Protect Student Borrowers Act of 2019

II 116TH CONGRESS 1ST SESSION S. 968 To provide for institutional risk-sharing in the Federal student loan programs. IN THE SENATE OF THE UNITED STATES APRIL 1, 2019 Mr. REED (for himself, Mr. DURBIN, Ms. WARREN, and Mr. MURPHY) intro- duced the following bill; which was read twice and referred to the Com- mittee on Health, Education, Labor, and Pensions A BILL To provide for institutional risk-sharing in the Federal student loan programs. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Protect Student Bor- 4 rowers Act of 2019’’. 5 SEC. 2. PURPOSE. 6 The purpose of this Act is to protect student bor- 7 rowers by requiring institutions of higher education to as- 8 sume some of the risk of default for student loans under 9 VerDate Sep 11 2014 22:59 Apr 05, 2019 Jkt 089200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S968.IS S968 kjohnson on DSK79L0C42 with BILLS 2 •S 968 IS part D of title IV of the Higher Education Act of 1965 1 (20 U.S.C. 1087a et seq.). 2 SEC. 3. INSTITUTIONAL REBATES TO THE DEPARTMENT OF 3 EDUCATION FOR DEFAULTED LOANS. 4 Section 454 of the Higher Education Act of 1964 (20 5 U.S.C. 1087d) is amended— 6 (1) in subsection (a)— 7 (A) in paragraph (5), by striking ‘‘and’’ 8 after the semicolon; 9 (B) in paragraph (6), by striking the pe- 10 riod at the end and inserting ‘‘; and’’; and 11 (C) by adding at the end the following: 12 ‘‘(7) provide that the institution accepts the in- 13 stitutional risk-sharing requirements under sub- 14 section (d), if applicable.’’; and 15 (2) by adding at the end the following: 16 ‘‘(d) INSTITUTIONAL RISK-SHARING FOR STUDENT 17 LOAN DEFAULTS.— 18 ‘‘(1) IN GENERAL.—Subject to paragraph (3), 19 each institution of higher education participating in 20 the direct student loan program under this part for 21 a fiscal year that has a rate of participation in such 22 program for all students enrolled at that institution 23 for such fiscal year that is 33 percent or higher shall 24 remit, at such times as the Secretary may specify, 25 VerDate Sep 11 2014 22:59 Apr 05, 2019 Jkt 089200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S968.IS S968 kjohnson on DSK79L0C42 with BILLS 3 •S 968 IS a risk-sharing payment based on a percentage of the 1 volume of student loans under this part that are in 2 default, as determined under paragraph (2). 3 ‘‘(2) DETERMINATION OF RISK-SHARING PAY- 4 MENTS.—Subject to paragraph (3), with respect to 5 each fiscal year, an institution of higher education 6 described in paragraph (1) that has a cohort default 7 rate (as defined in section 435(m))— 8 ‘‘(A) that is 30 percent or higher for the 9 most recent fiscal year for which data are avail- 10 able, shall pay to the Secretary for the fiscal 11 year an amount that is equal to 20 percent of 12 the total amount (including interest and collec- 13 tion fees) of loans made under this part to stu- 14 dents of such cohort that are in default; 15 ‘‘(B) that is lower than 30 percent but not 16 lower than 25 percent for the most recent fiscal 17 year for which data are available, shall pay to 18 the Secretary for the fiscal year an amount that 19 is equal to 15 percent of the total amount (in- 20 cluding interest and collection fees) of loans 21 made under this part to students of such cohort 22 that are in default; 23 ‘‘(C) that is lower than 25 percent but not 24 lower than 20 percent for the most recent fiscal 25 VerDate Sep 11 2014 22:59 Apr 05, 2019 Jkt 089200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S968.IS S968 kjohnson on DSK79L0C42 with BILLS 4 •S 968 IS year for which data are available, shall pay to 1 the Secretary for the fiscal year an