Preventing Financial Exploitation in Higher Education Act

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.

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.

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.

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.

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.

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.

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.

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.

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).

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.

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.

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.

The term Federal student loan means a loan made under this part.

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

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.

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.

For purposes of this subsection—

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.

The term base amount means, with respect any applicable educational institution, the average tuition charged to specified students for semesters during calendar year 2025.

In the case of any applicable educational institution not in existence at all times during calendar year 2025— 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.

(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.