11/21/2017

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Know Before You Owe

The Federal Consumer Financial Protection Bureau has been established to promote student loan literacy. It is working with the Department of Education in a program called the Know Before You Owe project to create a financial aid and loan disclosure statement that will calculate the total costs of student loans before they are accepted by the student. It will give students and their parents a better idea of what will be owed and what the monthly payments will be.

Many students and their parents feel that the cost of getting a student loan has made going to college extremely expensive and some type of understanding of the loan process is necessary. The high interest rates charged on student loans are complicating the lives of millions of students who want to continue their studies and for many of those who are preparing to enter college soon. They know that student loans are a valuable resource, but rising interest rates on the loans are creating debt loads and credit problems that go far beyond what students are prepared for.

Most college students are basically teenagers coming out of high school and they don't understand the long term ramifications of student loans. The students don't think about the total debt liability or the payments that will have to be made after graduation. This is a common theme that is heard around the country. Even parents are surprised by the amount of debt their children are burdened with.

Most students feel that student loans are just a part of the college process and don't worry about it until they have to start repaying the loans. When the reality hits, they are shocked by the debt that student loans create. It takes many years to pay off student loan debt and many students feel that they will never be able to repay it.

According to the Federal Consumer Financial Protection Bureau, there are five key elements that borrowers want clarified in the new standardized financial aid disclosure statement:

  • The estimated student debt by graduation.
  • The estimated monthly loan payments after graduation that includes principal and interest.
  • The likely ability to repay the loan. This is in relation to potential average starting salaries.
  • A complete breakdown of costs to attend schools.
  • School specific information such as graduation rates and federal student loan default rates.

The bureau also said that students also want to see better explanations of key terms, and more information on federal work-study programs. The disclosure statement should warn students about the dangers of student loan default and make sure that students do no see default as an option.

Better information about financial aid options will lead to more informed decisions by parents and students. This will increase the likelihood that more common sense will be used when determining how much money students can afford to borrow and repay.

 

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