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 of attendance 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 of notification 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 of their 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 suchloans 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 studentsfrom 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 thisAct, 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-yearrate 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 of students defaulting on loans before the provisions of this Act take effect.

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 legitimateinterest 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 of attending 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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RESHMA SAUJANI FOR CONGRESS

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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 1078–3 of this title or a loan madeon behalf of a student pursuant to section 1078–2 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 of having 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 languageand 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 of the 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 of higher 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-