80R16160 KSD-F

By: West, Royce S.B. No. 2047

A BILL TO BE ENTITLED

AN ACT

relating to requirements and prohibitions regarding the relationship between student loan lenders and public or private institutions of higher education; providing a civil penalty.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Subtitle A, Title 3, Education Code, is amended by adding Chapter 57A to read as follows: CHAPTER 57A. STANDARD OF CONDUCT APPLICABLE TO STUDENT LOAN PRACTICES SUBCHAPTER A. GENERAL PROVISIONS

Sec. 57A.01. DEFINITIONS. In this chapter:

(1) "Borrower" means a person who obtains a student loan from a student loan lender to pay higher education expenses incurred by the person or by another person to whom the person is related.

(2) "Coordinating board" means the Texas Higher Education Coordinating Board.

(3) "Employee of a public or private institution of higher education" includes any employee, agent, contractor, director, officer, or trustee of the institution.

(4) "Gift" means any discount, favor, gratuity, inducement, loan, stock, thing of value, or other item having a monetary value of more than $10. The term:

(A) includes:

(i) any money, service, loan, entertainment, honoraria, hospitality, lodging costs, meal, registration fee, travel expense, discount, forbearance, or promise;

(ii) a gift provided in kind, by purchase of a ticket, through payment in advance, or through reimbursement after expenses have been incurred;

(iii) any computer hardware for which the recipient pays a below-market price; and

(iv) any printing costs or services; and

(B) does not include:

(i) a student loan lender's own brochure or promotional literature; or

(ii) food, refreshments, training, or informational material furnished to an employee of an institution of higher education as an integral part of a training session, if that training session contributes to the professional development of the employee.

(5) "High risk student loan agreement" means any agreement between a student loan lender and a public or private institution under which the lender provides student loans to students of the institution who have a poor credit history or no credit history and who would not otherwise be eligible for a student loan.

(6) "High risk student loan" means a student loan made pursuant to a high risk student loan agreement.

(7) "Higher education expenses" includes:

(A) tuition and fees charged by a public or private institution of higher education; and

(B) costs incurred in connection with attending a public or private institution of higher education for room, board, books, supplies, transportation, and miscellaneous personal expenses.

(8) "Preferred lender list" means a list of one or more recommended or suggested student loan lenders that a public or private institution of higher education makes available for use, in print or any other medium or form, by borrowers or prospective borrowers who attend or have indicated an intent to attend the institution or members of the public.

(9) "Public or private institution of higher education" means:

(A) an institution of higher education, as defined by Section 61.003; and

(B) a private or independent institution of higher education, as defined by Section 61.003.

(10) "Revenue sharing" means any arrangement under which a student loan lender pays a public or private institution of higher education or an affiliated entity or organization of the institution a percentage of the principal of student loans directed toward the lender from a borrower for higher education expenses related to attending the institution.

(11) "Student loan" means:

(A) any loan that is made, insured, or guaranteed under Title IV, Higher Education Act of 1965 (Pub. L. No. 89-329), as amended;

(B) a high risk student loan; or

(C) any private loan issued by a student loan lender that requires all or part of the loan proceeds to be used to assist a person in paying higher education expenses.

(12) "Student loan lender" means:

(A) any person whose primary business, independently or through an affiliate is:

(i) making, brokering, arranging, or accepting applications for student loans; or

(ii) a combination of activities described by Subparagraph (i);

(B) any entity or association of entities that guarantees student loans; or

(C) any industry, trade, or professional association or other entity that receives money from any entity or association of entities described by Paragraph (A) or (B).

Sec. 57A.02. RULES. The coordinating board may adopt rules for the administration of this chapter. [Sections 57A.03-57A.20 reserved for expansion] SUBCHAPTER B. STANDARDS OF CONDUCT APPLICABLE TO STUDENT LOAN LENDERS

Sec. 57A.21. PROHIBITION AGAINST OFFERING OR MAKING GIFTS TO INSTITUTIONS AND INSTITUTION EMPLOYEES. A student loan lender may not, directly or indirectly, offer or provide any gift to a public or private institution of higher education or an employee of a public or private institution of higher education in exchange for any advantage or consideration provided to the lender related to the lender's student loan activities.

