damages, settlement, debt forgiveness, dis-
charge, cancellation, compromise, or any 
other financial benefit received by, or on 
behalf of, the borrower that was related to 
the borrower defense and that reduced the 
borrower’s debt for the loan under this 
part or part B. 
‘‘(iv) RELIEF
FOR
A
NON-FEDERAL 
LOAN
OR
OUT-OF-POCKET
EXPENSES.— 
Any relief provided to a borrower, such as 
relief for an education loan that is not a 
Federal loan or refunds from a State tui-
tion recovery fund for out-of-pocket ex-
penses, shall not decrease the amount of 
relief that the borrower shall be entitled to 
for a loan under this part or part B based 
on a borrower defense. 
‘‘(v) MINIMUM AMOUNT OF RELIEF.— 
A borrower that has a borrower defense 
based on State law and described in para-
graph (7)(B)(i) or a defense described in 
paragraph (7)(B)(ii) or (7)(B)(iii) shall 
not receive an amount of relief that is less 
than the relief the borrower would receive 
under the applicable State law. 
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‘‘(C) NOTIFICATION.—If a borrower de-
fense is successful the Secretary shall notify the 
borrower (or the entity that submitted the ap-
plication, in the case of an application described 
in paragraph (1)(B)(ii)) in writing— 
‘‘(i) of the reasons for the approval 
and the evidence that was relied upon; 
‘‘(ii) that the borrower is relieved of 
the obligation to repay the loan (or a por-
tion of the loan, as described in subpara-
graph (B)) and associated costs and fees 
that the borrower would otherwise be obli-
gated to pay; 
‘‘(iii) in the event the Secretary does 
not grant a discharge of the full amount of 
the loan, an explanation of the reason why 
partial relief is granted, and (if applicable) 
an assurance described in subparagraph 
(B)(i)(II); 
‘‘(iv) that the borrower will be reim-
bursed for some or all of the amounts paid 
toward the loan voluntarily or through en-
forced collection, if applicable; 
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‘‘(v) of the amount of any portion of 
the loan that is due and payable to the 
Secretary; 
‘‘(vi) that if any balance remains on 
the loan, the loan will return to the status 
prior to the borrower’s submission of the 
application, except that in the case of a 
loan that was in default prior to such ap-
plication, the borrower shall first be re-
moved from default status and given the 
opportunity to enter repayment, including 
income-based repayment described under 
section 493C, before the loan will be sent 
to collections; 
‘‘(vii) that if the borrower chooses to 
make payments, including payments under 
income-based repayment as described in 
clause (vi), the Secretary shall— 
‘‘(I) submit a report to the con-
sumer reporting agencies to which the 
Secretary previously made adverse 
credit reports with regard to the bor-
rower’s loan under this part or part B 
to remove the record of default; and 
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‘‘(II) refund any collection costs 
paid with regard to that loan by the 
borrower subsequent to the borrower 
submitting an application under para-
graph (1); 
‘‘(viii) that if only some of the loan 
will be discharged, the borrower will have 
the opportunity for reconsideration of the 
borrower’s claim as described in paragraph 
(6); 
‘‘(ix) that the borrower is eligible to 
receive assistance under title IV, if applica-
ble; and 
‘‘(x) that reports to consumer report-
ing agencies to which the Secretary pre-
viously made adverse credit reports with 
regard to the borrower’s loan shall be up-
dated not later than 30 days from the date 
the determination under this paragraph 
was made. 
‘‘(5) 
DENIAL
OF
BORROWER
DEFENSE 
CLAIM.—If the Secretary denies a borrower defense, 
the Secretary shall retroactively waive a portion of 
interest that accrued during the forbearance period 
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(as described in subparagraph (B)) and notify the 
borrower— 
‘‘(A) of the reasons for the denial and the 
evidence that was relied upon; 
‘‘(B) that the interest accruing on the rel-
evant loan after the first 12-month period of 
forbearance that occurred from the time the 
borrower’s application was submitted under this 
subsection will be retroactively waived; 
‘‘(C) of the amount of any portion of the 
loan that is due and payable to the Secretary; 
‘‘(D) whether the Secretary will reimburse 
any amounts previously collected prior to the 
suspension of the collection activity, as de-
scribed in paragraph (2)(A)(i)(IV)(aa); 
‘‘(E) that if any balance remains on the 
loan, the loan will return to the status prior to 
the borrower’s submission of the application, 
except that in the case of a loan that was in de-
fault prior to such application, the borrower 
shall first be removed from default status and 
given the opportunity to enter repayment, in-
cluding 
income-based 
repayment 
described 
under section 493C, before the loan will be sent 
to collections; and 
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‘‘(F) that the borrower shall have the op-
portunity for reconsideration of the borrower’s 
claim as described in paragraph (6). 
