SB3844 101ST GENERAL ASSEMBLY

LRB101 17329 CMG 66734 b

101ST GENERAL ASSEMBLY
State of Illinois
2019 and 2020
SB3844

Introduced 2/14/2020, by Sen. Pat McGuire

SYNOPSIS AS INTRODUCED:

New Act

Amends the Higher Education Loan Act. Creates the Know Before You Owe Private Education Loan Act. Provides that before a private educational lender makes a private education loan to a student who attends an institution of higher education, the private educational lender must obtain certification from the institution about the student borrower's: (i) enrollment status, (ii) cost of attendance, and (iii) the difference between the cost of attendance and the borrower's estimated financial assistance from all sources. Allows a private educational lender to disburse the funds of a private education loan if the institution of higher education fails to provide the requested certification within 15 business days of the request. Requires the private educational lender to provide notice to the institution that the loan has been disbursed without the certification. Requires a private educational lender to submit annual reports to the Department of Financial and Professional Regulation and to the Student Loan Ombudsman. Sets forth the requirements that must be included on the loan statement of a private educational loan. Provides that the institution of higher education must inform the student borrower of his or her lending options and whether the student has applied for or exhausted all available sources of federal financial assistance. Effective immediately.

FISCAL NOTE ACT MAY APPLY

A BILL FOR

AN ACT concerning education.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 1. Short title. This Act may be cited as the Know Before You Owe Private Education Loan Act.

Section 5. Definitions. For the purposes of this Act:

"Income share agreement" means an agreement between an income share agreement provider and a borrower under which the borrower commits to pay a percentage of his or her future income in exchange for money, payments, or credits applied to or on behalf of a borrower. An income share agreement shall constitute a loan and debt within the meaning of this Act.

"Income share agreement provider" means:

(1) Any person that directly or indirectly provides money, payments, or credits directly to or on behalf of a borrower pursuant to the terms of an income share agreement; or

(2) Any person that participates in the creation or administration of an income share agreement, including:

(A) designing terms or conditions;

(B) calculating the amount of eligible funding for a borrower;

(C) calculating, collecting, or processing payments;

(D) collecting income from any source;

(E) providing underwriting assistance;

(F) arranging one or more income-based financing transactions; or

(G) performing any other administrative service pursuant to the terms of an income share agreement.

"Income share agreement provider" includes an assignee of an income share agreement.

"Institution of higher education" includes, but is not limited to, institutions falling under the Private Business and Vocational Schools Act, the Private College Act, and public institutions of higher education as defined in Section 1 of the Board of Higher Education Act.

"Private educational lender" and "private education loan" have the meanings ascribed to the terms in Section 140 of the Truth in Lending Act (15 U.S.C. 1650). In addition, "private educational lender" includes an income share agreement provider and "private education loan" includes an income share agreement.

Section 10. Institutional certification required.

(a) In general. Except as provided in subsection (b) of this Section, before a private educational lender may disburse any funds with respect to a private education loan described in this Act, the private educational lender shall obtain from the relevant institution of higher education where such loan is to be used on the behalf of the borrower, such institution's certification of:

(1) the enrollment status of the borrower;

(2) the borrower's cost of attendance at the institution as determined by the institution under Title IV, Part F, of the Higher Education Act of 1965 as amended; and

(3) the difference between:

(A) such cost of attendance; and

(B) the borrower's estimated financial assistance, including such assistance received under Title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.) and other financial assistance known to the institution, as applicable.

(b) Notwithstanding subsection (a), a private educational lender may disburse funds with respect to a private education loan described in this subsection without obtaining the institution's certification if the institution fails to provide the certification within 15 business days of the private educational lender's request for the certification if the private educational lender has received:

(1) notification of the institution's refusal to certify the request; or

(2) notification that the institution has received the request for certification and will need additional time to comply with the certification request.

(c) Loans disbursed without certification. If a private educational lender disburse funds without obtaining the certification as described in subsection (b), the private educational lender shall report the disbursement of the funds in a manner determined by the Student Loan Ombudsman.

