The “complex and confusing process of taking out student loans” and the resulting serious financial hardship caused by student loan debt have prompted the Consumer Financial Protection Bureau to draft a one-page “financial aid shopping sheet.”
Speaking at the University of Minnesota in Minneapolis on Oct. 26, the CFPB’s interim head Raj Date publicly introduced the Bureau’s Know Before You Owe student loan project.
The prototype is designed to help students and their parents do a side-by-side comparison of financial aid and student loans available at multiple universities, using the same format and terms for each. The form distinguishes between loans and scholarships, provides options for federal financial aid, and calculates the total cost of attendance. There is also an estimate of a student’s monthly loan payment after graduation.
The model form is the CFPB’s response to a Department of Education initiative, explained Rohit Chopra, CFPB’s student loan ombudsman, on the Bureau’s blog.
“This is a thought starter,” Date said in Minneapolis.” It is our way of soliciting input for the Department of Education – from students and their families and from educational institutions and lenders – as to how best to provide useful and understandable information about college costs.” (Feedback may be provided via the online form at www.consumerfinance.gov/students/knowbeforeyouowe.)
Student loans are now the largest form of household debt outside of mortgages, Date said. He spoke of students who took out private student loans because they didn’t know that federal government loans were available to them. “That means that they may be taking out more expensive, less protected, less flexible loans than necessary,” he said.
Also on Oct. 26, President Obama announced his administration’s “Pay As You Earn” proposal that would reduce monthly student loan payments for an estimated 1.6 million borrowers. Under the plan, borrowers would see student loan payments capped at 10 percent of their discretionary income, down from 15 percent. Borrowers also can consolidate their loans and receive a 0.5 percent reduction in interest. (Read more about the plan.)
All of this will be done at no cost to the taxpayer, pointed out David Bergeron, deputy assistant secretary at the U.S. Department of Education, who spoke before Date.
Read Date’s full remarks.