With millions of Americans paying more for college loans than necessary, and families confronting a more than $1 trillion avalanche of student loan debt, Congressman Jared Polis visited the University of Colorado, Boulder today to discuss his Know Before You Owe Act (H.R. 6273) with school and state officials and students. The legislation would help student borrowers take full advantage of lower cost loans with more favorable terms. Polis was joined by Ofelia Morales, the associate director of CU's financial aid office, Celina Duran, the financial aid administrator of the state Department of Higher Education, and Aaron Riley, a CU student who also works in the CU financial aid office.
"The Know Before You Owe Act is a common sense step that will help students and parents borrow for college at the most affordable rates and at the best terms, regardless of whether they choose a federal Stafford loan or a bank loan," said Polis. "If students know before they owe they'll end up paying back less for college, which means more money in their pockets."
According to the Consumer Financial Protection Bureau (CFPB), 40 percent of students with private loans have not exhausted all of their ability to borrow federal loans, which come with interest rates as low as 3.4 percent compared to an average of 7.8 percent for private loans. Federal student loans also come with more reasonable repayment terms, including deferments for returning to school or losing a job, as well as loan forgiveness for teaching in low-achieving schools. Two-thirds of private loan borrowers, including those who took out both private and federal loans, said that they did not understand the major differences between private and federal options.
"At CU-Boulder we process close to $20 million dollars in private student loans each year, so we support policies that help students be well informed about their loan options," said Morales.
"Although most Colorado students don't borrow private loans, about a quarter of those who do have not taken out federal loans," offered Duran.
"As a student, I recognize the importance of understanding all my federal and private loan options," added Riley. "As a consumer, I should be fully aware of loan terms and repayment before borrowing loans."
The legislation has also been endorsed by the National Association for College Admission Counseling (NACAC).
"Congressman Polis' legislation will help students and their families understand all of the options available to them to pay for college, including terms and conditions of federal and private student loan," said David Hawkins, director of public policy and research at NACAC. "By making informed decisions about the types of loans they take out, this legislation will help make college more affordable for thousands of students. NACAC hopes that Congress will pass this legislation as soon as possible."
The Know Before You Owe Act would require private lenders to:
Certify with the borrower's school that the student is enrolled and the amount the student is eligible to borrow before issuing a private loan.
Provide the borrower with quarterly updates on their loans, including accrued but unpaid interest and capitalized interest.
Report information to the Consumer Financial Protection Bureau about their student loans.
The bill would require institutions of higher education to inform students about:
Their federal financial aid availability and eligibility;
Their ability to select a private lender of their choice;
The impact of a private loan on their eligibility for other forms of financial aid;
Their right to accept, reject or cancel a private loan as allowed under current law; and,
The terms and conditions of federal and private student loans.
The bill is cosponsored in the House by Congressman Timothy Bishop of New York and Congresswoman Allyson Schwartz of Pennsylvania. The Senate companion (S. 2280) was introduced by Senators Dick Durbin of Illinois and Tom Harkin of Iowa.