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A Bill

Putting Colleges on the Hook for Student Loans

S. 1873 Protect Student Borrowers Act of 2013

The Essentials:
1. As college tuition continues to rise, students are taking on larger loans. More than 70 percent leave school in debt, and one of every seven borrowers falls behind within three years of graduating or dropping out. On Dec. 19, Senators Jack Reed (D-R.I.), Elizabeth Warren (D-Mass.), and Dick Durbin (D-Ill.) introduced the Protect Student Borrowers Act of 2013, which puts colleges on the hook when students can’t keep up with their loans.
2. Depending on the share of their students that default, schools could be fined from 5 percent to 20 percent of the amount those students owe. Colleges can reduce their fines by developing “student loan management plans” that help borrowers most at risk with one-on-one financial aid counseling and other services. Fines collected by the Department of Education would be used to fund programs that help struggling borrowers and support Pell Grants.
3. For-profit colleges could face the highest fines, because on average their graduates default more often than those at public or nonprofit schools. Colleges won’t be fined at all if fewer than 15 percent default. Community colleges, historically black institutions, and the rare schools where fewer than a quarter of students receive loans are exempt entirely. Even if this bill fails, the idea that colleges should bear some responsibility for student debt is gaining steam.


Weise is a reporter for Bloomberg Businessweek in Seattle. Follow her on Twitter @kyweise.

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