Student Rights: Questions to Ask

Capital Region parents and students have more legal protection than ever when borrowing money for college, State Attorney General Andrew Cuomo announced Wednesday.

The Higher Education Opportunity Act of 2008, signed into law this week by President Bush, was modeled after the New York Student Loan Accountability, Transparency, and Enforcement Act (SLATE) of 2007. Both laws are based on Cuomo's Student Lending Code of Conduct.

"We actually went a long way toward fixing the problem," said Cuomo, whose office led a year-long investigation into student loan fraud. "With these laws, there are protections in place that have never been in place before."

The laws provide the following rights to students who attend school anywhere in the United States:

1. The right to unbiased advice about loans and lenders from your financial aid office.

2. The right to choose the lender that is best for you, even if that lender is not included on your school's preferred lender lists.

3. The right to exhaust your federal borrowing options (Perkins, Stafford, and PLUS) before turning to higher-cost private loans.

4. The right to timely, personalized information about the cost and terms of private student loan offers, so that you can compare offers and get the best deal.

5. The right to compare loan offers so you can choose the loan that is best for you. Private lenders are required to hold loan offers open at the same rates and terms for 30 days, in order to give students and parents time to compare loan offers.

6. The right to know what borrower benefits, such as interest rate discounts, will be available when your loan goes into repayment. And the right to know whether those benefits will be available automatically, or only after a certain number of consecutive on-time payments.

7. The right to know whether borrower benefits will continue if the loan is sold.

8. The right to know what interest rate you will be paying for the loan before you borrow.

9. The right to repay your loans early, without incurring a penalty. 

Under the new law, private lenders may not offer -- and schools may not accept -- any favors, gifts, or money in order to appear on the school's "preferred lender" list, Cuomo said. In addition, a lender may not pay a school for its recommendation, or use a school's name, emblem, or mascot to mislead borrowers into believing the school has endorsed it.

Private lenders must also inform borrowers of the availability of federal aid, and cannot charge a fee to borrowers who repay a loan ahead of schedule, Cuomo said.

Financial aid offices are now prohibited from assigning first-time borrowers to particular lenders, and from refusing to certify loans based on a borrower's selection of a particular lender, Cuomo said. Also, financial aid offices may not use a lender's employees to staff their call center and/or office.

Despite the new law, Cuomo said students must still ask their own tough questions.

"The law only works if you know the law," he told students at Bethlehem High School on Wednesday. "You only have rights if you know your rights."

Cuomo's office recommends asking the following questions of every financial aid office and lender:

1. What is the interest rate of the loan? Will the interest rate remain the same for the entire life of the loan?

2. What is the total amount I will need to pay over the life of the loan, and what will my monthly payments be?

3. What borrower benefits and interest rate discounts do the lenders offer? Which of those benefits are contingent on making a certain number of consecutive on-time payments?

4. What percentage of borrowers actually receives the borrower benefits or rate discounts that are contingent on a certain-number of on-time payments?

5. Does the lender typically sell its loans? Has the lender agreed to sell loans to another lender?

6. Will my borrower benefits and rate discounts continue if my loan is sold?

7. How many students actually receive a lender's advertised "as low as" interest rate?

8. When will repayment begin, and will interest start accruing while I'm in school?

9. What are the penalties for missing monthly payments?

10. How does the financial aid office select preferred lenders?

For more information, go to www.oag.state.ny.us