[Congressional Bills 113th Congress]
[From the U.S. Government Publishing Office]
[S. 1969 Introduced in Senate (IS)]

113th CONGRESS
  2d Session
                                S. 1969

                To provide for higher education reform.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            January 29, 2014

  Mr. Murphy (for himself, Mr. Schatz, Mrs. Murray, and Mr. Sanders) 
introduced the following bill; which was read twice and referred to the 
          Committee on Health, Education, Labor, and Pensions

_______________________________________________________________________

                                 A BILL


 
                To provide for higher education reform.

    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 ``College Affordability and Innovation 
Act of 2014''.

SEC. 2. DEFINITIONS.

    In this Act:
            (1) Authorizing committees.--The term ``authorizing 
        committees'' means the Committee on Health, Education, Labor, 
        and Pensions of the Senate and the Committee on Education and 
        the Workforce of the House of Representatives.
            (2) Secretary.--The term ``Secretary'' means the Secretary 
        of Education.

SEC. 3. PILOT PROGRAM TO PROMOTE INNOVATION IN HIGHER EDUCATION.

    (a) Purpose; Definition.--
            (1) Purpose.--The purpose of this section is to authorize 
        an evidence-based grant program to promote greater 
        experimentation among institutions of higher education to 
        increase the level of student attainment of postsecondary and 
        graduate certificates and degrees through innovative programs 
        designed to decrease the cost and time required to complete 
        postsecondary and graduate programs while improving the quality 
        and effectiveness of postsecondary education programs, 
        providing accelerated degree or certificate programs, and 
        increasing on-time graduation rates.
            (2) Institution of higher education.--In this section, the 
        term ``institution of higher education'' has the meaning given 
        the term in section 102 of the Higher Education Act of 1965 (20 
        U.S.C. 1002).
    (b) Incentive Grants for Innovative Programs That Improve Quality 
and Affordability.--
            (1) In general.--
                    (A) Grants.--The Secretary shall, for a 5-year 
                award term, award grants to not more than 15 
                institutions of higher education, through a competitive 
                process described in this section, to enable the 
                institutions to carry out programs designed to graduate 
                students with certificates or degrees at significantly 
                lower costs for students and within shorter time 
                periods than traditional programs while improving the 
                quality and effectiveness of the programs.
                    (B) Good standing requirement.--Only those 
                institutions of higher education that are in good 
                standing with the administration of their student 
                assistance programs under title IV of the Higher 
                Education Act of 1965 (20 U.S.C. 1070 et seq.) shall be 
                eligible to receive grants under subparagraph (A).
            (2) Distribution of grant funds.--Grant payments shall be 
        awarded with an initial distribution of 20 percent of the total 
        grant amount, followed by a distribution of 10 percent of the 
        total grant amount prior to the second, third, and fourth years 
        of the program, and the remaining 50 percent of the total grant 
        amount after the program receives its final satisfactory annual 
        evaluation by the Secretary in accordance with subsection 
        (f)(1).
            (3) Description of innovative programs.--The programs 
        described under paragraph (1) shall include those that--
                    (A) utilize online instruction, including distance 
                education (as defined in section 103 of the Higher 
                Education Act of 1965 (20 U.S.C. 1003)), or online 
                interaction components, or online instruction 
                integrated with classroom or in-person instruction;
                    (B) utilize direct assessment programs, as 
                described in section 481(b)(4) of the Higher Education 
                Act of 1965 (20 U.S.C. 1088(b)(4)), either within a 
                comprehensive direct assessment program or integrated 
                within another type of academic program;
                    (C) utilize integration of experiential learning 
                and design of customized programs of study, to promote 
                completion or alignment with medium- and long-term 
                employment needs;
                    (D) allow students to be dually or concurrently 
                enrolled in the postsecondary program and a secondary 
                school, or a postsecondary program and a graduate 
                program; or
                    (E) utilize any other innovative, evidence-based 
                method of postsecondary education that provides cost-
                effective, high-quality methods for instruction, 
                student learning, and use of available technology-based 
                resources, including hybrid models incorporating 
                elements of the program types set forth in 
                subparagraphs (A), (B), (C), and (D), and adaptive 
                learning technologies.
    (c) Applications.--
            (1) In general.--An institution of higher education that 
        desires to receive a grant under this section shall submit an 
        application to the Secretary at such time and in such manner as 
        the Secretary may require.
            (2) Contents.--An application submitted under paragraph (1) 
        shall include--
                    (A) a description of the institution's quality 
                assurances for the programs to be offered;
                    (B) a description of the statutory and regulatory 
                requirements for which a waiver is sought under 
                subsection (e) and the reasons for which the waiver is 
                sought;
                    (C) a description of the programs to be offered;
                    (D) a description of the students eligible for the 
