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 modest interest-rate reduction (percentage unspecified in text) may not offset the long-term cost to colleges, creating pressure to raise tuition or reduce aid to offset cosigner obligations.
- Colleges participating in the program gain a 33% higher default-rate tolerance (40% vs. 30%), creating a two-tier accountability system where institutional cosigners face weaker federal oversight.
- The bill does not specify what happens if a college becomes insolvent or unable to meet its 10-year repayment obligation, leaving borrowers and the federal government with unclear recourse.
Who it affects
Students and borrowers face increased collection pressure and credit damage even when colleges are repaying on their behalf, while colleges gain a financial incentive to enroll riskier borrowers (via the higher default threshold) without bearing full accountability. The interest-rate reduction is modest and does not offset the shift of default risk onto institutions that may lack borrower-protection incentives.
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
Named in the bill
Department of Education, institutions of higher education, direct loan program (Title IV, Higher Education Act of 1965), AIG, FBK, FMAO, PFG, PRU
Where it stands
- May 12, 2026 — Introduced · Congress.gov: “Introduced in House”
- May 12, 2026 — Referred to House Committee on Education and Workforce · Congress.gov: “Referred to the House Committee on Education and Workforce”
Dates and quoted wording are Congress.gov's action record; the timeline shows status changes, not every procedural step.
How this was measured
Analysis — Quorum's AI read the full bill text on Jun 8, 2026; transparency and hidden-provision scores are compared against the median of 16,222 analysed bills.
Status and sponsors — Congress.gov's bill record — actions, committee referrals and cosponsors — loaded nightly. The timeline shows status changes, not every procedural action.
As of — page rendered 2026-10-20.
“Colleges get paid to cosign student loans—but borrowers stay in default” QuorumCivic. https://share.quorumcivic.app/bill/119/hr8759 Report an error
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