student loan transparency and default reduction act of 2011

8/9/2019 Student Loan Transparency and Default Reduction Act of 2011

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SUMMARY

Student Loan Transparency and Default Reduction Act of 2011- Amends the Higher Education Act, as amended by the HigherEducation Opportunity (20 U.S.C. 1092) and the General Education Provisions Act (20 U.S.C. 1232g) to (1) require institutionsof higher education to provide improved financial counseling to students at the time of notification of acceptance, (2) createpenalties for institutions failing to provide the required counseling, (3) require institutions of higher education to informapplicants of the percentage of students graduating from a given institution of higher education with student loan debt, thepercentage of graduates defaulting on student loans within a three year period, and the average starting salaries for studentsgraduating from the applicants expected course of study, (4) require institutions of higher education to release applicantsparticipating in an early application system from a binding admissions agreement if the applicant determines the offer of

financial assistance is insufficient, (5) lower the number of percentage of the student body that can default on their loans beforean institution of higher education is no longer eligible for federal aid.

(1) Parents and students have a legitimate educational interest in receiving information regarding long-term debt obligations ofattendance at a given institution, and the United States has a legitimate interest in requiring institutions of higher education toprovide such financial information to prospective students and their parents.

This Act amends existing provisions that require institutions of higher education to provide entrance counseling in order tosupply potential borrowers with information regarding the responsibility of accepting student loans offered at the time ofnotification of acceptance. Such information shall include: projected monthly payments, the average debt accrued by borrowersattending the same school, and other information necessary to provide potential borrowers with a complete understanding oftheir responsibilities and rights. The potential borrower shall be required to provide written acknowledgement of havingreceived and understood the required counseling.

(2) The law already requires institutions of higher education to provide entrance counseling, however many fail to do so and thelaw is loosely enforced. This Act creates penalties for institutions of higher education that fail to provide the required entrancecounseling, which must be provided before students make a decision to accept student loans. Institutions failing to provide therequired entrance counseling shall no longer be eligible to receive Federal funds.

(3) In order for potential students and their families to make informed decisions about attendance at a given institution or toaccept loans, they must be provided with the appropriate information. This Act amends existing provisions that requireinstitutions of higher education to require greater information dissemination. Such information shall include: the averageamount of student loan debt accrued by students who have attended the institution, the percentage of students defaulting on such

loans within a three year period (the cohort default rate), and the average starting salaries for students graduating from a specificcourse of study at a given institution.

(4) This Act requires institutions of higher education implementing an early application system to release admitted students

from a binding admissions agreement if interest payments on loans made by parents on behalf of the student would contributeto a 35% or greater income to-debt-ratio with respect to all debt obligations, according to information provided on the FAFSAor EZFAFSA, or necessitate interest payments on behalf of the student in excess of 10% of the expected monthly grossincome for the student borrower, according to information compiled and disseminated by the university as required by this

Act, for their expected course of study, if one was so indicated on their application, or the aggregate expected income forgraduates of the institution.

Institutions of higher education are prohibited from sharing information regarding the release of a student from a bindingadmissions agreement with other institutions of higher education without the consent of the applicant, and such decision shall notbe held against the applicant if they choose to apply again in a subsequent admissions cycle.

(5) Under current law institutions of higher education will lose their eligibility for Federal aid if 25% of students having takenout loans to attend the institution default on those loans within a two-year period. This will change to a more stringent 3-year

rate of 30% by 2014. Less than 5% (305) of institutions of higher education will potentially loose the ability to offer federalloans to prospective students as a result of this rate change. Of those 305, 81% are for-profit schools. Under the new rate therewill still be 809 institutions at which one fifth of students who received federal loans will default on those loans.

This Act lowers the cohort default rate limits for withholding federal funding to 20% through deferred implementation over a 10-year period beginning in 2014. The cohort default rate will be set at 27.5% beginning in 2016 and decline in 2.5% incrementsevery three years until 2025, at which time a 20% cohort default rate will become permanent. The purpose of deferredimplementation is to give institutions of higher education an opportunity to enact policies that will decrease the number ofstudents defaulting on loans before the provisions of this Act take effect.


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RESHMA SAUJANI FOR CONGRESS

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Student Loan Transparency and Default Reduction Act of 2011 (Introduced in House)

HR ****

112th CONGRESS1st Session

H. R. ****

To amend the Higher Education Act to withhold federal assistance from institutions of higher education that fail to providecertain financial information to students, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

January 3, 2011

Ms. SAUJANI will introduce the following bill; which will be referred to the Committee on Education and Labor.

A BILL

To amend the Higher Education Act to withhold federal assistance from institutions of higher education that fail to providecertain financial information to students, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SEC. 1. SHORT TITLE.

This Act may be cited as the Student Loan Transparency and Default Reduction Act of 2011.

SEC. 2. FINDINGS AND PURPOSE.

(a) FINDINGS THE CONGRESS FINDS

(1) During the 2008-2009 academic year students and families took out more than $95 billion in loans, bothfederal and private.

