```

[Senate Hearing 114-624]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 114-624
 
 REAUTHORIZING THE HIGHER EDUCATION ACT: EXPLORING INSTITUTIONAL RISK-
                                SHARING

=======================================================================

                                HEARING

                                 OF THE

                    COMMITTEE ON HEALTH, EDUCATION,
                          LABOR, AND PENSIONS

                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                                   ON

EXAMINING REAUTHORIZING THE HIGHER EDUCATION ACT, FOCUSING ON EXPLORING 
                       INSTITUTIONAL RISK-SHARING

                               __________

                              MAY 20, 2015

                               __________

 Printed for the use of the Committee on Health, Education, Labor, and Pensions
 
 
 
 
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
 
                                

      Available via the World Wide Web: http://www.gpo.gov/fdsys/
      
      
      
      
      
                          _________ 

                U.S. GOVERNMENT PUBLISHING OFFICE
                   
 94-783 PDF              WASHINGTON : 2017       
____________________________________________________________________
 For sale by the Superintendent of Documents, U.S. Government Publishing Office,
Internet:bookstore.gpo.gov. Phone:toll free (866)512-1800;DC area (202)512-1800
  Fax:(202) 512-2104 Mail:Stop IDCC,Washington,DC 20402-001          
      
      
      

          COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS

                  LAMAR ALEXANDER, Tennessee, Chairman

MICHAEL B. ENZI, Wyoming          PATTY MURRAY, Washington
RICHARD BURR, North Carolina      BARBARA A. MIKULSKI, Maryland
JOHNNY ISAKSON, Georgia           BERNARD SANDERS (I), Vermont
RAND PAUL, Kentucky               ROBERT P. CASEY, JR., Pennsylvania
SUSAN COLLINS, Maine              AL FRANKEN, Minnesota
LISA MURKOWSKI, Alaska            MICHAEL F. BENNET, Colorado
MARK KIRK, Illinois               SHELDON WHITEHOUSE, Rhode Island
TIM SCOTT, South Carolina         TAMMY BALDWIN, Wisconsin
ORRIN G. HATCH, Utah              CHRISTOPHER S. MURPHY, Connecticut
PAT ROBERTS, Kansas               ELIZABETH WARREN, Massachusetts
BILL CASSIDY, M.D., Louisiana

                                    
                          
                                     
                                     
                                       

               David P. Cleary, Republican Staff Director

                  Evan Schatz, Minority Staff Director

              John Righter, Minority Deputy Staff Director

                                  (ii)

  

                            C O N T E N T S

                               __________

                               STATEMENTS

                        WEDNESDAY, MAY 20, 2015

                                                                   Page

                           Committee Members

Alexander, Hon. Lamar, Chairman, Committee on Health, Education, 
  Labor, and Pensions, opening statement.........................     1
Murray, Hon. Patty, a U.S. Senator from the STate of Washington..     4
Reed, Hon. Jack, a U.S. Senator from the STate of Rhode Island...     6
    Prepared statement...........................................     8
Casey, Hon. Robert P., Jr., a U.S. Senator from the State of 
  Pennsylvania...................................................    10
Whitehouse, Hon. Sheldon, a U.S. Senator from the State of Rhode 
  Island.........................................................    40
Warren, Hon. Elizabeth, a U.S. Senator from the State of 
  Massachusetts..................................................    41
Franken, Hon. Al, a U.S. Senator from the State of Minnesota.....    43
Cassidy, Hon. Bill, a U.S. Senator from the State of Louisiana...    46
Baldwin, Hon. Tammy, a U.S. Senator from the State of Wisconsin..    48
Murphy, Hon. Christopher, a U.S. Senator from the State of 
  Connecticut....................................................    49
Bennet, Hon. Michael F., a U.S. Senator from the State of 
  Colorado.......................................................    51

                               Witnesses

Kelly, Andrew P., A.B., M.A., Ph.D., Director, Center for Higher 
  Education Reform, American Enterprise Institute, Washington, DC    10
    Prepared statement...........................................    12
Silberman, Robert S., B.A., M.A., Executive Chairman, Strayer 
  Education, Inc., Herndon, VA...................................    19
    Prepared statement...........................................    21
Wang, Jennifer, Policy Director, Young Invincibles, Washington, 
  DC.............................................................    24
    Prepared statement...........................................    26
Webber, Douglas A., B.A., M.A., Ph.D., Assistant Professor, 
  Temple University, Philadelphia, PA............................    30
    Prepared statement...........................................    32

                          ADDITIONAL MATERIAL

Statements, articles, publications, letters, etc.:
    Strayer Education, Inc., letter..............................    56
    Response to questions of Senator Murkowski by:
        Andrew P. Kelly, A.B., M.A., Ph.D........................    56
        Robert S. Silberman, B.A., M.A...........................    58
        Jennifer Wang............................................    60
        Douglas A. Webber, B/A/, M/A/, Ph.D......................    62

                                 (iii)

  

 REAUTHORIZING THE HIGHER EDUCATION ACT: EXPLORING INSTITUTIONAL RISK-
                                SHARING

                              ----------                              

                        WEDNESDAY, MAY 20, 2015

                                       U.S. Senate,
       Committee on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:09 a.m. in 
room 430, Dirksen Senate Office Building, Hon. Lamar Alexander, 
chairman of the committee, presiding.
    Present: Senators Alexander, Cassidy, Murray, Casey, 
Whitehouse, Warren, Franken, Baldwin, Bennet, and Murphy.

                 Opening Statement of Senator Alexander

    The Chairman. Good morning. The Senate Committee on Health, 
Education, Labor, and Pensions will please come to order.
    This is our third hearing in this Congress. We had a number 
in the last Congress on the reauthorization of the Higher 
Education Act. This morning we're exploring the concept of 
institutional risk-sharing in higher education, whether 
colleges and universities should have what some might call 
``skin in the game'' on student borrowing.
    Senator Murray and I will each have an opening statement. 
We will introduce our panel of witnesses. After our witness 
testimony, Senators will each have 5 minutes of questions.
    We're pleased to have Senator Reed with us. He has 
indicated that his schedule permits him to wait until after 
each of us have our opening statements. Then we will go to you 
and to our other witnesses, and then we'll have the questions.
    Despite considerable demand by some Senators, I'm going to 
place you under the witness protection program and you'll not 
be quizzed by Senator Whitehouse and Senator Warren.
    [Laughter.]
    Senator Reed. Thank you very much, Mr. Chairman. Thank you.
    The Chairman. We welcome you here, and I understand you ran 
a 5K already today. Is that right?
    Senator Reed. Just a typical day in the life of--yes.
    [Laughter.]
    The Chairman. Senator Reed--I'll introduce him in a 
minute--was a member of this committee, and he and others of us 
worked together on this idea of ``skin in the game,'' as we 
call it. It's very helpful to have him come back.
    It's never easy to pay for college, but Federal taxpayers 
have made it easier than many people think. About half of our 
country's 22 million undergraduate college students have a 
Federal grant or loan to help pay for college. Nearly 9 million 
receive a Federal Pell Grant of up to $5,700, which they don't 
have to pay back. For low-income students, this is enough to 
make each year of community college tuition free, with some 
money left over. The average community college tuition is 
$3,347 per year.
    It's also enough to get a head start on a 4-year degree. 
The average tuition and fees at a public 4-year university, 
which 38 percent of students attend, is $9,100 a year. Add up 
the community colleges and the 4-year institutions that are 
public, and that's about 75 percent of our students.
    In addition to these Pell Grants, next year taxpayers will 
lend about 8 million undergraduate students $100 billion in new 
student loans at an interest rate of 4.29 percent. Students do 
have to pay back these loans.
    Federal loans are easy to obtain. It doesn't matter what 
your credit rating is, and the terms for paying them back are 
generous. You can pay your loans back like a mortgage over 10 
years, or you can enter a program that allows you to pay it 
back as a percentage of your income over 20 years. And if the 
loan isn't paid off after 20 years, it's forgiven.
    While we hear a lot about students with debt of more than 
$100,000, that's only 4 percent of student loans, and more than 
90 percent of those are graduate students.
    The average debt for an undergraduate student with a 4-year 
college degree is about the same as an average auto loan in the 
United States, around $27,000. For that investment, the College 
Board says you'll earn an extra $1 million over your lifetime.
    Still, some students have trouble paying back their debt. 
According to the Department of Education, of the more than 41 
million borrowers without standing student debt, about 7 
million, or 17 percent of those borrowers, are currently in 
default, meaning they haven't made a payment on their loans in 
at least 9 months. The total amount of loans currently in 
default is $106 billion, or about 9 percent of the total 
outstanding balance of Federal student loans.
    While the information isn't easily available, as Senator 
Warren has pointed out, over the long haul the Federal 
Government collects on most of these debts one way or the 
other.
    It's clear that some students borrow too much, and this 
hearing is about how do we discourage that. We're looking at 
several ways to do it. The FAST Act, which several members of 
the committee have introduced, would ensure that part-time 
students aren't able to borrow as much as a full-time student. 
I'm exploring recommending a change that would give colleges 
the authority to counsel student loan borrowers more 
frequently, or even limit the amount of money students might 
borrow, and today we're talking about a third way to address 
over-borrowing; that is, ensuring that colleges have some 
responsibility to or vested interest in encouraging students to 
borrow wisely, graduate on time, and be able to repay what 
they've been loaned.
    If colleges have this incentive, it may not only help 
students make wiser decisions about borrowing, it could help 
reduce the cost of college, thereby reducing debt. For example, 
colleges might encourage students to complete their education 
more quickly. Today, nearly half take longer than 6 years to 
complete any degree or certificate, or never finish at all. 
Completion is important. Nearly 70 percent of those who default 
on their Federal student loans never finish their education.
    At the University of Tennessee in Knoxville, they're now 
saying to students you're going to pay for 15 hours every 
semester whether you take it or not. That's three more than 
Federal student aid requirements insist on. The chancellor told 
me this week that most students are now taking 15 hours, and 
the graduation rate is going up.
    I've also encouraged colleges and universities to explore 
3-year degrees. Last week I spoke at a community college in 
Tennessee, Walters State, where one of the graduates was also 
graduating from high school that week. By getting both degrees 
and entering Purdue University next year, the second semester 
of the second-year class saved him an estimated, $65,000.
    Colleges might find efficiencies and savings. The former 
president of George Washington University once told me this. He 
said, ``You could run two complete colleges with two complete 
faculties in the facilities now used half the year for one.'' 
That's without cutting the length of students' vacations, 
increasing class sizes, or requiring faculty to teach more.
    Dartmouth saves $10 to $15 million a year by requiring one 
mandatory summer session. Southern New Hampshire's College for 
America just began offering a $10,000 Bachelor Degree. Our FAST 
Act proposes year-round Pell Grants, which would speed up the 
time to finish a student's education, and therefore less debt. 
Perhaps we might remind ourselves to stop allowing new Medicaid 
mandates to force States to spend money on Medicaid that might 
otherwise be spent on higher education, thereby keeping tuition 
down.
    The Federal efforts to deal with this issue haven't worked 
very well. In 1990, the first and only debt-related 
accountability was put in statute. Colleges with more than 30 
percent of borrowers defaulting over a 3-year period or more 
than 40 percent over a 1-year period are ineligible to receive 
Federal student aid dollars, but a college with an 18 percent 
cohort default rate is treated just the same as one with a 27 
percent rate, so this may not work that well.
    Second, the recent gainful employment regulation from this 
administration is already a failure. It's a clumsy 945-page 
regulation defining just two words, targeting only one section 
of higher education. It establishes a complicated and arbitrary 
definition of what an affordable amount of debt is.
    Senator Reed, who will be testifying shortly, believes that 
some colleges and universities should be responsible for a 
portion of the defaulted loans of students. It's an important 
framework worth considering. Others may have different ideas 
about a skin-in-the-game policy. For me, what is clear is that, 
as a matter of principle and fairness, all institutions, 
whether public, private, or for-profit, should participate. I 
don't believe any institution, whether public or private, not-
for-profit or for-profit, should be exempt from any requirement 
that we may add to discourage over-borrowing and reduce college 
costs.
    It might be appropriate to consider establishing multiple 
models of risk-sharing so that institutions with different 
missions and different student populations have different ways 
to comply.
    We have a distinguished panel. I look forward to their 
thoughts.
    Senator Murray.

                  Opening Statement of Senator Murray

    Senator Murray. Well, thank you very much, Mr. Chairman.
    Senator Reed, it's great to see you here. I look forward to 
your testimony. Thank you for the work you've been doing on 
this issue.
    I want to thank all of our witnesses who are here today. We 
look forward to hearing from you.
    Clearing pathways for more Americans to attend and succeed, 
both in college and beyond, is, of course, important for our 
students, but it's also a critical part of building an economy 
that works for all of our families, not just the wealthiest 
few. A highly educated workforce is good for our country. It 
strengthens the middle class; it strengthens the workforce 
we'll need to compete in the 21st century global economy. We 
should work on ways to help more students earn their degree and 
gain a foothold into the middle class.
    Each year, Federal taxpayers invest $150 billion in our 
higher education system. I welcome this hearing as a way to 
talk about holding institutions of higher education more 
accountable to ensure students and taxpayers get a good return 
on their investment. The crushing burden of student debt is 
going to be a major focus for me in our conversations on 
reauthorizing the Higher Education Act.
    When it comes to students who rely on loans to afford the 
rising cost of college, we have a lopsided accountability 
system. Right now, colleges and universities receive the up-
front benefit of money provided by those Federal student loans, 
but students and taxpayers are the ones who bear nearly all the 
risk and the consequences of default regardless of whether the 
college or university served students well or kept their debt 
levels affordable.
    We've seen cases recently where some institutions have a 
pattern of frequent student defaults or of pushing students 
toward short-term solutions like deferment or forbearance where 
their debt continues to balloon. Yet, the institution itself 
bears little responsibility for their students' outcomes.
    I am open to hearing more about options like risk-sharing 
to ensure colleges and universities have a stake in their 
students' success, debt levels, financial literacy, and ability 
to repay.
    Of course, there are key protections that need to be in 
place. For example, we should recognize that risk-sharing could 
lead some institutions to become more exclusive to reduce their 
risk. Any proposal would have to be carefully crafted to avoid 
unintended consequences and should reward institutions that 
remain accessible and affordable. Any risk-sharing proposal 
that comes before this committee should not be a way to roll 
back other accountability measures.
    We should continue to hold schools accountable for career 
education programs that can leave students with worthless 
credentials or with debt they can't repay. We should continue 
to target our existing accountability requirements to our 
colleges that have unacceptably high default rates and students 
leaving with high loan debt. We should close loopholes to rules 
that are supposed to prevent colleges from receiving more than 
90 percent of their income from the Federal Government.
    Quality programs and institutions should always have 
students or employers willing to invest in them. In fact, 
accountability is also an important component of some of the 
broad themes I'm going to be very focused on in our discussion 
of reauthorizing the Higher Education Act.
    For example, all students should have access to a safe 
learning environment. I hope this committee will focus on 
making sure that colleges and universities are doing their part 
to prevent sexual violence, assault, and bullying on campus. 
Sexual assault turns students' lives upside-down, and we have 
to do more to stop this crisis and prevent it in our Nation's 
schools. This is going to be a top priority for families and 
students across the country and for me.
    We need to make college more affordable. This is first on 
the minds of students and families. As I've mentioned, I 
believe the Federal Government has a role to play in holding 
States accountable for maintaining investments in higher 
education. More students from all walks of life should have 
strong, clear pathways into and through higher education. As 
students and families shop for college, they should have access 
to key information on the academic quality, affordability, and 
outcomes of the colleges and universities they're interested 
in.
    Students across the country today are working really hard. 
They are investing in higher education so they can have a solid 
place in the middle class. We need to make sure we protect 
those students and protect the integrity of the Federal 
taxpayer dollars with strong accountability.
    I'm looking forward to today's hearing about ideas and 
feedback from our panels and our witnesses. Again, thank you 
all for being here.
    The Chairman. Thank you, Senator Murray.
    To introduce our first panel, which has one witness, I'll 
call on Senator Whitehouse.
    Senator Whitehouse. Thank you, Chairman.
    I'm honored to introduce my senior Senator. The committee 
knows him well because he served with great distinction on this 
committee for many years.
    When Senator Reed became a powerful chairman on one of the 
subcommittees of the powerful Appropriations Committee, he 
vacated his seat on the HELP Committee, and I was able to fill 
it. It can accurately be said that I have the Reed seat on the 
HELP Committee, and I appreciate very much the work that Jack 
has done in this area to align the incentives of those who 
invest in and run our higher education facilities with the 
interests of students, who want to have good outcomes in their 
lives.
    A business model that is successfully concluded when the 
Federal checks are cashed is not an adequate business model for 
higher education.
    The people of Rhode Island are very proud of our senior 
Senator, Jack Reed, and I'm pleased to introduce him to the 
committee.

                       Statement of Senator Reed

    Senator Reed. Thank you very much. Thank you, Mr. Chairman, 
for providing this opportunity.
    Senator Murray, thank you for your leadership, particularly 
on this issue, which is critical.
    I want to thank Senator Whitehouse. Yes, I've served on the 
committee, but I've already been eclipsed by Senator Sheldon 
Whitehouse of Rhode Island. Thank you.
    Sheldon, I will admit that we both will forever dwell in 
the shadow of Claiborne Pell. That is one of the realities of 
the U.S. Senate and our history.
    Again, thank you for inviting me to testify on what I 
believe is a critical area of needed reform for our student aid 
programs and higher education more broadly, requiring our 
colleges and universities to bear greater responsibility for 
student loan debt. Chairman Alexander has already taken a very 
thoughtful approach to looking at this issue, as have others on 
the committee, and I thank you all for your leadership.
    We all know that post-secondary education is required for 
most family sustaining middle-class jobs and that an educated 
workforce is essential to a modern, productive economy. Yet, 
just as there is growing recognition that post-secondary 
education is indispensable in the modern economy, families are 
being required to shoulder growing debt burdens that severely 
impact the lives of borrowers to the point of threatening 
access to college and restricting our Nation's economic growth 
potential.
    According to a recent analysis of student loan debt by the 
Federal Reserve Bank of New York, between 2004 and 2014 there 
was an 89 percent increase in the number of student loan 
borrowers, and a 77 percent increase in the average balance 
size. This is not only in absolute terms, but the trend line is 
very disturbing about what's happening.
    Today, over 40 million Americans have student loan debt, 
with the outstanding balance exceeding $1.2 trillion. This is a 
growing drag on our economy. 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.
    We know that student loan borrowers are struggling, and 
defaults are on the rise. The Federal Reserve Bank of New York 
reported that the number of borrowers who default each year has 
increased from about a half-million 10 years ago to 1.2 million 
annually in 2011 and 2012. Only 37 percent of borrowers are 
current on their loans and actively paying down their debt.
    We cannot tackle the student loan debt crisis without 
States and institutions also stepping up and taking greater 
responsibility for college costs and student borrowing. 
Institutions of higher education can take action to reduce the 
likelihood that a student will default on a loan. However, 
under current law, there is little incentive for them to do so 
until default rates reach excessive levels, such as their 3-
year cohort default rate exceeds 30 percent for 3 years, as the 
Chairman mentioned. In other words, nearly one in three 
students would have to default by their third year of repayment 
before an institution would be obligated to take any action.
    The financial crisis showed us what happens when certain 
players in the system can reap the rewards of easy credit 
without having to bear any of the consequences of making 
reckless, risky decisions. The players that created and sold 
exotic financial products got rich, while middle-income 
families lost their homes and taxpayers had to bail out the 
financial system. They got the check and we got the bill. I 
don't think that's right, and I think good business dictates 
another approach.
    We only have to look at Corinthian College to see that we 
face a similar problem in the higher education sector. Students 
have been left in the lurch and taxpayers on the hook because 
of a business model based on maximizing enrollment and student 
loan revenue with little responsibility or little regard for 
the outcomes.
    I introduced the Protect Student Borrowers Act with 
Senators Durbin, Warren and Murphy--and I want to thank Senator 
Warren for her great leadership on this issue and many other 
issues--to ensure that institutions take greater financial 
responsibility when it comes to student loan debt by setting 
stronger market incentives for colleges and universities to 
provide better and more affordable education to students, which 
will in turn help put the brakes on rising student loan debt. 
And I want to underline, emphasize ``market incentives,'' 
because the market can be made to work for us.
    We introduced this legislation to move the conversation 
forward, beyond whether institutions should bear greater 
responsibility for student loan debt to how to design a system 
that puts the right market incentives in place for them to 
assume such responsibility. The Protect Student Borrowers Act 
would hold colleges and universities accountable for student 
loan defaults by requiring them to repay a percentage of 
defaulted loans. Only institutions that have 25 percent or more 
of their students borrowing would be included in this risk-
sharing based on their cohort default rate. So we've 
established a limit. If we don't have an institution that 
relies on student loans, we're not going to get you involved in 
detailed regulation. If you have heavy student borrowing, you 
should be into this system.
    Risk-sharing requirements would kick in when the default 
rate of these institutions exceeds 15 percent. As the 
institution default rate rises, so too would the institution's 
risk-share payment. It makes sense. If they're doing their best 
to try to control the default rate, then they should be 
protected. If they're doing poorly, they should pay more and 
more.
    These payments would be invested in helping struggling 
borrowers, preventing future default and delinquency, and 
reducing shortfalls in the Pell Grant program. We need to 
tackle student loan debt and college affordability from 
multiple angles, and we need all stakeholders in the system to 
do their part. 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.
    I commend Chairman Alexander and Senator Murray for putting 
this topic on the reauthorization agenda. I look forward to 
working closely with this committee and our colleagues, and I 
am sure that with your leadership, we will reach success.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Senator Reed follows:]

                   Prepared Statement of Senator Reed

    I would like to thank Chairman Alexander, Ranking Member 
Murray, and the members of the committee for inviting me to 
testify on what I believe is a critical area of needed reform 
for our student aid programs and higher education more 
broadly--requiring our colleges and universities to bear 
greater responsibility for student loan debt. Chairman 
Alexander has taken a very thoughtful approach to looking at 
this issue--as have others on this committee, and I thank you 
all for your leadership.
    We all know that postsecondary education is required for 
most family sustaining, middle-class jobs, and that an educated 
workforce is essential to a modern, productive economy.
    Yet, just as there is growing recognition that 
postsecondary education is indispensable in the modern economy, 
families are being required to shoulder growing debt burdens 
that severely impact the lives of borrowers to the point of 
threatening access to college and restricting our Nation's 
economic growth potential.
    According to a recent analysis of student loan debt by the 
Federal Reserve Bank of New York, between 2004 and 2014, there 
was an 89 percent increase in the number of student loan 
borrowers and a 77 percent increase in the average balance 
size. Today, over 40 million Americans have student loan debt, 
with the outstanding balance exceeding $1.2 trillion.
    This is a growing drag on our economy. 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.
    We know that student loan borrowers are struggling. And 
defaults are on the rise. The Federal Reserve Bank of New York 
reported that the number of borrowers who default each year has 
increased from about half a million 10 years ago to 1.2 million 
annually in 2011 and 2012. Only 37 percent of borrowers are 
current on their loans and actively paying down their debt.
    We cannot tackle the student loan debt crisis without 
States and institutions also stepping up and taking greater 
responsibility for college costs and student borrowing.
    Institutions of higher education can take action to reduce 
the likelihood that a student will default on a loan. However, 
under current law there is little incentive for them to do so 
until default rates reach excessive levels such as their 3-year 
cohort default rate exceeding 30 percent for 3 years. In other 
words, nearly one in three students would have to default by 
their third year in repayment before an institution would be 
obligated to take action.
    The financial crisis showed us what happens when certain 
players in the system can reap the rewards of easy credit 
without having to bear any of the consequences of making 
reckless, risky decisions. The players that created and sold 
exotic financial products got rich while middle-income families 
lost their homes and taxpayers had to bail out the financial 
system.
    We only have to look at the collapse of Corinthian Colleges 
to see that we face a similar problem in the higher education 
sector. Students have been left in the lurch and taxpayers on 
the hook because of a business model based on maximizing 
enrollments and student loan revenue--with little 
responsibility for outcomes.
    I introduced the Protect Student Borrowers Act with 
Senators Durbin, Warren, and Murphy to ensure that institutions 
take greater financial responsibility when it comes to student 
loan debt by setting stronger market incentives for colleges 
and universities to provide better and more affordable 
education to students, which will in turn help put the brakes 
on rising student loan defaults.
    We introduced this legislation to move the conversation 
forward--beyond whether institutions should bear greater 
responsibility for student loan debt to how to design a system 
that puts the right market incentives in place for them to 
assume such responsibility.