‘‘(6) RECONSIDERATION.— 
‘‘(A) IN GENERAL.—The decision of the 
Secretary and any relief that may be granted 
on the claim shall be considered the final agen-
cy action that shall be subject to appeal in dis-
trict court, except that— 
‘‘(i) if the borrower defense is denied 
in full or in part, the borrower may re-
quest that the Secretary reconsider the 
borrower defense upon the identification of 
new evidence in support of the borrower’s 
claim; and 
‘‘(ii) the Secretary may reopen a bor-
rower defense application at any time to 
consider evidence that was not considered 
in making the previous decision on that ap-
plication. 
‘‘(B) PROHIBITION
ON
RESCINDING
RE-
LIEF.—The Secretary shall not reduce the 
amount of any relief that was previously grant-
ed to a borrower under this section, or reinstate 
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any amounts owed on a previously discharged 
loan. 
‘‘(7) BORROWER DEFENSE CLAIMS AND ESTAB-
LISHING A BORROWER DEFENSE.— 
‘‘(A) CLAIMS.— 
‘‘(i) IN
GENERAL.—Notwithstanding 
any other provision of State or Federal 
law, a borrower may claim as a defense to 
repayment of a loan made under this part 
or part B any borrower defense established 
under subparagraph (B). Such a borrower 
defense claim may include— 
‘‘(I) a defense to repayment of 
amounts owed to the Secretary on a 
loan under this part or part B, in 
whole or in part; and 
‘‘(II) a right to recover amounts 
previously collected by the Secretary 
on such loan, in whole or in part. 
‘‘(ii) CONSOLIDATION LOAN.—In the 
case of a Direct Consolidation Loan— 
‘‘(I) the Secretary shall consider 
a borrower defense claim to such loan 
by determining whether a borrower 
defense described in subparagraph (B) 
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has been established with regard to a 
loan made under this part or part B 
that was paid off by the Direct Con-
solidation Loan; 
‘‘(II) the Secretary shall dis-
charge the appropriate portion of the 
Direct Consolidation Loan if the bor-
rower is determined to have a bor-
rower defense with respect to a loan 
made under this part or part B that 
was paid off by the Direct Consolida-
tion Loan; and 
‘‘(III) the Secretary shall return 
to the borrower any payments made 
by the borrower or otherwise recov-
ered on the Direct Consolidation Loan 
or the loans that were paid off by the 
Direct Consolidation Loan that exceed 
the amount owed on that portion of 
the Direct Consolidation Loan that 
was not discharged, if— 
‘‘(aa) the borrower is deter-
mined to have a borrower defense 
with respect to a loan made 
under this part or part B that 
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was paid off by the Direct Con-
solidation Loan; and 
‘‘(bb) 
the 
payment 
was 
made directly to the Secretary on 
the loan. 
‘‘(iii) PLUS LOAN.—In the case of a 
Direct PLUS Loan made on behalf of a 
student, the Secretary shall consider a bor-
rower defense claim related to the student 
on whose behalf the Direct PLUS Loan 
was borrowed. Any amounts discharged 
will be applied to the parent or borrower of 
the Direct PLUS Loan. 
‘‘(B) ESTABLISHING
A
BORROWER
DE-
FENSE.—A borrower has established a borrower 
defense if— 
‘‘(i) the borrower (whether as an indi-
vidual or as a member of a group or class) 
or a government agency, has obtained 
against the institution of higher education 
a judgment relating to the borrower’s 
claim based on State or Federal law in a 
court or administrative tribunal of com-
petent jurisdiction; 
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‘‘(ii) the institution of higher edu-
cation that the borrower attended using a 
loan under this part failed to perform the 
institution’s obligations under the terms of 
a contract with the borrower; 
‘‘(iii) the borrower was subject to any 
act or omission of the institution related to 
the making of the loan for enrollment at 
the institution or the provision of edu-
cational services for which the loan was 
provided that would give rise to a cause of 
action against the institution under appli-
cable State law; 
‘‘(iv) the institution of higher edu-
cation, a third servicer that contracts with 
such institution, or third party contractor 
made a substantial misrepresentation; or 
‘‘(v) the institution has made any 
other act or omission that the Secretary, 
through regulations, or any Federal law, 
has established is an act or omission that 
constitutes a borrower defense under this 
subsection. 
