Meeting of the Board of Regents | June 2007
THE STATE EDUCATION DEPARTMENT / THE UNIVERSITY OF THE STATE OF NEW YORK / ALBANY, NY 12234
Higher Education and Professional Practice Committee
Student Lending Accountability, Transparency and Enforcement Act (SLATE)
June 19, 2007
Goals 2 and 3
Issue for Discussion
This report will give the Board of Regents an overview of the requirements under the new Student Lending Accountability, Transparency and Enforcement Act (SLATE), the involvement of the New York State Education Department in its enforcement and the level of resources that are needed in order to effectively implement the requirements in this new law.
Reason(s) for Consideration
Required by State statute
This item will come before the Higher Education and Professional Practice Committee at its June 2007 meeting for discussion.
Since the beginning of his administration, the new Attorney General Andrew Cuomo has been investigating abuses in the student loan industry. The Attorney General has taken action against a number of institutions of higher education through fines and agreements by many institutions to enact a Loan Code of Conduct in administering student loan programs at their institutions.
As part of this national investigation, the Attorney General submitted a proposal during this legislative session to regulate the student loan industry in New York State and to also establish standards of conduct for colleges and school financial aid officers. The result of that legislation was the enactment of the Student Lending Accountability, Transparency and Enforcement Act (SLATE). SLATE was signed into law by Governor Spitzer on May 30, 2007 as Chapter 41 of the Laws of 2007. The new law provides for its implementation 180 days after it becomes law. The State Education Department is given responsibility for enforcement of this new law and is authorized to establish regulations to implement the provisions in SLATE, however, there are no resources provided in the statute to make this possible.
Based upon a staff analysis, it is determined that the New York State Education Department would need a budget of approximately $800,000 to effectively implement this new statute. The Department has notified the offices of the Governor and Attorney General, and the Assembly and Senate of the need for an appropriation to effectively implement the provisions of this new law.
Attached is a short description of SLATE and the requirements which the new law places upon the New York State Education Department to implement its provisions. Also attached is the complete text of the SLATE law.
Timetable for Implementation
SLATE goes into effect 180 days after it becomes law. The new statute, therefore, will take effect December 1, 2007.
The Student Lending, Accountability,
Transparency and Enforcement Act (SLATE)
Provisions of the New Law
The State Education Department supports all efforts that will reduce the cost of postsecondary education for all students and help ensure the integrity of the student loan industry which exceeds $5 billion per year in New York State.
This new law will directly impact 271 colleges in New York State, serving over 1.1 million students and thousands of college financial aid officers. In 2004-05, New York colleges reported the disbursement of $4.618 billion in federal loans and $1.054 billion in nonfederal loans for a total of $5.672 billion in student loans. Also, it is our understanding that law is intended to regulate loans to students attending non-degree granting vocational schools. This will include another 450 schools serving at least 80,000 students. There is no reliable data on the loan volume in these schools. In total, over 700 educational institutions and their financial aid personnel will be subject to the provisions of this new law. SLATE is an extremely comprehensive law designed to regulate a $5 billion industry which impacts hundreds of thousands of students each year. The key provisions of the law:
- Prohibits lenders from making gifts – including the practice of revenue sharing – to colleges and universities or their employees in exchange for any advantage in loan activities.
- Bans colleges and universities from soliciting, accepting or receiving any gifts whatsoever – including those construed as part of a revenue sharing practice – from lenders in exchange for advantageous loan consideration.
- Bars college and university employees from receiving any advantage, reimbursement or benefit from serving as a member of a lender’s advisory board.
- Prohibits lender employees and agents from posing as college or university employees, including staffing the school’s financial aid offices with lender employees.
- Bans lenders and schools from agreeing to certain quid-pro-quo high-risk loans that prejudice other borrowers or potential borrowers.
- Prohibits schools from linking or directing potential borrowers to any electronic master promissory notes or other loan agreements that do not allow students to enter a lender code or name for any lender offering the relevant loan at that guarantee agency.
