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What’s really causing the student debt crisis, according to Sheila Bair

Market Watch
October 17, 2015

Bair said she’d also like to see schools with high default rates forced into some kind of risk-sharing arrangement. One version of this proposal appears in a bill proposed by a pair of bipartisan lawmakers earlier this year. If implemented, colleges would be required to give the federal government a share of some of the federal loan dollars their graduates aren’t paying back. Democratic presidential front-runner Hillary Clinton endorsed this proposal as part of her college affordability plan.

Right now, the bad actors in the college space have “misaligned” incentives, Bair said. Their aim is to enroll as many students as possible in order to get the federal loan dollars that come with them, “and if the kids can’t pay it, they don’t care. It’s not their problem, it’s the taxpayers’ problem,” she said.

Some kind of risk-sharing arrangement could get these schools focused “on whether they’re giving kids an education that will lead to a degree that will help them land a job that will help them pay these loans back,” Bair said.