Panel Examines Institutional Risk-Sharing

By Stephen Payne, Policy and Federal Relations Team

Yesterday the Education Finance Council (EFC) convened a panel from the higher education community to discuss proposals surrounding institutional risk-sharing, also commonly referred to as “skin in the game.” The panel centered their thoughts on the potential outcomes of an institutional risk-sharing program, metrics that would be utilized, and how institutions should and would judge prospective students.

The panel, featuring a variety of perspectives on this issue and on higher education more broadly, included:

  • Beth Akers, fellow, Brown Center on Education Policy, Brookings Institution;
  • Justin Draeger, president, National Association of Student Financial Aid Administrators;
  • Jonathan S. Fansmith, director, government relations, American Council on Education;
  • Andrew P. Kelly, American Enterprise Institute (AEI) resident scholar and director, AEI Center on Higher Education Reform; and
  • Moderator: Gail daMota, senior vice president & chief operating officer, Education Finance Council (EFC)

To begin, Kelly outlined his perspective that an ideal institutional risk-sharing program would give institutions an incentive to be more vigilant about the students they admit and how they serve them once enrolled.

“I don’t see how we get from institutional risk-sharing to higher quality,” Draeger countered before being asked about whether using default rates is a good trigger. Default rates are very blunt and antiquated, he explained. They may not be “indicative of institutional quality.”

Kelly agreed that there are some problems with the use of default rates as the lead metric, but noted that these questions should not prevent those in the policy community from considering ways to ensure colleges have more “skin in the game.”

Akers would not fully endorse an institutional risk-sharing model, but did advocate for consumers who, in her opinion, should demand more information from colleges and universities about the success of its students.

“I think you can't have a risk-sharing arrangement without some discussion of institutions’ control over borrowing,” Kelly argued. An institutional risk-sharing model inappropriately treats institutions as originators while also tying their hands in how they can originate, he noted before adding, “That doesn’t make sense.”

The moderator then switched gears by asking the panelists about whether the underlying debate around institutional risk-sharing is really about college readiness. Draeger noted that some financial aid administrators would disagree with the notion that a high school diploma automatically equals college readiness.

“No qualified student should be denied access to postsecondary education,” Draeger stated, but perhaps a better conversation in the policy community should be about defining what a “qualified student” looks like.

The conversation closed with the panelists considering the potential unintended consequences of institutional risk-sharing. “The idea that this will incentivize change among the worst actors is counterintuitive,” Fansmith said.

The topic of institutional risk-sharing is nothing new, however. Sen. Alexander (R-TN), the chair of the Senate Health, Education, Labor, and Pensions (HELP) Committee, released a white paper on risk-sharing in March. NASFAA outlined its priorities and perspectives on risk-sharing in a reply to Alexander in an April letter.


Publication Date: 7/10/2015

David S | 7/10/2015 9:47:16 AM

Justin is absolutely correct, risk sharing improves nothing, it benefits no student. In fact, I believe it will hurt them. Manu schools, especially community colleges, would probably rather leave T4 loan programs than share default costs, and that would leave students with fewer options..would Sen Alexander prefer students pay their tuition with credit cards? And at schools that stay in the program, tuition will go up to cover the expense. Private loans will flourish (although maybe some of them start introducing risk sharing of their own). The incentive here is to punish colleges and get grandstanding points from voters..."I did something about tuition our greedy colleges charge our hardworking families..."

Keep fighting this, Justin.

Earl D | 7/10/2015 9:12:36 AM

Whew! When I initially read the White Paper, I saw implications for community colleges. Now that I see a community college representative was not included on this panel discussion, I guess I can rest easy!

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