State Education Department Responsibilities and Capacity
The law gives the Department significant investigative, quasi-judicial and fiduciary responsibilities, including the following:
- All financial aid officers are required to report to the Department any offer of a “gift” by a lender institution.
- All financial aid officers have to submit a financial disclosure form to the Department as it relates to any financial interest with lender institutions.
- For any violation of the provisions in SLATE, a hearing must take place and fines could be levied.
- Any alleged violations must be investigated and appropriate evidence must be secured for use at a hearing for presentation to a hearing officer.
- Colleges must make full disclosure to all students requesting information on a loan. Along with full disclosure will come student complaints which must be investigated and may lead to hearings.
- The Department must collect all fines:
- Operate a grant program to award institutions funds (from collected fines) to initiative education programs to inform prospective borrowers; and/or
- Repay students who paid an inflated price for a loan because of a violation of a provision within this new law.
Based on SED’s experience in investigating and conducting discipline hearings relating to proprietary schools and the licensed professions as well as investigating and conducting hearings on moral character issues involving certified teachers, SED would need an appropriation of $800,000 to cover additional professional personnel costs. To carry out the duties imposed by SLATE, the department would need to hire additional Attorneys, Professional Conduct Investigators, Senior Professional Conduct Investigators, Auditors and support staff. Additionally, funding is necessary to cover non-personnel services as well as the costs associated with administering the hearings required by the bill. No funding is included in the statute for any of these purposes. The State Education Department recommended approval of this bill based on our expectation that SED will be provided with adequate funding to effectively implement the law.
LAWS OF NEW YORK, 2007
AN ACT to amend the education law, in relation to protecting students
and parents from being steered by lenders and institutions of higher
learning into student loans laden with conflicts of interest; and to
amend the state finance law, in relation to establishing the student
lending education account
Became a law May 29, 2007, with the approval of the Governor.
Passed by a majority vote, three-fifths being present.
The Peopleof the State of New York, represented in Senate and Assem-
bly, do enact as follows:
Section 1. The education law is amended by adding a new article 13-B
to read as follows:
STUDENT LENDING ACCOUNTABILITY,
TRANSPARENCY AND ENFORCEMENT ACT
621. Prohibition of gifts made by lending institutions to
coveredinstitutions and their employees.
622. Prohibition of receipt of gifts by covered institutions.
623. Prohibition of receipt of gifts by covered institution
624. Covered institution employee prohibitions and reporting
625. Misleading identification of lending institutions' employ-
626. Loan disclosure and prohib ition of quid pro quo high risk
627. Standards for preferred lender lists.
628. Proper execution of master promissory notes.
629. Disclosures at request of covered institutions.
631. Rules and regulations.
632. Non-exclusivity of rights or remedies.
§ 620. Definitions. As used in this article, the following terms shall
havethe following meanings unless otherwise specified:
1. "Borrower" shall mean a student attending a covered institution in
this state, or a parent or person in parental relation to such student,
whoalso obtains an educational loan from a lending institution to pay
foror finance higher education expenses.
2. "Covered institution" shall mean any college, vocational institu-
tion, or approved program as defined in section six hundred one of this
3. "Covered institution employee" shall mean any employee, agent,
contractor, director, officer or trustee of a covered institution.
4. "Educational loan" shall mean any loan that is made, insured, or
guaranteed underPart B of Title IV of the Federal Higher Education Act
ofnineteen hundred sixty-five, as amended, any high risk loan or any
EXPLANATION--Matter in italics is new; matter in brackets [ ] is old law
to be omitted.
CHAP. 41 2
private loanissued by a lending institution for the purposes of paying
foror financing higher education expenses.
