Know Before You Owe Federal Student Loan Act of 2025

This bill, titled the "Know Before You Owe Federal Student Loan Act of 2025," aims to enhance transparency and borrower awareness for federal student loans. It revises existing counseling requirements, changing "Entrance Counseling" to "Pre-Loan Counseling" and expanding its scope significantly. This updated counseling will be required for the first disbursement of each new loan or in each award year. The expanded pre-loan counseling will provide borrowers with crucial financial information, including an estimate of their monthly payment compared to their estimated monthly income after various expenses, based on potential starting wages and total student loan debt. It will also advise borrowers to borrow only the minimum necessary, warn about high debt-to-income ratios, and offer options for reducing borrowing. A key new provision requires students to manually confirm the exact dollar amount of Federal Direct Loan funding they wish to borrow, ensuring active acceptance of the loan amount. Furthermore, the bill mandates that lenders provide quarterly statements to borrowers during periods when loan payments are not required, such as while in school or during deferment or forbearance. These statements must clearly detail the original principal, current balance, interest rate, total interest paid, and aggregate payments. They will also explain the option to pay accruing interest and warn about the consequences of interest capitalization, encouraging borrowers to make even small voluntary payments to offset accrual.