Necessary Conditions for Risk-Sharing policies to Protect Low-Income Students

Risk-sharing proposals are designed to transfer some of the student loan risk currently held by the individual and the government to institutions, giving them “skin in the game.” Since institutions currently don’t bear any of the financial consequences if an individual defaults, this should be an attempt to curb some of the recent abuses by some bad actors.  Policymakers and advocates have advanced differing proposals for risk sharing systems. However, by putting institutions on the hook for some of the risk, these policies could unintentionally lead to harming the very students they are trying to protect.