Bank officials lead bipartisan, bicameral call for student loan transparency – WBIW



WASHINGTON – Today Rep. Jim Banks (IN-03), Rep. Emmanuel Cleaver (MO-05), Senator Tim Scott (R-SC) and Senator Joe Manchin (D-WV) sent a letter Education Secretary Miguel Cardona is urging him to instruct the US Department of Education to disclose to borrowers the essential terms of direct loans prior to repayment.

Currently, the Department of Education does not inform borrowers of subsequent financial information, such as interest rates and loan origination fees, before they receive a direct loan.

Representative banks

A Banks spokesman said: “Many Americans have been saddled with debt for decades because of the loans they took as a teenager. Getting a student loan is an important decision. The Department of Education should ensure that borrowers are well informed before making such a decision by disclosing relevant financial information in a clear and readable format. This is standard practice for private loans and federal loans should be no exception. I would like to thank Congressman Cleaver and Senators Scott and Manchin for their willingness to draw attention to a serious problem and a smart solution. ”

Senator Cleaver

A spokesman for Cleaver said: “Student loan debt has proven to be a significant burden on millions of Americans, stalling our economy and hampering economic growth. While this is a daunting task, one way to protect the financial future of students is to make federal student loan forms clear and easy to understand so that people are well aware of the terms of the loans they are agreeing to. While it is important for Congress to take action – which is why I proudly introduced the Student Loan Disclosure Modernization Act with Congressman Banks – the administration can take reasonable steps to support students immediately, and this is what we would like to see. “

Senator Manchin:

Senator Manchin said: “Student loan disclosure forms are very important in helping students and families understand the cost and terms of their student loan options. Now these forms are complex, voluminous and filled with useless legal jargon. Our bipartisan bill will increase transparency for students and families by simplifying forms, which makes sense. But the Department of Education can make these robust changes right now by simplifying forms. We urge Secretary of State Cardona to simplify and modernize student loan disclosure forms to help applicants become responsible borrowers. ”

Senator Scott

Senator Scott said: “With two-thirds of college graduates entering the job market with student debt, it is important that we equip young people with the tools to make informed loan decisions. Our bill will simplify and personalize the information borrowers receive, which helps them plan for their future. The Department of Education must act now to implement these common sense proposals that will have a huge impact on the next generation of students. ”

At this Congress, Banks & Cleaver and Senators Scott and Manchin re-enacted the Student Loan Disclosure Modernization Act to simplify the Department of Education’s plain language disclosures and place greater emphasis on the material terms of the loan.

According to a 2016 consumer survey, 62% of Americans with student loan debt did not attend any pre-college financial aid information sessions. And a 2019 survey found that 90% of respondents believed that student loan borrowers should get detailed information before taking out a loan.


Dear Secretary of Cardona,

We are encouraged by the efforts of the US Department of Education with regard to the Next Gen FSA and, in particular, the creation of the Annual Student Loan Confirmation;[1] however, more needs to be done to disclose to borrowers the material terms of direct loans in advance. We write to encourage you to update and modernize the student loan disclosure forms available to direct borrowers.

In accordance with current practice, the Department does not disclose the principal terms and conditions of direct loans to borrowers prior to disbursement, including the interest rate on the loan.[2] Direct loans usually have better terms and conditions and offer a lower interest rate than many private education loans, but such substantial loan terms must still be disclosed to borrowers prior to repayment. Borrowers need to know the terms of any loan before debt arises.

Before taking out a direct loan, students must complete a Free Federal Student Aid Application (FAFSA), sign a Master Note (MPN) and go through an admission consultation.[3] Borrowers also receive Plain Language Disclosure (PLD), which sets out general terms and conditions for direct loans.[4] After completing these steps, students and parents work with the institution’s financial aid office to sign up for direct loans. None of these forms disclose the interest rate and processing fees for direct loans, and the student does not receive any other form from the Department prior to disbursement that includes such information. Some institutions disclose these terms, but they are not required to disclose such information.

After a borrower signs up for a direct loan, it takes several days for the funds to be paid off. After the loan is repaid, the Department will send students a Disclosure Statement from the General Disbursement and Disbursement System (Cash on Delivery Disclosure Statement), which includes the loan amount, loan disbursement fees (both in interest and in dollars) and other related repayment obligations.[5] Sometimes it may take several days for students to receive a form after funds are paid. The cash on delivery disclosure statement does not specifically include the interest rate on the loan.[6]

Section 433 (a) of the Higher Education Act 1965, as amended (HEA), requires that the Department [7] “During or prior to” the disbursement to provide disclosure of information about the loan, which, among other things, specifies the interest rate and fees charged for the grant of the loan.[8] It is unclear how the Department is currently complying with its legal requirement to disclose the interest rate under section 433 (a) as the interest rate is not disclosed in the Cash on Delivery Disclosure Statement, MPN, PLD, or as part of the opening consultation. In addition, because the Cash on Delivery Disclosure Statement is sometimes not received “at Time of Disbursement,” the Department may also fail to comply with Section 433 (a) clearance fee disclosure requirements.[9]

Direct loan interest rates change on 1 July every year.[10] While students can certainly find out the current direct loan interest rate online, this is an additional step that requires them to do independent research and determine the correct interest rate for the loan.[11] Students do not need to guess what the interest rate on their loan will be. This is especially problematic for some students who take out loans in the summer. If a student applies for a loan near the end of June but the loan is not repaid until July 1 or after that date, the new interest rate will be applied on the loan as the interest rate is based on the repayment date.[12] The Department should eliminate this guessing game by providing clear and accurate information about the material terms of direct loans prior to disbursement.

We are aware and aware that this request can be technologically challenging for the Department, especially for loans issued around July due to interest rate fluctuations. However, processing problems can be overcome and should not cause as such a rule that does not disclose interest rates to all direct borrowers.

We also acknowledge that the Department is only required under Section 433 (a) to disclose interest rates to students “upon” disbursement.[13] We implore you to use your authority to disclose these material terms of the loan “before” repayment.[14] Students and parents should be informed about the essential terms and conditions of student loans before they run into debt so that they can make informed choices about how best to fund their studies.

We have developed a bipartisan bicameral law called the Student Loan Modernization Act. The bill would require the Department to review the student loan disclosure form by consumers and include the essential terms of the loan, including the annual interest rate. The bill also requires students to sign a newly developed form before being paid, confirming that they have received disclosure. While we hope this law will come into effect, the Department has the power to review its loan disclosure forms by consumers and require borrowers to sign such forms without further formal authorization. We ask you to consider this option, as we believe that a borrower-signed, consumer-tested direct loan disclosure form will improve this process and reduce over-borrowing.


Buckley Carlson

Communications Director

Representative Jim Banks (IN-03)

(202) 904-0296

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