I 

113TH CONGRESS 

2D SESSION H. R. 5565 

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

IN THE HOUSE OF REPRESENTATIVES 

SEPTEMBER 18, 2014 

Mr. CARNEY introduced the following bill; which was referred to the 

Committee on Education and the Workforce 

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’’. 

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 

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

11 (20 U.S.C. 1087a et seq.). 


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1 SEC. 3. INSTITUTIONAL REBATES TO THE DEPARTMENT OF 

2 EDUCATION FOR DEFAULTED LOANS. 

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

4 U.S.C. 1087d) is amended— 

5 (1) in subsection (a)— 

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

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

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

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

10 ‘‘(7) provide that the institution accepts the in11 stitutional risk-sharing requirements under sub12 section (d), if applicable.’’; and 

13 (2) by adding at the end the following: 

14 ‘‘(d) INSTITUTIONAL RISK-SHARING FOR STUDENT

15 LOAN DEFAULTS.— 

16 ‘‘(1) IN GENERAL.—Subject to paragraph (3), 

17 each institution of higher education participating in 

18 the direct student loan program under this part for 

19 a fiscal year that has a rate of participation in such 

20 program for all students enrolled at that institution 

21 for such fiscal year that is 25 percent or higher shall 

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

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

24 volume of student loans under this part that are in 

25 default, as determined under paragraph (2). 


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1 ‘‘(2) DETERMINATION OF RISK-SHARING PAY2 MENTS.—Subject to paragraph (3), with respect to 

3 each fiscal year, an institution of higher education 

4 described in paragraph (1) that has a cohort default 

5 rate (as defined in section 435(m))— 

6 ‘‘(A) that is 30 percent or higher for the 

7 most recent fiscal year for which data are avail8 able, shall pay to the Secretary for the fiscal 

9 year an amount that is equal to 20 percent of 

10 the total amount (including interest and collec11 tion fees) of loans made under this part to stu12 dents that are in default; 

13 ‘‘(B) that is lower than 30 percent but not 

14 lower than 25 percent for the most recent fiscal 

15 year for which data are available, shall pay to 

16 the Secretary for the fiscal year an amount that 

17 is equal to 15 percent of the total amount (in18 cluding interest and collection fees) of loans 

19 made under this part to students that are in 

20 default; 

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

22 lower than 20 percent for the most recent fiscal 

23 year for which data are available, shall pay to 

24 the Secretary for the fiscal year an amount that 

25 is equal to 10 percent of the total amount (inVerDate Sep 11 2014 00:14 Sep 27, 2014 Jkt 039200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H5565.IH H5565

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1 cluding interest and collection fees) of loans 

2 made under this part to students that are in 

3 default; and 

4 ‘‘(D) that is lower than 20 percent but not 

5 lower than 15 percent for the most recent fiscal 

6 year for which data are available, shall pay to 

7 the Secretary for the fiscal year an amount that 

8 is equal to 5 percent of the total amount (in9 cluding interest and collection fees) of loans 

10 made under this part to students that are in 

11 default. 

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

13 PAYMENTS.— 

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

15 the risk-sharing payments described in para16 graph (1) for an institution described in para17 graph (2)(D) that meets the requirements of 

18 subparagraph (D). 

19 ‘‘(B) REDUCED RISK-SHARING PAY20 MENTS.—If an institution has in place a stu21 dent loan management plan described in sub22 paragraph (D) that is approved by the Sec23 retary, the Secretary shall reduce the total an24 nual amount of risk-sharing payments as fol25 lows: 


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1 ‘‘(i) With respect to an institution 

2 with a cohort default rate described in 

3 paragraph (2)(A), the risk-sharing pay4 ment shall be in an amount that is equal 

5 to 15 percent of the total amount (includ6 ing interest and collection fees) of loans 

7 made under this part to students that are 

8 in default. 

9 ‘‘(ii) With respect to an institution 

10 with a cohort default rate described in 

11 paragraph (2)(B), the risk-sharing pay12 ment shall be in an amount that is equal 

13 to 10 percent of the total amount (includ14 ing interest and collection fees) of loans 

15 made under this part to students that are 

16 in default. 

17 ‘‘(iii) With respect to an institution 

18 with a cohort default rate described in 

19 paragraph (2)(C), the risk-sharing pay20 ment shall be in an amount that is equal 

21 to 5 percent of the total amount (including 

22 interest and collection fees) of loans made 

23 under this part to students that are in de24 fault. 


