WASHINGTON – A bill introduced in the Senate would require colleges to counsel students before they sign on to private loans and inform them if they are eligible for federal loans.
The “Know Before You Owe Act of 2012,” sponsored by Democratic Sens. Richard Durbin of Illinois and Tom Harkin of Iowa, would also require the borrower’s school to confirm the student’s enrollment status, cost of attendance and estimated federal financial aid assistance before the private student loan is approved.
The proposed legislation comes as hundreds of credit unions have either introduced private student loan programs over the past two years or are contemplating doing so.
“There is no doubt that federal loans are a better deal for American students and families,” said Durbin. “However, with many for-profit colleges pressuring students into private student loans, many students and their families are not informed of the difference.”
“With student loan debt at a record level, we must empower students to make informed decisions about how they finance their education, especially when it comes to the risks of private loans, which can sink students into financial quicksand and are not dischargeable in bankruptcy,” said Tom Harkin.
The Know Before You Owe Act would require credit unions and other private lenders to:
•Certify with the borrower’s school that the student is enrolled and the amount the student is eligible to borrow before issuing a private loan;
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