    The Protect Student Borrowers Act would hold colleges and 
universities accountable for student loan defaults by requiring 
them to repay a percentage of defaulted loans. Only 
institutions that have 25 percent or more of their students 
borrow would be included in this risk sharing based on their 
cohort default rate. Risk-sharing requirements would kick in 
when the default rate exceeds 15 percent. As the institutional 
default rate rises, so too would the institution's risk-share 
payment. These payments would be invested in helping struggling 
borrowers, preventing future default and delinquency, and 
reducing shortfalls in the Pell Grant program.
    We need to tackle student loan debt and college 
affordability from multiple angles. And we need all 
stakeholders in the system to do their part. 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.
    I commend Chairman Alexander and Senator Murray for putting 
this topic on the reauthorization agenda. I look forward to 
working closely with this committee and our colleagues on 
refining the risk-sharing concept and including tough, fair, 
and workable provisions in the Higher Education Act to ensure 
that we truly have shared responsibility for student success.
    Thank you.

    The Chairman. Thanks, Senator Reed. Thank you for taking 
time to come today. I know you have a busy schedule and you 
have to leave now, but let me invite you, even though you're 
not a member of the committee, to stay involved with us as we 
work through the reauthorization of the Higher Education Act. 
This is an important contribution, and if we're able to work 
out some fair way to do it, it would be a real change in our 
student loan program. Thanks very much.
    I will ask our second panel to come forward, and while 
you're coming I'll introduce you.
    Our first witness is Dr. Andrew Kelly, resident scholar and 
director of the Center for Higher Education Reform at the 
American Enterprise Institute. Dr. Kelly's work is focused on 
innovation in higher education, financial aid reform, and the 
politics of education policy.
    Our next witness is Mr. Robert Silberman, executive 
chairman of Strayer Education. Mr. Silberman leads Strayer 
University, a 123-year-old regionally accredited university 
serving approximately 41,000 working adults across the country. 
He is a graduate of Dartmouth College, received his Master's 
Degree in International Relations from Johns Hopkins. From 1989 
to 1993 he served in several senior positions in the U.S. 
Department of Defense, including Assistant Secretary of the 
Army.
    Our third witness is Jennifer Wang, policy director for 
Young Invincibles. In her role at Young Invincibles, Ms. Wang 
advocates for health care and education-related policy that 
expands economic opportunity for young adults. She earned her 
undergraduate degree from the University of California at Los 
Angeles, her law degree from the University of Iowa.
    I'm going to ask Senator Casey to introduce our final 
witness.

                       Statement of Senator Casey

    Senator Casey. Thank you, Mr. Chairman.
    Mr. Chairman, I'm pleased to have the opportunity to 
introduce Dr. Douglas Webber. Dr. Webber serves as assistant 
professor at Temple University in Philadelphia, PA, and as a 
research fellow at the Institute for the Study of Labor. He's 
been a leading voice in the economics of higher education, and 
he's extensively published on issues ranging from the gender 
pay gap to the economic benefits of college. His work has 
appeared in scholarly journals such as the Journal of Policy 
Analysis, Labor and Economics, and the Economics of Education 
Review, as well as other media outlets such as the Chronicle of 
Higher Education.
    Dr. Webber holds a Bachelor's Degree in Economics and 
Mathematics from the University of Florida, as well as a 
Master's and Ph.D. in Economics from Cornell University. Prior 
to becoming Professor at Temple, he worked as an economist at 
the Center for Economic Studies at the U.S. Census Bureau. Dr. 
Webber's contributions over the years have provided much of the 
foundation for the discussions we'll have today, and I look 
forward to his testimony.
    Thank you, Dr. Webber.
    The Chairman. Thanks, Senator Casey.
    Why don't we start with Dr. Kelly. We'll work right down 
the line. If each of you could summarize your comments in about 
5 minutes, that will give the Senators more time to have a 
conversation with you.
    Dr. Kelly.

  STATEMENT OF ANDREW P. KELLY, A.B., M.A., Ph.D., DIRECTOR, 
    CENTER FOR HIGHER EDUCATION REFORM, AMERICAN ENTERPRISE 
                   INSTITUTE, WASHINGTON, DC

    Mr. Kelly. Good morning, Chairman Alexander, Ranking Member 
Murray, and distinguished members of the committee. Thank you 
for giving me the opportunity to share my views on risk-sharing 
in higher education.
    As Chairman Alexander introduced me, my name is Andrew 
Kelly. I'm the director of the Center on Higher Education 
Reform at the American Enterprise Institute, a non-profit, non-
partisan research organization based here in Washington, DC. My 
comments today are my own and do not necessarily reflect the 
views of AEI.
    Before discussing risk-sharing, it is important to provide 
some context. For the past half-century, the primary focus of 
Federal student aid programs has been ensuring college access 
through grants and loans. While this policy has increased 
enrollments, it has also weakened incentives for institutions 
to promote student success and contain costs. The result is 
evident in lackluster graduation rates, skyrocketing prices, 
and high delinquency rates on student loans.
    This is true, in part, because the mechanisms designed to 
hold institutions accountable for poor performance have fallen 
short of expectations. Consider, for example, the Federal 
Government's primary means of ensuring that student aid flows 
to quality programs, the cohort default rate. The measure is 
easily gamed because colleges are held harmless for any loan 
defaults that occur outside of a 3-year window. This creates an 
incentive to enroll borrowers in forbearance on deferment to 
keep them from defaulting, but those borrowers do not make any 
progress in paying down their loans. As a result, just eight 
institutions were subject to sanction in 2013.
    The rule is also binary in nature, meaning colleges just 
below the Federal standard continue to have full access to 
Federal aid programs, while those just above lose eligibility 
entirely. Those institutions whose default rates are high but 
below the threshold have little reason to improve. Under 
existing policies, then, most colleges bear little risk if 
their students can't repay their loans.
    A risk-sharing policy would change that equation. Colleges 
and universities that receive Federal loans would be on the 
hook financially for a portion of the loans their students 
failed to pay back. The intent of a risk-sharing policy is to 
give all colleges, not just those with the highest default 
rates, stronger incentives to serve students well and keep 
tuition low. The idea here is to change college behavior by 
changing the incentives they face, not by imposing top-down 
mandates about whom colleges must enroll and how much they 
charge.
    Institutions may respond to risk-sharing systems in 
different ways. Schools would likely be more conscientious 
about not enrolling students with little chance of success. 
While this would often be an improvement in consumer 
protection, it also has consequences for college access that I 
will discuss later.
    The truth is, the most important predictor of loan 
repayment is degree completion. Colleges that wish to improve 
their risk profile would respond by restructuring the student 
experience so as to maximize success. Researchers and 
institutions are learning more about interventions and 
practices that improve retention and completion rates, and 
school leaders can use this information to reform their 
institutions.
    Finally, schools would have additional incentive to contain 
costs, as higher tuition levels will make it more difficult for 
students to repay their loans.
    There are a number of design principles to consider here. 
First, leaders might consider moving away from default rates, 
which are imperfect measures of loan performance. Existing 
protections help borrowers avoid defaulting, but that does not 
mean that they are making progress in paying down their loans. 
A measure of repayment progress would provide a more 
comprehensive picture of loan performance.
    Second, the simplest design would be to charge schools a 
flat percentage of non-performing loans. Alternatively, a 
sliding scale of penalties would punish poor performing 
institutions more severely, but designers should avoid 
arbitrary thresholds that divide otherwise similar 
institutions.
    Third, risk-sharing payments may not need to be that large 
to get the attention of schools. One study of the mortgage 
market found sizable differences in loan performance with risk 
retention as low as 3 percent. Too large a payment risks 
putting colleges that could otherwise improve out of business 
before they have the chance to do so.
    Fourth, an ideal risk-sharing system would apply equally 
across all institutions regardless of tax status or other 
factors such as borrowing rates. We should have high 
expectations for all colleges, not a risk-sharing system 
riddled with exemptions for particular types of institutions.
    I'll conclude with two important caveats. First and most 
importantly, risk-sharing raises legitimate questions about 
access for low-income students. Ideally, Federal aid policy 
would encourage students to enroll in institutions at which 
they are likely to be successful. Right now, colleges have an 
incentive to fill seats, but that is often access in name only. 
Risk-sharing would both encourage institutions to think 
carefully about who they are well-equipped to serve and ensure 
the students they do enroll are successful.
    To ensure continued access, however, policymakers should 
consider paying institutions a bonus for every Pell Grant 
recipient they graduate. Such a bonus would help balance the 
risk of enrolling low-income students.
    Second, a risk-sharing system should recognize that many 
factors are outside of an institution's control. For instance, 
colleges cannot limit how much students borrow over the cost of 
tuition, meaning a poorly designed risk-sharing system would 
hold them accountable for behavior they cannot control. An 
ideal risk-sharing policy would find a way to disaggregate 
tuition and living expenses. Likewise, colleges cannot control 
economic trends that control loan repayment. Therefore, 
policymakers could tie a risk-sharing formula to the national 
unemployment rate to take account of economic conditions.
    I appreciate the opportunity to provide feedback, and I 
look forward to the discussion.
    [The prepared statement of Dr. Kelly follows:]
        Prepared Statement of Andrew P. Kelly, A.B., M.A., Ph.D.
                                summary
    Federal student aid programs have increased college access, but 
lackluster outcomes and skyrocketing tuition suggest that they do not 
provide colleges with incentive to promote student success and college 
affordability. In the search for reforms that would improve those 
incentives, leaders on both sides of the aisle have shown interest in 
the concept of risk-sharing, under which colleges who participate in 
the Federal loan program would be on the hook financially in the event 
their students fail to pay back their loans.
    The intent of a risk-sharing policy is to give all colleges--not 
just those with the highest default rates--stronger incentive to 
consider changes to institutional practice, resource allocation, and 
tuition pricing that would lower the probability that borrowers 
experience problems in repaying their loans. Risk-sharing is thus 
designed to change institutional behavior by holding colleges 
accountable for student outcomes. Colleges would have the flexibility 
to figure out the best way to ensure that students can repay their 
loans.
    Institutions may respond to a risk-sharing system in different 
ways. Schools would likely be more careful about enrolling students who 
have little chance of success. While this would be an improvement in 
consumer protection, it also has consequences for college access. But 
the most important determinant of loan repayment is degree completion, 
and colleges that wish to improve their risk profile would respond by 
restructuring the student experience so as to maximize success. 
Researchers and institutions are learning more about interventions and 
practices that improve retention and completion rates, and school 
leaders can use this information to improve.
    There are a number of design principles the committee could 
consider when thinking about the structure of a risk-sharing policy. 
First, leaders might consider moving away from cohort default rates, 
which are imperfect measures of school quality and loan performance, 
and toward other options like a measure of repayment progress. Second, 
the simplest design would be to charge schools a flat percentage of 
non-performing loans. A sliding scale of penalties would punish poor-
performing institutions more severely, but designers should avoid sharp 
thresholds. Third, risk-sharing penalties may not need to be large to 
get the attention of schools. Fourth, an ideal risk-sharing system 
would apply equally across all institutions regardless of tax status or 
other factors such as borrowing rates. Fifth, the system should account 
for the many factors outside an institution's control such as economic 
conditions.
    There are a few caveats to a risk-sharing policy. The potential 
consequences for access must be taken seriously. In many cases, 
encouraging institutions to think twice about enrolling students that 
are unlikely to be successful is not a bad thing, and those students 
would still have access to institutions that would serve them better. 
In order to ensure access, leaders could consider paying institutions a 
bonus for every Pell Grant recipient they graduate.
    Colleges also have justifiable concerns that risk-sharing would 
hold them accountable for behaviors they have no control over. In light 
of this, an ideal risk-sharing policy would find a way to disaggregate 
loans that paid for tuition and loans that paid for living expenses. 
Policymakers might also consider giving institutions some control over 
how much students are able to borrow above the cost of tuition.
                                 ______
                                 
                              introduction
    Good morning, Chairman Alexander, Ranking Member Murray, and 
distinguished Members of the committee, and thank you for giving me the 
opportunity to share my views on the concept of risk-sharing in higher 
education.
    My name is Andrew Kelly and I am the director of the Center on 
Higher Education Reform at the American Enterprise Institute, a non-
profit, non-partisan public policy research organization based here in 
Washington, DC. My comments today are my own and do not necessarily 
reflect the views of AEI.
    I'm here today to discuss how the Federal Government can give the 
colleges and universities it helps to finance a greater stake in 
student success and college affordability. Specifically, the question 
before us today is how a risk-sharing policy, where colleges would bear 
some financial responsibility for a portion of the Federal loans that 
their students do not repay, might better align the incentives of 
colleges, students, and taxpayers. This idea has received increasing 
attention from both sides of the aisle of late, and it is an opportune 
time to discuss it.
    Today I will start by briefly outlining the problems with our 
current approach to determining student aid eligibility, explaining the 
principles of risk-sharing and why I believe it would represent an 
improvement over the status quo, and discussing basic policy design 
principles the committee could consider. I will conclude with some 
important caveats that we must keep in mind.
    Over the past half-century, Federal higher education policy has 
been focused on ensuring college access for qualified students who 
would otherwise be unable to attend due to financial constraints. To 
achieve this goal, the Federal Government makes available grants and 
loans to any eligible student pursuing education after high school.
    This is an admirable objective. After all, the average return to 
completing a degree or certificate remains robust, lower income 
Americans who earn a degree are more likely to experience upward 
mobility, and a more-educated population helps grow the economy.\1\
    Evidence suggests that Federal need-based grants encourage 
enrollment among low-income students,\2\ and the marked increase in 
college access at all income levels reflects the expansion of the 
Federal student aid system. In 1972, the year the Pell Grant was 
created, 49 percent of recent high school graduates went on to enroll 
in postsecondary education; by 2012, 66 percent had done so.\3\
    However, Federal policy has paid less attention to whether these 
student aid investments promote student success and encourage colleges 
to keep their tuition affordable. On each of these measures, the trends 
are far from encouraging. Research shows that college completion rates 
have declined over time,\4\ and just over half of the students who 
start a degree or certificate graduate within 6 years.\5\ Completion 
rates are much lower among disadvantaged students.\6\
    Meanwhile, the sticker price of tuition at public 4-year colleges 
has more than tripled since the early 1980s. Though net prices have 
increased more slowly, family incomes have not kept pace, putting 
college out of reach for many and forcing others to take on large 
amounts of debt. In 2013, 70 percent of graduates from public and 
nonprofit colleges had student loan debt, and the average borrower owed 
just under $30,000.\7\ Those who take on debt but do not graduate often 
have the most difficulty repaying their loans. The effective 
delinquency rate on student loans, after excluding students who are not 
required to make payments, is over 30 percent, about as high as it was 
on subprime mortgages during the housing crisis.\8\
    Borrowing itself is not inherently bad: if a loan enables an 
individual to pursue a high-quality postsecondary credential that he or 
she would not otherwise have been able to afford, then the loan is 
advancing economic opportunity. But when students borrow for programs 
that are unlikely to deliver a positive return on investment, it is 
easy for them to find themselves in the worst place of all: saddled 
with debt but without a credential to advance their career. The ranks 
of these borrowers are growing.
    Faced with these trends, policymakers are now asking how Federal 
student aid policy can encourage colleges to provide a quality 
education at an affordable price.
    Leaders of both parties have acknowledged that these are not 
entirely, or even mostly, questions about how much we spend, but about 
how we change the incentives that existing programs create for 
colleges. There is a growing consensus in States and at the Federal 
level that improving student success and college affordability requires 
reforms that better align the incentives of institutions and students. 
A host of initiatives, from outcomes-based funding in the States to 
President Obama's college ratings to the recent white papers released 
by this committee, fit under this broad category.
    A key question is whether existing Federal policies provide 
colleges with enough of a stake in student success. To be sure, the 
policymakers who designed the student aid system a half-century ago did 
not ignore these questions. They set up a three-pronged quality 
assurance regime--known as the ``triad''--to govern eligibility for 
Federal aid programs. Today, institutions must be accredited by a 
recognized organization, authorized by any State they operate in, and 
must meet Federal standards for financial viability, student loan 
default rates, and, in the case of for-profit institutions, the 
proportion of their revenue that comes from non-Federal sources (the 
``90/10 rule'').
    Above these quality assurance standards, market competition is 
supposed to discipline providers. Policymakers decided to give aid 
directly to students as a portable voucher, allowing them to ``vote 
with their feet'' and reward schools that offer affordable, high-
quality programs. In the aggregate, these choices are supposed to hold 
eligible colleges and universities accountable for their performance.
    These quality assurance mechanisms have failed to protect consumers 
or taxpayers, however.\9\ Low levels of consumer information about 
costs and quality, coupled with a dearth of clear, comparable data on 
those dimensions, blunts market accountability.\10\ Basic information 
on out-of-pocket costs, the percentage of students who complete a 
degree, or the likely return on investment at different programs is 
incomplete or unavailable. Programs with high price tags and poor 
outcomes continue to attract students and taxpayer dollars.
    The triad has also proven ineffective in its gatekeeping role. 
According to the most recent data available from the Integrated 
Postsecondary Education Data System (IPEDS), over 1,300 aid-eligible 2- 
and 4-year colleges graduated less than 30 percent of their first-time, 
full-time students in 150 percent of the normal time to degree. When it 
comes to finishing on time, more than 750 4-year colleges had 4-year 
completion rates of 20 percent or lower. Similarly, among those 
institutions receiving Federal loan dollars, nearly 500 schools had 3-
year Cohort Default Rates (CDR) of 25 percent or higher in 2014.
    Each part of the triad has its own shortcomings. Accreditation 
reviews rely on faculty from other institutions to evaluate their 
peers, creating a conflict of interest. It is also a binary measure, 
and the high stakes of revoking a school's accreditation mean it rarely 
happens. A Government Accountability Office (GAO) analysis found that 
just 1 percent of accredited institutions lost their accreditation over 
a 4\1/2\-year period.\11\ State regulations vary considerably across 
the country, and few States authorize institutions on the basis of 
their student outcomes.
    At the Federal level, the primary mechanism for holding colleges 
accountable--the Cohort Default Rate--successfully curbed the worst 
instances of fraud and abuse when first introduced in the 1990s. But 
the policy is flawed. First, it is easily gamed. So long as students 
default outside of the 3-year window, colleges are held harmless for 
that failure, creating incentive to get students just over that 3-year 
threshold. Indeed, when the Department of Education shifted from 2-year 
to 3-year default rates, loan performance was much worse in the 3-year 
window. The average default rate jumped 4.6 percentage points.
    Second, the rule is binary in nature: colleges whose default rates 
are just below the Federal standard (40 percent in a given year or 30 
percent over 3 consecutive years) continue to have full access to 
Federal aid programs. Those institutions that are close to the 
threshold likely have incentive to improve in order to avoid sanction 
in the future. But the mass of institutions with default rates that are 
high but still below the thresholds bear no responsibility for loans 
that go into default. There is nothing magical about the thresholds, 
yet policy treats colleges on either side of them completely 
differently.
    Third, the binary element also makes the measure extremely high-
stakes; losing access to title IV aid would essentially be a death 
sentence for colleges. An entire industry has evolved to help colleges 
manage their defaults within the 3-year window, and institutions have a 
host of opportunities to challenge and appeal the Department of 
Education's ruling. Policymakers have been reticent to sanction schools 
under the policy. Just eight institutions were subject to sanction in 
2013.\12\ This past year, the Department of Education revised the 
default rates of a subset of institutions on the basis of concerns 
about inadequate loan servicing, effectively saving them from 
sanction.\13\
    Thus, existing policies have given rise to a system where colleges 
that effectively originate student loans bear little of the risk if 
borrowers are then unable to pay those loans back. This creates little 
incentive for poorly performing colleges to keep tuition low, enroll 
students who are likely to be successful, or change institutional 
practice so as to maximize student success.
    To be clear: student success is a joint product of student effort 
and institutional practice. And institutions have only limited control 
over whether students arrive prepared for college, how much students 
decide to borrow above the cost of tuition, or their behavior during 
and after college. I discuss these caveats below.
    But evidence suggests that colleges do have an effect on student 
success;\14\ that institutions who adopt research-based interventions 
can improve retention and completion rates;\15\ and that it is possible 
to contain costs without sacrificing quality.\16\ The question is how 
to structure Federal policies to encourage colleges to focus effort and 
resources on these goals.
                              risk-sharing
    A risk-sharing policy would change these incentives for all 
colleges. Risk-sharing here refers to a policy that would require all 
colleges who participate in the Federal loan program to retain some 
portion of the risk that their students will be unable to repay their 
loans. Specifically, colleges would be on the hook financially to pay 
back a fraction of the loans that their students fail to repay. In the 
parlance of other lending markets, colleges would have some ``skin in 
the game'' when it comes to student loans.
    The intent of such a policy is to give all colleges--not just those 
with the highest default rates--stronger incentive to consider changes 
to institutional practice, resource allocation, and tuition pricing 
that would lower the probability that borrowers experience problems in 
repaying their loans. Risk-sharing is thus designed to change 
institutional behavior by holding colleges accountable for student 
outcomes, not dictating specific changes from Washington. Colleges 
would maintain the flexibility to figure out how best to accomplish 
student success goals.
    How might such a policy play out in higher education? It is worth 
noting that the concept of risk-sharing has received significant 
attention in other lending markets, particularly in the context of home 
loans. Evidence from the period before and after the financial crisis 
suggests that the loan portfolios of mortgage lenders who had some skin 
in the game--as little as 3 percent of the risk--performed better than 
those who did not.\17\ In a comparative study of loan performance in 
the Veteran's Affairs (VA) and Federal Housing Administration (FHA) 
loan programs, researchers at the Urban Institute found that VA loans 
were less likely to default than FHA loans. The researchers hypothesize 
that the fact that lenders in the VA program have skin in the game 
likely explains some of the difference in performance (though they 
caution that they establish a correlation, not causation).\18\
    Because similar variation is not present in Federal student loans, 
it is more difficult to project how this policy would play out in 
American higher education. But a recent paper by Temple University 
economist Douglas Webber attempted to simulate how different types of 
institutions might respond to a risk-sharing system, namely whether 
they would price risk-sharing into their tuition costs. Webber's 
simulation suggests that a risk-sharing system where colleges had to 
pay back 20 percent or 50 percent of defaulted loans would ``bring 
about a sizable reduction in student loan debt,'' though at the cost of 
``modestly higher tuition rates.''\19\ Webber shows that if colleges 
were able to reduce their default rates even 10 percent, the reduction 
in loan debt would be even larger.
    Webber's simulation of a 10 percent reduction in default rates is 
likely a conservative estimate of the extent to which proactive 
institutions could improve loan repayment rates. Indeed, there are a 
number of strategies colleges could pursue in this regard.
    First, broad-access colleges could raise entrance standards and be 
more careful about enrolling students who have little chance of 
success. This would be an improvement in consumer protection; students 
should not enroll at an institution that cannot serve them effectively. 
But such a response also has consequences for access that I discuss 
below.
    Second, some colleges will likely change their pricing and 
enrollment policies to minimize the number of students that wind up 
with debt but no degree. One approach is to implement a free or low-
cost ``trial period'' that allows students to test the waters before 
they take on any debt. For instance, in the aftermath of the Obama 
administration's effort to regulate for-profit colleges, Kaplan 
University introduced a free, 3-week trial.\20\ Another option is to 
have students start taking courses with a lower-cost provider before 
transferring those credits to the home institution. Western Governors 
University has partnered with online course provider StraighterLine to 
provide this kind of low-risk on-ramp for prospective students.\21\
    Third, and most importantly, colleges will have incentive to 
restructure the student experience in ways that maximize student 
success. The most effective way to help students avoid repayment 
problems is to help them complete a credential with labor market 
value.\22\ A series of rigorous, randomized evaluations has provided 
evidence that different interventions can raise retention and 
completion rates--personalized coaching, performance-based grant aid, 
full-time enrollment in a ``structured pathway.''\23\ A comprehensive 
intervention that combined many of these strategies doubled graduation 
rates among remedial students at the City University of New York.\24\ 
Improvements are possible, provided colleges have an incentive to adopt 
evidence-based strategies. Having skin in the game could provide that 
incentive.
                           design principles
    There are a number of design principles and caveats that the 
committee could consider when thinking about the structure of a risk-
sharing policy. I start with four design principles and conclude with 
two important caveats.
    First, leaders might consider moving away from cohort default rates 
as the key measure. On the one hand, putting institutions on the hook 
for a fraction of defaulted dollars is transparent, simple, and clearly 
pegged to a defined outcome. But default rates are highly imperfect 
measures of institutional quality and loan performance.\25\ Options 
like forbearance, deferment, and income-based repayment help students 
avoid defaulting even if they are not making progress in paying back 
their loans. As an alternative, policymakers could use a measure of 
repayment progress, such as cohort's loan balance that remains unpaid 
after the standard 10-year repayment period.
