Institutional rebates to the Department of Education for defaulted loans

Section 454 of the Higher Education Act of 1964 (20 U.S.C. 1087d) is amended— (1)in subsection (a)— (A)in paragraph (5), by striking and; (B)in paragraph (6) by striking the period at the end and inserting ; and; and (C)by adding at the end the following:

(7)provide that the institution accepts the institutional risk-sharing requirements under subsection (d), if applicable.

; and

(2)by adding at the end the following:

(d)

Institutional risk-Sharing for student loan defaults

(1)

In general

Subject to paragraph (3), each institution of higher education participating in the direct student loan program under this part for a fiscal year that has a rate of participation in such program for all students enrolled at that institution for such fiscal year that is 25 percent or higher shall remit, at such times as the Secretary may specify, a risk-sharing payment based on a percentage of the volume of student loans under this part that are in default, as determined under paragraph (2). (2)

Determination of risk-sharing payments

Subject to paragraph (3), with respect to each fiscal year, an institution of higher education described in paragraph (1) that has a cohort default rate (as defined in section 435(m))— (A)that is 30 percent or higher for the most recent fiscal year for which data are available, shall pay to the Secretary for the fiscal year an amount that is equal to 20 percent of the total amount (including interest and collection fees) of loans made under this part to students that are in default; (B)that is lower than 30 percent but not lower than 25 percent for the most recent fiscal year for which data are available, shall pay to the Secretary for the fiscal year an amount that is equal to 15 percent of the total amount (including interest and collection fees) of loans made under this part to students that are in default; (C)that is lower than 25 percent but not lower than 20 percent for the most recent fiscal year for which data are available, shall pay to the Secretary for the fiscal year an amount that is equal to 10 percent of the total amount (including interest and collection fees) of loans made under this part to students that are in default; and (D)that is lower than 20 percent but not lower than 15 percent for the most recent fiscal year for which data are available, shall pay to the Secretary for the fiscal year an amount that is equal to 5 percent of the total amount (including interest and collection fees) of loans made under this part to students that are in default. (3)

Waiver and reduced risk-sharing payments

(A)

Waiver

The Secretary shall waive the risk-sharing payments described in paragraph (1) for an institution described in paragraph (2)(D) that meets the requirements of subparagraph (D). (B)

Reduced risk-sharing payments

If an institution has in place a student loan management plan described in subparagraph (D) that is approved by the Secretary, the Secretary shall reduce the total annual amount of risk-sharing payments as follows: (i)With respect to an institution with a cohort default rate described in paragraph (2)(A), the risk-sharing payment shall be in an amount that is equal to 15 percent of the total amount (including interest and collection fees) of loans made under this part to students that are in default. (ii)With respect to an institution with a cohort default rate described in paragraph (2)(B), the risk-sharing payment shall be in an amount that is equal to 10 percent of the total amount (including interest and collection fees) of loans made under this part to students that are in default. (iii)With respect to an institution with a cohort default rate described in paragraph (2)(C), the risk-sharing payment shall be in an amount that is equal to 5 percent of the total amount (including interest and collection fees) of loans made under this part to students that are in default. (C)

Continuation of waiver or reduced payments

An institution that receives a waiver under subparagraph (A) or a reduced risk-sharing payment under subparagraph (B) may receive a waiver or reduced payment for a subsequent fiscal year only if the Secretary determines that the institution is making satisfactory progress in carrying out the student loan management plan described in subparagraph (D), including evidence of the effectiveness of the individualized financial aid counseling for students. (D)

Student loan management plan

An institution that seeks a waiver or reduction of its risk-sharing payment, shall develop and carry out a student loan management plan that shall include an analysis of the risk factors correlated with higher student loan defaults that are present at the institution and actions that the institution will take to address such factors. Such plan shall include individualized financial aid counseling for students and strategies to minimize student loan default and delinquency. (E)

Waiver or reduction for certain institutions

In addition to the other risk-sharing payment waivers and reductions described in this paragraph, the Secretary may waive or reduce risk-sharing payments if— (i)an institution is eligible under— (I)part A or part B of title III; or (II)title V; and (ii)the Secretary determines that— (I)the institution is making satisfactory progress in carrying out the institution’s student loan management plan described under subparagraph (D); and (II)granting a waiver or reduction of risk-sharing payments would be in the best interest of students at the institution. (4)

Prohibition

An institution of higher education shall not deny admission or financial aid to a student based on a perception that such student may be at risk for defaulting on a loan made under this part. (5)

Fund for the deposit of risk-sharing payments

(A)

In general

There is established in the Treasury of the United States a separate account for the deposit of risk-sharing payments collected under this subsection. The Secretary shall deposit any payments collected pursuant to this subsection into such fund. (B)

Use of funds

Of the amounts in the fund described in subparagraph (A), for each fiscal year— (i)not more than 50 percent of such amounts shall be made available to the Secretary to enter into contracts or cooperative agreements for delinquency and default prevention or rehabilitation under section 456(d); and (ii)the Secretary shall reserve the remainder of such amounts for a Federal Pell Grant fund that shall be used to offset any future shortfalls in funding under the Federal Pell Grant program. (6)

Applicability

The Secretary shall carry out this subsection beginning with the cohort default rate for the 2014 cohort. The 2014 cohort shall include current and former students who enter repayment in fiscal year 2014. (7)

Report to congress

The Secretary shall report on an annual basis to the Committee on Health, Education, Labor, and Pensions of the Senate and the Committee on Education and the Workforce of the House of Representatives the following information: (A)A list of institutions that have been subject to risk-sharing payments in the previous year. (B)The required risk-sharing payment from such institutions. (C)The amount of risk-sharing payments collected from such institutions. (D)A list of the institutions that have received waivers from the risk-sharing payment and the reason for such waiver. (E)A list of the institutions that have received reductions in the required risk-sharing payment. (F)The use of funds deposited from risk-sharing payments, including a list of any contracts or cooperative agreements for delinquency and default prevention or rehabilitation and the amount reserved for the Federal Pell Grant program.