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Know Before You Owe

August 8, 2014
Senator Chuck Grassley , Traer Star-Clipper

It's a common assumption in America that attending college is a student's golden ticket to landing a good-paying job and launching a prosperous career.

If only it were that simple. While research shows earning a college degree does bump up one's lifetime earning potential, student borrowers need to smarten up to avoid being taken for a ride.

The reality is that an entire generation of students is graduating neck-deep in debt.

Consider the federal government today carries a trillion-dollar student loan portfolio. The risk for borrowers' default looms large, putting taxpayers on the hook for even more government largesse. This fiscal year, the U.S. Department of Education will make about $112 billion in Federal Direct Loans to students. The fastest category of student loans is federal unsubsidized student loans, which are given out regardless of need.

Students need to be savvy borrowers. Securing a student loan is not like winning the lottery.

The federal government today issues about 90 percent of student loans. It's as if Uncle Sam holds the keys to pay for college tuition. Some argue double-digit tuition hikes are tied to the high tide of the federal financing stream that's underwriting student loans. And the President is willing to crank the U.S. Treasury's spigot wide open with scant regard for borrowers' ability to repay. In fact, the President wants to expand the Pay-As-You-Go program that promotes debt forgiveness and make it retroactive to more borrowers. If money grew on trees, this might sound reasonable, but for every student who will have their loan partially paid off, there are several taxpayers that worked hard to pay off their own education or didn't go to college at all. It doesn't add up to smart public policy.

Student borrowers can't afford a mad dash to college without taking precautions that will prevent buyer's remorse, defaulting on loans and risking creditworthiness.

College-bound students deserve better tools to make informed decisions about paying for a college education and getting the best value for your tuition dollar, especially when those dollars will bear compound interest after graduation.

I've long supported tax-advantaged savings tools to help families carve money out of their paychecks to build up a nest egg for college. More can be done to help students look before you leap.

Currently, I am advancing three legislative tools in Congress to empower students to make smart borrowing decisions, including:

improvements to the online net price calculator tools found on college websites, making it easier to compare costs between multiple colleges before sinking time and money into the application process;

creation of a universal financial aid award letter to help students understand exactly what college would cost at the colleges they applied to attend and which forms of financial assistance would need to be repaid; and

upgrades to student loan counseling requirements.

Most recently, I introduced the "Know Before You Owe Federal Student Loan Act" which strengthens student loan counseling requirements. For instance, colleges would have to provide an estimate of the student's projected loan debt-to-income ratio upon graduation based on the starting wages for that student's program of study and the estimated total student loan debt the student will likely take out to complete the program. That way, students will have a clear picture of student loan payments due after graduation. You will see whether you will be able to afford those payments with likely future income. My bill also requires colleges to ask how much students want to borrow instead of just telling you the maximum you can get and having you sign on the dotted line.

Receiving a college education does not guarantee financial security, especially if one's student loan debt is disproportionate to one's earnings. This squeezes your purchasing power and makes it harder to get your footing on the ladder of economic mobility.

Growing Uncle Sam's student loan portfolio without sowing the seeds of fiscal stewardship among borrowers is a train wreck in the works. What's more, policymakers need to focus more on getting the economy back on track so students have better opportunities to land a good-paying job after graduation.

Remember a good rule of thumb for borrowers: Know before you owe.



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