Educational loss ratio

(a)

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)In the case of a proprietary institution of higher education (as defined in section 102(b)), such institution will— (A)expend not less than 80 percent of such institution's revenues for an institutional fiscal year on educational and related expenses (as defined in subsection (i)(4)); or (B)for each institutional fiscal year in which the institution expends less than 80 percent of such revenues on such educational and related expenses, issue a rebate for each student who was enrolled at the institution during such institutional fiscal year, calculated and distributed in accordance with subsection (k).

(b)

Educational loss ratio

Section 487 of such Act (20 U.S.C. 1094) is further amended— (1)in subsection (i)— (A)by redesignating paragraphs (4) through (6) as paragraphs (5) through (7), respectively; and (B)by inserting after paragraph (3), the following:

(4)

Educational and related expenses

The term educational and related expenses shall be defined by the Secretary by regulation, except that such term shall not include revenue expended for advertising and promotion activities, excessive administrative expenses including excessive executive compensation, recruiting, lobbying expenses, or payments to shareholders.

; and

(2)by adding at the end the following new subsection:

(k)

Implementation of rebate requirement for insufficient educational expenditures

(1)

Calculation of rebate amount for each student

For purposes of subsection (a)(30), the amount of a rebate for each student at an institution subject to subparagraph (B) of such subsection shall be calculated by— (A)determining the difference between 80 percent and the percentage of the institution’s revenues expended on educational and related expenses (as defined in subsection (i)(4)); and (B)applying the percentage determined under subparagraph (A) to the total amount of tuition, fees, and institutional charges provided to the institution by the student, or on the student’s behalf, from all sources for the applicable period of enrollment. (2)

Distribution of individual student rebates

Each rebate issued for a student by an institution described in subsection (a)(30)(B) shall be distributed as follows: (A)To the Secretary, an amount that bears the same ratio to the total rebate for such student as the amount of tuition, fees, and institutional charges provided to the institution for the student from sources under this title bears to the total amount of tuition, fees, and institutional charges provided to the institution for the applicable period of enrollment by or on behalf of the student from all sources, which shall be credited, in a manner consistent with section 484B(b)(3), to outstanding balances on loans, to awards, and to other assistance made under this title to the student or on behalf of the student for the period of enrollment for which a rebate is required. (B)To each third party who provided an amount to the institution for tuition, fees, and institutional charges on the student’s behalf, including the Secretary of Defense, the Secretary of Veterans Affairs, or an employer, an amount that bears the same ratio to the total rebate for such student as the amount of tuition, fees, and institutional charges provided to the institution for the student from such third party bears to the total amount of tuition, fees, and institutional charges provided to the institution for the applicable period of enrollment by or on behalf of the student from all sources. (C)To the student, the amount of the total rebate for such student remaining after payment to the Secretary and each third party under subparagraphs (A) and (B). (3)

Student rebate fee prohibited

An institution that is required to issue a rebate for a student under subsection (a)(30) may not assess a new student fee, increase an existing student fee, withhold or reduce any portion of financial assistance provided to any student, or otherwise increase the cost of attendance for any student, to satisfy such rebate requirement. (4)

No change in 90/10 calculations

Rebates required under subsection (a)(30) and issued in accordance with this subsection shall in no way affect or be considered in the calculation of revenue requirements under subsection (a)(24). (5)

Calculation of institution’s revenues

In making calculations under subsection (a)(30) and this subsection, an institution's revenues for an institutional fiscal year shall be calculated in accordance with subsection (d)(1), except that an institution shall not be required to use the cash basis of accounting.