H.R. 1635

This week, in a strong showing of bipartisan commitment to strengthening federal student loan counseling, the House of Representatives passed the Empowering Students Through Enhanced Financial Counseling Act (H.R. 1635). The bill, introduced by Representatives Guthrie (R-KY) and Bonamici (D-OR), makes key improvements to the timing and content of counseling that all federal student loan borrowers must receive. These changes include ensuring students receive information about their borrowing options and obligations every year, requiring consumer testing of the Department of Education’s online loan counseling tool, and explicitly advising students to exhaust their federal student loan eligibility prior to considering riskier private loans.

Federal student loan borrowers are currently required to complete counseling only twice – once before taking out their first loan, and once upon completing or exiting their program. Thousands of schools use the online student loan counseling tools offered by the Department of Education to provide this counseling. These tools have greatly improved over the years, including through modernizing and streamlining the format, and more fully integrating existing income-driven repayment options into loan repayment plan explanations, as we’ve long recommended. However, by requiring consumer testing of a new online annual counseling tool developed by the Department of Education, the bill passed by the House recognizes that more can and should be done to ensure that the information students receive about their loans is relevant and easy to understand. Students can easily become overwhelmed by the complex information and new terms and concepts related to student loans and repayment. Consumer testing is critical for designing counseling that avoids such common pitfalls and maximizes the potential of counseling to support students making consequential decisions about how to pay for college every year.

The bill also includes a key provision that requires loan counseling to advise students to exhaust their federal student loan eligibility prior to considering riskier private loans, and to provide information about important consumer protections that are unique to federal student loans. This guidance is critical: data show that over half of students who take out private loans having remaining federal student loan eligibility.[1]

Too many students face a financial reality that necessitates borrowing to cover the cost of college; and for students facing the largest financial barriers, not borrowing means not pursuing or completing a degree at all. While loan counseling on its own – however improved – will not solve the problem of college affordability or prevent potentially burdensome student debt payments, it is key to ensuring that students are at least equipped with the necessary understanding of federal loan terms, including options for repayment, before they sign on the dotted line. We thank Representatives Guthrie and Bonamici for their longstanding leadership on this issue, and urge the Senate to follow the House’s direction in making these bipartisan, common sense reforms to student loan counseling.

[1] TICAS analysis using the U.S. Department of Education’s National Postsecondary Student Aid Study (NPSAS), 2015-16.

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