State of Illinois
2021 and 2022


Introduced 2/26/2021, by Sen. Scott M. Bennett


New Act

    Creates the Know Before You Owe Private Education Loan Act. Requires private educational lenders to obtain from the relevant institution of higher education at which the borrower will use the loan proceeds certifications regarding cost, enrollment status of the borrower, and financial assistance available to the borrower. Provides that private educational lenders must file reports with the Department of Financial and Professional Regulation and the Student Loan Ombudsman. Provides that loan statements must be provided not less frequently than quarterly. Requires institutions of higher education to certify compliance with provisions of the Act to the Board of Higher Education or Illinois Community College Board as a condition to operate. Defines terms. Effective immediately.

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1    AN ACT concerning education.
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
4    Section 1. Short title. This Act may be cited as the Know
5Before You Owe Private Education Loan Act.
6    Section 5. Definitions. As used in this Act:
7    "Income share agreement" means an agreement under which a
8borrower commits to pay a percentage of his or her future
9income in exchange for money, payments, or credits applied to
10or on behalf of a borrower. An income share agreement
11constitutes a loan and debt within the meaning of this Act.
12    "Income share agreement provider" means:
13        (1) a person that directly or indirectly provides
14    money, payments, or credits to or on behalf of a borrower
15    pursuant to the terms of an income share agreement;
16        (2) a person that participates in the creation or
17    administration of an income share agreement, including by:
18            (A) providing, originating, or underwriting
19        services or assistance;
20            (B) calculating, collecting, or processing
21        payments;
22            (C) collecting income from any source;
23            (D) arranging one or more income-based financing



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1        transactions; or
2            (E) performing any other administrative service
3        pursuant to the terms of an income share agreement; or
4        (3) an assignee or recipient of the proceeds of an
5    income share agreement.
6    "Institution of higher education" includes, but is not
7limited to, institutions falling under the Private Business
8and Vocational Schools Act of 2012, the Private College Act,
9and public institutions of higher education as defined in
10Section 1 of the Board of Higher Education Act. "Institution
11of higher education" also includes a person engaged in the
12business of providing postsecondary education, via
13correspondence, online, or in this State, to a person located
14in this State, regardless of whether the person has obtained
15authorization from the Illinois Board of Higher Education to
16operate in this State or is accredited.
17    "Private educational lender" and "private education loan"
18have the meanings ascribed to the terms in Section 140 of the
19Truth in Lending Act (15 U.S.C. 1650). In addition, "private
20educational lender" includes an income share agreement
21provider and a student financing company and "private
22education loan" includes an income share agreement and student
24    "Student financing company" means a person engaged in the
25business of securing, making, or extending student financing.
26"Student financing company" does not include the following



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1persons, only to the extent that State regulation is preempted
2by federal law:
3        (1) a federally chartered bank, savings bank, savings
4    and loan association, or credit union;
5        (2) a wholly owned subsidiary of a federally chartered
6    bank or credit union; and
7        (3) an operating subsidiary where each owner of the
8    operating subsidiary is wholly owned by the same federally
9    chartered bank or credit union.
10    "Student financing" means an extension of credit that:
11        (1) is not made, insured, or guaranteed under Title IV
12    of the Higher Education Act of 1965 (20 U.S.C. 1070 et
13    seq.);
14        (2) is extended to a consumer expressly, in whole or
15    in part, for postsecondary educational expenses,
16    regardless of whether the extension of credit is provided
17    by the institution of higher education that the student
18    attends;
19        (3) does not include a private education loan;
20        (4) does not include an income share agreement; and
21        (5) does not include a loan that is secured by real
22    property or a dwelling.
23    Section 10. Institutional certification required.
24    (a) In general. Except as provided in subsection (b) of
25this Section, before a private educational lender may disburse



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1any funds with respect to a private education loan described
2in this Act, the private educational lender shall obtain from
3the relevant institution of higher education where such loan
4is to be used on the behalf of the borrower, such institution's
5certification of:
6        (1) the enrollment status of the borrower;
7        (2) the borrower's cost of attendance at the
8    institution as determined by the institution under Title
9    IV, Part F, of the Higher Education Act of 1965 as amended;
10    and
11        (3) the difference between:
12            (A) such cost of attendance; and
13            (B) the borrower's estimated financial assistance,
14        including such assistance received under Title IV of
15        the Higher Education Act of 1965 (20 U.S.C. 1070 et
16        seq.) and other financial assistance known to the
17        institution, as applicable.
18    (b) Notwithstanding subsection (a), a private educational
19lender may disburse funds with respect to a private education
20loan described in this subsection without obtaining the
21institution's certification if the institution fails to
22provide the certification within 15 business days of the
23private educational lender's request for the certification if
24the private educational lender has received:
25        (1) notification of the institution's refusal to
26    certify the request; or



