U.S. Reps. David Scott (D-GA), Randy Hultgren (R-IL), and Luke Messer (R-IN) sponsored legislation last week, requiring the annual percentage rate (APR) to be disclosed on federal student loans to students and families.
The Transparency in Student Lending Act requires disclosure of the APR at the time of application for a federal student loan.
Currently, the law mandates that the APR must be disclosed before a borrower gets a student loan from a private bank. Borrowers of loans issued by the U.S. Department of Education are not provided this information up front.
“Every student should be able to make an informed decision about how to best finance their education,” Scott said. “This legislation is a good step toward increasing transparency and accessibility for students who take out federal loans to fund their higher education.”
Hultgren said disclosing the APR will help borrowers make better financial decisions.
“The federal government omits the annual percentage rate when presenting the cost of a loan to young borrowers and families, doing them a gross disservice as they make plans for future payments,” Hultgren said.
Federal student loans issued by the Department of Education—which have origination fees—have grown from a small segment of the market to more than 90 percent of originations each year.
“The Department of Education is the largest consumer lender in the United States, and should provide the most transparent and helpful information to borrowers,” Hultgren said. “Helping borrowers understand their debt obligations is an important first step to ensuring they are able to make their payments, and also helps prevent taxpayers from being on the hook for delinquent borrowers.”