Sen. Richard Durbin (D-Ill.), the namesake behind the Dodd-Frank amendment that limits retailers’ debit card processing fees, introduced the Know Before You Owe Private Education Loan Act (S. 3347). The bill would amend TILA and the Higher Education Act of 1965 to require creditors to obtain certification from institutions of higher education before issuing funds.
The certification would be required to show the student’s enrollment status, the student’s cost of attendance at the institution and the difference between such costs and the student’s estimated financial assistance.
“Too many Americans are carrying around mortgage-sized student loan debt that forces them to put off major life decisions like buying a home or starting a family,” Durbin said in a news release. “It’s not only young people facing this crisis, it is parents, siblings and even grandparents who co-signed private loans long ago and are still making payments decades later. It’s time for action. We can no longer sit by while this student debt bomb keeps ticking.”
Creditors would be able to issue funds without certification if the institution of higher education fails to provide the certification within 15 business days of the creditor’s request.
If a creditor issues funds without obtaining a certification, then the creditor would be required to report the issuance to funds in a manner determined by the Consumer Financial Protection Bureau (CFPB) director.
The bill also would require creditors to provide students with loan statements every three months while the student is enrolled at school. Each statement would report the student borrower’s total remaining debt to the creditor (including accrued but unpaid interest and capitalized interest), any debt increases since the last statement and the current interest rate for each loan.
On or before the date a creditor issues any funds, the creditor must send the institution of higher education written notice of the amount of the student’s funds. The format of the notification will be subject to CFPB regulation.
Creditors will be required to send annual reports about private student loans to the CFPB, which will develop a regulation determining what information would be required.
The CFPB would be required to issue final regulations regarding these amendments to TILA with a year of the bill’s enactment.
The bill, which was co-sponsored by Sens. Al Franken (D-Minn.) and Jack Reed (D-R.I.), was sent to the Senate Banking Committee on Sept. 15.
“Students deserve a fair shot at an affordable education and this bill is a step toward ensuring families have the critical information they need to fully weigh college costs,” Reed said. “This is about helping families make informed decisions so they don’t end up with risky, high-cost private loans when they could have qualified for safer, lower-cost federal student loans.”