                programs offered, including any eligibility 
                limitations;
                    (E) an assurance that the institution will fully 
                cooperate with the ongoing evaluations of the programs 
                provided for in this section;
                    (F) a description of how the proposed program will 
                improve the quality of its postsecondary certificates 
                or degrees, reduce tuition and other costs to students, 
                and reduce enrollment time;
                    (G) a description of the data (or any other 
                evidence) that indicate that the programs to be offered 
                will likely lead to the outcomes described in 
                subparagraph (F);
                    (H) a complete listing of the institution's 
                performance goals and measures regarding assessments of 
                the quality of its postsecondary certificates or 
                degrees, amount of tuition and costs charged to 
                students, and the amount of enrollment time needed by 
                students to complete the postsecondary certificates or 
                degrees; and
                    (I) any other information as the Secretary may 
                require.
    (d) Awarding of Grants.--
            (1) In general.--The Secretary shall award grants under 
        this section to institutions of higher education for new or 
        existing programs.
            (2) Priority.--In awarding grants under this section, the 
        Secretary shall give priority to an institution of higher 
        education that the Secretary determines--
                    (A) is financially responsible, as described in 
                section 498(c)(1) of the Higher Education Act of 1965 
                (20 U.S.C. 1099c(c)(1));
                    (B) has a proven record of graduating students from 
                the other programs of the institution;
                    (C) has a proven record of graduates from the other 
                programs of the institution securing full-time 
                employment;
                    (D) simultaneously addresses income-related 
                inequalities in remedial education, college access, 
                persistence rates, and graduation rates;
                    (E) has support services in place, such as 
                counseling, coaching, mentoring, and outreach, that are 
                designed to assist all students in obtaining 
                information and making decisions regarding financial 
                aid, and degree or certificate likelihood of 
                persistence and completion;
                    (F) will serve low-income students, adult students 
                aged 25 years and older, and part-time students;
                    (G) will support programs that are replicable at a 
                range of institutions of higher education if they are 
                demonstrated to be successful; and
                    (H) has presented the strongest evidence in support 
                of their likely outcomes, as required under subsection 
                (c)(2)(G).
            (3) Diverse populations.--In awarding grants under this 
        section, the Secretary shall ensure the participation of 
        diverse student populations, including rural and urban 
        populations, and of a diverse range of institutions.
            (4) Publication of grantees.--The Secretary shall make 
        available to the public and to the authorizing committees a 
        list of the institutions of higher education awarded a grant 
        under this section, including a listing of the specific 
        statutory and regulatory requirements being waived for each 
        institution and a description of the programs and courses to be 
        offered.
    (e) Waivers.--
            (1) In general.--Except as provided under paragraph (2), 
        with respect to institutions of higher education awarded grants 
        under this section, the Secretary may waive--
                    (A) subsection (a) or (b) of section 481 of the 
                Higher Education Act of 1965 (20 U.S.C. 1088(a) and 
                (b)), as such subsections relate to requirements for a 
                minimum number of weeks of instruction;
                    (B) subparagraph (A) or (B) of section 102(a)(3) of 
                such Act (20 U.S.C. 1002(a)(3)(A) and (B));
                    (C) one or more of the regulations promulgated to 
                carry out part F or G of title IV of such Act (20 
                U.S.C. 1087kk et seq. and 1088 et seq.), which inhibit 
                the operation of innovative education programs; and
                    (D) any other requirement under title IV of such 
                Act (20 U.S.C. 1070 et seq.) that will bias the results 
                of the program, including a requirement related to the 
                award process and disbursement of student financial aid 
                (such as innovative delivery systems for modular or 
                compressed courses or other innovative systems), or 
                other management procedures or processes as determined 
                in the negotiated rulemaking process under section 492 
                of such Act (20 U.S.C. 1098a), or regulations 
                prescribed under such title.
            (2) Prohibition of waiver.--The Secretary shall not waive, 
        pursuant to paragraph (1), any provision under the Higher 
        Education Act of 1965 (20 U.S.C. 1001 et seq.) or a regulation 
        promulgated to carry out such Act with respect to award rules 
        (other than an award rule related to an experiment in modular 
        or compressed schedules), grant and loan maximum award amounts, 
        and need analysis requirements, unless the waiver of such 
        provision is authorized by another provision under such Act.
    (f) Evaluation and Reports.--
            (1) Evaluation and accountability process.--The Secretary 
        shall establish an evaluation and accountability process for 
        the programs authorized under this section and shall administer 
        such process on an annual basis. Such evaluations shall 
        include--
                    (A) the extent to which the institution of higher 
                education has met the goals set forth in its 
