How 3 Bipartisan Senate Bills Could Affect Student Loans

A bipartisan group of U.S. Senators recently tabled three bills aimed at simplifying the grant and student loan processes for families trying to pay for college.

The bills, tabled in late April and drafted by Minnesota Democrat Tina Smith and Iowa Republicans Chuck Grassley and Joni Ernst, are the Understanding the True Cost of College Act of 2021, the Net Price Calculator Improvement Act, and the Know Before You Owe Federal Student Loan Act.

While standardized and clearer language alone won’t make college more affordable or put more money in student pockets, it is still important for students and their families to have clear, timely, and actionable information about college costs and student loan debt. And as costs rise, outpacing income growth, more students than ever are in need of financial assistance – including loans – to finance their studies.

Once a student is accepted into a college, he or she will receive an offer of funding, usually referred to as an award letter, detailing the total cost of education for the first academic year and what type of support is available. Although these offers are intended to provide important information, including about student loans, they are too often confusing, unclear or misleading.

[Read: How to Read Your Financial Aid Award Letter.]

Colleges are not required to use a standardized format or terminology in informing applicants about their grant offerings, which often makes it difficult for families to get a complete picture of how the school is paid and how offerings in between Facilities can be compared.

The new law on the true costs of higher education aims to fix this by requiring the education minister to develop a standardized format and terms that higher education institutions would use to convey important information, including a clear distinction between grants – what doesn’t have to be repaid – and loans.

The bill calls for the secretary to work with a range of stakeholders, including students and families, military and veterans, financial aid experts, nonprofit and consumer groups, and school advisors, to develop this improved format.

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According to the standardized format – which schools would now refer to as a “grant offer” – universities would have to clearly present cost information at the beginning of the offer. You would then need to include a separate and separate section on grants and grants, followed by a breakdown of the net price the student is likely to pay, followed by details of the school’s recommended non-PLUS loans – all “in one consumer-friendly, simple one and understandable way “stated in accordance with the proposed legislation.

The bill also requires certain language regarding student loans, including “clear use of the word ‘loan’;” a clear identification of state-subsidized and unsubsidized loans; various details, including options to borrow possibly less or more than recommended; and a link and explanation about the US Department of Education’s Loan Simulator Calculator.

[Read: How to Use the Federal Student Loan Simulator.]

And if the results of the consumer tests warrant it, the Minister of Education could also instruct colleges to include information such as the school’s statistics on the percentage of its students who borrow student loans, as well as the average student loan debt and default rates of their most recent graduates. .

In the meantime, the Know Before You Owe Federal Student Loan Act would improve federal student loan advice. Any student borrowing government student loans, which, according to recent figures, accounts for more than 90% of student loan debt in the United States, must complete admission counseling, a series of online modules designed to educate students about borrowing and repayment.

The proposed law would, among other things, amend the Higher Education Act of 1965 to update the terms – including changing admission counseling to “Pre-Loan Counseling” – so that borrowers have a clearer understanding of what debt they incur and how factors influence how Interest rates and repayment options.

Research has found that while students are hungry for information about how to finance their education and manage their federal student loans, the current counseling format is somewhat ineffective. This bill aims to provide better, more frequent advice to students, including new information such as an estimate of their total expected graduation debt, how to complete their graduation on time to keep costs down, and an expected debt-to-income ratio based on their current program of study.

The Senators’ third bill, the Net Price Calculator Improvement Act, would also amend the Higher Education Act and improve another important information tool for student loan borrowers: the net price calculator.

The net price is the amount a student must raise for school after considering any non-refundable grants, such as scholarships, grants, or tuition fees.

[Read: What to Know About a College’s Net Price Calculator.]

For example, if a school’s annual sticker price is $ 40,000 and a student receives $ 30,000 for the above types of grants, the student’s net price would be the difference: $ 10,000. This is the amount a student needs to cover, which is usually from sources such as income, savings, loans, or a combination thereof.

By looking at the net price rather than the sticker price, many students may find that schools they thought were too expensive are within their reach.

Net price calculators allow prospective students to look beyond college sticker prices to get personalized estimates of college costs and financial assistance early on. While the Department of Education requires colleges to provide a net price calculator on their websites, the tool can be difficult to find and use.

To remedy this, the new bill would allow the Minister of Education to create a “universal net price calculator”, a centralized tool that would allow users to get comparable net price estimates for numerous universities without having to enter their information multiple times on different websites . Among other things, the law also allows anonymity and guarantees the confidentiality of the user information provided.

Among other new efforts to make college more affordable and reduce student loan needs, these bipartisan bills would give students access to better information when deciding where to attend college and how to pay for it. While it’s hard to predict what Congress will do, lawmakers can choose to pass these bipartisan bills and help students and families across the country make informed decisions about college costs and the potential role of student loans.

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