Nestled inside Republicans’ One Big Beautiful Bill Act is a bold idea: to penalize colleges and universities whose students leave with mountains of student loan debt but not nearly the earnings boost to pay it off – and to reward schools that do the opposite.

Or, as U.S. Secretary of Education Linda McMahon told lawmakers in a recent hearing, it’s a way to force schools to have “a little skin in the game.”

This risk-sharing plan would, among other things, require higher education institutions – public and private, for-profit and nonprofit, undergraduate and graduate – to reimburse the federal government for a portion of the federal loan debt their students do not repay.

The Congressional Budget Office estimates that, if enacted, the full risk-sharing proposal would save the government more than $6 billion over the next decade.

NPR spoke with student loan experts who saw both promise and cause for concern in Republicans’ plan. Here’s what to know:

How it would work

The proposal would divide a school’s student loan borrowers by the kind of program they attended, separating English majors from biology majors, for example, or those who enrolled for a master’s in social work versus a master’s in business administration.

The plan would then calculate, for each program, how much borrowers were supposed to pay toward their federal student loan debts for the year, but didn’t.

Schools could also be penalized when students enroll in an income-based repayment plan. They would be forced to reimburse the government for a share of the interest and principal the Education Department willingly waives for lower-income borrowers as part of these plans.

How much of that outstanding debt schools end up having to repay would depend on some complicated math, including the program’s cost and how much money its graduates earn.

What schools would be hit hardest?

“Schools and programs that are basically charging a whole lot of money, using a whole lot of student loans and not necessarily producing the outcomes that we might expect for those student debt burdens,” says Preston Cooper at the conservative-leaning American Enterprise Institute (AEI).

Not just a stick but a carrot too

The Republicans’ plan wouldn’t just penalize schools for graduating students with large debts and poor earnings potential. It would also award “PROMISE Grants” to colleges that provide low-income students a great value for the money — meaning federal loans and grants — they spent on their college education.

As with the cost-sharing proposal, these grants – worth up to $5,000 for every student in a school’s cohort who received federal aid – would go to schools with relatively lower tuition and debt loads and stronger student outcomes.

In an extra twist, the stick would fund the carrot, with schools’ risk-sharing payments being recycled into these benefit payments to top-performing schools.

The plan would exclude loans in default

Higher education experts point to a few flaws with the plan.

One: The math used to decide whether a school should be penalized omits a key variable.

“[It] would not include loan balances that were in default, which is very odd,” says Dominique Baker, who studies college access at the University of Delaware.  

Baker says a plan to hold schools accountable for unpaid student loans should necessarily include debts that have gone into default. She’s not alone.

“This is where the proposal jumps the shark, giving a pass to the loans that hurt borrowers and taxpayers the most,” says Jordan Matsudaira, who served as deputy under secretary at the U.S. Department of Education in the Biden administration.

Matsudaira speculates that the omission of defaulted loans is Republicans’ “concession to institutions or programs that do generate particularly high default rates. So those could be for-profit colleges. Those could also be colleges that serve a lot of underserved populations: low-income, minority populations that generate loans with disproportionately high default rates.”

AEI’s Cooper explains it this way: “Lawmakers are trying to find a balance between holding schools accountable and ensuring risk-sharing penalties are not overwhelming for institutions. Including defaulted loans makes sense in principle, but doing so would have significantly increased penalties. Lawmakers may have decided that was a bridge too far.”

Baker is also concerned about the plan to punish many schools whose borrowers enroll in income-based repayment plans, by forcing those schools to reimburse the government for a share of the interest and principal it waives.

“That’s bananas to me,” says Baker, who worries this might compel schools to steer students into less-affordable repayment plans.

The data doesn’t exist

The other big problem experts routinely pointed out with Republicans’ plan is that its math depends on a mountain of data – including the cost of individual, undergraduate programs – “that we do not have and have never had,” says Baker.

“A lot of the underlying data here are imaginary,” says Matsudaira, who should know. He was the department’s first chief economist.

Some of the data was being collected as part of a Biden-era initiative, but, if the Big Beautiful Bill passes, “it’s not clear who at the Department of Education is actually going to be doing this because most data people were subject to the reduction-in-force,” says Robert Kelchen, who studies higher education finance at the University of Tennessee, Knoxville.

In March, the Trump administration initiated the termination of more than 1,300 department employees in a massive reduction-in-force that, when coupled with the hundreds of workers who have left voluntarily, has left the department at roughly half its previous staff.

A federal judge recently ordered the administration to reinstate those fired workers – a decision now being considered by the U.S. Supreme Court.

“This [bill] is the most substantial set of changes to higher education policy since at least 1992,” Kelchen says. “And it is hard to think about how the Department of Education can do all the data work behind it.”

Potential winners and losers

It’s difficult to assess a policy built on data that doesn’t exist, but AEI’s Cooper has tried using what’s available. He found that for-profit undergraduate programs and private, nonprofit graduate programs are likely to be hit hardest by these cost-sharing penalties.

The three schools on tap to pay the largest penalties, by Cooper’s calculations, would be: 1. Strayer University (for-profit), 2. University of Phoenix (for-profit) and 3. University of Southern California, or USC (private nonprofit).

If USC surprises you, it’s not because of their undergraduate programs, says Cooper. In 2019-’20, students in the school’s graduate programs took on $533 million in debt, an enormous sum ranking it third in the nation that year in graduate school debt, according to Cooper.

On the other side, the 10 schools that stand to benefit most from PROMISE Grants, rewarding schools that give low-income students the most bang for their buck, include six public universities in the California state system (Long Beach, Fullerton, Northridge, Los Angeles, Sacramento, Pomona) and three public universities in Florida.

“These are two states which are known for keeping public college tuition really low,” says Cooper. “These are also schools that tend to enroll fairly sizable, low-income student populations.”

Cooper says many community colleges would also likely benefit from this system.

The idea of holding schools accountable for pushing unmanageable debts onto students isn’t new, though past efforts led by the Obama and Biden administrations focused largely on for-profit colleges.

With this proposal, Kelchen says, “the Republican mantra is ‘accountability for everyone.’ ”

Its fate now depends on the Senate, where lawmakers recently released their own, very different version of a college accountability plan.