                application to the Secretary, including the quality of 
                education provided by participating programs;
                    (B) the number and types of students participating 
                in the programs offered, including the progress of 
                participating students toward recognized certificates 
                or degrees;
                    (C) issues related to student financial assistance;
                    (D) the extent to which any statutory or regulatory 
                requirements present difficulties for students or 
                institutions in the participating programs; and
                    (E) an analysis of the program's progress with each 
                of its objectives, including the number and rate of 
                completion of participating students toward recognized 
                certificates or degrees, prices charged to students, 
                time required to complete the participating programs, 
                on-time completion rates of participating students, and 
                indicators of program quality.
            (2) Review.--The Secretary shall review policies and 
        identify those policies that present impediments to the 
        development and use of innovative programs and other 
        nontraditional methods of expanding success and access to 
        education.
            (3) Measures.--The Secretary shall establish measures to 
        assess the quality of the education provided by participating 
        programs under this section, including a minimum standard of 
        quality that participating programs shall meet.
            (4) Reports.--The Secretary shall provide reports to the 
        authorizing committees on an annual basis regarding--
                    (A) the programs authorized under this section; and
                    (B) the number and types of students receiving 
                assistance under this section for instruction leading 
                to a recognized degree or certificate, including the 
                progress of such students toward recognized 
                certificates and the degree to which participation in 
                such programs leading to such certificates increased.
            (5) Duties of the secretary.--In conducting the program 
        authorized under this section, the Secretary shall, on a 
        continuing basis--
                    (A) ensure compliance of institutions of higher 
                education with the requirements of this section (other 
                than the sections and regulations that are waived under 
                subsection (e));
                    (B) provide technical assistance;
                    (C) monitor fluctuations in the student population 
                enrolled in the participating program; and
                    (D) assess whether each participating program is 
                improving the quality of postsecondary credentials and 
                meeting the quality control measures set by the 
                Secretary.
    (g) Consumer Protection for Students.--
            (1) Program termination.--If a program funded under this 
        section terminates on its accord at any point during which the 
        program is receiving funds under this section, or if the 
        Secretary determines that the program does not meet the minimum 
        standard of quality as required under subsection (f)(3)--
                    (A) the institution of higher education 
                administering the program shall provide immediate 
                notice to students enrolled in the program and shall 
                prepare a teach-out plan, as described in section 
                487(f) of the Higher Education Act of 1965 (20 U.S.C. 
                1094(f)); and
                    (B) the Secretary shall--
                            (i) ensure that--
                                    (I) no additional program funds are 
                                distributed to the program; and
                                    (II) the institution of higher 
                                education administering the program is 
                                in compliance with the notice and 
                                teach-out requirements under 
                                subparagraph (A); and
                            (ii) assess a fine to an institution of 
                        higher education administering the program that 
                        is not in compliance with the notice and teach-
                        out requirements under subparagraph (A).
            (2) Notice and disclosure for students.--An institution of 
        higher education administering a participating program under 
        this section shall provide notice to all students before they 
        enroll in the participating program that such program is 
        receiving grant funds under this section and may be terminated, 
        as described in paragraph (1).
    (h) Final Evaluation by Third-Party Reviewer.--
            (1) In general.--The Secretary shall direct an independent 
        third-party evaluator to review all participating programs and 
        conduct a final evaluation in order to determine the evidence 
        of the effectiveness of each program in achieving its 
        objectives with regard to the quality of the education 
        provided, reducing the cost of the degree or certificate 
        program, and shortening the amount of time needed to complete 
        the degree or certificate program.
            (2) Evaluation methodology.--The independent third-party 
        evaluator shall establish evaluation methodology in carrying 
        out the final evaluation under paragraph (1).
            (3) Submission to authorizing committees.--The independent 
        third-party evaluator shall publicize the final evaluation and 
        submit such evaluation to the authorizing committees.
            (4) Funding.--Not more than 1 percent of the total amount 
        appropriated to carry out this section may be used to carry out 
        this subsection.
    (i) Authorization of Appropriations.--There is authorized to be 
appropriated to carry out this section--
            (1) $260,000,000 for fiscal year 2015; and
            (2) such sums as may be necessary for each succeeding 
        fiscal year.

