WASHINGTON [07/13/18]—U.S. Senator Tina Smith (D-Minn.) is pushing to make sure students in Minnesota and across the nation understand all of their options when it comes to taking out private loans to pay for school, which can often be deceptively risky and expensive, especially for inexperienced or first-time borrowers.
The “Know Before You Owe Act of 2018” would require schools to provide information to prospective borrowers about federal loan eligibility and benefits before certifying a private loan. The bill would also require schools to confirm the student’s enrollment status and cost of attendance before the private student loan is approved.
“The student debt crisis is holding back millions of people and is hampering our economy—and it is unacceptable that students are being funneled into expensive private student loans, which often work like a credit card, when safer and more affordable options are often readily available,” Sen. Smith said. “Students deserve access to the information required to make informed financial decisions and the ‘Know Before You Owe Act of 2018’ requires that they are provided with just that before making this significant financial decision.”
There are several stark differences between private education loans and federal student loans. Federal student loans have fixed interest rates and offer an array of consumer protections and favorable terms, including deferment and forbearance in times of economic hardship, as well as manageable repayment options, such as the Income-Based Repayment and Public Service Loan Forgiveness programs.
In contrast, private education loans often resemble credit cards rather than financial aid with uncapped variable interest rates (which spiked as high as 18% in recent years) and few, if any, consumer protections. These loans are ineligible for federal forgiveness, cancellation or repayment programs.
Sen. Smith joined her colleagues Sens. Dick Durbin (D-Ill.), Jack Reed (D-R.I.), Sherrod Brown (D-Ohio), Tammy Baldwin (D-Wis.), and Ben Cardin (D-Md.) in introducing the bill.