WASHINGTON (4/10/12)--Legislation that would require schools to counsel students before they take out private student loans, and would help students research their own federal student loan eligibility, has been introduced in the U.S. Senate.
The bill, the Know Before You Owe Act of 2012 (S. 2280), is sponsored by Sens. Richard Durbin (D-Ill.) and Tom Harkin (D-Iowa).
Under the legislation, higher education institutions 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 is approved, according to a release on Durbin's website. The bill, the release said, would make lenders provide students with quarterly updates on the status of their loans, including details on accrued interest and capitalized interest. Lenders would also be required to inform the Consumer Financial Protection Bureau on their student lending activities.
Information on federal financial aid availability and eligibility, and how taking out a private loan could impact their eligibility for federal loans, would also need to be disclosed ahead of time, the release said.
Another piece of student loan legislation, the Fairness for Struggling Students Act (S. 1102), was introduced by Durbin last year and was discussed at a Senate Appropriations subcommittee on financial services and general government hearing last month.
That bill would treat privately issued student loans the same as other privately issued debt in bankruptcy proceeding by restoring a pre-2005 provision in the bankruptcy code allowing for discharge of privately-issued student loans – like other forms of private debt, including credit cards--in bankruptcy.
The Consumer Financial Protection Bureau (CFPB) is also working to address student loan issues, working with the U.S. Department of Education and launching the "Know Before You Owe" project to help borrowers, including student borrowers, understand debt implications.
The agency has also asked credit unions and other financial institutions, students, the higher education community, and others in the student loan industry to provide information on the role of schools in the private student loan marketplace, student loan underwriting criteria, repayment terms and behavior, loan servicing and loan modification, and financial education and default avoidance.
The full results of this study on the private student loan market will be released this summer. (See related March 28 News Now story: Hearing on student loans set for today)
For prior News Now coverage and the Durbin release, use the resource links.