Students and parents will have an easier time comparing, identifying and obtaining the education loans that best meet their needs thanks to a new policy issued by the University of California.

UC practices related to education loans have always reflected the goal of providing superior service to students. However, in the wake of concerns about conflicts of interest at other institutions, UC President Robert C. Dynes last April called for the development of a new written policy that both clarified and codified UC's practices.

The new policy establishes a common, systemwide approach for ensuring that the university's practices are focused on providing students and parents with improved information about their loan choices, and for ensuring that those practices are transparent and fully disclosed.

"UC students and parents have borrowed more in recent years to help cover increases in the cost of attendance," Dynes said. "In this context, the university has a heightened responsibility to help UC students and families obtain the best possible education loans. I believe this policy provides the tools parents and students need to navigate the complicated world of education loans and to make good financial decisions."

Under the new policy, campuses will develop improved preferred lender lists as a tool to help students and parents to identify, evaluate and compare loans. The UC Office of the President, in consultation with the campuses, will develop a common systemwide rating system based solely on factors related to the borrower's best interests: the financial terms of the loan, loan features and the quality of service provided by the lender from loan origination through loan repayment. To facilitate the rating process, the Office of the President will annually solicit information from lenders about their loan terms and customer service indicators.

The policy also establishes standards for presenting preferred lender lists to students. For example, it requires that any preferred lender lists presented to students include the terms, benefits and other important features of the loans in an easily understandable format that facilitates comparisons -- for example, in a table or matrix. The preferred lender list will also contain the factors used to select each loan for inclusion on the list as well as clear notification that students and their families are free to select lenders that do not appear on the list.

"As loans become more complex, and as lenders increase their direct-to-consumer marketing campaigns, families need a reliable source of objective information," said UC Vice President for Student Affairs Judy Sakaki. "A carefully constructed and presented preferred lender list can be an excellent resource."

The policy places new restrictions on UC's relationships with lenders. For example, it prohibits UC from accepting any payment or other benefits from a lender in exchange for inclusion in a preferred lender list and forbids lenders or agents from identifying themselves as UC employees.

The guidelines, however, do allow campuses to receive assistance or resources from lenders but only when all of the following three conditions are met:

1. They are in the best interest of the student or borrower;
2. The services, resources or other benefits do not create an actual or perceived conflict of interest;
3. The nature of and justification for accepting the benefit is documented by the campus financial aid director and approved by the campus Chancellor.

The University may still negotiate with lenders for superior loan terms for borrowers in exchange for inclusion on a preferred lender list.

Other provisions of the policy include:

* New restrictions on UC alumni associations. Under the policy, alumni associations cannot enter into agreements with lenders to market education loans unless the terms of the loans are reviewed by the campus financial aid office and the agreement is approved by the campus Chancellor. Also, all marketing materials must disclose to potential borrowers any benefit received by the alumni association and other information about the terms of the loan.
* Required training for financial aid office staff. The policy requires all financial aid staff with responsibilities for UC's loan activities to receive annual training on the University's Conflict of Interest Code. The Code, which applies to all University employees, includes restrictions on the acceptance of gifts (including travel and meals) and, for certain officials, extensive disclosure requirements. The new policy also delineates specific procedures for employee compliance.
* Guidance regarding federal loan programs. The policy calls for campuses to place borrowers' interests first in making decisions about participating in federal loan programs (i.e., the Direct Loan Program or the Federal Family Education Loan Program). The policy encourages campuses to permit students to borrow from the federal loan program of their choice.

The new policy is effective immediately. Since campuses have already developed their preferred lender lists for 2007-08, provisions regarding the selection of preferred lenders will apply to lender lists for the 2008-09 and subsequent years.

A copy of the new policy is posted at: http://www.ucop.edu/ucophome/coordrev/policy/PP092607.pdf