Colleges get paid to cosign student loans—but borrowers stay in default
H.R. 8759 — Student Loan Reform Act · Filed by Scott Perry (R-PA) · Introduced May 12, 2026 · Referred to committee
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What it does
This bill creates a new 'institutional cosigner program' allowing colleges to voluntarily cosign federal student loans for their own students. If a student defaults after 90 days, the college becomes legally responsible for repaying the full loan balance over 10 years. In exchange, colleges get a modest interest-rate reduction on those loans, and the bill raises the default-rate threshold that triggers federal penalties for participating colleges from 30% to 40%.
Why we flagged it
The bill's core mechanism shifts default liability from the federal government to colleges themselves, creating a financial incentive for institutions to manage borrower risk. This is functionally a privatization of loan-default accountability, not a borrower-protection measure.
What the text implies
- Colleges gain incentive to enroll higher-risk borrowers (via the 40% default threshold) because they can now absorb defaults as an institutional cost, potentially shifting enrollment toward students least able to repay.
- Borrowers remain in default status for credit reporting even when their institution is actively repaying the loan, creating a permanent credit penalty unrelated to their own payment behavior.
The full analysis lists 5 implications of this text.
Who stands to gain
colleges and universities (via interest-rate reduction and higher default-rate threshold); insurance and financial-services companies managing institutional loan portfolios