A Risk-Sharing Proposal for Student Loans
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Many borrowers have difficulty repaying their federal student loans, particularly at certain institutions. This article proposes an institutional accountability system that is intended to help align incentives of institutions with their student loan borrowers and taxpayers. Under the risk-sharing proposal, institutions with poor loan performance reimburse the federal loan program for a fraction of unrepaid loan dollars. In particular, the article uses a robust and hard-to-manipulate repayment rate—the amount each institution’s students have repaid after five years—to set minimum thresholds below which institutions would have to contribute. Recovered funds could be used to provide support to institutions that serve low-income students well.