The Consumer Bankers Association (CBA) is urging lawmakers to support the Student Loan Disclosure Modernization Act, which would require federal student loans to carry plain-language disclosures on the true cost of the loan.
In a letter to the bill’s sponsors, Sens. Tim Scott (R-SC) and Joe Manchin (D-WV), CBA officials point out that private student loans offered by banks already have these disclosures. These disclosures on private loans contribute to a 98 percent repayment rate of private student loans.
“For many students and families, a college education will be one of the most important – and expensive – investments they make,” CBA President and CEO Richard Hunt said. “Unfortunately, federal student loans do not carry a consumer-friendly disclosure like student loans offered by banks. Ensuring students and their families know the true cost of their loan will help them make better long-term decisions and set them up for success after graduation instead of trapping them in a debt trap set by opaque federal disclosures. This bipartisan legislation is a good first step in helping ensure borrowers have the information necessary to make informed decisions about financing higher education.”
The current federal loan disclosures include six pages of legal jargon in fine print and shows only generic loan costs and repayment terms.
The Scott-Manchin bill would streamline the disclosure to explain the costs and terms of the loan specific to the individual borrower.
A recent CBA poll found that 90 percent of borrowers should receive disclosures detailing monthly payments and terms before they take out an education loan. This will promote more informed decision-making and discourage over-borrowing.
CBA also recommends increasing the availability of Pell Grants; renaming “award” letters provided by colleges to the more accurate “financing” letters; and requiring school certification of private education loans.