WASHINGTON, DC – U.S. Senator Jack Reed (D-RI) today testified before the Senate Health, Education, Labor, and Pensions (HELP) Committee at a hearing on risk-sharing by institutions of higher education. Reed discussed the critical need to address the student loan debt crisis and reform student aid programs. He also offered testimony about the Protect Student Borrowers Act of 2015 (S.1102), which Reed introduced last month along with Senators Richard Durbin (D-IL), Elizabeth Warren (D-MA), and Chris Murphy (D-CT).
The Protect Student Borrowers Act of 2015 seeks to make institutions of higher education more accountable for student indebtedness by requiring institutions to assume some of the financial risk of student loan default based on the percentage of their graduates and former students who default on their loans. This legislation would also provide incentives and support for institutions to assist their students to effectively manage their debt and reduce defaults.
“We all know that postsecondary education is required for most family-sustaining, middle-class jobs, and that an educated workforce is essential to a modern, productive economy. Yet, just as there is growing recognition that postsecondary education is indispensable in the modern economy, families are being required to shoulder growing debt burdens that severely impact the lives of borrowers to the point of threatening access to college and restricting our nation’s economic growth potential,” Reed testified. “This is a growing drag on our economy. As student loan debt has grown, young adults have put off buying homes or cars, starting a family, saving for retirement, or launching new businesses. They have literally mortgaged their economic future.”
The Protect Student Borrowers Act would hold colleges and universities accountable for student loan defaults by requiring them to repay a percentage of defaulted loans. Only institutions that have 25 percent or more of their students borrow would be included in this risk-sharing based on their cohort default rate. Risk-sharing requirements would kick in when the default rate exceeds 15 percent. As the institutional default rate rises, so too would the institution’s risk-share payment. These payments would be invested in helping struggling borrowers, preventing future default and delinquency, and reducing shortfalls in the Pell Grant program.
“Institutions of higher education can take action to reduce the likelihood that a student will default on a loan. However, under current law there is little incentive for them to do so. The Protect Student Borrowers Act will ensure that colleges and universities have more skin in the game when it comes to student loan debt by setting stronger market incentives for these institutions to provide better and more affordable education to students, which will in turn help put the brakes on rising student loan defaults,” Reed’s testimony continued. “We need to tackle student loan debt and college affordability from multiple angles, and all stakeholders in the system have to do their part. We can’t tackle the student loan debt crisis without states and institutions also stepping up and taking greater responsibility for college costs and student borrowing.”
Today’s hearing was held as part of the committee's ongoing work to craft a reauthorization of the Higher Education Act. Reed headlined the hearing’s first panel. The second panel included testimony on risk-sharing from Andrew Kelly, Director of the Center on Higher Education Reform at the American Enterprise Institute; Robert Silberman, Executive Chairman of Strayer Education, Inc.; Jennifer Wang, Policy Director of the Young Invincibles; and Dr. Douglas Webber, Assistant Professor at Temple University.
According to a recent analysis of student loan debt by the Federal Reserve Bank of New York, between 2004 and 2014, there was an 89 percent increase in the number of student loan borrowers and a 77 percent increase in the average balance size. Today, over 40 million Americans have student loan debt, with the outstanding balance exceeding $1.2 trillion.
Reed has long led the charge on Capitol Hill to help cut higher education costs for middle-class families and reduce student loan debt. Senator Reed has joined Senator Warren and Congressman Joe Courtney (D-CT-2) in introducing the Bank on Students Emergency Loan Refinancing Act, legislation that would allow those with outstanding student loan debt to refinance at the significantly lower interest rates that were approved last year for new borrowers. Reed also teamed up with Senators Durbin and Warren to introduce the Student Loan Borrower Bill of Rights, a bill that seeks to ensure struggling student borrowers are treated fairly and understand the full range of repayment options and resources available to them.