New Bill Would Make Institutions Repay Some of Defaulted Students’ Loan Debt

By Maria Carrasco, NASFAA Staff Reporter

A new bill introduced by Sen. Rick Scott (R-Fla.) would make institutions responsible to pay back a percentage of borrowers’ loans if they defaulted on payments and require the Department of Education (ED) to post data from public institutions, such as six-year graduation rates, cost to graduate, and job or advanced degree placement.

The COLLEGE Act — Changing Our Learning, Loans, Endowments, and Graduation Expectations — was introduced by Scott earlier this month as an effort to put higher education institutions “on the hook” for student debt and to implement reporting requirements for ED. 

Scott said in a statement that state and federal leaders have “failed managing” public institutions of higher education, which has resulted in “decades of failed policy,” including many borrowers having “mountains of student debt.” 

“Now, these same ‘leaders’ are claiming that the answer to our higher education problems is massive and unconditional student loan debt forgiveness,” Scott said. “It’s choosing to treat a symptom when we can cure the disease. If we want real results that improve student performance, boost post-graduation job placement and keep tuition affordable, we need to do the hard work of actually holding colleges and universities responsible for the outcomes of their students and accountable to the American taxpayer.”

Under the COLLEGE Act, institutions would be responsible for paying 1% of the loan balance of any borrowers in default within the first three years of their loans entering repayment. As time passes, the rate jumps to 2% in the second year of default and ultimately increases to 10% of that balance at the end of 10 years.

“Forcing universities to have accountability for student debt provides a powerful incentive to actually prepare students for careers — instead of encouraging mountains of debt and degrees that don’t lead to jobs after graduation,” a press release from Scott states. 

Additionally, the bill would require ED to publish what Scott calls “common-sense metrics” from public institutions, including the six-year graduation rate for each academic program, the percentage of graduates who are employed full-time or continuing their education full-time after graduation, and the cost to graduate with a degree for each academic program. Scott notes that metrics create accountability for institutions to prepare students to get a job following graduation.

Institutions would also be required to create an annual cost and endowment report to submit to ED, which would include information on an institution’s’ current cost of attendance, increases in cost of attendance from the previous year with an explanation why, the size of the institution’s endowment, and the total increase of the endowment fund over the previous four fiscal quarters. 

The bill would require institutions to create cost-match financial aid awards based on the size and growth of their endowment funds. For example, the bill states Title IV participating institutions with endowments greater than $1 billion, but less than $5 billion, would be required to cover 25% of the cost of attendance for each full-time student enrolled. For institutions with endowments greater than $5 billion, but less than $10 billion, there would be a 50% university cost-match and for those with over $10 billion, 75%. 

The legislation was referred to the Senate Committee on Health, Education, Labor, and Pensions (HELP) in early August, though Scott does not currently serve on the committee. Since Democrats currently make up the majority in both the House and Senate, it’s unlikely this measure will be approved during the 117th Congress. 

However, with control of both chambers up for grabs in the upcoming term elections, the proposal could be considered when the 118th Congress comes into session next year should Republicans win back the majority. NASFAA will continue monitoring this bill as it moves through the legislative process.


Publication Date: 9/1/2022

Ben R | 9/14/2022 11:52:02 AM

Why is defaulting on a small amount like $5000 considered an enforceable accountability trigger, but when a student borrows over $100K, then gets the majority of their loan wiped out after making de minimis (or zero dollar) payments under IDR, that’s perfectly acceptable?

Thomas V | 9/2/2022 10:46:24 AM

Scott wants to hold colleges accountable? Let's look at how the government handles their money. They are calling the PPP debacle the 'Biggest fraud in a generation' – Fraud related to PPP loans estimated above $80 billion. The cases of nationwide fraud in connection with federal relief funds distributed during the COVID–19 pandemic continues to rise.

Melissa W | 9/1/2022 4:41:54 PM

Maybe banks should be responsible for paying a percentage of the mortgages, car loans, or credit cards that borrowers default on. Overborrowing doesn't just happen in higher education...

Kyle R | 9/1/2022 11:54:16 AM

It seems like this stirred up many comments here once it affects public institutions. It sounds like most of you should be lobbying against Gainful Employment since most of your arguments are the same arguments that go against GE. We aren't allowed to control over borrowing but are held accountable for student debt. We can't control what a student does with their certificate/degree post graduation but are held accountable for their earnings. We welcome all that would like to join the fight against GE.

Sonya A | 9/1/2022 11:32:33 AM

It's not like schools can say, based on your major, your starting salary will be $X, so we are going to limit you to borrowing $10,000 total for your degree. If schools will be on the hook, shouldn't we be able to limit what students borrow?

David S | 9/1/2022 11:21:00 AM

Rick Scott was of course once governor of Florida. Here's what someone had to say about his plans for higher ed at the time -

This bill won't even get as far as a vote by a committee, but it shows what his side of the aisle's response to helping needy student loan borrowers looks like. They want to invent ways to punish colleges. Vote accordingly, folks.

Kimberly L | 9/1/2022 11:16:18 AM

I agree with Mike and Tony. I have worked at both a graduate/professional school and a community college. I see students from all walks of life overborrow. However, there are very little limitations in place that schools can do to curtail overborrowing. I know that some private lenders base loan amounts on majors, gpas, etc., recognizing that some of these issues can be good indicators about the ability to repay student loans.

Vincent F | 9/1/2022 10:15:59 AM

This would be a good reason for schools to exit the Direct Loan Program altogether. I think Grove City College might have the right idea.

Nedi G | 9/1/2022 9:52:08 AM

While this bill is likely DOA, - its the growing trend of these types dangerous ideas that we should be concerned about.

David V | 9/1/2022 9:51:17 AM

It's rich to hear from this senator saying that we failed the handling of public funding. I am sure the PPP loans that were forgiven were properly handled. Anyway, if this passes, expect tuition and fees to sky rocket even higher.

Michael F | 9/1/2022 9:49:38 AM

When we moved to Direct Lending, the DOE said we didn't need to do anything when it comes to repayment except counsel. Schools don't have the authority to tell DOE which servicer they would like to take care of our students, so why should my school be on the hook for anything.

Tony L | 9/1/2022 9:46:31 AM

Sounds like Senator Scott wants to institute Gainful Employment regulations for degree programs as well. How many countless students have I seen in the last 26 years choose to take the full loans DESPITE my counseling that they don't need all of it. We cannot control how much they borrow, then they complain when they get out of school: "Oh no, I didn't know I had borrowed so much!" Where's the accountability on students?

Mike B | 9/1/2022 9:33:20 AM

Hey, Institutions... we are going to make you help foot the bill after we demanded you provide zero road blocks, allowing students to fully immerse themselves in 100% debt. This is just hilarious. I guess this will be super popular at community colleges.

Kris S | 9/1/2022 9:22:00 AM

Why is it the institution's fault that the student fails to manage their money appropriately upon graduation and then allows their loans to go into default? What next? Are the institutions also going to have to pay for credit card debt? housing debt? car loans? They are adults, and should be responsible for their own outcomes. Yes, it would be great to make college more affordable, but with minimum wage increases, this creates increases to the cost of living, and therefore increased salaries. How do you think the people working at the institutions earn money? Magic? This is absolutely just stupid.

Joe B | 9/1/2022 8:58:52 AM

If people thought college was expensive before, just wait until the finance folks have to budget for the possibility of paying up to 10% of defaulted loans that could be 10's of thousands of dollars each year.

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