College tuition has risen by an average of 5.6% per year in the past decade, higher than the rate of general inflation, and the average graduate has between $22,000 and $28,000 in student loan debt. Parents are often confused about student loans, so they turn to credit cards to pay for their children’s college. Students themselves do not realize the importance of student loans and how their terms can affect them down the road. There is a growing trend in the use of nontraditional, high-priced private loans offered by, or in partnership with, for-profit colleges prior to a student exhausting all federal options available. These private loans are made with little to no evaluation of the students’ ability to repay the obligation. Colleges themselves have admitted that these loans will likely end up in default. Private loans generally come with variable interest rates and stricter repayment terms upon graduation.

In response, the Consumer Financial Protection Bureau (CFPB) is calling for greater transparency in the student lending market. The CFPB indicated that it hopes this scrutiny will spur competition among schools and lenders to create a fair marketplace. On October 25, 2011, the CFPB and the U.S. Department of Education unveiled a model disclosure form for presenting financial aid offers to students. These plans coincide with the recent White House announcement of plans, using an executive order, to cap monthly student loan payments at 10% of a student’s discretionary income and offer a .5% interest rate reduction for consolidating federal loans.

The model disclosure form for student loans is a one-page form, similar to the model disclosure forms previously unveiled as part of the Know Before You Owe project, that would clarify the costs and risks of student loans. The model form includes information about the cost of attending college, including tuition, fees and other expenses. It also makes clear distinctions between scholarships and loans, lists all federal loans available to students, and estimates student loan debt at graduation and what the student’s monthly debt payments will be after graduation. Future versions of the form may even include the school’s graduation and loan default rates. The CFPB hopes the disclosure form will help students compare aid packages between institutions. The adoption of the simplified form is voluntary at the moment, but Congress could vote to make use of this form mandatory for any school that receives federal financial aid. The Bureau intends to post the model disclosures online to allow the public to rank items in terms of usefulness, which it will use to update the form.

The CFPB has also released a student debt repayment assistance tool that provides information on incomebased repayment, deferments and alternative payment programs. The tool does not actually accept applications for loan modification, but it does ask a few basic questions to understand the user’s economic situation. The tool then uses this information to provide advice and guide borrowers through their various options.