Banking Committee Approves "Schumer Box" For Student Loan Applications - Pioneering Measure Forces Greater Disclosure On All Student Loan Agreements

Press Release

Banking Committee Approves "Schumer Box" For Student Loan Applications - Pioneering Measure Forces Greater Disclosure On All Student Loan Agreements

In light of recent scandals within the private student loan industry and the general lack of transparency in the student loan application process, Senator Charles E. Schumer (D-NY) today announced that the Banking Committee passed significant provisions of his bill, the Private Student Loan Disclosure Act of 2007. The provisions were passed as part of the Private Student Loan Transparency and Improvement Act of 2007, offered by Senator Dodd and passed by a Banking Committee vote. Modeled after successful credit card disclosure legislation that Schumer passed as a U.S. Representative in 1988, the student loan disclosure bill would create a "Schumer Box" on loan documents - a simple, easy to read table outlining key loan terms that are often buried in fine print and pages of text. The disclosures, which will be provided on applications, approval documents, and closing documents, will contain information such as loan amounts, interest rates, maximum monthly payments and payment terms. They will explain in a concise and clear way exactly how much a student will owe including interest, in order to pay off the loan. The Schumer legislation also provides a 30-day shopping period for borrowers after they have been approved for a loan. During this time, the lender cannot alter the terms of the loan, allowing students and their families to comparison shop between various lenders to ensure that they are obtaining the loan that is the best deal and the best fit for their needs.

"Instead of getting a full ride, far too many students are being taken for a ride when it comes to the private student loan industry," Schumer said. "Students are often unaware of the terms of their loans, and wind up boxed into paying back their tuition at steep and unaffordable interest rates. With an increasing number of college students and their families using private student loans to pay for their college expenses, we need to make sure that students and their families get complete and unbiased information on all of their options. Including a "Schumer Box" at various stages in the loan process will allow students to better compare their options, and fully understand the agreements they sign."

Earlier this year, news stories began to emerge implicating university administrators in a kick-back scandal involving stock options and even direct gifts in exchange for steering students towards certain lending agencies. New York State Attorney General Andrew Cuomo has spearheaded the investigation into private student lending companies and their practices. In response, many universities have entered into a voluntary student loan code of conduct agreement, but there is still no federal legislation that regulates private student loan agencies. Just last month, Attorney General Cuomo and Senator Schumer both spoke about this issue before the Senate Committee on Banking, Housing and Urban Affairs.

Nearly 2 out of every 3 students nationwide have student loan debt, up from less than one-half in 1993. And, the actual amount of debt from undergraduate loans has also skyrocketed. Over the past decade, debt levels for graduating seniors more than doubled from $9,250 to $19,200, a 58% increase after accounting for inflation.

Student loan debt can affect a student's livelihood for decades after graduation. Outstanding loans can limit post-collegiate career options, delay the purchase of a home or a car, and discourage graduates from starting a family. In the most extreme cases, burdensome debt can cause some students to default, resulting in lifelong ruined credit.

The Schumer Box originated as a provision of the Fair Credit and Credit Card Disclosure Act of 1988, which Senator Schumer authored while a member of the House of Representatives. It was the first law to mandate that credit card agreements include a simple table or box of important information such as APRs, transaction fees, annual fees and grace periods.

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