‘‘(C) LIMITATION.—A violation by an insti-
tution of a requirement in this Act (including 
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implementing regulations) is not a basis for a 
borrower defense under this subsection unless 
the violation would otherwise constitute a basis 
for a borrower defense, as described in this 
paragraph. 
‘‘(8) FINDING OF SUBSTANTIAL MISREPRESEN-
TATION.—An eligible institution is deemed to have 
engaged in a substantial misrepresentation for pur-
poses of this subsection when an eligible institution, 
third party servicer that contracts with such institu-
tion, or third party contractor, commits a substan-
tial misrepresentation, as defined in section 489A. A 
sworn statement or attestation from the borrower 
shall be considered as evidence, and, in the Sec-
retary’s discretion, may be sufficient evidence for the 
Secretary to find that a substantial misrepresenta-
tion was made to a borrower. If the Secretary deter-
mines that an eligible institution, third party 
servicer that contracts with such institution, or third 
party contractor, has engaged in a substantial mis-
representation, the Secretary shall, in addition to 
finding a borrower defense under this section, take 
enforcement action against the institution, third 
party servicer that contracts with such institution, 
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or third party contractor, in accordance with section 
489A. 
‘‘(9) ACTION AGAINST THE INSTITUTION.—If a 
borrower is determined to have established a bor-
rower defense in accordance with this subsection, the 
Secretary shall initiate an appropriate proceeding to 
require the institution whose act or omission re-
sulted in the borrower defense to repay to the Sec-
retary the amount discharged under paragraph 
(7)(A) whether by offset, claim on a letter of credit, 
or other protection provided by the institution. 
‘‘(10) REPORTING.—Not less than once every 3 
months, the Secretary shall publish on a website, 
and report to Congress, data— 
‘‘(A) for each institution, on— 
‘‘(i) the number of claims considered 
under this subsection; 
‘‘(ii) the number of those claims pend-
ing and the date of receipt of the applica-
tion, or the date of the initiation of the 
claim by the Secretary, of those claims; 
and 
‘‘(iii) the number of claims under this 
subsection for which a determination has 
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been made and the results of each such de-
termination; and 
‘‘(B) in the aggregate, and disaggregated 
by State, on— 
‘‘(i) the total number of claims pend-
ing under this subsection; 
‘‘(ii) the number of those claims that 
are approved borrower defense claims and 
total dollar amount of relief; 
‘‘(iii) the percentage of those total ap-
proved claims receiving partial relief and 
the median student loan debt remaining 
for borrowers receiving partial relief; and 
‘‘(iv) the number of those claims that 
are denied borrower defense claims.’’. 
TITLE 
III—ENSURING 
INTEG-
RITY AT INSTITUTIONS OF 
HIGHER EDUCATION 
SEC. 301. RESTRICTIONS ON SOURCES OF FUNDS FOR RE-
CRUITING AND MARKETING ACTIVITIES. 
(a) REPEAL.—Section 119 of the Higher Education 
Opportunity Act (20 U.S.C. 1011m) is repealed. 
(b) AMENDMENT TO THE HIGHER EDUCATION ACT 
OF 1965.—Part B of title I of the Act (20 U.S.C. 1011 
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et seq.), as amended by title I, is further amended by add-
ing at the end the following: 
‘‘SEC. 126. USE OF FEDERAL FUNDS; RESTRICTIONS ON 
SOURCES OF FUNDS FOR RECRUITING AND 
MARKETING ACTIVITIES. 
‘‘(a) PROHIBITION.— 
‘‘(1) IN
GENERAL.—No Federal student aid 
funding under this Act received by an institution of 
higher education may be used to pay any person for 
influencing or attempting to influence an officer or 
employee of any agency, a Member of Congress, an 
officer or employee of Congress, or an employee of 
a Member of Congress in connection with any Fed-
eral action described in paragraph (2). 