    Second, in terms of the structure of penalties, the simplest 
approach would be to charge institutions a flat percentage of non-
performing loans, perhaps excluding institutions whose repayment rates 
are above a certain threshold. For example, institutions might pay a 
flat percentage of a cohort's loan balance that remains at the end of 
the standard 10-year repayment window. Alternatively, a sliding scale 
of penalties that increased as repayment rates worsened would punish 
poor-performing institutions more severely, but policymakers would want 
to avoid a system that ratchets up penalties at particular thresholds 
in a way that creates large discontinuities.
    Third, while it is difficult to forecast in advance, it is my 
opinion that risk-sharing penalties need not be particularly large to 
get the attention of schools. One study of the mortgage market found 
marked differences in loan performance with risk retention as low as 3 
percent.\26\ In higher education, the system should be designed to 
provide schools with an incentive to focus on student success, but 
penalties should not be so large as to summarily put schools out of 
business simply because they have cash-flow issues.
    Fourth, it would be ideal to create a system that is simpler, more 
transparent, and that applies equally across all institutions 
regardless of tax status or other factors such as borrowing rates. We 
should have high expectations for all institutions, and a risk-sharing 
system can help achieve that goal so long as it is not riddled with 
provisions that exempt particular types of institutions.
    Fifth, there are clearly many factors outside an institution's 
control--such as economic recessions. Tying the risk-sharing formula to 
the national unemployment rate, for instance, and exempting a fraction 
of non-performing loans from an institution's calculation based on that 
index, would help account for this risk.
                                caveats
    Now for the caveats. The most obvious criticism is that risk-
sharing will reduce access for low-income students. This is a likely 
outcome at some schools, and must be taken seriously. But it's 
important to note that, in many cases, encouraging institutions to 
think twice about enrolling students that are unlikely to be successful 
is not necessarily a bad thing. For years, colleges have knowingly 
enrolled such students in order to capture additional student aid 
money, a practice that members of this committee criticized during 
prior hearings on for-profit colleges.\27\ It is also important to note 
that these students would still have access to institutions where they 
are more likely to be successful. Federal policy should encourage 
students to enroll in institutions that are prepared to serve them.
    But it is true that increased selectivity could keep out students 
that would benefit from schooling on the basis of their 
characteristics. Therefore, policymakers should consider offering 
institutions a bonus for every Pell Grant recipient they graduate. Such 
a reward would help balance the potential risk of enrolling low-income 
students.
    Colleges also have justifiable concerns that risk-sharing would 
hold them accountable for behaviors they have no control over. For 
instance, colleges cannot limit how much students are allowed to borrow 
over the cost of tuition, meaning a poorly designed risk-sharing system 
would put them on the hook for loans that were not used to pay tuition. 
In light of this, a risk-sharing policy should only hold colleges 
responsible for a portion of the total sum of unpaid loan dollars. The 
penalty formula could multiply that sum by the ratio between tuition 
and living costs for that cohort. Similarly, colleges should not be 
punished for ineffective loan servicing.
    Alternatively, the committee might consider giving schools the 
power to limit student borrowing under certain circumstances. For 
guidance on this issue, policymakers could look to the Department of 
Education's current experimental sites project that empowers selected 
colleges to limit borrowing.\28\
    I appreciate the opportunity to provide feedback. I am enthusiastic 
about the committee's focus on this topic and believe a well-designed 
risk-sharing system can help to better align the incentives of 
institutions and their students.
                               References
    1. See, for instance, Pew Economic Mobility Project, ``Pursuing the 
American Dream: Economic Mobility Across Generations,'' (Washington, 
DC: Pew Charitable Trusts, 2012); Claudia Goldin and Lawrence Katz, The 
Race Between Education and Technology (Cambridge, MA: Harvard 
University Press, 2008).
    2. Susan M. Dynarski and Judith Scott-Clayton, ``Financial Aid 
Policy: Lessons from Research,'' Postsecondary Education in the United 
States 23, no. 1 (Spring 2013), www.princeton.edu/futureofchildren/
publications/docs/23_01_04.pdf.
    3. Institute of Education Sciences, National Center for Education 
Statistics, ``Recent High School Completers and their Enrollment in 2-
year and 4-year Colleges, by Sex: 1980 through 2012,'' https://
nces.ed.gov/programs/digest/d13/tables/dt13_302.10.asp.
    4. John Bound, Michael F. Lovenheim, and Sarah Turner, ``Why Have 
College Completion Rates Declined? An Analysis of Changing Student 
Preparation and Collegiate Resources,'' American Economic Journal: 
Applied Economics 2, no. 3 (2010).
    5. Doug Shapiro, et al., Completing College: A National View of 
Student Attainment Rates--Fall 2007 Cohort (Herndon, VA: National 
Student Clearinghouse, December 2013), http://nscresearchcenter.org/wp-
content/uploads/NSC_Signature_
Report_6.pdf.
    6. Martha J. Bailey and Susan M. Dynarski, ``Gains and Gaps: 
Changing Inequality in U.S. College Entry and Completion,'' (working 
paper no. 17633, National Bureau of Economic Research, Cambridge, MA, 
December 2011), www.nber.org/papers/w17633.pdf.
    7. The Institute for College Access and Success (TICAS), Student 
Debt and the Class of 2013, (TICAS, November 2014), http://ticas.org/
sites/default/files/legacy/fckfiles/pub/classof2013.pdf.
    8. Meta Brown, et al., Measuring Student Debt and Its Performance 
(New York, NY: Federal Reserve Bank of New York, April 2014), 
www.newyorkfed.org/research/staff_reports/sr668.pdf; On subprime 
mortgages, see Shane M. Sherlund, ``The Past, Present, and Future of 
Subprime Mortgages,'' Finance and Economics Discussion Series, Division 
of Research & Statistics and Monetary Affairs (Washington, DC: Federal 
Reserve Board), http://www.Federalreserve.gov/pubs/feds/2008/200863/
200863pap.pdf.
    9. Andrew P. Kelly and Kevin James, ``Untapped Potential: Making 
the Higher Education Market Work for Students and Taxpayers,'' 
(Washington, DC: AEI, October 2014), www.aei.org/wp-content/uploads/
2014/10/Untapped-Potential-corr.pdf.
    10. Andrew P. Kelly, High Costs, Uncertain Benefits: What Do 
Americans Without a College Degree Think About Postsecondary Education 
(Washington, DC: AEI, April 2015); Andrew P. Kelly, ``Nothing but Net: 
Helping Families Learn the Real Price of College,'' AEI Education 
Outlook (December 2011), www.aei.org/wp-content/uploads/2011/12/-
nothing-but-net-helping-families-learn-the-real-price-of-college_
084809849714.pdf; Laura J. Horn, Xianglei Chen, and Chris Chapman, 
Getting Ready to Pay for College: What Students and Their Parents Know 
About the Cost of College Tuition and What They Are Doing to Find Out 
(Washington, DC: National Center of Education Statistics, September 
2003), http://nces.ed.gov/pubs2003/2003030.pdf.
    11. Government Accountability Office, Education Should Strengthen 
Oversight of Schools and Accreditors (Washington, DC, December 2014), 
www.gao.gov/assets/670/667690.pdf. Cite GAO study on accreditation 
oversight.
    12. Federal Student Aid, ``FY2011 2-Year Schools Subject to 
Sanction,'' www.ifap.ed.gov/eannouncements/attachments/
2013OfficialFY112YRCDRBriefing
.pdf.
    13. Jeff Baker, ``Adjustment of Calculation of Official Three Year 
Cohort Default Rates for Institutions Subject to Potential Loss of 
Eligibility,'' Information for Financial Aid Professionals, Federal 
Student Aid, September 23, 2014, www.ifap.ed.gov/
eannouncements/
092314AdjustmentofCalculationofOfc3YrCDRforInstitutSubtoPotent
ialLossofElig.html.
    14. Robert K. Toutkoushian and John C. Smart, ``Do Institutional 
Characteristics Affect Student Gains from College?,'' The Review of 
Higher Education 25, no. 1 (2001): 39-61, https://muse.jhu.edu/
login?auth=0&type=summary&url=/journals/review_of_higher_education/
v025/25.1toutko ushian.html; Thomas Bailey, et al., The Effects of 
Institutional Factors on the Success of Community College Students (New 
York, NY: Community College Research Center, Teachers College, Columbia 
University, January 2005), http://ccrc.tc.columbia.edu/media/k2/
attachments/effects-institutional-factors-success.pdf.
    15. Eric P. Bettinger and Rachel B. Baker, ``The Effects of Student 
Coaching: An Evaluation of a Randomized Experiment in Student 
Advising,'' Educational Evaluation and Policy Analysis 42, no. 7 
(October 2013): 1-17; Nicole M. Stephens, MarYam G. Hamedani, and 
Mesmin Destin, ``Closing the Social-Class Achievement Gap: A 
Difference-Education Intervention Improves First-Generation Students' 
Academic Performance and All Students' College Transition,'' 
Psychological Science 25, no. 4 (2014), 
www.psychology.northwestern.edu/documents/destin-achievement.pdf.
    16. Carol A. Twigg, Improving Learning and Reducing Costs: Lessons 
Learned from Round I of the Pew Grant Program in Course Redesign 
(Saratoga Springs, NY: The National Center for Academic Transformation, 
2003), www.thencat.org/PCR/Rd1Lessons.pdf.
    17. Benjamin J. Keys, et al., ``Did Securitization Lead to Lax 
Screening? Evidence from Subprime Loans,'' Quarterly Journal of 
Economics 125, no. 1 (2010): 307-62; Cem Demiroglu and Christopher 
James, ``How Important is Having Skin in the Game? Originator-Sponsor 
Affiliation and Losses on Mortgage-backed Securities,'' The Review of 
Financial Studies (September 2012).
    18. Laurie Goodman, Ellen Seidman, and Jun Zhu, VA Loans Outperform 
FHA Loans. Why? And What Can We Learn? (Washington, DC: The Urban 
Institute, July 2014), www.urban.org/sites/default/files/alfresco/
publication-pdfs/413182-VA-Loans-Outperform-FHA-Loans-Why-And-What-Can-
We-Learn-.PDF.
    19. Douglas A. Webber, Risk-Sharing and Student Loan Policy: 
Consequences for Students and Institutions (Bonn, Germany: The 
Institute for the Study of Labor (IZA), February 2015), p. 3, http://
ftp.iza.org/dp8871.pdf.
    20. Paul Fain, ``More Selective For-Profits,'' Inside Higher Ed, 
November 11, 2011, www.insidehighered.com/news/2011/11/11/enrollments-
tumble-profit-colleges.
    21. Paul Fain, ``Outsourced Trial Period,'' Inside Higher Ed, 
January 6, 2015, https://www.insidehighered.com/news/2015/01/06/
western-Governors-deepening-partnership-straighterline-creates-new-
path-completion.
    22. Jacob P. K. Gross, et al., ``What Matters in Student Loan 
Default: A Review of the Research Literature,'' Journal of Student 
Financial Aid 39, no. 1 (2009), http://publications.nasfaa.org/cgi/
viewcontent.cgi?article=1032&context=jsfa.
    23. See the Institute for Education Science's ``What Works 
Clearinghouse'' section on postsecondary education for information on a 
series of rigorous evaluations: http://ies.ed.gov/ncee/wwc/
Topic.aspx?sid=22.
    24. Susan Scrivener and Michael J. Weiss, ``More Graduates: Two-
Year Results from an Evaluation of Accelerated Study in Associate 
Programs (ASAP) for Developmental Education Students,'' MDRC, January 
2014.
    25. Ibid.
    26. Demiroglu and James, 2012.
    27. U.S. Senate Health, Education, Labor, and Pensions Committee, 
For Profit Higher Education: The Failure to Safeguard the Federal 
Investment and Ensure Student Success (Washington, DC, July, 30, 2012), 
www.help.senate.gov/imo/media/for_profit_report/PartI-PartIII-
SelectedAppendixes.pdf.
    28. See Federal Student Aid Experimental Sites Initiative, 
``Limiting unsubsidized loan amounts,'' https://
experimentalsites.ed.gov/exp/approved.html.

    The Chairman. Thanks, Dr. Kelly.
    Mr. Silberman.

    STATEMENT OF ROBERT S. SILBERMAN, B.A., M.A., EXECUTIVE 
         CHAIRMAN, STRAYER EDUCATION, INC., HERNDON, VA

    Mr. Silberman. Thank you, Chairman Alexander and Ranking 
Member Murray and other distinguished members of the committee. 
It's an honor to be here today with your committee, and I 
appreciate you asking for my views on this important issue.
    The institution I have the privilege to represent, Strayer 
University, has been educating students for 123 years. It is 
accredited by the Middle States Commission on Higher Education, 
the same accrediting body that accredits Princeton, Georgetown, 
Johns Hopkins, the University of Maryland, and other 
outstanding schools in the mid-Atlantic region.
    Strayer University currently educates 41,000 adult 
students, primarily in Bachelor and Master Degree programs in 
business, accounting, and information technology. Our numerous 
successful graduates include members of the military such as 
retired Assistant Commandant of the Marine Corps, General 
Robert Magnus; senior Federal Government officials such as Hon. 
Kathryn Medina, former Executive Director at the U.S. Office of 
Personnel Management; and thousands of senior business 
executives from industries and companies all over the country.
    I note that the former chairman of your committee, Senator 
Tom Harkin, said in his recent extensive report that our

        ``institution's performance, measured by student 
        withdrawal and default rates, is one of the best of any 
        examined, and it appears that students are faring well 
        at this degree-based college.''

    I recount all this not just because I'm obviously proud of 
our university, our students and our alumni, but more 
importantly to illustrate that Strayer University, in all 
relevant respects, is comparable to all other non-profit 
universities which are accredited by Middle States.
    I firmly believe that to be effective, the statutory 
framework governing institutions of higher education should 
apply even-handedly to all schools that participate in the 
title IV loan program. Rising student debt and defaults affect 
every sector of higher education and are not necessarily the 
result of an institution's tax status.
    Excessive student debt places a significant burden not just 
on the student, but on our country as well, as approximately 
$100 billion of student loans are currently in default. The 
existing statutory framework does not, in my judgment, create 
the appropriate incentives for those who are best positioned to 
prevent and reduce such student loan defaults, the colleges and 
universities which originate the loans. Instead, when a student 
defaults, the educational institution retains the money it 
received as tuition, while the taxpayers and the student are 
left to pay the price.
    Under current law, the primary debt-related measure 
governing colleges and universities is the cohort default rate. 
It is a blunt instrument, as my colleague has mentioned and 
Senator Alexander as well, that eliminates access to title IV 
funds only when a school reaches a 30 percent default rate for 
an extended period of time, and even then an excessively high 
default rate only cuts off future funds and does nothing to 
require the school to repay any of the title IV money it has 
already received.
    There are several steps which I believe Congress can take 
to correct this misalignment of incentives which arise from the 
current system. These include, first, grant universities the 
flexibility to delay disbursement of title IV funds until later 
in an academic term, after it is clear that a student is 
succeeding academically. Several speakers have already 
mentioned the fact that the primary indicator of a student 
successfully paying off their debt is student completion.
    Second, for those universities whose cohort default rates 
are worse than the national average of similar institutions, 
limit the award of title IV funds to such universities to no 
more than they received in the prior year. Let's not compound 
the problem and make the situation worse by continuing to fund 
institutions that are below the average.
    Third, implement a method in which educational institutions 
share in the financial risk of defaults on student loans which 
are used to pay tuition to those institutions. As we've heard, 
Senator Reed, Senator Durbin and Senator Warren have proposed 
legislation that would create such a system. While the details 
of their proposal should be subject to the debate and 
negotiation and compromise necessary to create effective 
legislation, I personally believe their bill is a good start.
    And finally, any legislative proposal that requires 
colleges and universities to share in the financial risk of 
student defaults should allow those institutions to limit 
student borrowing. Students may currently borrow, regardless of 
necessity, roughly double the cost of tuition, fees, and books 
through cost-of-attendance loans. As such, the system permits, 
and indeed encourages, over-borrowing and taking on debt that 
is not directly tied to an education.
    Universities should be permitted to set borrowing limits at 
their tuition costs only. Likewise, a risk-sharing system 
should allow originating institutions to consider and evaluate 
a student's individual default risk at the time of enrollment 
and financial aid application, as long as that is based on an 
academic preparation, which seems to be a very direct indicator 
of success.
    Legislation should permit and encourage academic 
institutions to implement commonsense measures to increase the 
likelihood that students successfully complete their studies 
and that students do not take on more debt than they ultimately 
will be able to repay.
    Thank you, Mr. Chairman, for your leadership on this 
important issue, and I look forward to continue working with 
your committee. I have submitted a more detailed written 
statement which I would ask to be entered into the record and 
would be pleased to answer any questions at the appropriate 
time.
    [The prepared statement of Mr. Silberman follows:]
         Prepared Statement of Robert S. Silberman, B.A., M.A.
                           executive summary
    Strayer University, a 123-year-old university accredited by the 
Middle States Commission on Higher Education, currently educates 41,000 
adult students, primarily in bachelor and master degree programs in 
business and information technology. Strayer University agrees that 
Congress should improve the framework that governs taxpayer money 
disbursed under Title IV of the Higher Education Act.
    There should be a unitary system of regulation that applies to all 
institutions that receive title IV loans as tuition. Non-profit 
institutions, such as Southern New Hampshire University, and Arizona 
State University, are increasingly marketing their online programs--not 
to better serve their existing students but rather to grow their 
enrollment of ``non-traditional'' working adult students. Thus, any 
risk associated with high enrollment-growth models is no longer unique 
to one segment of higher education. An effective framework for 
regulatory oversight should not include or exclude institutions on the 
basis of their source of funding. In addition, we recommend the 
following concrete steps for reform:

    1. Allow institutions to consider default risk in enrollment and 
financial aid grants. Legislation should permit, and indeed encourage, 
institutions to implement common sense measures to increase the 
likelihood that students can successfully complete their studies and 
will not take on debt that they ultimately will be unable to repay.
    2. Grant institutions greater flexibility to delay disbursements. 
The current CDR regulation requires institutions with a CDR at 15 
percent or greater to delay disbursements for 30 days to first-year, 
first-time subsidized and unsubsidized Direct Loan borrowers. 
Legislation should expand on this, to allow institutions to delay 
disbursements until a student demonstrates ability to succeed in a 
program.
    3. Allow institutions to set different costs of attendance for 
students. The current system allows the possibility that students will 
over-borrow, by allowing them to take financial aid for more than just 
the cost of an educational program. Institutions should be permitted to 
set borrowing limits for non-residential students at institutional 
costs only.
    4. Limit growth of institutions that have high cohort default 
rates. Legislation could limit the amount of title IV funds awarded to 
an institution with a CDR equal to or greater than the national average 
of its peer institutions, (based upon the risk profile of the students 
served) to no more than the amount awarded to the institution in the 
previous year.
    5. Impose Risk-Sharing Payments on Institutions. Finally, a viable 
risk-sharing proposal could build off of the sanctions imposed for high 
CDRs, but hold institutions accountable prior to reaching the 30 
percent ineligibility threshold. One option is to require that any 
institution, regardless of its funding source, remit a risk-sharing 
payment when its CDR hits 15 percent. Thus, if the alumni of an 
educational institution default on more than $0.15 for every $1.00 
borrowed, then the institution should share equally with taxpayers the 
cost of those defaults above the $0.15. This risk-sharing mechanism 
(sometimes referred to colloquially as ``skin in the game'') will help 
correct the current misalignment of incentives between educational 
institutions and the Federal Government, and avoid the wealth transfer 
from the taxpayer to the educational institution, which occurs in the 
case of excessive student defaults.
                                 ______
                                 
    Chairman Alexander, Ranking Member Murray, and committee members: 
Thank you for the opportunity to comment on ways to create a more 
effective system of higher education oversight and accountability, and 
for your leadership on this important issue.
    Strayer University is a 123-year-old university that is accredited 
by the Middle States Commission on Higher Education, the same regional 
body that accredits Princeton, Georgetown, the University of Maryland, 
and the other outstanding schools in the Mid-Atlantic States. We 
currently educate 41,000 adult students, primarily in bachelor and 
master degree programs in business and information technology. Our 
countless successful graduates include Retired Assistant Commandant of 
the Marine Corps, General Robert Magnus, who received his MBA in 1998, 
Hon. Kathryn Medina, who received her Bachelor of Business 
Administration in 2004 and recently stepped down as an Executive 
Director at the U.S. Office of Personnel Management, and numerous 
senior business executives in all industries.
    Strayer University agrees that Congress can and should improve the 
framework that governs taxpayer money disbursed under Title IV of the 
Higher Education Act (``HEA''). We outline below some suggestions for a 
comprehensive legislative proposal aimed at (1) giving institutions the 
flexibility to mitigate the risk of student loan defaults and (2) 
imposing upon institutions that fail to sufficiently mitigate defaults 
certain growth limitations and risk-sharing obligations.
    In order to meet the goal of a better prepared workforce, our 
Nation needs a diversity of institutions that serve both traditional 
college students, and older working adults that did not have the 
opportunity to benefit from a higher education directly after 
graduating from high school. The country benefits from a system that 
offers students a wide array of educational options that can meet their 
varied needs. As such, the goal of any legislative proposal should not 
be arbitrary standards aimed at one sector of higher education, but 
targeted measures designed to protect students and taxpayers by 
incentivizing sound educational practices and eliminating entities 
providing a sub-par education.
    We believe any legislative proposal should establish a simple, 
unitary, system of regulation that applies to all institutions that 
receive title IV loans as tuition. The problem of excessive student 
debt affects every sector of higher education and is not a result of an 
institution's tax status. Some commenters on the current student debt 
crisis have suggested that for-profit institutions are uniquely 
incentivized toward rapid enrollment growth, which in turn leads to 
high rates of default. However, more and more ``traditional'' non-
profit institutions, such as the University of Maryland University 
College, Southern New Hampshire University, and Arizona State 
University, are taking their programs online--and marketing them 
aggressively--not to better serve their existing students but rather to 
grow their enrollments by competing for the growing population of 
``non-traditional'' working adult students. They are undertaking these 
programs either by working with private sector online service providers 
(many of whom are themselves profit-seeking), or by building the 
capacity in-house. As such, any risk associated with high enrollment-
growth models can no longer be argued to be unique to one segment of 
higher education. Therefore an effective framework for regulatory 
oversight should not include or exclude institutions on the basis of 
their source of funding.
    Congress has addressed the public policy issue of unmanageable 
student debt, and the resulting taxpayer risk from student loan 
defaults, through the provisions of the HEA that relate to an 
institution's Cohort Default Rate (``CDR''). In 2008, Congress revamped 
the CDR, in order to cure perceived inadequacies, and expanded the 
measurement window from 2 years to 3.
    Under the current legislatively approved CDR framework, Congress 
has identified CDRs of 30 percent or higher as problematic, by 
instituting a tiered system of consequences:

     If the rate is equal to or greater than 30 percent in a 
given fiscal year, the institution must establish a ``default 
prevention task force'' and submit to the Department a default 
improvement plan (``Plan'').
     If the rate is equal to or greater than 30 percent for 2 
consecutive years, the institution must revise and resubmit the Plan.
     If the rate is equal to or greater than 30 percent for 2 
out of 3 consecutive years, the Department may subject the institution 
to provisional certification.
     If the rate is equal to or greater than 30 percent for 3 
consecutive years, the institution becomes ineligible to participate in 
the Direct Loan program and Federal Pell Grant Program.

    In addition, if an institution's CDR equals or exceeds 15 percent, 
the institution must delay for 30 days disbursements to first-year, 
first-time subsidized and unsubsidized Direct Loan borrowers.
    More can be done to hold institutions accountable. But recent 
attempts to revisit the issue of student debt and to accomplish the 
goal of accountability have focused on regulatory changes that develop 
new metrics, applied only to certain institutions, absent congressional 
input. Instead, Congress should work off of the framework for 
calculating CDRs to establish accountability.
                            recommendations
    Congress should build on its existing legislative and regulatory 
framework in two ways: first, by giving educational institutions more 
authority to mitigate the risk of student defaults; and second, by 
requiring those educational institutions to share the financial risk in 
those circumstances where student defaults reach unacceptable levels. I 
outline below concrete steps to effectuate these reforms:

    (1) Allow institutions to consider default risk in enrollment and 
financial aid grants. Any legislative effort seeking to hold 
institutions accountable for student loan defaults must not hamstring 
institutions from implementing their own safeguards against such 
defaults. Legislation should permit, and indeed encourage, institutions 
to implement common sense measures to increase the likelihood that 
students can successfully complete their studies and will not take on 
debt that they ultimately will be unable to repay. For instance, based 
upon our years of operation in the sector and our own internal 
research, analysis and experience, we have learned that students 
lacking in basic math and English skills are exponentially more likely 
to drop or fail out of undergraduate programs and therefore pose 
undergraduate student loans default risks. Indeed, Strayer University 
is so confident of this conclusion that we have established a 
requirement that students who cannot demonstrate proficiency in basic 
math and English skills must pass a non-credit bearing introductory 
course in those subjects before they can enroll in college-level, title 
IV-eligible course work at our institution. Simply put, inadequate 
preparation is the root cause of students being unable to meet their 
educational goals and thus these students are the most likely to 
default on their student loans. Numerous examples of basic aptitude 
tests already exist and can be utilized by institutions to establish a 
prospective student's preparation for course work. Congress may 
therefore consider establishing or recognizing a national eligibility 
test for institutions to determine that students have the basic skills 
to perform college-level work, particularly math and English skills, 
before allowing title IV funds to be lent to the student. Such a test 
would help ensure that title IV funds are only used to support students 
having the requisite basic skills to succeed at college-level work.
