Putting Colleges on the Hook for Student Loans

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from Bloomberg Businessweek,

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.

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.

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.

Even if this bill fails, the idea that colleges should bear some responsibility for student debt is gaining steam.

Admissions offices are barred from rejecting applicants they perceive to be at risk of defaulting.

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