Colleges ought to shoulder a portion of student loan debt, according to House Republicans' viewpoint.
In the heart of the Republican's One Big Beautiful Bill Act, there's an intriguing idea: to hit colleges and universities where it hurts the most - in their wallets - if their students graduate with a mountain of debt but can't seem to shake it off. Secretary of Education Linda McMahon calls it a way to make schools put some skin in the game.
This shared responsibility plan would essentially mean that higher education institutions - public, private, for-profit, or nonprofit, offering undergraduate or graduate programs - need to cough up a portion of the federal loan debt their students fail to repay.
The Congressional Budget Office predicts that if this proposal becomes law, it could save the government over $6 billion over the next decade.
NPR spoke to student loan experts who saw both hope and cause for concern in this plan. Here's what you need to know:
How it would pan out
This proposal would divide students into groups based on the programs they attended, like separating English majors from biology majors. It would calculate, for each program, the amount students should have paid towards their federal student loan debts during a given year, but didn't.
Institutions could also face penalties when students enroll in an income-based repayment plan. They would have to repay the government for a share of the interest and principal that the Education Department usually forgives for lower-income borrowers as part of these plans.
The exact amount these institutions would be required to pay back would depend on some complex math, including the program's cost and the earnings of its graduates.
Programs and schools that would likely face the hardest hits? Those charging a chunky fee for education and not producing the anticipated results. Preston Cooper of the American Enterprise Institute (AEI) explains it this way: "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."
Not just a stick, but a carrot too
This isn't just about punishing schools for graduating students with large debts and poor earning potential. The Republicans' plan would also award "PROMISE Grants" to colleges that provide a great bang for the buck to low-income students - meaning federal loans and grants.
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 a curious twist, the penalties would fund the carrot, recycling these payments to top-performing schools.
Loans in default won't count
A few flaws have been spotted in this plan. One major issue: the math used to decide whether a school should be penalized overlooks a crucial variable.
"[It] would not include loan balances that were in default, which is very odd," says Dominique Baker of the University of Delaware.
Baker emphasizes that a fair plan to hold schools accountable for unpaid student loans should include debts that have gone into default. Concerns about this omission have been echoed by others.
Jordan Matsudaira, who served as deputy under secretary at the U.S. Department of Education in the Biden administration, speculates that omitting defaulted loans is a concession to institutions with high default rates.
AEI's Cooper, on the other hand, explains that lawmakers are trying to strike a balance between holding schools accountable and ensuring the risk-sharing penalties aren't overwhelming for institutions.
Baker is also worried about the plan to penalize schools whose borrowers enroll in income-based repayment plans, as this could potentially compel schools to guide students into less-affordable repayment plans.
Another significant concern: the lack of essential data needed to implement this plan effectively. Experts argue that the data required to calculate the risk-sharing payments doesn't exist, and it's unclear how the Department of Education would gather it.
All in all, while the intent of the plan is commendable, its execution faces numerous challenges and criticisms, particularly regarding data collection and potential disproportionate impact on underresourced institutions.
- This proposed plan promises to apply penalties not only to schools with high student debt and poor earning potential but also rewards institutions providing a good value to low-income students through the 'PROMISE Grants'.
- The American Enterprise Institute's Preston Cooper believes that high-fee programs not delivering desired results could face significant penalties under the new plan.
- A potential flaw in the plan highlighted by Dominique Baker is the exclusion of loan balances that have defaulted, affecting the fairness of holding schools accountable for unpaid student loans.
