Bill Introduced to Put Universities on Hook for Portion of Student Loan Defaults

A bill has been introduced in the Senate that seeks to hold universities accountable for paying a portion of student loans that go into default while also allowing student loans to be discharged when an individual files for bankruptcy protection.

S. 4912 was introduced last week by Sen. Josh Hawley [R-Mo.], and is called the Make the Universities Pay Act.

Following the announcement last month that individuals with unpaid student loans may have all or some of their debts forgiven, Sen. Hawley came up with the idea to “put universities on the hook for the creditworthiness of future student loans and the debt of students who default.” That would include requiring any university that participates in the Federal Direct Student Loan Program to pay 50% of the balance of any student loan that goes into default. Institutions would be prohibited from raising the tuition to offset any losses unless there is an equivalent percentage decrease in administrative expenses at the school.

As well, undergraduate student loan debt would be dischargeable via bankruptcy five years after the first payment is due and graduate student loan debt would be dischargeable 15 years after the first payment is due.

Universities would also be required to publish post-graduate outcomes, including the earnings of graduates and the student loan default rates segregated by degree or program of study. “…it’s time to put universities on the hook and give students the information they need to make informed decisions,” Sen. Hawley said in a statement.

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