.46(a), the
creditor must make the closed-end
credit disclosures required under
§§ 226.17 and 226.18 as well as the
private education loan disclosures
required under § 226.47(b).
47(b)(1) Interest Rate
Implementing TILA section
128(e)(2)(A), § 226.47(b)(1)(i), proposed
as § 226.38(b)(1)(i), requires a creditor to
disclose the interest rate that applies to
the private education loan for which the
consumer has been approved.
Fixed or variable rate, rate
limitations. Implementing TILA section
128(e)(2)(A) and (B), proposed
§§ 226.38(b)(1)(ii) and (iii) required the
creditor to disclose whether the interest
rate is fixed or variable and any
limitations, or the absence of
limitations, on changes to the variable
interest rate.
Proposed comment 38(b)(1)–1
clarified that a private education loan
would only be considered to have a
variable rate if the terms of the legal
obligation allow the creditor to increase
the rate originally disclosed to the
consumer. However, a rate is not
considered variable if increases result
only from delinquency, default,
assumption or acceleration. The
comment also clarified that the creditor
must make the other variable-rate
disclosures required under
§§ 226.18(f)(1)(i) and (iii)—the
circumstances under which the rate may
increase and the effect of an increase,
respectively. The creditor would not be
required to provide an example of the
payment terms that would result from
an increase under § 226.18(f)(1)(iv).
Current comment 18(f)(1)(iv)–2 provides
that creditors need not provide the
hypothetical example for interim
student credit extensions. However, the
Board believes that the requirement to
disclose the maximum monthly
payment based on the maximum
possible rate in § 226.38(b)(3)(viii)
satisfies the requirement under
§ 226.18(f)(1)(iv) of an example of the
payment terms that would result from
an increase in the rate. In order to avoid
duplicative examples of the effect of a
rate increase, proposed comment
38(b)(1)–1 clarified that, although the
creditor need not disclose a separate
example under § 226.18(f)(1)(iv), the
creditor is nevertheless required to
disclose the maximum monthly
payment in § 226.38(b)(2)(viii).
As explained in the section-by-section
analysis under § 226.18 (discussing the

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proposed changes to comment
18(f)(1)(ii)–1), proposed comment
38(b)(1)–2 clarified that the rules
regarding disclosure of limitations on
interest rate increases for private
education loans differ from the general
rules in § 226.18(f)(1)(ii) and comment
18(f)(1)(ii)–1. Specifically, proposed
§ 226.38(b)(1)(iii) required that creditors
explicitly disclose the lack of any
limitations on interest rate adjustments.
By contrast, existing comment
18(f)(1)(ii)–1 does not require creditors
to disclose the absence of limits on
interest rate adjustments. In addition,
under proposed § 226.38(b)(1)(iii),
limitations on rate increases include,
rather than exclude, legal limits in the
nature of usury or rate ceilings under
state or Federal statutes or regulations.
However, if the applicable rate
limitation is in the form of a legal limit,
such as a state’s usury cap (rather than
a maximum rate specified in the legal
obligation between the parties), the
creditor must disclose that the
maximum rate is determined by law and
may change.
As discussed in the section-by-section
analysis under § 226.47(a)(1) above,
commenters urged the Board allow
disclosure of a variable interest rate only
as calculated based on the index and
margin used to make interest rate
adjustments. The Board is adopting
proposed § 226.38(b)(1) as § 226.47(b)(1)
and adding new comment 47(b)(1)–3 to
clarify that the disclosure of the interest
rate must reflect the rate calculated
based on the index and margin that will
be used to make interest rate
adjustments for the loan.
47(b)(2) Fees and Default or Late
Payment Costs
Implementing TILA sections
128(e)(2)(E) and (F), proposed
§ 226.38(b)(2) and proposed comment
38(b)(2)–1 required the creditor to
provide to the consumer the fee and
penalty information required under
proposed § 226.38(a)(2), as explained in
the section-by-section analysis for
§ 226.47(a)(2). Under § 226.18(l)
creditors are required to disclose any
dollar or percentage charge that may be
imposed before maturity due to late
payment, other than a deferral or
extension charge. Under the proposal,
creditors were required to disclose any
charges that must be disclosed under
§ 226.18(l) with the disclosures required
under proposed § 226.38(b)(2). In
addition, if the creditor includes the
itemization of the amount financed
under § 226.18(c), any fees disclosed as
part of the itemization need not be
separately disclosed elsewhere. The

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Board is adopting proposed
§ 226.38(b)(2) as § 226.47(b)(2).
47(b)(3) Repayment Terms
Section 226.47(b)(3), proposed as
§ 226.38(b)(3), requires disclosure of
information related to repayment.
Principal amount. Proposed
§ 226.38(b)(3)(i) implemented TILA
section 128(e)(2)(D), which requires
disclosure of the ‘‘initial approved
principal amount,’’ by requiring
disclosure of the loan’s ‘‘principal
amount.’’
Regulation Z currently uses the term
‘‘principal loan amount’’ as part of its
requirement to disclose the ‘‘amount
financed.’’ As explained below,
however, the Board did not propose to
equate the terms ‘‘principal loan
amount’’ used in comment 18(b)(3)–1
with the ‘‘principal amount’’ disclosed
under § 226.38(b)(3)(i).
Under current Regulation Z, the
amount financed must be calculated in
the following manner:

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(1) Determining the principal loan amount
* * * (subtracting any downpayment);
(2) Adding any other amounts that are
financed by the creditor and are not part of
the finance charge; and
(3) Subtracting any prepaid finance charge.
12 CFR 226.18(b).

Regarding the first part of this
calculation, determining the ‘‘principal
loan amount,’’ the commentary states
that when loan fees are financed by the
creditor, the creditor has the option
(when the charges are not add-on or
discount charges) of either including or
excluding the amount of the finance
charges in the principal loan amount.
As the commentary points out, this
means that the ‘‘principal loan amount’’
for this calculation may, but need not,
equal the face amount of the note.
Comment 18(b)(3)–1. If the creditor opts
to include finance charges in the
principal loan amount, the creditor
should deduct these charges from the
principal loan amount as prepaid
finance charges when calculating the
amount financed. Id.
Rather than equate Regulation Z’s
existing term ‘‘principal loan amount’’
with the ‘‘principal amount’’ required to
be disclosed in proposed
§ 226.38(b)(3)(i), the Board’s view was
that the most straightforward and easyto-understand approach was to define
‘‘principal amount’’ as the face amount
of the note if the transaction occurred
on the terms approved. The ‘‘principal
amount’’ under proposed
§ 226.38(b)(3)(i) was to include all
charges incorporated in the approved
loan amount—in other words, the total
amount borrowed. This amount should
reflect what the face amount of the note

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would be if the loan were given based
on the loan amount initially approved.
For example, prepaid finance charges,
as defined and discussed in comment
18(b)(3)–1, should be included if they
would be included in the face amount
of the note.
The Board believed that defining
‘‘principal amount’’ in this way would
not cause consumer confusion with
Regulation Z’s use of the term
‘‘principal loan amount’’ in § 226.18(b),
because ‘‘principal loan amount’’ is not
currently a stand-alone disclosure in
Regulation Z that consumers could
confuse with the ‘‘principal amount.’’
Defining the ‘‘principal amount’’ in
proposed § 226.38(b)(3)(i) as distinct
from the term ‘‘principal loan amount’’
in § 226.18(b) may also reduce creditor
confusion about whether the definition
of ‘‘principal amount’’ changes how the
‘‘amount financed’’ is calculated under
§ 226.18(b). As noted above, ‘‘principal
loan amount’’ is a term used only as part
of the calculation of the ‘‘amount
financed’’ disclosure. Current comment
18(b)(3)–1 permits creditors to decide
whether to include or exclude prepaid
finance charges in the ‘‘principal loan
amount,’’ but solely for purposes of
calculating the ‘‘amount financed.’’
In addition, in order to minimize
potentially duplicative disclosures,
proposed comment 38(b)(3)–1 explained
that creditors may disclose the principal
amount as part of the itemization of the
amount financed. The creditor would be
permitted to disclose the principal
amount as part of the itemization of the
amount financed only if the creditor
states the principal amount as part of
the itemization. The proposed sample
form in Appendix H–22 provided an
example of this disclosure. Also, as
discussed above, the proposal revised
§ 226.17(a)(1) to allow the itemization of
the amount financed to be included
with the required disclosures, rather
than disclosed separately.
Some commenters expressed
confusion as to the distinction among
the concepts of the ‘‘principal amount’’
required to be disclosed in proposed
§ 226.38(b)(3)(i), the ‘‘principal loan
amount’’ used to calculate the amount
financed, and the ‘‘amount financed’’
required to be disclosed in § 226.18(b),
because the Board’s sample forms did
not include non-interest finance
charges. Commenters were unclear as to
where and how the principal amount
was required to be disclosed on the
model and sample forms.
Proposed § 226.38(b)(3)(i) is adopted
as § 226.47(b)(3)(i). Comment 47(b)(3)–1
has been revised to clarify that the
principal amount required to be
disclosed under § 226.47(b)(3)(i) should

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be labelled the ‘‘Total Loan Amount’’
and that this amount may be different
from the ‘‘principal loan amount’’ used
to calculate the amount financed under
comment 18(b)(3)–1. In addition, the
Board’s sample forms in Appendix H–
22 and H–23 provide examples that
include non-interest finance charges
and better reflect the distinction
between the principal amount and the
amount financed.
The Board is also revising the model
and sample disclosures in Appendix H
to make the principal amount, labelled
the ‘‘Total Loan Amount,’’ more
prominent by placing it in a box
labelled ‘‘Total Loan Amount’’ at the top
left of the disclosure, where the
disclosure of the amount financed was
in the proposal. The Board’s consumer
testing indicated that consumers
interpret the ‘‘Amount Financed’’ and
the accompanying phrase ‘‘the amount
of credit provided to you or on your
behalf’’ to mean the loan’s total
principal amount. They do not readily
understand that the amount financed
may not include certain finance charges
and thus may be less than the face
amount of the note. Consumer testing
indicated that consumers better
understand the amount financed if it is
disclosed as part of the itemization of
the amount financed because consumers
can see how the amount financed is
arrived at based on the total principal
amount.
The Board proposed to allow creditors
to make the disclosure of the principal
amount in § 226.47(b)(3)(i) as part of the
itemization of the amount financed, if
the creditor chose to include the
itemization. However, because the final
model forms disclose the principal
amount more prominently, comment
47(b)(3)–1 has been revised to permit
the creditor to make the disclosure of
the amount financed under
§ 226.18(b)(3) as part of the itemization
of the amount financed, if the creditor
elects to include the itemization on the
disclosures under § 228.18(c)(1).
Loan term. Proposed § 226.38(b)(3)(ii)
and comment 38(b)(3)–2 implemented
TILA section 128(e)(2)(G), which
requires disclosure of the maximum
term of the private education loan
program. Under the proposal, the term
of the loan was the period of time
during which regular principal and
interest payments must be made on the
loan. For example, where repayment
begins upon consummation of the
private education loan, the disclosed
loan term would be the same as the full
term of the loan. By contrast, where
repayment does not begin until, for
instance, after the student is no longer
enrolled, the disclosed loan term would

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Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations
be shorter than the full term of the loan.
If more than one repayment term is
possible, the creditor must disclose the
loan term as the longest possible
repayment term. Proposed
§ 226.38(b)(3)(ii) is adopted as
§ 226.47(b)(3)(ii).
Payment deferral options. Proposed
§ 226.38(b)(3)(iii) and proposed
comment 38(b)(3)–3 required the
creditor to provide information about
deferral options, implementing TILA
section 128(e)(2)(J). This disclosure was
similar to the requirement under
proposed § 226.38(a)(3)(ii), as explained
in the section-by-section analysis for
section § 226.47(a)(3)(ii). However, by
the time the consumer receives the
approval disclosure, the consumer may
have chosen a deferral option already.
The difference between proposed
§§ 226.38(a)(3)(ii) and 226.38(b)(3)(iii) is
that the creditor was required to explain
the deferral option chosen by the
consumer, if the consumer has chosen a
deferral option, as well as any other
deferral options that the consumer is
permitted to choose in the future. The
Board is adopting § 226.38(b)(3)(ii) as
§ 226.47(b)(3)(ii). The section-by-section
analysis of the deferral options
disclosure of § 226.47(a)(3)(ii) describes
the information that must also be
included in the explanation of deferral
options under § 226.47(b)(3)(iii).
Payments required during enrollment.
Proposed § 226.38(b)(3)(iv) and
comment 38(b)(3)–4 required the
creditor to disclose whether any
payments are required on the loan while
the student is enrolled, implementing
TILA section 128(e)(2)(I). The creditor
also was required to describe the
payments required during enrollment,
such as principal and interest payments
or interest-only payments. The
payments required during enrollment
may depend on the deferral option
chosen by the consumer. The disclosure
under proposed § 226.38(b)(3)(iv) was
required to correspond to the deferral
option chosen by the consumer. The
Board is adopting § 226.38(b)(3)(iv) as
§ 226.47(b)(3)(iv).
Estimate of interest accruing during
enrollment. Also implementing TILA
section 128(e)(2)(I), proposed
§ 226.38(b)(3)(v) applied only if interest
is charged on the private education loan
while the student is enrolled, and the
consumer will not be paying interest on
the loan during this time. This
disclosure would require the creditor to
give the consumer an estimate of the
interest that will accrue on the loan
during enrollment. The Board is
adopting proposed § 226.38(b)(3)(v) as
§ 226.47(b)(3)(v).

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Bankruptcy limitations. Proposed
§ 226.38(b)(3)(vi) required disclosure of
a statement of limitations on the
discharge of a private education loan in
bankruptcy. Proposed comment
38(b)(3)–5 stated that a creditor may
comply with proposed § 226.38(b)(vi) by
disclosing the following statement: ‘‘If
you file for bankruptcy you may still be
required to pay back this loan.’’ To
avoid overloading the consumer with
information, the Board proposed to
require a general statement that student
loans may not be dischargeable in
bankruptcy rather than require a
detailed disclosure of student loan
bankruptcy rules and limitations. The
Board is adopting proposed
§ 226.38(b)(3)(vi) as § 226.47(b)(3)(vi).
Total amount for repayment. TILA
section 128(e)(2)(H) requires the creditor
to disclose an estimate of the total
amount for repayment calculated based
on: (1) the interest rate in effect on the
date of approval; and (2) the maximum
possible rate of interest applicable to the
loan or, if a maximum rate cannot be
determined, a good faith estimate of the
maximum rate.
Proposed § 226.38(b)(3)(vii) defined
the total amount for repayment in the
same manner as the current Regulation
Z closed-end credit disclosure of the
total of payments. 12 CFR 226.18(h).
Neither the HEOA nor its legislative
history provides guidance on the
definition of ‘‘total amount for
repayment.’’ Regulation Z defines ‘‘total
of payments’’ as the amount the
consumer will have paid when the
consumer has made all scheduled
payments. 12 CFR 226.18(h). In some
cases, the total of payments will not
exactly match the total amount that the
borrower must repay. For example, if
the borrower pays prepaid finance
charges separately in cash, the amount
of these charges will not be reflected in
the total of payments. However, the
Board believes that requiring separate
disclosures for the ‘‘total amount for
repayment’’ and the ‘‘total of payments’’
would likely cause consumer confusion
and that both terms are meant to capture
the amount that the borrower will have
paid after making all scheduled
payments to repay the loan.
Accordingly, in order to avoid
duplication, proposed comment
38(b)(3)–6.i clarified that compliance
with the total of payments disclosure
under § 226.18(h) constitutes
compliance with the requirement to
disclose the total amount for repayment
at the interest rate in effect on the date
of approval.
Maximum rate. For the requirement
that the creditor disclose an estimate of
the total amount for repayment at the

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maximum possible rate of interest,
proposed § 226.38(b)(3)(vii) and
comment 38(b)(3)–6.ii required that
either the maximum possible rate be
used or, if a maximum rate cannot be
determined, an assumed rate of 21%.
For example, if the creditor were in a
state without a usury limit on interest
rates, and the legal agreement between
the parties did not specify a maximum
rate, the creditor would have to base the
disclosure on a rate of 21%.
Under proposed comment 38(b)(3)–
6.ii, a maximum rate included a legal
limit in the nature of a usury or rate
ceiling under state or Federal statutes or
regulations, and the creditor was
required to calculate the total amount
for repayment based on that rate, and to
disclose that the maximum rate is
determined by law and may change.
TILA section 128(e)(2)(H) requires
that, if a maximum rate cannot be
determined, the creditor must use a
good faith estimate of the maximum
rate. The Board proposed to use its
authority under the HEOA to add a
requirement that where a maximum rate
cannot be determined, the creditor use
a rate of 21%. The Board stated its belief
that such a rule is necessary and
appropriate for consumers to make
informed borrowing decisions. A rule
providing a uniform maximum rate
assumption also gives creditors more
certainty in complying with the
regulation. The Board proposed a rate of
21% because the Board believed that
21% was the most common rate within
the range of usury rate ceilings that
consumers in the private education loan
market are likely to face. Thus, the
Board believed that basing the
disclosure on an assumed maximum
rate of 21% would assist consumers in
comparing different loans by providing
consumers with an estimated total
amount for repayment that will be
similar between states with and without
usury rate limitations.
In addition, under the Board’s TILA
section 128(e)(2)(P) and 128(e)(4)(B)
authority, the proposal added a
requirement that, if the legal obligation
between the parties does not specify a
maximum rate, the creditor must
accompany the estimated total amount
for repayment with a statement that:
(1) No maximum interest rate applies to
the private education loan; (2) the
maximum interest rate used to calculate
the total amount for repayment is an
estimate; and (3) the total amount for
repayment disclosed is an estimate and
will be higher if the applicable interest
rate increases. The Board believed that
these additional disclosures were
necessary to inform consumers that the
examples in the disclosure statement are

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merely illustrative and that their loan in
fact has no maximum rate.
The HEOA allows the creditor to
disclose the total amount for repayment
as an estimate. Proposed § 226.38(b)(3)
also required only an estimated total
amount for repayment. The Board
recognized that permitting disclosure of
an estimate of the total amount for
repayment is necessary because the
interest rates on most private education
loans are variable and the repayment
schedule is often not known at the time
that the approval disclosures must be
provided to the consumer.
The Board requested comment on
whether a specific maximum rate
assumption should be used for
disclosures where a maximum rate
cannot be determined, and, if so,
whether 21% was the most appropriate
rate or whether another rate should be
used. The Board also requested
comment on whether, if a maximum
rate of interest was to be specified, the
Board should publish the rate
periodically, based on a median or a
commonly used usury rate applicable to
private education loans in various
states. The Board also requested
comment on alternative approaches by
which creditors may make a good faith
estimate of a maximum possible rate
when a maximum rate cannot be
determined.
The Board received a number of
comments on the proposal to require
disclosure of the total amount for
repayment at an assumed rate of 21% if
a maximum interest rate could not be
determined. Commenters generally
supported the approach used in the
proposed rule although a few
commenters suggested specific higher or
lower rates to be used as a maximum
rate assumption, or to require a creditor
to use its actual interest rate history. For
example, consumer group commenters
suggested that a rate of 36% represented
an average of state law usury ceilings,
but cited in support a study of payday
lending laws. By contrast, some
industry commenters suggested that
historically a rate of 21% was higher
than had actually been charged to
consumers for private education loans.
One government agency supported
using the greater of 21% or the highest
rate actually charged by the creditor
during a recent period of time. One
industry commenter stated that it was
subject to a state usury ceiling of 25%
and expressed concern that allowing
other lenders with no rate cap to base
the disclosure example on a maximum
rate of 21% was unfair to creditors in
states with higher usury ceilings. The
commenter expressed concern that some
consumers would incorrectly conclude

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that it was preferable to take a loan from
a creditor in a state with no usury
ceiling than from a creditor in a state
with a ceiling greater than 21%. Some
commenters also suggested that the
Board should publish from time to time
an assumed rate to be used in
calculating the total for repayment
where a maximum rate cannot be
determined.
The Board is adopting proposed
§ 226.38(b)(3)(vii) as § 226.47(b)(3)(vii)
largely as proposed, but the final rule
requires a disclosure based on an
assumed rate of 25% where a maximum
rate cannot be determined, rather than
21%. The Board proposed using a rate
of 21% based on the most common rate
in the range of usury rate ceilings that
consumers in the private education loan
market are likely to face. However, the
Board believes that basing the example
on the most common state usury rate
could disadvantage creditors in states
with higher usury ceilings. The highest
state law usury rate actually applicable
to student loans mentioned by
commenters was 25%. In addition,
consumers shown a disclosure where no
maximum rate applied understood in
testing that the example used only an
assumed rate of 21%. However, a few
consumers stated that they usually
expect an assumption to be a ‘‘round
number’’ such as 20% or 25%, not a
number like 21%. Based on consumer
testing results, the Board also believes
that using an assumed rate of 25% will
help indicate to consumers that the
disclosure is based on an example. The
Board is not publishing a rate because
commenters did not suggest a
methodology by which the Board could
choose a more appropriate rate. In
addition, the Board believes that
requiring all creditors to use the same
assumption, rather than historic rates,
will better assist consumers in
comparing loans because a creditor’s
past interest rates may not be predictive
of future interest rates.
In response to one state education
loan provider’s comment, the Board is
adding comment 47(b)(3)–6.iii to clarify
that if terms of the legal obligation
provide a limitation on the amount that
the interest rate may increase at any one
time, the creditor may reflect the effect
of the interest rate limitation in
calculating the total cost example. For
example, if the legal obligation provides
that the interest rate may not increase by
more than three percentage points each
year, the creditor may, at its option,
assume that the rate increases by three
percentage points each year until it
reaches that maximum possible rate, or
if a maximum rate cannot be
determined, an interest rate of 25%.

