TRENTON – In an effort to safeguard New Jersey college students from the predatory pitfalls emerging from the growing national student loan scandal, the Senate Education Committee today approved a bill sponsored by Senate President Richard J. Codey (D-Essex) and Senator Raymond J. Lesniak (D-Union). Bill S2729 would establish tough new restrictions on the relationship between higher education and student lending institutions.
“To prey on students who are trying to build a better life for themselves is really just plain despicable,” said Sen. Codey. “The cost of an education is already quite considerable. We can’t let our students, some who are barely even adults, be intentionally misled into choosing a loan provider that could cost them thousands of dollars in extra interest.”
The bill would prohibit lenders from offering gifts or other inducements to New Jersey’s higher education institutions in exchange for preferred lending status. Consequently, an institution of higher learning would be prohibited from accepting any benefit from a student lending institution, including revenue sharing, in exchange for placing the company on their preferred lending list.
“The only reason a lending institution should get a college’s stamp of approval over a competitor is because it offers students a better deal for their money,” said Sen. Lesniak.
Both institutions would face fines of up to $50,000, imposable by the Commissioner of Banking and Insurance, if found guilty of violating any of the provisions of the bill. Additionally, individual employees of either institution who are found guilty of violating these provisions would be subject to a civil penalty of up to $10,000 for the first offense and up to $20,000 for each subsequent offense.
Colleges and universities would also be prohibited from distributing a preferred lender list that: (1) is used to deny or impede a borrower’s choice of lender; (2) contains less than three student lending institutions; or (3) includes student lending institutions that have offered or been asked to offer benefits to the school or its borrowers in exchange for inclusion on the list.
Sen. Codey noted that the bill is designed to protect students’ best interests by requiring that colleges and universities comply with the following standards when compiling their preferred lending lists:
1. Disclose the process used to select the lending institutions in plain language;
2. State, in a prominent manner, that a borrower does not have to select one of the lenders on the list and will not be subject to a penalty if they choose an alternate lender;
3. The institutions contained on the list are determined only by the consideration of the best interests of the borrowers;
4. Review and update the list at least once a year;
5. Any institution on the list must assure the college and borrowers that the benefits upon repayment will continue even if the loan is sold;
6. The list must not include an institution that already has an agreement to sell its loans unless the agreement is prominently disclosed on the lender list; and
7. The list must not include any lending company in exchange for benefits provided to the college or its students.
Sen. Lesniak also underscored the need to eliminate the dubious practice of allowing lending institution employees to work in college financial aid offices and advise potential borrowers without identifying themselves as employees of a lending institution. The new legislation would specifically prohibit any lending institution employee from identifying himself as an employee or representative of a higher education institution. To ensure no misidentification continues, employees of the lending institutions would be prohibited from providing staffing services to a higher education institution unless it is on an occasional, short-term emergency basis with full conspicuous disclosure.
All provisions in the bill would go into effect 90 days after it is signed into law. The bill now heads to the full Senate for approval.