SEC. 4. HIGHER EDUCATION ACCOUNTABILITY.

    (a) Purpose; Definition.--
            (1) In general.--The purpose of this section is to 
        establish minimum institutional accountability standards that 
        will be required of all institutions of higher education that 
        receive funds or whose students receive funds pursuant to title 
        IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.) 
        programs. The standards shall focus on affordability, 
        accessibility for low- and middle-income students, and value.
            (2) Institution of higher education.--In this section:
                    (A) In general.--The term ``institution of higher 
                education'' means an institution of higher education 
                described in section 102 of the Higher Education Act of 
                1965 (20 U.S.C. 1002), except as provided in 
                subparagraphs (B) and (C).
                    (B) Exception.--The term ``institution of higher 
                education'' does not include institutions that solely 
                offer graduate or professional degree programs of 
                study.
                    (C) Institutions.--To the extent an institution 
                offers undergraduate programs of study and graduate or 
                professional degree programs of study, for purposes of 
                this section, the term ``institution of higher 
                education'' with respect to such institutions shall 
                only include the undergraduate programs of study.
    (b) Commission on Higher Education Accountability Standards.--
            (1) In general.--Not later than 90 days after the date of 
        enactment of this Act, there shall be established a Commission 
        on Higher Education Accountability Standards (referred to in 
        this section as the ``Commission'') to make recommendations on 
        a set of minimum accountability standards and the measures for 
        assessing compliance with such standards for institutions of 
        higher education that shall focus on affordability, access for 
        low- and middle-income students, and value.
            (2) Composition of the commission.--
                    (A) In general.--Members of the Commission shall be 
                appointed as follows:
                            (i) 5 members shall be appointed by the 
                        Majority Leader of the Senate, with the 
                        concurrence of the Minority Leader of the 
                        Senate on 2 of such members.
                            (ii) 5 members shall be appointed by the 
                        Majority Leader of the House of 
                        Representatives, with the concurrence of the 
                        Minority Leader of the House of Representatives 
                        on 2 of such members.
                            (iii) 5 members shall be appointed by the 
                        Secretary, including at least 1 member from the 
                        National Center for Education Statistics and 1 
                        member from the Federal Student Aid Office of 
                        the Department of Education.
                            (iv) In the event that any member of the 
                        Commission has not been appointed during the 
                        90-day period after the date of enactment of 
                        this Act, the Secretary shall appoint the 
                        remaining member in order to establish the 
                        Commission.
                    (B) General qualifications.--Members of the 
                Commission shall be appointed on the basis of the 
                individuals'--
                            (i) experience, integrity, impartiality, 
                        and good judgment; and
                            (ii) except with respect to the 
                        undergraduate students, technical 
                        qualifications and professional standing.
                    (C) Members of the commission.--Members appointed 
                under subparagraph (A) shall be comprised of the 
                following relevant stakeholders:
                            (i) 2 undergraduate student leaders from 
                        different types of institutions of higher 
                        education.
                            (ii) 2 members of national or regional 
                        student advocacy organizations with a track 
                        record of engagement and expertise on issues 
                        related to college costs and student debt.
                            (iii) 1 consumer advocate or consumer 
                        protection expert with demonstrated knowledge 
                        of consumer protection issues related to 
                        undergraduate students.
                            (iv) 2 representatives of faculty groups or 
                        associations with expertise related to higher 
                        education finance or governance.
                            (v) 1 State government official with 
                        demonstrated knowledge of State budgeting and 
                        higher education funding.
                            (vi) 3 administrative officers from various 
                        types of institutions of higher education, 
                        including at least 1 from a minority-serving 
                        institution.
                            (vii) 1 higher education researcher.
                            (viii) 1 State postsecondary education data 
                        system director.
                            (ix) 1 member from the National Center for 
                        Education Statistics.