‘‘(2) APPLICABILITY.—The prohibition in para-
graph (1) applies with respect to the following Fed-
eral actions: 
‘‘(A) The awarding of any Federal con-
tract. 
‘‘(B) The making of any Federal grant. 
‘‘(C) The making of any Federal loan. 
‘‘(D) The entering into of any Federal co-
operative agreement. 
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100 
‘‘(E) The extension, continuation, renewal, 
amendment, or modification of any Federal con-
tract, grant, loan, or cooperative agreement. 
‘‘(b) LOBBYING AND EARMARKS.—No Federal stu-
dent aid funding under this Act may be used to hire a 
registered lobbyist or pay any person or entity for securing 
an earmark. 
‘‘(c) RESTRICTIONS ON SOURCES OF FUNDS FOR RE-
CRUITING AND MARKETING ACTIVITIES.— 
‘‘(1) IN
GENERAL.—An institution of higher 
education may not use revenues derived from Fed-
eral education assistance funds for recruiting or 
marketing activities described in paragraph (2). 
‘‘(2) COVERED ACTIVITIES.— 
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), the recruiting and marketing 
activities subject to paragraph (1) shall include 
the following: 
‘‘(i) Advertising and promotion activi-
ties, including paid announcements in 
newspapers, magazines, radio, television, 
billboards, electronic media, naming rights, 
or any other public medium of communica-
tion, including paying for displays or pro-
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101 
motions at job fairs, military installations, 
or college recruiting events. 
‘‘(ii) Efforts to identify and attract 
prospective students, either directly or 
through a third party contractor, including 
contact concerning a prospective student’s 
potential enrollment or application for 
grant, loan, or work assistance under title 
IV or participation in preadmission or ad-
vising activities, including— 
‘‘(I) paying employees responsible 
for overseeing enrollment and for con-
tacting potential students in-person, 
by phone, by email, or by other Inter-
net communications regarding enroll-
ment; and 
‘‘(II) soliciting an individual to 
provide contact information to an in-
stitution of higher education, includ-
ing websites established for such pur-
pose and funds paid to third parties 
for such purpose. 
‘‘(iii) Such other activities as the Sec-
retary may prescribe, including paying for 
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102 
promotion or sponsorship of education or 
military-related associations. 
‘‘(B) EXCEPTIONS.—Any activity that is 
required as a condition of receipt of funds by 
an institution under title IV, is specifically au-
thorized under such title, or is otherwise speci-
fied by the Secretary, shall not be considered to 
be a covered activity under this paragraph. 
‘‘(3) RULE
OF
CONSTRUCTION.—Nothing in 
this subsection shall be construed as a limitation on 
the use by an institution of revenues derived from 
sources other than Federal education assistance 
funds. 
‘‘(4) REPORTS.—Each institution of higher 
education, that derives 65 percent or more of reve-
nues from Federal education assistance funds shall 
report annually to the Secretary and to Congress 
and shall include in such report— 
‘‘(A) the institution’s expenditures on ad-
vertising, marketing, and recruiting; 
‘‘(B) a verification from an independent 
auditor that the institution is in compliance 
with the requirements of this subsection; and 
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103 
‘‘(C) a certification from the institution 
that the institution is in compliance with the re-
quirements of this subsection. 
‘‘(5) 
FEDERAL
EDUCATION
ASSISTANCE 
FUNDS.—In this subsection, the term ‘Federal edu-
cation assistance funds’ has the meaning given that 
term in section 102(b)(2)(B) (as added by section 
101 of the Preventing Risky Operations from 
Threatening the Education and Career Trajectories 
of Students Act of 2019). 
‘‘(d) CERTIFICATION.—Each institution of higher 
education receiving Federal funding under this Act, as a 
condition for receiving such funding, shall annually certify 
to the Secretary that the requirements of this section have 
been met. 
‘‘(e) ACTIONS TO IMPLEMENT AND ENFORCE.—The 
Secretary shall take such actions as are necessary to en-
sure that the provisions of this section are implemented 
and enforced.’’. 
SEC. 302. STRENGTHENING THE INCENTIVE COMPENSA-
TION BAN. 
