Preventing Financial Exploitation in Higher Education Act
This bill establishes financial penalties for institutions of higher education (IHEs) with endowments of $2.5 billion or more that have specified percentages of current and former students who default, are delinquent, or underpay on their federal student loans. The bill also imposes an increased excise tax on net investment income of certain IHEs that increase tuition beyond certain levels.
Specifically, the bill requires such an IHE to pay penalties to the Department of Education based on the IHE's
For example, for FY2025, an IHE with a cohort default rate of 11% or more must pay a penalty in an amount equal to 30% of the total outstanding balance of principal and interest due on all federal student loans.
The bill also imposes an increased excise tax equal to 25% of the net investment income of an IHE with an endowment of $2.5 billion or more that charges tuition exceeding the inflation adjustment base amount for the taxable year.
[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[H.R. 713 Introduced in House (IH)]
<DOC>
119th CONGRESS
1st Session
H. R. 713
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.
_______________________________________________________________________
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>
Introduced in House
Introduced in House
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.
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.
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