Compulsory insurance to reduce the risk of college closure (Opinion)

College enrollment has dropped by about 6 percent since the fall of 2019 The declining demand for higher education has reduced the cost of tuition, which is good news for students but has also put financial pressure on institutions. Some colleges have already closed, and more institutions will probably collapse as funding from the epidemic-era stimulus bill runs out. The time has come for Congress to begin thinking about how to handle this potential wave of college closures.

Occasional college closures are inevitable. In a dynamic higher education market, colleges sometimes close because new and better providers of education come along. But it is important to ensure that closures occur in an orderly manner and that students have the opportunity to finish their degree when colleges close their doors.

Too often, that doesn’t happen. In 2016, the ITT Technical Institute was abruptly shut down when the Obama administration took a number of regulatory measures against the chain that made ongoing operations sustainable. The education of thousands of students has been disrupted in the middle degree. Very few people can transfer their credit to another institution and complete their studies there: Even as of September 2016, ITT Tech’s own website mentioned, “Any credit earned in school is not likely to be transferred or accepted to any institution other than ITT Technical. Institute. “

Many ITT Tech students have received a consolation prize: the Department of Education has waived their student loans under the Closed-School Discharge Program. If students at a closed institution cannot finish their education (either in college or transfer), they may cancel their federal loan. The loan discharge associated with ITT Tech alone has exceeded $ 1 billion, courtesy of most taxpayers. And ITT Tech is one of the hundreds of schools that failed in the 2010s.

ITT Tech students forgave their debts, but they never got what they came for: a college degree or certificate. Although the Biden administration has proposed policies that make it easier for students to obtain exemptions when colleges close, little attention has been paid to ensuring that students in closed colleges can actually complete their education.

Fortunately, there is a solution that would give closed college students better shots to finish their programs and protect taxpayers from paying for off-school holidays. The idea is simple: Congress should reimburse taxpayers when federal-loan-dependent colleges are allowed to buy insurance in the private market when off-school discharge is granted.

The immediate benefit of this policy is that the financial responsibility for the closed school holidays is transferred from the taxpayers to the insurance company. These companies will charge premium on their insured colleges This will ensure that the colleges themselves, not the students and taxpayers, will ultimately bear the cost of closing the college.

But the greater advantage of an insurance requirement is that it encourages good behavior from colleges. Insurance companies will charge higher premiums to companies where the risk of school closure is higher. Just as homeowners can reduce their insurance premiums by installing fire alarms, colleges can reduce their premiums by taking steps to reduce the risk of off-school discharge.

One way to do this is through more prudent financial management. But another and better way to reduce the risk of discharge is for colleges to create policies that will ensure that students can complete their education when they are closed. Colleges will have to maintain serious plans to stop operations if there is a threat of closure. They must enter into agreements with other institutions so that students can transfer their credit after a closure (currently students lose about half of their credit after transfer). These plans and agreements must be credible enough to satisfy a private insurance company with its own finances.

When closed college students finish their education, they are not eligible for a loan waiver. But still what they will achieve is that they basically went to college: a degree or certificate that increases their chances of earning. Enabling students to realize economic opportunities should be the main goal of higher education policy, not just their debt forgiveness.

A new wave of college closures seems possible, and it will disrupt higher education. But Congress can ensure that students and taxpayers are protected by implementing an insurance requirement for colleges that rely on federal funds. It will not only change who will bear the cost when the colleges are closed. This will better align the motivation of the college with the interests of the students. For this, America’s higher education system will be stronger.

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