Know Before You Owe Federal Student Loan Act of 2021
Bill: S.1445 | Sponsor: Sen. Grassley, Chuck (R-IA)
Policy area: Education

Summary:
Know Before You Owe Federal Student Loan Act of 2021
This bill expands lender disclosure requirements and revises loan counseling requirements.
First, the bill requires a lender to provide a quarterly statement to a Federal Family Education Loan or Direct Loan borrower during a period when loan payments are not required. The statement must include specified information on the loan and interest amounts and explain the option to pay accrued interest while in deferment or forbearance.
In addition, the bill requires an institution of higher education (IHE) that participates in federal student-aid programs to provide pre-loan counseling to a student borrower of a federal student loan upon or prior to the first disbursement of each new loan. Currently, an IHE must provide one-time entrance counseling to a student who is a first-time federal student loan borrower.
The bill also revises and expands required elements of pre-loan counseling to include an estimate of the borrower's monthly payment amount compared to the borrower's estimated monthly income after taxes and other expenses, a statement to borrow the minimum necessary amount, a warning that a high debt-to-income ratio makes repayment more difficult, options to reduce borrowing, and an explanation of the importance of on-time graduation.
Prior to certifying a Federal Direct Loan disbursement to a student, an IHE must ensure that the student manually enters the exact dollar amount of the loan.

To revise counseling requirements for certain borrowers of student 
                     loans, and for other purposes.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Know Before You Owe Federal Student 
Loan Act of 2021''.

SEC. 2. PRE-LOAN COUNSELING AND CERTIFICATION OF LOAN AMOUNT.

    Section 485(l) of the Higher Education Act of 1965 (20 U.S.C. 
1092(l)) is amended--
            (1) in the subsection heading, by striking ``Entrance 
        Counseling'' and inserting ``Pre-Loan Counseling'';
            (2) in paragraph (1)(A)--
                    (A) in the matter preceding clause (i), by striking 
                ``a disbursement to a first-time borrower of a loan'' 
                and inserting ``the first disbursement of each new loan 
                (or the first disbursement in each award year if more 
                than one new loan is obtained in the same award 
                year)''; and
                    (B) in clause (ii)(I), by striking ``an entrance 
                counseling'' and inserting ``a counseling'';
            (3) in paragraph (2)--
                    (A) by striking subparagraph (G) and inserting the 
                following:
                    ``(G) An estimate of the borrower's monthly payment 
                amount compared to the borrower's estimated monthly 
                income after taxes, after living expenses (using 
                Consumer Expenditure Survey data from the Bureau of 
                Labor Statistics), after estimated health insurance 
                costs, and after any other relevant expenses, based 
                on--
                            ``(i) the best available data on starting 
                        wages for the borrower's program of study, if 
                        available; and
                            ``(ii) the estimated total student loan 
                        debt of the borrower, including--
                                    ``(I) Federal debt;
                                    ``(II) to the best of the 
                                institution's knowledge, private loan 
                                debt already incurred; and
                                    ``(III) the estimated future debt 
                                required to complete the program of 
                                study.''; and
                    (B) by adding at the end the following:
                    ``(L) A statement that the borrower should borrow 
                the minimum amount necessary to cover expenses and that 
                the borrower does not have to accept the full amount of 
                loans for which the borrower is eligible.
                    ``(M) A warning that the higher the borrower's 
                debt-to-income ratio is, the more difficulty the 
                borrower is likely to experience in repaying the loan.
                    ``(N) Options for reducing borrowing through 
                scholarships, reduced expenses, work-study, or other 
                work opportunities.
                    ``(O) An explanation of the importance of 
                graduating on time to avoid additional borrowing, what 
                course load is necessary to graduate on time, and 
                information on how adding an additional year of study 
                impacts total indebtedness.''; and
            (4) by adding at the end the following:
            ``(3)(A) In addition to the other requirements of this 
        subsection and in accordance with subparagraph (B), each 
        eligible institution shall ensure that the student manually 
        enter, either in writing or through electronic means, the exact 
        dollar amount of Federal Direct Loan funding under part D that 
        such student desires to borrow.
            ``(B) The eligible institution shall ensure that the 
        student carries out the activity described in subparagraph 
        (A)--
                    ``(i) in the course of the process used by the 
                institution for students to accept a student loan 
                award;
                    ``(ii) prior to the institution certifying a 
                Federal Direct Loan under part D for disbursement to a 
                student (other than a Federal Direct Consolidation Loan 
                or a Federal Direct PLUS loan made on behalf of a 
                student); and
                    ``(iii) after ensuring that the student has 
                completed all of the pre-loan counseling requirements 
                under this subsection.''.

