Senators Call for Financial Aid Transparency From Institutions, Loan Servicers
By Maria Carrasco, NASFAA Staff Reporter
Both Republican and Democratic senators on Tuesday called for more transparency around financial aid offers during a Senate Committee on Banking, Housing, and Urban Affairs subcommittee hearing focused on private student loan servicers.
The hearing, led by Sen. Raphael Warnock (D-Ga.), chairman of the subcommittee, focused on the consumer protection risks and harms of private student loans, including the roles of lenders, and ongoing challenges that borrowers are experiencing with their student loan servicers.
Warnock said he hoped the hearing helps improve transparency around student lending – which can have “massive” financial implications for borrowers – and brings accountability for the private lenders and student loan servicers “that have too often misled and harmed borrowers.”
“The [financial aid] process is complex and often these days, deliberately opaque,” Warnock said. “Many non-traditional students have to navigate this financial maze without the help or support of a parent, and they may, in some cases, be busy parents themselves.”
Sen. Cynthia Lummis (R-Wyo.), filling in for subcommittee ranking member Sen. Thom Tillis (R-N.C.), said in her opening remarks that while there are individual cases of malfeasance in the private student loan market, “private lenders fill a crucial gap in higher education financing and equip borrowers with the tools to meet the barriers to education in place today.”
She added that Congress should look at ways to improve student financial literacy, simplify financial aid offers, and promote transparency around student outcomes.
“Demonizing private lenders ignores the reality that loan servicers offer tailored solutions for borrowers when federal programs fall short,” Lummis said. “Put simply, private loan lenders provide more information about their products to borrowers, offer loans with greater constraints and risk based metrics, and deter over borrowing to a much greater degree than federal public loans.”
During her remarks Lummis pointed to legislation she and Sen. John Barrasso (R-Wyo.) introduced this year, the Transparency in Student Lending Act. Lummis said the legislation would require institutions to disclose annual percentage rates, standard terms, and fees on federal loans to borrowers before disbursements.
In an effort to improve the clarity, accuracy, and understanding of student financial aid offers, NASFAA has joined 10 higher education associations representing college presidents, financial aid offices, and admissions and school counselors to launch the College Cost Transparency initiative (CCT).
This initiative has produced a set of guiding principles and minimal standards for communicating financial aid offers. Institutions interested in learning more about the CCT initiative can read its principles and standards and aid offer examples, and also submit their commitment to be part of the cause.
During Tuesday’s hearing, there were three witness, including Aissa Canchola Bañez, policy director of the Student Borrower Protection Center, Beth Akers, senior fellow at the American Enterprise Institute, and Dalié Jiménez, professor of law and director of the Student Loan Law Initiative at the University of California, Irvine School of Law.
A key focus of the witness testimony was the need for more transparency from institutions in financial aid offers, along with more transparency from student loan servicers and lenders with more data.
Canchola Bañez noted that while other consumer finance markets – such as mortgage and credit cards – have robust data transparency, there is not comprehensive data in the private student loan market, which often leave borrowers in the dark.
Jiménez noted during the hearing that the last time the Consumer Financial Protection Bureau (CFPB) did a report on the private student loan market was in 2012. She added that a lot more information is needed to fully understand the industry.
Lummis went on to ask Akers what the benefits would be if financial aid transparency were improved. Akers said improving transparency around financial aid offers is a “fantastic step” and a “piece of a broader puzzle” of the student loan system.
“We know that when people are enrolling in college, they have relatively little information about the decisions that they're making, and yet they're signing on the dotted line,” Akers said. “... We need to encourage people to be more skeptical about the degrees that they're paying for, and also put in front of them the information that would help them understand whether or not they're making a strong investment in their future.”
