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Bill Would Replace U.S. Loan Default Rates With Repayment Metric

August 6, 2015
 

A bipartisan duo of U.S. senators on Wednesday introduced legislation that would overhaul a key way the government holds colleges accountable for student outcomes and also create a new risk-sharing program. The bill, offered by Senators Jeanne Shaheen of New Hampshire, a Democrat, and Orrin Hatch of Utah, a Republican, would get rid of the government's student loan default rates and replace them with a student loan repayment rate.

Instead of tracking whether a college's former students default on their federal loans three years after the loans become due, under the bill the government would look at whether former students are making progress in repaying their debt (defined as reducing the principal loan balance by at least one dollar). Colleges with loan repayment rates more than 10 percent below the national average over a three-year period would lose access to federal aid.

In addition, the bill would create a risk-sharing program in which colleges have to pay the federal government a share of the total federal loan dollars that their former students are not successfully repaying. The precise threshold would be adjusted according to the unemployment rate in any given year. That money would be used for grants to colleges that have a “strong record of making college more affordable and increasing college access and success for low-income and moderate-income students.”

Senator Lamar Alexander, the Tennessee Republican who chairs the Senate education committee, has indicated that he wants some type of risk-sharing proposal to be included as part of the rewrite of the Higher Education Act.

He issued a statement Wednesday praising the effort. “We’ve been studying closely the question of how best to ensure that all of our more than 6,000 institutions of higher education have more ‘skin in the game,’ helping to prevent student overborrowing while at the same time helping to reduce the cost of college,” Alexander said. “We are working to find the right balance in our bipartisan legislation, and I commend Senators Hatch and Shaheen for their proposal.”

 
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