Graduate School Loans: Understanding the Difference Between Preferred Lender Lists and Historical Lender Lists
As graduate lending options continue to evolve, including the anticipated phase-out of Grad PLUS loans, financial aid offices are once again being asked to reconsider how they guide students through the private education loan process. For institutions, this moment presents both opportunity and risk. Schools want to be helpful and transparent, but they must also ensure that any guidance provided to students complies with federal regulations and can withstand audit or program review scrutiny.
One of the most common questions financial aid leaders face is whether to implement a preferred lender list or to provide students with a historical list of lenders. While these tools may appear similar, they carry very different regulatory obligations, documentation requirements, and ongoing administrative responsibilities. Understanding those differences is critical before choosing a path.
A preferred lender list exists when an institution recommends or endorses specific private education loan products offered by selected lenders. Under federal regulations, this type of recommendation constitutes a Preferred Lender Arrangement and triggers a defined set of disclosure, reporting, and conduct requirements. These requirements are outlined primarily in 34 CFR Part 601 and apply not only to institutions themselves, but also to institution-affiliated organizations such as alumni associations or foundations.
Although the Department of Education’s Dear Colleague Letter Gen-08-06 applied specifically to the now-defunct FFEL Program and is maintained for historical purposes only, it remains useful in understanding the Department’s policy intent. The guidance emphasized that preferred lender lists are permissible only when they are based on unbiased, borrower-focused research and accompanied by clear disclosures that preserve a student’s right to choose any lender. That principle remains central to compliance today.
When implemented correctly, a preferred lender list can be a meaningful support tool for students and families. Private education loans are complex, and many borrowers struggle to compare interest rates, fees, repayment terms, and servicing quality on their own. A carefully constructed list can provide a trusted starting point and allow financial aid staff to offer more consistent and informed counseling. At the same time, these benefits come with significant compliance obligations that should not be underestimated.
Institutions that maintain a preferred lender list must be able to demonstrate that lenders were selected using objective, borrower-centered criteria. This evaluation typically considers the total cost of borrowing, including APR ranges and fees, the availability of flexible repayment options, approval rates and funding timelines, co-signer release policies, and the lender’s data security practices and servicing history. What matters most is not the specific criteria chosen, but that the same criteria are applied consistently to every lender considered and that the rationale for selection is thoroughly documented. This documentation is essential for audits, annual reviews, and responding to questions from regulators or institutional leadership.
Of note, federal guidance discourages exclusive lending arrangements. As a result, preferred lender lists should include multiple lenders in order to preserve meaningful borrower choice. Most institutions include three to five lenders, and at least two must be unaffiliated. Historical Department guidance further clarified that at least three lenders on a list should not be affiliated with one another. While disclosure of lender affiliations is not strictly required in all cases, transparency around these relationships is considered a best practice and supports informed borrower decision-making.
Clear and prominent disclosures to students are another core requirement of any preferred lender arrangement. Institutions must explicitly state that students are not required to use a lender on the preferred list and that they may select any private lender willing to make loans for attendance at the institution. Just as importantly, schools must communicate that loan certifications for non-preferred lenders will be processed with the same timeliness and neutrality as those for preferred lenders. These disclosures must be consistent across institutional websites, financial aid handbooks, and counseling materials.
In addition, institutions are required to maintain a Code of Conduct governing private education loans. This code must prohibit conflicts of interest, ban revenue-sharing arrangements, and forbid staff from soliciting or accepting gifts or compensation from lenders. The code must be publicly available and apply to all employees involved in private loan counseling or processing. Many institutions rely on the NASFAA Code of Conduct as a foundation, tailoring it to their institutional policies.
Maintaining a preferred lender list is not a one-time exercise. Institutions must conduct and document an annual review of their list to ensure it continues to reflect borrower needs and current market conditions. This review typically includes reassessing lenders against updated criteria, confirming that unaffiliated lender requirements are still met, documenting any negative changes in loan terms or servicing, and updating disclosures while archiving prior versions. Institutions must also prepare an annual public report explaining why they maintain a preferred lender arrangement with each lender on the list.
From an operational perspective, these requirements translate into a meaningful administrative workload. Preferred lender lists require ongoing data collection from lenders, policy and legal review of disclosures, regular staff training, and meticulous recordkeeping. For institutions with limited staffing or compliance capacity, the risk of falling out of compliance can outweigh the perceived benefits of maintaining a preferred list.
For this reason, some institutions choose instead to provide a historical list of lenders. A historical lender list generally identifies lenders that have made private education loans to the institution’s students over a defined period, often the past three to five years, and that have indicated a willingness to continue lending. When providing a historical list, the institution must be careful not to rank, endorse, or otherwise recommend any lender. Comparative metrics and qualitative commentary should be avoided, and the institution must clearly state that the list is provided for informational purposes only. Students must be reminded that they are free to choose any lender.
The Department explicitly acknowledged this approach in historical guidance, recognizing that institutions unable to meet preferred lender requirements could still provide general lender information as long as borrower choice was preserved and no endorsement was implied. For many schools, this approach offers a lower-risk alternative that still provides students with helpful context.
There is no single correct approach for every institution. Financial aid leaders should consider staffing capacity, institutional risk tolerance, student population needs, and any applicable state-level requirements when deciding whether to maintain a preferred lender list or a historical lender list. Regardless of the approach taken, consistency, transparency, and documentation are essential.
Preferred lender lists can be valuable tools when they are maintained thoughtfully and responsibly. As private lending continues to evolve, financial aid offices should view lender lists not as static disclosures, but as living compliance instruments that require ongoing oversight. The key question is not simply which list to publish, but whether the institution can sustain that list in a way that is ethical, transparent, and firmly centered on the best interests of students.
As private education lending continues to evolve, institutions are navigating increasingly complex decisions about how best to support students while remaining compliant with federal and state regulations. Whether an institution chooses to maintain a preferred lender list or provide a historical lender list, the responsibility remains the same: to act in the best interests of borrowers, preserve student choice, and document processes in a way that withstands scrutiny.
Clearly, there is no one-size-fits-all solution. The most effective approach depends on an institution’s staffing capacity, compliance infrastructure, student population, and risk tolerance. What matters most is that lender information is presented consistently, transparently, and in alignment with regulatory expectations and institutional values. HEAG works with institutions to translate regulatory requirements into practical, sustainable best practices. For schools seeking guidance on evaluating lender list options, strengthening documentation, or reviewing compliance processes related to private education loans, our team is available to support these efforts. Institutions are encouraged to contact info@heag.us to learn more about how HEAG can assist in developing or refining lender list practices that are both student-centered and compliant.
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