With Colorado’s private education lender registration scheduled to take effect on September 1st, the Colorado Department of Law has just announced that they intend to bring a new group within their jurisdiction: private postsecondary schools that use income share agreements (ISAs) to help finance students’ education. Schools regulated by the Division of Private Occupational Schools received notice of this interpretation on Friday.
The Department of Law did not spell out its rationale, though they undoubtedly were influenced by California’s recent consent order bringing educational ISA servicers under the California Student Loan Servicing Law. It’s unclear whether the Department will now seek to regulate (i) other ISA funders, holders, and assignees under the Student Loan Equity Act, (which enacted the private education lender registration) and (ii) ISA servicers under the Colorado Student Loan Servicing Act.
Under the Student Loan Equity Act, a private education lender includes (1) persons engaged in the business of making or extending private education loans, (2) holders of such loans, and (3) “creditors,” broadly defined as the person who makes or arranges a private education loan and to whom the loan is initially payable, or the assignee of a creditor’s right to payment. Persons that “offer or make” private education loans to Colorado residents are required to register. The law defines a “private education loan” similarly to federal law but slightly more broadly, in that any postsecondary education expenses may be financed by such a loan (not just those pegged to the “cost of attendance” under the federal Higher Education Act). Colorado also does not except open-end credit from constituting a private education loan.
A number of depository institutions are completely exempt from the Student Loan Equity Act: state and federally chartered banks, credit unions, and Utah industrial banks. A number of entities are exempt from registration only: retail sellers, lessors, and their assignees who have filed notification under the Uniform Consumer Credit Code; licensed supervised lenders; licensed collection agencies; and licensed student loan servicers. Public and private nonprofit postsecondary educational institutions have a lower cost of registration ($300) than other institutions ($1,500).
Registrants must share a copy of their consumer agreement and volume and default rate information, which will be published online by the Department. Among other things, the Student Loan Equity Act (i) provides certain protections specifically for loans with cosigners; (ii) expands disability discharge requirements and protections so that a borrower or cosigner may be released from repayment obligations if permanently disabled and so that a lender is prohibited from monitoring the disability status of the borrower after any such discharge ; (iii) requires additional disclosures in connection with any refinancing of an existing education loan; (iv) prohibits “robo-signing” of documents used in collection lawsuits; (v) requires specific evidence of loan origination and chain of ownership of the debt before a loan creditor or collection agency may commence legal proceedings; (vi) prohibits auto-defaults, in which a loan is declared immediately due and payable upon the death or bankruptcy of a cosigner even when there has been no default in payments; (vii) provides legal recourse for borrowers who are harmed by predatory acts and practices of a lender, creditor, or collection agency; and (viii) directs licensing fees and civil penalties to a student loan ombudsperson and student loan servicer fund.