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State universities would be responsible for portions of students’ defaulted loans under legislation advanced Wednesday by an Iowa House subcommittee.
House Study Bill 540 would require state universities to offset 25% of a borrower’s liability if they default on an educational loan taken out to attend the institution. This means the university would be liable for 25% of what the student owes.
More than 40% of Iowa public college graduates finish their education debt-free, Iowa Board of Regents State Relations Officer Jillian Carlson said, and those who do take out loans receive financial counseling early in their college career “to help them right-size their debt and advise them on not taking out more than they need.”
“One question or concern that we do have is to clarify whether students who default on their loans are actually defaulting because they’re unable to make the payments, versus defaulting on their loans because they know that we would pick up 25% of the bill when they actually do have the resources to make the payments,” Carlson said.
Rep. Heather Matson, D-Ankeny, said there are important, practical questions on the topic of universities potentially being liable for defaulted loans that are not answered in the bill, such as where the money to take on these debts would come from. She also asked whether it should be the responsibility of a university to “be on the hook for” part of a loan in certain situations, like if a graduate finds themself in medical debt and must decide how they’ll use their money to stay safe and healthy.
“I think it’s important to recognize that the majority party talks a lot about personal responsibility, especially when it comes to student loans,” Matson said. “So I’m curious as to why you all are proposing to put a graduate’s financial decisions back onto a university if personal responsibility for student loans is so incredibly important.”
Rep. Jeff Shipley, R-Fairfield, said during the subcommittee meeting he believes the idea presented in the bill has “some merit.” He and subcommittee chair Rep. Taylor Collins, R-Mediapolis, approved the legislation to move to the Iowa House Higher Education Committee.
“My general thoughts are, we need to make sure we have some skin in the game when it comes to … the future employment of these individuals, once they graduate,” Collins said.
Iowa Capital Dispatch is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Iowa Capital Dispatch maintains editorial independence. Contact Editor Kathie Obradovich for questions: [email protected].
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