Publication Date: 9/19/2024
Eileen E | 9/19/2024 9:46:57 AM
What has happened to the Annual Student Loan Acknowledgment? It used to provide information about annual percentage rates, standard terms, and fees on federal loans to borrowers before disbursement. Also, the entrance counseling on studentaid.gov is not very effective. You can skip reading it or answering the questions during the counseling and still receive credit for it. This starkly contrasts with a first-time loan borrower completing their mandatory finance counseling for a mortgage. In that case, you must score at least 70% on a quiz and attend the session for 45 minutes, even if you finish early and answer all the questions correctly. What has happened to the accountability in the entrance counseling for Federal student loans? It seems worthless. Overall, the government is failing. Why does the school have to make up for the government's failure? Everyone talks a big game but doesn't want to do anything to make the system work. Remember, the Higher Education Act hasn't been approved. It expired back in 2013. If the government approved this act, we wouldn't have to add new ones.
Darren C | 9/19/2024 9:43:32 AM
Throwing more money at problem like this should never be considered a “solution”. It’s simply a band aid to a problem that no one wants to fix or look at for what it truly is. By increasing federal Direct Stafford loan borrowing amounts, multiple problems are exacerbated. The burden on the taxpayer is increased, students lacking the knowledge and ability to manage debt now have more debt, and the value of many college degrees will continue to fall if median salaries don’t increase along with that debt increase. This is a multi-faceted issue, but the core problem exists in the cost/profit model for education overall in this country.
There were some valid points brought up in this piece, but the question is, will there be any follow through on them and who will be held accountable? For example, “She added that Congress should look at ways to improve student financial literacy”. Great, what does that look like, and when does it start? It’s clear that having a comfort and understanding of finances starting at a very young age is as important as any history, English or science class. “More transparency” does no good unless student borrowers have the temperament and know how to objectively consider their financial aid debt offers. This is a large piece, that could take a couple generations to see improvement in. The sooner it is prioritized, the better.
Lastly, “We need to encourage people to be more skeptical about the degrees that they're paying for,”. This would be a huge step forward. Unfortunately, people have been convinced that college degrees are necessary to succeed and that without one, you are one step behind. If you want people to be more “skeptical” of the model, then more alternatives need to be at the forefront. This would help people see that there are multiple pathways in life to find financial stability and success, thus leading to a more thoughtful and inquisitive mind set when considering all the options.
Alexis S | 9/19/2024 9:21:37 AM
I think if we're going to REALLY help students with financial literacy, transparency is great, but it's not going to matter. Students are going to school to get an education, with the majority of them not in a stable financial place to even contemplate about HOW they're going to pay for college. They're going to take the loans regardless of the financial outcome because they see that as their necessary steppingstone to their degree, and they'll deal with the consequences of those loans after graduation. If we're really going to help students, the whole structure of loans has to change. If you're going to give students the option of paying for college by themselves or taking loans because they have no other means...stop with the predatory loan lending. Stop with the outrageous interest that students will NEVER climb out of. Stop making students have to pay back student loans for the next 30-40 years and keeping them in the constant cycle of debt. That mountain of debt effects other financial obligations in their lives; buying a house, their credit, etc. It's so unfair. Make these loans reasonable for students to pay off. Until that happens...they can argue all they want about financial transparency, and "this" needs to happen, and "that" needs to happen...but it won't matter if financial aid continues as is.
James C | 9/19/2024 8:48:50 AM
If they are concerned about the private loan borrowing then increase the federal Direct Stafford loan borrowing amounts and allow schools to pro-rate federal loans for part-time students. Implement tougher sanctions for schools with high cohort default rates. Also, what happened to the Annual Student Loan Acknowledgement? Require students to complete that instead of creating a new regulatory burden on schools.
Billy B | 9/19/2024 8:29:11 AM
I forever notice that the one thing they never suggest is just giving people more money to go to school. Students know they are taking on debt and know the economy won't support them paying it off. What we need to do is take a little of that defense money and actually help people live good lives. We can talk about financial literacy is not a panacea its a tool that should come after sufficient non-loan support from the federal government. I still haven't forgotten the TEACH "grant" that is really just a loan. We are forced to lie to students in the name.
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