(2) The estimated share of 4-year students graduating with debt rose to 66% in 2008 from 46% in 1993.

(3) The average debt for a graduate of a four-year college rose to $23,200 in 2008 from $18,650 in 2004,representing a 6 percent annual rise.

(4) Default on student loans is at an all-time high of 15.5% of all borrowers.

(5) Potential students and their parents have a legitimate educational interest in receiving informationregarding long-term debt obligations of attendance at a given institution and the United States has a legitimate

interest in obliging institutions of higher education to provide such financial information.

(b) PURPOSE IT IS THE PURPOSE OF THE ACT TO

(1) Provide potential students and their parents with a complete understanding of the financial burdens ofattending an institution of higher education.

(2) Require institutions of higher education to provide information to prospective students regarding expectedstarting salaries and employment rates graduates for individual courses of study.

(3) Require institutions of higher education to release admitted early applicants from binding admissionsagreements if the applicant determines that the amount of financial aid offered by the school is insufficient.


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(4) Withhold Federal assistance from institutions of higher education which fail to comply with the provisionsof this Act.

SEC. 3. Improved Entrance Counseling for Potential Borrowers.

(a) In General- Section 488(g) of the Higher Education Opportunity Act (20 U.S.C. 1092(l)) is amended to read asfollows--

(l) Entrance Counseling for Potential Borrowers-

(1) DISCLOSURE REQUIRED AT TIME OF ADMISSIONS NOTIFICATION-

(A) IN GENERAL- Each eligible institution shall, through financial aid offices orotherwise, provide counseling to potential borrower of a loan made, insured, or guaranteedunder part B (other than a loan made pursuant to section 10783 of this title or a loan madeon behalf of a student pursuant to section 10782 of this title) or made under part C (otherthan a Federal Direct Consolidation Loan or a Federal Direct PLUS loan made on behalf of astudent), or any other loan options which may be offered or suggested to the potentialborrower, ensure that the potential borrower receives comprehensive information on theterms and conditions of the loan(s) and of the responsibilities the borrower has with respectto such loan in accordance with subparagraph (B). Counseling required by this subsection--

(i) shall be provided at the time of notification of admission in a simple andunderstandable manner; and

(ii) shall be provided on a separate written form provided to the potential borrower,who must sign and return such form to the institution in acknowledgement ofhaving read and understood the provided counseling.

`(B) USE OF INTERACTIVE PROGRAMS- The Secretary shall encourage institutionsto carry out the requirements of subparagraph (A) through the use of interactive programsthat test the potential borrower's understanding of the terms and conditions of thepotential borrower's loans under part B or D, using simple and understandable language

and clear formatting.

`(2) INFORMATION TO BE PROVIDED- The information to be provided to the potentialborrower under paragraph (1)(A) shall include the following:

`(A) To the extent practicable, the effect of accepting the loan to be disbursed on the eligibility ofthe potential borrower for other forms of student financial assistance.

`(B) An explanation of the use of the master promissory note.

`(C) Information on how interest accrues and is capitalized during periods when the interest is notpaid by either the potential borrower or the Secretary.

`(D) In the case of a loan made under section 428B or 428H, a Federal Direct PLUS Loan, or aFederal Direct Unsubsidized Stafford Loan, the option of the potential borrower to pay the interestwhile the potential borrower is in school.

`(E) The definition of half-time enrollment at the institution, during regular terms and summerschool, if applicable, and the consequences of not maintaining half-time enrollment.

`(F) An explanation of the importance of contacting the appropriate offices at the institution ofhigher education if the potential borrower withdraws prior to completing the potential borrower'sprogram of study so that the institution can provide exit counseling, including informationregarding the potential borrower's repayment options and loan consolidation.

`(G) Sample monthly repayment amounts based on-


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`(i) a range of levels of indebtedness of--

`(I) borrowers of each loan offered or suggested to the potential borrower; and

`(II) as appropriate, graduate borrowers of loans under section 428, 428B, or428H; or

`(ii) the average cumulative indebtedness of other borrowers in the same program as thepotential borrower at the same institution.

`(H) The obligation of the potential borrower to repay the full amount of the loan, regardless of

whether the potential borrower completes or does not complete the program in which the potentialborrower is enrolled within the regular time for program completion.

`(I) The likely consequences of default on the loan, including adverse credit reports, delinquentdebt collection procedures under Federal law, and litigation.

`(J) Information on the National Student Loan Data System and how the potential borrower canaccess the potential borrowers records.

`(K) The name of and contact information for the individual the potential borrower may contact ifthe potential borrower has any questions about the potential borrower's rights and responsibilitiesor the terms and conditions of the loan.'.

SEC. 4. Penalties for Failing to Provide Entrance Counseling for Potential Borrowers.

