As it currently stands, the package includes a policy change regarding student debt that would also have major repercussions. The bill would put colleges and universities themselves on the hook for portions of loans taken out by students who do not pay them back after a certain period of time.
Michigan Republican Tim Walberg, who chairs the House Education and Workforce Committee, acknowledges that risk sharing is a controversial proposal. “But educators and colleges, universities, trade schools, community colleges, need to understand that they have skin in the game as well,” he said at a recent appearance at the American Enterprise Institute.
It’s a proposal heavily opposed, not surprisingly, by colleges and universities themselves, who argue it will not only cost them money but harm students. “We fear that it’s possible that institutions who enroll more low-income students, more first-generation students, may be disincentivized from enrolling those students,” said Liz Clark, vice president for policy and research at the National Association of College and University Business Officers.
Not a New Idea
The idea that colleges and universities should bear some of the financial responsibility for loans that haven’t necessarily paid off is not a new one. It’s been kicking around for more than a decade and was part of a college cost reduction bill by House Republicans last year.
“In theory, it sounds right,” says Sara Goldrick-Rab, author of Paying the Price: College Costs, Financial Aid and the Betrayal of the American Dream. “You borrowed money to go to this school and the school didn’t give you what you needed, clearly, to pay the money back, so the school should pay it.”
But there are many practical problems, she says. For one thing, the working assumption among congressional Republicans seems to be that tuition is the leading driver of student debt — when actually, it’s other costs, most notably rent. Colleges would be asked to pay back funding that went to living expenses and not necessarily their own coffers.
Also, the ability to repay student loans is based not solely on the question of whether students graduated with marketable skills. Macro factors — such as the overall condition of the economy, interest rates and other ongoing living expenses such as housing have a great deal to do with individuals’ practical ability to write out checks to their lenders.
“In reality, the number of those things in the schools’ control is pretty damn small,” Goldrick-Rab says.
Ninety-eight percent of institutions would end up owing money under the risk-sharing plan, according to the American Council on Education, a higher education association. Rather than being need-blind, universities might have to worry more about applicants' likely ability to repay.
"Folks that are proposing this hope that it means colleges will lower their costs," says Antoinette Flores, who directs higher-ed policy at New America, a think tank in Washington, "but it's hard to say that will happen."
Unknown Future Liabilities
How much schools would have to pay back would be based on complicated formulas including their mix of majors and the difference between students’ expected annual repayment rates and what they've actually paid. Higher education experts say uncertainty about the formula is reason enough to be nervous about how this would play out in practice.
If the plan goes through, it would not take effect for a couple of years. But once it kicks in, schools would be on the hook for presumably increasing amounts of money each year, as succeeding cohorts of students graduate and some fall behind in their payments.
“No institution can really predict what those expenses might be,” says Robert Shireman, a senior fellow at The Century Foundation and federal education official. “Public institutions would be committing some future legislature in 10 years to have to pay back loans that are being made right now.”
Shireman and Flores both say that the issue of future liabilities could be so dire that many institutions could remove themselves from the federal student loan program altogether. Goldrick-Rab argues that’s unlikely, since loans are such an important source of funding for students — and may become even more so if the congressional bill ends up cutting grants.
Regardless, the congressional bill, by reducing grants and shuttering some federal loan programs, will direct more students toward the private loan market. That would end up raising borrowing costs for students.
The interaction with private markets may end up sinking the risk-sharing proposal, Goldrick-Rab suggests. President Donald Trump is a fan of for-profit universities — he once owned one himself — and they’d end up being on the hook for a lot of unpaid loans.
“The school has to pay back the loans for students who don’t finish or don’t repay them,” Goldrick-Rab says. “That’s going to hit the for-profits really hard.”
