Discussion Paper

Student Loan Repayment and College Accountability

Abstract: Student loan debt and defaults have been steadily rising, igniting public worry about the associated public and private risks. This has led to controversial attempts to curb defaults by holding colleges, particularly those in the for-profit sector, increasingly accountable for the student loan repayment behavior of their students. These efforts attempt to protect taxpayers against the misuse of public money used to encourage college enrollment and to safeguard students against potentially risky human capital investments. Recent policy proposals penalize colleges for students? poor repayment performance, raising questions about institutions? power to influence this behavior. Extant research does not conclusively establish a causal link between type of college and loan default. Available evidence, moreover, suggests that student demographics and family financial resources are related to default. As a result, policies targeting schools where students default on loans at high rates may disproportionately affect the postsecondary decisions of certain categories of students, such as low income, minority, and financially independent students. Policymakers therefore face the challenge of promoting the efficient use of public funds and protecting students while also encouraging access to higher education.

Keywords: Education Debt; Student loan default; For-profit colleges;

JEL Classification: H52; I22; I28;

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Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Consumer Finance Institute discussion papers

Publication Date: 2013-12-02

Number: 13-5

Pages: 27 pages