(a) Section 444 of the General Education Provisions Act (20 U.S.C. 1232g) is amended by redesignating paragraphs (3)through (6) of subsection (a) as paragraphs (4) through (7), respectively; and

(b) by inserting after paragraph (2) the following new paragraph:

(3) No funds shall be made available under any applicable program to any educational agency or institutionunless the parents of students,or the students, if they are eighteen years of age or older, who are or have been

in attendance at a school of such agency or at such institution are provided with the information required bysection 485 of the Higher Education Act (20 U.S.C. 1092).

SEC. 5. Improved Information Dissemination.

(a) Section 485(a)(1) of the Higher Education Act (20 U.S.C. 1092(a)(1)) is amended--

(1) to read as follows--

(1) Each eligible institution participating in any program under this subchapter and part C of

subchapter I of chapter 34 of title 42 shall carry out information dissemination activities forprospective, admitted and enrolled students (including those attending or planning to attend less thanfull time) regarding the institution and all financial assistance under this subchapter and part C ofsubchapter I of chapter 34 of title 42. The information required by this section shall be produced andbe made available, through appropriate publications, mailings, or electronic media, to any enrolledstudent, to any prospective student, and to any student at the time of acceptance. Each eligibleinstitution shall, on an annual basis, provide to all enrolled students a list of the information that is

required to be provided by institutions to students by this section and section 1232g of this title. Theinformation required by this section shall accurately describe--;

(2) by redesignating subparagraphs (F) through (V) as subparagraphs (G) through (W), respectively;

(3) by inserting after subparagraph (E) the following new subparagraph:

(F) the percentage of students graduating or otherwise leaving the institution without successfullycompleting the requirements for a degree in the previous academic year with student loan debt,including--


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(i) the average amount of student loans received under any program in this title forattendance at the institution;

(ii) the average amount of private student loans received for attendance at the institution;and

(iii) the institutions cohort default rate, as defined under section 1085(m) of this title, aspublished by the Secretary in accordance with section 1085(m)(4)(C) of this title;; and

(4) in subparagraph (1)(S), as redesignated by paragraph (2) to read as follows--

(R) the placement in employment of, and types of employment obtained by, graduates of theinstitutions degree or certificate programs, including the average annual starting salaries forgraduates based on individual majors, gathered from such sources as alumni surveys, studentsatisfaction surveys, the National Survey of Student Engagement, the Community College Survey ofStudent Engagement, State data systems, or other relevant sources;

SEC. 6. Protections for Early Application Participants.

(a) Section 485 of the Higher Education Act (20 U.S.C.1092), as amended by this Act, is further amended by addingat the end the following:

(n) EARLY APPLICATION REQUIREMENTS-

(1) RIGHTS OF THE APPLICANT- Each eligible institution implementing an early applicationsystem and participating in any program under this subchapter and part C of subchapter I ofchapter 34 of title 42 shall provide the following to prospective students and applicants who applythrough an early application system--

(A) a notification of the right to be released from a binding admissions agreementwithout prejudice in regards to future applications if the amount of loans necessary toattend the institution would require--

(i) interest payments on behalf of the parents of the student in excess of a 35%income to debt ratio with respect to all debt obligations according to informationprovided on the FAFSA or EZFAFSA, or;

(ii) interest payments on behalf of the student in excess of 10% of the monthlygross income for the student borrower, according to information compiled by theuniversity as required by section (a)(4)(4), for their expected course of study, if

one was so indicated on their application or the aggregate expected income forgraduates of the institution..

(b) Section 444(b) of the General Education Provisions Act (20 U.S.C. 1232g(b)) is amended--

(A) by adding at the end the following new paragraph:

(8) No funds shall be made available under any applicable program to any educational agency orinstitution which has a policy or practice of releasing, or providing access to, information

regarding an applicants decision to withdraw from a binding admissions agreement (as allowedby section 485(n) of title 20), specifically but not limited to other institutions of higher educationunless--

(A) there is written consent from the applicants parents, or the applicant if they areeighteen years of age or older, specifying records to be released, the reasons for suchrelease, and to whom, and with a copy of the records to be released to the studentsparents and the student if desired by the parents, or

(B) except as provided in paragraph (1)(J), such information is furnished in compliance

with judicial order, or pursuant to any lawfully issued subpoena, upon condition that


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parents and the students are notified of all such orders or subpoenas in advance of thecompliance therewith by the educational institution or agency.

(C) The Secretary shall take appropriate steps to notify educational institutions thatdisclosure of information described in this paragraph is prohibited..

SEC. 7. Deferred Implementation of Decreased Cohort Default Rates.

(a) Section 435(a)(2)(B) of the Higher Education Act (20 U.S.C. 1085(a)(2)(B)) is amended--

(1) by adding at the end the following:

(v) 27.5 percent for fiscal year 2016 through fiscal year 2018;

(vi) 25 percent for fiscal year 2019 through fiscal year 2021;

(vii) 22.5 percent for fiscal year 2022 through fiscal year 2024; and

(viii) 20 percent for fiscal year 2025 and any succeeding fiscal year..

student loan transparency and default reduction act of 2011

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