Student loans are a means to an end for countless college students in the United States, but many of them have no idea what they are getting in to when they sign on the dotted line. Earlier in March, Rep. Luke Messer, the Republican from Indiana’s 6th District, recently introduced new legislation aiming to increase awareness among student borrowers according to his own press release.
Dubbed the Letter of Estimated Annual Debt for Students (LEADS) Act, H.R. 1429 would require colleges and universities that accept federal financial aid to send letters to student loan borrowers with an estimate on total student loan debt as well as projections for monthly payments in the future.
“Often, students don’t realize the true burden of their debt. We want to empower students with information so they can make better-informed decisions about their education, finances and future,” Messer said in his press release announcing the new legislation. The way Messer sees it, if students are informed about how much is owed, then they can either prepare for future payments with certainty or make the call to reduce their student debt burden.
Messer said that his bill is modeled after a program at Indiana University that has been in place since 2012. Like the LEADS proposal, the Indiana program requires annual letters to be sent each year to student borrowers with their total debt and future monthly payments. Since the program has been in place, Messer claims that the University of Indiana officials reported a 23 percent decline in student borrowing. This is likely the intended effect of Rep. Messer’s LEADS Act.
In addition to its own awareness program, the University of Indiana offers its student borrowers extensive financial literacy resources, and it provides incentives to spur students towards a timely graduation, all of which supposedly play a role in reducing student debt.
A similar approach has developed in Congress according to a congressional study by LendEDU. Many politicians are starting to advocate programs that seek to improve financial literacy among student borrowers. Like the University of Indiana, the desired effect is a reduction in student borrowing overall as well as improvements in loan repayment performance. Some of these efforts include the Strengthening Transparency in Higher Education Act, the Fairness in Student Lending Act, and the Empowering Students Through Enhanced Financial Counseling Act.
According to this congressional study, one of Luke Messer’s initiatives on the issues of college affordability and student loan is improving financial literacy, aligning with the trend in Congress. Taking a look at Messer’s district relays the urgency of his actions. Indiana District 6 has an average student debt of $33,978 which is greater than the national average. 79 percent of graduates having at least one loan compared to 60 percent on the national scale. The default rate in his district is at 6.44 percent which is luckily lower than the national rate of 12 percent.
There is no question that college students around the country have little knowledge about their student loans and how much they will owe once they are out of school. In a recent survey of college student borrower financial awareness, LendEDU found that 80 percent of college students didn’t know the current interest rate undergraduate federal loans while 79 percent didn’t know the different repayment options for a federal student loan. Such findings only point towards improving financial literacy as a significant solution to the caustic problem of student loan debt. At any rate, it seems to be an initiative that may gain traction in Congress in the future.
Author: Andrew Rombach
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