Last month, a group of six senators introduced a bill designed to help prevent unnecessary student loan debt by encouraging greater transparency. The “Know Before You Owe Act” would, among other features, require colleges to counsel students on financial aid before they agree to expensive student loans.
And with good reason. The obligations of some 43 million student borrowers now exceed $1.3 trillion, having long ago surpassed credit card debt as the country’s second biggest source of personal debt. It’s a challenge that stems from the rising cost of higher education, but it’s exacerbated by the complexity of an aid system that puts a heavy burden on financial aid staff and can leave students and families guessing about the real cost of college.
Research suggests that one in five student-loan holders does not understand the terms of his or her loan, and about half of students can’t accurately identify the cost of their first year of college within $5,000. Brookings estimates that more than half of first-year students seriously underestimate how much they actually borrowed. And that lack of understanding can lead to overborrowing at critical points in a student’s higher-ed journey.…Read More