    (2) Grant institutions greater flexibility to delay disbursements. 
The current CDR regulation requires institutions with a CDR at 15 
percent or greater to delay disbursements for 30 days to first-year, 
first-time subsidized and unsubsidized Direct Loan borrowers. 
Legislation should expand on this, to allow institutions to determine 
other instances in which it is advisable to delay disbursements until a 
student can establish that he or she has the ability to succeed in a 
program.
    (3) Allow institutions to set different costs of attendance for 
students. The current system allows the possibility that students will 
over-borrow, by allowing them to take financial aid for more than just 
the cost of an educational program. Under the financial aid system, a 
student's aid package can include borrowing for the cost-of-living. 
Although such borrowing may make practical sense for traditional 
students who enter college at the age of 18 and are away from home, it 
does not always translate to the population of older students returning 
to school later in life who are already working adults. As such, the 
system permits, and indeed in some instances encourages, over-borrowing 
and taking on debt that is not directly tied to an education. 
Institutions should therefore be permitted to set borrowing limits at 
institutional costs only, which would grant access to title IV funds 
for non-residential students for tuition expenses only.
    (4) Limit growth of institutions that have high cohort default 
rates. Recent regulatory measures have recognized that institutions 
should be required to seek approval prior to expanding their programs 
or campuses if they have not met certain standards. While this is 
laudable, growth restrictions could be stronger and should be 
reasonably tied to the congressionally created framework, not separate 
independently created metrics. For instance, legislation could limit 
the amount of title IV funds awarded to an institution with a CDR equal 
to or greater than the national average of its peer institutions, 
(based upon the risk profile of the students served) to no more than 
the amount awarded to the institution in the previous year.
    Notably, we recommend basing this growth limitation on a national 
average CDR rather than on a pre-determined threshold to account for 
many of the criticisms currently made against the existing CDR 
framework. Critics of that framework contend that it does not properly 
take into account economic factors that can, for a period of time, 
affect repayment rates without having any bearing on the level of 
education provided by an institution. Institutions should be held 
accountable to students and taxpayers for the value of the instruction 
they provide. But institutions should not be required to meet a 
potentially arbitrary benchmark when economic conditions are such that 
unemployment is high and wages stagnant or in decline. Basing the 
limitation on a national average adjusts for these situations that are 
beyond an institution's control. Moreover, using a national average 
also inhibits the ability of institutions to manipulate their CDRs by 
managing defaults based on a static target for compliance.
    (5) Impose Risk-Sharing Payments on Institutions. Finally, a viable 
risk-sharing proposal could build off of the sanctions imposed for high 
CDRs, but hold institutions accountable prior to reaching the 30 
percent or higher threshold at which the potential for ineligibility is 
triggered. One option would be a requirement that any institution, 
regardless of its funding source, remit a risk-sharing payment when its 
CDR hits 15 percent. But while the CDR is based on the percentage of 
student borrowers who have defaulted, irrespective of the amount on 
which they have defaulted, the risk-sharing payment should be based on 
a percentage of the actual dollar figures in default. As such, once it 
is determined that an institution has a borrower-based CDR equal to or 
greater than 15 percent, the Department should compute the percentage 
of actual dollars defaulted based on the total amount of dollars 
disbursed by the institution in that year. If more than 15 percent of 
the total dollars disbursed are in default, institutions should be 
required to remit a risk-sharing payment equal to 50 percent of the 
total defaulted dollars above the 15 percent threshold, i.e., a true 
risk-share between taxpayers and institutions.
    Illustration:

     Institution has a 15 percent borrower-based CDR, and 
disbursed $500,000,000 to students in the cohort.
     Students in the cohort defaulted on a total of 
$100,000,000, or 20 percent of total dollars disbursed.
     The risk-sharing payment is based on the difference 
between $100,000,000 (20 percent) and $75,000,000 (15 percent) = 
$25,000,000.
     The institution's 50 percent of the risk equals a payment 
of $12,500,000 to the Treasury.

    The simple theory here is that if the alumni of an educational 
institution default on more than $0.15 for every $1.00 borrowed, then 
the institution should share equally with taxpayers the cost of those 
defaults above the $0.15. This risk-sharing mechanism (sometimes 
referred to colloquially as ``skin in the game'') will help correct the 
current misalignment of incentives between educational institutions and 
the Federal Government, and avoid the wealth transfer from the taxpayer 
to the educational institution, which occurs in the case of excessive 
student defaults. In order to protect taxpayers, all funds collected 
from risk-sharing payments should be used exclusively to off-set 
defaults in the title IV program, rather than to create funding for any 
other governmental expenditure.
    Thank you for the opportunity to share with you these thoughts on 
how to establish a higher education accountability system that is both 
effective and fair. We believe the actual numerical triggers and 
percentages of students loan defaults subject to any risk sharing 
should be subject to debate and compromise in order to create the most 
effective system. However, the principles behind any equitable and 
effective system are fairly straightforward. All parties who share in 
the gains from the student loan system should share in any losses the 
system creates. Strayer takes seriously both our responsibility to 
provide our students with a quality education and our duty to be good 
stewards of taxpayer money. I look forward to working with you to 
ensure fulfillment of both these goals.

    The Chairman. Thanks, Mr. Silberman.
    Ms. Wang.

STATEMENT OF JENNIFER WANG, POLICY DIRECTOR, YOUNG INVINCIBLES, 
                         WASHINGTON, DC

    Ms. Wang. Thank you, Chairman Alexander, Ranking Member 
Murray, and the committee, for the opportunity to appear before 
you today. My name is Jennifer Wang, and I'm the policy 
director of Young Invincibles. We are a national non-profit 
that works to expand economic opportunity for young people 
through research and advocacy.
    As this committee works to reauthorize the Higher Education 
Act, it's critical that young adult voices get heard throughout 
the process. With $1.2 trillion in student debt and over 40 
million student loan borrowers nationwide, Congress can use HEA 
reauthorization as an opportunity to protect the investments of 
students and taxpayers.
    At Young Invincibles, we support aligning and improving 
Federal incentives to elevate institutions' interests in 
reducing the burden of student debt and improving access and 
success, especially among low-income and underrepresented 
students. Right now, the system is set up so that students bear 
all of the risk of a poorly performing institution, with little 
information available to them about career outcomes.
    Our generation knows we need higher education to be 
successful, and we stand ready to take on responsibility for 
our education. However, institutions must also take 
responsibility for student success. To improve educational 
outcomes and control the growing volume of student debt, 
Congress must align institutional behavior with student 
interests.
    We recommend adopting the following goals to protect 
students and taxpayers.
    First, require that institutions be on the hook for student 
success such that institutions that do not leave their students 
better off than high school graduates must improve or risk 
title IV eligibility.
    Second, craft a policy that encourages institutions to 
lower the cost of attendance.
    And third, in the worst instances, require institutions to 
provide borrowing relief.
    I must point out, risk-sharing cannot be a substitute for 
existing protections like the 90/10 rule or the gainful 
employment rule. These protections prevent the most 
unscrupulous actors from taking advantage of students. We also 
believe that institutions must not threaten to pass the so-
called cost of risk-sharing on to its students.
    We have crafted a proposal that uses a repayment rate of at 
least 45 percent based on earnings of high school graduates. 
Our analysis of 2013 current population survey data estimates 
that roughly 46 percent of young adults with a high school 
diploma could possibly afford some level of student debt 
payments. We set this threshold because higher education should 
leave young people with more opportunities for employment than 
if they tried to navigate the job market with just a high 
school degree. Institutions that cannot meet this threshold 
should not remain eligible for title IV aid.
    Under our proposal, 45 percent of graduates must be able to 
pay at least $1 on their loans toward principal. Simply 
assessing whether graduates are in repayment may not be 
sufficient because we believe that repayment protections exist 
for the borrower, not the institution.
    This committee should keep in mind also that students make 
sacrifices to attend college that are not limited to tuition, 
cost of attendance, and debt. Therefore, we urge the committee 
to craft a policy that encourages completion in a reasonable 
amount of time with a degree that helps students succeed in the 
workforce and does not saddle students with overly burdensome 
debt.
    It is important that the committee build some form of 
borrower relief into any risk-sharing proposal because it is 
currently the student loan borrower who is ultimately held 
accountable for a school's failure. As it stands, we do not 
have a market-oriented system for mitigating risk, and without 
borrower relief, institutions have little to no financial stake 
in student success. Losing title IV eligibility is a check on 
revenue for institutions, but it does nothing to help borrowers 
who attend failing programs already burdened with debt they 
cannot possibly afford to repay.
    A preferred solution in the worst scenarios is to discharge 
the debt of students who attend failing institutions, reinstate 
any lost Pell Grant eligibility, and recover as much lost 
funding as possible from the institution, not the student.
    We also urge the committee to explore risk-sharing policies 
that will incentivize institutions to improve rather than 
simply avoid enforcement.
    I want to close on a student story. Mike DiGiacomo, a U.S. 
Army veteran who went to Gibbs College in Massachusetts, 
enrolled after the school used questionable recruitment 
practices. He now has more than $85,000 in student loan debt. 
He thought his degree would help him find a job in his field of 
study. He says his school did not adequately prepare him for 
the workforce. He has faced several months of unemployment, and 
he struggles to repay his student loans. We urge the committee 
to prevent these types of situations.
    Thank you for the opportunity to speak here today, and I 
look forward to the discussion.
    [The prepared statement of Ms. Wang follows:]
                 Prepared Statement of Jennifer C. Wang
                                summary
    Young Invincibles supports the goal of aligning and improving 
Federal incentives to elevate institutions' interests in reducing the 
burden of student debt and improving student access and success, 
particularly among low-income and underrepresented students. To improve 
postsecondary outcomes and control the growing volume of student debt, 
Congress must align institutional behavior with student interests.
    We recommend the following main goals for creating a risk-sharing 
framework to protect students and taxpayers:

    1. Institute a repayment rate metric to ensure that institutions 
leave their students better off than high school graduates or risk 
title IV eligibility.
    2. Craft a policy that encourages institutions to lower cost of 
attendance and tighten revenue standards.
    3. Require institutions to provide borrower relief.

    We also urge the committee to keep the following flags in mind:

     Risk-sharing must not be a substitute for existing 
protections, like the 90/10 rule or the Gainful Employment rule. These 
rules exist to prevent the most unscrupulous actors from taking 
advantage of students, and in fact, should be strengthened in the face 
of widespread bad practices. Closing the GI bill loophole and 
establishing an 85/15 rule are essential pieces of any risk-sharing 
regime to ensure program quality and protect students and taxpayers.
     Institutions must not threaten to pass the so-called 
``cost'' of risk-sharing onto students. It is the role of this 
committee to ensure that institutions do the right thing by 
strengthening existing regulations while preventing institutions from 
evading rules meant to protect students.
     Risk-sharing policies should incentivize institutions to 
improve, rather than simply avoid enforcement. Ideas for promoting 
institutional improvement include rewarding institutions that do the 
best job of educating students, particularly Pell students and students 
from underrepresented communities, and connecting them with real career 
opportunities. Along these lines, institutions with high repayment 
rates deserve credit for doing a good job, and we encourage the 
committee to explore well-targeted methods of encouraging institutions 
to do better, starting with the students who need it most.
                                 ______
                                 
    Thank you, Chairman Alexander, Ranking Member Murray, and the 
committee for the opportunity to appear before you today. My name is 
Jennifer Wang, and I am the policy director of Young Invincibles, a 
non-profit, non-partisan organization that works to expand economic 
opportunity for young adults. As this committee seeks to reauthorize 
the Higher Education Act, it is essential that the voices of young 
adults be heard throughout the process. With $1.2 trillion in student 
debt and over 40 million student loan borrowers nationwide, Congress 
must use Higher Education Act reauthorization as an opportunity to 
protect the investments of students and taxpayers.
    Young Invincibles supports the goal of aligning and improving 
Federal incentives to elevate institutions' interests in reducing the 
burden of student debt and improving student access and success, 
particularly among low-income and underrepresented students. In our 
work directly with young people, we frequently hear from students 
across the country about how lofty promises from the worst acting 
institutions turn into mountains of debt with few job prospects in 
sight. Right now, the system is set up so that students bear all of the 
risk of a poorly performing institution, with little information 
available to them about career outcomes. Our generation knows we need 
higher education to be successful, and we stand ready to take on 
responsibility for our education. However, institutions must also take 
responsibility for student success. To improve postsecondary outcomes 
and control the growing volume of student debt, Congress must align 
institutional behavior with student interests.

    We recommend the following main goals for creating a risk-sharing 
framework to protect students and taxpayers:

    1. Institute a repayment rate metric to ensure that institutions 
leave their students better off than high school graduates or risk 
title IV eligibility.
    2. Craft a policy that encourages institutions to lower cost of 
attendance and tighten revenue standards.
    3. Require institutions to provide borrower relief.

    To be clear, we believe that risk-sharing must not be a substitute 
for existing protections, like the 90/10 rule or the Gainful Employment 
rule. These rules exist to prevent the most unscrupulous actors from 
taking advantage of students. We also believe that institutions must 
not threaten to pass the so-called ``cost'' of risk-sharing onto 
students. It is the role of this committee to ensure that institutions 
do the right thing by strengthening and existing regulations while 
preventing institutions from evading rules meant to protect students.
1. Institute a repayment rate metric to ensure that institutions leave 
 their students better off than high school graduates or risk title IV 
                              eligibility.
    Under the Higher Education Act, institutions already have a skin in 
the game requirement for a narrow subset of programs. However, this 
committee should broaden institutional accountability to all program 
types at all institutions, so that all schools are on the hook for 
producing strong student outcomes. Our recommendation is based on the 
following concept: in order to receive Federal financial aid, 
institutions should create education programs that make their 
graduates, on average, better off than high school students. Students 
attend post-secondary programs in order to improve their economic 
chances. Taxpayers also invest in post-secondary career programs, in 
part, to achieve the economic gains everyone benefits from when more 
members of society have a postsecondary credential. To achieve this, we 
recommend using a repayment rate metric of at least 45 percent, with 
the goal of phasing in a 50 percent standard.
    We suggest using a repayment rate metric because we believe that 
they are a better indicator of student success upon leaving a program 
than cohort default rates. They are less subject to manipulation 
because borrowers who leave school must actually repay student debt, 
rather than simply avoid default using forbearance or deferment. 
Repayment rates also more closely measure success than default rates, 
which only measure the frequency of the worst possible repayment 
outcomes.
    We crafted our 45 percent repayment rate metric using census data 
to estimate the economic success of an institution's graduates compared 
to high school graduates nationally in the context of repayment rates. 
People with only a high school diploma earn significantly less than 
individuals with a post-secondary credential. This does not imply that 
no one with only a high school diploma ever achieves financial success, 
but it does indicate that the chance of doing so with only a high 
school diploma is sufficiently small that obtaining a postsecondary 
credential is highly advisable.
    We based our calculation on the discretionary income thresholds 
present in the current debt-to-earnings metrics and those set by 
Congress for income-based repayment plans. Essentially, Congress has 
already based policy around the idea that individuals earning less than 
1.5 times the Federal poverty level cannot afford even minimal payments 
on Federal student loans. Conversely, we assume for the purposes of our 
calculation, that individuals earning more than this amount could at 
least make some student loan payment. From this baseline, we further 
eliminated people qualifying for social safety net benefits or who are 
active in the armed forces.
    We also constrained our analysis to young adults aged 25-34 years 
old because older workers typically earn much higher salaries due to 
their previous work experience. Although we know that some institutions 
typically enroll many students who do not come straight from high 
school, we know that many of these students are still in their young 
adult years. We also feel it is appropriate to compare college 
graduates to a population of high school graduates near to when those 
graduates actually left high school.
    Our analysis of 2013 Current Population Survey (CPS) data estimates 
that 46.2 percent of young adults with a high school diploma could 
possibly afford some level of student debt payments. We would recommend 
initially reducing the threshold to 45 percent, to account for 
additional populations of borrowers we cannot account for due to 
limitations in CPS data (e.g., borrowers engaged in national service 
may defer their payments). However, we urge the committee to explore 
phasing the rate up to 50 percent in later years, as Senator 
Alexander's white paper suggests.
    We note that this is a low bar but one with economic support. We 
are also certain that many of the high school graduates earning more 
than 150 percent of the Federal poverty would struggle with debt 
payments, particularly if they had high levels of student debt. For 
comparison, doing the same analysis for bachelor's level graduates 
would produce a repayment rate of greater than 70 percent. However, we 
do not seek to set an unreasonable standard for institutions, 
particularly institutions with high populations of non-traditional 
students, or institutions where the vast majority of students do not 
borrow.
    In addition to encouraging institutional accountability using a 
repayment rate, we suggest that the committee use the following rule 
when assessing whether an institution passes: that 45 (and eventually 
50 percent) of their graduates are able to pay at least $1 on their 
loans toward principal. Simply assessing whether 45 or 50 percent of 
graduates are in repayment may not be sufficient because at 
institutions where students take on substantial debt, some may have 
very low payments or payments of zero under income-based or income-
contingent repayment. We believe that IBR should be a protection for 
the borrower, not the institution.
    For example, if a school performs poorly, many of its borrowers 
could end up making very low payments or no payments and receiving high 
levels of student loan forgiveness under IBR or PAYE. This would mean 
that the Federal Government would be covering for an institution's poor 
performance in these instances. Giving an institution credit for any 
type of payment, low or zero, masks that they are leaving borrowers 
with a lot of debt that they can never repay. As such, requiring that 
borrowers pay at least some principal in a given year ensures that 
borrowers are actually learning and earning enough to make progress on 
their debt.
    We also encourage this committee to exclude failing institutions 
from title IV aid using a repayment rate metric. The structure of our 
repayment metric sets a minimum standard for school performance for 
receiving Federal financial aid. We believe a post-secondary 
institution that receives title IV aid must perform better, on average, 
than the average secondary school. There is no reason that taxpayers 
and the government should continue to support institutions that fails 
to produce graduates that are no better than those with a high school 
diploma. We also encourage this committee to explore risk-sharing ideas 
that encourage institutions to improve.
    Along with a repayment rate metric, we also recommend lifting the 
ban on a student unit record to allow for a policy to account for a 
diverse set of job outcomes. Under current law, the Census and its 
response data would not be able to answer labor outcomes by 
institution, or even sector. For a fully functional risk-sharing system 
that is useful to students and taxpayers, Congress must lift the ban on 
a unit record system to examine these outcomes. This way, the committee 
could build in questions about school type, and program type into the 
data. This is vital information that we know students say they need in 
order to make informed choices about where to go to school and how to 
pay for it.
    2. Craft a policy that encourages institutions to lower cost of 
               attendance and tighten revenue standards.
    The costs of a college degree are rising, but that trend overlooks 
opportunity costs when assessing how much a degree actually costs. The 
opportunity costs of going to college are great, and go beyond what a 
student pays in tuition, fees, and living expenses. The average full-
time college student forgoes over $9000 in earnings for each year she 
spends in school. That number increases to nearly $16,000 for students 
in college who do not or cannot work while enrolled. Most students 
today also do not graduate from college in 4 years and can forego over 
$93,000 in income. Combine this figure with how much debt the average 
college graduate now has due to rising college costs, and the need for 
risk-sharing becomes even more necessary for today's student, who is 
sacrificing both time and money to pursue an education.
    Tuition alone is also no longer an accurate measure of the rising 
cost of college. Living expenses are essential expenses for students, 
and the economic reality for most students is that they must take on 
additional student loan debt to pay for living expenses in order to 
attend and complete college. This is particularly true at certain 
institutions that serve larger proportions of low-income, independent 
students, who cannot rely on savings or family support. A risk-sharing 
framework must take this necessary borrowing into account in addition 
to opportunity cost, and factor in the full cost of attendance into 
account when crafting a risk-sharing framework.
    In our work with students, we have also heard that some 
institutions require that students purchase expensive products from the 
institution in order to enroll in a course. This behavior can 
significantly increase the amount of debt that students who attend 
these programs incur. To ensure institutions are held accountable for 
the additional debt, we strongly recommend that Congress keep 
institutions fully accountable to the realities of being a student 
today: by including books, supplies, and equipment in any risk-sharing 
calculation for cost of attendance. We hope that this will prevent 
institutions from passing on the ``costs'' of risk-sharing onto 
students in ways other than raising tuition.
    Ideally, any risk-sharing proposal would take into account the full 
cost of attendance and keep institutions accountable to students for 
this amount. We urge the committee to craft a proposal that 
incorporates this idea into its framework. This committee should also 
keep in mind that the sacrifices that students make to attend college 
are not limited to tuition, cost of attendance, and debt. Therefore, we 
encourage this committee to craft a policy that encourages completion 
in a reasonable amount of time, with a degree that helps students 
succeed in the workforce, that does not saddle students with overly 
burdensome debt.
    We also urge the committee to explore market-based policies that 
help curb unscrupulous practices that raise costs for students or 
encourage aggressive marketing. One idea is to restore the 90/10 rule 
to 85/15, such that institutions subject to this rule must derive at 
least 15 percent of institutional revenue from non-Federal student aid 
programs. This rule is appropriate in risk-sharing because taxpayers 
should not foot the bill for well-known aggressive recruitment tactics 
at institutions looking to derive more revenue from certain students, 
like student veterans. Institutions that offer a quality education at a 
reasonable price are well-respected by students, employers, and aid 
providers, and should not have trouble meeting this standard.
    Of course, Congress should explore other risk-sharing proposals 
that can lower the total cost of attendance at all types of 
institutions and programs. We believe that every type of institution, 
regardless of its tax status, must play a proactive role in addressing 
cost of attendance, and urge Congress to financially encourage such 
behavior. In addition to narrowing generous cost of attendance 
policies, Congress could also encourage institutions to refocus funds 
toward instruction and keep institutions on the hook for extraneous 
student debt not related to instruction. These are commonsense, market-
oriented reforms designed to encourage institutions to adapt to reflect 
the realities of being a student today.
          3. Require institutions to provide borrower relief.
    Risk-sharing cannot exist without some form of borrower relief 
because it is currently the student loan borrower who is ultimately 
held accountable for an institution or program's failure. As it stands, 
we do not have a market-oriented system for mitigating risk, and 
without borrower relief, institutions have little to no financial stake 
in student success. Accountability in the form of loss of title IV 
eligibility is a check on revenue for institutions, but it does nothing 
to borrowers who attended failing programs, already burdened with debt 
they cannot possibly afford to repay. Institutions cannot continue to 
receive all of the benefit in Federal financial aid revenue should a 
program succeed, while borrowers and taxpayers bear the burden should 
the program fail.
    Congress owes these students who attend failing institutions and 
programs some form of insurance. Requiring schools to fund borrower 
relief ensures that schools must take into account the risk to students 
when creating programs. Our preferred solution in the worst scenarios 
is to discharge the debt of students who attend failing schools, 
reinstate any lost Pell grant eligibility, and recover as much lost 
funding as possible from the institution, not the student.
    This is the fairest resolution for four reasons. First, because it 
is the student who took on loans for an education in what we know is a 
low-information environment, Congress must also ensure that students 
are not harmed by the financial distress resulting from when programs 
are less than ideal. Second, a full loan discharge would allow students 
the option to pursue an education that actually makes a difference in 
their lives rather than struggle to repay debt for a program that does 
not adequately prepare them to start a career and repay their debt. 
Third, the institution is ultimately responsible for the failed 
program, and should compensate taxpayers for as much of the lost 
investment as possible. Fourth, Congress must reinstate Pell 
eligibility for students who institutions are deemed as failing. This 
is critical to maintaining college access. It is fundamentally unfair 
to disqualify hardworking low-and moderate-income students who do the 
right thing by attending college only to receive little education and 
few job prospects. In the worst cases, students could be lured into bad 
programs, use up their Pell dollars attending poorly performing 
programs, and have no second chance at success. Reinstating Pell 
eligibility would give students a fair opportunity to work hard, 
complete a degree, and start a career.
    We also urge the committee to explore risk-sharing policies that 
will incentivize institutions to improve, rather than simply avoid 
enforcement. Ideas for promoting institutional improvement include 
rewarding institutions that do the best job of educating students, 
particularly Pell students and students from underrepresented 
communities, and connecting them with real career opportunities. Along 
these lines, institutions with high repayment rates deserve credit for 
doing a good job, and we encourage the committee to explore well-
targeted methods of encouraging institutions to do better, starting 
with the students who need it most.