Sec. 57A.22. PROHIBITION AGAINST REMUNERATION OF INSTITUTION EMPLOYEE FOR SERVICE ON LENDER ADVISORY BOARD. A student loan lender may not provide to an employee of a public or private institution of higher education any remuneration for or reimbursement of expenses for serving as a member of or other participant in an advisory board of the lender.

Sec. 57A.23. PROHIBITION AGAINST REVENUE SHARING WITH INSTITUTION. A student loan lender may not engage in revenue sharing with a public or private institution of higher education.

Sec. 57A.24. PROHIBITION AGAINST STAFFING ARRANGEMENTS WITH INSTITUTIONS. An employee, representative, or agent of a student loan lender may not act as a member of the staff of a financial aid office of a public or private institution of higher education.

Sec. 57A.25. PROHIBITION AGAINST MISLEADING IDENTIFICATION OF LENDER EMPLOYEES AND REPRESENTATIVES. A student loan lender may not allow an employee, representative, or agent of the lender to be identified to borrowers or prospective borrowers as an employee, representative, or agent of a public or private institution of higher education.

Sec. 57A.26. PROHIBITION AGAINST HIGH RISK STUDENT LOAN AGREEMENTS. A student loan lender many not enter into a high risk student loan agreement with a public or private institution of higher education in exchange for the institution providing concessions or promises to the lender that may prejudice borrowers or prospective borrowers of student loans.

Sec. 57A.27. DISCLOSURE OF STUDENT LOAN INFORMATION ON REQUEST OF INSTITUTION. (a) Except as provided by Subsection (b), on the request of a public or private institution of higher education, a student loan lender shall disclose to the institution, in reasonable detail and form:

(1) the historic default rates of the lender's student loans made to borrowers who attend or attended the institution;

(2) the rates of interest charged to borrowers from the institution in the year preceding the year of the disclosure; and

(3) the number of borrowers obtaining each rate of interest described by Subdivision (2).

(b) This section does not apply to a student loan made, insured, or guaranteed by the federal government. [Sections 57A.28-57A.40 reserved for expansion] SUBCHAPTER C. STANDARDS OF CONDUCT APPLICABLE TO INSTITUTIONS OF HIGHER EDUCATION AND THEIR EMPLOYEES

Sec. 57A.41. PROHIBITION AGAINST SOLICITATION OR ACCEPTANCE OF GIFTS BY INSTITUTION. A public or private institution of higher education may not, directly or indirectly, solicit or accept any gift from or on behalf of a student loan lender in exchange for any advantage or consideration provided to the lender related to the lender's student loan activities.

Sec. 57A.42. PROHIBITION AGAINST SOLICITATION OR ACCEPTANCE OF GIFTS BY INSTITUTION EMPLOYEE. (a) An employee of a public or private institution of higher education may not, on the employee's own behalf or on behalf of another person, directly or indirectly, solicit or accept any gift from or on behalf of a student loan lender.

(b) This section does not prohibit an employee of a public or private institution of higher education from conducting business with a student loan lender, provided that the business is unrelated in any manner to the activities, programs, or other business of the institution.

(c) An employee of a public or private institution of higher education shall promptly report to the coordinating board any instance of a student loan lender attempting to offer or provide a gift to the employee.

Sec. 57A.43. PROHIBITION AGAINST REVENUE SHARING WITH LENDER. A public or private institution of higher education may not engage in revenue sharing with a student loan lender.

Sec. 57A.44. PROHIBITION AGAINST ACCEPTANCE OF REMUNERATION BY INSTITUTION EMPLOYEE FOR SERVICE ON LENDER ADVISORY BOARD. (a) An employee of a public or private institution of higher education may not accept any remuneration or reimbursement of expenses for serving as a member of or other participant in an advisory board of a student loan lender.

(b) This section does not prohibit:

(1) an employee's participation on an advisory board of a student loan lender that is unrelated in any manner to student loans; or

(2) an employee who does not have a direct interest in or does not benefit from the functions of the institution's financial aid office from serving on the board of directors of a publicly traded or privately held business entity.

(c) An employee of a public or private institution of higher education who is directly involved with, or benefits from, the functions of the institution's financial aid office shall report to the coordinating board, in a form and manner prescribed by the coordinating board, any participation by the employee or financial interest of the employee related to a student loan lender.

