I
119THCONGRESS
1
STSESSION H. R. 713
To impose a financial penalty on certain institutions of higher education
with high percentages of students who default or make insufficient pay-
ments on Federal student loans, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
JANUARY23, 2025
Ms. V
ANDUYNEintroduced the following bill; which was referred to the Com-
mittee 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 high-
er education with high percentages of students who de-
fault or make insufficient payments on Federal student
loans, and for other purposes.
Be it enacted by the Senate and House of Representa-1
tives of the United States of America in Congress assembled, 2
SECTION 1. SHORT TITLE. 3
This Act may be cited as the ‘‘Preventing Financial 4
Exploitation in Higher Education Act’’. 5
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SEC. 2. INSTITUTIONAL ACCOUNTABILITY FOR DE-1
FAULTED, DELINQUENT, AND UNDERPAID 2
STUDENT LOANS. 3
Part D of title IV of the Higher Education Act of 4
1965 (20 U.S.C. 1087a et seq.) is amended by inserting 5
after section 454 the following: 6
‘‘SEC. 454A. INSTITUTIONAL ACCOUNTABILITY FOR DE-7
FAULTED, DELINQUENT, AND UNDERPAID 8
STUDENT LOANS. 9
‘‘(a) I
NGENERAL.—In accordance with subsection 10
(b), a covered institution of higher education shall pay to 11
the Secretary— 12
‘‘(1) a penalty based on the institution’s cohort 13
default rate for each fiscal year; 14
‘‘(2) a penalty based on the institution’s cohort 15
delinquency rate for each fiscal year; and 16
‘‘(3) a penalty based on the institution’s cohort 17
underpayment rate for each fiscal year. 18
‘‘(b) P
HASE-INOFCOHORTDEFAULTRATEPEN-19
ALTY.— 20
‘‘(1) F
ISCAL YEAR 2025.—A covered institution 21
of higher education— 22
‘‘(A) with a cohort default rate (as cal-23
culated under section 435(m)) for fiscal year 24
2025 that is 11 percent or more, shall pay to 25
the Secretary a penalty in an amount equal to 26
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30 percent of the total outstanding balance of 1
principle and interest due on all loans under 2
this part that are included in the calculation of 3
such cohort default rate for such fiscal year; 4
‘‘(B) with a cohort delinquency rate (as de-5
termined by the Secretary) for fiscal year 2025 6
that is 10 percent or more shall pay to the Sec-7
retary a penalty in an amount equal to 28 per-8
cent of the total outstanding balance of prin-9
ciple and interest due on all loans under this 10
part that are included in the calculation of such 11
cohort delinquency rate for such fiscal year; and 12
‘‘(C) with a cohort underpayment rate (as 13
determined by the Secretary) for fiscal year 14
2025 that is 9 percent or more shall pay to the 15
Secretary a penalty in an amount equal to 26 16
percent of the total outstanding balance of prin-17
ciple and interest due on all loans under this 18
part that are included in the calculation of such 19
cohort underpayment rate for such fiscal year. 20
‘‘(2) F
ISCAL YEAR 2026.—A covered institution 21
of higher education— 22
‘‘(A) with a cohort default rate (as cal-23
culated under section 435(m)) for fiscal year 24
2026 that is 10 percent or more, shall pay to 25
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the Secretary a penalty in an amount equal to 1
28 percent of the total outstanding balance of 2
principle and interest due on all loans under 3
this part that are included in the calculation of 4
such cohort default rate for such fiscal year; 5
‘‘(B) with a cohort delinquency rate (as de-6
termined by the Secretary) for fiscal year 2026 7
that is 9 percent or more, shall pay to the Sec-8
retary a penalty in an amount equal to 26 per-9
cent of the total outstanding balance of prin-10
ciple and interest due on all loans under this 11
part that are included in the calculation of such 12
cohort delinquency rate for such fiscal year; and 13
‘‘(C) with a cohort underpayment rate (as 14
determined by the Secretary) for fiscal year 15
2026 that is 8 percent or more, shall pay to the 16
Secretary a penalty in an amount equal to 24 17
percent of the total outstanding balance of prin-18
ciple and interest due on all loans under this 19
part that are included in the calculation of such 20
cohort underpayment rate for such fiscal year. 21
‘‘(3) F
ISCAL YEAR 2027.—A covered institution 22
of higher education— 23
‘‘(A) with a cohort default rate (as cal-24
culated under section 435(m)) for fiscal year 25
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2027 that is 9 percent or more, shall pay to the 1
Secretary a penalty in an amount equal to 26 2
percent of the total outstanding balance of prin-3
ciple and interest due on all loans under this 4
part that are included in the calculation of such 5
cohort default rate for such fiscal year; 6
‘‘(B) with a cohort delinquency rate (as de-7
termined by the Secretary) for fiscal year 2027 8
that is 8 percent or more, shall pay to the Sec-9
retary a penalty in an amount equal to 24 per-10
cent of the total outstanding balance of prin-11
ciple and interest due on all loans under this 12
part that are included in the calculation of such 13
cohort delinquency rate for such fiscal year; and 14