(a) SENSE OF CONGRESS REGARDING INCENTIVE 
COMPENSATION.—It is the sense of Congress that— 
(1) the use of commission-paid sales practices, 
also known as incentive compensation, leads to over-
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104 
ly aggressive, manipulative, and often misleading 
tactics in advertising, recruiting, and counseling stu-
dents; 
(2) such practices are inappropriate at any in-
stitution benefitting from Federal funding and an 
implied Federal endorsement through participation 
in programs under title IV of the Higher Education 
Act of 1965 (20 U.S.C. 1070 et seq.); 
(3) previous investigations by the Federal 
Trade Commission, as well as by Congress, including 
the Permanent Subcommittee on Investigations of 
the Senate (referred to as the ‘‘Nunn Commission’’) 
in 1991 and the Committee on Health, Education, 
Labor, and Pensions of the Senate in 2012, found 
that incentive compensation schemes frequently con-
tribute to high-pressure sales and other predatory 
abuses at federally supported schools; 
(4) the ban on incentive compensation under 
section 487(a)(20) of the Higher Education Act of 
1965 (20 U.S.C. 1094(a)(20)), as amended by sub-
section (b), is intended to preclude the use of such 
abusive practices at any point in the process of re-
cruiting or enrolling students, or assisting students 
in securing employment; and 
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105 
(5) an institution that receives assistance under 
title IV of such Act remains responsible for the ac-
tions of any entity that performs functions and tasks 
on the institution’s behalf, and these responsibilities 
include 
ensuring 
that 
employees, 
third 
party 
servicers that contract with such institutions, and 
third party contractors are not paid for services that 
would convert these payments into prohibited incen-
tive compensation because of the activities in which 
the employees, third party servicers that contract 
with such institutions, or third party contractors en-
gage. 
(b) AMENDMENTS.—Section 487 (20 U.S.C. 1094) is 
amended— 
(1) in subsection (a), by striking paragraph 
(20) and inserting the following: 
‘‘(20) The institution, any third party servicer 
that contracts with such institution, and any third 
party contractor will comply with the ban on prohib-
ited incentive compensation ban under subsection 
(j).’’; and 
(2) by adding at the end the following: 
‘‘(j) INCENTIVE COMPENSATION BAN.— 
‘‘(1) DEFINITIONS.—In this subsection: 
‘‘(A) COVERED ACTIVITY.— 
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106 
‘‘(i) IN GENERAL.—The term ‘covered 
activity’ means any of the following activi-
ties: 
‘‘(I) Securing enrollment of stu-
dents into the institution of higher 
education, which includes— 
‘‘(aa) activities that an indi-
vidual or entity engages in at any 
point in time during an edu-
cational program for the purpose 
of the admission or matriculation 
of students for any period of 
time, including contact in any 
form with a prospective student, 
such as contact through pread-
mission or advising activities, 
scheduling an appointment to 
visit the enrollment office or any 
other office of the institution, at-
tendance at such an appoint-
ment, or involvement in a pro-
spective student’s signing of an 
enrollment agreement or financial 
aid application; and 
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107 
‘‘(bb) other recruitment and 
marketing activities. 
‘‘(II) Securing or awarding finan-
cial aid to students for attendance at 
the institution, including— 
‘‘(aa) any involvement in a 
prospective student’s signing of a 
financial aid application; and 
‘‘(bb) completing financial 
aid applications on behalf of a 
prospective applicant (including 
activities authorized by the De-
partment, such as the FAA Ac-
cess tool, which can be used to 
enter, correct, verify, or analyze 
financial aid application data). 
‘‘(III) Improving job placement 
activities for students attending, or 
who have attended, the institution. 
‘‘(IV) Reducing the number of 
students who default on their student 
loans. 
‘‘(ii) EXCLUSION.—The term ‘covered 
activity’ does not include— 
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108 
‘‘(I) the provision of student con-
tact information for prospective stu-
dents, if any payment for such service 
is not based on— 
‘‘(aa) any additional conduct 
or action by the third party 
servicer that contracts with such 
institutions or third party con-
tractor or the prospective stu-
dent, such as participation in 
preadmission or advising activi-
ties, scheduling an appointment 
to visit the enrollment office or 
any other office of the institution 
or attendance at such an ap-
pointment, or the signing, or 
being involved in the signing, of a 
prospective student’s enrollment 
agreement or financial aid appli-
cation; or 
‘‘(bb) the number of stu-
dents (calculated at any point in 
time of an educational program) 
who apply for enrollment, are 
awarded financial aid, or are en-
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109 
rolled for any period of time, in-
cluding through completion of an 
educational program; or 
‘‘(II) student support services not 
included in the covered activities 
under clause (i). 