                            (x) 1 member from the Federal Student Aid 
                        Office of the Department of Education.
            (3) Recommendations.--
                    (A) In general.--The Commission shall make 
                recommendations on a set of minimum accountability 
                standards that institutions of higher education must 
                meet with respect to affordability, accessibility, and 
                value in order to receive funds or that the students of 
                such institutions may receive funds pursuant to title 
                IV of the Higher Education Act of 1965 (20 U.S.C. 1070 
                et seq.) programs. The Commission shall also recommend 
                measures and acceptable levels of performance on those 
                measures to assess compliance with the minimum 
                accountability standards. If the Commission cannot 
                issue its recommendations by consensus, it shall issue 
                its recommendations based on the views of a majority of 
                the Commission.
                    (B) Required measures.--The Commission shall 
                include, at a minimum, the following measures as part 
                of the minimum accountability standards it shall 
                recommend:
                            (i) Affordability.--The average or mean 
                        cost of tuition and other costs required for 
                        attendance after all institutional, Federal, 
                        and State grant aid is taken into account.
                            (ii) Accessibility.--The percentage of the 
                        total number of enrolled students who are 
                        recipients of a Federal Pell Grant under 
                        subpart 1 of part A of title IV of the Higher 
                        Education Act of 1965 (20 U.S.C. 1070a et 
                        seq.).
                            (iii) Value.--Student loan repayment rates.
                    (C) Other measures.--The Commission shall make 
                recommendations on additional measures to comprise the 
                minimum accountability standards, including the 
                following:
                            (i) Affordability.--The Commission shall 
                        make recommendations on additional higher 
                        education affordability measures, including the 
                        appropriateness of the following:
                                    (I) The cost of tuition relative to 
                                the cost to the institution of 
                                educating a student and the 
                                institution's administrative costs.
                                    (II) The percentage of 
                                institutional aid that is awarded on 
                                the basis of need, as opposed to merit.
                                    (III) Annual increases in tuition 
                                after taking into account all public 
                                subsidies.
                            (ii) Accessibility.--The Commission shall 
                        make recommendations on higher education 
                        accessibility measures, including the 
                        appropriateness of the following:
                                    (I) Enrollment of low- and middle-
                                income, underrepresented minorities, 
                                and adult students aged 25 and older.
                                    (II) Whether institutional policies 
                                on credit transfers meet industry 
                                standards by type of receiving 
                                institution.
                            (iii) Value.--The Commission shall make 
                        recommendations on measures of higher education 
                        value, including the appropriateness of the 
                        following:
                                    (I) Student progress toward 
                                completion of a postsecondary degree or 
                                certificate.
                                    (II) Student completion of a 
                                postsecondary degree or certificate, 
                                including for transfer and part-time 
                                students, or where applicable, transfer 
                                rates to 4-year degree programs.
                                    (III) Student retention rates.
                                    (IV) Full-time employment and 
                                graduate degree enrollment rates after 
                                graduation.
            (4) Considerations.--The Commission shall take into account 
        the differences in missions of institutions of higher education 
        and ensure that institutions are held to standards that are 
        appropriate for their mission.
            (5) Hearings and report.--
                    (A) Hearings.--Not later than 6 months after the 
                date of the appointment of the final member of the 
                Commission, the Commission shall hold public field 
                hearings in all regions of the United States. The 
                Commission shall hold not fewer than 8 hearings.
                    (B) Report.--Not later than 1 year after the date 
                of the appointment of the final member of the 
                Commission, the Commission shall prepare a report on 
                the recommendations under paragraph (3) and submit the 
                report to the Secretary and the authorizing committees. 
