Senator Scott Joins Senator Donnelly to Introduce Bipartisan Financial Literacy Legislation to Help Student Borrowers
Washington – U.S. Senators Tim Scott (R-SC) and Joe Donnelly (D-IN) have introduced the Empowering Student Borrowers Act (S. 781), legislation that aims to improve the financial literacy of college students and ensure that student borrowers have access to the best tools and information to make responsible borrowing decisions.
“Financial literacy is incredibly important for families across America, and especially for those families and students who will be taking out student loans in order to further their education,” Senator Scott said. “By developing best practices to empower students and their families when making decisions regarding their finances, we can help reduce loan debt and ensure more folks have the opportunity to reach their educational goals.”
Senator Donnelly said, “A college education is important for many Hoosiers to secure good-paying jobs in today’s economy, and student loans help enable thousands of these Hoosiers access to a quality college education that would otherwise be out-of-reach. We need to take steps to better inform student borrowers and empower them to make the best decisions for their financial situation. As Indiana University has shown, for example, we can do that by ensuring students have a clear understanding of their borrowing obligations, which makes the process more transparent. This legislation is a first step in improving the financial literacy of student borrowers, promoting the best practices used by colleges and universities to assist students as they make financial decisions related to their loans and to raise awareness about their borrowing obligations.”
The Empowering Student Borrowers Act would require the Department of Education to establish and maintain best practices for colleges and universities on useful methods to teach financial literacy skills and provide information to assist students when making financial decisions related to student borrowing.
Best practices for teaching college students financial literacy and providing them with necessary information would include:
- Methods to ensure that students have a clear sense of their total borrowing obligations, including monthly payments and repayment options;
- The most effective ways to engage students in financial literacy education, including how often and when to communicate with students;
- Information on how to target different student populations, including part-time students and first-time students; and
- Ways to clearly communicate the importance of graduating when it comes to the ability of students to repay and fulfill their loan obligation.
A Brookings Institution study released in December 2014 found that about half of college freshmen in the U.S. seriously underestimated how much student debt they have, and less than one-third provided an accurate estimate within a reasonable margin of error. The study found that students’ perceptions of their debt matter in making good financial decisions and that students with a greater understanding of their level of borrowing may be more vigilant about the amount of money they choose to borrow.
What Colleges and Universities Are Saying:
Harris Pastides. President of the University of South Carolina in Columbia, South Carolina, said, “Financial literacy is a critical component to success beyond graduation, and we appreciate Senator Scott’s leadership on this issue in Congress.
USC is committed to providing meaningful financial literacy programs for its students, and has been at the forefront of financial literacy program design. The results of these efforts are readily apparent in the success of our graduates. The University of South Carolina’s student loan default rate is well below the national average.”
Sue Whorton, Director, Clemson University Class of ’56 Academic Success Center, Clemson University in Clemson, South Carolina, said, “Clemson University strongly supports the efforts of Senator Scott to address the issue of financial literacy for college students. We are committed to providing our students with practice tips for sound financial decision making, managing their debt, establishing a solid credit record, and budget and investing for their future. The financial literacy programs currently offered by Clemson University would be greatly benefitted by learning from the best practices of other institutions.”
Jairy C. Hunter, Jr., President of Charleston Southern University in Charleston, South Carolina, said, “Few students enrolling in college today have significant experience in money management. Student loan indebtedness is growing rapidly and it is imperative that students are provided the resources to become informed and responsible borrowers. In recent years, the Department of Education has increased awareness and resources for students and has encouraged institutions to do the same. We support the Empowering Student Borrowers Act, because we feel it is the necessary next step in this process. A best practices framework is greatly needed for colleges and universities to teach financial literacy skills and ultimately serve the needs of today’s borrowers as they pursue their educational goals.”
Dr. Elizabeth Fleming, President of Converse College in Spartanburg, South Carolina, said, “”We applaud Senator Scott’s efforts to advance transparency and provide a toolkit to support students and families as they plan for and invest in a college education. Support from leaders like Senator Scott to align financial literacy efforts across all higher education institutions will further level the playing field for all American families in terms of accessibility.
Last year, Converse College reduced its published tuition and fees by 43%, dramatically changing the national conversation on affordability of a private education. Converse’s new tuition model makes understanding the cost, and more importantly the value, of a four-year degree simpler for both students and parents. This move opened the door for better financial literacy, enabling families to make more informed choices about loans and other programs that increase access to higher education.”
Daniel Ball, President of Lander University in Greenwood, South Carolina, said, “We, at Lander University, are always looking for ways to help our students, especially ways to inform our students about the true costs of higher education, including costs of borrowing and financing an education. This bill appears to be a big step in the right direction.”
Dr. Debra Boyd, Acting President of Winthrop University in Rock Hill, South Carolina, said, “Winthrop University is committed to improving student retention and graduation rates, and our financial literacy program is an important retention strategy because it helps students to identify financial behaviors and choices that threaten their ability to be successful. While enhancing life skills, financial literacy promotes good overall decision-making that will help students remain in school and stay on track to graduate on time; and graduating on time saves money for students and their families.
Using a grant from TIAA-CREF and the Council of Graduate Schools, we developed a financial education program for all our students; and we now require freshmen to go through the program as a part of our freshman-year seminar. Our financial literacy program includes information on such issues as budgeting and cash flow, preparing taxes, planning for one’s financial future, and managing debt.”
James Kennedy, associate vice president for university student services and systems at Indiana University in Bloomington, Indiana, said, “Indiana University applauds Sen. Donnelly for his efforts to promote best practices and increased transparency among higher education institutions so that they, in turn, can help their students better understand and manage student debt and other financial aspects of attending college.
As our recent experience at Indiana University has shown, knowledge truly is power when it comes to financial literacy and providing even basic information to students can have a dramatically positive effect on the level of student borrowing, as we have seen at IU.”
Indiana University began sending letters, primarily by email, to student borrowers at each of its seven campuses during the 2012-2013 academic year. The letter briefly summarized what their monthly student loan re-payment would be after graduation and how much they would owe. The idea behind the letter is to provide information to student borrowers before they take on additional debt for the upcoming academic year and to encourage students to utilize academic and financial planning resources while completing their degree. The number of IU undergraduates who took out federal loans the following year dropped by 11 percent- outpacing the national average of two percent – and the amount they borrowed decreased by $31 million.