The Consumer Bankers Association (CBA) is asking the Consumer Financial Protection Bureau (CFPB) and the Department of Education to improve federal student loan disclosures.
CBA president and CEO Richard Hunt said federal student loan disclosures do not currently offer a clear, personalized overview of key loan terms specific to each borrower. These specific disclosures are common for all private consumer loans, including bank-offered student loans.
“CBA has long advocated for the best possible information to be provided to students and their families before they borrow large sums of money for higher education. We recommend the array of current federal loan disclosures be condensed and improved by requiring disclosures similar to the Truth in Lending Act disclosures required of private lenders,” Hunt wrote in a letter to CFPB Director Kathy Kraninger and Secretary of Education Betsy DeVos. “While we recognize some improvements to current disclosures may require amendments to the Higher Education Act, we hope the Department, either on their own or in partnership with the CFPB, will develop an overarching and meaningful disclosure of key loan terms so borrowers can more clearly understand their loan obligations before signing on the dotted line.”
Hunt also called on the CFPB and Department of Education to replace school-issued “Award Letters” with a standardized and more aptly called “Financing Letter” that distinguishes between loans and aid that does not need to be repaid like grants or scholarships.
“Access to information about the true cost of a loan is critical to making an informed decision about how much debt to take on,” Hunt wrote. When discussing the strong public support for disclosures, he noted, “A recent CBA poll of 1,000 registered voters echoed the importance of borrower disclosures as 90 percent of those surveyed felt borrowers should receive disclosures detailing costs and terms before taking out an education loan. More than 90 percent felt such disclosures should always provide specific monthly payment amounts.”
CBA suggests Including the key terms of the loan, such as the interest rate, fees, projected monthly payment and projected total cost of the loan. It also suggests providing a clear view of the true cost of the loan by displaying the APR (which accounts for the origination fees of 4.3 percent for PLUS and 1.1 percent for direct loans). This information is already included on private loans.