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Maximum monthly payment.
Proposed § 226.38(b)(3)(viii)
implemented TILA section 128(e)(2)(O)
by requiring the creditor to disclose the
maximum monthly payment based on
the maximum rate of interest applicable
to the loan or, if a maximum rate cannot
be determined, for the reasons discussed
above, an assumed rate of 21%. In
addition, as discussed above, under the
Board’s TILA section 128(e)(2)(P) and
128(e)(4)(B) authority, the proposal
added a requirement that the creditor
state that: (1) No maximum interest rate
applies to the loan; (2) the maximum
interest rate used to calculate the
maximum monthly payment amount is
an estimate; and (3) the maximum
monthly payment amount is an estimate
and will be higher if the applicable
interest rate increases.
As with proposed § 226.38(b)(3)(vii),
the Board requested comment on other
approaches by which creditors may
calculate a maximum payment when a
maximum rate cannot be determined.
Commenters combined their comments
on proposed § 226.38(b)(3)(viii) with
their comments on proposed
§ 226.38(b)(3)(vii).
For the reasons discussed above, the
Board is adopting proposed
§ 226.38(b)(3)(viii) as § 226. 47(b)(3)(viii)
largely as proposed except that if a
maximum rate cannot be determined, an
assumed rate of 25% must be used.
47(b)(4) Alternatives to Private
Education Loans
Implementing TILA section
128(e)(2)(M), the Board proposed
§§ 226.38(b)(4) to require the creditor to
provide the information about
alternatives to private education loans
for financing education that were also
required under proposed
§§ 226.38(a)(6)(i)–(iii) and explained in
the section-by-section analysis for
§§ 226.47(a)(6). The Board proposed to
use its authority under TILA sections
105(a) and 105(f) to make exceptions to
the statute by not requiring creditors to
state that Federal loans may be obtained
in lieu of or in addition to private
education loans. As explained in the
section-by-section analysis for
§§ 226.47(a)(6), the Board believes that
this exception is necessary and proper
to effectuate meaningful disclosure of
credit terms to consumers. The Board is
adopting §§ 226.38(a)(6) as
§§ 226.47(a)(6).
47(b)(5) Rights of the Consumer
In implementing TILA section
128(e)(2)(L), proposed § 226.38(b)(5)
required a creditor to disclose that the
consumer had the right to accept the
loan on the terms approved for up to 30

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calendar days. The proposed disclosure
also informed the consumer that the rate
and terms of the loan would not change
during this period, except for changes to
the rate based on adjustments to the
index used for the loan.
Under the Board’s TILA section
128(e)(2)(P) authority, the proposed
disclosure required a creditor to include
the specific date on which the 30-day
period expired and to indicate that the
consumer may accept the terms of the
loan until that date. For example, under
the proposal, if the consumer received
the disclosures on June 1, the disclosure
was required to state that the consumer
could accept the loan until July 1. The
Board believed that this disclosure was
necessary to inform consumers of the
precise date when the 30-day period
expired because the date the consumer
was deemed to receive the disclosure
may have differed slightly from the date
the consumer actually received the
disclosure. The creditor was also
required to disclose the method or
methods by which the consumer could
communicate acceptance. The Board
believed that this disclosure was
necessary to ensure consumers
understood the specific steps required
to accept the loan. Proposed comment
39(c)–3, discussed below, provided
guidance to creditors on disclosing
methods by which consumers may
communicate acceptance.
Section 226.47(b)(5) of the final rule
requires a statement that the consumer
may accept the terms of the loan until
the acceptance period under
§ 226.48(c)(1) has expired. As discussed
in the section-by-section analysis in
§ 226.47(a)(7), the disclosure also
requires a statement similar to the
statement in the application disclosure
that, except for changes as a result of
adjustments to the interest rate and
other changes permitted by law, the
rates and terms of the loan may not be
changed by the creditor during the
acceptance period. As in the application
disclosure, the requirements of this
provision more closely resemble the
language used on the approval
disclosures in consumer testing, which
consumers found to be clear and
understandable.
Section 226.47(b)(5) also requires the
creditor to include the specific date on
which the acceptance period expires,
based upon the date on which the
consumer receives the disclosures. It
further requires the disclosure to specify
the method or methods by which the
consumer may accept the loan, such as
by telephone or by mailing a signed
acceptance.

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47(c) Final Disclosures

47(c)(4) Cancellation Right

Section 226.47(c), proposed as
§ 226.38(c), requires the creditor to
disclose to the consumer a third set of
disclosures after the consumer accepts
the loan in accordance with
§ 226.48(c)(1). Section 226.47(c)
implements TILA section 128(e)(4),
which requires the creditor to provide
this final set of disclosures
contemporaneously with
consummation. Regulation Z defines
‘‘consummation’’ as the time that a
consumer becomes contractually
obligated on a credit transaction. See 12
CFR 226.2(a)(13). The corresponding
commentary defers to state law to
determine when consummation occurs.
See comment 2(a)(13)–1. As discussed
earlier in the section-by-section analysis
under § 226.46, to avoid confusion
about when the final private education
loan disclosures should be given due to
differing state law definitions of
consummation, and to ensure that
consumers have a meaningful
opportunity to exercise their
cancellation right under TILA section
128(c)(8), the Board interprets
‘‘contemporaneously with
consummation’’ to require creditors to
provide these final disclosures after
acceptance and, under § 226.48(d), at
least three days before disbursement.

Section 226.47(c)(4) is adopted as
proposed in § 226.38(c)(4). Section
226.47(c)(4) and comment 47(c)–1
implement TILA section 128(e)(4)(C) by
requiring the creditor to disclose to the
consumer the following information:
(i) The consumer has the right to
cancel the loan, without being
penalized, at any time before the
cancellation period under § 226.48(d)
has expired; and
(ii) Loan proceeds will not be
disbursed until after the cancellation
period expires.
Under the Board’s TILA section
128(e)(4)(B) authority, § 226.47(c)(4)
adds a requirement that creditor
disclose the specific date on which the
cancellation period expires and include
the methods or methods by which the
consumer may cancel the loan.
Comment 47(c)–2, proposed as
comment 38(c)–2, clarifies that the
statement of the right to cancel must be
more conspicuous than any other
disclosure required under § 226.47(c),
except for the finance charge, the
interest rate, and the creditor’s identity.
See § 226.46(c)(2)(iii). Under comment
47(c)–2, the right to cancel statement is
deemed more conspicuous than other
disclosures if the creditor segregates the
statement from other the disclosures,
places the statement at or near the top
of the disclosure document, and
highlights the statement in relation to
other required disclosures. Examples of
appropriate highlighting given in
comment 47(c)–2 are that the statement
may be outlined with a prominent,
noticeable box; printed in contrasting
color; printed in larger type, bold print
or different type face; underlined; or set
off with asterisks. Comments 48(d)–1,
and 2, discussed below in the sectionby-section analysis under § 226.48(d),
provide additional guidance about how
the creditor must notify the consumer of
the cancellation right and how the
consumer may exercise this right.

47(c)(1) Interest Rate
Section 226.47(c)(1), proposed as
§ 226.38(c)(1), requires creditors to
disclose the interest rate that applies to
the private education loan accepted by
the consumer.
Fixed or variable rate, rate
limitations. As proposed in
§ 226.38(c)(1), § 226.47(c)(1) requires the
creditor to provide to the consumer the
rate information required under
§§ 226.47(b)(1)(ii) and (iii), as explained
in the section-by-section analysis for
those sections.
47(c)(2) Fees and Default or Late
Payment Costs
As proposed in § 226.38(c)(2),
§ 226.47(c)(2) requires the creditor to
provide to the consumer the fee and
default or late payment information
required under § 226.47(b)(2), as
explained in the section-by-section
analysis for that section.
47(c)(3) Repayment Terms
As proposed in § 226.38(c)(3),
§ 226.47(c)(3) requires the creditor to
provide to the consumer the repayment
information required under
§ 226.47(b)(3), as explained in the
section-by-section analysis for that
section.

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Alternatives to Private Education Loans
Based on the results of the Board’s
consumer testing, the Board proposed to
use its authority under TILA section
105(a) to create an exception from the
requirement in TILA section 128(e)(4)(b)
that the creditor provide the consumer
with information about Federal
alternatives to private education loans.
Consumers overwhelmingly indicated
that this information would not be
meaningful or useful to them at the time
when they would receive the final
disclosures. Consumers indicated that
by the time they had applied for and
accepted a private education loan, they

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already would have made a decision as
to whether or not to seek other loan
alternatives.
The Board also proposed to exercise
its authority under TILA section 105(f)
to exempt private education loans from
the specific requirement to disclose
information about Federal loan
alternatives in the final disclosure form.
The Board believed that this disclosure
requirement does not provide a
meaningful benefit to consumers in the
form of useful information or protection.
The Board considered that the private
education loan consumer population
may contain students who lack financial
sophistication and that the size of the
loan could be relatively significant and
important to the borrower. However, as
explained above, consumers tested
indicated that this disclosure was not
useful at this final stage in the loan
process. Borrowers would receive the
information about Federal loans at
application and approval. The Board
also recognized that private education
loans would not be secured by the
principal residence of the consumer,
which is a factor for consideration
under section 105(f). Furthermore, the
HEOA provides significant rights, such
as the right to cancel the loan. The
Board believed that consumer
protection would not be undermined by
this exemption.
The Board requested comment on
whether it should adopt this proposed
exception. Some consumer group
commenters urged the Board to retain
the disclosures about Federal loan
alternatives stating a concern that
consumers in a testing context received
the various private education loan
disclosure forms close together in time,
but that consumers in the marketplace
would receive them at different times
and may not recall the information
about Federal loan alternatives.
For the reasons stated in the proposal,
the Board is not requiring disclosure of
Federal loan alternatives on the final
disclosure form. The Board’s consumer
testing conducted after the proposed
rule was issued confirmed that
consumers would not find this
information beneficial at the stage in the
lending process where they receive the
final disclosure form.
Section 226.48 Limitations on Private
Education Loans
Section 226.48, proposed as § 226.39,
contains rules and limitations on private
education loans. It includes a
prohibition on co-branding in the
marketing of private education loans,
rules governing the 30-day acceptance
period and three-day cancellation
period for private education loans, the

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requirement that the creditor obtain a
self-certification form from the
consumer before consummating a
private education loan, and the
requirement that creditors in preferred
lender arrangements provide certain
information to covered educational
institutions.
48(a) Co-Branding Prohibited
The HEOA prohibits creditors from
using the name, emblem, mascot, or
logo of a covered educational
institution, or other words, pictures, or
symbols readily identified with a
covered educational institution in the
marketing of private education loans in
any way that implies that the covered
educational institution endorses the
creditor’s loans.
Proposed § 226.39(a)(1) implemented
this prohibition by prohibiting creditors
from referencing a covered educational
institution in a way that implies that the
educational institution endorses the
creditor’s loans. At the same time, the
Board recognized that a creditor may at
times have legitimate reasons for using
the name of a covered educational
institution. For instance, some
educational institutions’ financial aid
Web sites might provide links to
specific creditors’ Web sites. Creditors
might provide a welcome page to the
student that references the name of the
school that provided the link. Some
creditors may have school-specific
terms or benefits and may need to use
the name of the school to provide
accurate information to consumers
about the nature and availability of its
loan products.
For these reasons, proposed
§ 226.39(a)(2) provided creditors with
the following safe harbor for those cases
where the creditor’s marketing does
make reference to an educational
institution. Marketing that refers to an
educational institution would not be
deemed to imply endorsement if the
marketing clearly and conspicuously
discloses that the educational
institution does not endorse the
creditor’s loans, and that the creditor is
not affiliated with the educational
institution. This safe harbor approach is
consistent with the views expressed in
the Conference Report to the HEOA,
which states that the conferees intended
that creditors could demonstrate that
they are not implying endorsement by
the covered educational institution by
providing a clear and conspicuous
disclaimer that the use of the name,
emblem, mascot, or logo of a covered
educational institution, or other words,
pictures, or symbols readily identified
with a covered educational institution,
in no way implies endorsement by the

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covered educational institution of the
creditor’s private education loans and
that the creditor is not affiliated with
the covered educational institution. The
Board stated its belief that this safe
harbor approach will inform consumers
that a reference to a covered educational
institution does not mean that the
institution endorses the loan being
marketed while also providing clarity
about how to market private education
loans without violating TILA and
Regulation Z.
Proposed comment 39(a)–1 clarified
the term ‘‘marketing’’ as used in
proposed § 226.39. The term included
all ‘‘advertisements’’ as that term is
defined in Regulation Z. 12 CFR
226.2(a)(2). The proposal explained that
the term marketing is broader than
advertisement, however, and includes
documents that are part of the
negotiation of the specific private
education loan transaction. For
example, applications or solicitations,
promissory notes or contract documents
would be considered marketing. The
Board believed that a broader meaning
of marketing is needed to cover
documents, such as promissory notes,
that are not considered advertisements,
but that may use the name of the
educational institution prominently in a
potentially misleading way. For
example, naming the loan the
‘‘University of ABC Loan’’ could
mislead consumers into believing that
the loan was offered by the educational
institution.
Proposed comment 39(a)–2 clarified
that referencing a covered educational
institution in a way that implies that the
educational institution, rather than the
creditor, is offering or making the loan
is a form of implying that the
educational institution endorses the
loan and was therefore not permitted
under proposed § 226.39(a)(1). However,
the use of a creditor’s own name, even
if that name includes the name of a
covered educational institution, would
not imply endorsement. For example, a
credit union whose name includes the
name of a covered educational
institution would not be prohibited
from using its own name. In addition,
authorized use of a state seal by a state
or an institution of higher education in
the marketing of state education loan
products would not imply
endorsement.13
13 See Joint Explanatory Statement of the
Committee of Conference on H.R. 4137, Title X,
Subtitle A, § 1011. The Conference Report states
that the prohibition is not intended to prohibit a
credit union whose name includes the name of a
covered educational institution from using its own
name in marketing its private education loans. In
addition, it is not intended to prohibit states or

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Proposed comment 39(a)–3.i provided
a model clause that creditors may use in
complying with the safe harbor
proposed in § 226.39(a)(2). The creditor
would be considered to have complied
with proposed § 226.39(a)(2) if the
creditor includes a clear and
conspicuous statement, using the
creditor’s name and the covered
educational institution’s name, that
‘‘[Name of creditor]’s loans are not
endorsed by [name of school] and [name
of creditor] is not affiliated with [name
of school].’’
The Board received comments from
educational institutions arguing that the
prohibition on co-branding should not
apply if the educational institution is
itself the creditor. The Board also
received comments from creditors
suggesting that use of the educational
institution’s name on the promissory
note, if no more conspicuous than the
text of the promissory note does not
imply endorsement and should not be
prohibited. By contrast, consumer
groups suggested that the Board engage
in consumer testing to ensure that the
proposed disclosures were effective in
indicating that a private education loan
was not endorsed by the educational
institution.
Proposed §§ 226.39(a)(1) and 39(a)(2)
are adopted as §§ 226.48(a)(1) and
48(a)(2) largely as proposed. However,
consistent with comment 47–2, which
permits a creditor to use its own name,
§ 226.48(a)(1) has been clarified to not
apply to a covered educational
institution if the institution is the
creditor. In addition, comments 47(d)–
3.i and 47(d)–3.ii of the final rule
require the safe harbor model clauses be
provided with equal prominence and in
close proximity to the reference to the
school. Consistent with the Board’s
interpretation of the equal prominence
and close proximity standards in the
advertising rules in §§ 226.16 and 24,
the statement would be deemed equally
prominent and closely proximate if it is
the same type size and is located
immediately next to or directly above or
below the reference to the school,
without any intervening text or
graphical displays. The Board believes
that requiring equal prominence and
close proximity for the use of the safe
harbor statements will ensure that
marketing material clearly
communicates to consumers the identity
of the creditor making the loan and, if
applicable, that the school does not
endorse the creditor’s loans.
institutions of higher education from using state
seals, with appropriate authorization, in the
marketing of state education loan products.

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The final rule does not exclude use of
the school’s name in the promissory
note from the general rule, even if the
school’s name is no more prominent
than other text. The Board does not
believe that the relative prominence of
the school’s name within the
promissory note, by itself, determines
whether or not the use of the school’s
name is misleading.
48(b) Preferred Lender Arrangements
In the proposal, the Board recognized
that in certain instances the prohibition
on creditors’ implying endorsement
from covered educational institutions
would not be appropriate because it
would not be factually correct. The
HEOA specifically allows covered
educational institutions to endorse the
private education loans of creditors with
which they have a ‘‘preferred lender
arrangement.’’ The HEOA defines a
‘‘preferred lender arrangement’’ as an
arrangement or agreement between a
creditor and a school under which the
creditor provides loans to the school’s
students or their families, and the
school recommends, promotes, or
endorses the creditor’s loans. HEOA,
Title I, § 120 (adding Section 152 to the
Higher Education Act). Thus, where a
creditor and a covered educational
institution have a preferred lender
arrangement, a creditor’s statement that
a school did not endorse its loans would
be misleading.
The Board proposed to exercise its
authority under TILA section 105(a) to
provide an exception to the co-branding
prohibition for creditors that have
preferred lender arrangements. As
explained above, the Board believes that
this provision is necessary and proper to
assure an accurate and meaningful
disclosure to consumers of the
relationship between the creditor and
the educational institution. Proposed
§ 226.39(b) allowed the creditor to refer
to the covered educational institution,
but required that the creditor clearly
and conspicuously disclose that the
loan is not being offered or made by the
educational institution, but rather by the
creditor. The Board believes that a
disclosure that the loan is provided by
a creditor and not by the school would
address consumer confusion about
whether the loan was actually made by
the school, or merely endorsed by the
school.
The proposed requirement that
creditors with preferred lender
arrangements make a disclosure when
referring to a school follows a
prohibition on co-branding for preferred
lenders contained in section 152 of the
Higher Education Act, as added by the
HEOA, which is similar to the newly

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added co-branding prohibition in TILA.
Section 152 of the Higher Education Act
prohibits a creditor in a preferred lender
arrangement from making a reference to
a covered educational institution in any
way that implies that the loan is offered
or made by such institution or
organization instead of the creditor.
HEOA, Title I, Section 120 (adding
Section 152(a)(2) to the Higher
Education Act). Thus, proposed
§ 226.39(b) reconciled the two cobranding prohibitions contained in the
HEOA.
Proposed comment 39(a)–3.ii
provided a model clause that creditors
could use in complying with proposed
§ 226.39(b). The creditor would be
considered to have complied with
proposed § 226.39(b) if the creditor
included a clear and conspicuous
statement, using the name of the
creditor’s loan or loan program, the
creditor’s name and the covered
educational institution’s name, that
‘‘[Name of loan or loan program] is not
being offered or made by [name of
school], but by [name of creditor].’’
The Board requested comment on
whether creditors should be offered a
safe harbor from the prohibition on cobranding, and, if so, whether other types
of safe harbors should be considered.
The Board also requested comment on
how the co-branding prohibition should
apply to creditors with preferred lender
arrangements with covered educational
institutions. The Board also requested
comment on whether there are other
examples of marketing that should be
included in the co-branding prohibition.
The Board received comments from
educational institutions and some
lenders indicating that the proposed
exception to the co-branding prohibition
might conflict the Department of
Education’s, or other state law code-ofconduct provisions. Some educational
institutions expressed concern that the
proposed rule would permit the creditor
to claim endorsement without the
educational institution’s consent if the
educational institution merely placed a
creditor on a suggested list of lenders
provided to students.
The Board is adopting § 226.48(b)
largely as proposed in § 226.39(b).
However, the final rule clarifies that it
does not authorize creditors to claim
endorsement by an educational
institution without the institution’s
having actually endorsed the creditor’s
loan program. After consulting with the
Department of Education, the Board still
believes that such endorsements may be
permissible. The final rule has also been
clarified to apply only when an
endorsement of the creditor’s loans by
the educational institution is not

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prohibited by other applicable law or
regulation. In addition, the statement
that must accompany the reference to
the educational institution must be
equally prominent and closely
proximate as discussed in the sectionby-section analysis under § 226.48(a)
above.
48(c) Consumer’s Right To Accept
The HEOA provides consumers with
a 30-day period following receipt of the
approval disclosures in which to accept
a private education loan. It also
prohibits creditors from changing the
rate or terms of the loan, except for
changes based on adjustments to the
index used for the loan, until the 30-day
period has expired. Section 226.48(c),
proposed as § 226.39(c), implements the
30-day acceptance period for private
education loans.
Under the proposal, the 30-day period
began following the consumer’s receipt
of the approval disclosures required in
proposed § 226.38(b). Proposed
comment 39(c)–1 required creditors to
provide at least 30 days from the date
the consumer received the disclosures
required under proposed § 226.38(b) for
the consumer to accept a private
education loan. It also allowed creditors
to provide a longer period of time at the
creditor’s option. It clarified that if the
creditor placed the disclosures in the
mail, the consumer was considered to
have received them three business days
after they were mailed. The proposed
comment also clarified that the
consumer could accept the loan at any
time before the end of the 30 day period.
Commenters agreed with the proposal
requiring a minimum 30-day acceptance
period and the provision that a
consumer could accept the loan at any
time within the 30-day period.
Therefore, proposed § 226.39(c) and
comment 39(c)–1 are adopted as
§ 226.48(c) and comment 48(c)–1,
respectively.
The HEOA does not specify the
method by which the consumer may
accept the terms of the loan. Proposed
comment 39(c)–2 allowed the creditor to
specify a method or methods by which
acceptance could occur. Under the
proposal, the creditor could specify that
acceptance be made orally or in writing
or could permit either form of
acceptance. The creditor could also
allow the consumer to accept
electronically, but could not make
electronic acceptance the sole form of
acceptance.
Commenters generally agreed with the
proposed comment on permissible
methods of acceptance. However, some
commenters suggested that creditors
should be permitted to require

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electronic communication to be the only
means of acceptance if the creditor
provided the approval disclosure to the
consumer electronically. The Board
believes that requiring a form of
acceptance in addition to electronic
communication is generally appropriate
because not all consumers have access
to electronic forms of communication.
However, the Board agrees with
commenters that electronic
communication could be permissible as
the only means of acceptance when the
consumer has already indicated a
willingness to communicate
electronically by consenting to and
receiving a disclosure electronically,
pursuant to the E-Sign Act. Comment
48(c)–2, proposed as comment 39(c)–2,
is adopted and revised to permit
electronic communication as the only
means of acceptance if the creditor has
provided the approval disclosure
electronically in compliance with the
consumer consent and other applicable
provisions of the E-Sign Act.
Proposed § 226.39(c)(2) prohibited
creditors from changing the terms of the
loan, with a few specified exceptions,
before the loan disbursement, or the
expiration of the 30-day acceptance
period if the consumer did not accept
the loan during that time. To ensure that
consumers receive the benefit of the
entire 30-day period in which to accept
the loan, the Board proposed to prohibit
creditors from changing the rate and
terms of the loan until the date of
disbursement, if the consumer accepted
within the 30-day period.
Proposed § 226.39(c)(2) prohibited
only those changes that would affect the
rate or terms required to be disclosed
under proposed §§ 226.38(b) and (c), the
approval and final disclosures,
respectively. The Board interpreted the
prohibition on changes to the rate or
terms of the loan to cover only the
disclosed terms.
In the proposal, the Board provided
three exceptions to the provision that
the rate and terms of private education
loans required to be disclosed could not
be changed. Proposed § 226.39(c)(2) did
not prohibit changes based on
adjustments to the index used for a loan,
implementing TILA section 128(e)(6)(B).
In addition, in the proposal, the Board
exercised its authority under TILA
section 105(a) to make exceptions to
effectuate the purposes of the statute to
allow the creditor to make changes that
would unequivocally benefit the
consumer, similar to the rule for homeequity plans in § 226.5b(f)(3)(iv). The
Board also proposed to exercise its
authority under TILA section 105(f) in
permitting unequivocally beneficial
changes by exempting creditors from