amount that 2 is equal to 10 percent of the total amount (in- 3 cluding interest and collection fees) of loans 4 made under this part to students of such cohort 5 that are in default; or 6 ‘‘(D) that is lower than 20 percent but not 7 lower than 15 percent for the most recent fiscal 8 year for which data are available, shall pay to 9 the Secretary for the fiscal year an amount that 10 is equal to 5 percent of the total amount (in- 11 cluding interest and collection fees) of loans 12 made under this part to students of such cohort 13 that are in default. 14 ‘‘(3) WAIVER AND REDUCED RISK-SHARING 15 PAYMENTS.— 16 ‘‘(A) WAIVER.—The Secretary shall waive 17 the risk-sharing payments described in para- 18 graph (1) for an institution described in para- 19 graph (2)(D) that meets the requirements of 20 subparagraph (D). 21 ‘‘(B) REDUCED RISK-SHARING PAY- 22 MENTS.—If an institution has in place a stu- 23 dent loan management plan described in sub- 24 paragraph (D) that is approved by the Sec- 25 VerDate Sep 11 2014 22:59 Apr 05, 2019 Jkt 089200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S968.IS S968 kjohnson on DSK79L0C42 with BILLS 5 •S 968 IS retary, the Secretary shall reduce the total an- 1 nual amount of risk-sharing payments as fol- 2 lows: 3 ‘‘(i) With respect to an institution 4 with a cohort default rate described in 5 paragraph (2)(A), the risk-sharing pay- 6 ment shall be in an amount that is equal 7 to 15 percent of the total amount (includ- 8 ing interest and collection fees) of loans 9 made under this part to students of such 10 cohort that are in default. 11 ‘‘(ii) With respect to an institution 12 with a cohort default rate described in 13 paragraph (2)(B), the risk-sharing pay- 14 ment shall be in an amount that is equal 15 to 10 percent of the total amount (includ- 16 ing interest and collection fees) of loans 17 made under this part to students of such 18 cohort that are in default. 19 ‘‘(iii) With respect to an institution 20 with a cohort default rate described in 21 paragraph (2)(C), the risk-sharing pay- 22 ment shall be in an amount that is equal 23 to 5 percent of the total amount (including 24 interest and collection fees) of loans made 25 VerDate Sep 11 2014 22:59 Apr 05, 2019 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S968.IS S968 kjohnson on DSK79L0C42 with BILLS 6 •S 968 IS under this part to students of such cohort 1 that are in default. 2 ‘‘(C) CONTINUATION OF WAIVER OR RE- 3 DUCED PAYMENTS.—An institution that re- 4 ceives a waiver under subparagraph (A) or a re- 5 duced risk-sharing payment under subpara- 6 graph (B) may receive a waiver or reduced pay- 7 ment for a subsequent fiscal year only if the 8 Secretary determines that the institution is 9 making satisfactory progress in carrying out the 10 student loan management plan described in 11 subparagraph (D), including evidence of the ef- 12 fectiveness of the individualized financial aid 13 counseling for students. 14 ‘‘(D) STUDENT LOAN MANAGEMENT 15 PLAN.—An institution that seeks a waiver or 16 reduction of its risk-sharing payment, shall de- 17 velop and carry out a student loan management 18 plan that shall include an analysis of the risk 19 factors correlated with higher student loan de- 20 faults that are present at the institution and 21 actions that the institution will take to address 22 such factors. Such plan shall include individual- 23 ized financial aid counseling for students and 24 VerDate Sep 11 2014 22:59 Apr 05, 2019 Jkt 089200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S968.IS S968 kjohnson on DSK79L0C42 with BILLS 7 •S 968 IS strategies to minimize student loan default and 1 delinquency. 