Senator Grassley Is On To Something In Student Loans With “Know Before You Owe”
By Stephen Dash- Forbes.com
The number of people attending college has grown significantly over the past few decades, and today’s workforce is more educated than ever. But tuition costs have grown at an even faster rate, a fact that many students are blissfully ignorant of until it’s time for them to start paying off their student loans.
While the incentive is clear — college graduates earn, on average, $22,500 more than those with only high school degrees — the consequence is that many students may be over-borrowing to attend college. The average graduate of the class of 2015 is expected to leave college with over $35,000 in student loans.
Student loan debt is often discussed as a potential financial bubble that could burst and affect the entire economy. Ensuring that students are educated about their student loan commitments could help deflate some of that risk.
Senator Chuck Grassley (R-Iowa) recently introduced legislation — the “Know Before You Owe Federal Student Loan Act of 2015” — which would encourage and enable students to be better informed about federal student loans and financial commitments.
This article will discuss why it is imperative that borrowers understand the decision of taking out student loans and assessing their ability to repay their student loans post-graduation, and why proposals like Grassley’s are worthy of support.
What Do Borrowers Know?
Credible was founded to address issue of student loan debt, and recently conducted a survey of approximately 600 student loan borrowers at several California colleges and universities to learn more about out the experiences of students and their student loans.
The initial results showed an underwhelming level of understanding and education around student loan issues for many of those surveyed.
Credible’s key findings of the students surveyed were:
- 34% didn’t know how much in student loans they were taking out;
- 37% didn’t know if their student loans had fixed or variable interest rates;
- 61% percent didn’t compare rates from multiple lenders; and
- 61% no help during the financial and student loan application process.
With results like these, it’s no wonder that more than seven million Americans who have student loan debt haven’t made a payment on their federal loans in over a year. This means that 17 percent of federal student loan borrowers are considered severely delinquent — potentially leaving taxpayers on the hook.
Understanding Grassley’s Proposal
Senator Grassley’s proposal addresses several of the key issues fueling the growth in student loan debt and delinquencies. The proposed legislation would increase counseling requirements of colleges and universities as well as several additional key programs, outlined by Grassley as follows:
- An estimate of the student’s projected loan debt-to-income ratio upon graduation based on the starting wages for that student’s program of study and the estimated total student loan debt the student will likely take out to complete the program.
- A statement that the student should borrow the minimum amount necessary to cover expenses and that the student does not have to accept the full amount of loans offered.
- A warning that a higher the borrower’s debt-to-income ratio is, the more difficulty the borrower is likely to experience in repaying the loan.
- Options for reducing borrowing through scholarships, reduced expenses, work-study or other work opportunities.
- An explanation of the importance of graduating on time to avoid additional borrowing, what course load is necessary to graduate on time, and information on the impact of adding an additional year of study to total indebtedness.
Addressing The Issue Holistically
Grassley is not alone in advocating more help for borrowers before they actually take out loans. President Obama’s College Scorecard, which gives prospective students the ability to better compare colleges, potential earnings, and other key issues to make more informed decisions, is now available for students and parents.
To better educate America’s youth, and avoid circumstances where students are unable to repay their loans, there is a need for a more holistic approach to address the issue. Better counseling and disclosures seem like a common sense idea that the industry can also get behind. Further backing for Senator Grassley’s proposal in the coming months can be expected – increased support for a more educated America is crucial for continued economic success.
