The new regulations go into effect on July 1, 2008.

In the Dear Colleague Letter, Jones reiterated the value of a preferred lender list: "When the list reflects the school’s unbiased research to identify lenders providing the best combination of services and benefits to borrowers at that school," a preferred lender list, "can be an effective tool to help families looking for federal student loans."

These statements reaffirm what higher education institutions and families have long known: Properly researched and constructed lender lists are vital tools that financial aid administrators can use when counseling families about student loans.

What this means for schools:

A preferred lender list should have a minimum of three unaffiliated lenders on the preferred lender list — additional affiliated lenders are allowed

Under the Department’s new clarifying guidance, the final regulations published on Nov. 1, 2007, "only require that at least three lenders on a school’s preferred lender list must be unaffiliated with each other regardless of the number of lenders on that list" (emphasis added).

For example, if a school has a preferred lender list with six lenders, only three need to be unaffiliated.

While not a requirement, the Department encourages schools to identify, as part of their preferred lender list disclosures, any affiliations among the lenders on the institution’s preferred lender list.

Under the Nov. 1, 2007 final regulations, "affiliation," for purposes of a preferred lender list, is limited to affiliates that are under common ownership and control. The Department does not interpret the lender affiliation provision to include entities that are involved in post-disbursement activities, which a school has no ability to monitor or control.

For further information, read Updated "affiliated lender" language.

A minimum of three unaffiliated lenders on the preferred lender list may not always be possible

Although schools may create compliant lender lists with at least three unaffiliated FFELP lenders, the Department recognizes that one or more of these lenders may later decide to discontinue making FFELP loans to that school’s students and parents. In determining school regulatory compliance in such cases (over which the school has no control), the Department has said it will grant special consideration, at least until July 1, 2009.

Schools may provide students with a comprehensive list of lenders

Instead of a preferred lender list, higher education institutions may opt to provide a comprehensive list of lenders that (1) have made FFELP loans to their students or parents over a time period determined by the school and (2) have indicated they will continue to make such loans. For example, the past time period could cover the last three to five years. For an institution that uses this option:

• It must make clear that it is not endorsing these lenders and that students can choose any lender that will provide loans to them.
• It should not provide any additional information about the lender. For example, providing the percentage of the school’s loans made by each lender is not permissible. Also, the school must provide a clear statement that borrowers can choose any FFELP lender.

A copy of the Department’s DCL is available at http://ifap.ed.gov/dpcletters/GEN0806.html.