                The report shall include the following:
                            (i) Recommendations for minimum 
                        accountability standards and the measures for 
                        assessing compliance with those standards for 
                        every institution of higher education that 
                        receives funds or whose students receive funds 
                        pursuant to title IV of the Higher Education 
                        Act of 1965 (20 U.S.C. 1070 et seq.) programs. 
                        The standards shall focus on affordability, 
                        access for low- and middle-income students, and 
                        value. The Commission shall recommend standards 
                        that are in accordance with the types of 
                        information that institutions of higher 
                        education are authorized to collect and report 
                        under the Higher Education Act of 1965 (20 
                        U.S.C. 1001 et seq.).
                            (ii) Recommendations for applying the 
                        standards to institutions of higher education 
                        with different academic missions.
                            (iii) Recommendations for periodic 
                        reevaluation of the standards and their 
                        efficacy by the Secretary.
                            (iv) Recommendations for sharing 
                        institutions' performance with respect to the 
                        standards with prospective students and 
                        conducting complementary consumer education for 
                        students.
                            (v) Recommendations for the criteria the 
                        Secretary should use to reward institutions of 
                        higher education that meet and exceed the 
                        minimum accountability standards.
                            (vi) Recommendations to Congress on reforms 
                        to statutory or regulatory limitations on the 
                        collection and availability of data that would 
                        improve the Secretary's ability to assess 
                        institutions' compliance with minimum standards 
                        of affordability, accessibility, and value.
            (6) Securing information.--The Commission may secure 
        directly from any Federal department or agency such information 
        as the Commission considers necessary to carry out its duties 
        under this section. The Commission may request the head of any 
        State or local department or agency to furnish such information 
        to the Commission.
            (7) Final standards.--
                    (A) In general.--Not later than 1 year after 
                receiving the report under paragraph (5), the Secretary 
                shall publish a final rule on institutional 
                accountability standards. The standards shall be 
                determined by the Secretary after giving due 
                consideration to the recommended standards provided by 
                the Commission. The Secretary shall set forth in 
                writing the reasons for any deviation from the 
                Commission's recommendations for any standard or 
                measure and shall submit the written statement to the 
                authorizing committees.
                    (B) Required measures to be included.--In carrying 
                out subparagraph (A), the Secretary shall include the 
                measures described in subsection (b)(3)(B) that the 
                Commission is required to include as part of its 
                minimum accountability standards.
            (8) Assessment.--The Secretary shall annually assess 
        compliance with the institutional accountability standards. On 
        September 30 of the year following the publication of the final 
        rule as required under paragraph (7) and every year thereafter, 
        the Secretary shall publish a list of each institution of 
        higher education that participates in title IV of the Higher 
        Education Act of 1965 (20 U.S.C. 1070 et seq.) and the 
        institution's level of compliance with the accountability 
        standards. The list shall be made easily accessible to the 
        public.
            (9) Implementation.--The Secretary shall establish 
        procedures to implement this subsection, including procedures 
        for effectively applying this subsection.
            (10) Termination.--The Commission shall terminate 60 days 
        after the date on which the Commission submits the report under 
        paragraph (5).
    (c) Incentivize Improvement for Below-Standard Institutions.--
            (1) In general.--An institution of higher education that 
        participates in title IV of the Higher Education Act of 1965 
        (20 U.S.C. 1070 et seq.) programs and that does not meet the 
        institutional accountability standards adopted under subsection 
        (b)--
                    (A) shall be deemed to be in probationary status; 
                and
                    (B) shall work with the Secretary to develop a plan 
                for how the institution will achieve compliance not 
                later than 5 years after the date of the determination 
                of noncompliance.
            (2) Continuous improvement.--For each year following a 
        determination that an institution of higher education does not 
        meet the institutional accountability standards adopted under 
        subsection (b), the institution shall demonstrate to the 
        Secretary continuous improvement in following its plan to 
        achieve compliance.
