LEGAL ISSUES
these plans as a convenience, regulators view these as an extension of consumer credit. Tis may seem count- er-intuitive to many people because schools typically do not charge interest on the unpaid amounts under these plans. However, under Regulation Z (see below), credit is defined as the right to defer payments of debt or to incur debt and defer its payment. Consumer credit is credit that is offered or extended to a consumer primar- ily for personal, family or household purposes. Tuition payment plans clearly fit into the meaning of consumer credit. Students or parents (consumers) are incurring a debt (the amount of tuition owed) and the school (the creditor) is granting the right to defer the payment of that debt by allowing the tuition to be paid over time.
Extensions of
consumer credit must comply with certain disclosure require- ments set forth in Regulation Z if the following four condi- tions are met:
• Te credit must be offered or extended to a consumer
• Te offering of credit or extension of credit must be done regularly (more than 25 times in the preced- ing year)
• Te credit is subject to a finance charge or is payable in more than four installment. (Tis is an important consideration for your school or out- sourcer to consider since certain fees can also be considered finance charges depending on how they are structured)
• Te credit is primarily for personal, family or household purposes
Note that if the school charges interest on the balance owed or the amount of the credit is payable over a pe- riod of time longer than a year, then the plan would be considered to be a higher education loan and be subject
to significantly more disclosures than tuition payment plans where interest is not charged and the plans are scheduled to be paid in a year or less.
“Colleges and universities are increasingly concerned about compliance across their campuses.”
REGULATION Z – TRUTH IN LENDING Regulation Z is a federal law that promotes the in- formed use of consumer credit by requiring disclosures about its terms and costs. Regulation Z does not limit what creditors can charge in terms of rates and fees. It does, however, tell the creditor how to disclose certain fees and interest. For example, Regulation Z requires the creditor to disclose any amount or percentage charge that will be imposed once a payment is con- sidered late. When considering the type, amount or percent- age of fees, you will want to consult retail installment laws of your governing state to determine what the allowable amount or percentage is and any restrictions that could apply.
TITLE IV Financial aid is a critical component to many students’ education today. While a multitude of financial aid options exist, sources of Title IV aid are especially attractive because, depending on the program, students may obtain thousands of dollars that are either non-re- payable or repayable at long-term low interest loans. However, there are many requirements attached to these programs, including individual and institutional eligibility, credit hours or recipient stipulations. Te administration and compliance around Title IV is a serious matter that can place a tremendous burden on your school.
Te disbursement of these Title IV funds is also a challenging task and one that many schools have chosen to outsource. For example, while a student may receive a $1,500 Title IV disbursement for a term, $1,300 may
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