    As with any other postsecondary education reform, we urge the 
committee to prioritize student access and success over all else. 
Reforms must not impede access or place the needs of institutions over 
students and families. Thank you for the opportunity to speak here 
today, and I look forward to the discussion.

    The Chairman. Thank you, Ms. Wang.
    Dr. Webber.

 STATEMENT OF DOUGLAS A. WEBBER, B.A., M.A., Ph.D., ASSISTANT 
         PROFESSOR, TEMPLE UNIVERSITY, PHILADELPHIA, PA

    Dr. Webber. Chairman Alexander, Ranking Senator Murray, and 
distinguished members of the committee, thank you very much for 
having me to this important hearing. As a researcher who 
strives to do relevant policy research in the area of higher 
education, it is truly an honor to be here today. Thank you 
very much to Senator Casey for that generous introduction.
    For reasons relating to fairness, efficiency, and economic 
incentives, I am in favor of all institutions participating in 
Federal student aid programs being subject to risk-sharing 
requirements. Similar to the proposal of Senator Reed, I'm in 
favor of imposing a penalty on institutions equal to a 
proportion of the student loan debt that is defaulted upon by 
prior students.
    However, I believe that this penalty should be paid by all 
institutions rather than just those above a certain threshold. 
The simple reason is that we want to target the penalty at 
those institutions that are most contributing to our current 
national student debt crisis. These are not necessarily the 
institutions with the highest cohort default rates.
    For instance, certain segments of the community college 
sector have very high default rates, but since the tuition at 
these schools is generally low, their contribution to the 
national student debt is smaller than would be imagined.
    Additionally, just because an institution has a modest 
overall default rate does not mean that there is not 
substantial room for improvement. Consider a hypothetical 
university with a major degree program in which students 
default 50 percent of the time. This university should not 
escape a penalty because the rest of the institution has a 
lower default rate that brings the institutional average under 
15 percent. All institutions in all of their offered programs 
should be incentivized to consider the future debt levels and 
labor market outcomes among their students. This means allowing 
students to complete their program in a timely manner, without 
incurring unsupportable debt levels, and teaching students 
skills that are valuable in today's competitive labor market.
    One potential concern related to implementing a risk-
sharing policy is that it could possibly put upward pressure on 
tuition rates. I examined this issue in a recent research paper 
which attempts to quantify the tuition response to risk-sharing 
penalties should they be imposed. In this research I used 
administrative data on each institution which receives title IV 
funding over a 25-year period to essentially estimate features 
of the cost structure for each institution and calculate from 
their point of view a financially optimal tuition response to 
the increased cost of risk-sharing. I estimated these both for 
a 20 percent and a 50 percent risk-sharing penalty.
    Throughout my research I tried to make assumptions about 
institutions' behavior which would lead to the worst-case 
outcome for students. I make these assumptions because I 
believe that policymakers should be risk averse when 
considering such substantial policy changes.
    I find that the typical institution would implement only a 
modest tuition increase of approximately 1 percent under the 20 
percent risk-sharing penalty and 2 percent under the 50 percent 
penalty. The only institutions which would implement 
appreciably larger increases in tuition are those which have 
high tuition, high rates of borrowing, and high default rates; 
in other words, those institutions contributing the most to our 
current student debt problem.
    It is my judgment that these modest increases in tuition 
are far outweighed by the powerful incentives they will provide 
institutions to invest in their students' economic futures. I 
want to reiterate that these figures assume worst-case scenario 
and that the legislation has absolutely no impact on 
incentivizing institutions to reduce defaults. Since 
institutions are likely to devote more energy toward reducing 
student debt as a result of this policy, I would anticipate 
that the actual tuition increases would be even smaller.
    Finally, I wanted to mention that coupling a risk-sharing 
policy with the reforms discussed in other hearings, such as 
easing the accreditation requirements and providing in 
particular detailed consumer information at both the 
institution and major degree program level, would also 
alleviate upward pressure on tuitions resulting from a risk-
sharing policy.
    To summarize my testimony, I am strongly in favor of 
instituting a risk-sharing program which incentivizes all 
institutions to invest more heavily and efficiently in labor 
market outcomes of their students.
    Thank you very much for having me here today.
    [The prepared statement of Dr. Webber follows:]
       Prepared Statement of Douglas A. Webber, B.A., M.A., Ph.D.
                           executive summary
    This testimony discusses the issue of risk-sharing in the market 
for student higher education loans. I focus my testimony on the appeal 
of such a policy relative to the current system, a basic structure for 
how a new accountability system could be implemented, and the costs/
benefits of this system based on my own research.
     The appeal of a risk-sharing policy:

          Student loan debt is a growing problem for both 
        students and the overall health of the national economy.
          Risk-sharing incentivizes institutions to invest more 
        in their students' future economic well-being by requiring 
        institutions to bear some of the financial costs associated 
        with the defaulted loans.
          Risk-sharing provides these incentives to all 
        institutions and students, rather than the few worst performing 
        institutions (as is currently the case).

     The basic structure of the risk-sharing policy I support:

          A financial penalty paid by institutions equal to a 
        fraction (e.g., 20 percent) of the value of defaulted student 
        loans by their past students.
          More straightforward than the current system, without 
        the need for ad hoc adjustments.
          Other implementations, such as an Unemployment 
        Insurance-type system are discussed.

     Costs and benefits of risk-sharing policy:

          Modest projected increases in tuition: 1 percent (2 
        percent) for most institutions under a 20 percent (50 percent) 
        risk-sharing penalty.
          Only institutions which have high tuition, high rates 
        of student borrowing, and high default rates (i.e., those 
        institutions contributing the most to the growth in student 
        debt) would see higher increases (2.5 percent -4.5 percent).
          The above figures assume there is no incentive effect 
        of risk-sharing by institutions. As the incentive effect 
        increases, the projected increase in tuition diminishes.
          Unintended negative consequences of risk-sharing 
        (such as increased tuition) would be diminished when coupled 
        with many of the reforms discussed in the other hearings on the 
        reauthorization of the Higher Education Act (e.g., consumer 
        information and accreditation).
                                 ______
                                 
    Chairman Alexander, Ranking Member Murray, and distinguished 
members of the committee, thank you for inviting me to this important 
hearing. As a researcher who strives to do policy relevant work in the 
area of higher education, this is truly an honor.
    My name is Doug Webber, and I am currently an assistant professor 
in the Department of Economics at Temple University and a Research 
Fellow at the Institute for the Study of Labor. My main areas of 
research are the economics of higher education and labor economics. I 
have Bachelor's degrees in Economics and Mathematics from the 
University of Florida, and Masters and Ph.D. degrees from Cornell 
University. During my last 2 years of graduate study, I also worked as 
an Economist at the U.S. Census Bureau's Center for Economic Studies.
    National student loan debt currently tops $1.3 trillion, the vast 
majority of which is backed by the Federal Government. At a 
macroeconomic level, student loan debt has been compared to the housing 
bubble of last decade. At a microeconomic level, many individuals are 
burdened by debt, which has been shown to negatively impact many 
measures of well-being\1\ in addition to the clear strain on financial 
security. It is thus in the best interest of students and the economy 
as a whole for the committee to adopt the reforms discussed in the 
various hearings on the reauthorization of the Higher Education Act.
---------------------------------------------------------------------------
    \1\ Reduced financial security has been found to impact a wide 
range of important decisions such as marriage, fertility, occupation, 
and many others.
---------------------------------------------------------------------------
    My testimony today focuses on the economic motivation and social 
appeal of a risk-sharing program, how it might be structured, and 
possible implications for institutions and students based on my own 
research.
    While there are many factors which contribute to an individual 
defaulting on his or her student loan debt, some proportion of the 
fault must lie with the institutions that accept the loan-bearing 
students. It is important to state that there need not to be fraudulent 
intent or even poor teaching for institutions to be responsible for 
some share of the blame. For example, students may be pushed into 
certificate or major programs which are intellectually stimulating, but 
have poor job prospects upon graduation, without being given adequate 
information by their school.
    Under the current system, if a student defaults, the institution 
bears no responsibility in terms of repaying the loan. Thus, the 
institutions reap the benefits of these loans, i.e., they are able to 
extract revenues, but they pay none of the costs when the loan is not 
repaid. Instead, the burden falls on the American tax payer. 
Furthermore, the current incentive system, which restricts access to 
Federal student aid if cohort default rates fall above certain 
thresholds based on cohort default rates, effectively only applies to a 
handful\2\ of schools with the highest default rates. Under this 
system, the vast majority of schools have no direct financial stake in 
their students' outcomes once students are no longer enrolled.
---------------------------------------------------------------------------
    \2\ See https://kelchenoneducation.wordpress.com/2014/09/24/
analyzing-the-new-cohort-default-rate-data/.
---------------------------------------------------------------------------
    In a well-functioning market, a ``skin in the game'' incentive 
system would be less critical because market forces would drive out any 
institutional bad actors and force the remaining schools to operate 
efficiently and in their students' best interest. However, the market 
for higher education is far from perfect, characterized by a 
substantial lack of consumer information, a large growth in 
administrative bureaucracy,\3\ and sometimes wasteful spending.\4\
---------------------------------------------------------------------------
    \3\ See http://necir.org/2014/02/06/new-analysis-shows-problematic-
boom-in-higher-ed-administrators/.
    \4\ See http://www.nytimes.com/2014/09/21/fashion/college-
recreation-now-includes-pool-parties-and-river-rides.html?_r=0.
---------------------------------------------------------------------------
                 how to structure a risk-sharing system
    For reasons relating to fairness, efficiency, and economic 
incentives, I am in favor of all universities which participate in 
Federal student aid programs being subject to risk-sharing 
requirements. While the majority of policy discussions tend to focus on 
for-profit colleges, all institutions lack sufficient incentives to 
address the issue of student loan defaults, and thus we should consider 
all institutions in our policy response.
    I believe this is the correct policy response in terms of 
efficiency for two reasons: requiring all institutions to participate 
(1) reduces government monitoring costs/time, and (2) reduces the 
ability of institutions to escape risk-sharing costs by ``gaming'' the 
system.\5\
---------------------------------------------------------------------------
    \5\ See https://www.insidehighered.com/news/2015/05/13/sec-charges-
itt-fraud-over-student-loan-programs for one such example.
---------------------------------------------------------------------------
    As for economic incentives, the gains to society of preventing one 
default are the same whether that default is prevented at a school with 
a 25 percent default rate and 80 percent borrowing or an institution 
with a 3 percent default rate and 5 percent borrowing. By requiring all 
schools to be subject to risk-sharing, everyone will be incentivized to 
reduce their students' default probabilities.
    I support using the dollar-based cohort default rate\6\ both as the 
metric and also as the key determinant of liability. For example, each 
school might be required to pay a risk-sharing penalty equal to 20 
percent of the value of the student loans which have gone into default 
in the past year. The primary reason I support this approach is that it 
sidesteps many of the problems we currently see plaguing the 
accountability system using cohort default rates as the metric. 
Considerable time and money has been spent trying to create a system 
which makes schools accountable, but does not unfairly penalize schools 
which happen to fall on the bad side of blunt metrics. For instance, 
some schools with very small class sizes have exceeded the current 
default rate standards simply by random chance.\7\ Moreover, a program 
with 30 total students (10 defaulting) has an entirely different 
implication for taxpayers' financial responsibility from a program with 
30,000 students (8,000) defaulting). Between these two schools, clearly 
the government should be more concerned about the latter, even though 
the cohort default rate is lower (33.3 percent versus 26.6 percent).
---------------------------------------------------------------------------
    \6\ While my research focuses on the use of cohort default rates, 
other metrics such as the repayment rate may also be attractive to 
policymakers. For example, the risk-sharing penalty could be 20 percent 
of the value of student loans which are currently delinquent. If the 
committee prefers this metric, I would stress that the penalty must be 
smaller than the one they would prefer using cohort default rates to 
avoid placing too much financial strain on institutions. Furthermore, 
complications could arise when deciding how to handle accounts which 
are delinquent (and thus cause a penalty to be paid), but then return 
to good standing at a later date.
    \7\ Small programs are more likely to occasionally surpass any 
threshold which is based on a percentage based only on bad luck.
---------------------------------------------------------------------------
    By basing the metric and penalties on the dollars defaulted, the 
rules can be made more straightforward (and thus easier to identify and 
enforce) without the need to create the numerous exceptions\8\ and 
complicated rules under the current model.
---------------------------------------------------------------------------
    \8\ See https://www.insidehighered.com/news/2014/09/24/education-
dept-tweaks-default-rate-calculation-help-colleges-avoid-penalties.
---------------------------------------------------------------------------
    I am strongly in favor of a monetary penalty (based on the dollars 
defaulted) rather than restrictions on access to financial aid programs 
or enrollment. Restricting Federal aid is a very blunt policy 
instrument which is more likely to lead to unintended consequences 
(e.g., lack of access for at-risk groups) than a monetary penalty tied 
to the number of dollars defaulted upon. Furthermore, all-or-nothing 
penalties are rarely the best policy option since they only incentivize 
institutions near the threshold, and produce highly unequal punishments 
for similar schools who happen to fall on different sides of the 
cutoff.
                        research on risk-sharing
    Opponents of risk-sharing proposals are correct to note that a 
potential unintended consequence of the system I described is an 
increase in tuition rates. This fear served as the motivation for 
recent research I conducted examining the impact of a risk-sharing 
program on institutional decisionmaking.
    In my research,\9\ I analyze the impact of a hypothetical risk-
sharing program which imposes a penalty of 20 percent or 50 percent of 
the dollars defaulted upon by previous students using administrative 
data from the Integrated Postsecondary Data System (IPEDS). This was 
accomplished in several steps: (1) I estimated cost functions\10\ for 
institutions which receive title IV funding. Most importantly, I 
estimated the cost to each institution of educating the last student, 
known as the ``marginal cost'' in economics. (2) I assumed that each 
institution would respond in a financially optimal way to the 
imposition of risk-sharing penalties (in other words, institutions 
would raise tuition so as to maximize profits). This step requires 
knowledge of an institution's cost structure (estimated in the first 
step) and the demand curve (specifically a quantity known in economics 
as the ``demand elasticity'') faced by each institution. Rather than 
estimate these demand curves using my data, which are not well-suited 
for this type of analysis, I run my statistical analysis separately 
using low, medium, and high estimates of the demand elasticity found in 
the literature.\11\ (3) I calculated what the optimal tuition response 
(i.e., how much institutions would increase their tuition) would be 
when either a 20 percent or 50 percent risk sharing penalty were 
imposed on schools.
---------------------------------------------------------------------------
    \9\ See Webber (2015b).
    \10\ This was accomplished using a panel data extension of the 
method pioneered in Cohn, et al. (1989).
    \11\ See Long (2004).
---------------------------------------------------------------------------
    It is important to note that throughout my paper I try to make 
assumptions which would lead to the worst-case scenario in terms of 
tuition increases. I make these assumptions because I believe that 
policymakers should be risk averse when making decisions which have 
such broad impacts. For instance, I assume that students who default 
have not repaid any of their loan balance. Furthermore, I begin by 
assuming that institutions will do absolutely nothing to lower their 
default rates, and thus there is no incentive effect of risk-sharing. 
In this way, the results represent an upper bound in terms of negative 
tuition consequences.
    I find that for the vast majority of institutions, tuition 
increases would be fairly modest. The predicted median increase in 
tuition would be roughly 1 percent under a 20 percent risk-sharing 
penalty, and 2 percent under a 50 percent risk-sharing penalty. Only 
schools which satisfy all three of the following conditions appear to 
be at risk for appreciably higher tuition increases: high default 
rates, high tuition, and high rates of student borrowing. The median 
tuition increase for these institutions would be closer to 2.5 percent 
and 4.5 percent respectively under a 20 percent and 50 percent penalty. 
The virtue of these results is that only the schools which are causing 
the most harm would be appreciably impacted by a risk-sharing program. 
Furthermore, these figures would certainly be lower if there is any 
incentive effect associated with the penalties.
    It should also be noted that there are numerous policies and 
mechanisms through which individual schools could address student debt. 
These include, but are not limited to, policies which impact 
graduation, time to degree,\12\ internships, choice of major, or 
teaching quality. Institutions would be free to determine which of 
these avenues is most efficacious and cost-efficient given their 
specific resources and needs.
---------------------------------------------------------------------------
    \12\ For instance, Temple University President Neil Theobald 
introduced an innovative program entitled ``Fly in Four'', which 
provides grants to students in exchange for meeting regular progress to 
degree benchmarks and a promise not to work more than 10 hours per week 
during enrollment. http://chronicle.com/blogs/headcount/temple-u-
program-will-help-students-work-fewer-hours-graduate-on-time/37593.
---------------------------------------------------------------------------
    Additionally, there are many potential reforms which have been 
discussed in other hearings on the Higher Education Act that would 
reduce or eliminate upward pressure on tuition when coupled with a 
risk-sharing program. For example, a majority of Associate's Degree 
programs require at least 65 or 66 credits to obtain a degree, two full 
classes above the norm of 60. Many of these programs require more than 
70 credits.\13\ This growth in required classes has been seen even in 
general education programs, where it is difficult to argue that the 
extra courses serve a crucial role in students' future careers. 
Depending on the State and specific program, this could be due to 
accreditation regulations or institution-level bureaucracy. Longer 
programs increase the likelihood of student default both because of 
larger student loans taken out and a lower probability of graduation. 
Reforms which allow and encourage institutions to be more efficient in 
producing graduates would simultaneously ease upward pressure on 
tuition due to risk-sharing policies and reduce future student loan 
defaults.
---------------------------------------------------------------------------
    \13\ See Johnson, et al. (2012).
---------------------------------------------------------------------------
    Another set of reforms which would prevent tuition increases 
relates to the consumer information focus of the Higher Education Act 
reauthorization. There are enormous differences in earnings across 
different majors.\14\ For example, the median graduate with a degree in 
economics earns roughly $1 million more over their lifetime\15\ than 
the median college graduate with a management degree. There are many 
students whose education does not pay off until very late in life or 
ever.\16\ Yet students and parents, in particular more vulnerable 
students and parents, often do not have the facts necessary to make 
arguably the most important financial decisions in life: (1) which 
school to attend and (2) what major to select. Providing labor market 
and student loan outcomes, in an easy to understand format, at the 
institution and program level would enable students to make informed 
decisions and could drastically lower the number of future loan 
defaults (and thus alleviate upward pressure on tuition from a risk-
sharing program).
---------------------------------------------------------------------------
    \14\ See Webber (2014).
    \15\ http://www.cla.temple.edu/economics/files/2014/04/Expected-
lifetime-earnings-All1-copy
.pdf.
    \16\ See Webber (2015a).
---------------------------------------------------------------------------
    The way in which a risk-sharing proposal is operationalized is 
critical to its success. For example, it has been proposed that risk-
sharing could be implemented through a system akin to Unemployment 
Insurance (UI) rather than the penalty structure described above. While 
it is true that a perfectly designed insurance system could have the 
same incentive effects as a penalty based on the number of dollars 
defaulted upon, I caution against an insurance system for two reasons. 
First, administrative cost and complexity should be minimized to make 
risk-sharing as straightforward and efficient as possible; a UI-like 
system might be counterproductive in this respect. Second, an insurance 
system, almost by definition, leads to cross-subsidization. In this 
case, schools with a small number of dollars defaulted would 
effectively subsidize those schools with a high number of defaults. 
There are positives and negatives to this sort of subsidization. On one 
hand, it would dampen the incentive effect of risk-sharing at the 
schools that are performing very well in terms of their default rates. 
On the positive side, it could ensure that risk-sharing penalties are 
not so severe as to cripple an institution's finances following a 
particularly bad year (of course this could also be accomplished by 
putting a cap on the penalty). Regardless, cross-subsidization is 
something that the committee should keep in mind when deciding how to 
implement risk-sharing proposal.
    It should also be noted that another potentially negative 
unintended consequence of risk-sharing is that institutions could 
effectively credit rate their students applications, and refuse to 
admit those students who are most likely to default. A common 
refutation of this concern is that ``if the students are likely to 
default, then they obviously didn't benefit from the education, and 
shouldn't have gone in the first place.'' While it is certainly true 
that some individuals are best served not spending considerable time 
and money getting advanced degrees, the possibility that schools could 
discriminate in the admissions process is still something society has 
an interest in protecting against. Fortunately, the risk-sharing 
program I am advocating for is unlikely to substantially incentivize 
this behavior as long as the penalty is not set too high (I would 
recommend no higher than 50 percent). The reason is that there are 
typically not binding enrollment constraints at the type of 
universities which are most impacted by risk-sharing (high default 
rate, high borrowing, and high tuition). In the absence of a binding 
enrollment constraint, a school will not turn down an applicant for 
financial reasons as long as it is still profitable on average to admit 
that applicant (even if he or she does indeed default). In other words, 
the tuition must be greater than the sum of the cost of educating the 
student and the expected risk-sharing penalty. This is the case at more 
than 95 percent of institutions based on the findings from my paper.
    There are similar calls for risk-sharing in the Pell Grant system. 
Since Pell Grants cannot be defaulted upon, this might involve 
comparing the labor market outcomes of Pell recipients against some 
benchmark. While I am strongly in favor of implementing risk-sharing in 
the student loan market, I am much more apprehensive about its 
application to the Pell system. The students receiving Pell Grants are 
among the most vulnerable to discrimination, and their success in 
higher education is arguably more beneficial to society as a whole than 
any other group. For these reasons I would only support a risk-sharing 
program applied to Pell Grants if it also contained substantial 
protections for this vulnerable student population.
    To summarize my testimony, a risk-sharing policy which imposes a 
financial penalty on institutions based on the number of dollars 
defaulted upon will provide powerful financial incentives for all 
institutions to improve the labor market outcomes of their students, 
while specifically targeting the institutions which are most 
responsible for our national growing student debt burden. The most 
effective and efficient risk-sharing policy would be coupled with 
reforms aimed at accreditation and consumer information to reduce the 
risk of unintended adverse consequences for students.
                               References
    1. Cohn, Elchanan, Sherrie LW Rhine, and Maria C. Santos. 
``Institutions of higher education as multi-product firms: Economies of 
scale and scope.'' The Review of Economics and Statistics (1989): 284-
90.
    2. Johnson, Nate, Leonard Reidy, Mike Droll, and R. E. LeMon. 
``Program Requirements for Associate's and Bachelor's Degrees: A 
National Survey.'' (2012).
    3. Long, Bridget Terry. ``How have college decisions changed over 
time? An application of the conditional logistic choice model.'' 
Journal of Econometrics 121.1 (2004): 271-96.
    4. Webber, Douglas A. ``The lifetime earnings premia of different 
majors: Correcting for selection based on cognitive, noncognitive, and 
unobserved factors.'' Labour Economics 28 (2014): 14-23.
    5. Webber, Douglas A. ``Are College Costs Worth It? How Individual 
Ability, Major Choice, and Debt Affect Optimal Schooling Decisions.'' 
IZA Discussion Paper: 8767 (2015).
    6. Webber, Douglas A. ``Risk-Sharing and Student Loan Policy: 
Consequences for Students and Institutions'' IZA Discussion Paper: 8871 
(2015).

    The Chairman. Thank you very much, Dr. Webber.
    Thanks to all the witnesses.
    This is an important subject. It's one on which the 
committee is looking for answers, and for my way of thinking, 
it's one we're likely to very seriously consider incorporating.
    I also think it's one where we need to be careful because 
when we're talking about such large amounts of money and so 
many individuals, there are almost certain to be unintended 
consequences from whatever we do, so I'd like to do it 
carefully.
    Dr. Webber, for example, you talked about one unintended 
consequence which you found in your research paper might be 
that we might raise tuition. Another might be that we might 
find schools dropping out of the loan program. For example, 
Tennessee has 13 community colleges. Four do not participate, 
two are dropping out now. The tuition at Tennessee community 
colleges is now free. In California, Texas and Florida, it's 
basically free if you're low income because of the Pell Grant.
    Are we likely to see--would one effect of a risk-sharing 
program be to cause many of the 2,000 community colleges, for 
example, to drop out?
    Dr. Webber. That's absolutely a potential worry. While I 
haven't examined that specific outcome in my research, that is 
essentially the next step--calculating how likely it is based 
on the current financial situations of these schools that the 
cost would essentially push these institutions over the edge. 
While I don't have an answer on the----
    The Chairman. Well, we'd be interested in your next 
research.
    Dr. Webber. Absolutely.
    The Chairman. Mr. Silberman, let me ask you another 
question. One suggestion that several of us have made is that 
part-time students are entitled to the same amount of loan that 
a full-time student is. A low-income student might get a Pell 
Grant for up to $5,600, and then be entitled to a full loan. 
