Institutional risk-sharing -- or holding schools partially accountable when their student borrowers default -- could both control college costs and reduce student debt, Sen. Lamar Alexander (R-TN) said during a hearing Wednesday. And it’s one measure the Senate Health, Education, Labor, and Pensions (HELP) Committee will consider including during reauthorization of the Higher Education Act to help curb excessive student borrowing, he added.
The hearing, “Reauthorizing the Higher Education Act: Exploring Institutional Risk-sharing,” was the third HELP installment ahead of reauthorization, and featured the following panelists:
“Right now, colleges receive the upfront benefit of money provided by federal student loans, but students and taxpayers are the ones who bear all the risks and consequences of default, regardless of whether the college or university serves students well or keeps debt levels affordable,” Sen. Patty Murray (D-WA) said.
Risk-sharing could give colleges incentives to keep costs down, which, in turn, could reduce student borrowing, Alexander said. If implemented, Alexander said the policy should apply to all institutions -- though various institution types may require different models of risk-sharing. Policymakers would need to prepare for and mitigate against unintended consequences, he noted, such as additional community colleges exiting the federal loan program.
Risk-sharing could also spur colleges to limit their enrollees to students who appear to be low risk (i.e., not low-income) and thus could stifle access, Kelly said. To combat this, schools could be incentivized with bonuses for each Pell Grant recipient they enroll and ultimately graduate, he suggested.
Reed has already introduced legislation on institutional risk-sharing meant “to move the conversation forward … to how to design a system that puts the right market incentives in place,” he said.
Overall, the panelists largely supported the premise of risk-sharing, though they noted some caveats. Colleges are currently somewhat constrained because they can’t limit overborrowing among categories of students, Kelly and Silberman said -- an authority for which NASFAA has long advocated.
Sen. Tammy Baldwin (D-WI) asked whether the Perkins Loan Program could be built upon to achieve risk-sharing goals -- an argument NASFAA President Justin Draeger recently made in The Chronicle of Higher Education -- given that colleges already contribute $.33 for every $1 from the federal government.
“The broad structure of the Perkins Loan Program absolutely could be used as a basis for risk-sharing,” Webber agreed.
In addition to risk-sharing, the HELP Committee will likely consider how to make it easier for colleges to offer more student loan counseling -- a service that’s often lacking due to heavy administrative burdens on aid offices, a recent NASFAA study found. The HELP Committee may also consider giving colleges authority to limit some borrowing.
Alexander concluded the hearing with some perspective: Much of education is attainable through federal aid, particularly at community colleges and public institutions where costs tend to be lower, he said.
“Sometimes, I think we send the wrong message to students of all ages who want to go to college. It’s never easy to pay for college, but it’s easier than many people say or think,” he said. “There are many things happening to make college accessible to students, and perhaps risk-sharing could be one more.”
Publication Date: 5/21/2015