HR 713

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IN THE HOUSE OF REPRESENTATIVES

January 23, 2025

Ms. Van Duyne introduced the following bill; which was referred to the Committee on Education and Workforce, and in addition to the Committee on Ways and Means, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned

A BILL

To impose a financial penalty on certain institutions of higher education with high percentages of students who default or make insufficient payments on Federal student loans, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the “Preventing Financial Exploitation in Higher Education Act”.

SEC. 2. INSTITUTIONAL ACCOUNTABILITY FOR DEFAULTED, DELINQUENT, AND UNDERPAID STUDENT LOANS.

Part D of title IV of the Higher Education Act of 1965 (20 U.S.C. 1087a et seq.) is amended by inserting after section 454 the following:

“SEC. 454A. INSTITUTIONAL ACCOUNTABILITY FOR DEFAULTED, DELINQUENT, AND UNDERPAID STUDENT LOANS.

“(a) In General.—In accordance with subsection (b), a covered institution of higher education shall pay to the Secretary—

“(1) a penalty based on the institution’s cohort default rate for each fiscal year;

“(2) a penalty based on the institution’s cohort delinquency rate for each fiscal year; and

“(3) a penalty based on the institution’s cohort underpayment rate for each fiscal year.

“(b) Phase-In of Cohort Default Rate Penalty.—

“(1) Fiscal year 2025.—A covered institution of higher education—

“(A) with a cohort default rate (as calculated under section 435(m)) for fiscal year 2025 that is 11 percent or more, shall pay to the Secretary a penalty in an amount equal to 30 percent of the total outstanding balance of principle and interest due on all loans under this part that are included in the calculation of such cohort default rate for such fiscal year;

“(B) with a cohort delinquency rate (as determined by the Secretary) for fiscal year 2025 that is 10 percent or more shall pay to the Secretary a penalty in an amount equal to 28 percent of the total outstanding balance of principle and interest due on all loans under this part that are included in the calculation of such cohort delinquency rate for such fiscal year; and

“(C) with a cohort underpayment rate (as determined by the Secretary) for fiscal year 2025 that is 9 percent or more shall pay to the Secretary a penalty in an amount equal to 26 percent of the total outstanding balance of principle and interest due on all loans under this part that are included in the calculation of such cohort underpayment rate for such fiscal year.

“(2) Fiscal year 2026.—A covered institution of higher education—

“(A) with a cohort default rate (as calculated under section 435(m)) for fiscal year 2026 that is 10 percent or more, shall pay to the Secretary a penalty in an amount equal to 28 percent of the total outstanding balance of principle and interest due on all loans under this part that are included in the calculation of such cohort default rate for such fiscal year;

“(B) with a cohort delinquency rate (as determined by the Secretary) for fiscal year 2026 that is 9 percent or more, shall pay to the Secretary a penalty in an amount equal to 26 percent of the total outstanding balance of principle and interest due on all loans under this part that are included in the calculation of such cohort delinquency rate for such fiscal year; and

“(C) with a cohort underpayment rate (as determined by the Secretary) for fiscal year 2026 that is 8 percent or more, shall pay to the Secretary a penalty in an amount equal to 24 percent of the total outstanding balance of principle and interest due on all loans under this part that are included in the calculation of such cohort underpayment rate for such fiscal year.

“(3) Fiscal year 2027.—A covered institution of higher education—

“(A) with a cohort default rate (as calculated under section 435(m)) for fiscal year 2027 that is 9 percent or more, shall pay to the Secretary a penalty in an amount equal to 26 percent of the total outstanding balance of principle and interest due on all loans under this part that are included in the calculation of such cohort default rate for such fiscal year;

“(B) with a cohort delinquency rate (as determined by the Secretary) for fiscal year 2027 that is 8 percent or more, shall pay to the Secretary a penalty in an amount equal to 24 percent of the total outstanding balance of principle and interest due on all loans under this part that are included in the calculation of such cohort delinquency rate for such fiscal year; and

“(C) with a cohort underpayment rate (as determined by the Secretary) for fiscal year 2027 that is 7 percent or more, shall pay to the Secretary a penalty in an amount equal to 22 percent of the total outstanding balance of principle and interest due on all loans under this part that are included in the calculation of such cohort underpayment rate for such fiscal year.

“(4) Fiscal year 2028.—A covered institution of higher education—

“(A) with a cohort default rate (as calculated under section 435(m)) for fiscal year 2028 that is 8 percent or more, shall pay to the Secretary a penalty in an amount equal to 24 percent of the total outstanding balance of principle and interest due on all loans under this part that are included in the calculation of such cohort default rate for such fiscal year;

“(B) with a cohort delinquency rate (as determined by the Secretary) for fiscal year 2028 that is 7 percent or more, shall pay to the Secretary a penalty in an amount equal to 22 percent of the total outstanding balance of principle and interest due on all loans under this part that are included in the calculation of such cohort delinquency rate for such fiscal year; and

“(C) with a cohort underpayment rate (as determined by the Secretary) for fiscal year 2028 that is 6 percent or more, shall pay to the Secretary a penalty in an amount equal to 20 percent of the total outstanding balance of principle and interest due on all loans under this part that are included in the calculation of such cohort underpayment rate for such fiscal year.

“(5) Fiscal year 2029.—A covered institution of higher education—

“(A) with a cohort default rate (as calculated under section 435(m)) for fiscal year 2029 that is 7 percent or more, shall pay to the Secretary a penalty in an amount equal to 22 percent of the total outstanding balance of principle and interest due on all loans under this part that are included in the calculation of such cohort default rate for such fiscal year;

“(B) with a cohort delinquency rate (as determined by the Secretary) for fiscal year 2029 that is 6 percent or more, shall pay to the Secretary a penalty in an amount equal to 20 percent of the total outstanding balance of principle and interest due on all loans under this part that are included in the calculation of such cohort delinquency rate for such fiscal year; and

“(C) with a cohort underpayment rate (as determined by the Secretary) for fiscal year 2029 that is 5 percent or more, shall pay to the Secretary a penalty in an amount equal to 18 percent of the total outstanding balance of principle and interest due on all loans under this part that are included in the calculation of such cohort underpayment rate for such fiscal year.

