Risk-Sharing / "Skin-in-the-Game"

Risk-sharing by colleges is being promoted by policy makers on both sides of the aisle as a way to make colleges share liability for the cost of their students’ loan defaults.  The theory is that colleges would have “skin in the game,” and would therefore make sure their students succeed in order to avoid financial losses.  This also has been advocated by some policymakers as a mechanism to reduce student loan borrowing and defaults.  While some of this thinking has been focused on correcting abuses in the for-profit sector, the legislation introduced would apply to all sectors. 

Efforts to require colleges to assume liabilities based on the amount of federal loans awarded to enrolled students could harm the very students the policy is intended to help.  In anticipation of added expense, institutions with limited resources would be forced either to increase tuition or limit enrollment of low-income students. The policy could also negatively impact institutional balance sheets and the financial rating of colleges, including adding to the likely number of schools that fail the federal Financial Responsibility Standards.

Moreover, the proposals ignore the fact that private non-profit colleges already have ”skin-in-the-game” in the form of the significant institutional student financial aid provided to students.  According to the College Board’s Trends in Student Aid 2014, nearly two-thirds of all student aid awarded at private, nonprofit colleges comes directly from institutional resources.  In addition, private nonprofit colleges match, and often over-match, contributions to the campus-based programs. 


To lower student loan default costs, several key legislators have proposed institutional risk-sharing, whereby colleges would pay part of their students’ default costs. The theory is that colleges would have “skin in the game” and would therefore make sure their students succeed in order to avoid financial losses. Such measures would be detrimental both to colleges and students.

The measures also fail to recognize that colleges already have “skin in the game” with low-income students. At private non-profit colleges, 67% of all aid for students comes from a college’s own resources.

Key Legislative Proposals

Members of the Senate and House introduced bills in the 114th Congress requiring colleges to put up financial guarantees against default on their students’ federal loans.

Senator Jack Reed (D-RI) and Representative John Carney (D-DE) introduced the “Protect Student Borrowers Act of 2015” (S. 1102/H.R. 2364), summarized here. This legislation, supported by high ranking Democrats in the Senate, amends the Higher Education Act to require institutions of higher education where at least 25% of their student bodies participate in the Direct Loan program to accept specified risk-sharing requirements based on their cohort default rate.

Senators Jeanne Shaheen (D-NH) and Orrin Hatch (R-UT) introduced a risk-sharing bill (S. 1939), summarized here, that is based on cohort repayment rates. Institutions not reaching the required threshold would have to pay penalties and would lose eligibility for Title IV programs. The bill also provides a funding bonus for success with Pell Grant recipients. The bill does not make provisions for schools’ recouping funds after defaulted borrowers rehabilitate their loans and renew repayment.

Senator Lamar Alexander (R-TN) issued a white paper in March 2015 that addressed risk-sharing, and sought comments from the higher education community.  NAICU was among the groups that responded

In the News

What You Can Do

Discuss the negative consequences of risk-sharing proposals with your elected officials:
  • Explain how this proposal would affect your institution’s bottom line, tuition, financial ratings, and ability to take a risk on low-income students. Include your institutional aid contribution, and know your graduation and cohort default rates.
  • Detail all the resources your institution provides low-income students and the “skin in the game” aid your school already offers.

NAICU Contacts