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Audio by Kirk Carapezza

As an advocate for people struggling to repay their college loans, Claudio Martinez followed every step of the process that culminated with President Joe Biden declaring that a part of all that debt would be forgiven.

But there was one thing Martinez didn’t hear during the lead-up to Biden’s decision, under which taxpayers will assume an estimated $300 billion worth of student loan debt, or the debate that followed: any discussion of universities’ and colleges’ responsibility for the poor return that many borrowers got for their investment.

“What I don’t see is a mention of who made money in the last 20 years out of this system,” said Martinez, executive director of Zero Debt Massachusetts, a grassroots organization of students, families and activists in that state.

Colleges and universities have largely escaped scrutiny over why so many Americans have so much debt from educations that often took longer and cost more than expected, led to jobs that didn’t pay enough to cover their loans or never finished a degree at all.

“You as a college or university should have a responsibility for that,” Martinez said.

That should include by spending money to help pay off the debt of students who the institutions fail, he said, and “not on multimillion-dollar salaries for their presidents [or] fancy gyms.”

Republicans and Democrats alike have over the last seven years called for colleges and universities to assume some accountability — called risk-sharing, or having “skin in the game” — for students who default on loans they take out to pay for higher educations.

U.S. Senator Elizabeth Warren with Democratic colleague Representative Jim Clyburn of South Carolina at a 2019 news conference calling for the cancellation of student loan debt. Warren previously proposed holding colleges partially accountable for loans on which their students have defaulted. Credit: Win McNamee/Getty Images

These include Sen. Elizabeth Warren, D-Mass., one of the most vocal advocates for forgiving student loan debt, who in 2015 and 2017 co-sponsored bills with fellow Democrats that would have forced colleges and universities to pay a share of the outstanding debt if 15 percent or more of their students defaulted on their loans.

“If we want colleges to pay attention to rising costs and failing students, then they need to bear some of that cost, too,” Warren said in 2015. “Colleges reap all the benefits of student loan funds while students and taxpayers bear all the risk.”

Then-Sen. Lamar Alexander, R-Tenn., also generally supported risk-sharing, which was recommended in a white paper by the Senate Health, Education, Labor and Pensions (or HELP) Committee that he chaired. “Taxpayers and other federal actors do have a reasonable expectation that institutions of higher education maintain a greater stake in, or are better aligned with, their students’ success, debt and ability to repay,” it said.

Related: Colleges are pushed to stand behind what they sell with money-back guarantees

But those proposals never came to be. And the Trump administration largely thwarted attempts to further regulate for-profit colleges and universities in particular, which enroll fewer than 7 percent of students but account for more than 11 percent of those who default on their loans within three years.

Some Republicans in Congress who have criticized the Biden loan forgiveness plan — including House Education and Labor Committee Republican leader Virginia Foxx of North Carolina — pushed back against a separate effort in 2017 to ensure that graduates earn enough to repay what they borrowed.

Under that so-called “gainful employment” proposal, students in programs with debt-to-income ratios above a certain threshold wouldn’t be allowed to continue using federal loans to pay for them.

President Joe Biden, with Education Secretary Miguel Cardona at the White House, announces student loan relief. Under the plan, graduates under certain income thresholds will each have up to $20,000 of debt canceled. Credit: Olivier Douliery/AFP via Getty Images

For-profit colleges sued to stop the gainful employment rule, saying that measuring whether or not graduates’ salaries were enough to make the payments on their loans was imperfect and potentially inaccurate. These legal challenges, along with lobbying and changes in administrations, have since 2010 helped colleges and universities fend off the idea.

“When you’re trying to propose a change to the status quo, it’s very easy for the status quo — in this case, the higher education lobby — to point out every flaw,” said Kelly McManus, director of higher education at the think tank Arnold Ventures. “That keeps policymakers from coming to the table and figuring out a meaningful kind of accountability.” (Arnold Ventures is among the funders of The Hechinger Report, which co-produced this story.)

As it stands now, universities and colleges face no accountability when their students don’t repay their loans, unless 30 percent or more default over three consecutive years. If that happens, the schools can lose eligibility for future students to get federal loans.

Related: Will that college degree pay off? Now you can finally see the numbers

Sixty-nine out of 4,754 currently operating higher education institutions, or a little over 1 percent, have had 30 percent or more of their students default on their loans for three years in a row, according to the most recent available data from the U.S. Department of Education.

But thanks to a long appeals process, only 11 schools were removed from the federal student loan program under the rule between 1999 and 2015, an investigation by the HELP Committee found. And of 15 subject to sanction in 2016, the last year for which the appeals process is complete, all but three evaded it.

“The bar is way too low,” said Beth Akers, an economist who specializes in higher education finance and a senior fellow at the conservative American Enterprise Institute. “We should be asking more of these institutions, both to protect the students and also to protect taxpayer resources.”

Colleges and universities have largely escaped scrutiny over their responsibility for any of the estimated $300 billion in canceled student loan debt taxpayers will now have to cover. Credit: Noah Willman for The Hechinger Report

If the loan-default cutoff was reduced to 15 percent, as Warren and her colleagues previously proposed, 1,060 higher education institutions — or more than one in five — would be at risk of their future students losing eligibility for federal loans.

Republican Sen. Rick Scott of Florida in August introduced a bill under which colleges and universities would have to cover 1 percent of the balances of any of their students who defaulted on their loans for three years after the loans came due, gradually increasing to 10 percent if the debt remained unpaid.

Colleges and universities regularly fall short of the most basic promise they make in exchange for the money they collect: that students will actually graduate.