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HEOA’s prohibition on making changes
to the loan prior to the date of
acceptance of the terms of the loan and
consummation of the transaction.
HEOA, Title X, Subtitle B, Section
1021(a) (adding TILA Section
128(e)(6)(B)).
The proposal also did not prohibit
changes made in connection with
accommodating a request by the
consumer. Proposed § 226.39(c)(3) and
proposed comment 39(c)–3 allowed
creditors to change a loan’s rate or terms
in response to a request from a
consumer. The proposed rule did not
limit the changes that could be made.
For example, the creditor was permitted
to provide for a shorter repayment term
as a condition of granting the
consumer’s request to borrow a lesser
loan amount. However, under the
proposal if the creditor chose to modify
the terms of the loan in response to a
consumer’s request, the creditor needed
to provide a new set of approval
disclosures and provide the consumer
with a new 30-day acceptance period.
The HEOA provides that a consumer
has 30 days in which to accept the terms
of a private education loan and
consummate the transaction, and that
the creditor may not change the rate and
terms of the loan during this time. The
statute does not explicitly state under
what conditions, if any, a creditor could
withdraw the loan offer or change the
loan’s terms in response to a change in
a material condition of the loan. The
Board requested comment on whether
there were instances where a material
condition of the loan offer was not met
such that the creditor should be
permitted to withdraw the offer or
change the terms of the loan.
Commenters generally agreed with the
permissible exceptions to the
restrictions on changes to the loan’s rate
and terms. Industry commenters,
however, suggested that creditors
should be permitted to give approval
disclosures at a conditional approval
stage, and be allowed to change the
terms of the loan based upon
information received later, such as
verification of income, verification of
citizenship, validation of co-borrower
information, and validation that the
loan transaction is in compliance with
applicable laws. Industry commenters
also argued for an exception to enable
creditors to change the terms of a loan
based on revised information regarding
a consumer’s educational expenses and
financial need provided in a school
certification or other communication
from a school. They argued that if
creditors were not permitted to give
approval disclosures at a conditional
approval stage, loan approvals and

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approval disclosures would be delayed
while verifications, compliance checks,
and school certifications were
completed.
The Board agrees that it is important
to inform consumers of a loan approval
and the applicable rates and terms early
in the loan process, so that consumers
have as much time as possible to shop
for a private education loan with the
most favorable terms. However, the
HEOA provides that the rates and terms
of the private education loan may not be
changed by a creditor during the 30-day
period in which the consumer has the
right to accept the loan terms and
consummate the transaction, except for
changes based on adjustments to the
index used for a loan.14 Thus,
permitting conditions contemplated by
the commenters would require the
Board to make multiple exceptions,
which could undermine the statutory
provision. This would also prevent the
consumer from being able to adequately
shop for the best loan terms because the
consumer would not know the final
terms of the offer until the final
disclosure was provided. Moreover, the
Board believes that while private
education loan approvals may be
delayed in order for creditors to verify
certain information, creditors will still
have an incentive to approve the loans
expeditiously in order to respond to the
needs of their customers.
However, the Board does believe that
two of the exceptions suggested by the
industry commenters are appropriate, in
addition to those exceptions provided in
the proposed rules and, for the reasons
stated below, is adopting them pursuant
to its TILA Section 105(a) authority in
order to effectuate the purposes of and
facilitate compliance with TILA. In
response to concerns that the provision
would require creditors to consummate
a loan that is legally impermissible, in
§ 226.48(c)(3) and comment 48(c)–4 in
the final rules, the Board makes clear
that a creditor may withdraw an offer
prior to consummation if the extension
of credit would be prohibited by law.
The creditor also may withdraw an offer
prior to consummation if the creditor
has reason to believe that the consumer
has committed fraud in connection with
the application.
The Board also understands that it is
common for students’ financial
assistance packages to change in a short
time period for a variety of reasons,
such as changes to the student’s and
family’s financial situation or the
availability of grants. The Board shares
commenters’ concerns that those whose
14 Title X, Subtitle A, § 1021(a) (amending TILA
Section 128(e)).

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financial assistance amount increases
after their private education loan has
been approved could end up overborrowing, which, among other things,
could adversely affect a student’s
eligibility for Federal student loans.
Thus, section 226.48(c)(3) and comment
48(c)–4 permit the creditor to reduce the
loan amount based upon a certification
or other information received from a
covered educational institution or from
the consumer that indicates the
student’s cost of attendance has
decreased or that other financial aid has
increased. A creditor may make
corresponding changes to the rate and
other terms, but only to the extent that
the consumer would have received the
changed terms if the consumer had
applied for the reduced loan amount.
For example, assume a consumer
applies for, and is approved for, a
$10,000 loan at a 7% interest rate.
However, the consumer’s school
certifies that the consumer’s financial
need is only $8,000. The creditor may
reduce the loan amount for which the
consumer is approved to $8,000. The
creditor may also, for example, increase
the interest rate on the loan to 7.125%,
but only if the consumer would have
received a rate of 7.125% if the
consumer had originally applied for a
$8,000 loan.
The Board is also adopting the
exceptions to the restrictions on
changing the rates and terms of the loan
that were set forth in the proposed rules.
The Board continues to believe a
permissible change that would
unequivocally benefit the consumer is
appropriate. Disallowing such a change
could complicate the credit process and
unnecessarily increase costs for
consumers and creditors who, for
example, would otherwise have to
repeat the application process in order
to change the terms. In addition,
consumers retain their right under
HEOA to cancel the loan. Therefore, the
Board is adopting the exception
proposed in § 226.39(c)(2) and comment
39(c)–3 that permits a creditor to make
changes if they will unequivocally
benefit the consumer in the final rules
as § 226.48(c)(3) and comment 48(c)–4.
The final rules clarify that the
permissible changes may be made to
both the interest rate and the terms of
the loan. For example, a creditor is
permitted to reduce the interest rate or
lower the amount of a fee.
The Board is also adopting proposed
§ 226.39(c)(2) as § 226.48(c)(3) in the
final rules, permitting changes based on
adjustments to the index used for a loan,
as mandated in the HEOA. The final
rules clarify that while changes to the
interest rate are permissible under this

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exception, changes to other loan terms
based on adjustments to the index used
for a loan are not permissible.
The Board has clarified in
§ 226.48(c)(3)(ii) and comment 48(c)–4
that if the creditor changes the rate or
terms of the loan under § 226.48(c)(3),
the creditor need not provide the
approval disclosures required under
§ 226.47(b) for the changed loan terms,
nor must the creditor provide an
additional 30 days to accept the new
terms of the loan. However, the creditor
must provide the final disclosures
required under § 226.47(c).
In addition to the changes to the rates
and terms of the loan permitted in
§ 226.48(c)(3), the Board also continues
to believe that it is in the consumer’s
interest to be able to request changes to
specific terms of the loan, even if this
results in changes to the rate or other
terms. The Board understands that it is
common for a consumer’s private
education loan needs to change even
until immediately prior to
consummation of the loan. For example,
a consumer may seek to defer
repayment during enrollment in school
after the consumer has already applied
for the loan. The Board seeks to ensure
that consumers retain the benefit of the
30-day acceptance period while also
providing consumers with flexibility to
move forward with a transaction with a
creditor without having to cancel a loan,
or loan offer, and expend time and
money re-applying. Thus, the Board is
also adopting proposed § 226.39(c)(3)
and comment 39(c)–4 as § 226.48(c)(4)
and comment 48(c)–5 to permit a
creditor, at its option, to change the rate
or terms of a loan in order to
accommodate a request from a
consumer. The final rule also clarifies
that, except for the permissible changes
to the rates and terms in § 226.48(c)(3)
discussed above, a creditor may not
withdraw or change the rate or terms of
the original loan for which the
consumer was approved unless the
consumer accepts the terms of the loan
offered in response to the consumer’s
request. For example, assume a
consumer applies for a $10,000 loan and
is approved for the $10,000 amount at
an interest rate of 6%. After the creditor
has provided the approval disclosures,
the consumer’s financial need increases,
and the consumer requests to a loan
amount of $15,000. In this situation, the
creditor is permitted to offer a $15,000
loan, and to make any other changes
such as raising the interest rate to 7%,
in response to the consumer’s request.
However, because the consumer may
choose not to accept the offer for the
$15,000 loan at the higher interest rate,
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change the rate or terms of the offer for
the $10,000 loan, except as permitted
under § 226.48(c)(3), unless the
consumer accepts the $15,000 loan.
The Board believes that consumers
could be discouraged from requesting
changes to loan terms unless the
original offer for which the consumer
was approved is held open until the
consumer accepts the counter-offer. For
similar reasons, the Board has clarified
in § 226.48(c)(4)(ii) that if the creditor
offers to make changes based on a
request from the consumer, the creditor
must provide the disclosures required
under § 226.47(b) for the new loan
terms. The creditor must also provide
the consumer with an additional 30
days to accept the new terms of the loan
and must not change the new loan’s rate
and terms except as specified in
§§ 226.48(c)(3) and 226.48(c)(4).
48(d) Consumer’s Right To Cancel
Section 226.48(d), adopted
substantially as proposed in § 226.39(d),
provides the consumer with the right to
cancel a private education loan without
penalty until midnight of the third
business day following receipt of the
final disclosures required in § 226.47(c).
It also prohibits the creditor from
disbursing any funds until the
expiration of the three-business day
period. As proposed, the consumer’s
right to cancel applies regardless of
whether or not the consumer is legally
obligated on the loan at the time that the
final disclosures were provided.
Comment 48(d)–1, proposed as
comment 39(d)–1, provides guidance on
calculating the three-business day time
period and when a consumer’s request
to cancel would be considered timely. It
also clarifies that the creditor may
provide a period of time longer than
three business days in which the
consumer may cancel, and that the
creditor may disburse funds after the
minimum three-business day period so
long as the creditor honors the
consumer’s later timely cancellation
request. Comment 48(d)–2, proposed as
comment 39(d)–2, provides guidance to
creditors on specifying a method or
methods by which the consumer may
cancel the loan. The creditor is
permitted to require cancellation be
communicated orally or in writing.
Under the proposal, the creditor was
also permitted to allow cancellation to
be communicated electronically, but
was not permitted to require only
electronic communication because the
Board believed that not all consumers
have access to electronic
communication. In the final rule,
comment 48(d)–2 clarifies that if the
creditor has provided the final

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disclosure electronically in accordance
with the E-Sign Act, the creditor may
allow electronic communication as the
only means of acceptance.
Comment 48(d)–3, proposed as
comment 39(d)–3 clarifies the
requirement that the creditor allow
cancellation without penalty. The
prohibition extended only to fees
charged specifically for canceling the
loan. The creditor is not required to
refund fees, such as an application fee,
when charged to all consumers whether
loans are cancelled or not.
The Board requested comment on
whether creditors should be required to
accept cancellation requests until
midnight, or whether they should be
allowed to set a reasonable deadline for
communicating cancellation on the
third business day. The Board also
requested comment on whether
creditors should be allowed to provide
for a longer period during which
consumers may cancel the loan, and, if
so, whether creditors should be allowed
to disburse funds after the minimum
three-business-day period.
Commenters generally supported
permitting creditors to provide a period
longer than three days in which to
cancel the loan and allowing loan funds
to be disbursed after the third day if the
creditor provides additional time in
which to cancel. A few industry
commenters suggested that creditors be
allowed to set a reasonable cut-off time
for cancellation requests on the third
business day, such as 5 p.m. However,
because the final rule allows creditors to
provide the consumer with more than
three days in which to cancel, the final
rule adopts the midnight cutoff time on
the third day.
48(e) Self-Certification Form
The HEOA requires that, before a
creditor may consummate a private
education loan, it obtain from the
consumer a self-certification form.
Proposed § 226.39(e) implemented this
requirement. The HEOA requires that a
creditor obtain the self-certification
form only from consumers of private
education loans intended for students
attending an institution of higher
education. HEOA, Title X, Subtitle B,
Section 1021(a) (adding TILA Section
128(e)(3)). Thus, the proposal did not
require a self-certification form with
respect to every covered educational
institution, but only those that met the
definition of an institution of higher
education in proposed § 226.37(b)(2).
Moreover, proposed comment 39(e)–1
clarified that the requirement applied
even if the student was not currently
attending an institution of higher
education, but would use the loan

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proceeds for postsecondary educational
expenses while attending such
institution. For example, a creditor
would have been required to obtain the
form before consummating a private
education loan provided to a high
school senior for expenses to be
incurred during the consumer’s first
year of college. At the same time,
proposed comment 39(e)–1 clarified that
the self-certification requirement would
not apply to loans where the selfcertification information would not be
applicable, such as loans intended to
consolidate existing education loans.
The self-certification form provides the
consumer with information about the
student’s education costs to be incurred
in the future (such as the cost of
attendance and the amount of financial
aid available). Even if the student were
still enrolled, the information on the
self-certification form would not apply
to a consolidation loan, because the
consolidation loan would cover
expenses the student incurred in the
past.
Section 155(a)(2) of the Higher
Education Act of 1965, as added by the
HEOA, provides that the form shall be
made available to the consumer by the
relevant institution of higher education.
HEOA, Title X, Subtitle B, Sec. 1021(b).
Although the HEOA requires that the
creditor obtain the completed and
signed self-certification form before
consummating the loan, it does not
specify that the creditor must obtain the
form directly from the consumer.
Proposed comment 39(e)–1 allowed the
creditor to obtain the self-certification
form either directly from the consumer
or through the institution of higher
education. Compliance with the selfcertification requirement may be
simplified for all parties if the
educational institution is permitted to
obtain the completed form from the
consumer and forward it to the creditor.
The consumer may find it easier to
return the form to the educational
institution as part of the institution’s
overall financial aid process. The
creditor and educational institution may
also find it easier to include the selfcertification form as part of a larger
package of information communicated
by the institution to the creditor about
the student’s eligibility and cost of
attendance.
Both Section 128(e)(3) of TILA and
Section 155 of the Higher Education Act
of 1965 provide that the selfcertification form may be provided to
the consumer in electronic form. Under
Section 155 of the Higher Education Act
of 1965, the Department of Education
must develop the form and ensure that
institutions of higher education make it

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available to consumers in written or
electronic form. Because the form will
be provided by educational institutions
to consumers, the Board did not propose
to impose consumer consent or other
requirements on creditors in order to
accept the form in electronic form. The
self-certification form may also be
signed by the consumer in electronic
form. Under Section 155(a)(5) of the
Higher Education Act of 1965, the
Department of Education must provide
a place on the form for the applicant’s
written or electronic signature.
Proposed comment 39(e)–2 provided
that a consumer’s electronic signature is
considered valid if it meets the
requirements promulgated by the
Department of Education under Section
155(a)(5) of the Higher Education Act of
1965.
The Board received numerous
comments from industry, educational
institutions, and individual financial
aid officers and their representatives
about the self-certification requirement.
These comments requested that the
Board exempt from the self-certification
requirement any private education loan
for which the creditor certifies the
borrower’s cost of attendance, other
financial aid, and financial need
information with the school.
Commenters expressed concern that the
self-certification requirement would be
duplicative of the current school
certification process when that process
is used. In particular, individual
financial aid officers expressed concern
that the self-certification process would
greatly increase the burden on financial
aid offices with few staff. Educational
institutions also suggested that the selfcertification process was likely to be
less meaningful when the educational
institution is the creditor because the
educational institution provides the
form as well as the information the
consumer must use to complete the
form, but must also receive the form
back from the consumer.
Section 226.48(e) of the final rule
does not provide an exception from the
self-certification requirement for schoolcertified loans. The HEOA requires
creditors to obtain the self-certification
form in all cases. The Board believes
that self-certification form is intended
not only to ensure that the educational
institution and creditor are aware of the
cost of attendance at the educational
institution and about the consumer’s
other financial aid and need, but also to
provide the consumer with this
information. Thus, even where the
school and the creditor share this
information directly, the selfcertification form seeks to ensure
consumers are aware of their own

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educational expenses, the financial aid
for which they qualify, and their
remaining financial need.
The final rule does, however, permit
creditors to provide the self-certification
form directly to the consumer with the
information the consumer requires in
order to complete the form. Nothing in
the HEOA prohibits creditors or anyone
else from providing the form to the
consumer and the Board notes that the
form necessarily will be provided by the
creditor when the creditor is the
educational institution. The HEOA
requires a statement on the selfcertification form that the consumer is
encouraged to communicate with the
financial aid office about the availability
of other financial aid. The Board
believes that allowing the creditor to
provide the form will ensure that
creditors have the ability to
consummate private education loans
and disburse loan funds in a timely
manner and that this will benefit
consumers, especially if financial aid
offices are unable to process selfcertification requests.
48(f) Provision of Information by
Preferred Lenders
The HEOA requires a creditor that has
a preferred lender arrangement with a
covered educational institution to
provide the educational institution
annually, by a date determined by the
Board in consultation with the Secretary
of Education, with the information
required to be disclosed on ‘‘the model
form’’ developed by the Board for each
type of private education loan the
creditor plans to offer for the next award
year (meaning the period from July 1 of
the current calendar year to June 30 of
the next year). HEOA, Title X, Subtitle
B, Section 1021(a) (adding TILA Section
128(e)(11)). TILA Section 128(e)(11)
refers to the information on ‘‘the model
form’’ but the HEOA requires the Board
to develop three model forms and
Section 128(e)(11) does not specify
which of the model forms the creditor
should use. However, the approval and
consummation forms contain
transaction-specific data that cannot be
known for the next year. Thus, the final
rule requires, as proposed, that the
creditor provide the general loan
information required on the application
form in § 226.47(a), rather than the
transaction-specific information
required in the approval and final
disclosure forms.
After consultation with the
Department of Education, the Board
proposed to require that creditors
provide information by January 1 of
each year. Proposed § 226.39(f) required
that the creditor provide only the

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information about rates, terms and
eligibility that are applicable to the
creditor’s specific loan products. The
Board did not believe that educational
institutions needed the other
information required to be disclosed in
§ 226.38(a), such as information about
the availability of Federal student loans.
In addition, the Board believed that
educational institutions could perform
their own calculations of the total cost
of the creditors’ loans and did not need
the cost estimate disclosure required
under § 226.38(a)(4). Comment 39(f)–1
provided creditors with the flexibility to
comply with this requirement by
providing educational institutions with
copies of their application disclosure
forms if they chose, or to provide only
the required information.
The Board requested comment on the
appropriate date by which creditors
must provide the required information
and on what information should be
required. Industry and educational
institution commenters suggested that
April 1 of each year would be a more
appropriate date. Commenters stated
that creditors often do not settle on
credit terms for the upcoming school
year and schools do not compile
preferred lender lists until closer to
April 1. In addition, commenters noted
that under the Department of
Education’s negotiated rulemaking, the
definition of preferred lender
arrangement was likely to be very broad
and that creditors may not know by
April 1, or at all, that they are on a
school’s preferred lender list and thus
party to a preferred lender arrangement.
These commenters requested that they
be required to provide the information
by April 1 or within 30 days of learning
that they were party to a preferred
lender arrangement. Educational
institution commenters also requested
that the Board require disclosure of the
total cost examples contained in the
application forms, stating they may not
always have the information or
resources necessary to reproduce the
calculations.
Under § 226.48(e), the final rule
requires creditors to provide the
required information by April 1 of each
calendar year or within 30 days of
entering into, or learning that the
creditor is a party to, a preferred lender
arrangement. The information must
cover private education loans that the
creditor plans to offer students for the
period from July 1 of the current
calendar year to June 30 of the next
calendar year (that is, the next award
year). In addition, the creditor is
required to provide the information
required in §§ 226.47(a)(1)–(5), which
includes the total cost examples.

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Comment 48(e)–1 clarifies that a
creditor is not required to comply if the
creditor is not aware that it is a party to
a preferred lender arrangement. For
example, if a creditor is placed on a
covered educational institution’s
preferred lender list without the
creditor’s knowledge, the creditor is not
required to comply with § 226.48(f).
Appendix H—Closed-End Model Forms
and Clauses
Appendix H to part 226 contains
model forms, model clauses and sample
forms applicable to closed-end loans.
Although use of the model forms and
clauses is not required, creditors using
them properly will be deemed to be in
compliance with the regulation with
regard to those disclosures. The Board
proposed to add several model and
sample forms to Appendix H to part
226. The Board also proposed to add
commentary to the model and sample
forms in Appendix H to part 226, as
discussed below.
Current model form H–2 contains
boxes at the top of the form with
disclosures in the following order: the
annual percentage rate, the finance
charge, the amount financed, and the
total of payments. Proposed model
forms H–19, and H–20 contain a similar
box-style arrangement, but reordered the
disclosures as follows: The amount
financed, the interest rate, the finance
charge and the total of payments.15 The
proposed order reflected a mathematical
progression of the disclosures that
consumer testing indicates may enhance
understanding of these terms: the
consumer borrows the amount financed,
is charged interest which, along with
fees, yields a finance charge and a total
of payments. While the Board believed
that proposed order may enhance
consumer understanding in the context
of private education loans, the Board
also recognized that consumers may be
accustomed to the current order from
other loan contexts. The Board
requested comment on whether it
should maintain a uniform order for the
disclosures, or whether it should adopt
the proposed order for private education
loans.
A few industry and consumer group
commenters suggested that the Board
maintain the boxes in the order
provided in model form H–1. However,
the final model forms H–19 and H–20
contain further changes to the boxes
displayed at the top of the forms. In the
final model forms, the amount financed
is disclosed as part of the itemization of
15 The disclosure of the interest rate and annual
percentage rate is discussed in the section-bysection analysis in § 226.17.