2 ‘‘(E) WAIVER OR REDUCTION FOR CER- 3 TAIN INSTITUTIONS.—In addition to the other 4 risk-sharing payment waivers and reductions 5 described in this paragraph, the Secretary may 6 waive or reduce risk-sharing payments if— 7 ‘‘(i) an institution is eligible under— 8 ‘‘(I) part A or part B of title III; 9 or 10 ‘‘(II) title V; and 11 ‘‘(ii) the Secretary determines that— 12 ‘‘(I) the institution is making 13 satisfactory progress in carrying out 14 the institution’s student loan manage- 15 ment plan described under subpara- 16 graph (D); and 17 ‘‘(II) granting a waiver or reduc- 18 tion of risk-sharing payments would 19 be in the best interest of students at 20 the institution. 21 ‘‘(4) PROHIBITION.—An institution of higher 22 education shall not deny admission or financial aid 23 to a student based on a perception that such student 24 VerDate Sep 11 2014 22:59 Apr 05, 2019 Jkt 089200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S968.IS S968 kjohnson on DSK79L0C42 with BILLS 8 •S 968 IS may be at risk for defaulting on a loan made under 1 this part. 2 ‘‘(5) FUND FOR THE DEPOSIT OF RISK-SHAR- 3 ING PAYMENTS.— 4 ‘‘(A) IN GENERAL.—There is established in 5 the Treasury of the United States a separate 6 account for the deposit of risk-sharing pay- 7 ments collected under this subsection for the 8 purpose of reducing student loan debt, delin- 9 quency, and default. The Secretary shall deposit 10 any payments collected pursuant to this sub- 11 section into such fund. 12 ‘‘(B) USE OF FUNDS.—Of the amounts in 13 the fund described in subparagraph (A), for 14 each fiscal year— 15 ‘‘(i) not more than 50 percent of such 16 amounts shall be made available to the 17 Secretary to enter into contracts or cooper- 18 ative agreements for delinquency and de- 19 fault prevention or rehabilitation under 20 section 456(c); and 21 ‘‘(ii) the Secretary shall reserve the 22 remainder of such amounts for a Federal 23 Pell Grant fund that shall be used to in- 24 crease the maximum Federal Pell Grant 25 VerDate Sep 11 2014 22:59 Apr 05, 2019 Jkt 089200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S968.IS S968 kjohnson on DSK79L0C42 with BILLS 9 •S 968 IS award available to students who attend an 1 institution— 2 ‘‘(I) that participates in the di- 3 rect student loan program under this 4 part; 5 ‘‘(II) in which not less than 33 6 percent of the students enrolled at the 7 institution have received a Federal 8 Pell Grant; and 9 ‘‘(III) that has a rate of partici- 10 pation in the direct student loan pro- 11 gram under this part for all students 12 enrolled at that institution for such 13 fiscal year that is— 14 ‘‘(aa) 33 percent or higher 15 and such institution is not sub- 16 ject to the risk-sharing payments 17 under this subsection; or 18 ‘‘(bb) less than 33 percent 19 and such institution has a cohort 20 default rate of less than 15 per- 21 cent for the most recent fiscal 22 year for which data are available. 23 ‘‘(6) APPLICABILITY.—The Secretary shall 24 carry out this subsection beginning with the cohort 25 VerDate Sep 11 2014 22:59 Apr 05, 2019 Jkt 089200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S968.IS S968 kjohnson on DSK79L0C42 with BILLS 10 •S 968 IS default rate for the 2019 cohort. The 2019 cohort 1 shall include current and former students who enter 2 repayment in fiscal year 2019. 3 ‘‘(7) REPORT TO CONGRESS.—The Secretary 4 shall report on an annual basis to the Committee on 5 Health, Education, Labor, and Pensions of the Sen- 6 ate and the Committee on Education and Labor of 7 the House of Representatives the following informa- 8 tion: 9 ‘‘(A) A list of institutions that have been 10 subject to risk-sharing payments in the previous 11 year. 12 ‘‘(B) The required risk-sharing payment 13 from such institutions. 