This column is part of a series of articles on the new Consumer Financial Protection Bureau and the upcoming wave of regulations affecting the consumer financial industry.
If you have kids who are in, about to go to, or just out of college, you probably know best that college tuition continues to skyrocket. A public college costs about $17,000 per year; private colleges cost about $39,000 per year. Graduating seniors who borrow money to go to college will leave school with an average of about $22,000 in debt if they attended a public institution and $28,000 if they attended a private one. With an economy that continues to offer bleak employment prospects, the swelling personal financial outlay and debt load required to get a college education is, for some, beginning to look less and less like a good investment.
At the end of October, President Obama announced a new federal student loan program designed to reduce payments on student loans. There are two key features of the initiative.
- The first is a loan consolidation program that allows borrowers with different types of loans (i.e., guaranteed and direct) to roll them into a single direct loan with a reduced interest rate.
- Second, the president accelerated the implementation of a program passed last year that established a ceiling on student loan payments at 10 percent of a borrower’s disposable income. Originally set to go into effect in 2014, the program will begin affecting students next year, two years earlier than originally scheduled.
How about the Consumer Financial Protection Bureau? What is it doing? According to Raj Date, de facto head of the Bureau, “[t]he problem with student loans start from the moment financial aid information arrives from colleges.” As a result, the Bureau is once again trotting out its “Know Before You Owe” theme which it previously used on the Bureau’s mortgage loan disclosure project. This time, the Bureau, in conjunction with the Department of Education, is looking for feedback on a form called a “financial aid shopping sheet.” Once complete, colleges and universities will, if they choose, provide the simple form to students who apply for student aid. Use of the form, which will include information such as the amount of debt the student will have on graduation as well as details on the financial aid package offered to students, will be voluntary.