Ernst, Grassley, Franken Introduce Know Before You Owe Federal Student Loan Act of 2017

WASHINGTON, D.C. –Sen. Joni Ernst, Sen. Chuck Grassley, and Sen. Al Franken today introduced bipartisan legislation to increase the amount of information students receive about federal student loans, including their potential ability to repay, before rather than after signing up for tens of thousands of dollars in debt to Uncle Sam.

“Across the state of Iowa, many students look to going to college as a step toward a good education and career; however, what they don’t always see until after graduation is the mountain of debt they accrued from their federal student loans,” Ernst said. “The bipartisan Know Before You Owe Federal Student Loan Act provides the much needed counseling for students prior to borrowing to ensure they have the most comprehensive information on student loans before making a financial commitment. With the federal government sharing roughly 90 percent of the student loan market, we must make sure students have access to the right tools and resources to succeed.”

“A college education generally remains a good investment,” Grassley said. “But when students’ academic dreams become a nightmare upon graduation because they borrowed more from the federal government than they can afford to repay with the degree they earned, they understandably feel something is wrong.  The federal government, as the lender, has a responsibility to at least ensure that students know what they’re getting themselves into before they get in over their heads.  This legislation will do that.”  

“Student loan debt is a real front-burner issue for Minnesotans, who graduate college owing more than $30,000 on average,” said Franken. “All too often, that debt becomes too much to bear and loan borrowers end up underwater, and part of the problem is that students and their families often don't have a clear picture of how much their education is going to cost them. Our bipartisan bill would help make sure that students are fully in the know before taking on debt, giving them a better idea of their financial aid options, and what they actually need to borrow to get through school.”

The Know Before You Owe Federal Student Loan Act strengthens the current loan counseling requirements for institutions of higher education in the Higher Education Act by making the counseling an annual requirement before new loans are disbursed rather than just for first-time borrowers.  The bill then adds several key components to the information institutions of higher education are required to share with students as part of loan counseling, including:

• 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 the 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.

The bill requires that a student manually enter, either in writing or through electronic means, the exact dollar amount of federal direct loan funding that the student desires to borrow.  This ensures that students make a conscious decision about how much they borrow rather than simply accepting the total amount of loans for which they are eligible.

The Know Before You Owe Federal Student Loan Act also would provide that students receive regular loan statements while they are in school just like they will when they graduate and start repaying.  That way, students will be more aware of their level of indebtedness and will be encouraged to at least pay any interest that accrues.  This will help students be more mindful of the debt they are taking out, encourage students to control their expenses, and discourage over-borrowing.

Several Iowa programs helped to inspire and inform the Know Before You Owe Federal Student Loan Act.

The University of Northern Iowa, created a program with the theme “Live Like a Student.”  The program includes workshops and courses designed to educate students on the importance of living within their means while they are in school so they need not live like a student later in life.  As a result, the university has lowered average student debt 10.7 percent over the past seven years, to $22,993. 

Grand View University has created GV Complete, where students and families construct a comprehensive four-year financing plan to help ensure students graduate on time and make informed decisions about paying for their education.  Under this plan, each student is paired with a completion coach who helps him or her plan for on-time graduation both financially and academically.  Grand View has capped increases in tuition, room, and board at no more than 2.5 percent since the program's inception. The first two cohorts of Grand View University students enrolled in the program are projected to take out approximately $4,000 less in student loans over their four years at Grand View.

Iowa Student Loan, the state-based nonprofit lender, also has a program called the Student Loan Game Plan, an online, interactive resource that calculates a student’s likely debt-to-income ratio.  It walks students through how their borrowing will affect their lifestyle in the future and what actions they can take now to reduce their borrowing.  As a result, since 2014, 17 percent of students who participated in the Student Loan Game Plan decreased the amount they had planned to borrow by an average of $3,138, saving students approximately $5 million in additional loan debt.

The senators said they hope the Know Before You Owe Federal Student Loan Act will be included in the re-authorization of the Higher Education Act, which governs federal higher education programs.  The Higher Education Act is overdue for re-authorization.   The current law will need to be extended or a new law will need to be enacted. 

In April, Grassley and Franken re-introduced two other bills to give students and their families better information about the costs of college.  The Net Price Calculator Improvement Act would improve the effectiveness of and access to net price calculators, the tools that provide students with early, individualized estimates of higher education costs and financial aid figures before they decide where to apply.  The Understanding the True Cost of College Act would create a universal financial aid award letter so that students easily could compare financial aid packages between schools.  

The text of the Know Before You Owe Federal Student Loan Act of 2017 is available here.