‘‘(B) PROHIBITED INCENTIVE COMPENSA-
TION.— 
‘‘(i) IN GENERAL.—The term ‘prohib-
ited incentive compensation’ includes— 
‘‘(I) any commission, bonus, or 
other incentive payment, of a sum of 
money or other item of value, paid to 
or given to a person or an entity that 
is not a fixed salary or wages and that 
is paid or given for meeting a certain 
quota or numerical target, or avoiding 
penalties for a benchmark set in Fed-
eral law, relating to covered activities; 
‘‘(II) other direct or indirect 
forms of payment for meeting a cer-
tain quota or numerical target, or 
avoiding penalties for a benchmark set 
in Federal law, relating to covered ac-
tivities, including— 
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‘‘(aa) tuition sharing as a 
measure of compensation when 
based on a formula that relates 
the amount payable to the entity 
to meeting a certain quota or nu-
merical target, or avoiding pen-
alties for a benchmark set in 
Federal law, as a result of the 
covered activity of the entity; 
‘‘(bb) profit-sharing plans 
from 
which 
distributions 
are 
made to individuals based on 
meeting a certain quota or nu-
merical target, or avoiding pen-
alties for a benchmark set in 
Federal law, as a result of cov-
ered activities by the recipient; 
‘‘(cc) 
salary 
adjustments 
that take the form of incentive 
payments based directly or indi-
rectly on meeting a quota or nu-
merical target, or avoiding pen-
alties for a benchmark set in 
Federal law, with respect to a 
covered activity; 
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get, or avoiding penalties for a bench-
mark set in Federal law, relating to 
covered activities. 
‘‘(ii) 
EXCLUSIONS.—The 
following 
payments or benefits shall not be consid-
ered prohibited incentive compensation, if 
the payment or benefit is determined in a 
way that is not related to the role the re-
cipient plays in any covered activity: 
‘‘(I) A profit sharing plan, in-
cluding a qualified cash or deferred 
arrangement (as defined in section 
401(k)(2) of the Internal Revenue 
Code of 1986) offered to all employees 
on a basis that is neutral with respect 
to the role the recipient plays in any 
covered activity. 
‘‘(II) An employee benefits plan 
offered to all employees on a basis 
that is neutral with respect to the role 
the recipient plays in any covered ac-
tivity. 
‘‘(III) A cost of living adjust-
ment. 
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‘‘(IV) A payment to a senior ex-
ecutive with responsibility for the de-
velopment of policies that affect mar-
keting and recruitment, enrollment, fi-
nancial aid, or student support serv-
ices, including job placement services. 
‘‘(C) RECRUITMENT AND MARKETING AC-
TIVITY.—The term ‘recruitment and marketing 
activity’ means— 
‘‘(i) broad information dissemination 
and disseminating targeted information to 
individuals; 
‘‘(ii) soliciting individuals regarding 
an institution; 
‘‘(iii) advertising a program that dis-
seminates information to potential stu-
dents; 
‘‘(iv) collecting contact information; 
‘‘(v) contacting potential applicants 
for the admission or matriculation of a 
student into an institution; 
‘‘(vi) screening pre-enrollment infor-
mation to determine whether a prospective 
student meets the requirements that an in-
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114 
stitution has established for enrollment in 
an academic program; 
‘‘(vii) aiding individuals in filling out 
any information relating to an application 
for admission or matriculation into an in-
stitution; 
‘‘(viii) determining whether an enroll-
ment application is materially complete, as 
long as the enrollment decision remains 
with the institution; or 
‘‘(ix) any other activity described in 
section 126(d)(2). 
‘‘(D) STUDENT SUPPORT SERVICES.—The 
term ‘student support services’ means any of 
the following services: 
‘‘(i) Counseling or other nonacademic 
support activities provided to students that 
is not a covered activity. 
