Policymakers are improving loan repayment. But accountability cannot be an afterthought.

Blog Post
Feb. 28, 2023

Most students decide to attend postsecondary education because they want to earn a credential that leads to a high-quality career and ensures their economic security. A nationally representative survey of undergraduate decision making conducted by New America in 2015 found that the top three reasons students chose college were to improve their employment opportunities, to make more money, and to get a good job. More recently, a New York Times focus group of high school seniors applying to college found that students are choosing to go to college to gain a credential that will help them secure a job.

Completion of a postsecondary program isn’t just good for individuals, it also confers benefits to society—from improved civic participation, to more tax revenues, to safer and healthier communities. This is the driving reason why local, state, and federal governments subsidize education after high school, with particular targeting of those benefits towards undergraduate programs.

For most students who attend a postsecondary education program and complete, there is a financial payoff. But too many students attend poor-quality programs that fail to give them the support they need to maintain enrollment and graduate. For these students, the cost of their education ends up being more than their (and taxpayers’) investment. This imperils their financial security and potentially leaves them worse off than if they had never enrolled. Many of these students take out loans that they struggle to repay and are poorly served by a complex and unforgiving student loan repayment system. Millions end up in default where their wages, and the federal benefits designed to keep them out of poverty, can be garnished.

Students should never be left worse off for enrolling in college, and taxpayer dollars shouldn’t flow to institutions that have poor records of serving students. This is a worst case scenario in higher education, and one that happens too often. That’s why, at New America, we believe that:

  • Financial aid, including loans, must promote opportunity;
  • The student loan repayment system must be accessible, affordable, and borrower-centered; and
  • Everyone, including institutions, the federal government, and its contractors must be held accountable for that investment.

The higher education accountability and student loan systems do not exist in a vacuum. Rather, they are two sides of the same coin, and when they do not work—and when they do not function together—they disproportionately harm the most vulnerable students and borrowers. Those most likely to default on their loans—which include borrowers of color, particularly Black borrowers; low-resource students; those who do not complete a degree or credential; and those that attend for-profit schools—are often least able to afford the severe financial consequences that come with default. And underserved and marginalized students disproportionately enroll in low-financial-value programs. A decade-long longitudinal study, for example, found that Black youth in Baltimore’s public-housing projects strived and enrolled in colleges just like their white peers but were aggressively recruited by for-profit trade schools that didn’t pay off.

What’s next?

We are pleased that the Department proposed important steps to reform income-driven repayment (IDR) of student loans that target those who are most vulnerable. We are also encouraged that the Department simultaneously is considering ideas for and information about how to identify low-financial-value postsecondary programs. And it has pursued a strong regulatory agenda that holds institutions accountable when they offer low-quality programs or defraud students.

We support many of the progressive reforms driving the loan-related benefit changes: Borrowers should experience an easier-to-navigate system of repayment, one that is student-centered and promotes opportunity and equity. These come in addition to other Biden administration initiatives to reform the repayment system, including the Fresh Start program for those in default, the IDR account adjustment and Public Service Loan Forgiveness waiver to correct past failures in the system, ongoing work to reform collections and servicing, and new regulations that make it easier for borrowers to access loan discharges, among others.

But for institutions, loans are grants, which can be substantial. In fact, Parent PLUS and Graduate PLUS loans can be borrowed up to the cost of attendance, an amount set by the school. Colleges face little to no consequence if their borrowers struggle to repay these loans. Our existing accountability measure for student loan repayment, the cohort default rate, is easily gamed by institutions and all but moot at the moment given the current student loan payment pause. Indeed, during the 2015 program integrity rulemaking, one college president admitted that colleges and universities used Parent PLUS loans as a no-strings-attached revenue source to avoid sanctions that come if students struggle to repay federal unsubsidized or subsidized loans.

More borrowers will have lower monthly payments under the Department’s proposed new IDR plan, and many borrowers who struggle to repay will be automatically enrolled. As a result, rates of default will decrease across the board. While this is good news for many borrowers, it makes identifying low-quality programs more difficult. In addition—while evidence on the intersection of tuition and loans is mixed—a more generous IDR program can create perverse incentives for schools to increase tuition, enroll students in low-quality programs, or encourage students to take out unsustainable amounts of debt.

The Department must further protect families’ and taxpayers’ resources by creating a strong accountability structure that ensures that borrowers aren’t harmed by our student lending system or by predatory institutional actors. To do so, the Department must develop strong financial responsibility, administrative capability, and ability to benefit rules. It must also create robust gainful employment regulations that hold institutions accountable for students' debt relative to their earnings and ensure program graduates make more than someone with only a high school degree in their state.

In addition, the Department should collect and analyze additional data to understand how the new IDR plan may lead to unintended consequences and exploitive behavior on the part of institutions, including:

  • Large increases in net tuition. Even though debt will be more affordable for many borrowers via the Department’s proposed repayment plan, IDR cannot ensure borrowers will fully recoup the cost of their education, particularly given the time and personal financial investment they’ve put into postsecondary education.
  • Substantial increases in student loan borrowing, with particular attention paid to the types of borrowing, types of loans, and types of borrowers and loans over a certain period of time.
  • New programs and programs that have substantial increases in enrollment over certain periods.

Students deserve to have access to affordable, high-quality education, to know whether a program of study is going to pay off, and to not be trapped in debt. We must work across silos to make that happen.

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