New Bill Proposes “Risk Sharing” As a Way to Lower Default Rates
Posted By Eliana Osborn on September 15, 2015 at 3:00 pm
One way colleges are measured is by how their students do repaying their loans. A high default rate doesn’t look good—it generally means that many graduates aren’t getting high-paying jobs, or many students aren’t completing their education. It is also a metric that skews based on the economic status of those who enroll, so community colleges and public institutions nearly always look worse than private universities.
Now, a bill has been introduced in Congress to change how colleges are held accountable. The most interesting component of the bill would make colleges shoulder some of the financial burden of unpaid loans. Senators call this risk sharing – incentivizing colleges to care more about student outcomes. With bipartisan support, risk sharing has a solid chance of being part of whatever changes come with a revised Higher Education Act.
The goal, according to Senator Lamar Alexander, is to get schools to “have more skin in the game” and care about student borrowing and repayment. As it stands now, the burden of higher education costs fall on students alone. And tuition and fees continue to increase at alarming rates, without any repercussions for colleges.
Money collected from colleges as a percentage of unpaid loans from students would go to grants at other schools. Institutions that emphasize affordability in particular would be rewarded with these grants.
Everyone knows college costs are increasing, but most are in the dark about what is driving those increases – and unable to do anything about it. However, by changing how college loan information is measured, and making it matter to schools themselves, Congress may finally be approaching real change.
Democratic Senator Jeanne Shaheen (NH) and Republican Senator Orrin Hatch (UT) introduced this bill in early August. The Student Protection and Success Act will aim to sanction schools with high student dropout rates, preventing them from collecting money from federal student loans. Shaheen said the act will weed out poorly performing institutions and incentivize ones willing to adapt.
According to Hatch, “Schools that are not producing these returns are not good stewards of taxpayer dollars, and should be responsible for helping recuperate some of the money borrowed. [. . .] The dream of a college education should not come tied to an insurmountable mountain of debt, especially if the education it pays for does not provide the most basic skills and education to conquer it.”