Students Struggling With Loan Repayment Could Harm Colleges

By Emily Wilkins

More colleges and universities could lose federal funds if senators decide to use a new metric to determine whether students are making sufficient progress repaying their loans.

Currently, the government uses the default rate to determine which schools are providing students with the education they need, which will help them repay the cost of college. Schools can lose funding if the percentage of students in default three years into repayment is too high, a metric known as the cohort default rate.

A new metric is being considered as part of a comprehensive update of the higher education law (Pub. L. 110-315).

“Using student loan repayment rates in an appropriate way to measure accountability for all programs at all of our 6,000 colleges and universities would be, in my view, a step in the right direction,” Lamar Alexander (R-Tenn.), chairman of the Senate Health, Education, Labor and Pensions Committee, told members during a Jan. 30 hearing.

Currently, colleges can lose federal Title IV funds if their cohort default rate is higher than 40 percent, or between 30 percent and 40 percent for three consecutive years.

‘Finger Wag’ Not Adequate

However, the vast majority of students who default on their loans go to schools with a low cohort default rate, making the provision “little more than a finger wag” said Ben Miller, senior director for Postsecondary Education at the Center for American Progress.

“Repayment rates are a potentially stronger and more aspirational accountability measure,” Miller told the committee. “They send a message that we want our borrowers to repay successfully, not just avoid the worst possible outcome.”

Focusing on repayment would also benefit taxpayers said Jason Delisle, a resident fellow at the American Enterprise Institute.

“You can essentially impose costs on a taxpayers by slowly paying down your loans in income-based repayment, but you’re not in default,” Delisle said.

The House GOP’s higher education bill (H.R. 4508) would replace the cohort default rate and replace it by barring federal funds from college programs where more than 45 percent of graduates had defaulted or were delinquent on student loan payments after three years. However, students who were making payments on the interest on their loans but not on the loan’s principal would be counted as doing fine.

Legislation (S. 2231) from Sens. Orrin Hatch (R-Utah) and Jeanne Shaheen (D-N.H.) would count a student as in repayment if the student had paid at least $1 on the principal of their loans. The Hamilton Project, a research group within the Brookings Institution, also proposed comparing a loan’s principal when students begin to pay their loans versus how much they still owe five years later.

Alexander suggested during the hearing that, like the House, he would want the metric to be applied to programs, rather than an entire school. Unlike the House, he also suggested he might want to keep the cohort default rate along with a new measure.

To contact the reporter on this story: Emily Wilkins in Washington at ewilkins@bgov.com

To contact the editor responsible for this story: Paul Hendrie at phendrie@bgov.com

Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.