Wyoming Senator Mike Enzi proposed legislation this past week that would make federal student loans more transparent in the information provided to students and families.
The “Transparency in Student Lending Act” would help families understand what they are facing long term with federal loans. The Act would require loans issued by the Department of Education to provide an annual percentage rate (APR) that includes yearly interest rates and other fees associated with the loan.
“An APR is the money you barrowed on top of interest rates and other fees all in one number,” said UW Economics Professor Robert Godby. “Almost all loans are going to have some sort of fee(s).”
Enzi’s staff thinks the APR would be a great benefit for federal borrowers.
“The APR will give borrowers a solid percentage number that explains their actual yearly cost they wouldn’t know previously,” said Enzi’s press secretary Max D’Onofiro. “90 percent of federal loans don’t use APR. The problem is that some people don’t think that federal government needs to have requirements like banks and private sectors do.”
However, D’Onofiro said he does not see this as an issue with this Act.
“I don’t think it’s a difficult decision to back the idea that students should have as much financial information as possible,” D’Onofiro said.
At the moment, private sectors and banks are the only institutions that disclose APRs to recipients of private loans.
Senator Mark Kirk originally introduced the legislation last September, which Enzi co-sponsored. With Kirk no longer in the Senate, Enzi is now spearheading the project.
“Borrowers of federal student loans need transparent information when considering loan options and federal student loans should have to be upfront about their true costs,” Senator Enzi stated in a release on his personal website.
The Consumer Bankers Association has shown support for the Act, stating, “We commend Senators Kirk and Enzi for introducing legislation to demand the same level of transparency from the federal government as our member banks provide in the private student loan market.”
According to a study done by the Institute for College Access and Success, the average student loan debt has risen five percent each year for the past three years and is on the verge of breaking $40,000 per student in 2017.