‘‘(ii) Institutional services provided to 
students, such as information technology 
assistance, food service, or housing, that is 
not a covered activity. 
‘‘(iii) Other services involved in the 
administration of support for students that 
is not a covered activity. 
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‘‘(2) INCENTIVE COMPENSATION BAN.— 
‘‘(A) IN GENERAL.—The institution, any 
third party servicer that contracts with such in-
stitution, and any third party contractor shall 
not provide any prohibited incentive compensa-
tion to any person or entity. 
‘‘(B) APPLICABILITY.—The ban on prohib-
ited incentive compensation under this sub-
section applies to any entity or individual en-
gaged in any covered activity, including— 
‘‘(i) with respect to an entity engaged 
in any student recruitment or admission 
activity or in making decisions about the 
award of financial aid, any institution or 
entity that undertakes the recruiting or the 
admitting of students or that makes deci-
sions about and awards program funds 
under this title; and 
‘‘(ii) with respect to an individual en-
gaged in any student recruitment or ad-
mission activity or in making decisions 
about the award of financial aid— 
‘‘(I) any employee who under-
takes recruiting or admitting of stu-
dents or who makes decisions about 
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and awards program funds under this 
title; and 
‘‘(II) any higher-level employee 
with responsibility for recruitment or 
admission of students, or making deci-
sions about awarding program funds 
under this title. 
‘‘(C) EXCLUSION
OF
CERTAIN
EMPLOY-
EES.—The ban on prohibited incentive com-
pensation under this subsection shall not apply 
to any senior manager or executive level em-
ployee who— 
‘‘(i) is involved only in the develop-
ment of policy related to the manner in 
which marketing and recruitment, enroll-
ment, financial aid, or student support 
services will be pursued or provided; and 
‘‘(ii) does not engage in individual 
student contact or other covered activities. 
‘‘(D) INDIVIDUAL
WITH
MULTIPLE
AD-
JUSTMENTS TO COMPENSATION.—An employee 
of an institution, a third party servicer that 
contracts with such institution, or a third party 
contractor, who receives multiple adjustments 
to compensation in a calendar year and is en-
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117 
gaged in a covered activity shall be considered 
to be engaged in prohibited incentive compensa-
tion if the adjustments create compensation 
that is based in any part, directly or indirectly, 
upon meeting certain quotas or numerical tar-
gets, or avoiding penalties for a benchmark set 
in Federal law, regarding those covered activi-
ties. 
‘‘(3) NOTICE
OF
INCENTIVE
COMPENSATION 
BAN.— 
‘‘(A) NOTICE
TO
SERVICER
AND
CON-
TRACTOR.—The institution shall provide notice 
of the ban on prohibited incentive compensation 
under this subsection at least once a year to 
each third party servicer and third party con-
tractor that contracts with the institution. 
‘‘(B) NOTICE TO EMPLOYEES.—The insti-
tution, and any third party contractor or third 
party servicer that contracts with such institu-
tion, shall— 
‘‘(i) provide notice of the ban on pro-
hibited incentive compensation under this 
subsection at least once a year to employ-
ees; and 
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118 
‘‘(ii) publish a clear statement in all 
internal recruitment materials, including 
guides or manuals, acknowledging the ban 
on prohibited incentive compensation under 
this subsection. 
‘‘(4) CONSEQUENCES
FOR
INCENTIVE
COM-
PENSATION VIOLATION.— 
‘‘(A) IN GENERAL.—The Secretary, in co-
ordination with the Office of the Inspector Gen-
eral of the Department of Education, shall de-
velop a written policy for the enforcement of the 
ban on prohibited incentive compensation under 
this subsection, and shall update that policy as 
needed. 
‘‘(B) CONTENTS OF POLICY.—The policy 
developed under subparagraph (A)— 
‘‘(i) shall require that compliance re-
view occur on an annual basis; 
‘‘(ii) may include automatic triggers 
for inquiries by the Department or regular 
‘secret shopper’ or audit-based investiga-
tions to ensure that institutions of higher 
education remain in compliance with the 
ban; and 
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119 
‘‘(iii) shall explain the range of sanc-
tions, as described in section 489A, that 
the Secretary may carry out to enforce this 
subsection. 