‘‘(C) with a cohort underpayment rate (as 15
determined by the Secretary) for fiscal year 16
2027 that is 7 percent or more, shall pay to the 17
Secretary a penalty in an amount equal to 22 18
percent of the total outstanding balance of prin-19
ciple and interest due on all loans under this 20
part that are included in the calculation of such 21
cohort underpayment rate for such fiscal year. 22
‘‘(4) F
ISCAL YEAR 2028.—A covered institution 23
of higher education— 24
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‘‘(A) with a cohort default rate (as cal-1
culated under section 435(m)) for fiscal year 2
2028 that is 8 percent or more, shall pay to the 3
Secretary a penalty in an amount equal to 24 4
percent of the total outstanding balance of prin-5
ciple and interest due on all loans under this 6
part that are included in the calculation of such 7
cohort default rate for such fiscal year; 8
‘‘(B) with a cohort delinquency rate (as de-9
termined by the Secretary) for fiscal year 2028 10
that is 7 percent or more, shall pay to the Sec-11
retary a penalty in an amount equal to 22 per-12
cent of the total outstanding balance of prin-13
ciple and interest due on all loans under this 14
part that are included in the calculation of such 15
cohort delinquency rate for such fiscal year; and 16
‘‘(C) with a cohort underpayment rate (as 17
determined by the Secretary) for fiscal year 18
2028 that is 6 percent or more, shall pay to the 19
Secretary a penalty in an amount equal to 20 20
percent of the total outstanding balance of prin-21
ciple and interest due on all loans under this 22
part that are included in the calculation of such 23
cohort underpayment rate for such fiscal year. 24
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‘‘(5) FISCAL YEAR 2029.—A covered institution 1
of higher education— 2
‘‘(A) with a cohort default rate (as cal-3
culated under section 435(m)) for fiscal year 4
2029 that is 7 percent or more, shall pay to the 5
Secretary a penalty in an amount equal to 22 6
percent of the total outstanding balance of prin-7
ciple and interest due on all loans under this 8
part that are included in the calculation of such 9
cohort default rate for such fiscal year; 10
‘‘(B) with a cohort delinquency rate (as de-11
termined by the Secretary) for fiscal year 2029 12
that is 6 percent or more, shall pay to the Sec-13
retary a penalty in an amount equal to 20 per-14
cent of the total outstanding balance of prin-15
ciple and interest due on all loans under this 16
part that are included in the calculation of such 17
cohort delinquency rate for such fiscal year; and 18
‘‘(C) with a cohort underpayment rate (as 19
determined by the Secretary) for fiscal year 20
2029 that is 5 percent or more, shall pay to the 21
Secretary a penalty in an amount equal to 18 22
percent of the total outstanding balance of prin-23
ciple and interest due on all loans under this 24
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part that are included in the calculation of such 1
cohort underpayment rate for such fiscal year. 2
‘‘(6) F
ISCAL YEAR 2030 AND SUBSEQUENT FIS -3
CAL YEARS.—A covered institution of higher edu-4
cation— 5
‘‘(A) with a cohort default rate (as cal-6
culated under section 435(m)) for fiscal year 7
2030 or any fiscal year thereafter that is 6 per-8
cent or more, shall pay to the Secretary a pen-9
alty in an amount equal to 20 percent of the 10
total outstanding balance of principle and inter-11
est due on all loans under this part that are in-12
cluded in the calculation of such cohort default 13
rate for such fiscal year; 14
‘‘(B) with a cohort delinquency rate (as de-15
termined by the Secretary) for fiscal year 2030 16
or any fiscal year thereafter that is 5 percent 17
or more, shall pay to the Secretary a penalty in 18
an amount equal to 18 percent of the total out-19
standing balance of principle and interest due 20
on all loans under this part that are included 21
in the calculation of such cohort delinquency 22
rate for such fiscal year; and 23
‘‘(C) with a cohort underpayment rate (as 24
determined by the Secretary) for fiscal year 25
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2030 or any fiscal year thereafter that is 4 per-1
cent or more, shall pay to the Secretary a pen-2
alty in an amount equal to 16 percent of the 3
total outstanding balance of principle and inter-4
est due on all loans under this part that are in-5
cluded in the calculation of such cohort under-6
payment rate for such fiscal year. 7
‘‘(c) E
FFECT ON DEFAULTSTATUS OF BOR-8
ROWER.—The payment of a penalty under this section by 9
a covered institution of higher education shall have no ef-10
fect on the rights or obligations of a borrower of a loan 11
that is included in the calculation of the institution’s co-12
hort default rate, cohort delinquency rate, or cohort un-13
derpayment rate for purposes of such penalty. 14
‘‘(d) D
EFINITIONS.— 15
‘‘(1) C
OHORT DELINQUENCY RATE .—The term 16
‘cohort delinquency rate’ means the percentage of 17
Federal student loan borrowers included in a cohort 18
under subsection (b) who have failed to make pay-19
ments on one or more of the Federal student loans 20
used for attendance at the institution concerned for 21
