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Marketplace

If students default, should colleges pay up?

Nova Safo May 20, 2015
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In the Senate, a committee hearing on Wednesday is scheduled to look at the idea of having colleges pay part of the cost of student loan defaults, which totaled $99 billion in 2014.

Some seven million Americans have defaulted on their student loans, and 70 percent of them are college drop-outs. They average about $14,000 in student debt.

“You want people to care about the debt beyond the day after they issue it, and to make colleges somewhat financially responsible,” says Ben Miller, who studies education policy at the Center for American Progress.

To do that, the Senate Committee on Health, Education, Labor & Pensions is considering whether colleges should pay back the federal government a portion of any defaulted debt. It’s also considering what that payback should look like: whether it should be a set fee, or a percentage of the loan amount, for example.

Pauline Abernathy, vice president of The Institute for College Access and Success, supports the idea of college debt default accountability. Her organization has provided feedback to the Senate committee on what form that should take. But, she says there are also risks to consider in crafting any future legislation.

“We don’t want to provide any disincentive for schools to enroll low- income students, who may in some cases have a higher risk of default,” Abernathy says.

While a potential bill could be a couple of years away, Abernathy says there does seem to be increasing bipartisan support for the concept of having colleges share in the risks of student loans.

In the 2015 fiscal year, the U.S. government’s college grants and loans will total about $138 billion.

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