Colleges and universities largely escape scrutiny in student loan bailout

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largely ignores universities and colleges

This story was created by The Hechinger report, an independent news organization that focuses on education inequalities and innovation.

Claudio Martinez, a champion for students struggling to repay college loans, followed every step of that process. President Joe Biden declared that one-third of that debt would be forgiven.

Martinez missed one thing in the bipartisan debate about the decision to give taxpayers $300 billion of student loan debt.

Martinez, executive director at Zero Debt Massachusetts, which is a grassroots organization made up of students, families, and activists from the state, said, “What I don’t see” that there was any mention of who made money over the past 20 years.

The question of why so many Americans are in so much debt to colleges and universities has largely been ignored by the media. It is often because their educations took longer than expected and cost more, which led to lower wages or no degree.

Martinez stated, “You as a college/university should have a responsibility to that.”

He said that this should include spending money on student debt to pay it off, not “on multimillion-dollar salaries for their presidents or fancy gyms.”

Both Republicans and Democrats have called for colleges to take some responsibility — risk-sharing or having “skin” — for students who default in repaying loans taken out to finance higher education.

These include Senator Elizabeth Warren, D.Mass., who is one of the most vocal supporters for student loan forgiveness. She co-sponsored bills in 2015, 2017 that would have required colleges and universities pay a portion of outstanding debt if 15% or more of their students defaulted.

Warren stated in 2015 that colleges must also pay some of the rising costs and failing students if they want them to pay more attention. “Colleges get all the benefits from student loan funds, while students and taxpayers take all the risk.”

Sen. Lamar Alexander, R. Tenn., supported risk-sharing. This was also recommended in a whitepaper by his Senate Health, Education, Labor and Pensions Committee (or HELP). It stated that taxpayers and federal actors have a reasonable expectation of institutions of higher education having a greater stake in or being more aligned with students’ success, debt, and ability to repay.

These proposals were never realized. The Trump administration has largely blocked attempts to regulate for-profit universities and colleges, which are less than 7 percent of students but account more of those who default within three years.

Some Republicans in Congress have criticised the Biden loan forgiveness program — including Virginia Foxx, House Education and Labor Committee Republican Leader — and pushed back against an additional effort in 2017 in order to ensure that graduates are able to repay their loans.

According to the proposal known as “gainful employment”, students in programs with debt to income ratios higher than a certain threshold would be prohibited from continuing to borrow federal loans to finance their education.

To stop the gainful employment law, for-profit colleges sued. They claimed that the method of determining whether graduates’ salaries were sufficient to pay their loans was flawed and could be inaccurate. Since 2010, these legal challenges have helped universities to resist the idea.

Kelly McManus from Arnold Ventures, director of higher education, stated that “when you’re trying out to change the status quo it’s very easy to have the status-quo — in this instance, the higher education lobby – to point out every flaw.” “This keeps policymakers away from coming to the table, and figuring out some kind of accountability.” (Arnold Ventures was one of the funders of the Hechinger Report.

Universities and colleges are not liable for student defaults. Schools could lose eligibility to federal loans for future students if this happens.

Sixty nine of the 4,754 higher education institutions currently in operation, or just over 1 percent, had their students default on loans for three consecutive years, according to the U.S. Department of Education’s most recent data.

Despite a lengthy appeals process, only eleven schools were removed from federal student loans under the rule between 1999-2015, according to an investigation by HELP Committee. was the only one of the 15 schools that were subject to sanctions in 2016. This is the last year where the appeals process has been completed.

Beth Akers, an economist specializing in higher education finance and senior fellow at conservative American Enterprise Institute, said that the bar was too low. “We should be asking these institutions more, both to protect students and to preserve taxpayer resources.”

Warren and her colleagues proposed a reduction in the loan default cutoff to 15%. This would put 1,060 higher-education institutions at greater risk for their future students losing eligibility to federal loans.

In August, Florida Republican Senator Rick Scott introduced a bill that would require colleges to pay 1 percent of the balances for any student who defaults on loans within three years. This amount will gradually increase to 10 percent if the debt remains unpaid.

Universities and colleges often fail to fulfill the most fundamental promise they make for the money they collect: that students would graduate.

According to the Education Department, less than half of students graduate with a bachelor’s in the four years they expect to . A third of students take six years or longer, adding to their debts and losing the income they earned. According to the National Student Clearinghouse, one in four drop out between their first and second years.

“This cannot continue in the current way it is. McManus stated that we cannot send billions of dollars for schools whose students are more likely than not to graduate.

Nearly 40,000,000 Americans attended college and paid for it, according to the Clearinghouse.

Akers stated, “I don’t know why there hasn’t been a backlash against institutions.” “We trust they are doing their mission which is to serve the public good and help their students. To be honest, I find that too generous. These institutions may be good intentions, but they don’t always perform well.

Even students who earn degrees don’t have enough money to repay what they borrowed. This is the condition that, in some way, a program offers gainful employment.

According to the conservative Texas Public Policy Foundation, graduates of 1,234 college and university programs don’t earn even half of what it owes. According to Third Way, 5 989 of these programs offer no financial returns . This is based on the time it takes for graduates to make back the money they have spent. The nonpartisan Foundation for Research on Equal Opportunity found that more than 25% of bachelor’s degrees leave students in a worse financial position than if they hadn’t enrolled.

Akers stated, “Let’s not make loans to schools that have a history of not getting graduates into jobs, not getting them across the finish line to get their students to graduate, or not getting enough earnings to repay their loans.”

Representatives from colleges and universities claim that forcing institutions to take on student loan risk would adversely affect schools that serve the most vulnerable students. They also believe it will have unintended consequences such as raising prices.

Terry Hartle, senior vice-president for government relations at the American Council on Education, a group of 1,700 colleges, universities, stated that many schools will simply pass on the risk-sharing cost to the borrower. It’s an economic principle that increases in cost of doing business are passed onto consumers. This is exactly what will happen at a lot of schools.

Hartle stated that risk-sharing could discourage colleges from accepting students who may default on their loans.

McManus replied that this argument implies institutions admitting people they don’t know will succeed. McManus said, “If you offer someone admission to a university and you don’t believe they will succeed, that’s predatory behavior.” Akers added: It might actually work in their favor for these students to be rejected by colleges that have a history of not serving them well.

Akers noted in a Brookings paper that while many products and services are backed with guarantees, higher education is not borne by universities and colleges, but nearly entirely by the consumers and government.

Hartle warned that colleges shouldn’t assume greater risks by being too quick.

He said that student loan debt is a problem because there are many people saying it is horrible. They’re expressing random ideas that might be useful, but they may also be insane. This is not how public policy should be done. There are no simple solutions to complex problems.

McManus stated that she hopes that the large loan forgiveness cost will make McManus pay attention to the root causes of her problems.

She stated that the system must be reformated so that students can have confidence that when they take on debt, they will receive the education they want.

The Hechinger Report, an independent, non-profit news organization that focuses on inequality and innovation in education, produced this story about student loans debt in collaboration with GBH Boston. Kirk Carapezza contributed additional reporting.

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