Student loans are one of the top three common sources of debt for many Americans.
In fact, NPR reports Americans have about $1.3 trillion in student loan debt alone. That’s a scary figure!
The reality of the debt situation is troubling for a number of reasons.
Chief among them? The fact that many of those borrowers are confused about the loans they must eventually pay back.
A recent study found that 97.9 percent of students surveyed aren’t sure if their loans rack up interest while they’re still working toward their degree.
Many of those same students also didn’t realize repayment of their loans doesn’t necessarily start the second that diploma is slapped into their hand.
A grace period does exist, however the length of the period and whether interest accrues during that time makes a big difference in what is eventually paid back.
It’s a lot to take in – especially when one considers other types of loans, too. Understanding what the actual cost for borrowing money will be over the life of a loan – whether it’s for school, a car or a mortgage – is important.
Thankfully, the Consumer Financial Protection Bureau (CFPB) is working to give consumers a map to guide the way.
As the second post in a two-part series regarding the CFPB’s “Know Before You Owe” program, read on for an overview of how those looking to invest in a college degree can find help with their student loans.
What the program includes
The CFPB has designed “shopping sheets” to help students and their families estimate how much they’ll have to pay for college. This also includes how much they’ll owe in student loans.
Prospective students can see cost differences between different schools, the average default rate and how much debt they’ll likely need to repay once they graduate.
It’s estimated more than 2,000 schools are part of this program, allowing potential students to make informed financial decisions before stepping onto campus. Some of these schools include academic powerhouses such as New York University, Northwestern and Cornell.
By following the program, a student can contrast college costs between the schools and input individual financial aid and scholarship information to find the best deal. It also allows students to see their total debt amount and how high their monthly student loan payment will be.
Additionally, the CFPB created a repayment assistant to identify which repayment plan is best. This tool considers whether consolidation is right for the student and shows how military status can change the options.
Why this information is important for student loans
In 2011, Indiana University started sending letters to current students showing them their student loan balance.
The result? Students took out almost 20 percent less in federal and private loans once they realized how much their total was.
In other words, advising students about debt early is a recipe for success.
Even though much of the information provided by the CFPB has been available, the “Know Before You Owe” program organizes these resources in an easier to understand and more comprehensive way.
What to keep in mind
Providing these robust tools and resources will undoubtedly help many make smarter financial decisions when it comes to their student loans, however student loan lawyer Jay Fleischman of Consumer Help Central said they are not a permanent fix.
“The ‘shopping sheet’ created for the program doesn’t go far enough,” he said. “Though more than 2,000 schools have adopted the shopping sheet, doing so is completely voluntary. Without full adoption by all colleges and universities, students aren’t able to reliably compare schools across the board.”
Fleischman adds the shopping sheets are also missing critical pieces of information both students and parents need to know before they can truly make an informed decision.
“Federal student loan options aren’t presented with terms and conditions. Plus, cost of attendance remains estimated rather than allowing students to enter their realistic costs,” he said.
While the “Know Before You Owe” program may not be a perfect solution at this point, it’s certainly a step in the right direction in providing students a more informed view of their student loans and helping them to avoid surprises after they graduate.