The Consumer Bankers Association (CBA) applauded the Department of Education’s new recommendations for changing the way schools advise students about financial aid.
“For many families and students, a higher education will be one of the most costly investments they make. Colleges and universities have an obligation to set students up for success and the Department of Education should be commended for its recommendations to help ensure students know the true cost of their education. Every student should know how much money they are borrowing and how they will be responsible for repaying. For far too long, it seems some institutions of higher education have tried to mask these key factors by combining grants and scholarships with loans, work-study programs, and parent loans,” CBA President and CEO Richard Hunt said.
The Department of Education’s recommendation includes many championed by the CBA. One of them is increasing the availability of Pell Grants while another is implementing “Know Before You Owe” disclosures to clearly explain the terms of federal loans. It also calls for utilizing economist-preferred fair value accounting to show the true cost of federal student loans and requiring detailed public reports on performance of the federal government’s direct loan portfolio.
“These recommendations address one problem with our higher education financing system, but Congress must act legislatively to require these recommendations are followed as well as to reform the federal student loan program – the true driver of skyrocketing student debt and tuition increases,” Hunt said.
Student loan debt in the U.S. has gone from $600 billion to $1.5 trillion in the past decade. About 92 percent of that debt is from the federal government. Further, federal student loans have a double-digit default rate compared to a 98 percent repayment rate for bank-issued student loans.
A recent CBA survey found that 90 percent believed loans should carry clear, personalized, plain-language disclosures like those already offered on private loans. Also, nearly 85 percent support placing responsible caps on federal loans to offer access to a quality education without setting up a debt trap.