Should we make more of a difference between part-time and full-
time students in terms of the amount of aid that they're 
eligible to receive?
    Mr. Silberman. I would say yes, Senator. The basic premise 
is that we ought to give universities the opportunity to limit 
the amount of debt that students take on, and in circumstances 
where students are attending only part time and essentially 
don't need living expenses if they're full-time working and 
going to school part-time, then I think giving the universities 
the opportunity to limit that would be an excellent mechanism 
for trying to lower overall student debt.
    The Chairman. Is it your experience that the Federal law 
gets in the way of the ability of colleges and universities to 
provide as much counseling as they would like to? Is that 
correct? Do you find that a problem, or is it just that 
universities just aren't doing a very good job of providing 
counseling to students about how much borrowing they should do?
    Mr. Silberman. I'm not aware of ways in which the Federal 
law keeps us from doing the proper amount of counseling. I 
mean, I feel like at Strayer University we have an adequate 
counseling program and we're very focused on it, so I'm not 
aware of that, sir. Certainly to the degree that it would 
exist, then I would recommend that it be changed. I mean, 
giving universities the opportunity to counsel students on the 
impact of the loans they take on is an important part of 
getting them enrolled.
    The Chairman. Dr. Kelly, what do you think about the idea 
of giving individual campuses the opportunity to decide how 
much of a Federal student loan a student might be entitled to? 
Aren't there some risks with that? I mean, you might say that 
even in a great university, you might not want to loan as much 
to a drama major as an engineering graduate. You might do it by 
category, or you might even say that the risk-sharing doesn't 
cut in until you borrow more than the amount of tuition, say if 
you're at a community college and you already have a Pell 
Grant, and you even can get up to $5,600 for a $3,700 tuition 
and fee bill. Then you come back around and you say, ``well, 
I'm also entitled to a $5,000 or $6,000 loan.'' What is your 
thinking about that?
    Mr. Kelly. With any risk-sharing policy, it's absolutely 
critical to find a way to disaggregate the cost that 
institutions can control from those that they can't control. As 
you say, colleges don't have control over how much students 
borrow for living expenses.
    There are two options. One would be to apply whatever the 
risk-sharing formula is to a subset of the loan balance, the 
outstanding loan balance. That would sort of separate out the 
loans that went to tuition. Another option is to allow colleges 
to limit student borrowing.
    I would just say the Department of Education currently has 
an experimental sites project underway right now that is 
allowing some community colleges and, I believe, a couple of 
for-profits to limit borrowing. I would look there for examples 
as to whether this policy is working effectively.
    The Chairman. Thank you, Dr. Kelly.
    Senator Murray.
    Senator Murray. Thank you very much, Mr. Chairman.
    Thank you all for your testimony today.
    Ms. Wang, let me start with you. I believe that we need to 
work on ways to make college more affordable for all of our 
students and families. As we consider this concept of risk-
sharing, it's really critical that we keep in mind the 
importance of maintaining access and preserving affordability 
and rewarding institutions that are serving the most 
underrepresented communities in our country and setting up 
students for success.
    In your testimony, you recommend the creation of a risk-
sharing system that can actually lower the total cost of 
attendance at all institutions of higher education. Can you 
take a minute and elaborate more on the ways in which expanding 
current accountability measures could potentially make higher 
education more affordable?
    Ms. Wang. Sure. Currently we have a 90/10 rule. We believe 
that this committee could debate returning to an 85/15 rule to 
ensure further accountability, particularly at career education 
programs.
    I want to touch on the point that you mentioned on 
maintaining access, because we are first and foremost also 
interested in maintaining access and success. I believe that 
any risk-sharing proposal that the committee debates should 
take that into account by not only imposing a rule on 
institutions but also encouraging them to improve and create a 
well-targeted mechanism that actually incentivizes institutions 
to treat their lower-income students, their Pell students, and 
particularly their underrepresented students well and connect 
them with real careers. There are current rules we can 
strengthen, as well as new ideas.
    Senator Murray. OK, thank you.
    Dr. Webber, one of my top priorities as we work to 
reauthorize the Higher Education Act is going to be to reduce 
the crushing burden of student debt. We know that student loan 
debt has now hit historic highs. More than 40 million Federal 
and private student loan borrowers collectively owe more than 
$1.2 trillion. That's rather stunning.
    I wanted to ask, how do risk-sharing proposals like yours 
have the potential to reduce loan debt for the students?
    Dr. Webber. In terms of a risk-sharing policy like this, it 
would incentivize schools in whatever way is best for them that 
could reduce their own students' debt. For instance, in many 
schools there has been a large increase in the requirements for 
particular programs, the number of credits. The average 
community college program, while the norm is certainly 60 
credits, the average program now requires at least 65 to 66 
credits to receive an AA degree, and this even applies to 
general education. In many schools, it's above 70.
    Certainly some of these are due to accreditation 
requirements. Some of this is just because schools are 
potentially trying to push new classes. This both increases the 
time to a degree, and it also increases the student loan debt 
that students are taking on. It also reduces the likelihood 
that these students will eventually graduate.
    Furthermore, many of the programs described in the consumer 
information hearing would allow students and their parents to 
make more informed choices and would therefore lead to less 
debt taken on. Basically anything that incentivizes schools to 
find ways to help their students' future labor market outcomes.
    Senator Murray. OK, thank you.
    Mr. Silberman, Strayer University markets heavily to 
prospective students so you can maintain and grow your 
enrollment. In your testimony, you noted that many colleges and 
universities have an incentive to increase enrollments rapidly, 
and that carries with it some risk for students and 
institutions. Do you believe that Federal financial aid funds 
should be used to pay for advertising and marketing campaigns, 
and is that an appropriate use of Federal taxpayer dollars?
    Mr. Silberman. I'm not sure there's a way to actually 
distinguish. In other words, the revenue that comes into a 
university, whether it comes from however students are paying 
their tuition, it then is used by the university to run its 
programs. I would not characterize our expenditures on 
advertising as heavy, certainly relative to other universities 
around the country. It's not clear to me how you would 
differentiate or disaggregate dollars that are associated with 
title IV loans to students from other ways in which students 
pay.
    I do think that the amount of a university's expenditures 
on its instructional and educational costs is a relevant 
factor, and it's certainly one that we look at closely to make 
sure that we are achieving the learning outcomes for our 
students. Ultimately, that's what it should be measured on. If 
the students that you're enrolling are succeeding in their 
studies and ultimately are accruing the benefit of the 
investment they make in education through improvements in their 
lives, then the system is working. Then it's valuable. From 
that standpoint, I think that's the best way to measure it.
    Senator Murray. OK, thank you.
    Thank you, Mr. Chairman.
    The Chairman. Senator Cassidy has asked that we go next; 
and, Senator Whitehouse, you would be next.

                    Statement of Senator Whitehouse

    Senator Whitehouse. Thanks very much.
    First of all, Chairman, thank you for this hearing. This is 
a really important question of how you align the incentives 
between the folks who operate the higher education institutions 
and the folks who attend them to make sure that everybody is 
pulling in the same direction, toward student success. As I 
think Dr. Kelly opened up and said, there are not adequate 
incentives right now for institutions to promote student 
success.
    If you're going to align incentives toward student success, 
you have to have some kind of a definition of what student 
success looks like, and that has been a very challenging 
question for the Department of Education in its administrative 
efforts. Is there a way to make that an easier question, or is 
that necessarily just going to be a difficult question? What 
would be, in your view, the simplest benchmarks for that 
student success?
    We'll start with Dr. Kelly, Mr. Silberman, and go right 
across.
    Mr. Kelly. One of the benefits of a risk-sharing system 
that would judge institutional performance on the basis of 
whether students are able to pay back their loans is a basic 
baseline for student success. It's what the Federal Government 
as a lender should be interested in evaluating, frankly.
    There are lots of other definitions of student success that 
consumers will have. Some people want to make a lot of money in 
their career. Some people want to have a fulfilling career in 
public service, and different departments in different 
institutions will provide those things.
    What's critical in all of this is to have outcomes, student 
outcomes that are not necessarily within the institution's 
control, and by that I mean not just completion and not just 
assessments on the campus but actual labor market outcomes. Of 
course, institutions could print a bunch of diplomas and 
certificates that may not be worth much, so we need a validated 
third-party signal of success.
    Senator Whitehouse. Looking beyond just payment rates.
    Mr. Kelly. There's room to look beyond payment rates. The 
Federal Government's basic interest is in lending to programs 
that allow students to repay their loans. That's a baseline. 
That consumers are going to have different definitions of 
success beyond that.
    Senator Whitehouse. Mr. Silberman.
    Mr. Silberman. I would agree with Dr. Kelly. When running 
an educational institution, the first measure of success that 
we look at is our students' achievement learning outcomes and 
are they progressing toward the fulfillment of their degrees, 
and then graduating.
    The degrees that we offer tend to be more commercially 
focused--business administration, finance, accounting, 
information technology--so those tend to lend themselves to 
success in the marketplace after they've received their 
degrees. There is no reason why universities can't offer 
degrees that are of more esoteric interest and purposes.
    Ultimately, the Federal Government's interest is as a 
lender, and so the repayment of the loans that are issued to 
students to pay for their tuition is an important metric of 
success. I've always felt that way.
    Senator Whitehouse. I've just got a minute left, so let me 
actually interrupt and ask the second question I wanted to get 
to since it's you, you're the person I wanted to ask.
    Very often, what we hear from the higher ed community, 
particularly the for-profit higher ed community, is, hey, if 
you ask us to share the risk of student performance, then what 
we're going to do is we're going to limit ourselves to low-risk 
students, the ones who are most likely to perform, and that's 
going to limit the access of folks who we perceive to be 
higher-risk students, and that's not good for particularly 
first-generation college attenders and so forth.
    How do you react to that theory?
    Mr. Silberman. Well, you haven't heard that from us, 
Senator.
    Senator Whitehouse. Good.
    Mr. Silberman. We have better learning outcomes than most 
public institutions, and 40 percent of our students are Pell 
eligible, 40 percent of the overall students, 60 percent of our 
undergraduate students. We've always, for over 100 years, 
served an under-served, under-privileged, working-adult student 
who needs to go back to school. There's no reason why you can't 
achieve solid learning outcomes and ultimately have your 
graduates perform well in the marketplace and be held 
accountable for those standards.
    It's true to say, as you've heard from other panelists 
here, that there is a tradeoff between concepts of risk-sharing 
and access. Institutions will not be able to uniformly just 
deal with the idea that we're held accountable at a level and 
that individual tradeoffs that are made every single day are 
going to err toward more responsibility toward students.
    Ultimately what we should be looking for is that students 
who are enrolled in universities have an adequate chance of 
succeeding, they're adequately prepared, and that they're in 
college for the right reasons, and that therefore gives them a 
chance to succeed. Not every student will succeed. If the 
institution has any academic standards, you're going to have 
some academic failures. That's the nature of it. It's a bit of 
a tradeoff, but there's no reason why the tradeoff can't be 
made.
    Senator Whitehouse. Thank you very much.
    My time has expired. Again, thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Whitehouse.
    Senator Warren.

                      Statement of Senator Warren

    Senator Warren. Thank you, Mr. Chairman.
    Right now, colleges that offer a high-quality education and 
colleges that offer a low-quality education have essentially 
the same access to Federal loan money, and this easy access to 
student loan dollars give colleges far less incentive to 
contain costs, far less incentive to improve educational 
quality, and far less incentive to discourage students from 
taking on too much debt.
    We also have seen some recent reports that some for-profit 
colleges that serve veterans, students who are the first in 
their family to attend college, are even willing to commit 
outright fraud in order to get access to Federal loan dollars.
    One important part of the solution is to give colleges some 
skin in the game on student loan repayment. As Senator Reed 
testified, he and Senator Durbin and I have been working on a 
bill on this for a long time, a risk-sharing bill, and I'm very 
pleased that the Chairman is considering whether or not we 
should do risk-sharing as we do the Higher Education Act.
    What I want to think about, though, is what the tradeoffs 
are in the Act when we do that. Dr. Webber, I've looked at your 
work about modeling out the impact of risk-sharing, and you've 
made it clear that you believe it could reduce student default 
rates, student loan default rates. I know that you also support 
risk-sharing, Dr. Kelly, and you point out that this kind of 
proposal could replace some existing regulations.
    In principle, I agree. Smarter, simpler rules that align 
market incentives are better than complex technocratic rules 
that don't change incentives, but it's critical we get the 
details right. This is where my question focuses.
    Dr. Webber, when you considered the impact of risk-sharing, 
did you assume that the current Higher Ed regulations would 
remain in place?
    Dr. Webber. I did.
    Senator Warren. Did your research reach any conclusions on 
whether implementing risk-sharing would make other Federal 
regulations unnecessary?
    Dr. Webber. No. That was--the nature of the research was 
because I was trying to evaluate a hypothetical. I can really 
only handle one hypothetical at a time.
    Senator Warren. Fair enough, fair enough. Good to move only 
one variable at a time. OK.
    Dr. Kelly has argued that instituting risk-sharing on 
student loan repayment, the Federal Government might be able to 
do away with certain key accountability measures, as Ms. Wang 
discussed, like cohort default rates, the 90/10 rule, and the 
gainful employment regulation. I just want to think about what 
we know about the impact of those Higher Ed regulations.
    Dr. Webber, you noted in your research that when strict 
default standards were put in place back in 1991, that cohort 
default rates dropped 33 percent in a single year. Would you be 
concerned about rolling back a measure that had such a 
substantial and positive impact?
    Dr. Webber. Well, first I would say that also happened to 
take place during an economic recovery.
    Senator Warren. Fair enough.
    Dr. Webber. There was some tinkering.
    I would certainly be concerned. However, I feel that, as 
Dr. Kelly had mentioned before, the access to title IV funding 
is a very blunt measure that only incentivizes a very specific 
type of institution that is above the 30 percent threshold. It 
does absolutely nothing for those under it. We could actually 
even keep the existing regulation and just add incentives for 
those under the threshold.
    Senator Warren. All right. That's a very helpful point. 
Thank you, Dr. Webber.
    I just want to be clear on this. Simple, structural rules 
to help this market work better is something that both 
Democrats and Republicans should support. Before we even 
consider eliminating any of the rules that have actually helped 
stem the rising tide of defaults, we should be certain that we 
are putting in place a stronger system that will help students. 
There may be a path here, but we want to be very careful that 
we are not making things worse.
    Thank you, Mr. Chairman.
    The Chairman. Thanks, Senator Warren.
    Senator Cassidy is in an overwhelming bipartisan mood this 
morning.
    [Laughter.]
    The Chairman. We now go to Senator Franken.

                      Statement of Senator Franken

    Senator Franken. He's doing something that's exemplary, 
which is he's in listening mode. He got here because we're all 
busy, and he got after a lot of the testimony, et cetera, and I 
admire that. You're in a listening mode, and that's clear, and 
we should all learn from the Senator.
    Mr. Silberman, Senator Harkin was very critical of for-
profits, and you read a quote from him about Strayer that was 
very complimentary, so clearly you're doing something right. 
According to a 2009 HELP Committee report, I just want to go 
through some of the spending on how Strayer spent money.
    Per student, $2,448 on marketing in 2009. You made $4,520 
per student on profit and spent $1,329 per student on 
instruction.
    As I said, Chairman Harkin said nice things about this 
school, so you got good results. I want to just put these 
numbers in perspective, $1,329 per student on instruction. The 
University of Minnesota spends $13,247 per student on 
instruction, about 10 times as much.
    This seems to be a pattern. Does the spending, does that 
reflect most for-profit schools? I just want to emphasize again 
that you quoted Senator Harkin saying good things about you.
    Mr. Silberman. Right. Senator, you have me at a bit of a 
disadvantage since I don't see what you're quoting from, but I 
can tell you that----
    Senator Franken. It's a 2009----
    Mr. Silberman. If you'd let me finish, Senator. We spent 
significantly more than $1,300 per year per student on 
instruction. Fifty-five percent of our expense is in 
instructional educational costs. Off the top of my head, our 
expense over the previous year is about $350 million, which 
means that we're spending close to $180 million per student in 
instructional cost, and we have about 40,000 students. That's 
well more than $1,300.
    I don't have that report. I'm glad to take a look at it and 
correct it.
    Senator Franken. OK.
    Mr. Silberman. The last point I would make, though----
    Senator Franken. I don't have much time, so I just want to 
develop this. You may dispute these numbers. This is in a 2009 
HELP Committee report.
    There is a pattern in for-profit schools of spending a lot 
more on marketing than public universities, of course, and 
colleges, and also private but not for-profit schools, non-
profit. The claim is that, from for-profit schools, there's a 
high default rate because they have a non-traditional sort of 
student, and I understand that. That kind of cuts both ways, 
because when these schools tend to spend so much on marketing 
on non-traditional students, that means their parents didn't go 
to college and there may be a lack of sophistication, that 
these students may be more susceptible to marketing, seeing a 
30-second commercial which looks like non-traditional kids, you 
get a great education and do great in your career.
    The schools will have incredible default rates. I'm not 
talking about your school now, but this happens all the time in 
the for-profits. This cost-sharing is a very, very good idea.
    There's another area that for-profits--and, Ms. Lang, you 
talked a little bit about going to an 85/15. One of the things 
about the 90/10 rule that has gotten a little cockeyed is using 
the GI bill money toward the 10 percent. We've heard some 
horror stories about veterans who are targeted, including Holly 
Petraeus telling me about someone with TBI recruited out of a 
hospital, a veterans hospital to a school.
    What do you think about the idea of not having that go to 
the 10 but have that go to the 90, the GI bill money?
    Ms. Wang. We hear from veterans all the time about this 
instance. In fact, the story that I shared about Mike DiGiacomo 
owing $85,000 as a veteran because he went to a school that 
didn't prepare him, unknowingly went to a school that wouldn't 
prepare him. There is certainly room for more accountability 
with the 90/10 rule.
    Senator Franken. OK.
    Well, my time is up. Thank you.
    The Chairman. Thank you, Senator Franken.
    Senator Cassidy.
    Senator Cassidy. I'll go once more.
    The Chairman. That's all right.
    Senator Casey.
    Senator Casey. Mr. Chairman, thank you for having the 
hearing, and I want to thank our witnesses, especially Dr. 
Webber, because you're from Temple. We also appreciate the work 
that you've done.
    To prove that we even read footnotes around here, I want to 
direct your attention to a footnote that involves Temple. Your 
testimony in Footnote 12 says,

          ``Temple University President Neil Theobald 
        introduced an innovative program entitled `Fly in 4' 
        which provides grants to students in exchange for 
        meeting regular progress to degree benchmarks and have 
        promised not to work more than 10 hours per week during 
        enrollment.''

    Can you talk a little bit more about that program?
    Dr. Webber. Sure, absolutely. Certainly there are many 
universities around the country which are rightly concerned 
with the time it takes to get a degree, as this is one of the 
key factors in the student loan debt. However, one of the 
really innovative parts of this program is that it 
incentivizes--it asks students to commit to not working more 
than 10 hours per week, which is important because research has 
found that for students who work effectively more than 10 hours 
per week, their likelihood of eventually graduating decreases 
substantially.
    Combining this with meeting every single semester, meeting 
benchmarks toward progress to a major, combined with additional 
grants to the student which reduces their student loans, it's 
potentially--now, these students who are in the Fly in 4 
program have just been--they're only 1 year into it, so it's 
hard to evaluate the long-term effects, but it has the 
potential to be hopefully a model program for a lot of other 
universities.
    Senator Casey. I asked you, but I would also open it up to 
the panel. How can we do a better job of incentivizing colleges 
and universities to invest in similar programs like Fly in 4? 
Do you have any sense of that in terms of incentives?
    Dr. Webber. In general, because there are so many different 
mechanisms through which students' loan debt could be reduced, 
the incentive system like the one proposed today would allow 
schools to make the right choice for them, that for some 
schools time-to-degree is a problem. For others it might be the 
actual graduation rate. For others it might be tuition rates. A 
general system such as the risk-sharing penalties we described 
would let schools make their own choice as to what is best for 
them.
    Senator Casey. Ms. Wang.
    Ms. Wang. I agree. There's also some innovation that this 
committee could consider around how we can best incentivize 
institutions to not just enroll more Pell students and 
underrepresented students and first-time college students but 
also to help them succeed while they're in school and prepare 
them adequately or very well to compete in the marketplace.
    One idea is to reward institutions that are doing the best 
job of preparing, graduating, and putting forward students into 
the economy that are going to compete well in the workforce, 
with particular attention paid to Pell students and 
underrepresented students. We know that these students succeed, 
and the research shows that students, even though they might be 
low income, even though they might be Pell students, if the 
institution has the best practices, those students absolutely 
succeed. That's where the research is, and it's not about 
student characteristics. It's about good practices at the 
institution.
    Senator Casey. Thank you.
    Mr. Silberman and Dr. Kelly, we've got 32 seconds.
    Mr. Kelly. I would say that a risk-sharing system is 
designed precisely to incentivize this kind of behavior, and we 
are learning a lot from researchers and institutions that are 
innovating on their own campuses about what it takes to prepare 
students, even the most at-risk students and the students that 
are typically the hardest to educate.
    The City University of New York just launched a really 
impressive experiment that has doubled graduation rates for 
developmental education community college students. So we're 
learning more. We need incentives for people to adopt promising 
practices.
    Mr. Silberman. I would just very briefly say that the use 
of innovation is key to everything that we do. As Senator 
Franken said, we're generally teaching non-traditional 
students, students who come with less academic background. Both 
the use of teaching methodologies and technology is crucial to 
us achieving our mission, and we live that every day.
    Senator Casey. Thanks very much.
    The Chairman. Next is either Senator Baldwin or Senator 
Cassidy.
    [Laughter.]

                      Statement of Senator Cassidy

    Senator Cassidy. Thank you, Senator Franken, for your 
gracious comments. I want to thank my colleagues because you 
all thought deeply about this, and so I have been listening, 
and I've learned. Thank you.
    Dr. Kelly, I could ask this of anyone, but I'll start with 
you. I spoke once to a university president, and he said 
actually kids will enroll, go to a week's worth of classes, get 
their Pell Grants, and never show up to classes again. He's a 
university president. Is there a frequency distribution of 
dropouts?
    Mr. Silberman, in the first 3 weeks you have some sort of 
process.
    Is there a frequency distribution where, my gosh, we've got 
20 percent of the people dropping out within a month, but then 
it tails off? Or is it uniform? Do you follow what I'm saying? 
How much of this--is the student, really, the problem? I'm just 
asking.
    Mr. Kelly. I would defer to my colleague here to speak 
about his own institution's pattern. My sense is that, yes, 
most dropouts take place early on in a student's career.
    Senator Cassidy. ``Early on'' means either in the first 
year, in which case perhaps the child is not well-prepared in 
basic math, or it could be in the first 3 weeks, because the 
word on the street is that you can sign up for classes, get a 
Pell Grant and, boom, buy a car, but never show up to classes 
again.
    Mr. Kelly. With existing Federal data, it's difficult to 
know at what point in time the actual dropout is taking place. 
I will say this is partly, to tack onto my colleague, part of 
what we need to figure out is how to give people access to very 
low cost and very low risk, maybe even trial periods, to see 
whether this is right for them. They can avoid debt that way.
    Senator Cassidy. I get that totally. That assumes good will 
on the part of the student.
    Mr. Kelly. Sure.
    Senator Cassidy. Again, I don't know if there is bad will. 
Because I was told this anecdotally by a person who cares about 
it deeply, it comes to mind.
    Mr. Silberman, do you have any thoughts on that?
    Mr. Silberman. Particularly when you run what aspires to be 
an open-access university, where you're really just trying to 
make sure there's adequate preparation but you're not accepting 
or crafting a student body around exclusivity, you run into the 
risk that certain students or prospective students are not 
serious students. That's what our enrollment and admissions 
process is designed to ferret out--to establish the seriousness 
of the student.
    Senator Cassidy. Let me ask, you put in that 3-week trial 
period and you have a controlled experiment. You have before 
the 3-week trial period, and you have an after the 3-week trial 
period. Can you give us any insight as to your default rate as 
you went to your 3-week trial period?
    Mr. Silberman. We actually don't have a 3-week trial 
period, and the reason that we don't, Senator, is that our view 
is that our admissions process is rigorous enough that by the 
time we enroll the student, we're convinced that the student is 
capable and serious about succeeding.
    The trial period in some cases is a replication or a 
replacement for a more rigorous admissions process.
    Senator Cassidy. Got you. Let me ask, so you found that, 
and I don't mean to be rude, we just have limited time. You 
mentioned that the basic math and poor English language skills, 
I gather you've done some sort of analysis and these are the 
two variables that pop out.
    Mr. Silberman. Correct.
    Senator Cassidy. Are those remediable, or should every 
institution be looking at that same thing? And if this is the 
risk factor, then that person should go into some sort of 
remediation before being allowed to matriculate into the 
broader curriculum?
