Off Limits

More to Learn Before Congress Allows Colleges to Restrict Student Borrowing
Policy Paper
May 2, 2017

Should Sen. Lamar Alexander (R-Tenn.) deliver on his promise to allow institutions to set their own limits on federal student borrowing, new research provides a glimpse at how they may target certain groups of students.

Director of higher education Amy Laitinen and program associate Ben Barrett analyzed data from 24 institutions that were temporarily permitted to limit unsubsidized loan amounts under the Department of Education’s Experimental Sites Initiative. Of those, eight targeted first-time students, four targeted students with academic concerns, three targeted students with already large debt, and three targeted students with low financial need.

Loan Limit Categories Colleges
First-time students 8
Dependent students 2
Students with academic concerns 4
Specific degree program 3
Students with already large debt 3
Students with low financial need 3
No distinctions at all (with some exceptions) 6

Institutions have traditionally asked for this flexibility to protect both students from default and themselves from federal sanctions. But the solution of limiting loans stems from the belief that problems arise as a result of overborrowing.

“We are a commuter school, but you see students borrowing crazy amounts of money, and you wonder, what are they doing with it?” said Michelle Chapman, a financial aid administrator at Atlanta Metropolitan State College, one of the experimental sites.

Laitinen and Barrett assert that the students at the highest risk are instead borrowing in smaller amounts and are not graduating with a degree of value, if they graduate at all. And the schools which they attend—largely community colleges and public less-than-two-year institutions—are at the highest risk of facing penalties.

Loan limits, they conclude, could create more problems than they solve. Namely, these restrictions could limit access, or push students toward private lenders.

The authors recommend a number of alternate solutions, including:

  • Colleges could spread out loans over the course of the term, rather than disburse them all at once;

  • Congress could give part-time loans to part-time students; and

  • The Department of Education could give colleges more options to appeal default rate sanctions.

“Before contemplating such a dramatic change to decades of policy, and without substantial evidence on how it will affect students, leaders at all levels should consider the many worthwhile alternatives,” said Laitinen.