Republican Senator: Make Colleges Pay Half of Graduates’ Defaults

If a college or university alumni defaults on student loans, the college should pay at least half of the amount in default.

That’s the premise of the latest student loan bill on the Senate floor, the Skin In The Game Act, courtesy of Senator Josh Hawley (R – Missouri). The bill would also prevent educational institutions from increasing tuition to cover the liability.

At the same time, Hawley has introduced a separate piece of legislation, the Break the Higher Education Monopoly Act of 2019, that would expand the number of trade schools, technical colleges and apprenticeship programs eligible for Pell Grants. These institutions and programs would qualify under an alternative accreditation program.

The federal Pell Grant program provides grants to more than 7 million students from low-income families in the amount of $30 billion per year. “Allowing students to use their Pell Grant at a greater range of career training programs will reduce reliance on debt and maximize opportunities for students to pursue their dreams,” said Senator Hawley in a statement on his website. 

The ‘Skin in the Game’ Act.

The first proposal would be an important step in holding colleges accountable to the quality of their programs and their economic viability. Colleges would be under a great deal of pressure to ensure their graduates were equipped to earn incomes that would be adequate to repay the debt.

However, if the law is passed, we may see fewer programs or more limited enrollments in sociology, social work, education, drama, art, and music – especially at some more expensive schools.

Meanwhile, the current system that limits federal dollars to traditional colleges and universities is an anachronism – one that is completely out touch with the needs of the modern economy, which has scores of thousands of four-year degree holders underemployed while paying off large student loan balances, leaves hundreds of thousands of high school graduates underemployed and unable to afford the education they need to move up the income ladder – and leaves employers in many industries critically short of skilled labor.

Making trade schools more affordable would open more doors for high school graduates to pursue lucrative careers while incurring less debt, taking on few years of school, or both.

Criticisms

There are a few things in Hawley’s plan that need to be worked on:

  • The proposal inevitably drives up the overall cost of education. The cost of all future defaults would have to be distributed on all future students.
  • Most colleges are not sitting on a massive pile of endowment cash they can readily tap to pay this obligation. They will have to raise the cash another way – and the obvious way is to raise tuition and fees.
  • Even though there is language in the legislation that prohibits colleges from raising tuition to cover the cost of defaults, they will inevitably do it anyway.
  • Costs borne by public colleges and universities ultimately fall back on taxpayers anyway.
  • Colleges will have an incentive to reject poorer students because of the increased risk. The pressure on colleges that don’t have large endowments to avoid admitting lower-income students to some majors will be intense.

Michael T. Nietzel, former president of the University of Missouri, where Sen. Hawley and his wife both were members of the law faculty, savages the Hawley plan here. 

Colleges that already help pay student loans for low-income graduates

Furthermore, some colleges are already offering financial assistance with student loan repayment for graduates who are unable to land a job that enables them to pay student loans as promised.

Here is a partial list of colleges and universities who have contracted with LRAP Associates – a private insurance industry firm that provides students with a guarantee of student loan repayment assistance after they graduate if they are working full time and earn less than approximately $43,000 per year:

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