Financial Literacy for Financial Aid Act

To amend the Higher Education Act of 1965 to require the Secretary of Education to provide student borrowers with instruction in general principles of financial literacy through its online counseling tool, and for other purposes. 1. Short title This Act may be cited as the Financial Literacy for Financial Aid Act 2. Online counseling tools (a) Option for institutions of higher education Section 485(l)(1)(A)(ii) of the Higher Education Act of 1965 ( 20 U.S.C. 1092(l)(1)(A)(ii) (1) in subclause (II), by striking or (2) in subclause (III), by striking the period at the end and inserting ; or (3) by adding at the end the following: (IV) through the use of the online counseling tool described in subsection (n). . (b) Requirements for Secretary of Education Section 485 of the Higher Education Act of 1965 ( 20 U.S.C. 1092 (n) Online counseling tools (1) In general Beginning not later than 1 year after the date of the enactment of the Financial Literacy for Financial Aid Act (A) provides the entrance counseling required under subsection (l); and (B) meets the applicable requirements of this subsection. (2) Requirements of tools In maintaining the online counseling tool described in paragraph (1), the Secretary shall ensure that the tool is— (A) consumer tested, in consultation with other relevant Federal agencies, to ensure that the tool is effective in helping individuals understand the information described in subsection (l)(2); (B) interactive and tests the borrower’s understanding of the information described in subsection (l)(2); (C) understandable to borrowers of loans made under part D; (D) effective in providing instruction in general financial literacy in accordance with paragraph (3) of this subsection; and (E) freely available to all eligible institutions. (3) General principles of financial literacy The Secretary shall ensure that the online counseling tool provides instruction in general principles of financial literacy, including the following: (A) Personal income An explanation of— (i) how to identify various types of income and expenses; (ii) gross and net pay and how to read a paycheck stub; and (iii) how to craft financial goals. (B) Taxes An explanation of— (i) the history of taxes; (ii) the purpose and uses of taxes; and (iii) how to differentiate between types of taxes. (C) Retirement An explanation of— (i) the importance of planning for retirement; (ii) retirement strategies to achieve financial goals; (iii) how to differentiate among the types of investment vehicles for retirement; and (iv) how to assess overall financial situation in determining retirement needs. (D) Spending plans and banking resources An explanation of— (i) the benefits of transaction and savings accounts; (ii) how compound interest helps saved money grow; and (iii) how to define and create a spending plan. (E) Credit cards An explanation of— (i) how to define and calculate the cost of borrowing; (ii) the difference between good debt and bad debt; (iii) credit cards and how to evaluate credit card offers; (iv) consumer credit rights; and (v) credit scores. (F) Financial recovery and giving back An explanation of— (i) how to assess financial health; (ii) how to budget; (iii) how to find ways to reduce expenses or increase income; (iv) the difference between credit repair and credit consolidation; (v) the importance of charitable giving; and (vi) how to define future financial goals. (4) Record of counseling completion The Secretary shall use the online counseling tool described in paragraph (1) to keep a record of which individuals have received counseling using the tool, and notify the applicable institutions of the individual’s completion of such counseling. . 3. Report Not later than 2 years after the date of the enactment of this Act, and not less than once every 3 years thereafter, the Secretary shall submit to the Committee on Education and the Workforce of the House of Representatives, and the Committee on Health, Education, Labor, and Pensions of the Senate, a written report that includes an evaluation of the effectiveness of the instruction in general principles of financial literacy described in section 485(n)(3) of the Higher Education Act of 1965 ( 20 U.S.C. 1092(n)(3)

Summary: Financial Literacy for Financial Aid Act This bill amends title IV (Student Assistance) of the Higher Education Act of 1965 to direct the Department of Education to maintain a consumer-tested online counseling tool that provides required entrance counseling to a student who is a first-time federal student loan borrower.