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Floor Speech
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Mr. REED. Mr. President, we all recognize that a postsecondary education is often the key to a family-sustaining, middle-class job. We also know that an educated workforce is essential to a modern, productive economy. However, our system that relies on student loan debt to finance that education is broken. At the end of fiscal year 2021, over 43 million Americans owed more than $1.6 trillion in Federal student loan debt.
The pandemic has forced a long-overdue reckoning with the cost of student loan debt to our society. But the warning signs have been clear for some time. A National Center of Education Statistics Report found that students who graduated in 2016 still owed 78 percent of the amount they borrowed. Black graduates owed more than they had originally borrowed. Thirty-four percent of graduates reported negative net worth. As student loan debt has grown, young adults have put off buying homes or cars, starting a family, saving for retirement, or launching new businesses. They have literally mortgaged their economic future.
In response to the pandemic, Congress and two administrations took unprecedented steps to ease the burden of student loan debt. While those steps provided urgently needed relief to current borrowers, we need to take steps now to reform the student loan system so future graduates are not saddled with crushing debt. Part of the answer is requiring institutions of higher education to have a greater stake in the outcomes for student loan borrowers.
While institutions are largely shielded when student borrowers can't repay their loans, students who fall into default face catastrophic consequences with little opportunity for relief. Only in rare instances can the debt be discharged in bankruptcy, and the Federal Government has the power to withhold tax refunds, garnish wages, and even garnish Social Security benefits to collect defaulted student loans.
We have seen the costs to students and taxpayers when institutions are not held accountable. The Department of Education has forgiven over $13 billion in student loans for students cheated by their colleges since 2021 alone. Just recently, Stratford University announced it would be shutting its doors leaving thousands of students in the lurch.
We cannot wait until an institution is catastrophically failing its students before taking action. Institutions need greater financial incentives to act before default rates rise. Simply put, we cannot tackle the student loan debt crisis without States and institutions stepping up and taking greater responsibility for college costs and student borrowing.
That is why I am pleased to reintroduce the Protect Student Borrowers Act with Senators Warren and Durbin. Our legislation seeks to ensure that institutions have more ``skin in the game'' when it comes to student loan debt. The bill will create stronger market incentives for colleges and universities to provide better and more affordable education to students, which should in turn help put the brakes on rising student loan defaults.
The Protect Student Borrowers Act would hold colleges and universities accountable for high student loan defaults by requiring them to repay a percentage of defaulted loans. Only institutions that have one-third or more of their students borrow or have a repayment rate after 3 years below 50 percent would be included in the bill's risk-sharing requirements based on their cohort default rate. Risk- sharing requirements would kick in when the default rate exceeds five percent. As the institution's default rate rises, so too will the institution's risk-share payment.
The Protect Student Borrowers Act also provides incentives for institutions to take proactive steps to ease student loan debt burdens and reduce default rates. Colleges and universities can reduce or eliminate their payments if they implement a comprehensive student loan management plan. The Secretary may waive or reduce the payments for institutions whose mission is to serve low-income and minority students, such as community colleges, historically Black institutions, or Hispanic-serving institutions, if they are making progress in their student loan management plans.
The risk-sharing payments would be invested in helping struggling borrowers, preventing future default and delinquency, and providing additional grant aid to students receiving Pell grants at institutions that enroll a high percentage of Pell grant recipients and have low default rates.
With the stakes so high for students and taxpayers, it is only fair that institutions bear some of the risk in the student loan program.
We need to tackle student loan debt and college affordability from multiple angles. All stakeholders in the system must do their part. With the Protect Student Borrowers Act, we are providing the incentives and resources for institutions to take more responsibility to address college affordability, reduce student loan debt, and improve student outcomes. I urge my colleagues to cosponsor this bill and look forward to working with them to include it and other key reforms in the upcoming reauthorization of the Higher Education Act.
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