Institutional accountability for defaulted, delinquent, and underpaid student loans

Part D of title IV of the Higher Education Act of 1965 (20 U.S.C. 1087a et seq.) is amended by inserting after section 454 the following: 454A. Institutional accountability for defaulted, delinquent, and underpaid student loans (a) In general 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. (b) Phase-In of cohort default rate penalty (1) Fiscal year 2025 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. (2) Fiscal year 2026 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. (3) Fiscal year 2027 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. (4) Fiscal year 2028 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. (5) Fiscal year 2029 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. (6) Fiscal year 2030 and subsequent fiscal years 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. (c) Effect on default status of borrower 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. (d) Definitions (1) Cohort delinquency rate 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). (2) Cohort underpayment rate 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. (3) Covered institution of higher education 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. (4) Endowment fund 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. (5) Federal student loan The term Federal student loan means a loan made under this part..