The Higher Education Opportunity Act that Congress passed recently codifies the Code of Conduct that New York Attorney General Andrew Cuomo developed after his nationwide investigation of the student loan industry exposed widespread conflicted relationships between schools and lenders.

The Act requires colleges to develop a code of conduct with respect to federally guaranteed loans that:

• Prohibits “revenue sharing,” a practice where a lender provides a payment or other benefit to a school in exchange for the school’s promise to recommend that lender to students;
• Prohibits financial aid officers from accepting any favors, meals, entertainment, or other gifts from a lender;
• Prohibits financial aid officers from assigning first-time borrowers to particular lenders and from refusing to certify loans based on a borrower’s selection of a particular lender;
• Prohibits the college or university from using a lender’s employees to staff the financial aid office or a financial aid call center.

The Act also establishes requirements related to private loans, including:

• Prohibiting private lenders from offering gifts or other items of value to colleges or financial aid officers in exchange for advantages related to the lenders’ loan activities;
• Prohibiting private lenders from charging prepayment or repayment penalties;
• Prohibiting “co-branding,” where a lender or marketer uses a school’s name, emblem, mascot, and/or logo to create the false impression that the school has endorsed the lender;
• Requiring private loan providers to inform borrowers of the availability of federal aid and the interest rates available in connection with federal loans;
• Requiring private loan providers to provide uniform, detailed, and timely disclosures to borrowers regarding the interest rate and other terms of offered loans, enabling borrowers to better understand the cost of their loan and to comparison shop for the best deals.

“This historic legislation allows the rest of the nation to follow New York State’s lead in cracking down on the deceptive student loan industry,” Cuomo said. “Last year my office’s investigation set the benchmark for reining in unscrupulous student lenders, who we discovered were all too intent to ensnare students in loan packages that left them drowning in unnecessarily high debt. Today’s legislation will make it easier for millions of students to afford a college education.”