Compulsory insurance to reduce the risks of college closure (opinion)

College enrollment has fallen by nearly 6 percent since the fall of 2019. Declining demand for higher education has led to lower tuition costs, which is good news for students but is putting financial pressure on institutions. Some colleges have already closed and more institutions are likely to collapse as pandemic-era stimulus accounts run out. It’s time for Congress to start thinking about how to manage this potential wave of college closures.

Accidental closure of colleges is inevitable. In the dynamic market of higher education, colleges will sometimes close when new and better education providers emerge. But it is imperative to ensure that closures take place in an orderly manner and that students have the opportunity to complete their degrees when colleges close their doors.

Too often this does not happen. In 2016, the ITT Technical Institute closed abruptly after the Obama administration took a series of regulatory actions against the chain that made ongoing operations unsustainable. The education of tens of thousands of students was disrupted in the middle of the degree. Few could transfer their credits to other institutions and complete their studies there: even ITT Tech’s own September 2016 website noted: “It is unlikely that any credits earned at school will be transferred or accepted by another institution. other than the ITT Technical Institute. ”

Many ITT Tech students received a consolation prize: the education department simplified their student loans under the closed school discharge program. If students in a closed institution are unable to complete their education (either in college or by transfer), they may cancel their federal loans. Since then, ITT Tech-only loan write-offs have topped $ 1 billion, largely thanks to taxpayers. And ITT Tech is among the hundreds of schools that failed in 2010.

ITT Tech students received loan forgiveness, but never received what they originally came for: higher education or a certificate. While the Biden administration has proposed policies that would make it easier for students to be released from college closures, little attention has been paid to ensuring that students in closed colleges can actually complete their education.

Fortunately, there is a solution that will both give students in closed colleges a better chance to complete their programs and protect taxpayers from having to pay for graduations from a closed school. The idea is simple: Congress should require colleges that depend on federal student loans to buy insurance on the private market to reimburse taxpayers when they are discharged to a closed school.

The immediate benefit of this policy is to shift financial responsibility for the closure of a closed school from taxpayers to insurance companies. These companies, in turn, will charge premiums to the colleges they insure. This will ensure that the colleges themselves, and not the students and taxpayers, will ultimately bear the cost of closing the colleges.

But the greater benefit of the insurance requirement is that it encourages better college behavior. Insurance companies will charge higher premiums to institutions where the risk of dropping out of a closed school is higher. Just as homeowners can reduce their insurance premiums by installing fire alarms, colleges can reduce their premiums by taking action to reduce the risk of dropping out of a closed school.

One way to do this is through sound financial management. But another – and better – way to reduce the risk of dropping out is for colleges to put in place policies to ensure that students can complete their education in the event of closure. Colleges will need to maintain serious plans to suspend operations when closure threatens. They must enter into agreements with other institutions to allow students to transfer their credits after closing (currently students lose almost half of their credits on transfer). These plans and agreements must be credible enough to satisfy a private insurance company with its own money online.

If students in closed colleges complete their education, they do not qualify for loan waivers. However, they will receive what they originally went to college for: a degree or certificate that increases their earning potential. Enabling students to realize economic opportunities, not just forgive their loans, must be the main goal of higher education policy.

A new wave of college closures seems possible and will be devastating for higher education. But Congress can ensure that students and taxpayers are protected by applying an insurance requirement to colleges that rely on federal funding. This will not only change who bears the costs when colleges close. It will also better align college incentives with student interests. The American higher education system will be stronger for this.

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