One of the hardest things students face today is being able to afford higher education. While there are scholarships and grant programs college students can apply for, tuition and other costs more often than not outweigh the amount of free financial assistance. The Chronicle of Higher education reports that almost 20 million Americans go to college each year, of which 60 percent borrow loans to help pay for college expenses.
As federal support for students dwindle and college costs increase, private loans are the next source to help young college goers get one step closer to earning that degree. American Student Assistance cites that there is about $902 billion to $1 trillion in outstanding student loan debt in the United States. The Consumer Financial Protection Bureau reports that consumers owe more than $150 billion in private student loans – loans of which are not created or backed by the federal government, and typically carry higher interest rates.
Earlier this month, Senator Sherrod Brown (D-Ohio) reintroduced Senator Richard Durbin’s (D-IL), Know Before You Owe Private Student Loan Act of 2013. The bill would require lenders to contain a clearer, more informative disclosure of the loan terms as well as what options are available to the borrower.
“All consumers, whether they’re getting a house loan, an auto loan or a student loan, ought to have clear, transparent, and simple language so that they really understand the product, the obligation, consequences, and the limitations of what they’re signing,” said Chief Executive Officer for College Now Greater Cleveland, Lee Friedman.
The piece of legislation will not only require lenders to provide borrowers with a clear statement on the amount that is owed, but also consistently update borrowers (at least every 3 months), as well as an annual update to the CFPB. The biggest takeaway from the Act, is that lenders will have to change the language of the loan contract so that it is easily digested by students.
“The people often signing these loans are 18 years old, so they don’t have a lot of experience,” added Friedman. “Sometimes the terms, the language and the nuances are difficult to filter through, and then they wind up signing off…without a full understanding of what it means in the longer term…What does the repayment look like, when does it start, how much is it, are they able to pay it back depending on their career?”
The Institute For Higher Education Policy reports that 41 percent of student loan borrowers are delinquent during the first five years after entering repayment. Moreover, for every student loan borrower who defaults, at least two more student loan borrowers become delinquent without default. The CFPB tallies up to over $8 billion in default private loans – a total of about 850,000 distinct loans.
“The ease in getting these loans even with a co-signer, [students end] up borrowing $100,000, which is the cost of a house and never ever have to talk to anybody,” said Director of Scholarship Services and Financial Aid for College Now Greater Cleveland, Bob Durham. “It’s an online application and it’s done and approved sometimes within 24 hours. The mortgage process doesn’t go that quickly and easily, so I think that it’s very easy for students to get a great deal of money that they’re going to have to pay back.”