The Ongoing Significance of Know Before You Owe

The idea of informing student loan borrowers of their potential debt before they take out loans is one that could go a long way toward easing rising student loan debt. The potential of this solution hasn’t gone unnoticed by Congress. In fact, there has been some form of bipartisan legislation to address student loan debt education in the works since at least 2014 (Source: congress.gov). Although it’s gone through several revisions over the years, Know Before You Owe legislation seeks to revise the Higher Education Act of 1965 and focuses on the importance of helping student loan borrowers understand the impact of the debt they are taking on when they receive federal student loans (Source: govinfo.gov). With the Know Before You Owe Act of 2023 currently making its way through Congress, the issue of helping student loan borrowers understand their potential debt is more important than ever.

Why is Indebtedness Education Important?

Often, first-time student loan borrowers know they may need student loans to help them pay for their higher education expenses, but many don’t fully comprehend the impact that debt could have on their lives after they leave school. Helping student loan borrowers understand exactly what it means to take on loan debt and what will be expected of them when they leave school could help reduce the amount of debt students take on and prevent issues with default.

Currently, federal student loan borrowers are required to complete entrance counseling on their rights and responsibilities before accepting student loan funds, as well as exit counseling when they leave school or drop below half-time enrollment to ensure they understand their repayment obligations (Source: studentaid.gov).

While student loan counseling can help borrowers learn more about the student loan process, there is a lingering sense that more could be done to keep student loan borrowers informed and engaged. Several such options have been the subject of various Know Before You Owe bills that have gone before Congress. These include more frequent counseling, statements detailing projected monthly payment vs. expected wage earnings by field of study, debt letters and specific information on students’ individual grant and scholarship eligibility to name a few.

What is Know Before You Owe?

At its core, Know Before You Owe legislation focuses on doing more to inform student loan borrowers about what to expect when they accept student loan funds. It aims to prevent unnecessary private student loan debt, as well as improve transparency in student loan borrowing, by requiring school-led student counseling on the expense of private education loans and information on any unused federal student aid eligibility (Source: billtrack50.com). Since 2014, different variations of the bill have been introduced, but none have been adopted to date.

Know Before You Owe Federal Student Loan Act of 2023

Currently, the Know Before You Owe Student Loan Act of 2023 proposes several key additions to the information higher education institutions would be required to share with students as part of student loan counseling (Source: senate.gov).

• A statement detailing an estimate of the student’s projected monthly payment vs. discretionary income upon graduation, after taxes and living expenses. This estimate would be based on the starting wages for the student’s program of study. The statement would also include the estimated total student loan debt the student will likely need to complete the program.
• A statement that the student should borrow the minimum amount necessary to cover expenses and that the student does not have to accept the full amount of loans offered.
• A warning that the higher the borrower’s debt-to-income ratio is, the more difficulty the borrower is likely to experience in repaying the loan.
• Options for reducing borrowing through scholarships, reduced expenses, work-study or other work opportunities.
• An explanation of the importance of graduating on time to avoid additional borrowing, what course load is necessary to graduate on time and information on the impact of adding an additional year of study to total indebtedness.

How to Help Student Loan Borrowers Now

While the proposed Know Before You Owe Act of 2023 legislation could offer proactive relief for student loan borrowers, it could take time to implement if and when it’s approved. In the meantime, there are several things schools can do to help borrowers better understand their student loan debt and how it could affect their lives when they leave school.

• Provide students with student loan insight and counseling.
• Provide students with indebtedness data, including financial aid, student loan and institution-specific information.
• Provide students with information on financial wellness topics like budgeting and credit in order to develop lifelong habits for financial success.

Did you know? Attigo can help with these solutions. From providing high-touch personalized student loan conversations with Student Loan Success Center™ to sending easy-to-use, affordable debt letters with College Cost Meter®, we can help you get your students the information they need to make sound student loan decisions.