How the PROSPER Act Stacks Up for Student Debt: Loan Counseling and Consumer Information Enhancements are Steps in the Right Direction, but More is Needed
This blog post is one in a series that explores how the House proposal to overhaul the Higher Education Act would impact student debt. This bill, the PROSPER Act, was passed out of the Committee on Education and the Workforce in December 2017. Here we focus on the PROSPER Act’s changes to federal student loan counseling and consumer information.
With many students needing to borrow loans to access and complete college, it is more important than ever to provide students with relevant, clear, timely information to help them decide where to go to college and how to pay for it. The PROSPER Act advances these bipartisan priorities by taking steps to improve loan counseling, and creating a College Dashboard that provides enhanced information to better support a student’s ability to identify colleges and programs that provide the best value and fit for their education and career goals. Despite these important steps, however, the PROSPER Act fails to include other widely supported reforms that would give students the full range of information they need to understand their options for pursuing and financing a postsecondary education.
Improvements to loan counseling are meaningful, but omit critical elements.
Drawing from the bipartisan, bicameral Empowering Students Through Enhanced Financial Counseling Act, the PROSPER Act would increase the frequency of the counseling required when a student takes out a federal loan from one time only to annually, as well as ensure that the counseling is completed by the borrower before signing the loan paperwork. The annual counseling would also provide new disclosures, including individualized estimated monthly payments upon graduation. These changes hold promise for helping students understand their loan options, their estimated debt upon graduation, and how to successfully navigate repayment.
However, the PROSPER Act omits two critical elements that were included in the original bipartisan bill: a provision to explicitly recommend that borrowers exhaust their federal student loan eligibility prior to taking out private loans; and an explanation that federal student loans typically offer better terms and conditions than private loans. Chairwoman Foxx and Ed Feulner recently argued that the federal government should encourage private student loans in order to hold down college costs. However, experts in higher education finance and public policy have found no convincing, causal relationship between federal aid and college prices at public and nonprofit colleges. Meanwhile, private loans are one of the costliest and riskiest ways to pay for college, and data show that over 40 percent of private loan borrowers have federal loan eligibility left (of which they may not even be aware).
The PROSPER Act also leaves out the bipartisan bill’s requirement that loan counseling disclose the school’s cohort default rate (CDR) and instead provides prospective borrowers with a new calculation of program level repayment rate. While program repayment rates can be a helpful metric indicating a broad range of student loan outcomes, students also deserve information about the very worst borrowing outcome, default.
Consumer information enhancements are steps in the right direction, but ignore a more comprehensive solution with broad, bipartisan support.
By incorporating the bipartisan Strengthening Transparency in Higher Education Act, the PROSPER Act makes several positive steps to improve data transparency that would increase access to critical information about college costs, and student outcomes. The bill establishes a new consumer facing tool, the College Dashboard (a web-based tool similar to the current College Navigator or the College Scorecard), that will make more data available to help students decide where to attend school and how to pay for it. The new data would include the welcome addition of information on program level borrowing and earnings outcomes.
Unfortunately, the PROSPER Act ignores the need to more comprehensively address the gaps in our existing postsecondary data system. TICAS joined 21 other organizations in calling on the Education and Workforce Committee to advance the bipartisan, bicameral College Transparency Act (CTA). The CTA creates a secure, privacy-protected federal student-level data network (SLDN) that would allow all postsecondary students to be included in comprehensive enrollment and outcome measures, disaggregated by key characteristics like race/ethnicity and income. As with any data network implicating individual-level data, both security and privacy are paramount priorities that must be explicitly addressed. The CTA would secure student data through adherence to industry best practices and federal laws, and privacy would be protected by ensuring, for example, that only relevant data are collected, and that they cannot be sold or used for law enforcement purposes. The CTA has the support of over 130 organizations, demonstrating broad support among higher education advocates, educators, and employers for creating a postsecondary data system capable of fully illuminating— and empowering policymakers, schools, and states to address— current inequities in enrollment, completion, and post-graduation outcomes.
Consumer testing requirements will help make the most of new information.
In order for information to effectively influence choices, students need to understand that information, and know how to act on that information. Otherwise, we risk exacerbating existing challenges of information overload and disengagement.
Comprehensive consumer testing of information tools, including online loan counseling, is therefore critical for ensuring that the information presented successfully helps students digest and make use of information about the cost and value of a particular program and school, inclusive of personal, social and economic benefits. The PROSPER Act includes a requirement that its proposed changes to federal student loan counseling and its proposed College Dashboard be consumer tested. To ensure these tools can achieve their purpose, it is critical that this consumer testing be robust and focus specifically on how vulnerable groups of students receive and respond to the information.
The PROSPER Act makes meaningful, focused changes to provide students with timely, easy-to-understand information to help them navigate big questions about where to apply, where to enroll, what to study, and how to pay for it. The proposed improvements to consumer information unfortunately stop short of the holistic solution we need to address gaps in the existing postsecondary data system. While students today don’t make decisions in a vacuum, work remains to ensure students have access to all the information they need.
Providing students with key, clear information when they need it is a necessary component of any effort to reduce the burden of student debt, but improving consumer information alone is not sufficient. Greater investments in Pell grants and affordable student loans are also necessary to reduce financial barriers to enrollment and completion. Without a firm commitment to reducing these barriers, students with financial need may find themselves in the uncomfortable position of having gained only an increased awareness of the same limited options of where they can afford to attend and complete a program.