The Consumer Bankers Association backs proposed improvements to the federal higher education loan application as proposed in Congress.
Specifically, CBA supports a proposal by Sens. Tim Scott (R-SC) and Joe Manchin (D-WV) requiring the applications to carry plain-language disclosures on the true cost of the loan.
“Today, the ironically named Plain Language Disclosure provides users of federal student loan products six pages of legal jargon in fine print to show only generic loan costs and repayment terms. Your important legislation would streamline the disclosure and clearly explain the costs and terms of the federal student loan specific to the individual borrower,” CBA President and CEO Richard Hunt wrote in a letter to Scott and Manchin.
Hunt pointed out that banks and private-sector lenders, which make the majority of private education loans, already provide clear and digestible disclosure forms. Federal loans, he said, should be held to the same standard as private lenders.
“Private student lenders already offer their customers a clear, know-before-you-owe disclosure form that is welcomed by the borrower. CBA strongly believes that adequate, individualized disclosures of federal loan costs and terms will promote informed decision-making and discourage the excessive federal lending that is fueling the exorbitant rise in higher education costs,” Hunt added.
According to a survey conducted in January 2019, 90 percent of respondents felt borrowers should receive disclosures detailing costs and terms before taking out an education loan. Also, more than 90 percent felt such disclosures should always provide specific monthly payment amounts.
Due in part to the lack of plain-language disclosures on the total costs of the loan, federal student loans have a double-digit delinquency and default rate. Conversely, private student loans from banks have a 98 percent repayment rate, due in part to the clear disclosures at the start of the loan process.