Sec. 57A.45. PROHIBITION AGAINST MISLEADING IDENTIFICATION OF LENDER EMPLOYEES AND REPRESENTATIVES. A public or private institution of higher education may not identify an employee, representative, or agent of a student loan lender to borrowers or prospective borrowers as an employee, representative, or agent of the institution.

Sec. 57A.46. PROHIBITION AGAINST HIGH RISK STUDENT LOAN AGREEMENTS. A public or private institution of higher education may not enter into a high risk student loan agreement with a student loan lender under which the institution provides concessions or promises to the student loan lender that may prejudice borrowers or prospective borrowers.

Sec. 57A.47. PROHIBITION AGAINST DIRECTING POTENTIAL BORROWERS TO CERTAIN ELECTRONIC LOAN AGREEMENTS. A public or private institution of higher education may not direct in any manner a potential borrower who attends or has indicated an intent to attend the institution to an electronic master promissory note or other loan agreement that does not allow the borrower to enter the lender code or name for any student loan lender offering the relevant loan.

Sec. 57A.48. DISCLOSURE OF FINANCING OPTIONS REQUIRED. A public or private institution of higher education shall inform a borrower or prospective borrower who attends or has indicated an intent to attend the institution of all available financing options under Title IV, Higher Education Act of 1965 (Pub. L. No. 89-329), including information on any terms and conditions of available loans under that title that are more favorable to the borrower, before a student loan lender with which the institution has a student loan arrangement may provide a student loan to the borrower. [Sections 57A.49-57A.60 reserved for expansion] SUBCHAPTER D. REQUIREMENTS RELATING TO PREFERRED LENDER LISTS

Sec. 57A.61. REQUIREMENTS RELATING TO PREFERRED LENDER LIST. (a) A public or private institution of higher education that provides or makes available to students or prospective students of the institution a preferred lender list must ensure that the list:

(1) discloses the process by which the institution has selected student loan lenders for inclusion in the list, including the methods and criteria used to choose the lenders and the relative importance of the criteria;

(2) states, in the same font size and same manner as the predominant text on the document, that a borrower has the right and ability to select the student loan lender of the borrower's choice, is not required to use any of the lenders on the list, and will not be penalized for selecting a lender that is not on the list; and

(3) is reviewed and updated at least annually.

(b) A public or private institution of higher education's decision to include a student loan lender on a preferred lender list and the institution's decision regarding where on the preferred lender list the student loan lender's name appears may be determined solely by consideration of the best interests of the borrowers or prospective borrowers who may use the list without regard to the pecuniary interests of the institution.

(c) A public or private institution of higher education may include a student loan lender on the institution's preferred lender list only if the lender provides assurance to the institution and to borrowers of the lender that the advertised benefits on loan repayment will continue to benefit the borrowers regardless of whether the lender's loans are sold.

(d) Before including a student loan lender on a preferred lender list, a public or private institution of higher education shall make a reasonable inquiry regarding whether the lender has an agreement to sell its loans to another unaffiliated lender. If, after making reasonable inquiry, the institution has knowledge of such an agreement, the institution may include the lender on the institution's preferred lender list only if the existence and general nature of the agreement are disclosed on the preferred lender list in the same font size and same manner as the predominant text on the document.

(e) A student loan lender may not be placed on a public or private institution of higher education's preferred lender list or be provided favored placement on an institution's preferred lender list for a particular type of loan in exchange for benefits provided to the institution or to students of the institution in connection with a different type of loan.

(f) A student loan lender against whom a penalty has been assessed under this chapter may be placed or remain on a public or private institution of higher education's preferred lender list only if notice of the penalty is provided to all borrowers and prospective borrowers who attend or have indicated an intent to attend the institution. [Sections 57A.62-57A.80 reserved for expansion] SUBCHAPTER E. ENFORCEMENT; PENALTIES

Sec. 57A.81. CIVIL PENALTY. (a) A student loan lender or a public or private institution of higher education that violates a provision of this chapter is liable for a civil penalty not to exceed $50,000 for each violation.

(b) An employee of a public or private institution of higher education that violates a provision of this chapter is liable for a civil penalty not to exceed $7,500 for each violation.

(c) The attorney general may bring suit to recover a civil penalty under this section. In determining the amount of a penalty to be recovered, the attorney general shall consider the nature and severity of the violation.

SECTION 2. This Act takes effect immediately if it receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive the vote necessary for immediate effect, this Act takes effect September 1, 2007.