5. "Gift" shall mean any discount, favor, gratuity, inducement, loan,
stock, thing of value, or other item having more than nominal value.
a. The term "gift" shall include, but is not lim ited to:
(1) Any money, service, loan, entertainment, honoraria, hospitality,
lodging costs, meals, registration fees, travel expenses, discount,
(2) Gifts provided in kind, by purchase of a ticket, payment in
advance, or reimbursement after expenses have been incurred;
(3) Any computer hardware for which the recipient pays below-market
(4) Any printing costs or services.
b. The term "gift" shall not include any of the following:
(1) A lending institution's own brochure or promotional literature;
(2) Food, refreshments, training, or informational material furnished
to a covered institution employee as an integral part of a training
session, if such training contributes to the professional development of
thecovered institution employee.
c. Nothing in this article shall be construed to affect the private
philanthropicactivities of banks or other lending institutions that are
unrelatedto educational loans.
6. "High risk loans" shall mean any agreement between a lending insti-
tution anda covered institution that provides for the lending institu-
tionto provide loans to students with a poor or no credit history, who
wouldotherwise not be eligible for educational loans.
7. "Higher education expenses" shall include the following:
a. tuition and fees;
b. costs incurred for books, supplies, transportation, and miscella-
neouspersonal expenses; and
c. room and board costs.
8. "Lending institution" shall mean:
a. any entity that itself or through an affiliate makes educational
loans to pay for or finance higher education expenses or that securi-
b. any entity, or association of entities, that guarantees educational
c. any industry, trade or professional association or other entity
that receives money, related to educational loan activities, from any
entitydescribed above in paragraphs a and b of this subdivision.
9. "Preferred lender list" shall mean a list of one or more recom-
mended or suggested lending institutions that a covered institution
makesavailable for use, in print or any other medium or form, by
borrowers, potential borrowers or others.
10. "Revenue sharing" shall mean any arrangement whereby a lending
institutionpays a covered institution or an affiliated entity or organ-
izationof such covered institution a percentage of the principal of
each loan directed towards the lending institution from a borrower at
§ 621. Prohibition of gifts made by lending institutions to covered
institutions and their employees. 1. A lending institution may not,
directlyor indirectly, offer or provide any gift to a covered institu-
tionor a covered institution employee, in exchange for any advantage or
considerationprovided to such lending institution related to its educa-
3 CHAP. 41
2. A lending institution may not engage in revenue sharing with a
§ 622. Prohibition of receipt of gifts by covered institutions. 1. A
coveredinstitution may not, directly or indirectly, solicit, accept or
receiveany gift from or on behalf of a lending institution, in exchange
for anyadvantage or consideration provided to such lending institution
relatedto its educational loan activities.
2. A covered institution may not engage in revenue sharing with a
§ 623. Prohibition of receipt of gifts by covered institution employ-
ees. 1. A covered institution shall require that no covered institution
employeeon his or her own behalf or on behalf of another, directly or
indirectly, solicits, accepts or receives any gift from or on behalf of
alending institution. Nothing in this section shall be construed as
prohibitinga covered institution employee from conducting business with
a lending institution, provided that such business is unrelated in any
mannerwhatsoever to a covered institution.
2. A covered institution employee, on his or her own behalf or on
behalf of another, shall not directly or indirectly solicit, accept or
receiveany gift from or on behalf of a lending institution. Nothing in
this section shall be construed as prohibiting a covered institution
employeefrom conducting business with any lending institution, provided
thatsuch business is unrelated in any manner whatsoever with the
3. Covered institution employees shall report to the department any
instanceof a lending institution attempting to give a gift to such
§ 624. Covered institution employee prohibitions and reporting
requirements. 1. A lending institution shall require that no covered
institution employee receives any remuneration for serving as a member
orparticipant of an advisory board of a lending institution or receives
anyreimbursement of expenses for so serving.
2. A covered institution shall require that no covered institution
employeeof such covered institution receives any remuneration for serv-
ing asa member or participant of an advisory board of a lending insti-
tutionor receives any reimbursement of expenses for so serving.
3. Nothing in this section shall be construed as prohibiting:
a. a covered institution employee's participation on an advisory board
ofa lending institution that is unrelated in any manner whatsoever to
b. a covered institution employee, who does not have a direct interest
in or does not benefit from the functions of the covered institution's
financialaid office, from serving on a board of directors of a publicly
tradedor privately held company.
