New Education Dept. Tool Allows Students to See Federal Debt Total Before Borrowing More Money

Students and their parents will soon see how much they owe in federal student debt before agreeing to borrow more money to pay for a degree.

Collectively, 45 million borrowers owe more than $1.5 trillion in student loan debt and default at a rate of over 10 percent. Students are often in the dark on the total amount of federal debt they will have accrued when they start making payments. Last week the U.S. Department of Education’s Federal Student Aid office announced that its new “Informed Borrower Tool” will try to bring transparency to the process.

Beginning in July, colleges will be required before disbursing a federal loan to inform parent and student borrowers how much they already owe. Borrowers will also be required to acknowledge that they’ve seen the full debt total.

The new tool could help students and families think carefully about whether the cost of the college programs they are taking is financially worth it, said Bill DeBaun, director of data and evaluation at a nonprofit advocacy group, the National College Access Network, or NCAN. But he said that it would help only if colleges properly communicated the new information to students and families and that the latest changes did not present a barrier to disbursing financial aid.

“The students NCAN members serve, largely low-income students, first-generation students, and students of color, face enough hurdles, and hopefully this additional step will be clearly communicated so it doesn’t become another one,” said DeBaun.

“This is unlikely to make a significant dent in students’ debt burdens — only closing affordability gaps and improving college completion are likely to do that — but on the margin it will keep borrowers aware of what they’re taking out and what they’ll be expected to pay back,” he added.

The tool will pull data from the recently redesigned College Scorecard, a federally operated website that allows students to compare the cost of colleges with the earning potential of their graduates, the department said in a statement. The tool will also calculate borrowers’ monthly payments and the median salary that students can expect to receive after graduating from a specific college. It will also break down basic loan concepts such as interest accrual and capitalization and the difference between private and federal student loans.

The move is among a series of planned changes by the department under Education Secretary Betsy DeVos intended to improve the experience for people trying to pay off their student loans.

The department is also building a new website that will allow borrowers to pay back their loans through a single government-run portal, called NextGen, instead of through loan servicers.

The DeVos administration has been criticized for not doing enough to protect student borrowers from for-profit colleges and loan-servicing companies.

Last month the Education Department was fined $100,000 and DeVos was held in contempt of court after she violated a federal judge’s order to stop collecting loan payments from thousands of students who had been defrauded by the defunct for-profit Corinthian Colleges. Instead, DeVos is in the process of loosening Obama-era protections for those students and others like them.

DeVos has also blocked states from obtaining records needed to police student-loan-servicing companies and protect borrowers. Last March the department’s Office of Inspector General found that the Federal Student Aid office had failed to properly oversee the loan-servicing companies and hold them accountable when they were not following federal regulations.

And while the new tool could help borrowers become aware of their financial obligations before leaving college, it probably will not change how students take out loans for higher education, said Julie Peller, executive director of the advocacy group Higher Learning Advocates.

“It is unlikely that this change alone will result in significantly different borrowing or repayment choices for a large number of borrowers,” Peller said. “I hope that this is part of a number of needed changes to inform and educate borrowers about their student loans and related options so that they can make their financial decisions based on the best information available.”

Danielle McLean writes about federal education policy, among other subjects. Follow her on Twitter @DanielleBMcLean, or email her at dmclean@chronicle.com.