As Americans hit a new high of $ 1.7 trillion in student loans in May, according to the Federal Reserve, three bills proposed by a group of US senators in April to simplify the student financial aid process are timely.
Democratic Senator from Minnesota, Tina Smith, and Republican Senators from Iowa, Chuck Grassley and Joni Ernst, reintroduced the law titled Understanding the True Cost of College Act and the Net Price Calculator Improvement Act while launching the Know Before You Act. Owe Federal Student Loan Act.
These bills are expected to be passed to address the financial literacy gap associated with crushing student debt in the United States. These elements are integral to making informed decisions about their financial future.
The first invoice, Understanding the Real Cost of the Colleges Act, stimulate financial literacy by helping students understand the terms they accept when applying for loans through the use of a simplified and standardized format.
The Secretary of Education is required by law to work with colleges, families, and students to relay information to borrowers as clearly as possible. For example, some disclosures in a school’s financial aid offer will be required, including options to borrow less or more than recommended with a link and explanation of the Department of Finance Loan Calculator Repayment Calculator. Education of the United States.
All of this should be stated “in a user-friendly, simple and understandable manner”, according to the proposal. This includes certain terms that should be used in connection with loans, such as the clear use of the word “loan” and the explicit labeling of federal subsidized and unsubsidized loans.
Young people in the we are largely financially illiterate. FINRA 2018 National Financial Capability Study asked 30,000 participants five questions covering everyday aspects of economics and finance, such as the effects of base interest and inflation. Only 17%, or 552, of the 3,250 18-34 year olds questioned were able to answer most of the questions correctly.
With simplified language and explanations, students and their families will better understand how taking out a loan can impact their financial future and can thus make more informed decisions based on their financial situation.
The proposed bills will also make the college more accessible to students from low-income families.
Financial literacy is strongly correlated with income, with people in the highest income quartile averaging 27% higher financial literacy than the lowest income quartile in a study by the Federal Reserve Bank of St. Louis.
This is not surprising, as income is strongly correlated with higher education. With low income and low financial literacy, many families assume they simply cannot afford a college education.
The second bill, the Net Price Calculator Improvement Act will modify the Higher Education Act 1965 to improve the net price calculator, which shows students the cost of their studies after financial aid that does not need to be repaid, such as grants, tuition waivers, or school scholarships .
By looking at the net price rather than general tuition fees, students from low-income families may discover that schools they thought were too expensive may be within their reach.
the Know Before You Need Federal Student Loans Act, the third bill, will improve the federal lending council by requiring loan counseling and educational modules for every student who borrows federal loans.
Together, these bills will empower students from low-income families to take charge of their financial future by providing easily accessible and readable resources to educate them on practical loan choices.
USF has already implemented some of these steps. Students receiving a direct loan for the first time should follow admissions advice regarding the loan. All freshmen at USF are also required to complete a Financial Wellness module prior to the start of the semester. The module provides financial resources to students through the Financial Aid Office.
The bill must be supported by the people and our representatives. Nothing ever came of the College Education Cost Act when it was first introduced in 2017, a mistake that should be changed this time around. All bills have also remained in limbo for the past two months in committee. They need to be immediately prioritized and successful when students return to school and need to start making financial choices to pay for them.
Financial illiteracy and student debt are at an all time high in America. By making information and options on student loans more accessible to students and their families, young people are better equipped to take charge of their financial future, rather than fall victim to financial ignorance.