Federal

Know Before You Owe Federal Student Loan Act of 2023

Source: Congress.gov · 1,523 words in original text

What This Bill Does

This bill changes how colleges inform student loan borrowers before they take out loans. It requires schools to provide more detailed information about monthly loan payments compared to expected income and allows students to choose exactly how much they want to borrow. The bill also requires loan servicers to send quarterly statements to borrowers during periods when they don't have to make payments.

Who It Affects

First-time federal student loan borrowers taking out new loans. Colleges and universities that participate in federal student loan programs. Loan servicers and lenders managing federal student loans.

Key Provisions

• Schools must provide counseling before students receive their first payment of each new loan and give estimates comparing monthly loan payments to expected monthly income after taxes, living expenses, health insurance costs and other expenses (Sec. 2). • Schools must inform borrowers that they should borrow the minimum amount necessary and that they don't have to accept the full loan amount they qualify for (Sec. 2). • Schools must warn borrowers that higher debt-to-income ratios make repayment more difficult and must explain how taking extra years to graduate increases total debt (Sec. 2). • Students must manually enter the exact dollar amount of federal loans they want to borrow before the school approves the loan (Sec. 2). • Loan servicers must send quarterly statements during periods when borrowers are not required to make payments, showing loan balances, interest rates, accumulated interest and options to make voluntary payments (Sec. 3).

What Changes

The term "entrance counseling" changes to "pre-loan counseling" throughout federal student loan law. Schools must now include specific information about payment-to-income comparisons, options to reduce borrowing through scholarships or work-study, and the cost of delaying graduation. Borrowers must actively confirm the exact loan amount they want rather than accepting default amounts. Loan servicers must provide quarterly statements during non-repayment periods explaining interest accumulation and payment options.

Important Definitions

"Award year" means the timeframe in which a student receives financial aid. "Deferment" means a period when a borrower doesn't have to make loan payments. "Forbearance" means a period when a borrower doesn't have to make loan payments. "Capitalization" means adding unpaid interest to the loan balance so interest is charged on interest. None other terms are formally defined in the bill.

I 118TH CONGRESS 1ST SESSION H. R. 1216 To revise counseling requirements for certain borrowers of student loans, and for other purposes. IN THE HOUSE OF REPRESENTATIVES FEBRUARY 27, 2023 Mrs. MILLER-MEEKS (for herself, Mr. GUEST, Mrs. HINSON, Mr. NUNN of Iowa, and Mr. FEENSTRA) introduced the following bill; which was re- ferred to the Committee on Education and the Workforce 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 01:17 Mar 14, 2023 Jkt 039200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H1216.IH H1216 kjohnson on DSK79L0C42PROD with BILLS 2 •HR 1216 IH (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 01:17 Mar 14, 2023 Jkt 039200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H1216.IH H1216 kjohnson on DSK79L0C42PROD with BILLS 3 •HR 1216 IH ‘‘(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 01:17 Mar 14, 2023 Jkt 039200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H1216.IH H1216 kjohnson on DSK79L0C42PROD with BILLS 4 •HR 1216 IH ‘‘(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 01:17 Mar 14, 2023 Jkt 039200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H1216.IH H1216 kjohnson on DSK79L0C42PROD with BILLS 5 •HR 1216 IH ‘‘(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 01:17 Mar 14, 2023 Jkt 039200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H1216.IH H1216 kjohnson on DSK79L0C42PROD with BILLS 6 •HR 1216 IH ‘‘(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 01:17 Mar 14, 2023 Jkt 039200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H1216.IH H1216 kjohnson on DSK79L0C42PROD with BILLS 7 •HR 1216 IH 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 01:17 Mar 14, 2023 Jkt 039200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H1216.IH H1216 kjohnson on DSK79L0C42PROD with BILLS 8 •HR 1216 IH interviews’’ and inserting ‘‘pre-loan and exit interviews’’ 1 each place the term appears. 2 Æ VerDate Sep 11 2014 01:17 Mar 14, 2023 Jkt 039200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6301 E:\BILLS\H1216.IH H1216 kjohnson on DSK79L0C42PROD with BILLS

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