Published: November 2013

Know Before You Owe to help students get on the path to success

The Know Before You Owe Act would help students and families better understand their borrowing options so that they find the most affordable ways to finance their education.

H.R. 3612, introduced by Congressman Jared Polis (D-CO), along with Representatives Allyson Schwartz (D-PA) and Tim Bishop (D-NY), intends to help borrows understand all the elements involved with financing their education. “The Know Before You Owe Act is a common sense step that will help students and parents borrow for college at the most affordable rates and at the best terms, regardless of whether they choose a federal Stafford loan or a bank loan,” said Rep. Polis. “If students know before they owe they’ll end up paying back less for college, which means more money in their pockets.”

A 2012 Consumer Financial Protection Bureau (CFPB) study issued jointly with the Department of Education states government can do a better job educating families about the differences between private and federal education loans while making sure that colleges and lenders are upfront and honest about risks.

According to the study, 40 percent of students with private loans have not exhausted all of their ability to borrow federal loans, which come with interest rates as low as 3.4 percent compared to an average of 7.8 percent for private loans. Federal student loans also come with more reasonable repayment terms, including deferments for returning to school or losing a job, as well as loan forgiveness for teaching in low-achieving schools. Two-thirds of private loan borrowers, including those who took out both private and federal loans, said that they did not understand the major differences between private and federal options.

Under the bill, private lenders would be required to:

• Certify with the borrower’s school that the student is enrolled and the amount the student is eligible to borrow before issuing a private loan.
• Provide the borrower with quarterly updates on their loans, including accrued but unpaid interest and capitalized interest.
• Report information to the CFPB about their student loans.

The bill would require institutions or higher education to inform students about:
• Their federal financial aid availability and eligibility

• Their ability to select a private lender of their choice

• The impact of a private loan on their eligibility for other forms of financial aid

• Their right to accept, reject or cancel a private loan as allowed under current law

• The terms and conditions of federal and private student loans.

 

 

 

Other Organizations

National Association of Student Financial Aid Administrators | National Association for College Admission Counseling | National Consumer Law Center | The Institute for College Access & Success | National Consumers League | American Association of State Colleges and Universities | American Federation of Teachers | American Association of Collegiate Registrars and Admissions Officers | The Education Trust | Campus Progress Action | U.S. Public Interest Research Group | Consumer Action | American Association of Colleges of Podiatric Medicine | American Podiatric Medical Association | Association of American Medical Colleges | Demos

More Information

For more information please visit Rep. Polis' website.

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Know Before You Owe to help students get on the path to success   (Know_Before_You_Go_113th.pdf)