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1        (2) notification that the institution has received the
2    request for certification and will need additional time to
3    comply with the certification request.
4    (c) Loans disbursed without certification. If a private
5educational lender disburses funds without obtaining the
6certification as described in subsection (b), the private
7educational lender shall report the disbursement of the funds
8in a manner determined by the Student Loan Ombudsman.
9    (d) Notification of loans disbursed without certification.
10On or before the date a private educational lender issues any
11funds with respect to a private education loan described in
12this Section, the private educational lender shall notify the
13relevant institution of higher education, in writing, of the
14amount of the extension of credit and the borrower on whose
15behalf credit is extended.
16    (e) Annual report. A private educational lender that
17disburses funds with respect to a private education loan
18described in this Section shall prepare and submit an annual
19report to the Department of Financial and Professional
20Regulation and the Student Loan Ombudsman containing the
21required information about private student loans to be
22determined by the Student Loan Ombudsman. Such a report shall
23include, at a minimum, the following information about private
24education loans described in this Section, including any
25private education loans disbursed without certification:
26        (A) a list of all institutions of higher education at



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1    which a private education lender disburses funds with
2    respect to a private education loan described in this
3    Section;
4        (B) the volume of private education loans described in
5    this Section made annually by a private education lender;
6        (C) the volume of private education loans described in
7    this Section made annually at each school identified under
8    paragraph (A);
9        (D) the historical lifetime default rate for borrowers
10    obtaining a private education loan described in this
11    Section from the private education lender; and
12        (E) a copy of each model or template promissory note,
13    agreement, contract or other instrument used by a private
14    education lender during the previous year to substantiate
15    that a private education loan described in this Section
16    has been extended to the borrower or that a borrower owes a
17    debt to the private education lender.
18    Section 15. Provision of information.
19    (a) Provision of loan statement to borrowers.
20        (1) Loan statement. A private educational lender that
21    disburses any funds with respect to a private education
22    loan described in this Section shall send loan statements,
23    to the borrowers of those funds not less than once every 3
24    months during the time that the borrower is enrolled at an
25    institution of higher education.



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1        (2) Contents of loan statement. Each statement
2    described in subparagraph (1) shall:
3            (A) report the borrower's total remaining debt to
4        the private educational lender, including accrued but
5        unpaid interest and capitalized interest;
6            (B) report any debt increases since the last
7        statement; and
8            (C) list the current interest rate for each loan.
9    (b) Certification of exhaustion of federal student loan
10funds to private student lender. Upon the request of a private
11educational lender, acting in connection with an application
12initiated by a borrower for a private education loan in
13accordance with Section 5, the institution of higher education
14shall within 15 days of receipt of the request provide
15certification to such private educational lender:
16        (1) that the borrower who initiated the application
17    for the private education loan, or on whose behalf the
18    application was initiated, is enrolled or is scheduled to
19    enroll at the institution of higher education;
20        (2) of the borrower's cost of attendance at the
21    institution of higher education as determined under
22    paragraph (2) of subsection (a) of this Section;
23        (3) of the difference between:
24            (A) the cost of attendance at the institution of
25        higher education; and
26            (B) the borrower's estimated financial assistance



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1        received under the federal Higher Education Act of
2        1965 and other assistance known to the institution of
3        higher education, as applicable;
4        (4) that the institution of higher education has
5    received the request for certification and will need
6    additional time to comply with the certification request;
7    and
8        (5) if applicable, that the institution of higher
9    education is refusing to certify the private education
10    loan.
11    (c) Certification of exhaustion of federal student loan
12funds to borrower. With respect to a certification request
13described under subsection (b), and prior to providing such
14certification in paragraph (1) of subsection (b) or providing
15notice of the refusal to provide certification under paragraph
16(5) of subsection (b), the institution of higher education
18        (1) determine whether the borrower who initiated the
19    application for the private education loan, or on whose
20    behalf the application was initiated, has applied for and
21    exhausted the federal financial assistance available to
22    such borrower under the federal Higher Education Act of
23    1965 and inform the borrower accordingly; and
24        (2) provide the borrower whose loan application has
25    prompted the certification request by a private
26    educational lender, as described in paragraph (1) of



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1    subsection (b), with the following information and
2    disclosures:
3            (A) the amount of additional federal student
4        assistance for which the borrower is eligible and the
5        advantages of federal loans under the federal Higher
6        Education Act of 1965, including disclosure of income
7        driven repayment options, fixed interest rates,
8        deferments, flexible repayment options, loan
9        forgiveness programs, additional protections, and the
10        higher student loan limits for dependent borrowers
11        whose parents are not eligible for a Federal Direct
12        PLUS Loan;
13            (B) the borrower's ability to select a private
14        educational lender of the borrower's choice;
15            (C) the impact of a proposed private education
16        loan on the borrower's potential eligibility for other
17        financial assistance, including federal financial
18        assistance under the federal Higher Education Act; and
19            (D) the borrower's right to accept or reject a
20        private education loan within the 30-day period
21        following a private educational lender's approval of a
22        borrower's application and the borrower's 3-day right
23        to cancel period.
24    Section 20. Annual certification and maintenance of



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1    (a) Certification. An institution of higher education must
2certify annually to the Board of Higher Education, and the
3Illinois Community College Board where applicable, whether it
4has made all certifications required under subsections (b) and
5(c) of Section 10.
6    (b) Maintenance of approval. In each instance where the
7Board of Higher Education or the Illinois Community College
8Board provides the institution of higher education with
9approval to operate, the certification provided pursuant to
10this Section shall be required for the maintenance of approval
11to operate.
12    Section 99. Effective date. This Act takes effect upon
13becoming law.