New NASFAA Issue Brief Analyzes Institutional Risk-Sharing Proposals

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Creating incentives to help students succeed is a positive step, but lawmakers shouldn’t disregard responsibilities institutions already assume.

Congress should provide institutions with the tools to curb student indebtedness, such as by giving schools more authority to limit excessive borrowing.

As lawmakers and higher education thought leaders work to reshape the nation’s postsecondary education system through the reauthorization of the Higher Education Act (HEA), many have suggested that in order to improve student outcomes, colleges and universities should have more at stake. In a new issue brief, the National Association of Student Financial Aid Administrators (NASFAA) outlines the potential benefits and unintended consequences of so-called “risk-sharing” proposals, and how lawmakers can move forward with both students’ and institutions’ best interests in focus.

A central theme throughout discussions to update the HEA is that institutions should be held more accountable for their students’ outcomes and that perhaps their federal aid dollars should be tied to how well students fare after leaving the institution. For example, some proposals have sought to tie institutions more closely to the loan repayment success of their former students, such as by requiring institutions to pay back a share of defaults by former students.

While giving institutions an incentive to ensure their students succeed in life is a positive step, current risk-sharing proposals fail to take into account the ways that colleges and universities already have “skin in the game,” such as campus-based aid programs that require institutions to contribute some of their own funds in addition to federal dollars. Poorly constructed risk-sharing proposals could also negatively impact low-income students. “Open enrollment” institutions specifically serve these communities by providing unconditional access to at-risk students. These same students might leave school for many reasons, many times having nothing to do with their experience with the institution and more to do with external factors in their lives.

Overlooking these crucial aspects of the accountability and risk-sharing conversation can lead to policies that may do more harm than good for both students and institutions. To create a more thoughtful and comprehensive risk-sharing proposal, Congress can:

1. Consider the impacts of poorly designed risk-sharing models on low-income students.
2. Provide institutions with the tools to curb student indebtedness, such as by giving schools more authority to limit excessive borrowing.
3. Support or Model the Campus-Based Aid Programs that stretch federal investment further and represent true risk-sharing in that institutions put their own dollars on the line to support needy students.

"Improving student outcomes must be a focus of any plans to reauthorize the Higher Education Act. But, any central policy changes must also ensure that institutions' willingness to take on or fund at-risk students does not pay the price for initiatives to incentivize success. NASFAA looks forward to working with Congress to find a way to strengthen accountability while taking into account the many ways in which institutions already have a financial stake in their students' success and adjusting for the risk an institution assumes."

About NASFAA
The National Association of Student Financial Aid Administrators (NASFAA) is a nonprofit membership organization that represents more than 20,000 financial aid professionals at nearly 3,000 colleges, universities, and career schools across the country. NASFAA member institutions serve nine out of every ten undergraduates in the United States. Based in Washington, D.C., NASFAA is the only national association with a primary focus on student aid legislation, regulatory analysis, and training for financial aid administrators. For more information, visit http://www.nasfaa.org.

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Erin Powers
NASFAA
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