II 

113TH CONGRESS 

1ST SESSION S. 1873 

To provide for institutional risk-sharing in the Federal student loan programs. 

IN THE SENATE OF THE UNITED STATES 

DECEMBER 19, 2013 

Mr. REED (for himself, Mr. DURBIN, and Ms. WARREN) introduced the following bill; which was read twice and referred to the Committee on 

Health, Education, Labor, and Pensions 

A BILL 

To provide for institutional risk-sharing in the Federal 

student loan programs. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Protect Student Bor5 rowers Act of 2013’’. 

6 SEC. 2. PURPOSE. 

7 The purpose of this Act is to protect student bor8 rowers by requiring institutions of higher education to as9 sume some of the risk of default for student loans under 


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1 part D of title IV of the Higher Education Act of 1965 

2 (20 U.S.C. 1087a et seq.). 

3 SEC. 3. INSTITUTIONAL REBATES TO THE DEPARTMENT OF 

4 EDUCATION FOR DEFAULTED LOANS. 

5 Section 454 of the Higher Education Act of 1964 (20 

6 U.S.C. 1087d) is amended— 

7 (1) in subsection (a)— 

8 (A) in paragraph (5), by striking ‘‘and’’; 

9 (B) in paragraph (6) by striking the period 

10 at the end and inserting ‘‘; and’’; and 

11 (C) by adding at the end the following: 

12 ‘‘(7) provide that the institution accepts the in13 stitutional risk-sharing requirements under sub14 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 25 percent or higher shall 

24 remit, at such times as the Secretary may specify, 

25 a risk-sharing payment based on a percentage of the 


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1 volume of student loans under this part that are in 

2 default, as determined under paragraph (2). 

3 ‘‘(2) DETERMINATION OF RISK-SHARING PAY4 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 avail10 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 collec13 tion fees) of loans made under this part to stu14 dents 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 (in20 cluding interest and collection fees) of loans 

21 made under this part to students that are in 

22 default; 

23 ‘‘(C) that is lower than 25 percent but not 

24 lower than 20 percent for the most recent fiscal 

25 year for which data are available, shall pay to 


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1 the Secretary for the fiscal year an amount that 

2 is equal to 10 percent of the total amount (in3 cluding interest and collection fees) of loans 

4 made under this part to students that are in 

5 default; and 

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 (in11 cluding interest and collection fees) of loans 

12 made under this part to students that are in 

13 default. 

14 ‘‘(3) WAIVER AND REDUCED RISK-SHARING

15 PAYMENTS.— 

16 ‘‘(A) WAIVER.—The Secretary shall waive 

17 the risk-sharing payments described in para18 graph (1) for an institution described in para19 graph (2)(D) that meets the requirements of 

20 subparagraph (D). 

21 ‘‘(B) REDUCED RISK-SHARING PAY22 MENTS.—If an institution has in place a stu23 dent loan management plan described in sub24 paragraph (D) that is approved by the Sec25 retary, the Secretary shall reduce the total anVerDate Mar 15 2010 22:54 Dec 26, 2013 Jkt 039200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S1873.IS S1873

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1 nual amount of risk-sharing payments as fol2 lows: 

3 ‘‘(i) With respect to an institution 

4 with a cohort default rate described in 

5 paragraph (2)(A), the risk-sharing pay6 ment shall be in an amount that is equal 

7 to 15 percent of the total amount (includ8 ing interest and collection fees) of loans 

9 made under this part to students that are 

10 in default. 

11 ‘‘(ii) With respect to an institution 

12 with a cohort default rate described in 

13 paragraph (2)(B), the risk-sharing pay14 ment shall be in an amount that is equal 

15 to 10 percent of the total amount (includ16 ing interest and collection fees) of loans 

17 made under this part to students that are 

18 in default. 

19 ‘‘(iii) With respect to an institution 

20 with a cohort default rate described in 

21 paragraph (2)(C), the risk-sharing pay22 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 


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1 under this part to students that are in de2 fault. 

3 ‘‘(C) CONTINUATION OF WAIVER OR RE4 DUCED PAYMENTS.—An institution that re5 ceives a waiver under subparagraph (A) or a re6 duced risk-sharing payment under subpara7 graph (B) may receive a waiver or reduced pay8 ment for a subsequent fiscal year only if the 

9 Secretary determines that the institution is 

10 making satisfactory progress in carrying out the 

11 student loan management plan described in 

12 subparagraph (D), including evidence of the ef13 fectiveness of the individualized financial aid 

14 counseling for students. 

15 ‘‘(D) STUDENT LOAN MANAGEMENT

16 PLAN.—An institution that seeks a waiver or 

17 reduction of its risk-sharing payment, shall de18 velop and carry out a student loan management 

19 plan that shall include an analysis of the risk 

20 factors correlated with higher student loan de21 faults that are present at the institution and 

22 actions that the institution will take to address 

23 such factors. Such plan shall include individual24 ized financial aid counseling for students and 


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1 strategies to minimize student loan default and 

2 delinquency. 

