‘Skin in the Game’ on Loans

December 20, 2013
Inside Higher Ed 
student loan news

Senate Democrats Richard Durbin of Illinois, Jack Reed of Rhode Island, and Elizabeth Warren of Massachusetts are leading new efforts to provide student loan borrowers with more protections and to hold colleges more accountable for loans that sour. The legislators on Dec. 19 highlighted a package of new and existing proposals meant to lighten the student debt burden.

Although there has been “limited success” in lining up GOP support for the measures, Durbin said that they will be part of the Democratic agenda in the Senate in 2014. Reed will introduce a controversial proposal to require colleges with high student default rates to pay to the government a penalty in proportion to the defaulted debt. “They will have to have skin in the game,” he said. “They will have to make financial judgments based on how well-informed and how reliable their graduates are in terms of paying back their student loans.”

Under current standards, institutions are removed from the federal loan program if their two-year default rates are 25 percent or higher for three years or above 40 percent in a single year. Money collected from schools would go toward borrower relief and the Pell Grant Program, but the standards would apply only to colleges where more than 25 percent of students borrow federal loans. The bill also provides special exemptions for community colleges and historically black colleges, due to their “historic mission” of serving low-income students, Reed said. The Senate Democrats also are pushing a “student borrower bill of rights” to increase disclosures to borrowers, and new requirements on how private lenders service loans and allocate payments.

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