Know Before You Owe Federal Student Loan Act of 2025
The Know Before You Owe Federal Student Loan Act of 2025 would overhaul federal student loan counseling and disclosures. It relocates and renames the traditional “Entrance Counseling” to “Pre-Loan Counseling,” expands the information students must review before borrowing, and requires students to personally confirm the exact loan amount they wish to borrow before disbursement. The bill also adds a new requirement for lenders/servicers to issue quarterly statements during periods when loan payments aren’t due (for example, during grace periods or deferments) that clearly lay out loan details, interest, payments made, and guidance on managing interest. Additionally, the bill standardizes terminology across the Higher Education Act to refer to “pre-loan and exit counseling/interviews” instead of “entrance and exit.” Overall, the bill aims to improve borrower understanding, encourage prudent borrowing, and increase transparency throughout the life of a loan. Potential impacts include stronger borrower education on how borrowing affects repayment and total indebtedness, possible reductions in excessive borrowing, additional administrative duties for schools and loan servicers, and clearer, ongoing communications to borrowers during non-payment periods.
Key Points
- 1Pre-Loan Counseling and Loan Amount Confirmation
- 2- Rebrands “Entrance Counseling” as “Pre-Loan Counseling” and changes when and what is reviewed, including that the first disbursement of each new loan (or the first disbursement in a new award year if multiple loans are taken in one year) triggers counseling content.
- 3- Requires students to manually confirm the exact dollar amount of Federal Direct Loan funding they intend to borrow, prior to loan certification and disbursement, and only after completing all pre-loan counseling requirements.
- 4Expanded Counseling Content (Post-Disbursement and Debt Information)
- 5- Counseling must include a detailed comparison of estimated monthly loan payments with after-tax income and essential expenses (using available wage data and Consumer Expenditure Survey data).
- 6- Requires the counseling to address total indebtedness, including federal debt, potential private debt as known by the institution, and estimated future debt to complete the program.
- 7- Adds guidance on borrowing limits, including minimum borrowing necessary to cover expenses, warnings about high debt-to-income ratios, and options to reduce borrowing (scholarships, work-study, reduced expenses, etc.).
- 8- Emphasizes timely graduation, the course load needed to graduate on time, and how extra years of study affect total debt.
- 9Periodic Disclosures During Non-Payment Periods
- 10- Creates a new requirement (section f of the prior law) for quarterly statements during grace, deferment, forbearance, or other periods when payments are not required.
- 11- Statements must be clear and include: original loan amounts, current balances, interest rates, total interest paid, total amounts paid (including interest and fees), lender/servicer contact information, and guidance on making voluntary payments to curb interest capitalization.
- 12Confirmation of Borrowing and Administrative Alignment
- 13- Aligns program participation and regulatory requirements to reflect “pre-loan and exit counseling” terminology, replacing references to “entrance and exit counseling” and “entrance interviews” with the updated terminology.