Polis Introduces Legislation to Address Crisis of Rising Student Loan Debt

Press Release

Today, Congressman Jared Polis (D-CO), along with Representatives Allyson Schwartz (D-PA) and Tim Bishop (D-NY), introduced legislation to tackle the rising student loan debt crisis by bringing fairness, common sense, and transparency to the student loan process. According to the Consumer Financial Protection Bureau (CFPB), American families face an avalanche of more than $1 trillion in student loan debt, which amounts to approximately $24,000 in student loan debt for each of the 37 million student borrowers. The Know Before You Owe Act would help level the playing field by ensuring that student borrowers know about the financial advantages of lower cost federal loans before borrowing in the private market. According to the CFPB, 40 percent of students who have private student loan debt, had not exhausted all of their federal loan options, which come with interest rates as low as 3.4 percent compared to an average of 7.8 percent for private loans, before taking out more expensive private loans.

"In today's knowledge-based economy, a college degree is the best investment that a student can make for their future," said Rep. Polis. "However with the rising costs of higher education, today's students are being hamstrung by record debt levels, forcing them to delay other important investments in their futures, including saving for a secure retirement or purchasing a home. By empowering students with simple disclosure and coordination about the federal financial aid options before they turn to more expensive private loans, the Know Before You Owe Act will go a long way to help students make smart choices about the most affordable student loan opportunities available to them. Through simple coordination and disclosure, we can save student loan borrowers billions of dollars and make their education more affordable."

"This bill empowers students and families to make the most informed choices about how to afford college and invest in their future without taking on unnecessary debt," Schwartz said. "Strengthening the transparency of student loan options can help make college more affordable and provide a safeguard against those who might try to deceive students and families facing difficult financial decisions."

"Students should not have to take on one more penny in debt than is absolutely necessary to attend college and pursue their dreams" said Bishop. "This critical legislation will ensure that students have the information they need to choose the higher education financing option that is best for them--not for the lender."

There are distinct differences between federal student loans and those offered on the private market. Federal student loans have lower interest rates and reasonable repayment terms, including deferment of repayment for hardships and forgiveness in exchange for public service, such as teaching in low-achieving schools. In addition to having higher interest rates, private loans lack protections offered by federal loans have large fees and do not include federal forgiveness, cancellation, or repayment programs. 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.

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 CFPB about their student loans.
The bill would also 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 supported by the National Association of Student Financial Aid Administrators, National Association for College Admission Counseling, National Council of La Raza, Council for Opportunity in Education, Young Invincibles, National Consumer Law Center, The Institute for College Access & Success, National Consumers League, American Federation of Teachers, The Education Trust, U.S. Public Interest Research Group, Consumer Action, Democrats for Education Reform, American Podiatric Medical Students' Association, American Podiatric Medical Association, Association of American Medical Colleges, Demos, and Student Affairs Administrators in Higher Education.

"The financial aid community stands behind The Know Before You Owe Act, which takes the important step of requiring full institutional certification of all private student loans, just as is currently required on all federal student loans. Private student loans often lack important consumer safeguards like the income-based repayment options and guaranteed deferments of federal student loans. This bill will allow aid administrators to provide better counseling on debt management by giving schools a fuller picture of students' financing options. The Act also excludes federal student loans from Health and Human Services from the definition of a "private education loan," providing a much-needed fix to a legislative provision that has caused confusion to student borrowers for years. NASFAA urges Congress to support this legislation." -- The National Association of Student Financial Aid Administrators

"We support Know Before You Owe because this bill helps students understand the loans they are taking out. In a recent survey of high-debt borrowers, Young Invincibles found that two-thirds of respondents did not know the difference between private and federal loans. This is a major issue as federal loans have better repayment terms and borrower protections than private student loans. We applaud Rep. Polis for working to ensure that students take out public loans before they take on private student debt." -- Young Invincibles, a national organization representing the needs of young individuals aged 18 to 34.

"We support the Know Before You Owe Act because it will help students make more informed decisions about borrowing for college. Students need to know if they're eligible for federal loans before they turn to riskier private loans." -- The Institute for College Access and Success.

Source