Federal

Know Before You Owe Federal Student Loan Act of 2023

Source: Congress.gov · 1,520 words in original text

What This Bill Does

This bill changes how colleges counsel students before they take out federal student loans. It requires colleges to give students more information about loan amounts, monthly payments and borrowing alternatives. Students must also manually enter the exact dollar amount they want to borrow before the college approves their loan.

Who It Affects

Students borrowing federal student loans. Colleges and universities that give out student loans. Loan servicers and lenders who manage student loans.

Key Provisions

• Colleges must provide counseling before a student's first disbursement of each new loan (or first disbursement in each award year if more than one new loan is obtained in the same award year) instead of just for first-time borrowers (Sec. 2) • Colleges must show students an estimate of their monthly loan payment compared to their estimated monthly income after taxes, living expenses, health insurance costs and other expenses, based on starting wages for their program of study and their total estimated student loan debt (Sec. 2) • Students must manually enter in writing or through electronic means the exact dollar amount of federal direct loan funding they want to borrow before the college certifies the loan (Sec. 2) • Loan servicers must send borrowers a quarterly statement during periods when they don't have to make payments, including the loan's original amount, current balance, interest rate, total interest paid and information about voluntary payments (Sec. 3) • Colleges must explain that borrowers don't have to accept the full amount of loans they're eligible for and should borrow only the minimum necessary (Sec. 2)

What Changes

The term "entrance counseling" is changed to "pre-loan counseling" throughout federal student loan law. Colleges must provide more detailed information to students about how loan payments compare to expected income and the consequences of high debt-to-income ratios (defined as the ratio of debt owed compared to income earned). Loan servicers must send quarterly statements to borrowers when payments are not required, explaining interest that has accumulated and options to make voluntary payments. The law changes references from "entrance and exit counseling" to "pre-loan and exit counseling" in college participation agreements and regulatory sections.

Important Definitions

The bill does not explicitly define key terms such as "eligible institution," "borrower," "federal direct loan" or "award year."

