Overview
The Massachusetts Educational Financing Authority (MEFA) did not always provide borrowers with consistent information regarding their loan repayment terms. In some cases, we identified discrepancies between the repayment term disclosed in the final disclosure document and the term specified in the executed loan agreements. Specifically, the final disclosures reflected a shorter repayment period than what was contractually outlined in the loan agreements.
Out of a sample of 60 accepted and approved loans, we identified 4 loans, each valued at $4,000 or less, for which the repayment term shown in the final disclosure was shorter than the term in the signed loan agreement. This means that borrowers were shown repayment schedules that allowed them less time to pay off their loans than the actual agreements provided. The differences in repayment terms for these loans ranged from 3 to 68 months.
According to MEFA officials, this discrepancy was caused by the implementation of MEFA’s minimum monthly payment policy of $50, which can lead to a shortened repayment term for smaller loan amounts. We found that loans of $4,000 or less are particularly susceptible to this issue, as the $50 minimum payment compresses the repayment schedule below the standard loan term. During the audit period, 2,102 approved loans were issued for amounts of $4,000 or less and were therefore potentially affected by this inconsistency.
The inconsistency between the initial loan agreement and the final disclosure may lead to borrower confusion regarding their repayment obligations, potentially affecting their financial planning and credit score. This situation could also result in reputational damage to MEFA as a lender.
Authoritative Guidance
According to Section 32.46 of Title 209 of the Code of Massachusetts Regulations (CMR), disclosure forms as required by 209 CMR 32.46–32.48 must be made clearly and conspicuously.
According to 209 CMR 32.47,
(2) Approval disclosures. On or with any notice of approval provided to the consumer, the creditor shall disclose the information required under 209 CMR 32.18 and the following information: . . .
(c) Repayment terms. . . .
2. The term of the loan, which is the period during which regularly scheduled payments of principal and interest will be due.
Reasons for Issue
According to MEFA officials, the discrepancy between the initial loan agreement and the final disclosure is due to the implementation of MEFA’s minimum monthly payment policy of $50, which is consistent with industry standards for private student loan lenders. For smaller loan amounts, this minimum payment requirement results in a shorter repayment period being reflected in the final disclosure than the standard term stated in the loan agreement. This difference is triggered by the system’s calculation of payment schedules to meet the minimum monthly payment threshold.
Recommendations
- MEFA should ensure that the repayment term reflected in final disclosure documents either aligns with the loan agreement or is clearly explained when discrepancies occur due to minimum monthly payment thresholds.
- MEFA should include language in disclosures that clarifies how the $50 minimum payment requirement may impact the actual loan repayment period.
Auditee’s Response
With respect to the single partial finding regarding loan disclosure inconsistencies, we emphasize that in all instances MEFA borrowers were charged the appropriate amount due on their loans. Specifically, borrowers’ loan agreements and monthly loan statements all reflected the correct repayment terms, and the minimum monthly payment amount identified in the review was clearly disclosed in the signed loan agreement. The Auditor’s partial finding of an inconsistency between the loan agreement and the final disclosure should in fact, as described in the next paragraph, be limited only to the number of months contained in the final loan disclosure document, not the loan agreement itself (which properly conveyed all aspects of the loan terms).
Further, we note that within the final disclosure’s repayment obligation table, there were two numbers for the repayment term: the number of months in the header to that table, and the number of months in the detailed description of the borrower’s repayment obligation in the body of the table. The header number was populated based upon the loan product that the borrower selected (such as our 15-year fixed rate student loan), while the information in the table reflected the actual repayment terms to the product chosen, which in appropriate circumstances incorporated the minimum monthly payment amount when triggered (and resulted in a shorter term than the product chosen). To date, MEFA is not aware of any instances where a borrower has expressed confusion regarding their loan repayment obligations as disclosed in the loan agreement and the final loan disclosure.
MEFA appreciates the recommendations provided by the Auditor, and MEFA has already implemented enhancements consistent with these recommendations prior to receiving the Auditor’s report. . . .
Since identifying this matter, MEFA has revised its systems and disclosure templates to address any perceived discrepancies between the product term of the loan and the repayment term when minimum payments come into play (i.e., to make the repayment term even clearer to consumers on a go-forward basis), and these updates were effective on September 16, 2025.
Auditor’s Reply
Based on its response, MEFA is taking measures to address our concerns regarding this matter. As part of our post-audit review process, we will follow up on this matter in approximately six months.
| Date published: | November 26, 2025 |
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