“(6) Fiscal year 2030 and subsequent fiscal years.—A covered institution of higher education—

“(A) with a cohort default rate (as calculated under section 435(m)) for fiscal year 2030 or any fiscal year thereafter that is 6 percent or more, shall pay to the Secretary a penalty in an amount equal to 20 percent of the total outstanding balance of principle and interest due on all loans under this part that are included in the calculation of such cohort default rate for such fiscal year;

“(B) with a cohort delinquency rate (as determined by the Secretary) for fiscal year 2030 or any fiscal year thereafter that is 5 percent or more, shall pay to the Secretary a penalty in an amount equal to 18 percent of the total outstanding balance of principle and interest due on all loans under this part that are included in the calculation of such cohort delinquency rate for such fiscal year; and

“(C) with a cohort underpayment rate (as determined by the Secretary) for fiscal year 2030 or any fiscal year thereafter that is 4 percent or more, shall pay to the Secretary a penalty in an amount equal to 16 percent of the total outstanding balance of principle and interest due on all loans under this part that are included in the calculation of such cohort underpayment rate for such fiscal year.

“(c) Effect on Default Status of Borrower.—The payment of a penalty under this section by a covered institution of higher education shall have no effect on the rights or obligations of a borrower of a loan that is included in the calculation of the institution’s cohort default rate, cohort delinquency rate, or cohort underpayment rate for purposes of such penalty.

“(d) Definitions.—

“(1) Cohort delinquency rate.—The term ‘cohort delinquency rate’ means the percentage of Federal student loan borrowers included in a cohort under subsection (b) who have failed to make payments on one or more of the Federal student loans used for attendance at the institution concerned for between 31 and 360 days (inclusive).

“(2) Cohort underpayment rate.—The term ‘cohort underpayment rate’, means the percentage of Federal student loan borrowers included in a cohort under subsection (b) who—

“(A) are making regular payments on the Federal student loans used for attendance at the institution concerned but for whom the sum all outstanding balances of such loans exceeds the sum of the original loan balances; and

“(B) are neither delinquent nor in default on such loans.

“(3) Covered institution of higher education.—The term ‘covered institution of higher education’ means an institution of higher education that is the beneficiary of an endowment fund with total value of $2,500,000,000 or more.

“(4) Endowment fund.—The term ‘endowment fund’ means a fund that—

“(A) is established by State law, by an institution of higher education, or by a foundation that is exempt from Federal income taxation; and

“(B) is maintained for the purpose of generating income for the support of an institution of higher education.

“(5) Federal student loan.—The term ‘Federal student loan’ means a loan made under this part.”.

SEC. 3. PROGRAM PARTICIPATION AGREEMENTS.

Section 487(a) of the Higher Education Act of 1965 (20 U.S.C. 1094(a)) is amended by adding at the end the following:

“(30) The institution will comply with the requirements of section 454A.”.

SEC. 4. INCREASED TAX ON NET INVESTMENT INCOME OF CERTAIN EDUCATIONAL INSTITUTIONS WITH LARGE ENDOWMENTS THAT INCREASE TUITION.

Section 4968 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

“(e) Increased Tax on Certain Applicable Educational Institutions That Increase Tuition.—

“(1) In general.—In the case of any disqualified large applicable educational institution for any taxable year beginning after December 31, 2025, subsection (a) shall be applied by substituting ‘25 percent’ for ‘1.4 percent’ for such taxable year.

“(2) Disqualified large applicable educational institution.—For purposes of this subsection, the term ‘disqualified large applicable educational institution’ means, with respect to any taxable year, any institution if—

“(A) such institution is an applicable educational institution for such taxable year,

“(B) the average tuition charged to full-time students for semesters during such taxable year exceeds the inflation adjusted base amount for such taxable year, and

“(C) the aggregate fair market value (determined as of the end of the preceding taxable year) of the assets of such institution (other than those assets which are used directly in carrying out the institution’s exempt purpose) equal or exceeds $2,500,000,000.

“(3) Inflation adjusted base amount.—For purposes of this subsection—

“(A) In general.—The term ‘inflation adjusted base amount’ means, with respect to any applicable education institution for any taxable year which begins in any calendar year, the sum of—

“(i) the base amount of such institution, plus

“(ii) the product of—

“(I) such base amount, multiplied by

“(II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting ‘calendar year 2024’ for ‘calendar year 2016’ in subparagraph

(A)(ii) thereof.

“(B) Base amount.—The term ‘base amount’ means, with respect any applicable educational institution, the average tuition charged to specified students for semesters during calendar year 2025.

“(4) Application to new institutions.—In the case of any applicable educational institution not in existence at all times during calendar year 2025—

“(A) the base amount with respect to such institution shall be determined with respect to the first full calendar year for which such institution is in existence,

“(B) the inflation adjusted base amount shall be determined by using the calendar year preceding such first full calendar year as the year substituted in paragraph (3)(A)(ii)(II), and

“(C) paragraph (1) shall not apply to any taxable year beginning before the end of such first full calendar year. Notwithstanding the preceding sentence, if the average tuition charged by any applicable educational institution to specified students during the first full calendar year for which such institution is in existence is higher than such average for any of the 3 succeeding calendar years, the base amount and inflation adjusted base amount with respect to such institution shall be determined in such manner as the Secretary may provide.”. <all>