New Federal Initiatives Help Students Understand Loans

Tools and campaigns may shed light on borrowing for school.


Borrowing and repaying loans in any context is a complicated process to understand. Borrowing for college is no different; teenagers are expected to weigh numerous—and complex—factors and conduct a sophisticated cost-benefit analysis before deciding whether a particular school is worth the debt. And they are bound by their choice for many years after graduation.

[Find out why you should consider federal student loans.]

At the Student Loan Ranger, we like to help guide you if we can. The Consumer Finance Protection Bureau (CFPB) and the Department of Education have also been plugging away at deciphering some of the information you may want to look at when considering borrowing for school.

The CFPB launched the Know Before You Owe campaign and asked for comments regarding the model format for schools to communicate financial aid offers to students. The first round of comments ranked estimated debt at graduation as the most important feature to appear on a model form. The top five features ranked were:

1. Estimated debt at graduation

2. Estimated monthly payment after graduation

3. My likely ability to repay my loans

4. A complete breakdown of cost at school by category

5. Whether students at this school have been able to repay loans

Among the information deemed critical was a clear indication of what aid requires repayment, the cost per year, an explanation of the consequences of defaulting on a student loan, and a comparison of the differences between private loans and federal loans, such as interest accrual and repayment terms and options. If interested, students can view the sample award letter and offer comments.

Also intended to decipher and present important information is the Department of Education's College Scorecard, an online tool that would require schools to report information about costs, graduation, student loan repayment, student loan debt, and potential earnings of graduates. The scorecard shows how a particular school compares to other institutions and breaks down information such as how likely students are to graduate and how long it takes them, the average amount of loans borrowed by students, how many graduates get jobs, and how much they typically earn at work.

[Find out how to start repaying student loans.]

The plan is to add the College Scorecard to the College Affordability and Transparency Center, but the Student Loan Ranger wonders how visible that is to prospective students. Did you know the site exists? We tend to agree with Education Sector that this needs to be forced into the hands of students. What's the point of deciphering and making information available if no one knows where to find it?

Interestingly, one author at The Atlantic provides this cautionary opinion about the controversy regarding law school employment data. We've written about the efforts of Law School Transparency before and agree there must be clear rules and guidance about the information required and how it is collected and reported. But we tend to think the more information, the better. Without transparency, there is no informed decision, and we're talking about decisions to become part of the $1 trillion student loan club for which you may be paying long after graduation. Don't forget to view the sample College Scorecard and submit comments. A final version is scheduled to come out later this year.

The Department of Education is also currently conducting negotiated rulemaking sessions to address issues faced by borrowers in repayment, including modifying Income-Contingent Repayment (ICR) to cap repayments at 10 percent of discretionary income and provide for forgiveness after 20 years for eligible new borrowers, in line with President Obama's Pay As You Earn initiative. The National Association of Student Financial Aid Administrators has a great summary of the sessions so far.

And in January, the Department released an Employment Certification for Public Service Loan Forgiveness (PSLF) form. While borrowers can't apply for actual forgiveness until completing all the requirements, they can submit the form annually and receive an initial determination from the Department stating whether their employment qualifies and how many qualifying payments they've made. You can find and download the form, its instructions, and the Department's Dear Borrower Letter on our website.

[Read more about Public Service Loan Forgiveness.]

We do want to alert those who are interested in pursuing work involving religious instruction or proselytizing in any form that the Department has recently said such employment cannot count toward PSLF, even if you work at a 501(c)(3) organization. Previously, the Department had said the type of work (or nature of organization) did not matter if you worked at a 501(c)(3), which is consistent with governing regulations—causing many to rely on this fact. Those impacted by this change are speaking out and pointing to ways in which their service expands beyond faith to broader communities.

To learn more about Public Service Loan Forgiveness and relief programs like Income-Based Repayment, register for one of our free student debt relief webinars. The next one is Friday, March 9, at 3 p.m. ET. And stay updated on student debt news and developments by connecting with us on Twitter (@EJW_org #studentdebthelp) and Facebook.

Radhika Singh Miller is a program manager for Educational Debt Relief and Outreach at Equal Justice Works. In 2008, she served on the Student Loans Team in the Negotiated Rulemaking for the College Cost Reduction and Access Act (CCRAA) and has extensive knowledge of this landmark educational debt relief legislation. Radhika graduated from Loyola Law School Los Angeles. Prior to joining Equal Justice Works, she was a staff attorney at the Partnership for Civil Justice, focusing on constitutional and civil rights litigation and advocacy.