CBA Writes Department of Ed, CFPB to Improve Federal Student Loan Disclosures

February 27, 2019
Nick Simpson

 

CBA Writes Department of Ed, CFPB to Improve Federal Student Loan Disclosures

 

WASHINGTON – Consumer Bankers Association President and CEO Richard Hunt wrote Consumer Financial Protection Bureau Director Kathy Kraninger and Secretary of Education Betsy DeVos requesting their respective agencies work to improve federal student loan disclosures. Currently federal student loan disclosures do not offer a clear, personalized, plain-language overview of key loan terms specific to each borrower. These specific disclosures are already provided to borrowers for all private consumer loans, including bank-offered student loans.

 

“CBA has long advocated for the best possible information to be provided to students and their families before they borrow large sums of money for higher education. We recommend the array of current federal loan disclosures be condensed and improved by requiring disclosures similar to the Truth in Lending Act disclosures required of private lenders,” Hunt said. “While we recognize some improvements to current disclosures may require amendments to the Higher Education Act, we hope the Department, either on their own or in partnership with the CFPB, will develop an overarching and meaningful disclosure of key loan terms so borrowers can more clearly understand their loan obligations before signing on the dotted line.”

 

A copy of CBA’s letter, along with supporting material demonstrating the lack of transparency on federal student loans, is available here.

 

CBA also called on the CFPB and Department of Education to work together to replace school-issued “Award Letters” with a standardized and more aptly called “Financing Letter” which clearly distinguishes between loans and aid that does not need to be repaid like grants or scholarships.

 

CBA recommended an initiative similar to the CFPB’s Know Before You Owe initiative on mortgage disclosure documents as a way to improve transparency and help prevent overborrowing. Among the improvements, CBA suggested including the following disclosures:

  • Include the key terms of the loan, such as the interest rate, fees, projected monthly payment and projected total cost of the loan, and provide a clear view of the true cost of the loan by displaying the APR (which accounts for the origination fees of 4.3 percent for PLUS and 1.1 percent for Direct Loans). Private student loans already include this information and would allow borrowers to compare federal loans with private student loans on an equal basis;
  • Provide these improved disclosures at application and in coordination with the financing letter; and
  • Specify that parents are responsible for Parent PLUS loan repayment regardless of whether the student completes their program of study.

 

“Access to information about the true cost of a loan is critical to making an informed decision about how much debt to take on,” Hunt wrote. When discussing the strong public support for disclosures, he noted, “A recent CBA poll of 1,000 registered voters echoed the importance of borrower disclosures as 90 percent of those surveyed felt borrowers should receive disclosures detailing costs and terms before taking out an education loan. More than 90 percent felt such disclosures should always provide specific monthly payment amounts.”

 

More information on CBA’s student lending poll, which was released on February 21, is available here.

 

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About the Consumer Bankers Association:

The Consumer Bankers Association represents America’s leading retail banks. We promote policies to create a stronger industry and economy. Established in 1919, CBA’s corporate member institutions account for 1.7 million jobs in America, extend roughly $4 trillion in consumer loans and provide $275 billion in small business loans annually. Follow us on Twitter @consumerbankers.