In an attempt to curb rising student debt, the Know Before You Owe Act of 2012 has been introduced to supplement the U.S. Department of Education’s new financial aid shopping sheet.
The bill aims to better educate students on their financial aid options.
Introduced by Senators Dick Durban (D-IL) and Tom Harkin (D-IA), the bill would require universities and colleges advise students on the differences between federal and private loans, as well as require private lenders to contact the borrower’s school to verify enrollment and the cost of attendance.
According to a statement made by Durban, two-thirds of students who take out private loans are not aware of the benefits that federal student loans have to offer. These benefits include fixed interest rates, manageable repayment options and deferment and forbearance in times of economic hardship.
“With student loan debt at a record level, we must empower students to make informed decisions about how they finance their education, especially when it comes to the risks of private loans,” Harkin said in a statement.
Cal State University Spokesman Erik Fallis said that the CSU has been working closely with the Obama administration to guarantee financial aid transparency.
“We send out all of the [financial aid] deadlines early, via email,” Fallis said. “We clearly encourage all students to apply for financial aid. The students who do not think they will qualify are often surprised when they do.”
Fallis continued to say that the Know Before You Owe Act of 2012 is in its very early stages and focuses primarily on the relationship between the lender and borrower.
“If notified of a private loan, the CSU will check if the student processed a federal application for student aid,” Fallis said.
It is a student’s choice to seek aid from private lenders, but Fallis said that the CSU makes the effort to connect with students about exhausting federal aid first.
Political science graduate student Stephanie Tan said that when she was an undergraduate student, she had a smooth financial aid process.
“I never even considered private loans,” Tan said. “Cal State Long Beach made it very easy, and I understood that federal loans were my best option.”
Tan, who took out subsidized Stafford loans, said she is glad she does not have to deal with the burden of private loans.
Senior finance major Stanley Chan, who takes out federal loans for tuition and living expenses, said that he found the entire financial aid process almost self-explanatory.
“I mean it’s all pretty easy and convenient,” Chan said. “And it’s great because you can pay off the loan once you finish school.”
The U.S. Department of Education released a financial shopping sheet in September, which is designed to help students understand and compare the costs of attending various universities.
The Know Before You Owe bill was referred to the Committee on Banking, Housing and Urban Affairs on Aug. 2.