    Mr. Silberman. Well, it's even more severe for our students 
because they're actually 35 years old and they've been out of 
high school for 15 to 20 years.
    Senator Cassidy. You say that, and that's intuitive, but do 
you actually have data to show that if the child or the person 
enrolls right out of high school, they would do better than 
someone 35?
    Mr. Silberman. Well, on average, yes.
    Senator Cassidy. I just say that because if you have poor 
math skills and language skills, it may suggest that you 
weren't a very good high school student.
    Mr. Silberman. In our case, we have to establish that 
through a high school transcript to make sure that they have a 
valid high school degree. In general, skills in math and 
English do deteriorate for the number of years that you're 
outside the classroom. The benefit that we have is that our 
students tend to be more mature, obviously, and more serious. 
We're dealing with an easier student to teach.
    The answer to your first question is yes. Our statistical 
analysis going back 15 years shows that the single most likely 
predicate or the most reasonable predicate to academic success 
is math and English skills, and in our case if a student 
doesn't establish that, either through an SAT score or 
transferring college-level credit, we require them to take a 
remedial course before they can enroll in college-level work.
    Senator Cassidy. Mr. Webber, this is not something you've 
done research on, but I would just be interested in your 
thoughts, or anyone's thoughts. Perhaps a university could be 
less at risk if they put in a best practices, and that might be 
a remediation for math or English. You mentioned in your 
research, the footnotes of 14 through 16, about how best 
practices have been shown. Ma'am, you also showed this.
    Thoughts about saying, ``Listen, you're on the hook, but 
you're less on the hook if you can document you've done best 
practices.'' Would that be a reasonable approach?
    Mr. Silberman. Absolutely.
    Senator Cassidy. Any other thoughts on that? Is that 
practical, or is that something that likewise would be gamed 
for bureaucratic overreach?
    Mr. Silberman. I'm just going to say that the key attribute 
for me in terms of the success of a regulatory or legislative 
structure is its simplicity. To the degree that you keep it 
simple and it's easy to follow, then I think it has a very high 
chance of success, and I think best practices should be 
rewarded. In many cases, though, the best practices will just 
devolve into the academic outcomes and the financial outcomes 
in terms of the default rates.
    Senator Cassidy. I yield back, and thank you.
    The Chairman. Thank you, Senator Cassidy.
    Senator Baldwin.

                      Statement of Senator Baldwin

    Senator Baldwin. Thank you, Mr. Chairman. I want to thank 
you for convening today's hearing and this continuing set of 
conversations about reauthorization of the Higher Education 
Act. I certainly appreciate Senator Reed being here earlier to 
talk about his leadership on today's topic, and our panelists. 
Thank you all for being here.
    We've heard a lot about the need for colleges and 
universities to have skin in the game when it comes to student 
loan debt and default rates, with a focus on accountability 
metrics, and I wanted to take the opportunity to highlight a 
risk-sharing program that's been in place for many years, the 
Federal Perkins Loan program. In this campus-based loan 
program, participating schools share the risk by providing a 
one-third match to the Federal funding, and loans are made 
using funds repaid from previous borrowers, which encourages 
the institution to keep their default rates as low as possible.
    As a campus-based program, Perkins also allows institutions 
to target aid to those students most in need. In my home State 
of Wisconsin, the Perkins program provides more than 15,000 
students, those students having exceptional need, with more 
than $28 million in aid, and the default rate has been less 
than 8 percent.
    This program has been successfully helping students since 
1958 but will expire this September if Congress does not take 
action to continue it.
    I want to start with Ms. Wang and Dr. Webber, if you could 
speak to the importance of the Perkins Loan program both in 
helping low-income students and in providing a model of 
institutions engaging in risk-sharing. Are there ways we could 
build on this longstanding program?
    Ms. Wang.
    Ms. Wang. Absolutely. I want to echo your concern about the 
Perkins Loan expiring, and this committee should dedicate some 
time and think through how we can best continue loan programs 
that are there for students to maintain or even increase 
access. We have believed for some time that loans were created 
for low-income and in some cases middle-income families to be 
able to attend school. I have concerns about loan programs, 
cutting off access if they end, and I also have concerns about 
loan limits because we have heard from students that some of 
them don't have enough funds to complete, and we have heard in 
some instances that they drop out because they don't want to 
turn to private student loans. Absolutely, we need to maintain 
that access for students.
    Senator Baldwin. Dr. Webber.
    Dr. Webber. Since Ms. Wang has correctly mentioned the 
importance of the Perkins student loan, I'll just briefly 
mention from a risk-sharing standpoint.
    The broad structure of the Perkins Loan system absolutely 
could be used as a basis for risk-sharing. Personally, and I'm 
certainly not an expert on the Perkins Loan system, but it's my 
understanding that the actual bite in terms of the penalties 
for students who default, that you actually need to have a 
substantial number and dollar amount of defaults before there 
are penalties for the institution. I would certainly be in 
favor of strengthening those. Is it a viable method for 
implementing risk-sharing? Yes, I absolutely believe it is.
    Senator Baldwin. I only have a minute left and I wanted to 
turn to the question that Senator Franken was dealing with when 
he ran out of time. I guess it's going to happen again, but the 
discussion of the 90/10 rule and its exclusion of education 
support provided from the GI bill and the Department of Defense 
Tuition Assistance Program.
    Could you speak to the importance of properly accounting 
for all of our student financial aid dollars? Is there any 
reason why these Defense and GI bill dollars should remain 
outside of the current or some future iteration of the 90/10 
rule?
    I would again ask Dr. Webber and Ms. Wang for a response.
    Ms. Wang. Sure. Certainly, like I said before, There needs 
to be more accountability in this space, because we do hear 
about marketing practices and in some instances phone calls at 
all hours of the day when veterans are looking to go back to 
school. We know that some institutions do target veterans. Some 
institutions do target low-income students. Others we have 
heard target single mothers for their aid dollars. I agree that 
there needs to be more accountability in this space, 
absolutely.
    Dr. Webber. I'll defer to Ms. Wang since this is not an 
area of my research and I wouldn't want to speak about 
something that I'm not as informed on.
    Senator Murphy. That never stops us.
    [Laughter.]
    The Chairman. That's true.
    Senator Baldwin, thank you very much.
    Senator Murphy.

                      Statement of Senator Murphy

    Senator Murphy. Thank you very much, Mr. Chairman.
    I know at most of these hearings we thank the Chairman for 
having the hearing, but I mean it sincerely this time in that 
this is a really important idea or set of ideas that we're 
talking about, and the testimony was absolutely excellent.
    The Chairman. Thanks. We'll give Senator Murray some credit 
because this has the advantage of being a bipartisan idea, 
really, that we're heard. Thanks.
    Senator Murphy. I take the caution of adverse consequences 
seriously, but we always have to consider the adverse 
consequences of doing nothing. Dr. Kelly's own testimony speaks 
to the absurdity of the existing system when 1,300 colleges are 
graduating less than 30 percent of students, when 750 are 
graduating less than 20 percent. Doing nothing just isn't an 
option.
    Mr. Silberman, I credit you for being here and being 
progressive as compared to the rest of the for-profit community 
in your call for action. I wanted to press you a little bit 
more on some of the line of inquiry you got from Senator Murray 
and Senator Franken.
    There's just a fundamentally different structure of 
expenses at for-profit universities, and that's borne out by 
the data. In 2009, $3.2 billion was spent on instruction writ 
large across the industry, while $3.6 billion was spent on 
profit and $4.2 billion was spent on marketing. I don't think 
you would see that share in the private sector between 
instruction and marketing. The average president or CEO salary 
in the for-profit world is $7.3 million. The average salary in 
the not-for-profit world is $400,000.
    We wouldn't be as worried about that if the outcomes were 
similar, but basically every study looking at graduation rates 
or dropout rates suggest that they are twice that at the for-
profit university than they are at the not-for-profit 
university.
    It's kind of hard to ask you to answer for the sins of the 
industry, especially when you're here in part because you have 
been singled out as an institution that's doing better than the 
average.
    I guess I'm hearing your testimony to say that you 
shouldn't worry about the way in which for-profit universities 
spend money as long as you get the outcome measurements right, 
and I want to make sure that I'm hearing you correctly because 
when you're talking about universities that are essentially 
accepting 90 percent of their money from the U.S. taxpayers and 
then spending it in ways that are just mismatched with how not-
for-profit universities spend their money and getting much 
worse results, that is why you hear us saying wait a second, we 
should be having a conversation about how this money is spent, 
whether or not it makes sense for U.S. taxpayers to be spending 
money that leads to salaries in the $7 million range.
    I hear you to be saying, listen, just get the metrics right 
as to the results and don't worry about how the money is spent. 
I want to give you sort of a second crack at that answer 
because you're hearing a consistency of concern about how money 
is spent at the for-profit college level.
    Mr. Silberman. Well, Senator, to the degree that there are 
concerns, and there may indeed be legitimate concerns, I would 
certainly suggest that that same degree of concern should be 
applied across the not-for-profit sector. There are 
institutions that are--you have to understand that, for the 
most part, entities like Strayer University, as Senator Franken 
said, are serving non-traditional students. They're serving 
students for whom the opportunity to go to college wasn't 
routinely part of their planning or their decisionmaking 
process.
    There are other not-for-profit universities who address 
those same types of students in an open-access manner and 
indeed have much higher rates of growth, particularly over the 
last couple of years. I personally think that dictating the 
percentage of revenue that can be used in various expense sub-
categories is over-engineering and is unlikely to be 
successful. I would say that to the degree that you think it's 
necessary, it ought to apply to not-for-profit universities as 
well.
    Senator Murphy. Agreed. I appreciate that, and that's why 
we need to get the metrics of accountability right, because I 
agree that it's hard to do that kind of micro-managing.
    Very quickly, Dr. Kelly, you talked about making the 
marketplace work better. Would a unitary student record help 
the ability to track a student's performance income after 
graduation? Would that help try to make the market work better 
by giving better information to students?
    Mr. Kelly. This is an issue we've written about in our 
work. Informed consumers are critical to a functioning market, 
and it is our opinion in my work that a student record data 
system would provide information that we currently can't get 
otherwise, and I look forward to discussing that further.
    Senator Murphy. You concur, Dr. Webber?
    Thank you very much, Mr. Chairman.
    The Chairman. Thank you, Senator Murphy.
    Senator Bennet

                      Statement of Senator Bennet

    Senator Bennet. Thank you, Mr. Chairman. Thanks for holding 
the hearing, and thanks to the witnesses for being here.
    Sign me up for whatever we're going to do here to figure 
out how we're going to reform the student financial aid 
program. Even before we get to that, we have this incredible 
challenge of the cost of college. There are examples all over 
the country of places that have done a good job taking down 
cost. Colorado Mesa University in Grand Junction is one of 
those, and I know there are others as well. They are exceptions 
that belie the rule.
    When you look at the numbers, in the 1970s when you were 
going to college, the State covered roughly 75 percent of what 
college would cost, and you had to pick up the other 25 
percent. Somehow, you were going to figure it out, work study 
or other kinds of things. Pell Grants in 1976 covered 67 
percent of what it cost to go to the average college in the 
United States. That number today is 27 percent.
    I saw a new study out of Pew, I think it was, or the 
University of Pennsylvania recently that showed us that in 
2012, if you're in the bottom quartile of income earners in 
this country, the average cost of college after you've 
accounted for student aid cost is roughly 85 percent of your 
income, whereas if you're in the top quartile you're at 15 
percent.
    So for whatever reason, the level of your income that's 
required to pay for college--that's not a very eloquent way of 
saying it. The purchasing power that's needed to afford an 
average college today is dramatically higher than it was 30 
years ago or 40 years ago.
    What are the causes of that, and how can we approach 
financial aid at the Federal level, at the State level, at the 
local level, to incentivize costs to actually start to come 
down instead of continuing to rise? Because that is what's 
driving the fundamental burden that our students face, I would 
argue an incredible inequity, because if you are a family in 
poverty or a lower income family and you've got to consume 85 
percent of your income to get your kid through college, there's 
a reason they're not going to finish, whereas if you can only 
spend 15 percent of your income, you're going to be better off.
    I'm going to start with Dr. Kelly and just come down the 
panel.
    Mr. Kelly. Sure. I'll say two things quickly so my fellow 
panelists can get in, too.
    Two things, the risk-sharing system here would put some 
pressure on colleges to contain costs, because the more 
students have to pay and the more they have to borrow, the 
harder it will be for them to pay back their loans, and you'll 
be penalized for that. This will put pressure on colleges to 
both think about how they are pricing programs, but also think 
about innovations within the institution that will allow people 
to finish more quickly and so on.
    I do think we have to talk, though--and I know this is an 
issue you care deeply about--about the supply side constraints, 
namely we have a regulatory framework that regulates access to 
this market that is biased in favor of the bundled, expensive 
college model. It basically judges providers on the basis of 
how much they look like a college. We need to lower those 
supply side barriers and let in more low-cost competition. That 
would have the effect that you're looking for.
    Senator Bennet. Let me say, as we get into the Higher Ed 
reauthorization, that's something that I'd be interested in 
spending more time on.
    Mr. Silberman.
    Mr. Silberman. I fully agree, Senator, with Dr. Kelly. The 
key to lowering cost is innovation. We have tremendous 
opportunities in higher education now with technology and the 
use of online methodologies to achieve, indeed, higher learning 
outcomes at lower cost.
    I also agree that, actually, a risk-sharing mechanism and 
the overall management of the student loan system is a means of 
controlling cost because it's certainly been a means of 
inflating cost. Easy credit has led to higher tuition, it's as 
simple as that.
    Ms. Wang. I would say that I have a lot of concerns about 
the current pathway that States are on in disinvesting in 
higher education, because we know that the majority of students 
actually attend public institutions, and if you went to my 
college in the 1980s, it was extremely affordable. You could 
cover the cost working full-time over the summer and have money 
left over to spend, in addition to what it cost to go to 
college. That concept is laughable for my generation because 
the number of options out there for students and families that 
are affordable and high-quality are dwindling.
    Institutions must play a role in lowering the cost of 
college, and States have to play a role in boosting what 
they're investing in college, because it's the student and the 
family that ends up making up that cost difference.
    Dr. Webber. I could talk about the causes of the increase 
in tuition for more than an hour, which is negative 500 times 
what I have left. Let me just say that I'd be happy to follow 
up with you and talk about all of this, because there's a lot 
of nuance in terms of what has led to the substantial increases 
in the cost of higher education over the last 20 or 30 years 
that are important to understand.
    Senator Bennet. I'd look forward to having that 
conversation.
    I am out of time, but I would say in closing that one of 
the most depressing things I hear in my town halls is we can't 
afford to send our kid to the best college they got into. I 
mean, that is so contrary to the interests of our families and 
so contrary to the interests of the country.
    Mr. Chairman, I'd say also that part of this springs from 
the fact that we have a federalist system here that we've got 
to figure out. We have decisions to make at the State level, 
and we have decisions made here, and too often we don't look to 
see how those things are syncing up. Thank you.
    The Chairman. Thank you, Senator Bennet.
    Well, thanks to Senator Baldwin and Senator Bennet--and to 
all who have been here--we've had great participation--and to 
the witnesses.
    You can see that there's a lot of interest here in this 
subject, and that it's a bipartisan interest. We've had some 
really good success with our elementary and secondary education 
act in operating that way.
    As one of the Democratic Senators said, sometimes if you 
get the incentives right, the regulations aren't as necessary, 
although Senator Warren did point out we shouldn't just rip out 
the regulations without thinking about it.
    Although on the other hand, we've had a distinguished group 
of higher education officials come in and tell us, in response 
to something Senators Bennet, I and Mikulski and Burr asked 
for, that higher education today is a jungle of red tape.
    One of my objectives in this reauthorization is to 
simplify--Mr. Silberman mentioned about simplicity in 
regulation--and make good adjustments.
    One of the things we do have to be careful about here is 
that if we adjust incentives, we're adjusting a very big 
incentive. We're shooting with a very big weapon here. I mean, 
the taxpayer spends $100 billion a year of new money every year 
on student loans. We make just a little bit of an adjustment 
here, it might make a massive adjustment among the 6,000 
institutions and the 22 million undergraduates every year, half 
of whom have a Federal grant or a loan to help pay for.
    That doesn't mean we shouldn't do it. We've heard 
discussion about making it easier for campuses to do better 
counseling. There are some Federal laws and regulations that 
get in the way of that. We've heard about making a difference 
between what part-time students and full-time students can 
borrow. We're talking here about the risk-sharing as a way not 
just to reduce and discourage over-borrowing but generally 
giving campuses an incentive to reduce their expenses, and in 
that way help reduce the amount of borrowing a student would 
need to do.
    An example of what incentives can do, is the example at the 
University of Tennessee-Knoxville, which is a very simple one, 
where the State has said we want to see more students graduate 
in 4 years, and that campus has said our way of doing that is 
to say you can take fewer than 15 hours if you want to, but 
you're going to pay for 15 hours. More students are taking 15 
hours.
    There may be a lesson for us, because the State put a broad 
goal. It allowed the campuses to respond to the incentive, 
which was the State will deliver more money based upon what the 
graduation rate is. Each campus came up with its own way. When 
they adjusted their incentives a little bit, the students paid 
a lot of attention.
    I would like to ask the witnesses, after hearing what we 
said today, and seeing the level of interest of the Senators, 
if you would like to respond to us, even if it's a short 
statement, that says upon hearing what you said, here are the 
three or four things I would do in order about risk-sharing. I 
would certainly do this, I would probably do this, I would 
think about this and maybe do this. That would be helpful to us 
because you're the experts about that.
    There's a possibility that when we get into risk-sharing, 
we may conclude that there might be multiple options for 
different kinds of institutions, and we have to think about the 
one option that some institutions might take, which is not to 
participate in the loan program. That's very possible, 
particularly among community colleges.
    This has been a very, very helpful hearing. I would like to 
end where I started, and since I'm the only one here, I can 
just say whatever I want to.
    [Laughter.]
    It's nice to be the chairman every now and then.
    Sometimes we send the wrong message to students of all ages 
who want to go to college. As I said at the beginning, it's 
never easy to pay for college, but it's easier than many people 
say or think. I mean, half our college students, 
undergraduates, have a Federal grant or loan to help pay for 
college. Nine million receive a Pell Grant of up to $5,700. 
That makes community college free in California, Texas and 
Florida, three of our largest States, with money left over. 
It's free in Tennessee because of what the State is doing.
    You can afford to go to school because if you're low-
income, you can get up to $5,600 to pay for a tuition that 
averages $3,700, depending on your level of income. Then on top 
of that, you're entitled to a Federal loan to help you pay for 
other expenses. As has been said, 75 percent of our students go 
to public institutions, and at the 4-year institution the 
average tuition is $9,139.
    There are many things happening to make access to college 
affordable for students, and perhaps risk-sharing might be one 
more.
    The other thing I'd add, I hear it often said, isn't it 
terrible that student loans add up to $1.2 trillion. Maybe it 
is, maybe it isn't. Maybe that's good. Maybe that means we have 
lots of students going to lots of institutions and getting 
ready to improve their lives.
    The average student loan for a person with a 4-year 
undergraduate degree is $27,000. That's almost exactly the 
average of a car loan, an average car loan in the United 
States. The total amount of student debt is about $1.2 trillion 
in the United States. The total amount of auto debt for 
households is $955 billion. It's about the same, and I don't 
hear anybody running around saying we need to stop driving cars 
because auto debts are so high.
    With an auto loan, your car depreciates, and your college 
degree hopefully appreciates. At least that's the experience 
most of us have.
    If we can think of a careful way to adjust this $100 
billion that we spend every year in a way that causes our 6,000 
institutions, at least those that participate in the Federal 
student loan program, to do a better job of discouraging over-
borrowing, reducing their costs, and thereby making it 
unnecessary for students to borrow so much, that could be a 
very important part of our reauthorization of the Higher 
Education Act, and your contributions today have been very, 
very helpful.
    The hearing record will remain open for 10 days to submit 
additional comments and any questions for the record that 
Senators might have.
    The next hearing of this committee on the reauthorization 
of the Higher Education Act will occur on Wednesday, June 3, at 
10 a.m., in Dirksen 430.
    Thank you for being here. The committee will stand 
adjourned.
    [Additional Materials follows.]

                          ADDITIONAL MATERIAL

                           Strayer Education, Inc.,
                                         Herndon, VA 20171,
                                                      June 9, 2015.
Hon. Lamar Alexander, Chairman,
Committee on Health, Education, Labor, and Pensions,
U.S. Senate,
428 Dirksen Senate Office Building,
Washington, DC 20510.

Hon. Patty Murray, Ranking Member,
Committee on Health, Education, Labor, and Pensions,
U.S. Senate,
428 Dirksen Senate Office Building,
Washington, DC 20510.

    Dear Chairman Alexander and Ranking Member Murray: Thank you again 
for inviting me to testify at the committee's May 20, 2015 hearing on 
Reauthorizing the Higher Education Act. I am writing today to correct a 
statement made by Senator Al Franken at the hearing, specifically that 
in 2009 Strayer University ``spent $1,329 per student on instruction.'' 
In fact, in 2009 Strayer University spent $6,862 per student on 
instruction or educational activities. I respectfully request that this 
response be included in the hearing record.
    I believe Senator Franken's confusion may have resulted from then-
Chairman Tom Harkin's July 30, 2012 report, For Profit Higher 
Education: The Failure to Safeguard the Federal Investment and Ensure 
Student Success (hereinafter, ``Report''). The Report stated that in 
fiscal year 2009, Strayer spent $1,329 per student on instruction. See 
Report at 725. However, that Report erroneously relied on a restrictive 
definition of what constitutes spending on ``instruction''--relying 
only on one category of data reported to the Department of Education's 
Integrated Postsecondary Education Data System (``IPEDS''). See id. at 
725 n.2713. According to IPEDS, Strayer spent $50,657,281 on such 
``instruction'' in 2009. See id. App'x 21.
    IPEDS also reports institutions' spending on ``academic support,'' 
which includes ``support services that are an integral part of the 
institution's primary mission of instruction.'' See Glossary, 
Integrated Postsecondary Educ. Data Sys., Nat'l Ctr. for Educ. 
Statistics, http://nces.ed.gov/ipeds/glossary/. By relying on the 
``instruction'' figure alone, the Report captured only a portion of 
Strayer's spending on student instruction. For instance, the 
``instruction'' category excludes spending on academic administration 
(e.g., academic deans) and also certain information technology expenses 
related to instruction. See id. Those expenses are housed, instead, 
under ``academic support.'' Id.
    As outlined in our SEC filings, Strayer University spent 
$218,551,000 on instruction and education in fiscal year 2009, and an 
additional $43,072,000 on educational administration. This 
$261,623,000, when divided by the 38,128 students Strayer University 
educated in 2009, results in $6,862 spent per student on instruction, 
well above the $1,329 quoted by Senator Franken. In addition, as 
opposed to non-profit universities, which rely on government funding 
and tax subsidies, Strayer University also paid $1,800 per student in 
Federal and State taxes in 2009.
    Strayer has been committed to devoting significant resources to 
educating its diverse student body throughout its 123-year history and 
will continue to do so in future years. As the Report itself 
recognized, Strayer's performance ``is one of the best of any company 
examined, and it appears that students are faring well at this degree-
based for-profit college.'' Report at 713.
    Thank you for the opportunity to share these thoughts. I look 
forward to the opportunity to continue working with the committee.
            Very truly yours,
                                       Robert S. Silberman,
                                                Executive Chairman.
    Response to Questions of Senator Murkowski by Andrew P. Kelly, 
                           A.B., M.A., Ph.D.
    Question 1. During the recent recession, and even now, many recent 
graduates have been unable to find jobs simply because employers in 
their fields were/are not hiring. Many Americans who were repaying 
their loans prior to the recession lost their jobs and their ability to 
repay. Should a college be held responsible for borrowers who were 
well-educated in fields that normally would have high demand during a 
recession?
    Answer 1. Ensuring that colleges are held accountable for outcomes 
they plausibly have some control over is critical to the success of any 
risk-sharing system. Outcomes for individuals who graduate in the midst 
of a recession are likely to reflect, in part, economic trends that 
colleges have little control over. Therefore, a risk-sharing system 
should adjust for economic fluctuations. One way to accomplish this is 
to condition the risk-sharing formula on the national unemployment rate 
for young workers. For instance, the formula could exempt a particular 
portion of unpaid loan debt as follows: multiply the cohort's loan 
balance by the national unemployment rate, and then force colleges to 
pay penalties on the unpaid balance above that amount. Under such a 
scenario, the higher the unemployment rate, the greater the exemption, 
thereby shielding colleges from a soft economy.