3 ‘‘(E) WAIVER OR REDUCTION FOR CER4 TAIN INSTITUTIONS.—In addition to the other 

5 risk-sharing payment waivers and reductions 

6 described in this paragraph, the Secretary may 

7 waive or reduce risk-sharing payments if— 

8 ‘‘(i) an institution is eligible under— 

9 ‘‘(I) part A or part B of title III; 

10 or 

11 ‘‘(II) title V; and 

12 ‘‘(ii) the Secretary determines that— 

13 ‘‘(I) the institution is making 

14 satisfactory progress in carrying out 

15 the institution’s student loan manage16 ment plan described under subpara17 graph (D); and 

18 ‘‘(II) granting a waiver or reduc19 tion of risk-sharing payments would 

20 be in the best interest of students at 

21 the institution. 

22 ‘‘(4) PROHIBITION.—An institution of higher 

23 education shall not deny admission or financial aid 

24 to a student based on a perception that such student 


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1 may be at risk for defaulting on a loan made under 

2 this part. 

3 ‘‘(5) FUND FOR THE DEPOSIT OF RISK-SHAR4 ING PAYMENTS.— 

5 ‘‘(A) IN GENERAL.—There is established in 

6 the Treasury of the United States a separate 

7 account for the deposit of risk-sharing pay8 ments collected under this subsection. The Sec9 retary shall deposit any payments collected pur10 suant to this subsection into such fund. 

11 ‘‘(B) USE OF FUNDS.—Of the amounts in 

12 the fund described in subparagraph (A), for 

13 each fiscal year— 

14 ‘‘(i) not more than 50 percent of such 

15 amounts shall be made available to the 

16 Secretary to enter into contracts or cooper17 ative agreements for delinquency and de18 fault prevention or rehabilitation under 

19 section 456(d); and 

20 ‘‘(ii) the Secretary shall reserve the 

21 remainder of such amounts for a Federal 

22 Pell Grant fund that shall be used to offset 

23 any future shortfalls in funding under the 

24 Federal Pell Grant program. 


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1 ‘‘(6) APPLICABILITY.—The Secretary shall 

2 carry out this subsection beginning with the cohort 

3 default rate for the 2014 cohort. The 2014 cohort 

4 shall include current and former students who enter 

5 repayment in fiscal year 2014. 

6 ‘‘(7) REPORT TO CONGRESS.—The Secretary 

7 shall report on an annual basis to the Committee on 

8 Health, Education, Labor, and Pensions of the Sen9 ate and the Committee on Education and the Work10 force of the House of Representatives the following 

11 information: 

12 ‘‘(A) A list of institutions that have been 

13 subject to risk-sharing payments in the previous 

14 year. 

15 ‘‘(B) The required risk-sharing payment 

16 from such institutions. 

17 ‘‘(C) The amount of risk-sharing payments 

18 collected from such institutions. 

19 ‘‘(D) A list of the institutions that have re20 ceived waivers from the risk-sharing payment 

21 and the reason for such waiver. 

22 ‘‘(E) A list of the institutions that have re23 ceived reductions in the required risk-sharing 

24 payment. 


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1 ‘‘(F) The use of funds deposited from risk2 sharing payments, including a list of any con3 tracts or cooperative agreements for delin4 quency and default prevention or rehabilitation 

5 and the amount reserved for the Federal Pell 

6 Grant program.’’. 

7 SEC. 4. CONTRACTS AND COOPERATIVE AGREEMENTS. 

8 Section 456 of the Higher Education Act of 1965 (20 

9 U.S.C. 1087f) is amended by adding at the end the fol10 lowing: 

11 ‘‘(d) CONTRACTS AND COOPERATIVE AGREEMENTS

12 FOR DELINQUENCY AND DEFAULT PREVENTION AND FOR

13 DEFAULT REHABILITATION.—The Secretary may enter 

14 into contracts or cooperative agreements for— 

15 ‘‘(1) statewide or institutionally based programs 

16 for the prevention of Federal student loan delin17 quency and default at institutions of higher edu18 cation that— 

19 ‘‘(A) have a high cohort default rate as de20 fined under section 435(m); or 

21 ‘‘(B) serve large numbers or percentages of 

22 student loan borrowers who have a risk factor 

23 associated with higher default rates on Federal 

24 student loans under this title, such as coming 

25 from a low-income family, being a first generaVerDate Mar 15 2010 22:54 Dec 26, 2013 Jkt 039200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S1873.IS S1873

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1 tion postsecondary education student, not hav2 ing a secondary school diploma, or having pre3 viously defaulted on, and rehabilitated, a loan 

4 made under this title; and 

5 ‘‘(2) increasing the number of borrowers who 

6 successfully rehabilitate defaulted loans.’’. 

7 SEC. 5. FINANCIAL RESPONSIBILITY. 

8 Section 498(c)(1) of the Higher Education Act of 

9 1965 (20 U.S.C. 1099c(c)(1)) is amended by striking sub10 paragraph (C) and inserting the following: 

11 ‘‘(C) to meet all of its financial obligations, 

12 including institutional risk-sharing payments, 

13 refunds of institutional charges, and repay14 ments to the Secretary for liabilities and debts 

15 incurred in programs administered by the Sec16 retary.’’. 

Æ 


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