This bill establishes financial penalties for institutions of higher education (IHEs) with endowments of $2.5 billion or more that have specified percentages of current and former students who default, are delinquent, or underpay on their federal student loans. The bill also imposes an increased excise tax on net investment income of certain IHEs that increase tuition beyond certain levels.
Specifically, the bill requires such an IHE to pay penalties to the Department of Education based on the IHE's
cohort default rate (the percentage of how many borrowers default on their federal student loans in a fiscal year), cohort delinquency rate (the percentage of borrowers who are between 31- and 360-days past-due on their federal student loans), and cohort underpayment rate (the percentage of borrowers who are making regular payments on their federal student loans, are neither delinquent nor in default on those loans, but for whom the outstanding balances on their loans exceed the sum of the original loan balances). For example, for FY2025, an IHE with a cohort default rate of 11% or more must pay a penalty in an amount equal to 30% of the total outstanding balance of principal and interest due on all federal student loans.
The bill also imposes an increased excise tax equal to 25% of the net investment income of an IHE with an endowment of $2.5 billion or more that charges tuition exceeding the inflation adjustment base amount for the taxable year.