Off Limits: More to Learn Before Congress Allows Colleges to Restrict Student Borrowing

Blog Post
May 2, 2017

One morning in 2011, Michelle Chapman, director of financial aid at Atlanta Metropolitan State College (ATLM), came across a news article highlighting an experimental initiative led by the U.S. Department of Education (ED). The experiment -- which served as a waiver to existing federal law and regulations -- allowed a small number of colleges to limit student loan borrowing below the amount to which students are usually entitled.

Given that almost a quarter of borrowers at ATLM had defaulted on their loans within three years of leaving the college, Chapman wanted to use this expanded authority to ensure her students were taking on the appropriate amount of debt. But in addition to her concern for former students, who could face damaged credit and steep penalties if they defaulted, she also worried for her institution. Colleges at which student loan default rates exceed thirty percent for three years in a row can be cut off entirely from receiving future federal financial aid. Without access to loans and Pell Grants, in particular, ATLM would likely have to close its doors.

For the past three years, ED has used its Experimental Sites Initiative to allow ATLM and 23 other colleges across the U.S. to directly intervene in students’ decision to borrow -- an authority that many others have been pushing Congress to expand to all. While forbidden from limiting loans based on factors like their gender, race or religion, these colleges were given wide latitude to target nearly whichever student subgroups they wished with reduced or eliminated loan awards.

By granting administrators at these colleges the opportunity to limit federal loans at their discretion, ED hoped to learn not only what strategies they might employ but also what impact this change in policy may have on student success. Unfortunately, the experiment only answered the first question. Without proper control groups or consistent data, there was almost no useful information uncovered about how lower loans limits may help or hurt students with regard to their course progression or financial well-being. Rather than fix these limitations and try to inform the policy conversation, however, ED announced in April that it would be ending the experiment.

In a paper out today, Off Limits: More to Learn Before Congress Allows Colleges to Restrict Student Borrowing, we provide an overview of the hazards that have spurred many open enrollment institutions to seek greater control over student borrowing. After evaluating five broad strategies that institutions taking part in ED’s experiment have implemented, we weigh potential obstacles that students may face if they are denied access to federal student loans. Considering the lack of reliable data collected in the experiment, we inevitably conclude that authorizing colleges to limit student borrowing is a dramatic step, which requires more analysis.



Although we cannot be entirely certain what impact lower loan limits may have on students, we understand that many community colleges are grappling with difficult decisions, and are even pulling out of the federal loan program entirely to avoid the consequences of default. To address administrators’ concerns without limiting access to student loans, we recommend alternative approaches that colleges, the Department of Education, and Congress can take instead. Notably, we strongly encourage ED to reopen the experiment and to learn for certain whether there is cause for worry as Congress considers giving colleges greater say over how much students borrow. Until then, this policy change should temporarily be off limits.

To read the complete report, click here