4. Covered institution employees who are directly involved with or
benefit from the functions of the covered institution's financial aid
officeshall be required to report to the department, in a form and
manner prescribed by the department, all participation or financial
interestsrelated to any lending institution.
§ 625. Misleading identification of lending institutions' employees.
1. A lending institution shall require that no employee or agent of
suchlending institution is identified to borrowers or potential borrow-
ersof a covered institution as an employee, representative or agent of
2. A covered institution shall require that no employee or agent of a
lendinginstitution is identified to borrowers or potential borrowers of
CHAP. 41 4
suchcovered institution as an employee, representative or agent of such
3. No employee, representative or agent of a lending institution may
staffa covered institution's financial aid offices.
§ 626. Loan disclosure and prohibition of quid pro quo high risk
loans. 1. Should a borrower or potential borrower consult a covered
institution'sfinancial aid office in connection with obtaining an
educational loan to pay for or finance higher education expenses, the
coveredinstitution shall inform the borrower or potential borrower of
all available financing options under Title IV of the Federal Higher
Education Act of nineteen hundred sixty-five, as amended, including
information on any terms and conditions of available loans under such
titlethat are more favorable to the borrower, before a lending institu-
tionmay provide a private educational loan to a borrower attending a
2. A lending institution shall not enter into an agreement or other-
wiseprovide any high risk loans, in exchange for the covered institu-
tion providing concessions or promises to the lending institution that
mayprejudice other borrowers or potential borrowers.
3. A covered institution shall not enter into an agreement or other-
wise provide any high risk loans, in exchange for the covered institu-
tionproviding concessions or promises to the lending i nstitution that
mayprejudice other borrowers or potential borrowers.
§ 627. Standards for preferred lender lists. A covered institution
thatprovides or makes available a preferred lender list must comply
withthe following standards:
1. A preferred lender list must disclose the process by which the
coveredinstitution selected lending institutions for such preferred
lenderlist, including, but not limited to, the method and criteria used
to choosethe lending institutions and the relative importance of those
2. A preferred lender list must state in the same font size and same
manner as the predominant text on the document that borrowers have the
rightand ability to select the education loan provider of their choice,
arenot required to use any of the lenders on such preferred lender
list, and will suffer no penalty for choosing a lender that is not on
suchpreferred lender list;
3. The covered institution's decision to include a lending institution
onany preferred lender list and the covered institution's decision as
to where on the preferred lender list the lending institution's name
appearsshall be determined solely by consideration of the best inter-
ests of the borrowers who may use such preferred lender list without
regardto the pecuniary interests of the covered institution;
4. The contents of any preferred lender list shall be reviewed and
updatedno less than annually;
5. No lending institution shall be placed on a preferred lender list
unlesssuch lending institution provides assurance to the covered insti-
tutionand to borrowers who take out loans from such lending institution
thatthe advertised benefits upon repayment will continue to inure to
thebenefit of borrowers regardless of whether the lending institution's
6. No lending institution that, to the covered institution's knowledge
after reasonableinquiry, has an agreement to sell its loans to another
unaffiliatedlending institution shall be included on a preferred lender
listunless such agreement is disclosed therein in the same font size
5 CHAP. 41
and same manner as the predominant text on the document in which the
preferredlender list appears;
7. No lending institution shall be placed on a covered institution's
preferredlender lists or in favored placement on a covered insti-
tution's preferred lender lists for a particular type of loan, in
exchangefor benefits provided to the covered institution or to the
covered institution's students in connection with a different type of
§ 628. Proper execution of master promissory notes. A covered insti-
tution shallnot direct in any manner whatsoever potential borrowers to
anyelectronic master promissory notes or other loan agreements that do
not providea reasonable and convenient alternative for the borrower to
completea master promissory note with any federally approved lending
institutionoffering the relevant loan in this state.
§ 629. Disclosures at request of covered institutions. Except for
educationalloans made, insured, or guaranteed by the federal govern-
ment, upon the request of any covered institution, a lending institution
shall disclose to such covered institution, in reasonable detail and
form, the historic default rates of the borrowers from such covered
institution, and the rates of interest charged to borrowers from such
coveredinstitution in the year preceding the disclosures and the number
ofborrowers obtaining each rate of interest.
