These days, student loan borrowers have a number of options available to them for financing their pursuit of higher education, and one well-known federal lawmaker is trying to give them a better understanding of those choices.
U.S. Senator Richard Durbin, a Democrat from Illinois, recently called for the passage of a bill that is designed to help college students and their parents better understand all aspects of their financing options before they commit to one, according to a report from his office. The bill, called the Know Before You Owe Act of 2012, was introduced earlier this year and designed to mandate that potential borrowers know the full range of student loan options.
Currently, two-thirds of those with student loans do not know there is a difference between federal financing and that from private lenders, the report said. In fact, many tap the latter type of loans despite still being eligible to receive more money from the federal government.
“Pursuing a higher education is part of the American Dream,” Durbin said. “Graduating saddled with debt is not. We face a looming student debt crisis in our country, and yet a majority of students who take out private student loans do so even though they are eligible for safer, cheaper federal loans. We need to ensure that every student understands the full range of options available to finance their education before signing on that dotted line.”
Durbin and Senator Tom Harkin of Iowa, also a Democrat, first introduced the bill in March, the report said. Specifically, it would require that private lenders obtain certification from a school before issuing a potential borrower financing, which some of these institutions already do voluntarily. Further, colleges would be required to give students more information about private loans and inform them of any government funding for which they may still be eligible.
This is not the only bit of student loan-related legislation Durbin has introduced in the last few months, either, the report said. He also created the Fairness for Struggling Students Act in May, which would allow those who are under significant financial strain to have their private student loans discharged in a bankruptcy filing.
Many experts have noted that because of the high rates of unemployment among young adults and the massive balances many owe on these loans, that it could create a financial problem similar to the housing meltdown a few years ago.
Image: Ed Yourdon, via Flickr