Student Loan Reform Act
- Sponsor
- Rep. Perry, Scott [R-PA-10]
- Committees
- Education and Workforce Committee (primary)
- Last action
- May 12, 2026
Bottom line
The bill shifts a portion of federal student loan default risk to participating colleges and universities, offering lower interest rates for students and a higher default rate tolerance for institutions in exchange for this financial responsibility.
What it actually does
This bill amends the Higher Education Act of 1965 to create an optional program allowing institutions of higher education to cosign federal student loans for their enrolled students. If an institution opts in, it assumes liability for defaulted loans after 90 days, repaying them on a 10-year standard plan. In return, students at participating institutions receive a reduced interest rate on their loans, and these institutions benefit from a higher cohort default rate threshold (40% instead of 30%) before facing federal sanctions.
Proponents argue
Proponents argue this bill introduces much-needed accountability into the higher education system by incentivizing institutions to take a direct financial stake in their students' loan repayment success. They contend it will encourage colleges to improve student support, career services, and educational quality, ultimately reducing federal taxpayer exposure to defaulted loans while also providing students with lower interest rates.
Opponents contend
Opponents contend that this bill could place an undue financial burden on institutions, potentially forcing them to raise tuition to cover anticipated liabilities or to become more selective in admissions, thereby limiting access for disadvantaged or 'high-risk' students. They argue it unfairly transfers a federal responsibility to institutions and could lead to unintended consequences for student access and affordability.
The bill is relatively short and clearly structured, making it accessible for an informed reader to evaluate its core provisions within a reasonable timeframe.
Section 2, new Section 454A(a)-(c) of the HEA
Institutional Cosigner Program Establishment and Agreement
This provision directs the Secretary of Education to establish a program, starting July 1, 2026, allowing institutions of higher education to voluntarily elect to cosign all eligible federal direct loans for their students. To participate, an institution must enter an agreement with the Secretary, committing to cosign all new eligible direct loans for an academic year and adhere to specific cosigner liability terms. The Secretary is also required to revise the master promissory note to include these new terms, the reduced interest rate, and a field for institutional cosignature.
Supporters argue
Proponents argue that this voluntary program empowers institutions to take a proactive role in student success and financial outcomes, fostering a stronger partnership between colleges and the federal government in managing student loan risk. The formal agreement ensures clarity and commitment.
Critics contend
Opponents might argue that the voluntary nature could lead to uneven participation, and the administrative burden on the Department of Education to implement and manage such a program could be substantial, potentially diverting resources from other critical functions.
Tradeoffs
The tension lies between giving institutions autonomy to participate and ensuring a consistent framework for program implementation. The voluntary nature might limit the overall impact if few institutions opt in.
Section 2, new Section 454A(d) of the HEA
Cosigner and Borrower Liability Terms
This section details the financial obligations for institutions that cosign federal student loans. If a borrower defaults on a cosigned loan and 90 days pass without rehabilitation, the institution becomes obligated to repay the outstanding principal and interest on a 10-year standard repayment plan. Importantly, the borrower's default status for credit reporting and debt collection remains, even while the institution makes payments. Any amounts recovered from the borrower reduce the institution's obligation, and the institution's obligation terminates upon loan rehabilitation or full repayment.
Section 2, new Section 454A(e) of the HEA
Reduced Interest Rate for Cosigned Loans
This provision mandates that eligible direct loans cosigned by a participating institution will receive a reduced interest rate. The Secretary of Education is tasked with determining this rate, ensuring it is lower than the standard rate and reduced by a percentage proportionate to the decreased risk posed by the institutional cosignature.
Section 3, Section 435(a) of the HEA
Modification of Cohort Default Rate Threshold
This provision amends existing law to modify the cohort default rate (CDR) thresholds that institutions must meet to maintain eligibility for federal student aid programs. For institutions participating in the new institutional cosigner program, the threshold is raised to 40%. For institutions not participating, the threshold remains at 30%. This change takes effect on July 1, 2026.
A borrower who has defaulted on an eligible direct loan on which an institution is making payments shall still be considered in default for purposes of adverse credit reporting and delinquent debt collection procedures under Federal law.
Section 2, new Section 454A(d)(4) of the HEA
Why it matters:This is standard legislative practice to clarify specific legal implications and avoid misinterpretation of the primary liability shift. It ensures that the borrower's responsibility for the default, in terms of credit impact, remains intact.
Case for: Proponents would argue this maintains appropriate accountability for the borrower, ensuring that the consequences of default, such as adverse credit reporting, still apply. This prevents moral hazard where a borrower might intentionally default knowing the institution would cover payments without personal credit repercussions.
Case against: Critics might argue that this provision diminishes the benefit to the borrower, as their credit is still negatively impacted even if the loan is being repaid. They might contend that if the goal is to help students, their credit should be rehabilitated once payments resume, regardless of who makes them.
Estimated impact: This provision ensures that the credit history of defaulted borrowers remains negatively affected, impacting their future access to credit, housing, and employment, even as the federal government's immediate financial exposure is mitigated by institutional payments.