II 118TH CONGRESS 1ST SESSION S. 530 To revise counseling requirements for certain borrowers of student loans, and for other purposes. IN THE SENATE OF THE UNITED STATES FEBRUARY 27, 2023 Mr. GRASSLEY (for himself and Ms. SMITH) introduced the following bill; which was read twice and referred to the Committee on Health, Edu- cation, Labor, and Pensions A BILL To revise counseling requirements for certain borrowers of student loans, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Know Before You Owe 4 Federal Student Loan Act of 2023’’. 5 SEC. 2. PRE-LOAN COUNSELING AND CERTIFICATION OF 6 LOAN AMOUNT. 7 Section 485(l) of the Higher Education Act of 1965 8 (20 U.S.C. 1092(l)) is amended— 9 VerDate Sep 11 2014 04:37 Mar 07, 2023 Jkt 039200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S530.IS S530 kjohnson on DSK79L0C42PROD with BILLS 2 •S 530 IS (1) in the subsection heading, by striking ‘‘EN- 1 TRANCE COUNSELING’’ and inserting ‘‘PRE-LOAN 2 COUNSELING’’; 3 (2) in paragraph (1)(A)— 4 (A) in the matter preceding clause (i), by 5 striking ‘‘a disbursement to a first-time bor- 6 rower of a loan’’ and inserting ‘‘the first dis- 7 bursement of each new loan (or the first dis- 8 bursement in each award year if more than one 9 new loan is obtained in the same award year)’’; 10 and 11 (B) in clause (ii)(I), by striking ‘‘an en- 12 trance counseling’’ and inserting ‘‘a coun- 13 seling’’; 14 (3) in paragraph (2)— 15 (A) by striking subparagraph (G) and in- 16 serting the following: 17 ‘‘(G) An estimate of the borrower’s month- 18 ly payment amount compared to the borrower’s 19 estimated monthly income after taxes, after liv- 20 ing expenses (using Consumer Expenditure 21 Survey data from the Bureau of Labor Statis- 22 tics), after estimated health insurance costs, 23 and after any other relevant expenses, based 24 on— 25 VerDate Sep 11 2014 04:37 Mar 07, 2023 Jkt 039200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S530.IS S530 kjohnson on DSK79L0C42PROD with BILLS 3 •S 530 IS ‘‘(i) the best available data on starting 1 wages for the borrower’s program of study, 2 if available; and 3 ‘‘(ii) the estimated total student loan 4 debt of the borrower, including— 5 ‘‘(I) Federal debt; 6 ‘‘(II) to the best of the institu- 7 tion’s knowledge, private loan debt al- 8 ready incurred; and 9 ‘‘(III) the estimated future debt 10 required to complete the program of 11 study.’’; and 12 (B) by adding at the end the following: 13 ‘‘(L) A statement that the borrower should 14 borrow the minimum amount necessary to cover 15 expenses and that the borrower does not have 16 to accept the full amount of loans for which the 17 borrower is eligible. 18 ‘‘(M) A warning that the higher the bor- 19 rower’s debt-to-income ratio is, the more dif- 20 ficulty the borrower is likely to experience in re- 21 paying the loan. 22 ‘‘(N) Options for reducing borrowing 23 through scholarships, reduced expenses, work- 24 study, or other work opportunities. 25 VerDate Sep 11 2014 04:37 Mar 07, 2023 Jkt 039200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S530.IS S530 kjohnson on DSK79L0C42PROD with BILLS 4 •S 530 IS ‘‘(O) An explanation of the importance of 1 graduating on time to avoid additional bor- 2 rowing, what course load is necessary to grad- 3 uate on time, and information on how adding 4 an additional year of study impacts total in- 5 debtedness.’’; and 6 (4) by adding at the end the following: 7 ‘‘(3)(A) In addition to the other requirements 8 of this subsection and in accordance with subpara- 9 graph (B), each eligible institution shall ensure that 10 the student manually enter, either in writing or 11 through electronic means, the exact dollar amount of 12 Federal Direct Loan funding under part D that 13 such student desires to borrow. 14 ‘‘(B) The eligible institution shall ensure that 15 the student carries out the activity described in sub- 16 paragraph (A)— 17 ‘‘(i) in the course of the process used by 18 the institution for students to accept a student 19 loan award; 20 ‘‘(ii) prior to the institution certifying a 21 Federal Direct Loan under part D for disburse- 22 ment to a student (other than a Federal Direct 23 Consolidation Loan or a Federal Direct PLUS 24 loan made on behalf of a student); and 25 VerDate Sep 11 2014 04:37 Mar 07, 2023 Jkt 039200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S530.IS S530 kjohnson on DSK79L0C42PROD with BILLS 5 •S 530 IS ‘‘(iii) after ensuring that the student has 1 completed all of the pre-loan counseling require- 2 ments under this subsection.’’. 3 SEC. 3. REQUIRED PERIODIC DISCLOSURES DURING PERI- 4 ODS WHEN LOAN PAYMENTS ARE NOT RE- 5 QUIRED. 6 Section 433 of the Higher Education Act of 1965 (20 7 U.S.C. 1083) is amended— 8 (1) by redesignating subsection (f) as sub- 9 section (g); and 10 (2) by inserting after subsection (e) the fol- 11 lowing: 12 ‘‘(f) REQUIRED PERIODIC DISCLOSURES DURING PE- 13 RIODS WHEN LOAN PAYMENTS ARE NOT REQUIRED.— 14 During any period of time when a borrower of one or more 15 loans, made, insured, or guaranteed under this part or 16 part D is not required to make a payment to an eligible 17 lender on the borrower’s loan from that eligible lender, 18 such eligible lender shall provide such borrower with a 19 quarterly statement that includes, in simple and under- 20 standable terms— 21 ‘‘(1) the original principal amount of each of 22 the borrower’s loans, and the original principal 23 amount of those loans in the aggregate; 24 VerDate Sep 11 2014 04:37 Mar 07, 2023 Jkt 039200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S530.IS S530 kjohnson on DSK79L0C42PROD with BILLS 6 •S 530 IS ‘‘(2) the borrower’s current balance, as of the 1 time of the statement, as applicable; 2 ‘‘(3) the interest rate on each loan; 3 ‘‘(4) the total amount the borrower has paid in 4 interest on each loan; 5 ‘‘(5) the aggregate amount the borrower has 6 paid for each loan, including the amount the bor- 7 rower has paid in interest, the amount the borrower 8 has paid in fees, and the amount the borrower has 9 paid against the balance; 10 ‘‘(6) the lender’s or loan servicer’s address, toll- 11 free phone number, and webpage for payment and 12 billing error purposes, including information about 13 how a borrower can make voluntary payments when 14 a loan is not in repayment status; 15 ‘‘(7) an explanation— 16 ‘‘(A) that the borrower has the option to 17 pay the interest that accrues on each loan while 18 the borrower is a student at an institution of 19 higher education or during a period of 20 deferment or forbearance, if applicable; and 21 ‘‘(B) if the borrower does not pay such in- 22 terest while attending an institution or during 23 a period of deferment or forbearance, any accu- 24 mulated interest on the loan will be capitalized 25 VerDate Sep 11 2014 04:37 Mar 07, 2023 Jkt 039200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S530.IS S530 kjohnson on DSK79L0C42PROD with BILLS 7 •S 530 IS when the loan goes into repayment, resulting in 1 more interest being paid over the life of the 2 loan; 3 ‘‘(8) the amount of interest that has accumu- 4 lated since the last statement based on the typical 5 installment time period and the aggregate interest 6 accrued to date; and 7 ‘‘(9) an explanation that making even small 8 payments of any unspecified amount while the bor- 9 rower is a student at an institution of higher edu- 10 cation, or during a period of deferment or forbear- 11 ance, if applicable, can help to offset interest accrual 12 over the life of the loan.’’. 13 SEC. 4. CONFORMING AMENDMENTS. 14 (a) PROGRAM PARTICIPATION AGREEMENTS.—Sec- 15 tion 487(e)(2)(B)(ii)(IV) of the Higher Education Act of 16 1965 (20 U.S.C. 1094(e)(2)(B)(ii)(IV)) is amended— 17 (1) by striking ‘‘Entrance and exit counseling’’ 18 and inserting ‘‘Pre-loan and exit counseling’’; and 19 (2) by striking ‘‘entrance and exit counseling’’ 20 and inserting ‘‘pre-loan and exit counseling’’. 21 (b) REGULATORY RELIEF AND IMPROVEMENT.—Sec- 22 tion 487A of the Higher Education Act of 1965 (20 23 U.S.C. 1094a) is amended by striking ‘‘entrance and exit 24 VerDate Sep 11 2014 04:37 Mar 07, 2023 Jkt 039200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S530.IS S530 kjohnson on DSK79L0C42PROD with BILLS 8 •S 530 IS interviews’’ and inserting ‘‘pre-loan and exit interviews’’ 1 each place the term appears. 2 Æ VerDate Sep 11 2014 04:37 Mar 07, 2023 Jkt 039200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6301 E:\BILLS\S530.IS S530 kjohnson on DSK79L0C42PROD with BILLS

Important: This plain English summary was generated by AI and is provided for informational purposes only. It is not legal advice. Always consult the official bill text on Congress.gov or a qualified attorney for legal matters.