NEW YORK (MainStreet) — Call it student loans for dummies – very well-educated dummies.
The Consumer Financial Protection Bureau drafted a new financial aid form this week that breaks down the real cost of student loans into an easy-to-understand sheet that features a total tuition costs, projected monthly payments and the loan default rate from each university.
“Student loans are one of the best examples of how credit can make lives better and help people achieve the American dream,” said Raj Date, special adviser to the secretary of the treasury for the CFPB. “But in these tough economic times, the stakes have never been higher for students and their families to clearly understand the costs and risks of student loans. Having a simple, one-page financial aid shopping sheet would help students compare offers and choose the one that’s right for them.”
The consumer agency partnered with the Department of Education to come up with the estimated price tag for tuition, fees, housing and other costs at each university in the country, as well as to compile grants and scholarships that the student may be eligible for to come up with a more detailed estimate of annual tuition costs. The draft form then compares that cost with the average tuition at public and private schools to give students and families a better sense of whether they are getting a good deal for their money.
The true asset of the drafted form though is the clarity with which it breaks down and contextualizes student loans. In just a few lines, the form highlights loans and work-study options that the student may be eligible for and highlights the amount of money he or she would need to commit each month after graduating to pay down those loans.
To our eyes, the number that really sticks out is the average loan default rate at each university, which instantly gives students a sense of how difficult it was for others in their shoes to pay off loans after graduating from that same university.
The CFPB is currently accepting feedback from users on what information they’d most like to see emphasized on the form, but as that unfolds, the agency also unveiled a student debt repayment tool that offers tips, calculators and detailed guidelines for managing both federal and non-federal student loans.
By creating a simple shopping guide for student loans, the CFPB may be able to prevent some families from blindly signing up for college without fully recognizing the financial implications. With the help of the debt repayment tool, those who do sign up for that financial commitment can at least find the most efficient and painless way to pay it down.
Given the troubling state of student loans in this country, these tools are long overdue.
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