Republican Bill Would Force Colleges To Pay 50% of Defaulted Student Loans

Sen. Josh Hawley’s Make the Universities Pay Act would also forbid institutions from raising tuition to cover the costs of paying off student loans that go into default.

Published September 22, 2022

Edited by Alex Pasquariello
Republican Bill Would Force Colleges To Pay 50% of Defaulted Student Loans
Higher Ed Policy
Photo by Anna Moneymaker / Staff / Getty Images News / Getty Images

  • The proposed bill would make several amendments to the Higher Education Act of 1965.
  • It would require institutions participating in the federal Direct Loan program to be liable for defaulted loans taken out by its students.
  • Republican lawmakers have proposed several higher ed-focused bills since President Biden announced his plan to forgive some federal student loan debt.

Sen. Josh Hawley wants to make substantial changes to the federal student loan debt system.

The Missouri Republican on Wednesday proposed the Make the Universities Pay Act. It would not only force institutions to pay half of the defaulted student loans their former students hold, but also forbid them from raising tuition to cover the new expense.

Hawley, in a statement that used transphobic language, framed the proposal not only as a solution to the rising cost of higher education, but also as a reaction to President Joe Biden’s recently announced plan to forgive wide swaths of federal student debt.

“It’s time to put universities on the hook and give students the information they need to make informed decisions,” he said.

Hawley’s bill proposes several amendments to the Higher Education Act of 1965.

Most notably, it would require any college or university participating in the federal Direct Loan program to be liable for defaulted loans taken out by its students. The institution would have to pay 50% of the loan balance when a borrower enters default, according to the bill’s text.

Additionally, institutions could not hike tuition to cover this new expense. The bill forbids tuition and fee increases unless there is an equivalent percentage decrease in administrative expenses.

This provision bears some resemblance to Republican Sen. Rick Scott of Florida’s Changing Our Learning, Loans, Endowments, and Graduation Expectations (COLLEGE) Act. The bill, introduced in August, would make an institution responsible for 1% of a defaulted loan balance beginning in the first year of enactment. That responsibility increases annually for 10 years until institutions are responsible for 10% of a defaulted loan balance.

Hawley’s bill would also make minor changes to how student loans are discharged through bankruptcy and require institutions to disclose their student loan default rates and the median incomes of graduates.

While rare, federal student loans may be wiped out entirely in cases where the borrower can prove that leaving those loans in place would cause them “undue hardship.” According to the Department of Education, there is no standardized method bankruptcy courts use to determine undue hardship.

The Make the Universities Pay Act would not change this determining metric, but instead create a new timeline for when debt can be discharged through bankruptcy.

According to the bill, undergraduate loan debt could be discharged five years after the first payment is due. Graduate student loans could be discharged 15 years after the first payment is due.