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the amount financed and the total loan
amount is in the top left box where the
amount financed was in the proposed
forms. Consumer testing indicated that
disclosing the total loan amount,
interest rate, finance charge and total of
payments in this manner enhanced
consumer understanding. Consumers
were able to follow the mathematical
progression of the terms and understand
the finance charge and total of payments
based on the total loan amount, interest
rate and itemization of the amount
financed. For these reasons the Board is
maintaining the order of the boxes as
proposed.16
Permissible changes to the model and
sample forms. The commentary to
Appendices G and H to part 226
currently states that creditors may make
certain changes in the format and
content of the model forms and clauses
and may delete any disclosures that are
inapplicable to a transaction or a plan
without losing the act’s protection from
liability. See comment app. G and H–1.
However, the Board proposed to adopt
format requirements with respect to the
model forms for disclosures applicable
to private education loans, such as
requiring certain disclosures be grouped
together under specific headings.
Proposed comment app. H–25.i
provided a list of acceptable changes to
the model forms. Proposed comment
app. H–25.ii provided guidance on the
design of the model forms that would
not be required but would be
encouraged.
The Board also proposed sample
forms H–21, H–22, and H–23 to
illustrate various ways of adapting the
model forms to the individual
transactions described in the
commentary to appendix H. The
deletions and rearrangements shown
relate only to the specific transactions
described in proposed comments app.
H–26, H–27, and H–28. As a result, the
samples do not provide the general
protection from civil liability provided
by the model forms.
The Board conducted consumer
testing on the proposed forms and on
later revisions of the proposed forms.
The Board also received comments on
the proposed forms requesting
clarification as to whether certain
changes could be made. For example,
commenters requested the ability to
move the notice of the right to cancel to
accommodate a form that could be used
with windowed envelopes.
16 In addition, the Board notes that current
comment app. H–1 specifically permits creditors to
rearrange the order of the finance charge and
amount financed boxes in model forms H–1 and
H–2.

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The Board is adopting final model
forms H–18, H–19, and H–20, and final
sample forms H–21, H–22, and H–23,
that have been revised to reflect the
consumer testing conducted for the
Board and public comment. The Board
is also adopting comment H–25 to
provide a list of acceptable changes to
the model forms and guidance on the
design of the forms. For example, in
response to public comment, the Board
tested a version of the sample final form
with the notice of the right to cancel in
the top right instead of the top left and
consumers did not find the notice less
conspicuous. The final rule allows
creditors to place the notice of the right
to cancel in the top right of the form to
accommodate windowed envelopes.
V. Effective Date
The HEOA’s amendments to TILA
have various effective dates. The TILA
amendments for which the Board is not
required to issue regulations became
effective on the date of the HEOA’s
enactment, August 14, 2008. HEOA
Section 1003.
The Board is required to issue
regulations for paragraphs (1), (2), (3),
(4), (6), (7), and (8) of section 128(e) and
section 140(c) of TILA. The Board’s
regulations are to have an effective date
not later than six months after their
issuance. HEOA Section 1002. However,
the HEOA’s amendments to TILA for
which the Board must issue regulations
take effect on the earlier of the date on
which the Board’s regulations become
effective or 18 months after the date of
the HEOA’s enactment. HEOA Section
1003. Consequently, the latest date at
which the provisions of the HEOA
described above could become effective
is February 14, 2010.
The Board requested comment on
whether six months would be an
appropriate implementation period for
the proposed rules or whether the Board
should specify a shorter implementation
period. Commenters stated that
compliance with the proposed rule
would require significant updates to
disclosure systems, processes, and
training, and requested that the Board
provide no less than a six-month
implementation period. The final rule
provides creditors until February 14,
2010 to comply.
Compliance with the final rules is
mandatory for private education loans
for which the creditor receives an
application on or after February 14,
2010. Transition rules are provided for
private education loans for which
applications were received before the
mandatory compliance date in comment
1(d)(6)–2.

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In addition, TILA section 128(e)(5)
requires the Board to develop model
forms for the disclosures required under
TILA section 128(e) within two years of
the HEOA’s date of enactment. The
Board is adopting model forms along
with this final rule. The Board is also
adopting a rule to implement TILA
section 128(e)(11) which requires
lenders to provide certain information
to covered educational institutions with
which they have preferred lender
arrangements.
VI. Paperwork Reduction Act
In accordance with the Paperwork
Reduction Act (PRA) of 1995 (44 U.S.C.
3506; 5 CFR Part 1320 Appendix A.1),
the Board reviewed the final rule under
the authority delegated to the Board by
the Office of Management and Budget
(OMB). In addition, the Board, under
OMB delegated authority, will extend
for three years the current
recordkeeping and disclosure
requirements in connection with
Regulation Z. The collection of
information that is required by this final
rule is found in 12 CFR part 226. The
Board may not conduct or sponsor, and
an organization is not required to
respond to, this information collection
unless the information collection
displays a currently valid OMB control
number. The OMB control number is
7100–0199.
This information collection is
required to provide benefits for
consumers and is mandatory (15 U.S.C.
1601 et seq.). Since the Board does not
collect any information, no issue of
confidentiality arises. The respondents/
recordkeepers are creditors and other
entities subject to Regulation Z,
including for-profit financial
institutions and small businesses.
TILA and Regulation Z are intended
to ensure effective disclosure of the
costs and terms of credit to consumers.
For open-end credit, creditors are
required to, among other things,
disclose information about the initial
costs and terms and to provide periodic
statements of account activity, notice of
changes in terms, and statements of
rights concerning billing error
procedures. Regulation Z requires
specific types of disclosures for credit
and charge card accounts and home
equity plans. For closed-end loans, such
as mortgage and installment loans, cost
disclosures are required to be provided
prior to consummation. Special
disclosures are required in connection
with certain products, such as reverse
mortgages, certain variable-rate loans,
and certain mortgages with rates and
fees above specified thresholds. TILA
and Regulation Z also contain rules

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concerning credit advertising. Creditors
are required to retain evidence of
compliance for twenty-four months
(§ 226.25), but Regulation Z does not
specify the types of records that must be
retained.
Under the PRA, the Board accounts
for the paperwork burden associated
with Regulation Z for the state member
banks and other creditors supervised by
the Board that engage in lending
covered by Regulation Z and, therefore,
are respondents under the PRA.
Appendix I of Regulation Z defines the
Board-regulated institutions as: state
member banks, branches and agencies of
foreign banks (other than Federal
branches, Federal agencies, and insured
state branches of foreign banks),
commercial lending companies owned
or controlled by foreign banks, and
organizations operating under section
25 or 25A of the Federal Reserve Act.
Other Federal agencies account for the
paperwork burden imposed on the
entities for which they have
administrative enforcement authority.
To ease the burden and cost of
complying with Regulation Z
(particularly for small entities), the
Board provides model forms, which are
appended to the regulation.
As discussed above, on March 24,
2009, the Board published in the
Federal Register a notice of proposed
rulemaking to implement the HEOA (74
FR 12,464). The comment period for this
notice expired May 26, 2009. No
comments that specifically addressed
current or proposed paperwork burden
estimates were received. The final rule
will impose a one-time increase in the
total annual burden under Regulation Z
by 45,440 hours from 734,127 to
779,567 hours. In addition, the Board
estimates that, on a continuing basis, the
requirements will increase the annual
burden by 231,744 hours 17 from
734,127 to 965,871 hours. The total
annual burden will increase by 277,184
hours, from 734,127 to 1,011,311
hours.18 This burden increase will affect
all Board-regulated institutions that are
deemed to be respondents for the
purposes of the PRA.
The Board has a continuing interest in
the public’s opinions of its collections
of information. At any time, comments
regarding the burden estimate or any
other aspect of this collection of
17 The increase of 270 hours corrects a
transposition of 231,474 hours published in the
proposed rules.
18 The burden estimate for this rulemaking
includes the burden addressing changes to
implement provisions of the Mortgage Disclosure
Improvement Act of 2008, as announced in a
separate final rulemaking. See 74 FR 23,289 (May
19, 2009).

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41229

information, including suggestions for
reducing the burden, may be sent to:
Secretary, Board of Governors of the
Federal Reserve System, 20th and C
Streets, NW., Washington, DC 20551;
and to the Office of Management and
Budget, Paperwork Reduction Project
(7100–0199), Washington, DC 20503.
VII. Regulatory Flexibility Analysis
In accordance with Section 3(a) of the
Regulatory Flexibility Act (5 U.S.C.
601–612) (RFA), the Board is publishing
a final regulatory flexibility analysis for
the proposed amendments to Regulation
Z. The RFA requires an agency either to
provide a final regulatory flexibility
analysis with a final rule or certify that
the final rule will not have a significant
economic impact on a substantial
number of small entities. The Small
Business Administration (SBA)
establishes size standards that define
which entities are small businesses for
purposes of the RFA.19 The size
standard to be considered a small
business is: $175 million or less in
assets for banks and other depository
institutions; $25.5 million or less in
annual revenues for flight training
schools; and $7.0 million or less in
annual revenues for all other non-bank
entities that are likely to be subject to
the final regulations.
The Board believes that this final rule
will not have a significant economic
impact on a substantial number of small
entities. The final amendments to
Regulation Z are narrowly designed to
implement the revisions to TILA made
by the HEOA. Creditors must comply
with the HEOA’s requirements by
February 14, 2010, whether or not the
Board amends Regulation Z to conform
the regulation to the statute. The Board’s
final rule is intended to facilitate
compliance by eliminating duplication
between Regulation Z’s existing
requirements and the statutory
requirements imposed by the HEOA and
to provide guidance on compliance with
the HEOA’s requirements.
A. Statement of the Need for, and
Objectives of, the Final Rule
Section 1002 of the HEOA requires
the Board to prescribe regulations
prohibiting creditors from co-branding
and requiring creditors to make certain
disclosures and perform related
requirements when making private
education loans. More specifically, the
regulations must address, but are not
limited to, the following aspects of
sections 128 and 140 of the TILA: (i)
Prohibiting a creditor from marketing
19 http://www.sba.gov/idc/groups/public/
documents/sba_homepage/serv_sstd_tablepdf.pdf.

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private education loans in any way that
implies that the covered educational
institution endorses the private
education loans it offers; (ii) requiring a
creditor to make certain disclosures to
the consumer in an application (or
solicitation without requiring an
application), with the approval, and
with the consummation of the private
education loan; (iii) requiring the
creditor to obtain from the consumer a
self-certification form prior to
consummation; (iv) allowing at least 30
days following receipt of the approval
disclosures for the consumer to accept
and consummate the loan, and
prohibiting certain changes in rates and
terms until either consummation or
expiration of such period of time; and
(v) requiring a three-day right to cancel
following consummation and
prohibiting disbursement of funds until
the three-day period expires.
Moreover, section 1021(a)(5) of the
HEOA requires the Board, in
consultation with the Secretary of
Education, to develop and issue model
disclosure forms that may be used to
comply with the amended section 128
of the TILA.
In addition, the regulations interpret
certain definitions included in title X of
the HEOA to clarify the meaning of
terms used in section 1011(a) of the
HEOA, including the definitions of
private education loan, and covered
educational institution. The HEOA does
not require the Board to issue
regulations to implement these
definitions, but the definitions are
intended to clarify the required
regulations pursuant to the Board’s
authority under section 105(a) of the
TILA.
The Board is issuing the final
regulations and model forms both to
fulfill its statutory duty to implement
the provisions of sections 1002 and
1021(a)(5) of the HEOA and, in the case
of the definition interpretations, to
better clarify the requirements under the
aforementioned sections. Parts I and IV
of the SUPPLEMENTARY INFORMATION
describe in detail the reasons,
objectives, and legal basis for each
component of the final rule.
B. Summary of Issues Raised by
Comments in Response to the Initial
Regulatory Flexibility Analysis
In connection with the proposed rule
to implement the HEOA, the Board
sought information and comment on
any costs, compliance requirements, or
changes in operating procedures arising
from the application of the rule to small
institutions. The Board received several
comments from small banks, credit
unions, and educational institutions and

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trade associations that represent them.
The commenters asserted that
compliance with a final rule to
implement the HEOA would increase
costs and delay consummation of
private education loans. However, these
comments did not contain specific
information about costs that will be
incurred or changes in operating
procedures that will be required to
comply with the final rule. In general,
the comments discussed the impact of
statutory requirements rather than any
impact that the Board’s proposed rule
itself would generate.
C. Description and Estimate of Small
Entities to Which the Regulation Applies
The final regulations apply to any
‘‘creditor’’ as defined in Regulation Z
(12 CFR 226.2(a)(17)) that extends a
private education loan.
The total number of small entities
likely to be affected by the final rule is
unknown because the Board does not
have data on the number of small
creditors that make private education
loans. The rule has broad applicability,
applying to any creditor that makes
loans expressly for postsecondary
educational expenses, but excluding
open-end credit, real estate-secured
loans, and loans made, insured, or
guaranteed by the Federal government
under title IV of the Higher Education
Act of 1965. It could apply not only to
depository institutions and finance
companies, but also schools that meet
the creditor definition and extend
private education loans to their
students. The Board requested but did
not receive specific comment regarding
the number and type of small entities
that would be affected by the proposed
rule.
Based on the best information
available, the Board makes the following
estimate of small entities that would be
affected by this final rule: Based on an
average of data reported in Call
Reports 20 at quarter end between April
1, 2008 and March 31, 2009,
approximately 4,362 banks, 393 thrifts,
and 7,038 credit unions, totaling 11,793
institutions, would be considered small
entities that are subject to the final
rules. The Board cannot identify the
percentage of these small institutions
that extend private education loans and
thus are subject to the rulemaking.
However, because the final rules cover
all private education loans regardless of
their size or whether they are for
multiple purposes, the Board believes a
20 Federal Financial Institutions Examination
Council (FFIEC) Consolidated Reports of Condition
and Income (Call Reports) (FFIEC 031 & 041), Thrift
Financial Report (1313), and NCUA Call Reports
(NCUA 5300).

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majority of the 11,793 institutions
would be covered by the final rules.
The Board is not aware of data that
provides information regarding finance
companies’ size in terms of annual
revenues, and therefore cannot identify
with certainty the number of small
finance companies that extend private
education loans that would be subject to
the final rule. However, the size
standard for these companies is $7.0
million or less in annual revenues
(rather than assets), and the Board
believes the size standard for depository
institutions—$175 million or less in
asset size—is likely to provide a
comparable estimate. A 2005
compilation of surveys conducted by
the Board indicates that 211 finance
companies have an asset size of $100
million or less, and an additional 36
finance companies have an asset size
between $100 million and $1 billion.
Thus, the Board estimates that there are
no more than a total of 247 small
finance companies. The Board is unable,
however, to locate data demonstrating
the number of these small finance
companies that extend private
education loans.
The final rule would also apply to
covered educational institutions that
extend private education loans to their
students, including flight training
schools. Accordingly to information on
the Federal Aviation Administration
Web site, there are approximately 588
flight training schools nationwide. The
Board is unaware of data that shows
how many of those flight training
schools would be deemed small
institutions and, of those small flight
schools, how many extend private
education loans.
The final rule would also apply to
other types of postsecondary schools,
including both accredited and
unaccredited postsecondary schools. In
order to calculate an estimate of small
accredited postsecondary schools, the
Board relied on data collected by the
Department of Education through its
Integrated Postsecondary Education
Data System (IPEDS). The Board used
IPEDS data showing the revenue of all
schools that participate in the
Department’s financial aid programs for
postsecondary students, all of which are
accredited. According to this IPEDS
data, the estimated number of small
accredited postsecondary schools is
3,159.21
The Board is not aware of sources of
data on either the number of non21 Of these small accredited postsecondary
schools, 396 are public institutions, 678 are private
not-for-profit institutions, and 2,085 are private forprofit institutions.

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accredited postsecondary schools
nationwide or their revenues. However,
based on estimates provided by several
trade organizations representing forprofit postsecondary schools, the Board
believes that the number of nonaccredited for-profit schools is
approximately three times the number
of accredited for-profit schools. Based
on the assumption that all nonaccredited schools are for-profit
institutions, and using the IPEDS data
showing that there were approximately
2,600 accredited for-profit
postsecondary schools in 2005, the
Board estimates there are 7,800 nonaccredited postsecondary schools
nationwide.
In order to approximate how many of
those 7,800 non-accredited
postsecondary schools are small
entities, the Board believes that
available data on for-profit schools with
programs less than two years is likely to
provide the closest comparable data to
that of non-accredited postsecondary
schools. According to this data,
approximately 95 percent of for-profit
schools with programs less than two
years—and therefore approximately 95
percent of non-accredited postsecondary
schools—have $7 million or less in
revenue.22 Thus, the Board estimates
that 7,410 non-accredited postsecondary
schools qualify as small entities.23
With respect to both accredited and
unaccredited postsecondary schools, the
Board is not aware of a source of data
regarding the number of these small
institutions that extend private
education loans. Anecdotal information
and informal survey results from
representatives of several state
associations of for-profit schools
produced conflicting results regarding
how many small schools extend private
education loans.
D. Reporting, Recordkeeping and Other
Compliance Requirements

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The compliance requirements of the
final regulations are described in detail
in parts I and IV of the SUPPLEMENTARY
INFORMATION above.
The final regulations generally
prohibit a creditor from marketing
private education loans in a way that
implies that the covered educational
institution endorses the private
education loans it offers. A creditor will
22 This approximation is supported by similar
estimates provided by representatives of several
state associations of for-profit schools, who
estimated that 90 to 95 percent of their institutions
would qualify as small businesses.
23 While the numbers of accredited and
unaccredited postsecondary schools include flight
training schools, the Board could not locate sources
of data that would prevent this overlap.

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need to analyze the regulations,
determine whether it is engaging in
marketing private education loans, and
establish procedures to ensure the
marketing does not imply such
endorsement.
The final regulations also require
creditors to make certain disclosures to
the consumer on or with an application
(or solicitation without requiring an
application), with the approval, and
with the consummation of the private
education loan. The creditor is also
required to obtain a self-certification
form prior to consummation. The
creditor must allow at least 30 days
following the consumer’s receipt of the
approval disclosure documents for the
consumer to accept the loan and must
not change certain rates and terms until
either consummation or expiration of
such period of time. A creditor also
must provide a three-day right to cancel
following consummation and is
generally prohibited from disbursing
funds until the three-day period expires.
A creditor will need to analyze the
regulations, determine when and to
whom such notices must be given, and
design, generate, and provide those
notices in the appropriate
circumstances. The creditor must also
ensure the receipt of the selfcertification form prior to
consummation and that the applicable
rates and terms do not change in the
period of time following the consumer’s
receipt of the approval disclosure
documents.
The Board requested but did not
receive specific information and
comment on any costs, compliance
requirements, or changes in operating
procedures arising from the application
of the proposed rule to small
institutions. The precise costs to small
entities of updating their systems and
disclosures are difficult to predict.
These costs will depend on a number of
unknown factors, including, among
other things, the specifications of the
current systems used by such entities to
prepare and provide disclosures.
E. Steps Taken To Minimize the
Economic Impact on Small Entities
The steps the Board has taken to
minimize the economic impact and
compliance burden on small entities,
including the factual, policy, and legal
reasons for selecting any alternatives
adopted and why certain alternatives
were not accepted, are described in the
in parts I and IV of the SUPPLEMENTARY
INFORMATION above. The Board believes
that these changes minimize the
significant economic impact on small
entities while still meeting the
requirements of the HEOA.

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41231

List of Subjects in 12 CFR Part 226
Advertising, Consumer protection,
Federal Reserve System, Mortgages,
Reporting and recordkeeping
requirements, Truth in lending.
Authority and Issuance
For the reasons set forth in the
preamble, the Board amends Regulation
Z, 12 CFR part 226, as set forth below:

■

PART 226—TRUTH IN LENDING
(REGULATION Z)
1. The authority citation for part 226
continues to read as follows:

■

Authority: 12 U.S.C. 3806; 15 U.S.C. 1604
and 1637(c)(5).

Subpart A—General
2. Section 226.1 is amended by
revising paragraph (b), redesignating
paragraph (d)(6) as paragraph (d)(7), and
adding new paragraph (d)(6) to read as
follows:

■

§ 226.1 Authority, purpose, coverage,
organization, enforcement and liability.

*

*
*
*
*
(b) Purpose. The purpose of this
regulation is to promote the informed
use of consumer credit by requiring
disclosures about its terms and cost. The
regulation also gives consumers the
right to cancel certain credit
transactions that involve a lien on a
consumer’s principal dwelling,
regulates certain credit card practices,
and provides a means for fair and timely
resolution of credit billing disputes. The
regulation does not govern charges for
consumer credit. The regulation
requires a maximum interest rate to be
stated in variable-rate contracts secured
by the consumer’s dwelling. It also
imposes limitations on home-equity
plans that are subject to the
requirements of § 226.5b and mortgages
that are subject to the requirements of
§ 226.32. The regulation prohibits
certain acts or practices in connection
with credit secured by a consumer’s
principal dwelling. The regulation also
regulates certain practices of creditors
who extend private education loans as
defined in § 226.46(b)(5).
*
*
*
*
*
(d) * * *
(6) Subpart F relates to private
education loans. It contains rules on
disclosures, limitations on changes in
terms after approval, the right to cancel
the loan, and limitations on co-branding
in the marketing of private education
loans.
*
*
*
*
*

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2. Section 226.2 is amended by
revising paragraph (a)(6) to read as
follows:

■

§ 226.2 Definitions and rules of
construction.

(a) * * *
(6) Business Day means a day on
which the creditor’s offices are open to
the public for carrying on substantially
all of its business functions. However,
for purposes of rescission under
§§ 226.15 and 226.23, and for purposes
of § 226.19(a)(1)(ii), § 226.19(a)(2),
§ 226.31, and § 226.46(d)(4), the term
means all calendar days except Sundays
and the legal public holidays specified
in 5 U.S.C. 6103(a), such as New Year’s
Day, the Birthday of Martin Luther King,
Jr., Washington’s Birthday, Memorial
Day, Independence Day, Labor Day,
Columbus Day, Veterans Day,
Thanksgiving Day, and Christmas Day.
*
*
*
*
*
■ 3. Section 226.3 is amended by
revising paragraph (b) to read as follows:
§ 226.3

Exempt transactions.

*

*
*
*
*
(b) Credit over $25,000. An extension
of credit in which the amount financed
exceeds $25,000 or in which there is an
express written commitment to extend
credit in excess of $25,000, unless the
extension of credit is:
(1) Secured by real property, or by
personal property used or expected to
be used as the principal dwelling of the
consumer; or
(2) A private education loan as
defined in § 226.46(b)(5).
*
*
*
*
*
Subpart C—Closed-End Credit
4. Section 226.17 is amended by
revising paragraphs (a), (b), (e), (f), (g)
and (i) to read as follows:

■

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§ 226.17

General disclosure requirements.

