WASHINGTON — U.S. Senators Ben Cardin (D-Md.), Dick Durbin (D-Ill.), Jack Reed (D-R.I.), Sherrod Brown (D-Ohio), Tina Smith (D-Minn.), and Tammy Baldwin (D-Wisc.) today introduced the Know Before You Owe Private Education Loan Act of 2019 to prevent unnecessary private student loan debt and improve transparency. According to the Federal Reserve, total student loan debt in America is now $1.5 trillion. While federal student debt often gets the most attention, the growth of private student loan debt is also concerning. Between the 2010-2011 school year and the 2016-2017 school year, the annual volume of private student loans increased by $4 billion and made up 8 percent of all outstanding student loans.
“The American Dream is being pushed beyond the grasp of families today with rapidly mounting student debt loads,” said Senator Cardin. “This commonsense bill should be a first step to making the cost of a college education more transparent for students and their families.”
The Know Before You Owe Act of 2019 would require schools to counsel students before they sign on to expensive, often unnecessary, private education loan debt and inform them of any unused federal student aid eligibility. It would also require the prospective borrower’s school to confirm the student’s enrollment status, cost of attendance, and estimated federal financial aid assistance before the private student loan can be made.
There are several stark differences between private education loans and federal student loans. Federal student loans have fixed interest rates and offer an array of consumer protections and favorable terms, including deferment and forbearance in times of economic hardship, as well as manageable repayment options, such as the Income-Based Repayment and Public Service Loan Forgiveness programs. In contrast, private education loans often resemble credit cards rather than financial aid with uncapped variable interest rates (which spiked as high as 18% in recent years) and few, if any, consumer protections. These loans are ineligible for federal forgiveness, cancellation, or repayment programs.
Unfortunately, when surveyed, 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. More troubling, 53 percent of undergraduate students who borrowed private student loans in 2015-16 did so without first exhausting their eligibility for more borrower-friendly, cheaper federal loans.
This bill is supported by the National Association of Student Financial Aid Administrators, the National Association of College Admissions Counseling, the American Federation of Teachers, the National Consumer Law Center (on behalf of its low-income clients), The Institute for College Access and Success, the Center for Responsible Lending.