The Empowering Students Through Enhanced Financial Counseling Act

A proposal by Senator Warner to deliver students the tools and information they need to borrow and
repay their student loans in a responsible way.
Background:
Nationwide, Americans now owe more than $1.3 trillion in student loans, outstripping credit cards and
auto loans as the countrys leading source of non-housing debt. It has never been more critical for
individuals to make well-informed choices regarding how to pay for their postsecondary education.
Unfortunately, many students do not have the information they need to make sound financial choices
about their college careers. This should not be surprising considering the confusing maze of loan and
grant programs students must navigate at the state and federal levels, compounded with assistance
offered by individual institutions and within the private sector.
Additionally, many students never receive meaningful financial literacy assistance as they review their
options to pay for college. A survey of current students and recent graduates with a high level of
student loan debt found that more than 40 percent could not recall having received financial
counseling, even though counseling is already required before students can receive their first federal
loan. Further, no counseling is provided to students who receive only a Pell Grant or to parents who
take out federal loans to help pay for their childrens education. Current policies are failing to equip
individuals to make wise financial decisions. As a result, many students graduate unable to manage the
loans they used to finance their education, leading to significant hardship for borrowers and greater
risk for taxpayers.
What the Proposal Does:
To help students make smart decisions about financing their higher education, Senator Warner will
introduce the first Senate companion to the Empowering Students Through Enhanced Financial
Counseling Act. The bill has been championed in the past two Congresses by Representatives Brett
Guthrie (R-KY), Richard Hudson (R-NC), and Suzanne Bonamici (D-OR). The bipartisan legislation
will promote financial literacy through enhanced counseling for all recipients of federal financial aid,
and specifically:

Ensures borrowers, both students and parents, who participate in the federal loan program
receive interactive counseling each year that reflects their individual borrowing situation.
Provides awareness about the financial obligations students and parents are accumulating by
requiring borrowers to consent each year before receiving federal student loans.
Informs low-income students about the terms and conditions of the Pell Grant program through
annual counseling that will be provided to all grant recipients.
Directs the Secretary of Education to maintain and disseminate a consumer-tested, online
counseling tool that institutions can use to provide annual loan counseling, exit counseling, and
annual Pell Grant counseling.

What are the current counseling requirements for students taking out federal student loans and
Pell Grants? How is this an improvement?
Current law requires that institutions provide one-time entrance and exit counseling to student loan
borrowers receiving federal student aid, excluding Parent PLUS loans and consolidation loans. There
is currently no statutory requirement to counsel students who only take out a Pell Grant.
This bill is an improvement on the current standard because it requires annual counseling for
borrowers, including Parent PLUS borrowers, but still excluding consolidation loans. The annual
requirement ensures that borrowers have an accurate sense of the size and terms of the debt they are
accumulating. Further, the bill requires that Pell Grant recipients receive information on the terms of
the Grant, approved educational expenses, and an explanation of why the student may have to repay
the Grant.
The bill also outlines practical financial information that borrowers must receive, including
information on how their program of study and intended occupation may affect their monthly payment
amount; some of the drawbacks of private education loans; and that the borrower is not required to
accept the full amount of the loan offered. These elements of the bill combine to give students more
relevant and timely information than they currently have access to.
Who will provide the new loan counseling? How burdensome will it be? How effective will it be?
Institutions will still be responsible for providing student loan counseling to their students. The
Department of Education already makes print and video resources available online that schools can
access free of charge. Adapting these existing materials to reflect the new annual counseling
requirement will not prove overly burdensome or expensive for either schools or the Department.
There is evidence to suggest that giving student borrowers access to information similar to that
included in this bill on an annual basis can lead to decreases in average debt. However, the bill also
directs the Director of the Institute of Education Sciences to conduct a longitudinal study of the impact
and effectiveness of the prescribed student loan counseling, including cumulative borrowing levels,
program completion, and successful entry into repayment. This provision ensures that policymakers
and stakeholders have sound data on how effective the counseling is in the long-term.
How does this bill complement income-based repayment (IBR) plans?
This bill complements IBR plans by requiring schools to provide information in entrance and exit
counseling on how such plans might impact a borrowers anticipated monthly payment amount.
What are the current counseling requirements for parents taking out Parent PLUS loans?
Under current law, parents borrowing a Direct PLUS Loan to pay for their childs education are not
required to complete entrance counseling.
What is the bills legislative history in past Congresses?
In the 113th Congress, the bill (H.R. 4984) was introduced by Representative Brett Guthrie (R-KY). It
was reported favorably by the House Committee on Education and the Workforce on July 17, 2014. On
July 24, 2014, the House approved the bill overwhelmingly by a vote of 405-11. The Senate did not
take action on the House-passed bill, nor was a companion bill introduced.