(d) Notification of loans disbursed without certification. On or before the date a private educational lender issues any funds with respect to a private education loan described in this Section, the private educational lender shall notify the relevant institution of higher education, in writing, of the amount of the extension of credit and the borrower on whose behalf credit is extended.

(e) Annual report. A private educational lender that disburses funds with respect to a private education loan described in this Section shall prepare and submit an annual report to the Department of Financial and Professional Regulation and the Student Loan Ombudsman containing the required information about private student loans to be determined by the Student Loan Ombudsman.

Section 15. Provision of information.

(a) Provision of loan statement to borrowers.

(1) Loan statement. A private educational lender that disburses any funds with respect to a private education loan described in this Section shall send loan statements, to the borrowers of those funds not less than once every 3 months during the time that the borrower is enrolled at an institution of higher education.

(2) Contents of loan statement. Each statement described in subparagraph (1) shall:

(A) report the borrower's total remaining debt to the private educational lender, including accrued but unpaid interest and capitalized interest;

(B) report any debt increases since the last statement; and

(C) list the current interest rate for each loan.

(b) Certification of exhaustion of federal student loan funds to private student lender. Upon the request of a private educational lender, acting in connection with an application initiated by a borrower for a private education loan in accordance with Section 5 of this Act, the institution of higher education shall within 15 days of receipt of the request provide certification to such private educational lender:

(1) that the borrower who initiated the application for the private education loan, or on whose behalf the application was initiated, is enrolled or is scheduled to enroll at the institution of higher education;

(2) of the borrower's cost of attendance at the institution of higher education as determined under paragraph (2) of subsection (a) of this Section; and

(3) of the difference between:

(A) the cost of attendance at the institution of higher education; and

(B) the borrower's estimated financial assistance received under the Higher Education Act of 1965 and other assistance known to the institution of higher education, as applicable;

(4) notify the private educational lender that the institution of higher education has received the request for certification and will need additional time to comply with the certification request; or

(5) provide notice to the private educational lender of the institution of higher education's refusal to certify the private education loan.

(c) Certification of exhaustion of federal student loan funds to borrower. With respect to a certification request described under subsection (b), and prior to providing such certification in paragraph (1) of subsection (b) or providing notice of the refusal to provide certification under paragraph (5) of subsection (b), the institution of higher education shall:

(1) determine whether the borrower who initiated the application for the private education loan, or on whose behalf the application was initiated, has applied for and exhausted the federal financial assistance available to such borrower under the Federal Higher Education Act of 1965 and inform the borrower accordingly; and

(2) provide the borrower whose loan application has prompted the certification request by a private educational lender, as described in paragraph (1) of subsection (b), with the following information and disclosures:

(A) the amount of additional federal student assistance for which the borrower is eligible and the advantages of federal loans under the Higher Education Act of 1965, including disclosure of income driven repayment options, fixed interest rates, deferments, flexible repayment options, loan forgiveness programs, additional protections, and the higher student loan limits for dependent borrowers whose parents are not eligible for a Federal Direct PLUS Loan;

(B) the borrower's ability to select a private educational lender of the borrower's choice;

(C) the impact of a proposed private education loan on the borrower's potential eligibility for other financial assistance, including federal financial assistance under the Federal Higher Education Act; and

(D) the borrower's right to accept or reject a private education loan within the 30-day period following a private educational lender's approval of a borrower's application and the borrower's 3-day right to cancel period.

Section 20. Annual certification and maintenance of approval.

(a) Certification. Each institution of higher education must certify annually to the Board of Higher Education, and the Illinois Community College Board where applicable, whether it has made all certifications required under subsections (b) and (c) of Section 10.

(b) Maintenance of approval. In each instance where the Board of Higher Education or the Illinois Community College Board provides the institution of higher education with approval to operate, the certification provided pursuant to this Section shall be required for the maintenance of approval to operate.

Section 99. Effective date. This Act takes effect upon becoming law.