WASHINGTON - U.S. Senators Dick Durbin (D-IL), Tina Smith (D-MN), and Jack Reed (D-RI), along with Senators Sherrod Brown (D-OH), Tammy Baldwin (D-WI), and Ben Cardin (D-MD), today introduced the Know Before You Owe Private Education Loan Act of 2018 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. The Institute for College Access and Success reports that the volume of private education loans taken out by students has grown by $4 billion from 2010 to 2017. U.S. Representative Jared Polis (D-CO) will introduce a companion bill in the House of Representatives today.
“Student debt remains one of the biggest obstacles to success for families in America today,” said Durbin. “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.”
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“Over the years, many Coloradans have contacted my office asking for help managing student loan debt - and over 42 million Americans can relate to their struggle," said Polis. “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. 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.”
The Know Before You Owe Act of 2018 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.
In March, Durbin joined Senator Brian Schatz (D-HI) in introducing the Debt-Free College Act, legislation that will reverse the growing student debt crisis in the United States. The bill restores a path to affordable college by providing states incentives through matching grants to increase investments in public higher education and provide students with debt-free college. According to estimates, Illinois would be one of ten states that would meet the goal of debt-free for all students in the first year if all states joined the partnership and maintained current appropriation levels.
This bill is supported by the National Association of Student Financial Aid Administrators, the National Association of College Admissions Counseling, the National Association of Consumer Advocates, the American Federation of Teachers, the National Consumer Law Center (on behalf of its low-income clients), the Consumers Union, The Institute for College Access and Success, the American Association of University Women, the Center for Responsible Lending.
