How 3 Bipartisan Senate Bills Could Affect Student Loans

A bipartisan group of U.S. senators recently introduced three bills aimed at making the financial aid and student loan processes easier to navigate for families trying to pay for college.

The bills, introduced at the end of April and crafted by Minnesota Democrat Tina Smith and Iowa Republicans Chuck Grassley and Joni Ernst, are the Understanding the True Cost of College Act of 2021, the Net Price Calculator Improvement Act and the Know Before You Owe Federal Student Loan Act.

While standardized and clearer language alone will not make college more affordable or put more money in students’ pockets, it’s still key for students and their families to have clear, timely and actionable information about college costs and student loan debt. And with rising costs outpacing income growth, more students than ever need financial aid — including loans — to pay for college.

Once a student has been accepted to a college, he or she receives a financial aid offer, typically called an award letter, that outlines the total cost of the education for the first academic year and what kind of aid is available. While these offers are meant to communicate important information, including about student loans, they are too often confusing, unclear or misleading.

[Read: How to Read Your Financial Aid Award Letter.]

Colleges are not required to adhere to any standardized format or terminology when informing applicants of their financial aid offer, which often makes it difficult for families to get a full picture of how school would be paid for and how to compare offers across institutions.

The new Understanding the True Cost of College Act seeks to fix this by requiring the secretary of education to develop a standardized format and terms that colleges would use to relay key information, including clearly differentiating between grant aid — which doesn’t have to be repaid — and loans.

The bill requires the secretary to work with a range of stakeholders, including students and families, military service members and veterans, financial aid experts, nonprofit and consumer groups, and school counselors to develop this improved format.

Under the standardized format — which schools would now call a “Financial Aid Offer” — colleges would have to clearly outline cost information at the beginning of the offer. They would then need to include a separate and distinct section listing grants and scholarships, followed by a statement of the net price the student is estimated to have to pay, in turn followed by details about non-PLUS loans recommended by the school — all stated “in a consumer-friendly manner that is simple and understandable,” according to the proposed legislation.

The bill also requires certain language related to student loans, including “clear use of the word ‘loan;'” clear labeling of federal subsidized and unsubsidized loans; various disclosures, including about options to possibly borrow less or more than recommended; and a link to and explanation of the U.S. Department of Education’s Loan Simulator repayment calculator.

[Read: How to Use the Federal Student Loan Simulator.]

And, if warranted by the results of consumer testing, the education secretary could also direct colleges to include information such as the school’s statistics about the percentage of its students who borrow student loans as well as its recent graduates’ median student loan debt and default rates.

Meanwhile, the Know Before You Owe Federal Student Loan Act would improve federal student loan counseling. Every student who borrows federal student loans, which constitute more than 90% of student loan debt in the U.S. per recent figures, is required to complete entrance counseling, a series of online modules intended to educate students about borrowing and repayment.

The proposed legislation would, among other things, amend the Higher Education Act of 1965 to update terms — including changing entrance counseling to “pre-loan counseling” — so that borrowers have a clearer understanding of what debt they’re taking on and the impact of factors such as interest rates and repayment options.

Research suggests that while students are hungry for information about how to finance their education and manage their federal student loans, the current counseling format is somewhat ineffective. This bill aims to provide students better and more frequent counseling, including new information such as an estimate of their total expected debt at graduation, how to graduate on time to keep costs down and an expected debt-to-income ratio based on their current program of study.

The senators’ third bill, the Net Price Calculator Improvement Act, also would amend the Higher Education Act and would improve another key information tool for student loan borrowers: net price calculators.

The net price is the amount a student must come up with to pay for school after accounting for any financial aid that doesn’t need to be repaid, such as grants, scholarships or tuition waivers.

[Read: What to Know About a College’s Net Price Calculator.]

For example, if a school’s annual sticker price is $40,000 and a student receives $30,000 in the above types of aid, the student’s net price would be the difference: $10,000. This is the amount that a student must cover, which usually is done with sources such as earnings, savings, loans or a combination.

By looking at net price rather than sticker price, many students may discover that schools they thought were too expensive may be within reach.

Net price calculators enable prospective students to look beyond college sticker prices to get early, personalized estimates of college costs and financial aid. While the Education Department requires colleges to include a net price calculator on their website s, the tool can be difficult to find and use.

To address this, the new bill would allow the education secretary to create a “universal net price calculator,” a centralized tool that would allow users to obtain comparable net price estimates for numerous colleges without having to enter their information multiple times across different websites. Among other stipulations, the act also allows anonymity and guarantees confidentiality of user information provided.

Alongside other new efforts to make college more affordable and reduce students’ need to borrow, these bipartisan bills would give students access to better information as they decide where to attend college and how to pay for it. While it’s hard to predict what Congress will do, lawmakers may well decide to enact these bipartisan bills and help students and families across the country make informed choices about college costs and the potential role of student loans.

More from U.S. News

How to Find Your Student Loan Balance

Why Is Federal Student Loan Exit Counseling Important?

How to Make College Cheaper

How 3 Bipartisan Senate Bills Could Affect Student Loans originally appeared on

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