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1 ‘‘(C) CONTINUATION OF WAIVER OR RE2 DUCED PAYMENTS.—An institution that re3 ceives a waiver under subparagraph (A) or a re4 duced risk-sharing payment under subpara5 graph (B) may receive a waiver or reduced pay6 ment for a subsequent fiscal year only if the 

7 Secretary determines that the institution is 

8 making satisfactory progress in carrying out the 

9 student loan management plan described in 

10 subparagraph (D), including evidence of the ef11 fectiveness of the individualized financial aid 

12 counseling for students. 

13 ‘‘(D) STUDENT LOAN MANAGEMENT

14 PLAN.—An institution that seeks a waiver or 

15 reduction of its risk-sharing payment, shall de16 velop and carry out a student loan management 

17 plan that shall include an analysis of the risk 

18 factors correlated with higher student loan de19 faults that are present at the institution and 

20 actions that the institution will take to address 

21 such factors. Such plan shall include individual22 ized financial aid counseling for students and 

23 strategies to minimize student loan default and 

24 delinquency. 


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1 ‘‘(E) WAIVER OR REDUCTION FOR CER2 TAIN INSTITUTIONS.—In addition to the other 

3 risk-sharing payment waivers and reductions 

4 described in this paragraph, the Secretary may 

5 waive or reduce risk-sharing payments if— 

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

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

8 or 

9 ‘‘(II) title V; and 

10 ‘‘(ii) the Secretary determines that— 

11 ‘‘(I) the institution is making 

12 satisfactory progress in carrying out 

13 the institution’s student loan manage14 ment plan described under subpara15 graph (D); and 

16 ‘‘(II) granting a waiver or reduc17 tion of risk-sharing payments would 

18 be in the best interest of students at 

19 the institution. 

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

21 education shall not deny admission or financial aid 

22 to a student based on a perception that such student 

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

24 this part. 


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1 ‘‘(5) FUND FOR THE DEPOSIT OF RISK-SHAR2 ING PAYMENTS.— 

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

4 the Treasury of the United States a separate 

5 account for the deposit of risk-sharing pay6 ments collected under this subsection. The Sec7 retary shall deposit any payments collected pur8 suant to this subsection into such fund. 

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

10 the fund described in subparagraph (A), for 

11 each fiscal year— 

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

13 amounts shall be made available to the 

14 Secretary to enter into contracts or cooper15 ative agreements for delinquency and de16 fault prevention or rehabilitation under 

17 section 456(d); and 

18 ‘‘(ii) the Secretary shall reserve the 

19 remainder of such amounts for a Federal 

20 Pell Grant fund that shall be used to offset 

21 any future shortfalls in funding under the 

22 Federal Pell Grant program. 

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

24 carry out this subsection beginning with the cohort 

25 default rate for the 2014 cohort. The 2014 cohort 


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1 shall include current and former students who enter 

2 repayment in fiscal year 2014. 

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 Sen6 ate and the Committee on Education and the Work7 force of the House of Representatives the following 

8 information: 

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 re17 ceived waivers from the risk-sharing payment 

18 and the reason for such waiver. 

19 ‘‘(E) A list of the institutions that have re20 ceived reductions in the required risk-sharing 

21 payment. 

22 ‘‘(F) The use of funds deposited from risk23 sharing payments, including a list of any con24 tracts or cooperative agreements for delin25 quency and default prevention or rehabilitation 


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1 and the amount reserved for the Federal Pell 

2 Grant program.’’. 

3 SEC. 4. CONTRACTS AND COOPERATIVE AGREEMENTS. 

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

5 U.S.C. 1087f) is amended by adding at the end the fol6 lowing: 

7 ‘‘(d) CONTRACTS AND COOPERATIVE AGREEMENTS

8 FOR DELINQUENCY AND DEFAULT PREVENTION AND FOR

9 DEFAULT REHABILITATION.—The Secretary may enter 

10 into contracts or cooperative agreements for— 

11 ‘‘(1) statewide or institutionally based programs 

12 for the prevention of Federal student loan delin13 quency and default at institutions of higher edu14 cation that— 

15 ‘‘(A) have a high cohort default rate as de16 fined under section 435(m); or 

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

18 student loan borrowers who have a risk factor 

19 associated with higher default rates on Federal 

20 student loans under this title, such as coming 

21 from a low-income family, being a first genera22 tion postsecondary education student, not hav23 ing a secondary school diploma, or having pre24 viously defaulted on, and rehabilitated, a loan 

25 made under this title; and 


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

2 successfully rehabilitate defaulted loans.’’. 

3 SEC. 5. FINANCIAL RESPONSIBILITY. 

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

5 1965 (20 U.S.C. 1099c(c)(1)) is amended by striking sub6 paragraph (C) and inserting the following: 

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

8 including institutional risk-sharing payments, 

9 refunds of institutional charges, and repay10 ments to the Secretary for liabilities and debts 

11 incurred in programs administered by the Sec12 retary.’’. 

Æ 


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