Democratic lawmakers reintroduced companion bills in the House and Senate Thursday in an effort to tackle student loan debt by helping students understand the implications of taking out private loans. The legislation, supported by higher education groups including NASFAA, would require institutions to counsel students and inform them of their options for federal financial aid before they can take out private loans.
The Know Before You Owe Act of 2018 — introduced by Sen. Dick Durbin (D-IL) and Rep. Jared Polis (D-CO) — would mandate that institutions fully certify private education loans, a provision NASFAA has long advocated for. In 2012, the Consumer Financial Protection Bureau (CFPB) adopted into a list of policy recommendations it presented to Congress NASFAA’s recommendation that institutions certify private loans rather than allowing students to self-certify them as is currently the practice.
"We remain concerned that many students who take on private loan debt do not have all the information they need," NASFAA President Justin Draeger said. "Full school certification would allow financial aid administrators an opportunity to talk to students about more advantageous federal aid options, before they commit to a private loan."
The bill would require that private loan lenders obtain information from institutions before issuing loans, such as a school’s cost of attendance and the amount a potential borrower is eligible to borrow. The school would then have 15 business days to either certify the loan, or provide a notification that it needs more time to gather information. If the school does not meet this deadline, the bill mandates that the lender could issue the loan to the student without the school’s certification, but would have to report the loan to the CFPB. The CFPB would be given authority to regulate this notification.
“It’s abundantly clear that we must better protect students from private lenders who prey on their ambitions. Students who are trying to attain a degree, should never be met with greed. We can save students from years and years of debilitating debt by starting their education before classes even begin,” Polis said in a press release. “The Know Before You Owe program would teach them what to look out for before they sign up for a loan and how to access financial aid resources.”
In addition, the bill would require that private loan lenders update borrowers quarterly about their loans, including information about the interest accrued.
The Senate bill was cosponsored by Sens. Tina Smith (D-MN), Jack Reed (D-RI), Sherrod Brown (D-OH), Tammy Baldwin (D-WI), and Ben Cardin (D-MD). This is the fourth time that this legislation has been introduced in Congress.
“Student debt remains one of the biggest obstacles to success for families in America today,” Durbin said in a press release. “When someone is saddled with enormous amounts of student loan debt, it means they put off major life decisions – like buying a home or starting a family – that help America's economy grow. We have to do more to stop fast-growing student loan debt. This bill is a first step and would help educate students about the dangers of private student loans, which can carry high interest rates and few consumer protections.”
Publication Date: 7/16/2018