DFER Voices Strong Support for “Know Before You Owe” Act
As college costs continue to rise and universities scale back need-based grant programs, student loan debt climbs higher and higher. The New York Federal Reserve Bank reports that student loan debt rose $33 billion to $1.02 trillion just between June and September. The Pew Research Center estimates that 40 percent of households headed by adults 35 or younger hold student loan debt. Economists warn that in addition to burdening young adults and their families, record-high loan debt may also slow the nation’s economic recovery.
Yesterday, Congressman Jared Polis (D-Boulder, CO) introduced the “Know Before You Owe” Act to help ensure students avail themselves of lower-cost government subsidized loans before they borrow from higher-cost private lenders. DFER applauds this very practical and straightforward legislation.
The Consumer Finance Protection Bureau reports that 40 percent of students who have private student loans (for which interest rates average 7.8 percent) did not exhaust all of their federal loan options, which offer interest rates as low as 3.4 percent. In addition to being less expensive, federal loans also come with more favorable repayment terms based on lendee income. For teachers and others who hold public service jobs, all loan debt is forgiven after ten years.
Congressman Polis’ bill would simply require that both universities and private lenders provide students with the information they need to make smart decisions about whether they can and should take a federal loan before they enter into the riskier and more costly private lending market. At a time when voters are dissatisfied, to say the least, with Washington’s ability to get anything done, the “Know Before You Owe” Act offers a vehicle to help students and families avoid unnecessary and in many cases long-term debt and is the type of streamlined, no-cost legislation members of Congress should be able get behind and send to President Obama’s desk sooner rather than later.