(a) Form of disclosures. (1) The
creditor shall make the disclosures
required by this subpart clearly and
conspicuously in writing, in a form that
the consumer may keep. The disclosures
required by this subpart may be
provided to the consumer in electronic
form, subject to compliance with the
consumer consent and other applicable
provisions of the Electronic Signatures
in Global and National Commerce Act
(E-Sign Act) (15 U.S.C. 7001 et seq.).
The disclosures required by
§§ 226.17(g), 226.19(b), and 226.24 may
be provided to the consumer in
electronic form without regard to the
consumer consent or other provisions of
the E-Sign Act in the circumstances set
forth in those sections. The disclosures

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shall be grouped together, shall be
segregated from everything else, and
shall not contain any information not
directly related 37 to the disclosures
required under § 226.18 or § 226.47.38
The itemization of the amount financed
under § 226.18(c)(1) must be separate
from the other disclosures under
§ 226.18, except for private education
loan disclosures made in compliance
with § 226.47.
(2) Except for private education loan
disclosures made in compliance with
§ 226.47, the terms ‘‘finance charge’’ and
‘‘annual percentage rate,’’ when
required to be disclosed under § 226.18
(d) and (e) together with a
corresponding amount or percentage
rate, shall be more conspicuous than
any other disclosure, except the
creditor’s identity under § 226.18(a). For
private education loan disclosures made
in compliance with § 226.47, the term
‘‘annual percentage rate,’’ and the
corresponding percentage rate must be
less conspicuous than the term ‘‘finance
charge’’ and corresponding amount
under § 226.18(d), the interest rate
under §§ 226.47(b)(1)(i) and (c)(1), and
the notice of the right to cancel under
§ 226.47(c)(4).
(b) Time of disclosures. The creditor
shall make disclosures before
consummation of the transaction. In
certain residential mortgage
transactions, special timing
requirements are set forth in § 226.19(a).
In certain variable-rate transactions,
special timing requirements for variablerate disclosures are set forth in
§ 226.19(b) and § 226.20(c). For private
education loan disclosures made in
compliance with § 226.47, special
timing requirements are set forth in
§ 226.46(d). In certain transactions
involving mail or telephone orders or a
series of sales, the timing of disclosures
may be delayed in accordance with
paragraphs (g) and (h) of this section.
*
*
*
*
*
(e) Effect of subsequent events. If a
disclosure becomes inaccurate because
of an event that occurs after the creditor
delivers the required disclosures, the
inaccuracy is not a violation of this
regulation, although new disclosures
may be required under paragraph (f) of
this section, § 226.19, § 226.20, or
§ 226.48(c)(4).
37 The disclosures may include an
acknowledgment of receipt, the date of the
transaction, and the consumer’s name, address, and
account number.
38 The following disclosures may be made
together with or separately from other required
disclosures: the creditor’s identity under
§ 226.18(a), the variable rate example under
§ 226.18(f)(1)(iv), insurance or debt cancellation
under § 226.18(n), and certain security interest
charges under § 226.18(o).

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(f) Early disclosures. Except for
private education loan disclosures made
in compliance with § 226.47, if
disclosures required by this subpart are
given before the date of consummation
of a transaction and a subsequent event
makes them inaccurate, the creditor
shall disclose before consummation
(subject to the provisions of
§ 226.19(a)(2) and § 226.19(a)(5)(iii)): 39
(1) * * *
(2) * * *
(g) Mail or telephone orders—delay in
disclosures. Except for private education
loan disclosures made in compliance
with § 226.47, if a creditor receives a
purchase order or a request for an
extension of credit by mail, telephone,
or facsimile machine without face-toface or direct telephone solicitation, the
creditor may delay the disclosures until
the due date of the first payment, if the
following information for representative
amounts or ranges of credit is made
available in written form or in electronic
form to the consumer or to the public
before the actual purchase order or
request:
(1) * * *
(2) * * *
*
*
*
*
*
(i) Interim student credit extensions.
For transactions involving an interim
credit extension under a student credit
program for which an application is
received prior to the mandatory
compliance date of §§ 226.46, 47, and
48, the creditor need not make the
following disclosures: the finance
charge under § 226.18(d), the payment
schedule under § 226.18(g), the total of
payments under § 226.18(h), or the total
sale price under § 226.18(j) at the time
the credit is actually extended. The
creditor must make complete
disclosures at the time the creditor and
consumer agree upon the repayment
schedule for the total obligation. At that
time, a new set of disclosures must be
made of all applicable items under
§ 226.18.
*
*
*
*
*
§§ 226.37–226.45

[Reserved.]

5. Sections 226.37 through 226.45 are
reserved.
■ 6. A new Subpart F consisting of
§§ 226.46, 226.47, and 226.48 are added
to read as follows:
■

Subpart F—Special Rules for Private
Education Loans
Sec.
226.46 Special disclosure requirements for
private education loans.
226.47 Content of disclosures.
226.48 Limitations on private education
loans.
39 [Reserved.]

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Subpart F—Special Rules for Private
Education Loans

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§ 226.46 Special disclosure requirements
for private education loans.

(a) Coverage. The requirements of this
subpart apply to private education loans
as defined in § 226.46(b)(5). A creditor
may, at its option, comply with the
requirements of this subpart for an
extension of credit subject to §§ 226.17
and 226.18 that is extended to a
consumer for expenses incurred after
graduation from a law, medical, dental,
veterinary, or other graduate school and
related to relocation, study for a bar or
other examination, participation in an
internship or residency program, or
similar purposes.
(1) Relation to other subparts in this
part. Except as otherwise specifically
provided, the requirements and
limitations of this subpart are in
addition to and not in lieu of those
contained in other subparts of this Part.
(b) Definitions. For purposes of this
subpart, the following definitions apply:
(1) Covered educational institution
means:
(i) An educational institution that
meets the definition of an institution of
higher education, as defined in
paragraph (b)(2) of this section, without
regard to the institution’s accreditation
status; and
(ii) Includes an agent, officer, or
employee of the institution of higher
education. An agent means an
institution-affiliated organization as
defined by section 151 of the Higher
Education Act of 1965 (20 U.S.C. 1019)
or an officer or employee of an
institution-affiliated organization.
(2) Institution of higher education has
the same meaning as in sections 101 and
102 of the Higher Education Act of 1965
(20 U.S.C. 1001–1002) and the
implementing regulations published by
the U.S. Department of Education.
(3) Postsecondary educational
expenses means any of the expenses
that are listed as part of the cost of
attendance, as defined under section
472 of the Higher Education Act of 1965
(20 U.S.C. 1087ll), of a student at a
covered educational institution. These
expenses include tuition and fees,
books, supplies, miscellaneous personal
expenses, room and board, and an
allowance for any loan fee, origination
fee, or insurance premium charged to a
student or parent for a loan incurred to
cover the cost of the student’s
attendance.
(4) Preferred lender arrangement has
the same meaning as in section 151 of
the Higher Education Act of 1965 (20
U.S.C. 1019).

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(5) Private education loan means an
extension of credit that:
(i) Is not made, insured, or guaranteed
under title IV of the Higher Education
Act of 1965 (20 U.S.C. 1070 et seq.);
(ii) Is extended to a consumer
expressly, in whole or in part, for
postsecondary educational expenses,
regardless of whether the loan is
provided by the educational institution
that the student attends;
(iii) Does not include open-end credit
any loan that is secured by real property
or a dwelling; and
(iv) Does not include an extension of
credit in which the covered educational
institution is the creditor if:
(A) The term of the extension of credit
is 90 days or less; or
(B) an interest rate will not be applied
to the credit balance and the term of the
extension of credit is one year or less,
even if the credit is payable in more
than four installments.
(c) Form of disclosures—(1) Clear and
conspicuous. The disclosures required
by this subpart shall be made clearly
and conspicuously.
(2) Transaction disclosures. (i) The
disclosures required under §§ 226.47(b)
and (c) shall be made in writing, in a
form that the consumer may keep. The
disclosures shall be grouped together,
shall be segregated from everything else,
and shall not contain any information
not directly related to the disclosures
required under §§ 226.47(b) and (c),
which include the disclosures required
under § 226.18.
(ii) The disclosures may include an
acknowledgement of receipt, the date of
the transaction, and the consumer’s
name, address, and account number.
The following disclosures may be made
together with or separately from other
required disclosures: the creditor’s
identity under § 226.18(a), insurance or
debt cancellation under § 226.18(n), and
certain security interest charges under
§ 226.18(o).
(iii) The term ‘‘finance charge’’ and
corresponding amount, when required
to be disclosed under § 226.18(d), and
the interest rate required to be disclosed
under §§ 226.47(b)(1)(i) and (c)(1), shall
be more conspicuous than any other
disclosure, except the creditor’s identity
under § 228.18(a).
(3) Electronic disclosures. The
disclosures required under §§ 226.47(b)
and (c) may be provided to the
consumer in electronic form, subject to
compliance with the consumer consent
and other applicable provisions of the
Electronic Signatures in Global and
National Commerce Act (E-Sign Act) (15
U.S.C. 7001 et seq.). The disclosures
required by § 226.47(a) may be provided
to the consumer in electronic form on or

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with an application or solicitation that
is accessed by the consumer in
electronic form without regard to the
consumer consent or other provisions of
the E-Sign Act. The form required to be
received under § 226.48(e) may be
accepted by the creditor in electronic
form as provided for in that section.
(d) Timing of disclosures—(1)
Application or solicitation disclosures.
(i) The disclosures required by
§ 226.47(a) shall be provided on or with
any application or solicitation. For
purposes of this subpart, the term
solicitation means an offer of credit that
does not require the consumer to
complete an application. A ‘‘firm offer
of credit’’ as defined in section 603(l) of
the Fair Credit Reporting Act (15 U.S.C.
1681a(l)) is a solicitation for purposes of
this section.
(ii) The creditor may, at its option,
disclose orally the information in
§ 226.47(a) in a telephone application or
solicitation. Alternatively, if the creditor
does not disclose orally the information
in § 226.47(a), the creditor must provide
the disclosures or place them in the
mail no later than three business days
after the consumer has applied for the
credit, except that, if the creditor either
denies the consumer’s application or
provides or places in the mail the
disclosures in § 226.47(b) no later than
three business days after the consumer
requests the credit, the creditor need not
also provide the § 226.47(a) disclosures.
(iii) Notwithstanding paragraph
(d)(1)(i), for a loan that the consumer
may use for multiple purposes
including, but not limited to,
postsecondary educational expenses,
the creditor need not provide the
disclosures required by § 226.47(a).
(2) Approval disclosures. The creditor
shall provide the disclosures required
by § 226.47(b) before consummation on
or with any notice of approval provided
to the consumer. If the creditor mails
notice of approval, the disclosures must
be mailed with the notice. If the creditor
communicates notice of approval by
telephone, the creditor must mail the
disclosures within three business days
of providing the notice of approval. If
the creditor communicates notice of
approval electronically, the creditor
may provide the disclosures in
electronic form in accordance with
§ 226.46(d)(3); otherwise the creditor
must mail the disclosures within three
business days of communicating the
notice of approval. If the creditor
communicates approval in person, the
creditor must provide the disclosures to
the consumer at that time.
(3) Final disclosures. The disclosures
required by § 226.47(c) shall be

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provided after the consumer accepts the
loan in accordance with § 226.48(c)(1).
(4) Receipt of mailed disclosures. If
the disclosures under paragraphs (d)(1),
(d)(2) or (d)(3), are mailed to the
consumer, the consumer is considered
to have received them three business
days after they are mailed.
(e) Basis of disclosures and use of
estimates—(1) Legal obligation.
Disclosures shall reflect the terms of the
legal obligation between the parties.
(2) Estimates. If any information
necessary for an accurate disclosure is
unknown to the creditor, the creditor
shall make the disclosure based on the
best information reasonably available at
the time the disclosure is provided, and
shall state clearly that the disclosure is
an estimate.
(f) Multiple creditors; multiple
consumers. If a transaction involves
more than one creditor, only one set of
disclosures shall be given and the
creditors shall agree among themselves
which creditor will comply with the
requirements that this part imposes on
any or all of them. If there is more than
one consumer, the disclosures may be
made to any consumer who is primarily
liable on the obligation.
(g) Effect of subsequent events—(1)
Approval disclosures. If a disclosure
under § 226.47(b) becomes inaccurate
because of an event that occurs after the
creditor delivers the required
disclosures, the inaccuracy is not a
violation of Regulation Z (12 CFR part
226), although new disclosures may be
required under § 226.48(c).
(2) Final disclosures. If a disclosure
under § 226.47(c) becomes inaccurate
because of an event that occurs after the
creditor delivers the required
disclosures, the inaccuracy is not a
violation of Regulation Z (12 CFR part
226).

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§ 226.47

Content of disclosures.

(a) Application or solicitation
disclosures. A creditor shall provide the
disclosures required under paragraph (a)
of this section on or with a solicitation
or an application for a private education
loan.
(1) Interest Rates.
(i) The interest rate or range of interest
rates applicable to the loan and actually
offered by the creditor at the time of
application or solicitation. If the rate
will depend, in part, on a later
determination of the consumer’s
creditworthiness or other factors, a
statement that the rate for which the
consumer may qualify will depend on
the consumer’s creditworthiness and
other factors, if applicable.

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(ii) Whether the interest rates
applicable to the loan are fixed or
variable.
(iii) If the interest rate may increase
after consummation of the transaction,
any limitations on the interest rate
adjustments, or lack thereof; a statement
that the consumer’s actual rate could be
higher or lower than the rates disclosed
under paragraph (a)(1)(i) of this section,
if applicable; and, if the limitation is
determined by applicable law, that fact.
(iv) Whether the applicable interest
rates typically will be higher if the loan
is not co-signed or guaranteed.
(2) Fees and default or late payment
costs.
(i) An itemization of the fees or range
of fees required to obtain the private
education loan.
(ii) Any fees, changes to the interest
rate, and adjustments to principal based
on the consumer’s defaults or late
payments.
(3) Repayment terms.
(i) The term of the loan, which is the
period during which regularly
scheduled payments of principal and
interest will be due.
(ii) A description of any payment
deferral options, or, if the consumer
does not have the option to defer
payments, that fact.
(iii) For each payment deferral option
applicable while the student is enrolled
at a covered educational institution:
(A) Whether interest will accrue
during the deferral period; and
(B) If interest accrues, whether
payment of interest may be deferred and
added to the principal balance.
(iv) A statement that if the consumer
files for bankruptcy, the consumer may
still be required to pay back the loan.
(4) Cost estimates. An example of the
total cost of the loan calculated as the
total of payments over the term of the
loan:
(i) Using the highest rate of interest
disclosed under paragraph (a)(1) of this
section and including all finance
charges applicable to loans at that rate;
(ii) Using an amount financed of
$10,000, or $5000 if the creditor only
offers loans of this type for less than
$10,000; and
(iii) Calculated for each payment
option.
(5) Eligibility. Any age or school
enrollment eligibility requirements
relating to the consumer or co-signer.
(6) Alternatives to private education
loans.
(i) A statement that the consumer may
qualify for Federal student financial
assistance through a program under title
IV of the Higher Education Act of 1965
(20 U.S.C. 1070 et seq.).
(ii) The interest rates available under
each program under title IV of the

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Higher Education Act of 1965 (20 U.S.C.
1070 et seq.) and whether the rates are
fixed or variable.
(iii) A statement that the consumer
may obtain additional information
concerning Federal student financial
assistance from the institution of higher
education that the student attends, or at
the Web site of the U.S. Department of
Education, including an appropriate
Web site address.
(iv) A statement that a covered
educational institution may have
school-specific education loan benefits
and terms not detailed on the disclosure
form.
(7) Rights of the consumer. A
statement that if the loan is approved,
the terms of the loan will be available
and will not change for 30 days except
as a result of adjustments to the interest
rate and other changes permitted by
law.
(8) Self-certification information. A
statement that, before the loan may be
consummated, the consumer must
complete the self-certification form and
that the form may be obtained from the
institution of higher education that the
student attends.
(b) Approval disclosures. On or with
any notice of approval provided to the
consumer, the creditor shall disclose the
information required under § 226.18 and
the following information:
(1) Interest rate.
(i) The interest rate applicable to the
loan.
(ii) Whether the interest rate is fixed
or variable.
(iii) If the interest rate may increase
after consummation of the transaction,
any limitations on the rate adjustments,
or lack thereof.
(2) Fees and default or late payment
costs.
(i) An itemization of the fees or range
of fees required to obtain the private
education loan.
(ii) Any fees, changes to the interest
rate, and adjustments to principal based
on the consumer’s defaults or late
payments.
(3) Repayment terms.
(i) The principal amount of the loan
for which the consumer has been
approved.
(ii) The term of the loan, which is the
period during which regularly
scheduled payments of principal and
interest will be due.
(iii) A description of the payment
deferral option chosen by the consumer,
if applicable, and any other payment
deferral options that the consumer may
elect at a later time.
(iv) Any payments required while the
student is enrolled at a covered
educational institution, based on the
deferral option chosen by the consumer.

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(v) The amount of any unpaid interest
that will accrue while the student is
enrolled at a covered educational
institution, based on the deferral option
chosen by the consumer.
(vi) A statement that if the consumer
files for bankruptcy, the consumer may
still be required to pay back the loan.
(vii) An estimate of the total amount
of payments calculated based on:
(A) The interest rate applicable to the
loan. Compliance with § 226.18(h)
constitutes compliance with this
requirement.
(B) The maximum possible rate of
interest for the loan or, if a maximum
rate cannot be determined, a rate of
25%.
(C) If a maximum rate cannot be
determined, the estimate of the total
amount for repayment must include a
statement that there is no maximum rate
and that the total amount for repayment
disclosed under paragraph (b)(3)(vii)(B)
of this section is an estimate and will be
higher if the applicable interest rate
increases.
(viii) The maximum monthly payment
based on the maximum rate of interest
for the loan or, if a maximum rate
cannot be determined, a rate of 25%. If
a maximum cannot be determined, a
statement that there is no maximum rate
and that the monthly payment amount
disclosed is an estimate and will be
higher if the applicable interest rate
increases.
(4) Alternatives to private education
loans.
(i) A statement that the consumer may
qualify for Federal student financial
assistance through a program under title
IV of the Higher Education Act of 1965
(20 U.S.C. 1070 et seq.).
(ii) The interest rates available under
each program under title IV of the
Higher Education Act of 1965 (20 U.S.C.
1070 et seq.), and whether the rates are
fixed or variable.
(iii) A statement that the consumer
may obtain additional information
concerning Federal student financial
assistance from the institution of higher
education that the student attends, or at
the Web site of the U.S. Department of
Education, including an appropriate
Web site address.
(5) Rights of the consumer.
(i) A statement that the consumer may
accept the terms of the loan until the
acceptance period under § 226.48(c)(1)
has expired. The statement must
include the specific date on which the
acceptance period expires, based on the
date upon which the consumer receives
the disclosures required under this
subsection for the loan. The disclosure
must also specify the method or

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methods by which the consumer may
communicate acceptance.
(ii) A statement that, except for
changes to the interest rate and other
changes permitted by law, the rates and
terms of the loan may not be changed
by the creditor during the period
described in paragraph (b)(5)(i) of this
section.
(c) Final disclosures. After the
consumer has accepted the loan in
accordance with § 226.48(c)(1), the
creditor shall disclose to the consumer
the information required by § 226.18
and the following information:
(1) Interest rate. Information required
to be disclosed under §§ 226.47(b)(1).
(2) Fees and default or late payment
costs. Information required to be
disclosed under § 226.47(b)(2).
(3) Repayment terms. Information
required to be disclosed under
§ 226.47(b)(3).
(4) Cancellation right. A statement
that:
(i) the consumer has the right to
cancel the loan, without penalty, at any
time before the cancellation period
under § 226.48(d) expires, and
(ii) loan proceeds will not be
disbursed until after the cancellation
period under § 226.48(d) expires. The
statement must include the specific date
on which the cancellation period
expires and state that the consumer may
cancel by that date. The statement must
also specify the method or methods by
which the consumer may cancel. If the
creditor permits cancellation by mail,
the statement must specify that the
consumer’s mailed request will be
deemed timely if placed in the mail not
later than the cancellation date specified
on the disclosure. The disclosures
required by this paragraph (c)(4) must
be made more conspicuous than any
other disclosure required under this
section, except for the finance charge,
the interest rate, and the creditor’s
identity, which must be disclosed in
accordance with the requirements of
§ 226.46(c)(2)(iii).
§ 226.48
loans.