§ 630. Penalties. 1. If after providing notice and an opportunity for
ahearing the department determines that a covered institution or lend-
ing institution has violated any terms or provisions of this article,
thenthe covered institution or lending institution may be liable for a
civil penalty. Regardless of the department's determination that a
coveredinstitution or lending institution is liable for a single
violation or a series of violations under this article, the maximum
penaltyshall not exceed fifty thousand dollars. In taking action
against a covered institution or lending institution, consideration
shallbe given to the nature and severity of violations of this article.
2. If after providing notice and an opportunity for a hearing the
department determines that a covered institution employee has violated
anyterms or provisions of this article, then the covered institution
employee may be liable for a civil penalty. Regardless of the depart-
ment'sdetermination that a covered institution employee is liable for a
singleviolation or a series of violations under this article, the maxi-
mumpenalty shall not exceed seven thousand five hundred dollars. In
taking action against a covered institution empl oyee, consideration
shallbe given to the nature and severity of violations of this article.
3. If after providing notice and an opportunity for a hearing the
department determinesthat a lending institution has violated a term or
provisionof this article, such lending institution shall not be placed
or remain on any covered institution's preferred lender list unless
noticeof such violation is provided to all potential borrowers of the
4. Nothing in this section shall prohibit the department from reaching
a settlement agreement with a covered institution, covered institution
employeeor lending institution in order to effectuate the purposes of
this section. Provided, however, if such settlement agreement is
reachedwith a covered institution or lending institution, the depart-
mentshall provide notice of such action to all potential borrowers in a
formand manner prescribed by the department.
5. The department shall deposit the funds generated from this section
intothe student lending education account, created by section ninety-
CHAP. 41 6
seven-hhhh of the state finance law. Such funds shall be given to
coveredinstitutions upon application to the department for the purposes
a. Educating borrowers and potential borrowers on the educational loan
process, including, but not limited to, available educational loan
options, understanding rates and terms of student loans, managing costs
and credit responsibilities, student loan repayment and loan consol-
b. Reimbursing borrowers from inflated educational loan prices caused
by revenue sharing agreements between such covered institution and a
§ 631. Rules and regulations. The commissioner and the department
shall promulgaterules and regulations necessary for the implementation
§ 632. Non-exclusivity of rights or remedies. Nothing in this article
shall be construed to limit, in any manner, any rights or remedies
otherwiseavailable under law to any person or entity, including, but
notlimited to, the attorney general of the state of New York.
§ 2. The state finance law is amended by adding a new section 97-hhhh
to read as follows:
§ 97-hhhh. The student lending education account. 1. There is hereby
established in the joint custody of the state comptroller and the
commissionerof taxation and finance an account to be known as the
studentlending education account.
2. Such account shall consist of all revenues generated pursuant to
sectionsix hundred thirty of the education law and all other moneys
credited or transferred thereto from any other fund or source pursuant
3. Moneys of the account, following appropriation by the legislature
shall be made available to the state education department for the
purposesof: (a) supporting programs that educate students, potential
students, and parents of such students on the educational loan process,
including, but not limited to, available educational loan options,
understandingrates and terms of student loans, managing costs and cred-
it responsibilities, student loan repayment and loan consolidation; and
(b) reimbursing students from inflated educational loan prices caused by
revenuesharing agreements between such covered institution and a lend-
ing institution. Money shall be paid out of the account on the audit
andwarrant of the state comptroller on vouchers certified or approved
bythe state education department.
§ 3. This act shall take effect on the one hundred eightieth day after
it shall have become a law.
The Legislature of the STATE OF NEW YORK ss:
Pursuant to the authority vested in us by section 70-b of the Public
Officers Law, we hereby jointly certify that this slip copy of this
session law was printed under our direction and, in accordance with such
section, is entitled to be read into evidence.
JOSEPH L. BRUNO SHELDON SILVER