14 ‘‘(C) The amount of risk-sharing payments 15 collected from such institutions. 16 ‘‘(D) A list of the institutions that have re- 17 ceived waivers from the risk-sharing payment 18 and the reason for such waiver. 19 ‘‘(E) A list of the institutions that have re- 20 ceived reductions in the required risk-sharing 21 payment. 22 ‘‘(F) The use of funds deposited from risk- 23 sharing payments, including— 24 VerDate Sep 11 2014 22:59 Apr 05, 2019 Jkt 089200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S968.IS S968 kjohnson on DSK79L0C42 with BILLS 11 •S 968 IS ‘‘(i) the amount reserved for contracts 1 or cooperative agreements for delinquency 2 and default prevention or rehabilitation; 3 ‘‘(ii) a list of contracts or cooperative 4 agreements entered into for delinquency 5 and default prevention or rehabilitation; 6 ‘‘(iii) information on the performance 7 of such contracts or cooperative agree- 8 ments; 9 ‘‘(iv) the amount reserved for the 10 Federal Pell Grant program; and 11 ‘‘(v) a list of institutions for which 12 students in attendance at the institution 13 are eligible for the increased maximum 14 Federal Pell Grant under paragraph 15 (5)(B)(ii) and the amount of such in- 16 crease.’’. 17 SEC. 4. CONTRACTS AND COOPERATIVE AGREEMENTS. 18 Section 456 of the Higher Education Act of 1965 (20 19 U.S.C. 1087f) is amended by adding at the end the fol- 20 lowing: 21 ‘‘(c) CONTRACTS AND COOPERATIVE AGREEMENTS 22 FOR DELINQUENCY AND DEFAULT PREVENTION AND FOR 23 DEFAULT REHABILITATION.—The Secretary may enter 24 into contracts or cooperative agreements for— 25 VerDate Sep 11 2014 22:59 Apr 05, 2019 Jkt 089200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S968.IS S968 kjohnson on DSK79L0C42 with BILLS 12 •S 968 IS ‘‘(1) statewide or institutionally based programs 1 for the prevention of Federal student loan delin- 2 quency and default at institutions of higher edu- 3 cation that— 4 ‘‘(A) have a high cohort default rate as de- 5 fined under section 435(m); or 6 ‘‘(B) serve large numbers or percentages of 7 student loan borrowers who have a risk factor 8 associated with higher default rates on Federal 9 student loans under this title, such as coming 10 from a low-income family, being a first genera- 11 tion postsecondary education student, not hav- 12 ing a secondary school diploma, or having pre- 13 viously defaulted on, and rehabilitated, a loan 14 made under this title; and 15 ‘‘(2) increasing the number of borrowers who 16 successfully rehabilitate defaulted loans.’’. 17 SEC. 5. FINANCIAL RESPONSIBILITY. 18 Section 498(c)(1) of the Higher Education Act of 19 1965 (20 U.S.C. 1099c(c)(1)) is amended by striking sub- 20 paragraph (C) and inserting the following: 21 ‘‘(C) to meet all of its financial obligations, in- 22 cluding institutional risk-sharing payments, refunds 23 of institutional charges, and repayments to the Sec- 24 VerDate Sep 11 2014 22:59 Apr 05, 2019 Jkt 089200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S968.IS S968 kjohnson on DSK79L0C42 with BILLS 13 •S 968 IS retary for liabilities and debts incurred in programs 1 administered by the Secretary.’’. 2 SEC. 6. GENERAL ACCOUNTABILITY OFFICE STUDIES. 3 Not later than 12 months after the date of enactment 4 of the Protect Student Borrowers Act of 2019, the Comp- 5 troller General of the United States shall report to the 6 Committee on Health, Education, Labor, and Pensions of 7 the Senate and the Committee on Education and Labor 8 of the House of Representatives the results of a study that 9 addresses [Text truncated for display. Full text available on Congress.gov.]