SEC. 3. REQUIRED PERIODIC DISCLOSURES DURING PERIODS WHEN LOAN PAYMENTS 
              ARE NOT REQUIRED.

    Section 433 of the Higher Education Act of 1965 (20 U.S.C. 1083) is 
amended--
            (1) by redesignating subsection (f) as subsection (g); and
            (2) by inserting after subsection (e) the following:
    ``(f) Required Periodic Disclosures During Periods When Loan 
Payments Are Not Required.--During any period of time when a borrower 
of one or more loans, made, insured, or guaranteed under this part or 
part D is not required to make a payment to an eligible lender on the 
borrower's loan from that eligible lender, such eligible lender shall 
provide such borrower with a quarterly statement that includes, in 
simple and understandable terms--
            ``(1) the original principal amount of each of the 
        borrower's loans, and the original principal amount of those 
        loans in the aggregate;
            ``(2) the borrower's current balance, as of the time of the 
        statement, as applicable;
            ``(3) the interest rate on each loan;
            ``(4) the total amount the borrower has paid in interest on 
        each loan;
            ``(5) the aggregate amount the borrower has paid for each 
        loan, including the amount the borrower has paid in interest, 
        the amount the borrower has paid in fees, and the amount the 
        borrower has paid against the balance;
            ``(6) the lender's or loan servicer's address, toll-free 
        phone number, and webpage for payment and billing error 
        purposes, including information about how a borrower can make 
        voluntary payments when a loan is not in repayment status;
            ``(7) an explanation--
                    ``(A) that the borrower has the option to pay the 
                interest that accrues on each loan while the borrower 
                is a student at an institution of higher education or 
                during a period of deferment or forbearance, if 
                applicable; and
                    ``(B) if the borrower does not pay such interest 
                while attending an institution or during a period of 
                deferment or forbearance, any accumulated interest on 
                the loan will be capitalized when the loan goes into 
                repayment, resulting in more interest being paid over 
                the life of the loan;
            ``(8) the amount of interest that has accumulated since the 
        last statement based on the typical installment time period and 
        the aggregate interest accrued to date; and
            ``(9) an explanation that making even small payments of any 
        unspecified amount while the borrower is a student at an 
        institution of higher education, or during a period of 
        deferment or forbearance, if applicable, can help to offset 
        interest accrual over the life of the loan.''.

SEC. 4. CONFORMING AMENDMENTS.

    (a) Program Participation Agreements.--Section 487(e)(2)(B)(ii)(IV) 
of the Higher Education Act of 1965 (20 U.S.C. 1094(e)(2)(B)(ii)(IV)) 
is amended--
            (1) by striking ``Entrance and exit counseling'' and 
        inserting ``Pre-loan and exit counseling''; and
            (2) by striking ``entrance and exit counseling'' and 
        inserting ``pre-loan and exit counseling''.
    (b) Regulatory Relief and Improvement.--Section 487A of the Higher 
Education Act of 1965 (20 U.S.C. 1094a) is amended by striking 
``entrance and exit interviews'' and inserting ``pre-loan and exit 
interviews'' each place the term appears.
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