    Question 2. Some proposals have suggested that colleges be 
penalized for offering majors in low-demand fields. Who would decide 
what a low-demand field is? Would such a determination be made on a 
regional, statewide, or national basis? Would such a policy make it 
difficult or impossible for a college to offer a degree in, for 
example, Alaska Native Studies, Inupiaq, or Tribal Justice--majors 
offered by the University of Alaska Fairbanks that are important to 
many Alaskans? What about Museum Studies, which is a valuable and 
respected field but may not pay as much as, for example, engineering? 
Should the Federal Government have the authority to put pressure on a 
university's decision about what majors best serve the needs and 
interests of the regions and students they serve?
    Answer 2. The beauty of a risk-sharing system is that it does not 
micromanage colleges with rules from Washington. Instead, it sets up an 
outcomes-based system that frees colleges to reach the outcomes in the 
way they see fit. When it comes to low-return majors, colleges will 
likely have a decision to make: lower the tuition that students have to 
pay to access that major (and therefore lowering the amount they have 
to borrow that they may not be able to pay back) or modify or eliminate 
the program. The key insight here is that we ought not to lend large 
sums of money to pay for programs that are unlikely to allow graduates 
to pay back their loans; doing so sets graduates (and, more so, drop-
outs) up for financial hardship. To the extent there are majors that 
are low-return but critical to society--perhaps the majors listed in 
the question--then we should subsidize those programs directly, not 
lend money to finance them. A risk-sharing system would encourage 
colleges to think carefully about what programs they offer and at what 
price.

    Question 3. Alaska is one State that is fortunate to have a Tribal 
College and University--Ilisagvik College located in Barrow up on the 
North Slope. Ilisagvik, like many TCUs, does not participate in Federal 
student aid programs. As these institutions expand from 2-year colleges 
that primarily offer certificates and associate degrees to 4-year 
colleges, participation in title IV student aid programs becomes more 
attractive. At the same time, TCUs generally offer open enrollment and 
attract students who too often were not well-prepared for college by 
low performing BIE and public schools. In addition, many TCUs offer 
programs of study related to local priorities, such as Native language 
revitalization and tribal governance that may not lead to high-paying 
jobs--especially in regions where there is little economic activity. My 
question is this: given these facts, how could the risk sharing 
proposals outlined here today avoid negative consequences for TCUs and 
the student populations they serve?
    Answer 3. Student aid programs should adhere to a ``do no harm'' 
policy--a basic commitment to protecting students from incurring debts 
they likely won't be able to repay. To the extent that Tribal Colleges 
are publicly valuable--and there are many reasons to believe that they 
are--then we should subsidize them directly (as we do already) and/or 
implement a bonus system that rewards colleges for graduating at-risk 
students.
    To be clear, lending money for programs that do not provide 
sufficient return to pay the money back is not helping students, it is 
harming many of them, threatening their credit and financial future. 
Concerns about access are legitimate, but we should use subsidies--not 
loans--to ensure that programs that are publicly and socially valuable 
but less so economically are able to provide public value.

    Question 4. The purpose of this hearing is to examine whether or 
not institutional risk sharing will bring down the loan default rates 
and increase graduation rates. Several witnesses have suggested basing 
an IHE's ``skin in the game'' to cohort default rates. Much of the 
student loan default rate is due to students who are unable, for one 
reason or the other, to finish their degrees. Perhaps they were not 
well-prepared for college, or they cannot afford to pay the difference 
between the financial aid and the cost of attendance, or some other 
reason but they drop out owing a debt they are not able to repay 
because they have not gained the skills that lead to a higher paying 
job. The crux of the student loan default problem seems, then, to lie 
with IHEs' inability to assist more students to graduate. Would it not 
be preferable--instead of limiting enrollment to those students who are 
likely to graduate or punishing IHEs for low graduation rates--to 
provide incentives for colleges to increase their graduation rates? 
Also, would it not be preferable to base institutional risk sharing on 
the graduation rates of at-risk students, rather than on cohort default 
rates?
    Answer 4. Senator Murkowski is exactly right: research suggests 
that the most important predictor of default is whether a student 
finishes their degree. In many respects, the student debt crisis is 
concentrated among borrowers who take on modest amounts of debt but 
fail to finish a degree. Ensuring that colleges have incentive to 
promote student success is crucial, and I share the Senator's sense 
that the struggles of student borrowers are often caused by the failure 
to complete.
    A risk-sharing system boasts two strengths in this regard: it would 
hold colleges accountable for outcomes that occur after students have 
left school, and it frees them to bear the risk as they see fit. On the 
first strength, contrast that to simply holding colleges accountable 
for degree completion rates; doing runs the risk of encouraging 
colleges to simply lower standards and print diplomas. That response 
would not serve students or taxpayers particularly well. Basing our 
accountability policies on measures of labor market success helps avoid 
that perverse consequence.
    With respect to the second strength, many colleges will respond to 
a risk-sharing system by investing in efforts that will boost student 
success rates. Researchers have uncovered a number of promising 
innovations that cause students to stay in school and graduate at 
higher rates, and colleges under a risk-sharing system could learn from 
that research in changing institutional practice. Curtailing access 
will only help colleges so much under a risk-sharing scheme. They still 
need to enroll students to stay in business. In contrast, those that 
re-orient their efforts around student success will benefit from 
increased enrollments.
    It is also worth noting that my proposal calls for a bonus that 
would be paid to colleges for every Pell Grant recipient they 
successfully graduate. This would help ensure that colleges have 
incentive to enroll low-income students and incentive to help them 
graduate. Such a bonus would help boost completion rates as the Senator 
suggests.
  Response to Questions of Senator Murkowski by Robert S. Silberman, 
                               B.A., M.A.
    Question 1. During the recent recession, and even now, many recent 
graduates have been unable to find jobs simply because employers in 
their fields were/are not hiring. Many Americans who were repaying 
their loans prior to the recession lost their jobs and their ability to 
repay. Should a college be held responsible for borrowers who were 
well-educated in fields that normally would have high demand during a 
recession?
    Answer 1. We believe that institutions should not be required to 
meet a potentially arbitrary benchmark when, for example, unemployment 
is high and wages stagnate or decline. One mechanism for avoiding such 
a situation would be legislation limiting title IV funds awarded to an 
institution with a CDR equal to or greater than the national average of 
its peer institutions (based upon the risk profile of the students 
served) to no more than the amount awarded to the institution in the 
previous year. Basing the limitation on a national average, rather than 
a pre-set threshold, would adjust for economic factors--like a 
recession--that can periodically affect repayment rates without having 
any bearing on the level of education provided by an institution or the 
field of study. Using a national average would have the additional 
advantage of inhibiting institutions' ability to manipulate their CDRs 
by managing defaults based on a static target for compliance. We would 
welcome congressional consideration of this possibility.

    Question 2. Some proposals have suggested that colleges be 
penalized for offering majors in low-demand fields. Who would decide 
what a low-demand field is? Would such a determination be made on a 
regional, statewide, or national basis? Would such a policy make it 
difficult or impossible for a college to offer a degree in, for 
example, Alaska Native Studies, Inupiaq, or Tribal Justice--majors 
offered by the University of Alaska Fairbanks that are important to 
many Alaskans? What about Museum Studies, which is a valuable and 
respected field but may not pay as much as, for example, engineering? 
Should the Federal Government have the authority to put pressure on a 
university's decision about what majors best serve the needs and 
interests of the regions and students they serve?
    Answer 2. We would not be in favor of a proposal that allows the 
Federal Government to dictate which programs a college should offer. 
Any ``skin in the game'' proposal should leave to universities and 
colleges the discretion to determine the degrees they offer and to 
assess the success of their various programs. Rather than including 
fields of study in title IV eligibility determinations, reform should 
build on the existing legislative framework and focus on the overall 
ability of the student cohort to repay debt. Unlike the current CDR 
approach, which is based on the percentage of student borrowers who 
have defaulted, irrespective of the default amount, we advocate a risk-
sharing payment based on a percentage of the actual dollars in default. 
One option would be to require such a payment when an institution's CDR 
hits 15 percent. The Department of Education would then calculate the 
percentage of actual dollars defaulted based on the total amount of 
dollars disbursed by the institution that year. If more than 15 percent 
of the total dollars disbursed were in default, the institution would 
be required to remit a risk-sharing payment equal to 50 percent of the 
total defaulted dollars above the 15 percent threshold.

    Question 3. Alaska is one State that is fortunate to have a Tribal 
College and University--Ilisagvik College located in Barrow up on the 
North Slope. Ilisagvik, like many TCUs, does not participate in Federal 
student aid programs. As these institutions expand from 2-year colleges 
that primarily offer certificates and associate degrees to 4-year 
colleges, participation in title IV student aid programs becomes more 
attractive. At the same time, TCUs generally offer open enrollment and 
attract students who too often were not well-prepared for college by 
low-performing BIE and public schools. In addition, many TCUs offer 
programs of study related to local priorities, such as Native language 
revitalization and tribal governance that may not lead to high-paying 
jobs--especially in regions where there is little economic activity. My 
question is this: given these facts, how could the risk sharing 
proposals outlined here today avoid negative consequences for TCUs and 
the student populations they serve?
    Answer 3. To create a better prepared workforce, our country needs 
a diversity of institutions to meet the educational needs of all our 
aspiring students, from traditional college students to the older 
working adults Strayer primarily serves, to the residents of Alaska's 
North Slope who seek job training and education while strengthening 
their culture, language and traditions. This is why we believe that any 
legislative proposal should establish a unitary system of regulation 
that applies across the board to all institutions that receive title IV 
loans as tuition. Excessive student debt impacts every sector of higher 
education and does not result from an institution's tax status. A true 
risk-sharing regime will require institutions to remit payments based 
directly on the amount of their title IV dollars that end up in 
default, so that all institutions participating in title IV programs 
have the same incentive to decrease student borrowing.
    At the same time, all educational institutions need more authority 
to mitigate the risk of student loan defaults. Institutions should be 
empowered and encouraged to implement common-sense safeguards to 
increase the likelihood that students will complete their studies and 
not take on debt they ultimately will be unable to repay.
    Like Ilisagvik, Strayer has an open-access policy and generally 
serves a population that lacked many of the opportunities traditional 
undergraduate and graduate students have had. We have identified 
certain indicators of academic success and failure within this 
population and crafted policies to address these. For example, based on 
our own internal research, analysis, and years of experience in this 
sector, we have learned that students lacking in basic math and English 
skills are much more likely to drop or fail out of undergraduate 
programs and therefore pose a high student loan default risk. 
Accordingly, we now require students who cannot demonstrate these 
baseline skills to pass a non-credit bearing introductory course before 
enrolling in title IV-eligible course work at Strayer. Ensuring that 
title IV funds are used to support students with the basic 
prerequisites for college-level studies benefits both students and 
taxpayers, and Congress could consider establishing or recognizing a 
national eligibility test to determine whether students possess 
threshold skills before they receive title IV funds.

    Question 4. The purpose of this hearing is to examine whether or 
not institutional risk sharing will bring down the loan default rates 
and increase graduation rates. Several witnesses have suggested basing 
an IHE's ``skin in the game'' to cohort default rates. Much of the 
student loan default rate is due to students who are unable, for one 
reason or the other, to finish their degrees. Perhaps they were not 
well-prepared for college, or they cannot afford to pay the difference 
between the financial aid and the cost of attendance, or some other 
reason but they drop out owing a debt they are not able to repay 
because they have not gained the skills that lead to a higher paying 
job. The crux of the student loan default problem seems, then, to lie 
with IHEs' inability to assist more students to graduate. Would it not 
be preferable--instead of limiting enrollment to those students who are 
likely to graduate or punishing IHEs for low graduation rates--to 
provide incentives for colleges to increase their graduation rates? 
Also, would it not be preferable to base institutional risk sharing on 
the graduation rates of at-risk students, rather than on cohort default 
rates?
    Answer 4. Our view is that institutional risk sharing is an 
equitable mechanism for ensuring that all parties who share in the 
gains from the student loan system also share in any systemic losses. 
Basing ``skin in the game'' on the CDR has the benefit of building on 
the existing legislative framework, including metrics that higher 
institutions are already accustomed to monitoring.
    By linking risk sharing to actual dollars in default, rather than 
percentage of student borrowers who have defaulted, our proposal 
creates a more equitable accounting. For example, a student who drops 
out early generally defaults on a relatively low amount of title IV 
taxpayer dollars, as compared to a student who drops out after a few 
years of coursework.
    One reason we have not recommended using The Department of 
Education published IPEDS graduation rate as a metric is that this rate 
measures only the percentage of first-time, full-time undergraduate 
students who begin in the fall, excluding all those students who 
previously attended another undergraduate institution, are part-time 
students, or merely started school in a term other than the Fall term. 
Strayer students tend to be hard-working adults taking classes at night 
and on weekends while simultaneously managing professional and family 
obligations, and Strayer students may start in any one of four 
different quarters throughout the year. As such, this Department of 
Education IPEDS graduation rate captures only a scant 1.7 percent of 
our students.
    That said, incentives for colleges could be another mechanism for 
improving the higher education accountability system, and we would look 
forward to congressional debate and discussion of this potential 
alternative.
      Response to Questions of Senator Murkowski by Jennifer Wang
    Question 1. During the recent recession, and even now, many recent 
graduates have been unable to find jobs simply because employers in 
their fields were/are not hiring. Many Americans who were repaying 
their loans prior to the recession lost their jobs and their ability to 
repay. Should a college be held responsible for borrowers who were 
well-educated in fields that normally would have high demand during a 
recession?
    Answer 1. There have been recent economic challenges presented by 
the Great Recession that have had a tremendous impact on students and 
borrowers.\1\ The average age of home ownership and marriage has 
increased in recent years and over half of 18-24 year olds are still 
living at home with their parents.\2\ The 1.3 trillion dollars of 
student loan debt is a large economic obstacle for our generation, 
making it harder and harder to achieve the American dream. However, 
students are still held accountable for the debt they accrue while 
enrolled in higher education, regardless of the quality of education 
they received, or if they even received a credential at all. 
Institutions of higher education should have a financial incentive to 
do all that they can to improve outcomes for students, for the benefit 
of both the students and the broader economic health of America. 
Institutions without skin in the game should not be able to blame the 
overall state of the economy for not doing all they can to help 
students achieve gainful employment after graduation. We want to see 
risk-sharing policies that will incentivize institutions to improve 
student outcomes as much as they can.
---------------------------------------------------------------------------
    \1\ Catherine Rampell, The Great Recession's Lost Generation? Older 
Millennials, Washington Post, February 2, 2015, http://
www.washingtonpost.com/opinions/catherine-rampell-older-millennials-
are-paying-the-price-for-bad-timing/2015/02/02/4ef644c8-ab1c-11e4-ad71-
7b9eba0f
87d6_story.html.
    \2\ Gillian B. White, What Will It Take for Millennials to Become 
Homeowners?, The Atlantic, October 22, 2014, http://
www.theatlantic.com/business/archive/2014/10/what-will-it-take-for-
millennials-to-become-homeowners/381730/; Kelsey Borresen, 5 Good 
Reasons to Get Married While You're Young, According to Reasearch, 
Huffington Post, November 14, 2013, http://www.huffingtonpost.com/2013/
11/14/married-young_n_4227924.html.

    Question 2. Some proposals have suggested that colleges be 
penalized for offering majors in low-demand fields. Who would decide 
what a low-demand field is? Would such a determination be made on a 
regional, statewide, or national basis? Would such a policy make it 
difficult or impossible for a college to offer a degree in, for 
example, Alaska Native Studies, Inupiaq, or Tribal Justice--majors 
offered by the University of Alaska Fairbanks that are important to 
many Alaskans? What about Museum Studies, which is a valuable and 
respected field but may not pay as much as, for example, engineering? 
Should the Federal Government have the authority to put pressure on a 
university's decision about what majors best serve the needs and 
interests of the regions and students they serve?
    Answer 2. In our discussions with young people, we've learned that 
they go to college for a variety of reasons, including but not limited 
to, finding a job after graduation. They also go to learn more about 
the world around them and specific topics they're interested in, to 
become a better, more informed citizen, and be exposed to different 
individuals with different backgrounds whose lived experience can make 
them a more socially adept, well-rounded individual. Because of this, 
we do not think the Federal Government should be limiting the choices 
of institutions of higher education as to what programs they can offer. 
The preservation of individual choice is a time-tested tenet of higher 
education in this country.

    Question 3. Alaska is one State that is fortunate to have a Tribal 
College and University--Ilisagvik College located in Barrow up on the 
North Slope. Ilisagvik, like many TCUs, does not participate in Federal 
student aid programs. As these institutions expand from 2-year colleges 
that primarily offer certificates and associate degrees to 4-year 
colleges, participation in title IV student aid programs becomes more 
attractive. At the same time, TCUs generally offer open enrollment and 
attract students who too often were not well-prepared for college by 
low performing BIE and public schools. In addition, many TCUs offer 
programs of study related to local priorities, such as Native language 
revitalization and tribal governance that may not lead to high-paying 
jobs--especially in regions where there is little economic activity. My 
question is this: given these facts, how could the risk-sharing 
proposals outlined here today avoid negative consequences for TCUs and 
the student populations they serve?
    Answer 3. We urge the committee to consider applying financial 
risk-sharing frameworks to institutions where there is financial risk. 
If the majority of students at TCUs graduate debt-free, we would 
contend there is no need to subject the institution to financial skin 
in the game.

    Question 4.  The purpose of this hearing is to examine whether or 
not institutional risk sharing will bring down the loan default rates 
and increase graduation rates. Several witnesses have suggested basing 
an IHE's ``skin in the game'' to cohort default rates. Much of the 
student loan default rate is due to students who are unable, for one 
reason or the other, to finish their degrees. Perhaps they were not 
well-prepared for college, or they cannot afford to pay the difference 
between the financial aid and the cost of attendance, or some other 
reason but they drop out owing a debt they are not able to repay 
because they have not gained the skills that lead to a higher paying 
job. The crux of the student loan default problem seems, then, to lie 
with IHEs' inability to assist more students to graduate. Would it not 
be preferable--instead of limiting enrollment to those students who are 
likely to graduate or punishing IHEs for low graduation rates--to 
provide incentives for colleges to increase their graduation rates? 
Also, would it not be preferable to base institutional risk sharing on 
the graduation rates of at-risk students, rather than on cohort default 
rates?
    Answer 4. We absolutely agree that institutions should have 
incentives to improve performance. Ideas for promoting institutional 
improvement include rewarding institutions that do the best job of 
educating students, particularly Pell students and students from 
underrepresented communities, and connecting them with real career 
opportunities. Along these lines, institutions with high repayment 
rates deserve credit for doing a good job, and we encourage the 
committee to explore well-targeted methods of encouraging institutions 
to do better, starting with the students who need it most.
    We also agree that cohort default rates are a blunt instrument that 
should be supplanted by a better metric for measuring institutional 
performance. We suggest using a repayment rate metric because we 
believe that they are a better indicator of student success upon 
leaving a program than cohort default rates. They are less subject to 
manipulation because borrowers who leave school must actually repay 
student debt, rather than simply avoid default using forbearance or 
deferment. Repayment rates also more closely measure success than 
default rates, which only measure the frequency of the worst possible 
repayment outcomes.
    In addition to encouraging institutional accountability using a 
repayment rate, we suggest that the committee use the following rule 
when assessing whether an institution passes: that 45 (and eventually 
50 percent) of their graduates are able to pay at least $1 on their 
loans toward principal. Simply assessing whether 45 or 50 percent of 
graduates are in repayment may not be sufficient because at 
institutions where students take on substantial debt, some may have 
very low payments or payments of zero under income-based or income-
contingent repayment. We believe that IBR should be a protection for 
the borrower, not the institution.
   Response to Questions of Senator Murkowski by Douglas A. Webber, 
                           B.A., M.A., Ph.D.
    Question 1. During the recent recession, and even now, many recent 
graduates have been unable to find jobs simply because employers in 
their fields were/are not hiring. Many Americans who were repaying 
their loans prior to the recession lost their jobs and their ability to 
repay. Should a college be held responsible for borrowers who were 
well-educated in fields that normally would have high demand during a 
recession?
    The ideal risk-sharing policy would punish institutions for only 
the defaults which they are ``responsible'' for. As your question 
alludes to, recessions cause more defaults outside the control of 
universities. I therefore think it is reasonable to tie any potential 
penalties to some measure of the national labor market. This could be 
accomplished, for instance, by setting up the penalty structure so that 
it is based on the average school's default/repayment rate, which would 
vary with the business cycle.

    Question 2. Some proposals have suggested that colleges be 
penalized for offering majors in low-demand fields. Who would decide 
what a low-demand field is? Would such a determination be made on a 
regional, statewide, or national basis? Would such a policy make it 
difficult or impossible for a college to offer a degree in, for 
example, Alaska Native Studies, Inupiaq, or Tribal Justice--majors 
offered by the University of Alaska Fairbanks that are important to 
many Alaskans? What about Museum Studies, which is a valuable and 
respected field but may not pay as much as, for example, engineering? 
Should the Federal Government have the authority to put pressure on a 
university's decision about what majors best serve the needs and 
interests of the regions and students they serve?
    Answer 2. I would be very much against the Federal or State 
Governments punishing an institution based on the majors that they 
choose to offer. First, different States have different labor market 
needs, and those needs will certainly change over time. Second, as you 
point out in your question, the process which would determine which 
majors are ``low demand'' would likely be flawed and politicized. As 
outlined in my written testimony, I favor a market-based approach to 
the issue of student loan debt (and by extension, majors). The issue 
now is that institutions are not facing appropriate market pressure 
because they do not bear any of the cost of student default.

    Question 3. Alaska is one State that is fortunate to have a Tribal 
College and University--Ilisagvik College located in Barrow up on the 
North Slope. Ilisagvik, like many TCUs, does not participate in Federal 
student aid programs. But as these institutions expand from 2-year 
colleges that primarily offer certificates and associate degrees to 4-
year colleges, participation in title IV student aid programs becomes 
more attractive. At the same time, TCUs generally offer open enrollment 
and attract students who too often were not well-prepared for college 
by low-performing BIE and public schools. In addition, many TCUs offer 
programs of study related to local priorities, such as Native language 
revitalization and tribal governance that may not lead to high-paying 
jobs--especially in regions where there is little economic activity. My 
question is this: given these facts, how could the risk sharing 
proposals outlined here today avoid negative consequences for TCUs and 
the student populations they serve?
    Answer 3. The type of institution you describe is certainly an 
important concern. However, it is important to keep in mind the 
proposed features of the risk-sharing policy. First, is that there is 
only a penalty if a student defaults, an extreme event where the 
student is unable to pay even a small amount of their obligations. 
Given Ilisagvik College's very low tuition of $2,400 per year, students 
do not need to have a high paying job in order to repay this type of 
debt. Based on my research, the only schools which would see meaningful 
penalties under risk-sharing satisfy each of the following three 
criteria: high rate of borrowing, high tuition, and high default rate. 
Ilisagvik obviously does not have high tuition, and since they 
currently do not participate in title IV programs, they presumably do 
not have a high rate of borrowing. Hence, Ilisagvik is not the type of 
school which would feel much, if any, financial stress under a risk-
sharing policy.

    Question 4. The purpose of this hearing is to examine whether or 
not institutional risk sharing will bring down the loan default rates 
and increase graduation rates. Several witnesses have suggested basing 
an IHE's ``skin in the game'' to cohort default rates. Much of the 
student loan default rate is due to students who are unable, for one 
reason or the other, to finish their degrees. Perhaps they were not 
well-prepared for college, or they cannot afford to pay the difference 
between the financial aid and the cost of attendance, or some other 
reason but they drop out owing a debt they are not able to repay 
because they have not gained the skills that lead to a higher paying 
job. The crux of the student loan default problem seems, then, to lie 
with IHEs' inability to assist more students to graduate. Would it not 
be preferable--instead of limiting enrollment to those students who are 
likely to graduate or punishing IHEs for low graduation rates--to 
provide incentives for colleges to increase their graduation rates? 
Also, would it not be preferable to base institutional risk sharing on 
the graduation rates of at-risk students, rather than on cohort default 
rates?
    Answer 4. You are absolutely correct that graduation rates are an 
important determinant of a college's future default rate. However, as 
you point out, the learning of relevant skills is another important 
factor. The goal is not just to incentivize graduation, but to 
incentivize an investment in students' future financial well-being. 
While graduation is part of this equation, it is not everything. In 
addition to learning a skill, for instance, the amount of time it takes 
to receive a degree is also an important determinant of future debt. 
The appeal of the risk-sharing program described by the panelists is 
exactly that it provides an incentive for institutions to do anything 
in their power to invest in their students' financial futures. In this 
way, institutions are incentivized to increase graduation rates, as 
well as improve career placement/internship services, reduce their time 
to degree, and a multitude of other actions as well. It also allows 
each school to individually decide the best way to address their 
students' debt. For some schools, this may be through improving 
graduation rates, but at other schools it may be through some other 
channel.

    [Whereupon, at 11:58 a.m., the hearing was adjourned.]

                                   
```