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Colleges financed by loans should take a hit when students default: op-ed

Higher education institutions that invite students to borrow large sums from the government should share in the losses when those students fail to pay.

Following Biden’s latest debt relief handout of $5 million on Dec. 6, taxpayers will shoulder the burden of up to $132 billion in “canceled” student loans, Hudson Institute Senior Fellow Arthur Herman wrote with Mises Institute Senior Fellow Alex Pollock in The Hill.

However, “now it’s time that the cost of nonpayment of student loans be shared by those who have benefitted the most directly from federal student loans: namely, the colleges and universities themselves,” they wrote.

Colleges and universities bring in “vastly inflated” tuition and fees financed through borrowed money without concern about repaying the loans, they wrote:

In the current system the colleges get and spend billions in borrowed money and put all the loan risk on somebody else — including those student borrowers who responsibly pay off their own debt and those who never borrowed in the first place, not to mention taxpayers, whether they attended a college or not.

This perverse pattern of incentives and rewards must stop. A more equitable model would insist that colleges have serious “skin in the game.” It would insist that they participate to some degree in the losses from defaulted and forgiven loans to their own students.

Pollock and Herman suggest a model that more equitably distributes risk by requiring colleges to participate in losses to a degree relative to their endowment size.

All colleges with an endowment of over $10 billion should cover defaulted losses at 100 percent, they wrote.

Even more, the wealthiest colleges that utilize student loans, including Harvard, Yale and Stanford, should be taxed on their endowments towards a trust to offset overall federal loan losses.

“The proper model should be one that will keep on giving as colleges and universities take on the responsibility and accountability they have shirked until now,” according to the authors.

Read the full article at The Hill.

MORE: Two-thirds of borrowers would boycott paying student loans: survey

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