Fewer than half of students graduate with a bachelor’s degree within the four years that almost all of them expect to, the Education Department says. More than a third take six years or more, piling up even more debt and forgoing income they would have earned during that time. One in four drops out between the first and second year, according to the National Student Clearinghouse.

“This can’t continue the way it’s been going. We can’t be sending billions of dollars to schools whose students are more likely to be in default than to graduate,” McManus said.

Related: How higher education lost its shine

Nearly 40 million Americans have spent time at and paid for college without ever finishing degrees, the Clearinghouse reports.

“I’m not quite sure why we have not seen a backlash against institutions,” Akers said. “We sort of trust that they are really doing their mission, which is to serve public good and to help their students. I think that’s too generous, to be honest. I mean, I think these are institutions that may mean well, but don’t always do well.”

Even many students who end up with degrees don’t earn enough to pay back what they borrowed. That’s the requirement that in some form or another would be factored into determining whether or not a program offered gainful employment.

“We can’t be sending billions of dollars to schools whose students are more likely to be in default than to graduate.”

Kelly McManus, director of higher education, Arnold Ventures

Graduates of 1,234 university and college programs nationwide aren’t earning even half of what they owe, the conservative Texas Public Policy Foundation calculates. Some 5,989 such programs offer  no financial return at all, according to the left-leaning think Tank Third Way, based on how long it takes graduates to earn back the money that they spent on them. More than a quarter of bachelor’s degree programs leave students financially worse off than if they’d never enrolled, the nonpartisan Foundation for Research on Equal Opportunity has found.

“At the very least, let’s stop making loans at schools where they have a track record of not getting their graduates into jobs or not getting their students across the finish line to graduate or not getting their students enough earnings after they finish to be able to pay back their loans,” said Akers.

College and university representatives say forcing institutions to share the risk of student loans would disproportionately hurt the schools that serve the most vulnerable students and have other unintended consequences, including forcing prices higher.

Related: Another million adults ‘have stepped off the path to the middle class’

“Many schools will simply pass the cost of the risk-sharing on to the borrower,” said Terry Hartle, senior vice president for government relations and public affairs at the American Council on Education, an association of 1,700 colleges and universities. “It’s a basic law of economics that externally imposed increases in the cost of doing business get passed on to consumers, and that is what will happen here at an awful lot of places.”

Risk-sharing could also discourage colleges of all kinds from accepting marginal students who might default on their loans, Hartle said.

The implication of this argument is that institutions are admitting people who they know might fail, McManus responded. “If you as a university offers somebody admission and you don’t think they have a chance of success, that’s predatory behavior,” she said. Added Akers: It “might actually be in their favor” for those students to be turned down by colleges with track records of not serving them well anyway.

“The bar is way too low. … We should be asking more of these institutions, both to protect the students and also to protect taxpayer resources.”

Beth Akers senior fellow, American Enterprise Institute

In the meantime, as Akers pointed out in a paper she coauthored for Brookings, while many other products and services people buy are backed by guarantees, in higher education the financial risk of failure is borne not by colleges and universities but almost entirely by consumers and the government.

Hartle cautioned that people shouldn’t be hasty in making colleges assume a greater risk.

“What you’ve got right now are a lot of people saying this is terrible, there’s got to be a solution,” he said of student loan debt. “And they’re throwing out random ideas that may be valuable and that may be crazy. But this is not the way public policy should be made. The fact of the matter is, there are no easy solutions to a complicated problem.”

McManus said she hopes the huge cost of the loan forgiveness measure will force thoughtful attention to the underlying problems.

The system needs to be reformed, she said, “so that a student has confidence when they take out debt that they will get the education that they’re paying for.”

This story about student loan debt was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education, in collaboration with GBH Boston. Additional reporting by Kirk Carapezza. Sign up for our higher education newsletter.

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Jon Marcus writes and edits stories about, and helps plan coverage of, higher education. A former magazine editor, he has written for The Washington Post, The New York Times, The Boston Globe, Wired, Medium.com...

Letters to the Editor

2 Letters

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  1. If you want to hold institutions accountable for uncollectable loans, the first step is to cap loans at what the degree actually costs, i.e. the tuition and fees, or direct cost that the institution has some control over.

    The reason too many students leave with unaffordable debt loads has more to do with the federal definition of “cost of attendance” than it has to do with cost of the degree. Approximately 2/3 of all borrowing has nothing to do with tuition and fees, but goes toward indirect cost, i.e. “room and board”, “transportation” and anything else that is not tuition and fee related. This additional borrowing is allowed even when the indirect cost has absolutely nothing to do with the school or the education, such as when a student is 100 percent online. Schools are mandated by statute to provide this additional borrowing, whether they agree with it or not.

    I know this too well having worked in higher education for over 20 years. A typical online master’s degree can be had for approximately $30,000 or less in tuition and fees, but after adding in the “indirect cost”, now the “cost” is $80,000 or more. Or putting it another way, it’s not uncommon for students to borrow $6000-$9,000 extra each semester BEYOND their tuition and fees, simply because they can, whether it makes financial sense or not and whether those outside costs have anything to do with the school or not. To make matters worse, unlike undergraduate loans which have an annual and lifetime cap, graduate students can borrow essentially unlimited sums for an unlimited number of degrees. The return on the tuition and fees may have been worth it, but when student are borrowing to support their lifestyle on top of it, all bets are off.

    Therefore, if you want to start holding institutions accountable for students that cannot pay back their loans, let institutions call the shots on how much students can actually borrow or cap them based on course delivery.

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