Guest Post: $tudents Lack Loan Literacy

To many people, obtaining a college education is the American Dream.  The United States is the greatest country in the world and is home to some of the world’s best colleges and universities.   But we can’t just make the goal of higher education more attainable. It’s about providing an opportunity for students to receive that degree and succeed.

As the cost of attaining a degree continues to rise, many of today’s students need financial assistance in order to make that dream a reality.  With two children in college and one quickly approaching, I too understand how complicated this process can be for both students and parents.  Just as it’s important for students to research what college to attend or understand degree requirements, it is also critical that they understand and take ownership over the financial commitment they are making.  That’s why I introduced H.R. 4984, a bipartisan bill that will increase financial literacy by reforming the current guidelines to require annual counseling for student borrowers.

H.R. 4984, the Empowering Students through Enhanced Financial Counseling Act arms students with the knowledge to understand how much money they are borrowing, which financial options to draw from first, the implication of their future debt load, and repayment scenarios.  These individualized counseling sessions provide student borrowers with the information they need to properly decide if they need the full loan amount they were offered, as well as what their repayment options will look like after graduation.  Currently, financial counseling is only required at the beginning and end of a student’s studies.  That leads to students essentially defaulting to take out their full loan awards, accruing large debt burdens, and having a cloudy picture of their financial obligations.

Instead, we can look to what schools like Indiana University are doing.  IU has started the process of alerting students annually what their costs will be and what their repayment scenarios would be depending on what they borrowed, all prior to accepting their coming year’s aid package. This approach is similar to what H.R. 4984 seeks to do.  In this effort, IU found that federal undergraduate Stafford loan disbursements dropped $31 million – or 11 percent – from the previous year.  That is five times the decline in the national average.

In today’s economy, a good education is critical.  We need to empower students with the knowledge and information they need to take control over their financial futures, and this week the House will take an important first step toward that goal.

— Rep. Brett Guthrie (R-KY)

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 To read more about H.R. 4984, click here.