Austin law will help college students gain financial literacy

INDIANAPOLIS – A new law co-authored by State Rep. Terri J. Austin (D-Anderson) will help students attending colleges across Indiana take a huge step toward understanding their loans and other financial obligations.

House Enrolled Act (HEA) 1042, which takes effect July 1, will require colleges and universities in Indiana to provide students with information that details the loans they have taken out to attend school. The institutions will begin providing this information starting with classes this fall.

“Financial literacy for college students is something that has been sorely needed in our state for years,” Austin said. “There are too many stories to recount about the sticker shock that takes place for many when the first bills come due. With this new law, we can begin to help students understand the long-term obligations they face and help them realize the financial commitments that are required.”

The law requires four types of information to be provided:

An estimate of the total amount of loans taken out by the student.

An estimate of the total amount that the student will have to pay out.

An estimate of the monthly repayment amounts that a similarly situated borrower might face, including both principal and interest.

An estimate of the percentage of the borrowing limit that the student has reached at the time the information is provided.

“While some of our state’s institutions of higher learning are starting to temper the desire to constantly increase tuition rates, the past few years still have seen an upswing in those rates and a corresponding rise in the reliance on loans to help students attend college,” Austin said.

Currently, the average four-year student in Indiana graduates with a loan debt of close to $28,500, which is among the highest in the nation. Indiana’s loan default rate of 15.5 percent is also among the highest in the country.

“Sadly, few students have gained the financial wisdom at their age to understand the massive debts that can accumulate, and the loan rates out there can only add to their burdens,” Austin noted.

On student loans taken out from July 1, 2015 through June 30, 2016, the federal interest rate for undergraduate Direct Subsidized and Unsubsidized Loans is 4.29 percent. For graduate and professional students, the rate is 5.84 percent for Direct Unsubsidized Loans.

“Consider that the prime interest rate charged for most business customers is at 3.25 percent, and unlike large corporations, students don’t have the option to file for bankruptcy, and you begin to see the burdens that so many young people must confront when they choose to pursue a college education,” Austin said.

“Providing them with the kind of information detailed in this new law will help them understand what they face, and perhaps help them gain a little wisdom about managing their finances.”