Limitations on private education

(a) Co-branding prohibited. (1) Except
as provided in paragraph (b) of this
section, a creditor, other than the
covered educational institution itself,
shall not use the name, emblem, mascot,
or logo of a covered educational
institution, or other words, pictures, or
symbols identified with a covered
educational institution, in the marketing
of private education loans in a way that
implies that the covered education
institution endorses the creditor’s loans.
(2) A creditor’s marketing of private
education loans does not imply that the

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covered education institution endorses
the creditor’s loans if the marketing
includes a clear and conspicuous
disclosure that is equally prominent and
closely proximate to the reference to the
covered educational institution that the
covered educational institution does not
endorse the creditor’s loans and that the
creditor is not affiliated with the
covered educational institution.
(b) Endorsed lender arrangements. If
a creditor and a covered educational
institution have entered into an
arrangement where the covered
educational institution agrees to endorse
the creditor’s private education loans,
and such arrangement is not prohibited
by other applicable law or regulation,
paragraph (a)(1) of this section does not
apply if the private education loan
marketing includes a clear and
conspicuous disclosure that is equally
prominent and closely proximate to the
reference to the covered educational
institution that the creditor’s loans are
not offered or made by the covered
educational institution, but are made by
the creditor.
(c) Consumer’s right to accept. (1) The
consumer has the right to accept the
terms of a private education loan at any
time within 30 calendar days following
the date on which the consumer
receives the disclosures required under
§ 226.47(b).
(2) Except for changes permitted
under paragraphs (c)(3) and (c)(4), the
rate and terms of the private education
loan that are required to be disclosed
under §§ 226.47(b) and (c) may not be
changed by the creditor prior to the
earlier of:
(i) The date of disbursement of the
loan; or
(ii) The expiration of the 30 calendar
day period described in paragraph (c)(1)
of this section if the consumer has not
accepted the loan within that time.
(3) Exceptions not requiring redisclosure. (i) Notwithstanding
paragraph (c)(2) of this section, nothing
in this section prevents the creditor
from:
(A) Withdrawing an offer before
consummation of the transaction if the
extension of credit would be prohibited
by law or if the creditor has reason to
believe that the consumer has
committed fraud in connection with the
loan application;
(B) Changing the interest rate based
on adjustments to the index used for a
loan;
(C) Changing the interest rate and
terms if the change will unequivocally
benefit the consumer; or
(D) Reducing the loan amount based
upon a certification or other information
received from the covered educational

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institution, or from the consumer,
indicating that the student’s cost of
attendance has decreased or the
consumer’s other financial aid has
increased. A creditor may make
corresponding changes to the rate and
other terms only to the extent that the
consumer would have received the
terms if the consumer had applied for
the reduced loan amount.
(ii) If the creditor changes the rate or
terms of the loan under this paragraph
(c)(3), the creditor need not provide the
disclosures required under § 228.47(b)
for the new loan terms, nor need the
creditor provide an additional 30-day
period to the consumer to accept the
new terms of the loan under paragraph
(c)(1) of this section.
(4) Exceptions requiring re-disclosure.
(i) Notwithstanding paragraphs (c)(2) or
(c)(3) of this section, nothing in this
section prevents the creditor, at its
option, from changing the rate or terms
of the loan to accommodate a specific
request by the consumer. For example,
if the consumer requests a different
repayment option, the creditor may, but
need not, offer to provide the requested
repayment option and make any other
changes to the rate and terms.
(ii) If the creditor changes the rate or
terms of the loan under this paragraph
(c)(4), the creditor shall provide the
disclosures required under § 228.47(b)
and shall provide the consumer the 30day period to accept the loan under
paragraph (c)(1) of this section. The
creditor shall not make further changes

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to the rates and terms of the loan, except
as specified in paragraphs (c)(3) and (4)
of this section. Except as permitted
under § 226.48(c)(3), unless the
consumer accepts the loan offered by
the creditor in response to the
consumer’s request, the creditor may
not withdraw or change the rates or
terms of the loan for which the
consumer was approved prior to the
consumer’s request for a change in loan
terms.
(d) Consumer’s right to cancel. The
consumer may cancel a private
education loan, without penalty, until
midnight of the third business day
following the date on which the
consumer receives the disclosures
required by § 226.47(c). No funds may
be disbursed for a private education
loan until the three-business day period
has expired.
(e) Self-certification form. For a
private education loan intended to be
used for the postsecondary educational
expenses of a student while the student
is attending an institution of higher
education, the creditor shall obtain from
the consumer or the institution of higher
education the form developed by the
Secretary of Education under section
155 of the Higher Education Act of
1965, signed by the consumer, in
written or electronic form, before
consummating the private education
loan.
(f) Provision of information by
preferred lenders. A creditor that has a
preferred lender arrangement with a

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covered educational institution shall
provide to the covered educational
institution the information required
under §§ 226.47(a)(1) through (5), for
each type of private education loan that
the lender plans to offer to consumers
for students attending the covered
educational institution for the period
beginning July 1 of the current year and
ending June 30 of the following year.
The creditor shall provide the
information annually by the later of the
1st day of April, or within 30 days after
entering into, or learning the creditor is
a party to, a preferred lender
arrangement.
7. In Part 226, Appendix H is
amended by adding new entries H–18
through H–23 to the table of contents at
the beginning of the appendix, and
adding new Forms H–18, H–19, H–20,
H–21, H–22, and H–23.

■

Appendix H to Part 226—Closed-End
Model Forms and Clauses
*

*

*

*

*

H–18 Private Education Loan Application
and Solicitation Model Form
H–19 Private Education Loan Approval
Model Form
H–20 Private Education Loan Final Model
Form
H–21 Private Education Loan Application
and Solicitation Sample
H–22 Private Education Loan Approval
Sample
H–23 Private Education Loan Final Sample

*

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*

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*

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Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules and Regulations

8. In Supplement I to Part 226:
a. Under Section 226.1 paragraph
1(d)(6) is revised and new paragraph
(1)(d)(7) is added.
■ b. Under Section 226.2, paragraph 2(a)
Definitions, 2(a)(6) Business day,
paragraph 2(a)(6)–2 is revised.
■ c. Under Section 226.3, the heading to
3(b) Credit Over $25,000 Not Secured by
Real Property or a Dwelling, and
heading to 3(f) Student Loan Programs,
are revised.
■ d. Under Section 226.17:
■ (i) In paragraph 17(a) Form of
Disclosures, paragraphs 17(a)(1)–4,
17(a)(1)–6, 17(a)(2) are revised;
■ (ii) In paragraph 17(b) Time of
Disclosures, paragraph 17(b)–1 is
revised;
■ (iii) In paragraph 17(i) Interim Student
Credit Extensions, paragraph 17(i)–1 is
revised and new paragraph 17(i)–2 is
added;
■ (iv) Paragraphs 17(i)–2, 17(i)–3, and
17(i)–4 are redesignated as paragraphs
17(i)–3, 17(i)–4, and 17(i)–5,
respectively.
■ e. Under Section 226.18, paragraph
18(f)(1)(ii), paragraph 18(f)(1)(iv)–2, and
paragraph 18(k)(1) are revised.
■ f. The following new paragraphs are
added:
■ (i) Subpart F—Special Rules for
Private Education Loans is added,
■ (ii) Section 226.46—Requirements for
Private Education Loans, is added
■ (iii) Section 226.47—Content of
Disclosures, is added; and
■ (iv) Section 226.48—Limitations on
Private Education Loans is added.
■ g. Under the heading, Appendixes G
and H—Open-End and Closed-End
Model Forms and Clauses, paragraph 1
is revised.
■ h. Under Appendix H—Closed-End
Model Forms and Clauses, paragraphs
21 through 24 are revised, and
paragraphs 25 through 28 are added.

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Supplement I to Part 226—Official Staff
Interpretations
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Subpart A—General
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Section 226.1—Authority, Purpose,
Coverage, Organization, Enforcement
and Liability
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Paragraph 1(d)(6)
1. Mandatory compliance dates.
Compliance with the Board’s revisions to
Regulation Z published on August 14, 2009
is mandatory for private education loans for
which the creditor receives an application on
or after February 14, 2010. Compliance with
the final rules on co-branding in §§ 226.48(a)
and (b) is mandatory for marketing occurring
on or after February 14, 2010. Compliance
with the final rules is optional for private
education loan transactions for which an
application was received prior to February
14, 2010, even if consummated after the
mandatory compliance date.
2. Optional compliance. A creditor may, at
its option, provide the approval and final
disclosures required under §§ 226.47(b) or (c)
for private education loans where an
application was received prior to the
mandatory compliance date. If the creditor
opts to provide the disclosures, the creditor
must also comply with the applicable timing
and other rules in §§ 226.46 and 226.48
(including providing the consumer with the
30-day acceptance period under § 226.48(c),
and the right to cancel under § 226.48(d)).
For example if the creditor receives an
application on January 25, 2010 and
approves the consumer’s application on or
after February 14, 2010, the creditor may, at
its option, provide the approval disclosures
under § 226.47(b), the final disclosures under
§ 226.47(c) and comply with the applicable
requirements §§ 226.46 and 226.48. The
creditor must also obtain the self-certification
form as required in § 226.48(e), if applicable.
Or, for example, if the creditor receives an
application on January 25, 2010 and

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approves the consumer’s application before
February 14, 2010, the creditor may, at its
option, provide the final disclosure under
§ 226.47(c) and comply with the applicable
timing and other requirements of §§ 226.46
and 226.48, including providing the
consumer with the right to cancel under
§ 226.48(d). The creditor must also obtain the
self-certification form as required in
§ 226.48(e), if applicable.
Paragraph 1(d)(7)
1. [Reserved.]
Section 226.2—Definitions and Rules of
Construction
2(a) Definitions.

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2(a)(6) Business day.

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2. Rule for rescission, disclosures for
certain mortgage transactions, and private
education loans. A more precise rule for
what is a business day (all calendar days
except Sundays and the Federal legal
holidays specified in 5 U.S.C. 6103(a))
applies when the right of rescission, the
receipt of disclosures for certain dwellingsecured mortgage transactions under
§§ 226.19(a)(1)(ii), 226.19(a)(2), 226.31(c), or
the receipt of disclosures for private
education loans under § 226.46(d)(4) is
involved. Four Federal legal holidays are
identified in 5 U.S.C. 6103(a) by a specific
date: New Year’s Day, January 1;
Independence Day, July 4; Veterans Day,
November 11; and Christmas Day, December
25. When one of these holidays (July 4, for
example) falls on a Saturday, Federal offices
and other entities might observe the holiday
on the preceding Friday (July 3). In cases
where the more precise rule applies, the
observed holiday (in the example, July 3) is
a business day.

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Section 226.3—Exempt Transactions

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3(b) Credit over $25,000.

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3(f) Student Loan Programs
1. Coverage. This exemption applies to
loans made, insured, or guaranteed under
title IV of the Higher Education Act of 1965
(20 U.S.C. 1070 et seq.). This exemption does
not apply to private education loans as
defined by § 226.46(b)(5).

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Subpart C—Closed-End Credit
Section 226.17—General Disclosure
Requirements
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17(a) Form of Disclosures
Paragraph 17(a)(1)
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4. Content of segregated disclosures.
Footnotes 37 and 38 contain exceptions to
the requirement that the disclosures under
§ 226.18 be segregated from material that is
not directly related to those disclosures.
Footnote 37 lists the items that may be added
to the segregated disclosures, even though
not directly related to those disclosures.
Footnote 38 lists the items required under
§ 226.18 that may be deleted from the
segregated disclosures and appear elsewhere.
Any one or more of these additions or
deletions may be combined and appear either
together with or separate from the segregated
disclosures. The itemization of the amount
financed under § 226.18(c), however, must be
separate from the other segregated
disclosures under § 226.18, except for private
education loan disclosures made in
compliance with § 226.47. If a creditor
chooses to include the security interest
charges required to be itemized under
§ 226.4(e) and § 226.18(o) in the amount
financed itemization, it need not list these
charges elsewhere.

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6. Multiple-purpose forms. The creditor
may design a disclosure statement that can be
used for more than one type of transaction,
so long as the required disclosures for
individual transactions are clear and
conspicuous. (See the Commentary to
appendices G and H for a discussion of the
treatment of disclosures that do not apply to
specific transactions.) Any disclosure listed
in § 226.18 (except the itemization of the
amount financed under § 226.18(c) for
transactions other than private education
loans) may be included on a standard
disclosure statement even though not all of
the creditor’s transactions include those
features. For example, the statement may
include:
• The variable rate disclosure under
§ 226.18(f).
• The demand feature disclosure under
§ 226.18(i).
• A reference to the possibility of a
security interest arising from a spreader
clause, under § 226.18(m).
• The assumption policy disclosure under
§ 226.18(q).
• The required deposit disclosure under
§ 226.18(r).

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Paragraph 17(a)(2)
1. When disclosures must be more
conspicuous. The following rules apply to
the requirement that the terms ‘‘annual
percentage rate’’ (except for private education
loan disclosures made in compliance with
§ 226.47) and ‘‘finance charge’’ be shown
more conspicuously:
• The terms must be more conspicuous
only in relation to the other required
disclosures under § 226.18. For example,
when the disclosures are included on the
contract document, those two terms need not
be more conspicuous as compared to the
heading on the contract document or
information required by state law.
• The terms need not be more conspicuous
except as part of the finance charge and
annual percentage rate disclosures under
§ 226.18 (d) and (e), although they may, at the
creditor’s option, be highlighted wherever
used in the required disclosures. For
example, the terms may, but need not, be
highlighted when used in disclosing a
prepayment penalty under § 226.18(k) or a
required deposit under § 226.18(r).
• The creditor’s identity under § 226.18(a)
may, but need not, be more prominently
displayed than the finance charge and annual
percentage rate.
• The terms need not be more conspicuous
than figures (including, for example,
numbers, percentages, and dollar signs).
2. Making disclosures more conspicuous.
The terms ‘‘finance charge’’ and (except for
private education loan disclosures made in
compliance with § 226.47) ‘‘annual
percentage rate’’ may be made more
conspicuous in any way that highlights them
in relation to the other required disclosures.
For example, they may be:
• Capitalized when other disclosures are
printed in capital and lower case.
• Printed in larger type, bold print or
different type face.
• Printed in a contrasting color.
• Underlined.
• Set off with asterisks.
17(b) Time of Disclosures
1. Consummation. As a general rule,
disclosures must be made before
‘‘consummation’’ of the transaction. The
disclosures need not be given by any
particular time before consummation, except
in certain mortgage transactions and variablerate transactions secured by the consumer’s
principal dwelling with a term greater than
one year under § 226.19, and in private
education loan transactions disclosed in
compliance with §§ 226.46 and 226.47. (See
the commentary to § 226.2(a)(13) regarding
the definition of consummation.)

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17(i) Interim Student Credit Extensions
1. Definition. Student credit plans involve
extensions of credit for education purposes
where the repayment amount and schedule
are not known at the time credit is advanced.
These plans include loans made under any
student credit plan, whether government or
private, where the repayment period does not
begin immediately. (Certain student credit
plans that meet this definition are exempt
from Regulation Z. See § 226.3(f).)

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2. Relation to other sections. For
disclosures made before the mandatory
compliance date of the disclosures required
under §§ 226.46, 47, and 48, paragraph 17(i)
permitted creditors to omit from the
disclosures the terms set forth in that
paragraph at the time the credit was actually
extended. However, creditors were required
to make complete disclosures at the time the
creditor and consumer agreed upon the
repayment schedule for the total obligation.
At that time, a new set of disclosures of all
applicable items under § 226.18 was
required. Most student credit plans are
subject to the requirements in §§ 226.46, 47,
and 48. Consequently, for applications for
student credit plans received on or after the
mandatory compliance date of §§ 226.46, 47,
and 48, the creditor may not omit from the
disclosures the terms set forth in paragraph
17(i). Instead, the creditor must comply with
§§ 226.46, 47, and 48, if applicable, or with
§§ 226.17 and 226.18.
3. Basis of disclosures. * * *
4. Consolidation. * * *
5. Approved student credit forms. See the
commentary to appendix H regarding
disclosure forms approved for use in certain
student credit programs for which
applications were received prior to the
mandatory compliance date of §§ 226.46, 47,
and 48.

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Section 226.18—Content of Disclosures

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Paragraph 18(f)(1)(ii)
1. Limitations. This includes any
maximum imposed on the amount of an
increase in the rate at any time, as well as
any maximum on the total increase over the
life of the transaction. Except for private
education loans disclosures, when there are
no limitations, the creditor may, but need
not, disclose that fact, and limitations do not
include legal limits in the nature of usury or
rate ceilings under State or Federal statutes
or regulations. (See § 226.30 for the rule
requiring that a maximum interest rate be
included in certain variable-rate
transactions.) For disclosures with respect to
private education loan disclosures, see
comment 47(b)(1)–2.

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Paragraph 18(f)(1)(iv)

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2. Hypothetical example not required. The
creditor need not provide a hypothetical
example in the following transactions with a
variable-rate feature:
• Demand obligations with no alternate
maturity date.
• Private education loans as defined in
§ 226.46(b)(5).
• Multiple-advance construction loans
disclosed pursuant to appendix D, Part I.

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Paragraph 18(k)(1)
1. Penalty. This applies only to those
transactions in which the interest calculation
takes account of all scheduled reductions in
principal, as well as transactions in which
interest calculations are made daily. The

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term penalty as used here encompasses only
those charges that are assessed strictly
because of the prepayment in full of a
simple-interest obligation, as an addition to
all other amounts. Items which are penalties
include, for example:
• Interest charges for any period after
prepayment in full is made. (See the
commentary to § 226.17(a)(1) regarding
disclosure of interest charges assessed for
periods after prepayment in full as directly
related information.)
• A minimum finance charge in a simpleinterest transaction. (See the commentary to
§ 226.17(a)(1) regarding the disclosure of a
minimum finance charge as directly related
information.) Items which are not penalties
include, for example, loan guarantee fees.

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Subpart F—Special Rules for Private
Education Loans
Section 226.46—Special Disclosure
Requirements for Private Education
Loans
46(a) Coverage
1. Coverage. This subpart applies to all
private education loans as defined in
§ 226.46(b)(5). Coverage under this subpart is
optional for certain extensions of credit that
do not meet the definition of ‘‘private
education loan’’ because the credit is not
extended, in whole or in part, for
‘‘postsecondary educational expenses’’
defined in § 226.46(b)(3). If a transaction is
not covered and a creditor opts to comply
with any section of this subpart, the creditor
must comply with all applicable sections of
this subpart. If a transaction is not covered
and a creditor opts not to comply with this
subpart, the creditor must comply with all
applicable requirements under §§ 226.17 and
226.18. Compliance with this subpart is
optional for an extension of credit for
expenses incurred after graduation from a
law, medical, dental, veterinary, or other
graduate school and related to relocation,
study for a bar or other examination,
participation in an internship or residency
program, or similar purposes. However, if
any part of such loan is used for
postsecondary educational expenses as
defined in § 226.46(b)(3), then compliance
with Subpart F is mandatory not optional.

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46(b) Definitions
46(b)(1) Covered Educational Institution
1. General. A covered educational
institution includes any educational
institution that meets the definition of an
institution of higher education in
§ 226.46(b)(2). An institution is also a
covered educational institution if it
otherwise meets the definition of an
institution of higher education, except for its
lack of accreditation. Such an institution may
include, for example, a university or
community college. It may also include an
institution, whether accredited or
unaccredited, offering instruction to prepare
students for gainful employment in a
recognized profession, such as flying,
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educational institution does not include
elementary or secondary schools.
2. Agent. For purposes of § 226.46(b)(1),
the term agent means an institution-affiliated
organization as defined by section 151 of the
Higher Education Act of 1965 (20 U.S.C
1019) or an officer or employee of an
institution-affiliated organization. Under
section 151 of the Higher Education Act, an
institution-affiliated organization means any
organization that is directly or indirectly
related to a covered institution and is
engaged in the practice of recommending,
promoting, or endorsing education loans for
students attending the covered institution or
the families of such students. An institutionaffiliated organization may include an
alumni organization, athletic organization,
foundation, or social, academic, or
professional organization, of a covered
institution, but does not include any creditor
with respect to any private education loan
made by that creditor.
46(b)(2) Institution of higher education.
1. General. An institution of higher
education includes any institution that meets
the definitions contained in sections 101 and
102 of the Higher Education Act of 1965 (20
U.S.C. 1001–1002) and implementing
Department of Education regulations (34 CFR
600). Such an institution may include, for
example, a university or community college.
It may also include an institution offering
instruction to prepare students for gainful
employment in a recognized profession, such
as flying, culinary arts, or dental assistance.
An institution of higher education does not
include elementary or secondary schools.
46(b)(3) Postsecondary educational
expenses.
1. General. The examples listed in
§ 226.46(b)(3) are illustrative only. The full
list of postsecondary educational expenses is
contained in section 472 of the Higher
Education Act of 1965 (20 U.S.C. 1087ll).
46(b)(4) Preferred lender arrangement.
1. General. The term ‘‘preferred lender
arrangement’’ is defined in section 151 of the
Higher Education Act of 1965 (20 U.S.C
1019). The term refers to an arrangement or
agreement between a creditor and a covered
educational institution (or an institutionaffiliated organization as defined by section
151 of the Higher Education Act of 1965 (20
U.S.C 1019)) under which a creditor provides
private education loans to consumers for
students attending the covered educational
institution and the covered educational
institution recommends, promotes, or
endorses the private education loan products
of the creditor. It does not include
arrangements or agreements with respect to
Federal Direct Stafford/Ford loans, or Federal
PLUS loans made under the Federal PLUS
auction pilot program.
46(b)(5) Private education loan.
1. Extended expressly for postsecondary
educational expenses. A private education
loan is one that is extended expressly for
postsecondary educational expenses. The
term includes loans extended for
postsecondary educational expenses incurred
while a student is enrolled in a covered
educational institution as well as loans
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2. Multiple-purpose loans. i. Definition. A
private education loan may include an
extension of credit not excluded under
§ 226.46(b)(5) that the consumer may use for
multiple purposes including, but not limited
to, postsecondary educational expenses. If
the consumer expressly indicates that the
proceeds of the loan will be used to pay for
postsecondary educational expenses by
indicating the loan’s purpose on an
application, the loan is a private education
loan.
ii. Coverage. A creditor generally will not
know before an application is received
whether the consumer intends to use the loan
for postsecondary educational expenses. For
this reason, the creditor need not provide the
disclosures required by § 226.47(a) on or with
the application or solicitation for a loan that
may be used for multiple purposes. See
§ 226.47(d)(1)(i). However, if the consumer
expressly indicates that the proceeds of the
loan will be used to pay for postsecondary
educational expenses, the creditor must
comply with §§ 226.47(b) and (c) and
§ 226.48. For purposes of the required
disclosures, the creditor must calculate the
disclosures based on the entire amount of the
loan, even if only a part of the proceeds is
intended for postsecondary educational
expenses. The creditor may rely solely on a
check-box, or a purpose line, on a loan
application to determine whether or not the
applicant intends to use loan proceeds for
postsecondary educational expenses.
iii. Examples. The creditor must comply
only if the extension of credit also meets the
other parts of the definition of private
education loan. For example, if the creditor
uses a single application form for both openend and closed-end credit, and the consumer
applies for open-end credit to be used for
postsecondary educational expenses, the
extension of credit is not covered. Similarly,
if the consumer indicates the extension of
credit will be used for educational expenses
that are not postsecondary educational
expenses, such as elementary or secondary
educational expenses, the extension of credit
is not covered. These examples are only
illustrative, not exhaustive.
3. Short-term loans. Some covered
educational institutions offer loans to
students with terms of 90 days or less to
assist the student in paying for educational
expenses, usually while the student waits for
other funds to be disbursed. Under
§ 226.46(b)(5)(iv)(A) such loans are not
considered private education loans, even if
interest is charged on the credit balance.
(Because these loans charge interest, they are
not covered by the exception under
§ 226.46(b)(5)(iv)(B).) However, these loans
are extensions of credit subject to the
requirements of §§ 226.17 and 18. The legal
agreement may provide that repayment is
required when the consumer or the
educational institution receives certain
funds. If, under the terms of the legal
obligation, repayment of the loan is required
when the certain funds are received by the
consumer or the educational institution (such
as by deposit into the consumer’s or
educational institution’s account), the
disclosures should be based on the creditor’s
estimate of the time the funds will be
delivered.