between 31 and 360 days (inclusive). 22
‘‘(2) C
OHORT UNDERPAYMENT RATE .—The 23
term ‘cohort underpayment rate’, means the percent-24
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age of Federal student loan borrowers included in a 1
cohort under subsection (b) who— 2
‘‘(A) are making regular payments on the 3
Federal student loans used for attendance at 4
the institution concerned but for whom the sum 5
all outstanding balances of such loans exceeds 6
the sum of the original loan balances; and 7
‘‘(B) are neither delinquent nor in default 8
on such loans. 9
‘‘(3) C
OVERED INSTITUTION OF HIGHER EDU -10
CATION.—The term ‘covered institution of higher 11
education’ means an institution of higher education 12
that is the beneficiary of an endowment fund with 13
total value of $2,500,000,000 or more. 14
‘‘(4) E
NDOWMENT FUND .—The term ‘endow-15
ment fund’ means a fund that— 16
‘‘(A) is established by State law, by an in-17
stitution of higher education, or by a founda-18
tion that is exempt from Federal income tax-19
ation; and 20
‘‘(B) is maintained for the purpose of gen-21
erating income for the support of an institution 22
of higher education. 23
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‘‘(5) FEDERAL STUDENT LOAN .—The term 1
‘Federal student loan’ means a loan made under this 2
part.’’. 3
SEC. 3. PROGRAM PARTICIPATION AGREEMENTS. 4
Section 487(a) of the Higher Education Act of 1965 5
(20 U.S.C. 1094(a)) is amended by adding at the end the 6
following: 7
‘‘(30) The institution will comply with the re-8
quirements of section 454A.’’. 9
SEC. 4. INCREASED TAX ON NET INVESTMENT INCOME OF 10
CERTAIN EDUCATIONAL INSTITUTIONS WITH 11
LARGE ENDOWMENTS THAT INCREASE TUI-12
TION. 13
Section 4968 of the Internal Revenue Code of 1986 14
is amended by adding at the end the following new sub-15
section: 16
‘‘(e) I
NCREASEDTAX ONCERTAINAPPLICABLE 17
E
DUCATIONAL INSTITUTIONS THATINCREASETUI-18
TION.— 19
‘‘(1) I
N GENERAL.—In the case of any disquali-20
fied large applicable educational institution for any 21
taxable year beginning after December 31, 2025, 22
subsection (a) shall be applied by substituting ‘25 23
percent’ for ‘1.4 percent’ for such taxable year. 24
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‘‘(2) DISQUALIFIED LARGE APPLICABLE EDU -1
CATIONAL INSTITUTION.—For purposes of this sub-2
section, the term ‘disqualified large applicable edu-3
cational institution’ means, with respect to any tax-4
able year, any institution if— 5
‘‘(A) such institution is an applicable edu-6
cational institution for such taxable year, 7
‘‘(B) the average tuition charged to full- 8
time students for semesters during such taxable 9
year exceeds the inflation adjusted base amount 10
for such taxable year, and 11
‘‘(C) the aggregate fair market value (de-12
termined as of the end of the preceding taxable 13
year) of the assets of such institution (other 14
than those assets which are used directly in car-15
rying out the institution’s exempt purpose) 16
equal or exceeds $2,500,000,000. 17
‘‘(3) I
NFLATION ADJUSTED BASE AMOUNT .— 18
For purposes of this subsection— 19
‘‘(A) I
N GENERAL.—The term ‘inflation 20
adjusted base amount’ means, with respect to 21
any applicable education institution for any tax-22
able year which begins in any calendar year, the 23
sum of— 24
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‘‘(i) the base amount of such institu-1
tion, plus 2
‘‘(ii) the product of— 3
‘‘(I) such base amount, multi-4
plied by 5
‘‘(II) the cost-of-living adjust-6
ment determined under section 1(f)(3) 7
for the calendar year in which the tax-8
able year begins, determined by sub-9
stituting ‘calendar year 2024’ for ‘cal-10
endar year 2016’ in subparagraph 11
(A)(ii) thereof. 12
‘‘(B) B
ASE AMOUNT.—The term ‘base 13
amount’ means, with respect any applicable 14
educational institution, the average tuition 15
charged to specified students for semesters dur-16
ing calendar year 2025. 17
‘‘(4) A
PPLICATION TO NEW INSTITUTIONS .—In 18
the case of any applicable educational institution not 19
in existence at all times during calendar year 20
2025— 21
‘‘(A) the base amount with respect to such 22
institution shall be determined with respect to 23
the first full calendar year for which such insti-24
tution is in existence, 25
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‘‘(B) the inflation adjusted base amount 1
shall be determined by using the calendar year 2
preceding such first full calendar year as the 3
year substituted in paragraph (3)(A)(ii)(II), 4
and 5
‘‘(C) paragraph (1) shall not apply to any 6
taxable year beginning before the end of such 7
first full calendar year. 8
Notwithstanding the preceding sentence, if the aver-9
age tuition charged by any applicable educational in-10
stitution to specified students during the first full 11
calendar year for which such institution is in exist-12
ence is higher than such average for any of the 3 13
succeeding calendar years, the base amount and in-14
flation adjusted base amount with respect to such 15
institution shall be determined in such manner as 16
the Secretary may provide.’’. 17
Æ
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