            (3) Failure to make continuous improvement.--
                    (A) In general.--
                            (i) 2 years out.--If an institution of 
                        higher education does not show continuous 
                        improvement 2 years after a determination that 
                        it does not meet the institutional 
                        accountability standards adopted under 
                        subsection (b), the institution shall pay to 
                        the Secretary an amount equal to 10 percent of 
                        the total amount of funds made available under 
                        title IV of the Higher Education Act of 1965 
                        (20 U.S.C. 1070 et seq.) to students in 
                        attendance with an undergraduate enrollment 
                        status at the institution during the prior 
                        academic year, to be deposited into the fund 
                        described in subparagraph (C).
                            (ii) 3 years out.--If an institution of 
                        higher education does not show continuous 
                        improvement 3 years after a determination that 
                        it does not meet the institutional 
                        accountability standards adopted under 
                        subsection (b), the institution shall pay to 
                        the Secretary an amount equal to 20 percent of 
                        the total amount of funds made available under 
                        title IV of the Higher Education Act of 1965 
                        (20 U.S.C. 1070 et seq.) to students in 
                        attendance with an undergraduate enrollment 
                        status at the institution during the prior 
                        academic year, to be deposited into the fund 
                        described in subparagraph (C).
                            (iii) 4 years out.--If an institution of 
                        higher education does not show continuous 
                        improvement 4 years after a determination that 
                        it does not meet the institutional 
                        accountability standards adopted under 
                        subsection (b), the institution shall pay to 
                        the Secretary an amount equal to 30 percent of 
                        the total amount of funds made available under 
                        title IV of the Higher Education Act of 1965 
                        (20 U.S.C. 1070 et seq.) to students in 
                        attendance with an undergraduate enrollment 
                        status at the institution during the prior 
                        academic year, to be deposited into the fund 
                        described in subparagraph (C).
                    (B) Waiver and payment plan.--
                            (i) Waiver.--The Secretary may waive a 
                        requirement of an institution of higher 
                        education paying the amount owed pursuant to 
                        subparagraph (A) if the Secretary determines 
                        such a waiver is necessary to avoid extreme 
                        hardship for the students enrolled at such 
                        institution.
                            (ii) Payment plan.--The Secretary may allow 
                        an institution of higher education that owes an 
                        amount under subparagraph (A) to enter into a 
                        payment plan to pay such amount.
                    (C) Fund.--There shall be established a special 
                fund in which amounts refunded by an institution of 
                higher education under this paragraph shall be placed 
                to be used pursuant to subsection (d).
            (4) Noncompliance five years out.--If an institution of 
        higher education fails to achieve compliance by not later than 
        the date that is 5 years after the date of the determination 
        that the institution does not meet the institutional 
        accountability standards, the institution--
                    (A) shall not be eligible to receive funds under 
                title IV of the Higher Education Act of 1965 (20 U.S.C. 
                1070 et seq.) for the academic year following the date 
                that is 5 years after the date of the determination;
                    (B) shall be required to submit a teach-out plan, 
                as described in section 487(f) of the Higher Education 
                Act of 1965 (20 U.S.C. 1094(f)); and
                    (C) shall be eligible to receive funds under such 
                title IV when the institution is able to demonstrate 
                compliance with the institutional accountability 
                standards.
    (d) Authorization of Reward Grant Program.--
            (1) In general.--From amounts available in the fund 
        established pursuant to subsection (c)(3)(C), the Secretary 
        shall award grants, on a competitive basis, to institutions of 
        higher education that meet or exceed the institutional 
        accountability standards adopted under subsection (b). In 
        determining the criteria for awarding grants, the Secretary 
        shall give due consideration to the recommendations of the 
        Commission.
            (2) Use for financial aid.--An institution of higher 
        education awarded a grant under paragraph (1) shall use the 
        grant funds for need-based aid to students who are eligible for 
        Federal Pell Grants under subpart 1 of part A of title IV of 
        the Higher Education Act of 1965 (20 U.S.C. 1070a et seq.).
                                 <all>