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4. Billing plans. Some covered educational
institutions offer billing plans that permit a
consumer to make payments in installments.
Such plans are not considered private
education loans, if an interest rate will not
be applied to the credit balance and the term
of the extension of credit is one year or less,
even if the plan is payable in more than four
installments. However, such plans may be
extensions of credit subject to the
requirements of §§ 226.17 and 18.
46(c) Form of Disclosures
1. Form of disclosures—relation to other
sections. Creditors must make the disclosures
required under this subpart in accordance
with § 226.46(c). Section 226.46(c)(2)
requires that the disclosures be grouped
together and segregated from everything else.
In complying with this requirement, creditors
may follow the rules in § 226.17, except
where specifically provided otherwise. For
example, although § 226.17(b) requires
creditors to provide only one set of
disclosures before consummation of the
transaction, §§ 226.47(b) and (c) require that
the creditor provide the disclosures under
§ 226.18 both upon approval and after the
consumer accepts the loan.

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Paragraph 46(c)(3)
1. Application and solicitation
disclosures—electronic disclosures. If the
disclosures required under § 226.47(a) are
provided electronically, they must be
provided on or with the application or
solicitation reply form. Electronic disclosures
are deemed to be on or with an application
or solicitation if they meet one of the
following conditions:
i. They automatically appear on the screen
when the application or solicitation reply
form appears;
ii. They are located on the same Web
‘‘page’’ as the application or solicitation reply
form without necessarily appearing on the
initial screen, if the application or reply form
contains a clear and conspicuous reference to
the location of the disclosures and indicates
that the disclosures contain rate, fee, and
other cost information, as applicable; or
iii. They are posted on a Web site and the
application or solicitation reply form is
linked to the disclosures in a manner that
prevents the consumer from by passing the
disclosures before submitting the application
or reply form.
46(d) Timing of Disclosures
1. Receipt of disclosures. Under
§ 226.46(d)(4), if the creditor places the
disclosures in the mail, the consumer is
considered to have received them three
business days after they are mailed. For
purposes of § 226.46(d)(4), ‘‘business day’’
means all calendar days except Sundays and
the legal public holidays referred to in
§ 226.2(a)(6). See comment 2(a)(6)–2. For
example, if the creditor places the
disclosures in the mail on Thursday, June 4,
the disclosures are considered received on
Monday, June 8.
Paragraph 46(d)(1)
1. Invitations to apply. A creditor may
contact a consumer who has not been preselected for a private education loan about

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taking out a loan (whether by direct mail,
telephone, or other means) and invite the
consumer to complete an application. Such
a contact does not meet the definition of
solicitation, nor is it covered by this subpart,
unless the contact itself includes the
following:
i. An application form in a direct mailing,
electronic communication or a single
application form as a ‘‘take-one’’ (in racks in
public locations, for example);
ii. An oral application in a telephone
contact; or
iii. An application in an in-person contact.
Paragraph 46(d)(2)
1. Timing. The creditor must provide the
disclosures required by § 226.47(b) at the
time the creditor provides to the consumer
any notice that the loan has been approved.
However, nothing in this section prevents the
creditor from communicating to the
consumer that additional information is
required from the consumer before approval
may be granted. In such a case, a creditor is
not required to provide the disclosures at that
time. If the creditor communicates notice of
approval to the consumer by mail, the
disclosures must be mailed at the same time
as the notice of approval. If the creditor
communicates notice of approval by
telephone, the creditor must place the
disclosures in the mail within three business
days of the telephone call. If the creditor
communicates notice of approval in
electronic form, the creditor may provide the
disclosures in electronic form. If the creditor
has complied with the consumer consent and
other applicable provisions of the Electronic
Signatures in Global and National Commerce
Act (E-Sign Act) (15 U.S.C. 7001 et seq.) the
creditor may provide the disclosures solely
in electronic form; otherwise, the creditor
must place the disclosures in the mail within
three business days of the communication.
46(g) Effect of subsequent events
1. Approval disclosures. Inaccuracies in
the disclosures required under § 226.47(b) are
not violations if attributable to events
occurring after disclosures are made,
although creditors are restricted under
§ 226.48(c)(2) from making certain changes to
the loan’s rate or terms after the creditor
provides an approval disclosure to a
consumer. Since creditors are required
provide the final disclosures under
§ 226.47(c), they need not make new
approval disclosures in response to an event
that occurs after the creditor delivers the
required approval disclosures, except as
specified under § 226.48(c)(4). For example,
at the time the approval disclosures are
provided, the creditor may not know the
precise disbursement date of the loan funds
and must provide estimated disclosures
based on the best information reasonably
available and labelled as an estimate. If, after
the approval disclosures are provided, the
creditor learns from the educational
institution the precise disbursement date,
new approval disclosures would not be
required, unless specifically required under
§ 226.48(c)(4) if other changes are made.
Similarly, the creditor may not know the
precise amounts of each loan to be

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consolidated in a consolidation loan
transaction and information about the precise
amounts would not require new approval
disclosures, unless specifically required
under § 226.48(c)(4) if other changes are
made.
2. Final disclosures. Inaccuracies in the
disclosures required under § 226.47(c) are not
violations if attributable to events occurring
after disclosures are made. For example, if
the consumer initially chooses to defer
payment of principal and interest while
enrolled in a covered educational institution,
but later chooses to make payments while
enrolled, such a change does not make the
original disclosures inaccurate.
Section 226.47—Content of Disclosures
1. As applicable. The disclosures required
by this subpart need be made only as
applicable, unless specifically required
otherwise. The creditor need not provide any
disclosure that is not applicable to a
particular transaction. For example, in a
transaction consolidating private education
loans, or in transactions under § 226.46(a) for
which compliance with this subpart is
optional, the creditor need not disclose the
information under §§ 226.47(a)(6), and (b)(4),
and any other information otherwise required
to be disclosed under this subpart that is not
applicable to the transaction. Similarly,
creditors making loans to consumers where
the student is not attending an institution of
higher education, as defined in
§ 226.46(b)(2), need not provide the
disclosures regarding the self-certification
form in § 226.47(a)(8).
47(a) Application or Solicitation Disclosures
Paragraph 47(a)(1)(i)
1. Rates actually offered. The disclosure
may state only those rates that the creditor
is actually prepared to offer. For example, a
creditor may not disclose a very low interest
rate that will not in fact be offered at any
time. For a loan with variable interest rates,
the ranges of rates will be considered actually
offered if:
i. For disclosures in applications or
solicitations sent by direct mail, the rates
were in effect within 60 days before mailing;
ii. For disclosures in applications or
solicitations in electronic form, the rates
were in effect within 30 days before the
disclosures are sent to a consumer, or for
disclosures made on an Internet Web site,
within 30 days before being viewed by the
public;
iii. For disclosures in printed applications
or solicitations made available to the general
public, the rates were in effect within 30 days
before printing; or
iv. For disclosures provided orally in
telephone applications or solicitations, the
rates are currently available at the time the
disclosures are provided.
2. Creditworthiness and other factors. If the
rate will depend, at least in part, on a later
determination of the consumer’s
creditworthiness or other factors, the
disclosure must include a statement that the
rate for which the consumer may qualify at
approval will depend on the consumer’s
creditworthiness and other factors. The
creditor may, but is not required to, specify

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any additional factors that it will use to
determine the interest rate. For example, if
the creditor will determine the interest rate
based on information in the consumer’s or
co-signer’s credit report and the type of
school the consumer attends, the creditor
may state, ‘‘Your interest rate will be based
on your credit history and other factors (cosigner credit and school type).’’
3. Rates applicable to the loan. For a
variable-rate private education loan, the
disclosure of the interest rate or range of rates
must reflect the rate or rates calculated based
on the index and margin that will be used to
make interest rate adjustments for the loan.
The creditor may provide a description of the
index and margin or range of margins used
to make interest rate adjustments, including
a reference to a source, such as a newspaper,
where the consumer may look up the index.
Paragraph 47(a)(1)(iii)
1. Coverage. The interest rate is considered
variable if the terms of the legal obligation
allow the creditor to increase the interest rate
originally disclosed to the consumer and the
requirements of section 226.47(a)(1)(iii)
apply to all such transactions. The provisions
do not apply to increases resulting from
delinquency (including late payment),
default, assumption, or acceleration.
2. Limitations. The creditor must disclose
how often the rate may change and any limit
on the amount that the rate may increase at
any one time. The creditor must also disclose
any maximum rate over the life of the
transaction. If the legal obligation between
the parties does specify a maximum rate, the
creditor must disclose any legal limits in the
nature of usury or rate ceilings under state or
Federal statutes or regulations. However, if
the applicable maximum rate is in the form
of a legal limit, such as a state’s usury cap
(rather than a maximum rate specified in the
legal obligation between the parties), the
creditor must disclose that the maximum rate
is determined by applicable law. The creditor
must also disclose that the consumer’s actual
rate may be higher or lower than the initial
rates disclosed under § 226.47(a)(1)(i), if
applicable.

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Paragraph 47(a)(1)(iv)
1. Co-signer or guarantor—changes in
applicable interest rate. The creditor must
state whether the interest rate typically will
be higher if the loan is not co-signed or
guaranteed by a third party. The creditor is
required to provide a statement of the effect
on the interest rate and is not required to
provide a numerical estimate of the effect on
the interest rate. For example, a creditor may
state: ‘‘Rates are typically higher without a
co-signer.’’
47(a)(2) Fees and Default or Late Payment
Costs
1. Fees or range of fees. The creditor must
itemize fees required to obtain the private
education loan. The creditor must give a
single dollar amount for each fee, unless the
fee is based on a percentage, in which case
a percentage must be stated. If the exact
amount of the fee is not known at the time
of disclosure, the creditor may disclose the
dollar amount or percentage for each fee as
an estimated range.

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2. Fees required to obtain the private
education loan. The creditor must itemize
the fees that the consumer must pay to obtain
the private education loan. Fees disclosed
include all finance charges under § 226.4,
such as loan origination fees, credit report
fees, and fees charged upon entering
repayment, as well as fees not considered
finance charges but required to obtain credit,
such as application fees that are charged
whether or not credit is extended. Fees
disclosed include those paid by the
consumer directly to the creditor and fees
paid to third parties by the creditor on the
consumer’s behalf. Creditors are not required
to disclose fees that apply if the consumer
exercises an option under the loan agreement
after consummation, such as fees for
deferment, forbearance, or loan modification.
47(a)(3) Repayment Terms
1. Loan term. The term of the loan is the
maximum period of time during which
regularly scheduled payments of principal
and interest will be due on the loan.
2. Payment deferral options—general. The
creditor must describe the options that the
consumer has under the loan agreement to
defer payment on the loan. When there is no
deferment option provided for the loan, the
creditor must disclose that fact. Payment
deferral options required to be disclosed
include options for immediate deferral of
payments, such as when the student is
currently enrolled at a covered educational
institution. The description may include of
the length of the maximum initial in-school
deferment period, the types of payments that
may be deferred, and a description of any
payments that are required during the
deferment period. The creditor may, but need
not, disclose any conditions applicable to the
deferment option, such as that deferment is
permitted only while the student is
continuously enrolled in school. If payment
deferral is not an option while the student is
enrolled in school, the creditor may disclose
that the consumer must begin repayment
upon disbursement of the loan and that the
consumer may not defer repayment while
enrolled in school. If the creditor offers
payment deferral options that may apply
during the repayment period, such as an
option to defer payments if the student
returns to school to pursue an additional
degree, the creditor must include a statement
referring the consumer to the contract
document or promissory note for more
information.
3. Payment deferral options—in school
deferment. For each payment deferral option
applicable while the student is enrolled at a
covered educational institution the creditor
must disclose whether interest will accrue
while the student is enrolled at a covered
educational institution and, if interest does
accrue, whether payment of interest may be
deferred and added to the principal balance.
4. Combination with cost estimate
disclosure. The disclosures of the loan term
under § 226.47(a)(3)(i) and of the payment
deferral options applicable while the student
is enrolled at a covered educational
institution under §§ 226.47(a)(3)(ii) and (iii)
may be combined with the disclosure of cost
estimates required in § 226.47(a)(4). For

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example, the creditor may describe each
payment deferral option in the same chart or
table that provides the cost estimates for each
payment deferral option. See Appendix H–
21.
5. Bankruptcy limitations. The creditor
may comply with § 226.47(a)(3)(iv) by
disclosing the following statement: ‘‘If you
file for bankruptcy you may still be required
to pay back this loan.’’
47(a)(4) Cost Estimates
1. Total cost of the loan. For purposes of
§ 226.47(a)(4), the creditor must calculate the
example of the total cost of the loan in
accordance with the rules in § 226.18(h) for
calculating the loan’s total of payments.
2. Basis for estimates. i. The creditor must
calculate the total cost estimate by
determining all finance charges that would
be applicable to loans with the highest rate
of interest required to be disclosed under
§ 226.47(a)(1)(i). For example, if a creditor
charges a range of origination fees from 0%
to 3%, but the 3% origination fee would
apply to loans with the highest initial rate,
the lender must assume the 3% origination
fee is charged. The creditor must base the
total cost estimate on a total loan amount that
includes all prepaid finance charges and
results in a $10,000 amount financed. For
example, if the prepaid finance charges are
$600, the creditor must base the estimate on
a $10,600 total loan amount and an amount
financed of $10,000. The example must
reflect an amount provided of $10,000. If the
creditor only offers a particular private
education loan for less than $10,000, the
creditor may assume a loan amount that
results in a $5,000 amount financed for that
loan.
ii. If a prepaid finance charge is
determined as a percentage of the amount
financed, for purposes of the example, the
creditor should assume that the fee is
determined as a percentage of the total loan
amount, even if this is not the creditor’s
usual practice. For example, suppose the
consumer requires a disbursement of $10,000
and the creditor charges a 3% origination fee.
In order to calculate the total cost example,
the creditor must determine the loan amount
that will result in a $10,000 amount financed
after the 3% fee is assessed. In this example,
the resulting loan amount would be
$10,309.28. Assessing the 3% origination fee
on the loan amount of $10,309.28 results in
an origination fee of $309.28, which is
withheld from the loan funds disbursed to
the consumer. The principal loan amount of
$10,309.28 minus the prepaid finance charge
of $309.28 results in an amount financed of
$10,000.
3. Calculated for each option to defer
interest payments. The example must include
an estimate of the total cost of the loan for
each in-school deferral option disclosed in
§ 226.47(a)(3)(iii). For example, if the creditor
provides the consumer with the option to
begin making principal and interest
payments immediately, to defer principal
payments but begin making interest-only
payments immediately, or to defer all
principal and interest payments while in
school, the creditor is required to disclose
three estimates of the total cost of the loan,

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one for each deferral option. If the creditor
adds accrued interest to the loan balance (i.e.,
interest is capitalized), the estimate of the
total loan cost should be based on the
capitalization method that the creditor
actually uses for the loan. For instance, for
each deferred payment option where the
creditor would capitalize interest on a
quarterly basis, the total loan cost must be
calculated assuming interest capitalizes on a
quarterly basis.
4. Deferment period assumptions. Creditors
may use either of the following two methods
for estimating the duration of in-school
deferment periods:
i. For loan programs intended for
educational expenses of undergraduate
students, the creditor may assume that the
consumer defers payments for a four-year
matriculation period, plus the loan’s
maximum applicable grace period, if any. For
all other loans, the creditor may assume that
the consumer defers for a two-year
matriculation period, plus the maximum
applicable grace period, if any, or the
maximum time the consumer may defer
payments under the loan program, whichever
is shorter.
ii. Alternatively, if the creditor knows that
the student will be enrolled in a program
with a standard duration, the creditor may
assume that the consumer defers payments
for the full duration of the program (plus any
grace period). For example, if a creditor
makes loans intended for students enrolled
in a four-year medical school degree
program, the creditor may assume that the
consumer defers payments for four years plus
the loan’s maximum applicable grace period,
if any. However, the creditor may not modify
the disclosure to correspond to a particular
student’s situation. For example, even if the
creditor knows that a student will be a
second-year medical school student, the
creditor must assume a four-year deferral
period.
47(a)(6)(ii)
1. Terms of Federal student loans. The
creditor must disclose the interest rates
available under each program under title IV
of the Higher Education Act of 1965 and
whether the rates are fixed or variable, as
prescribed in the Higher Education Act of
1965 (20 U.S.C. 1077a). Where the fixed
interest rate for a loan varies by statute
depending on the date of disbursement or
receipt of application, the creditor must
disclose only the interest rate as of the time
the disclosure is provided.

47(b) Approval Disclosures

Paragraph 47(b)(2)
1. Fees and default or late payment costs.
Creditors may follow the commentary for
§ 226.47(a)(2) in complying with
§ 226.47(b)(2). Creditors must disclose the
late payment fees required to be disclosed
under § 226.18(l) as part of the disclosure
required under § 226.47(b)(2)(ii). If the
creditor includes the itemization of the
amount financed under § 226.18(c)(1), any
fees disclosed as part of the itemization need
not be separately disclosed elsewhere.

47(b)(1) Interest Rate
1. Variable rate disclosures. The interest
rate is considered variable if the terms of the
legal obligation allow the creditor to increase
the interest rate originally disclosed to the
consumer. The provisions do not apply to
increases resulting from delinquency
(including late payment), default,

47(b)(3) Repayment Terms
1. Principal amount. The principal amount
must equal what the face amount of the note
would be as of the time of approval, and it
must be labeled ‘‘Total Loan Amount.’’ See
Appendix H–18. This amount may be
different from the ‘‘principal loan amount’’
used to calculate the amount financed under

47(a)(6)(iii)
1. Web site address. The creditor must
include with this disclosure an appropriate
U.S. Department of Education Web site
address such as ‘‘Federalstudentaid.ed.gov.’’
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assumption, or acceleration. In addition to
disclosing the information required under
§§ 226.47(b)(ii) and (iii), the creditor must
disclose the information required under
§§ 226.18(f)(1)(i) and (iii)—the circumstances
under which the rate may increase and the
effect of an increase, respectively. The
creditor is required to disclose the maximum
monthly payment based on the maximum
possible rate in § 226.47(b)(3)(viii), and the
creditor need not disclose a separate example
of the payment terms that would result from
an increase under § 226.18(f)(1)(iv).
2. Limitations on rate adjustments. The
creditor must disclose how often the rate may
change and any limit on the amount that the
rate may increase at any one time. The
creditor must also disclose any maximum
rate over the life of the transaction. If the
legal obligation between the parties does
provide a maximum rate, the creditor must
disclose any legal limits in the nature of
usury or rate ceilings under state or Federal
statutes or regulations. However, if the
applicable maximum rate is in the form of a
legal limit, such as a State’s usury cap (rather
than a maximum rate specified in the legal
obligation between the parties), the creditor
must disclose that the maximum rate is
determined by applicable law. Compliance
with § 226.18(f)(1)(ii) (requiring disclosure of
any limitations on the increase of the interest
rate) does not necessarily constitute
compliance with this section. Specifically,
this section requires that if there are no
limitations on interest rate increases, the
creditor must disclose that fact. By contrast,
comment 18(f)(1)(ii)–1 states that if there are
no limitations the creditor need not disclose
that fact. In addition, under this section,
limitations on rate increases include, rather
than exclude, legal limits in the nature of
usury or rate ceilings under state or Federal
statutes or regulations.
3. Rates applicable to the loan. For a
variable-rate loan, the disclosure of the
interest rate must reflect the index and
margin that will be used to make interest rate
adjustments for the loan. The creditor may
provide a description of the index and
margin or range of margins used to make
interest rate adjustments, including a
reference to a source, such as a newspaper,
where the consumer may look up the index.

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comment 18(b)(3)–1, because the creditor has
the option under that comment of using a
‘‘principal loan amount’’ that is different
from the face amount of the note. If the
creditor elects to provide an itemization of
the amount financed under § 226.18(c)(1) the
creditor need not disclose the amount
financed elsewhere.
2. Loan term. The term of the loan is the
maximum period of time during which
regularly scheduled payments of principal
and interest are due on the loan.
3. Payment deferral options applicable to
the consumer. Creditors may follow the
commentary for § 226.47(a)(3)(ii) in
complying with § 226.47(b)(3)(iii).
4. Payments required during enrollment.
Required payments that must be disclosed
include payments of interest and principal,
interest only, or other payments that the
consumer must make during the time that the
student is enrolled. Compliance with
§ 226.18(g) constitutes compliance with
§ 226.47(b)(3)(iv).
5. Bankruptcy limitations. The creditor
may comply with § 226.47(b)(3)(vi) by
disclosing the following statement: ‘‘If you
file for bankruptcy you may still be required
to pay back this loan.’’
6. An estimate of the total amount for
repayment. The creditor must disclose an
estimate of the total amount for repayment at
two interest rates:
i. The interest rate in effect on the date of
approval. Compliance with the total of
payments disclosure requirement of
§ 226.18(h) constitutes compliance with this
requirement.
ii. The maximum possible rate of interest
applicable to the loan or, if the maximum
rate cannot be determined, a rate of 25%. If
the legal obligation between the parties
specifies a maximum rate of interest, the
creditor must calculate the total amount for
repayment based on that rate. If the legal
obligation does not specify a maximum rate
but a usury or rate ceiling under State or
Federal statutes or regulations applies, the
creditor must use that rate. If a there is no
maximum rate in the legal obligation or
under a usury or rate ceiling, the creditor
must base the disclosure on a rate of 25%
and must disclose that there is no maximum
rate and that the total amount for repayment
disclosed under § 226.47(b)(3)(vii)(B) is an
estimate and will be higher if the applicable
interest rate increases.
iii. If terms of the legal obligation provide
a limitation on the amount that the interest
rate may increase at any one time, the
creditor may reflect the effect of the interest
rate limitation in calculating the total cost
example. For example, if the legal obligation
provides that the interest rate may not
increase by more than three percentage
points each year, the creditor may assume
that the rate increases by three percentage
points each year until it reaches that
maximum possible rate, or if a maximum rate
cannot be determined, an interest rate of
25%.
7. The maximum monthly payment. The
creditor must disclose the maximum
payment that the consumer could be required
to make under the loan agreement, calculated
using the maximum rate of interest

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applicable to the loan, or if the maximum
rate cannot be determined, a rate of 25%. The
creditor must determine and disclose the
maximum rate of interest in accordance with
comments 47(b)(3)–6.ii and 47(b)(3)–6.iii. In
addition, if a maximum rate cannot be
determined, the creditor must state that there
is no maximum rate and that the monthly
payment amounts disclosed under
§ 226.47(b)(3)(viii) are estimates and will be
higher if the applicable interest rate
increases.
47(b)(4) Alternatives to Private Education
Loans
1. General. Creditors may use the guidance
provided in the commentary for
§ 226.47(a)(6) in complying with
§ 226.47(b)(4).

