United States Senator Lamar Alexander (R-TN), Chair of the Health, Education, Labor, and Pensions (HELP) Committee, released a white paper outlining policy proposals on the concept of institutional risk-sharing. In short, elected leaders have proposed that requiring institutions to share in the risk of lending to students would lead to reduced student borrowing. To this end, Senator Alexander’s white paper articulated that the goal of risk sharing would be to “[r]ealign and improve federal incentives so that colleges and universities have a stronger vested interest and more responsibility in reducing excessive student borrowing and prioritizing higher levels of student success and completion.” Three main risk-sharing concepts are described in Senator Alexander’s white paper:
Participation Fees – The federal government would require colleges and universities to pay a designated fee to participate in federal aid programs.
Default Penalties – Institutions would be liable for a designated percentage of the dollar amount of students’ defaulted loans.
Institutional Loan Guarantees – Institutions would be held responsible for a designated proportion of the capital and interest on the loans borrowed by their students.
Although the policy goal to address student debt is laudable - a goal to which the higher education community and external stakeholders share a deep commitment – we raise conceptual problems with the strategy to impose punitive measures on institutions. Through a community letter sent to Senator Alexander, 26 leading higher education associations suggest alternative policy actions that address student debt. Several recommendations offered were to:
Invest in campus-based aid programs - Increasing the investment in Federal Supplemental Educational Opportunity (SEOG) Grants or revitalizing the Leveraging Educational Assistance Partnership (LEAP) program offer promise as policy actions that reduce debt. These campus-based aid programs require institutions to match the federal government’s investment, which, in turn, reflects the partnership and shared responsibility between the federal government and institutions to reduce debt.
Target effective repayment and loan administration policy actions - Streamlining income-based repayment programs, broadening the capability for borrowers to discharge loan balances in bankruptcy, and eliminating origination fees represent approaches that can ease the pressure and burden placed on borrowers.
Employ a streamlined risk-based assessment measure – Instituting a mechanism to specifically target institutions with high average student debt and default rates offers an effective strategy to address student debt.
As the 114th Congress takes up reauthorization of the Higher Education Act, or considers standalone legislation that would impact colleges and universities, NASPA is committed to advocating for policy actions that foster an affordable and high-quality system of postsecondary education for all students.