Alexander: Colleges Should Be More Accountable For Students Not Repaying Loans

“There are two groups of borrowers repaying student loans: nearly half—46 percent – who are repaying on their student loans and a little more than half – 54 percent – who are in default or are not making payments on time… The taxpayer should be concerned not just about borrowers in default, but also about the ones who are not making payments on time.”

Washington, D.C., January 30, 2018 – At the Senate education committee’s fourth hearing this Congress on reauthorizing the Higher Education Act, Chairman Lamar Alexander (R-Tenn.) said “I believe Congress should consider new accountability measures that are more effective at holding all individual programs at all colleges and universities accountable for the ability of their students to pay back their loans.”

“Today we are looking at another important focus of our reauthorization of the Higher Education Act – accountability – whether students are earning degrees worth their time and money,” Alexander said. “An important part of that is to find ways to make sure students are not borrowing more money than they will be able to pay back.”

Alexander continued: “Historically, most student loans have been repaid and taxpayers recover most of the money. However, there are some worrisome signs as we look ahead. There are two groups of borrowers repaying student loans: nearly half—46 percent – who are repaying on their student loans and a little more than half – 54 percent – who are in default or are not making payments on time.”

“Of the more than half who are not repaying their student loans on time, 21 percent of borrowers are in default, meaning they have not made a payment in over nine months. The current method of holding colleges accountable for students making their student loan payments is based on only the 21 percent in default. There are another 33 percent of all borrowers who are not making payments on time. These borrowers are not taken into account in the current accountability measure. The taxpayer should be concerned not just about borrowers in default, but also about the ones who are not making payments on time.”

“Of the half who are making payments, nearly two-thirds of them are in the income-based repayment program – which was designed as a safety net for low-income borrowers, and capped their monthly payments and forgave the outstanding loan after 20-25 years. What was designed as a temporary safety net has become the standard where students expect their debt to be forgiven after a certain amount of time. We will not know the impact of so many borrowers being in this program for another decade, when the first set of borrowers begin to have their debt forgiven.”

“As we continue our work on reauthorizing the Higher Education Act, I want to look at how we hold all schools – public, private, and for-profit – accountable when students borrow too much money and are not prepared to pay those loans back.”

The committee met on November 28, 2017 to examine proposals to simplify the Free Application for Federal Student Aid, January 18, 2018 to examine proposals to simplify federal financial aid, which currently consists of two grant programs, five loan programs, and nine repayment plans, and on January 25, 2018 to examine ways to create an environment that allows colleges to be as versatile as today’s students. 

Alexander’s full prepared remarks are available here.