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47(b)(5) Rights of the Consumer
1. Notice of acceptance period. The
disclosure that the consumer may accept the
terms of the loan until the acceptance period
under § 226.48(c)(1) has expired must
include the specific date on which the
acceptance period expires and state that the
consumer may accept the terms of the loan
until that date. Under § 226.48(c)(1), the date
on which the acceptance period expires is
based on when the consumer receives the
disclosures. If the creditor mails the
disclosures, the consumer is considered to
have received them three business days after
the creditor places the disclosures in the mail
See § 226.46(d)(4). If the creditor provides an
acceptance period longer than the minimum
30 calendar days, the disclosure must reflect
the later date. The disclosure must also
specify the method or methods by which the
consumer may communicate acceptance.
47(c) Final Disclosures
1. Notice of right to cancel. The disclosure
of the right to cancel must include the
specific date on which the three-day
cancellation period expires and state that the
consumer has a right to cancel by that date.
See comments 48(d)–1 and 2. For example,
if the disclosures were mailed to the
consumer on Friday, June 1, and the
consumer is deemed to receive them on
Tuesday, June 5, the creditor could state:
‘‘You have a right to cancel this transaction,
without penalty, by midnight on June 8,
2009. No funds will be disbursed to you or
to your school until after this time. You may
cancel by calling us at 800–XXX–XXXX.’’ If
the creditor permits cancellation by mail, the
statement must specify that the consumer’s
mailed request will be deemed timely if
placed in the mail not later than the
cancellation date specified on the disclosure.
The disclosure must also specify the method
or methods by which the consumer may
cancel.
2. More conspicuous. The statement of the
right to cancel must be more conspicuous
than any other disclosure required under this
section except for the finance charge, the
interest rate, and the creditor’s identity. See
§ 226.46(c)(2)(iii). The statement will be
deemed to be made more conspicuous if it is
segregated from other disclosures, placed
near or at the top of the disclosure document,
and highlighted in relation to other required
disclosures. For example, the statement may

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be outlined with a prominent, noticeable box;
printed in contrasting color; printed in larger
type, bold print, or different type face;
underlined; or set off with asterisks.
Section 226.48—Limitations on Private
Education Loans
1. Co-branding—definition of marketing.
The prohibition on co-branding in
§§ 226.48(a) and (b) applies to the marketing
of private education loans. The term
marketing includes any advertisement under
§ 226.2(a)(2). In addition, the term marketing
includes any document provided by the
creditor to the consumer related to a specific
transaction, such as an application or
solicitation, a promissory note or a contract
provided to the consumer. For example,
prominently displaying the name of the
educational institution at the top of the
application form or promissory note without
mentioning the name of the creditor, such as
by naming the loan product the ‘‘University
of ABC Loan,’’ would be prohibited.
2. Implied endorsement. A suggestion that
a private education loan is offered or made
by the covered educational institution
instead of by the creditor is included in the
prohibition on implying that the covered
educational institution endorses the private
education loan under § 226.48(a)(1). For
example, naming the loan the ‘‘University of
ABC Loan,’’ suggests that the loan is offered
by the educational institution. However, the
use of a creditor’s full name, even if that
name includes the name of a covered
educational institution, does not imply
endorsement. For example, a credit union
whose name includes the name of a covered
educational institution is not prohibited from
using its own name. In addition, the
authorized use of a state seal by a state or an
institution of higher education in the
marketing of state education loan products
does not imply endorsement.
3. Disclosure. i. A creditor is considered to
have complied with § 226.48(a)(2) if the
creditor’s marketing contains a clear and
conspicuous statement, equally prominent
and closely proximate to the reference to the
covered educational institution, using the
name of the creditor and the name of the
covered educational institution that the
covered educational institution does not
endorse the creditor’s loans and that the
creditor is not affiliated with the covered
educational institution. For example, ‘‘[Name
of creditor]’s loans are not endorsed by [name
of school] and [name of creditor] is not
affiliated with [name of school].’’ The
statement is considered to be equally
prominent and closely proximate if it is the
same type size and is located immediately
next to or directly above or below the
reference to the educational institution,
without any intervening text or graphical
displays.
ii. A creditor is considered to have
complied with § 226.48(b) if the creditor’s
marketing contains a clear and conspicuous
statement, equally prominent and closely
proximate to the reference to the covered
educational institution, using the name of the
creditor’s loan or loan program, the name of
the covered educational institution, and the
name of the creditor, that the creditor’s loans

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are not offered or made by the covered
educational institution, but are made by the
creditor. For example, ‘‘[Name of loan or loan
program] is not being offered or made by
[name of school], but by [name of creditor].’’
The statement is considered to be equally
prominent and closely proximate if it is the
same type size and is located immediately
next to or directly above or below the
reference to the educational institution,
without any intervening text or graphical
displays.
Paragraph 48(c)
1. 30 day acceptance period. The creditor
must provide the consumer with at least 30
calendar days from the date the consumer
receives the disclosures required under
§ 226.47(b) to accept the terms of the loan.
The creditor may provide the consumer with
a longer period of time. If the creditor places
the disclosures in the mail, the consumer is
considered to have received them three
business days after they are mailed under
§ 226.46(d)(4). For purposes of determining
when a consumer receives mailed
disclosures, ‘‘business day’’ means all
calendar days except Sundays and the legal
public holidays referred to in § 226.2(a)(6).
See comment 46(d)–1. The consumer may
accept the loan at any time before the end of
the 30 day period.
2. Method of acceptance. The creditor must
specify a method or methods by which the
consumer can accept the loan at any time
within the 30-day acceptance period. The
creditor may require the consumer to
communicate acceptance orally or in writing.
Acceptance may also be communicated
electronically, but electronic communication
must not be the only means provided for the
consumer to communicate acceptance unless
the creditor has provided the approval
disclosure electronically in compliance with
the consumer consent and other applicable
provisions of the Electronic Signatures in
Global and National Commerce Act (E–Sign
Act) (15 U.S.C. § 7001 et seq.). If acceptance
by mail is allowed, the consumer’s
communication of acceptance is considered
timely if placed in the mail within the 30day period.
3. Prohibition on changes to rates and
terms. The prohibition on changes to the
rates and terms of the loan applies to changes
that affect those terms that are required to be
disclosed under §§ 226.47(b) and (c). The
creditor is permitted to make changes that do
not affect any of the terms disclosed to the
consumer under those sections.
4. Permissible changes to rates and terms—
re-disclosure not required. Creditors are not
required to consummate a loan where the
extension of credit would be prohibited by
law or where the creditor has reason to
believe that the consumer has committed
fraud. A creditor may make changes to the
rate based on adjustments to the index used
for the loan and changes that will
unequivocally benefit the consumer. For
example, a creditor is permitted to reduce the
interest rate or lower the amount of a fee. A
creditor may also reduce the loan amount
based on a certification or other information
received from a covered educational
institution or from the consumer indicating

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that the student’s cost of attendance has
decreased or the amount of other financial
aid has increased. A creditor may also
withdraw the loan approval based on a
certification or other information received
from a covered educational institution or
from the consumer indicating that the
student is not enrolled in the institution. For
these changes permitted by § 226.48(c)(3), the
creditor is not required to provide a new set
of approval disclosures required under
§ 226.47(b) or provide the consumer with a
new 30-day acceptance period under
§ 226.48(c)(1). The creditor must provide the
final disclosures under § 226.47(c).
5. Permissible changes to rates and terms—
school certification. If the creditor reduces
the loan amount based on information that
the student’s cost of attendance has
decreased or the amount of other financial
aid has increased, the creditor may make
certain corresponding changes to the rate and
terms. The creditor may change the rate or
terms to those that the consumer would have
received if the consumer had applied for the
reduced loan amount. For example, assume
a consumer applies for, and is approved for,
a $10,000 loan at a 7% interest rate.
However, after the consumer receives the
approval disclosures, the consumer’s school
certifies that the consumer’s financial need is
only $8,000. The creditor may reduce the
loan amount for which the consumer is
approved to $8,000. The creditor may also,
for example, increase the interest rate on the
loan to 7.125%, but only if the consumer
would have received a rate of 7.125% if the
consumer had originally applied for an
$8,000 loan.
5. Permissible changes to rates and terms—
re-disclosure required. A creditor may make
changes to the interest rate or terms to
accommodate a request from a consumer. For
example, assume a consumer applies for a
$10,000 loan and is approved for the $10,000
amount at an interest rate of 6%. After the
creditor has provided the approval
disclosures, the consumer’s financial need
increases, and the consumer requests to a
loan amount of $15,000. In this situation, the
creditor is permitted to offer a $15,000 loan,
and to make any other changes such as
raising the interest rate to 7%, in response to
the consumer’s request. The creditor must
provide a new set of disclosures under
§ 226.47(b) and provide the consumer with
30 days to accept the offer under § 226.48(c)
for the $15,000 loan offered in response to
the consumer’s request. However, because
the consumer may choose not to accept the
offer for the $15,000 loan at the higher
interest rate, the creditor may not withdraw
or change the rate or terms of the offer for
the $10,000 loan, except as permitted under
§ 226.48(c)(3), unless the consumer accepts
the $15,000 loan.
Paragraph 48(d)
1. Right to cancel. If the creditor mails the
disclosures, the disclosures are considered
received by the consumer three business days
after the disclosures were mailed. For
purposes of determining when the consumer
receives the disclosures, the term ‘‘business
day’’ is defined as all calendar days except
Sunday and the legal public holidays referred

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to in § 226.2(a)(6). See § 226.46(d)(4). The
consumer has three business days from the
date on which the disclosures are deemed
received to cancel the loan. For example, if
the creditor places the disclosures in the mail
on Thursday, June 4, the disclosures are
considered received on Monday, June 8. The
consumer may cancel any time before
midnight Thursday, June 11. The creditor
may provide the consumer with more time to
cancel the loan than the minimum three
business days required under this section. If
the creditor provides the consumer with a
longer period of time in which to cancel the
loan, the creditor may disburse the funds
three business days after the consumer has
received the disclosures required under this
section, but the creditor must honor the
consumer’s later timely cancellation request.
2. Method of cancellation. The creditor
must specify a method or methods by which
the consumer may cancel. For example, the
creditor may require the consumer to
communicate cancellation orally or in
writing. Cancellation may also be
communicated electronically, but electronic
communication must not be the only means
by which the consumer may cancel unless
the creditor provided the final disclosure
electronically in compliance with the
consumer consent and other applicable
provisions of the Electronic Signatures in
Global and National Commerce Act (E–Sign
Act) (15 U.S.C. 7001 et seq.). If the creditor
allows cancellation by mail, the creditor
must specify an address or the name and
address of an agent of the creditor to receive
notice of cancellation. The creditor must wait
to disburse funds until it is reasonably
satisfied that the consumer has not canceled.
For example, the creditor may satisfy itself by
waiting a reasonable time after expiration of
the cancellation period to allow for delivery
of a mailed notice. The creditor may also
satisfy itself by obtaining a written statement
from the consumer, which must be provided
to and signed by the consumer only at the
end of the three-day period, that the right has
not been exercised.
3. Cancellation without penalty. The
creditor may not charge the consumer a fee
for exercising the right to cancel under
§ 226.48(d). The prohibition extends only to
fees charged specifically for canceling the
loan. The creditor is not required to refund
fees, such as an application fee, that are
charged to all consumers whether or not the
consumer cancels the loan.

*

Paragraph 48(e)
1. General. Section 226.48(e) requires that
the creditor obtain the self-certification form,
signed by the consumer, before
consummating the private education loan.
The rule applies only to private education
loans that will be used for the postsecondary
educational expenses of a student while that
student is attending an institution of higher
education as defined in § 226.46(b)(2). It does
not apply to all covered educational
institutions. The requirement applies even if
the student is not currently attending an
institution of higher education, but will use
the loan proceeds for postsecondary
educational expenses while attending such
institution. For example, a creditor is

Appendixes G and H—Open-End and
Closed-End Model Forms and Clauses
1. Permissible changes. Although use of the
model forms and clauses is not required,
creditors using them properly will be deemed
to be in compliance with the regulation with
regard to those disclosures. Creditors may
make certain changes in the format or content
of the forms and clauses and may delete any
disclosures that are inapplicable to a
transaction or a plan without losing the act’s
protection from liability, except formatting
changes may not be made to model forms and
samples in H–18, H–19, H–20, H–21, H–22,
H–23, G–2(A), G–3(A), G–4(A), G–10(A)–(E),
G–17(A)–(D), G–18(A) (except as permitted
pursuant to § 226.7(b)(2)), G–18(B)–(C), G–19,

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required to obtain the form before
consummating a private education loan
provided to a high school senior for expenses
to be incurred during the consumer’s first
year of college. This provision does not
require that the creditor obtain the selfcertification form in instances where the loan
is not intended for a student attending an
institution of higher education, such as when
the consumer is consolidating loans after
graduation. Section 155(a)(2) of the Higher
Education Act of 1965 provides that the form
shall be made available to the consumer by
the relevant institution of higher education.
However, § 226.48(e) provides flexibility to
institutions of higher education and creditors
as to how the completed self-certification
form is provided to the lender. The creditor
may receive the form directly from the
consumer, or the creditor may receive the
form from the consumer through the
institution of higher education. In addition,
the creditor may provide the form, and the
information the consumer will require to
complete the form, directly to the consumer.
2. Electronic signature. Under Section
155(a)(2) of the Higher Education Act of
1965, the institution of higher education may
provide the self-certification form to the
consumer in written or electronic form.
Under Section 155(a)(5) of the Higher
Education Act of 1965, the form may be
signed electronically by the consumer. A
creditor may accept the self-certification form
from the consumer in electronic form. A
consumer’s electronic signature is considered
valid if it meets the requirements issued by
the Department of Education under Section
155(a)(5) of the Higher Education Act of
1965.
Paragraph 48(f)
1. General. Section 226.48(f) does not
specify the format in which creditors must
provide the required information to the
covered educational institution. Creditors
may choose to provide only the required
information or may provide copies of the
form or forms the lender uses to comply with
§ 226.47(a). A creditor is only required to
provide the required information if the
creditor is aware that it is a party to a
preferred lender arrangement. For example, if
a creditor is placed on a covered educational
institution’s preferred lender list without the
creditor’s knowledge, the creditor is not
required to comply with § 226.48(f).

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G–20, and G–21. The rearrangement of the
model forms and clauses may not be so
extensive as to affect the substance, clarity,
or meaningful sequence of the forms and
clauses. Creditors making revisions with that
effect will lose their protection from civil
liability. Except as otherwise specifically
required, acceptable changes include, for
example:
i. Using the first person, instead of the
second person, in referring to the borrower.
ii. Using ‘‘borrower’’ and ‘‘creditor’’
instead of pronouns.
iii. Rearranging the sequences of the
disclosures.
iv. Not using bold type for headings.
v. Incorporating certain state ‘‘plain
English’’ requirements.
vi. Deleting inapplicable disclosures by
whiting out, blocking out, filling in ‘‘N/A’’
(not applicable) or ‘‘0,’’ crossing out, leaving
blanks, checking a box for applicable items,
or circling applicable items. (This should
permit use of multipurpose standard forms.)
vii. Using a vertical, rather than a
horizontal, format for the boxes in the closedend disclosures.

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Appendix H—Closed-End Model Forms
and Clauses
21. HRSA–500–1 9–82. Pursuant to section
113(a) of the Truth in Lending Act, Form
HRSA–500–1 9–82 issued by the U.S.
Department of Health and Human Services
for certain student loans has been approved
for use for loans made prior to the mandatory
compliance date of the disclosures required
under Subpart F. The form was approved for
all Health Education Assistance Loans
(HEAL) with a variable interest rate that were
considered interim student credit extensions
as defined in Regulation Z.
22. HRSA–500–2 9–82. Pursuant to section
113(a) of the Truth in Lending Act, Form
HRSA–500–2 9–82 issued by the U.S.
Department of Health and Human Services
for certain student loans has been approved
for use for loans made prior to the mandatory
compliance date of the disclosures required
under Subpart F. The form was approved for
all HEAL loans with a fixed interest rate that
were considered interim student credit
extensions as defined in Regulation Z.
23. HRSA–502–1 9–82. Pursuant to section
113(a) of the Truth in Lending Act, Form
HRSA–502–1 9–82 issued by the U.S.
Department of Health and Human Services
for certain student loans has been approved
for use for loans made prior to the mandatory
compliance date of the disclosures required
under Subpart F. The form was approved for
all HEAL loans with a variable interest rate
in which the borrower has reached
repayment status and is making payments of
both interest and principal.
24. HRSA–502–2 9–82. Pursuant to section
113(a) of the Truth in Lending Act, Form
HRSA–502–2 9–82 issued by the U.S.
Department of Health and Human Services
for certain student loans has been approved
for use for loans made prior to the mandatory
compliance date of the disclosures required
under Subpart F. The form was approved for
all HEAL loans with a fixed interest rate in
which the borrower has reached repayment
status and is making payments of both
interest and principal.

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25. Models H–18, H–19, H–20.
i. These model forms illustrate disclosures
required under § 226.47 on or with an
application or solicitation, at approval, and
after acceptance of a private education loan.
Although use of the model forms is not
required, creditors using them properly will
be deemed to be in compliance with the
regulation with regard to private education
loan disclosures. Creditors may make certain
types of changes to private education loan
model forms H–18 (application and
solicitation), H–19 (approval), and H–20
(final) and still be deemed to be in
compliance with the regulation, provided
that the required disclosures are made clearly
and conspicuously. The model forms
aggregate disclosures into groups under
specific headings. Changes may not include
rearranging the sequence of disclosures, for
instance, by rearranging which disclosures
are provided under each heading or by
rearranging the sequence of the headings and
grouping of disclosures. Changes to the
model forms may not be so extensive as to
affect the substance or clarity of the forms.
Creditors making revisions with that effect
will lose their protection from civil liability.
The creditor may delete inapplicable
disclosures, such as:
• The Federal student financial assistance
alternatives disclosures
• The self-certification disclosure
Other permissible changes include, for
example:
• Adding the creditor’s address, telephone
number, or Web site
• Adding loan identification information,
such as a loan identification number
• Adding the date on which the form was
printed or produced
• Placing the notice of the right to cancel
in the top left or top right of the disclosure
to accommodate a window envelope
• Combining required terms where several
numerical disclosures are the same. For
instance, if the itemization of the amount
financed is provided, the amount financed
need not be separately disclosed
• Combining the disclosure of loan term
and payment deferral options required in
§ 226.47(a)(3) with the disclosure of cost
estimates required in § 226.47(a)(4) in the
same chart or table (See comment 47(a)(3)–
4.)
• Using the first person, instead of the
second person, in referring to the borrower
• Using ‘‘borrower’’ and ‘‘creditor’’ instead
of pronouns
• Incorporating certain state ‘‘plain
English’’ requirements
• Deleting inapplicable disclosures by
whiting out, blocking out, filling in ‘‘N/A’’
(not applicable) or ‘‘0,’’ crossing out, leaving
blanks, checking a box for applicable items,
or circling applicable items
ii. Although creditors are not required to
use a certain paper size in disclosing the
§§ 226.47(a), (b) and (c) disclosures, samples
H–21, H–22, and H–23 are designed to be
printed on two 81⁄2 x 11 inch sheets of paper.
A creditor may use a larger sheet of paper,
such as 81⁄2 x 14 inch sheets of paper, or may
use multiple pages. If the disclosures are
provided on two sides of a single sheet of
paper, the creditor must include a reference

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or references, such as ‘‘SEE BACK OF PAGE’’
at the bottom of each page indicating that the
disclosures continue onto the back of the
page. If the disclosures are on two or more
pages, a creditor may not include any
intervening information between portions of
the disclosure. In addition, the following
formatting techniques were used in
presenting the information in the sample
tables to ensure that the information is
readable:
A. A readable font style and font size (10point Helvetica font style for body text).
B. Sufficient spacing between lines of the
text.
C. Standard spacing between words and
characters. In other words, the body text was
not compressed to appear smaller than the
10-point type size.
D. Sufficient white space around the text
of the information in each row, by providing
sufficient margins above, below and to the
sides of the text.
E. Sufficient contrast between the text and
the background. Generally, black text was
used on white paper.
iii. While the Board is not requiring issuers
to use the above formatting techniques in
presenting information in the disclosure, the
Board encourages issuers to consider these
techniques when deciding how to disclose
information in the disclosure to ensure that
the information is presented in a readable
format.
iv. Creditors are allowed to use color,
shading and similar graphic techniques in
the disclosures, so long as the disclosures
remain substantially similar to the model and
sample forms in appendix H.
26. Sample H–21. This sample illustrates a
disclosure required under § 226.47(a). The
sample assumes a range of interest rates
between 7.375% and 17.375%. The sample
assumes a variable interest rate that will
never exceed 25% over the life of the loan.
The term of the sample loan is 20 years for
an amount up to $20,000 and 30 years for an
amount more than $20,000. The repayment
options and sample costs have been
combined into a single table, as permitted in
the commentary to § 226.47(a)(3). It
demonstrates the loan amount, interest rate,
and total paid when a consumer makes loan
payments while in school, pays only interest
while in school, and defers all payments
while in school.
27. Sample H–22. This sample illustrates a
disclosure required under § 226.47(b). The
sample assumes the consumer financed
$10,000 at an 8.23% annual percentage rate.
The sample assumes a variable interest rate
that will never exceed 25% over the life of
the loan. The payment schedule and terms
assumes a 20-year loan term and that the
consumer elected to defer payments while
enrolled in school. This includes a sample
disclosure of a total loan amount of $10,600
and prepaid finance charges totaling $600,
for a total amount financed of $10,000.
28. Sample H–22. This sample illustrates a
disclosure required under § 226.47(c). The
sample assumes the consumer financed
$10,000 at an 8.23% annual percentage rate.
The sample assumes a variable annual
percentage rate in an instance where there is
no maximum interest rate. The sample

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demonstrates disclosure of an assumed
maximum rate, and the statement that the
consumer’s actual maximum rate and
payment amount could be higher. The
payment schedule and terms assumes a 20year loan term, the assumed maximum

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interest rate, and that the consumer elected
to defer payments while enrolled in school.
This includes a sample disclosure of a total
loan amount of $10,600 and prepaid finance
charges totaling $600, for a total amount
financed of $10,000.

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By order of the Board of Governors of the
Federal Reserve System.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E9–18548 Filed 8–13–09; 8:45 am]
BILLING CODE 6210–01–P

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