‘‘(C) REPORT.—The Department shall 
publish an annual report, and shall submit that 
report to the authorizing committees and the 
For-Profit Education Oversight Coordination 
Committee established under section 125, which 
shall include— 
‘‘(i) a description of the status of any 
investigations conducted under this sub-
section; 
‘‘(ii) the names of institutions found 
to be not in compliance with this sub-
section; 
‘‘(iii) the sanctions the non-compliant 
institution of higher education faced; and 
‘‘(iv) in the case of an institution sub-
ject to liability for funds under this title 
pursuant to subparagraph (B)(iii), the 
amount of such liability.’’. 
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120 
SEC. 303. DEFINITION OF NONPROFIT INSTITUTION OF 
HIGHER EDUCATION. 
Section 103 (20 U.S.C. 1003) is amended by striking 
paragraph (13) and inserting the following: 
‘‘(13) NONPROFIT.— 
‘‘(A) 
IN
GENERAL.—The 
term 
‘non-
profit’— 
‘‘(i) as applied to a school, agency, or-
ganization, or institution, means a school, 
agency, organization, or institution con-
trolled, owned, and operated by one or 
more nonprofit corporations or associa-
tions, no part of the net earnings of which 
inures, or may lawfully inure, to the ben-
efit of any private shareholder or indi-
vidual; and 
‘‘(ii) as applied to an institution of 
higher education, means an institution— 
‘‘(I) that meets the requirements 
of subparagraph (A); 
‘‘(II) that is an organization de-
scribed in section 170(b)(1)(A)(ii) or 
(vi) of the Internal Revenue Code of 
1986; and 
‘‘(III) with respect to which— 
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‘‘(aa) no member of the gov-
erning board of the institution 
(other than any ex officio mem-
ber serving at the pleasure of the 
remainder of the governing board 
and receiving a fixed salary) re-
ceives any substantial direct or 
indirect economic benefit (includ-
ing a lease, promissory note, or 
other contract) from the institu-
tion; and 
‘‘(bb) no person with the 
power to appoint or remove mem-
bers of the governing board re-
ceives any such substantial direct 
or indirect economic benefit (in-
cluding a lease, promissory note, 
or other contract) from the insti-
tution. 
‘‘(B) EXCLUSIONS.— 
‘‘(i) IN GENERAL.—An institution of 
higher education shall not be considered a 
nonprofit institution of higher education, 
as defined in this paragraph, if— 
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‘‘(I) one or more core functions 
are under the control of, or subject to 
significant direction from an entity 
that is not a public institution of 
higher education or is not formed as 
a nonprofit corporation; or 
‘‘(II) a substantial share of the 
assets of the institution are committed 
to a joint venture with a person or en-
tity that is not a public institution of 
higher education and is not a non-
profit corporation, and the core func-
tions of the venture are conducted by, 
under the control of, or subject to sig-
nificant direction from that person or 
entity. 
‘‘(ii) PRESUMPTION
OF
SIGNIFICANT 
DIRECTION.—There shall be a conclusive 
presumption that an entity exercises sig-
nificant direction if one or more of the en-
tity’s employees or owners serves as an of-
ficer, member of the board, or person hold-
ing similar authority for the institution of 
higher education.’’. 
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123 
SEC. 304. DEFINITION OF PUBLIC INSTITUTION OF HIGHER 
EDUCATION. 
Section 103 (20 U.S.C. 1003), as amended by section 
4, is further amended— 
(1) by inserting after paragraph (14) the fol-
lowing: 
‘‘(15) PUBLIC INSTITUTION OF HIGHER EDU-
CATION.— 
‘‘(A) IN
GENERAL.—The term ‘public’, 
when used with respect to an institution of 
higher education, means an institution of higher 
education— 
‘‘(i)(I) operated by— 
‘‘(aa) the Federal Government; 
‘‘(bb) a State, as defined in sec-
tion 3306(j)(1) of the Internal Rev-
enue Code of 1986; 
‘‘(cc) a local government, as de-
fined in section 1393(a)(5) of such 
Code; or 
‘‘(dd) an Indian tribal govern-
ment, 
as 
defined 
in 
section 
7701(a)(40) of such Code; 
‘‘(II) for which all obligations of the 
institution are valid and binding obliga-
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tions of the State, local government, or In-
dian tribal government; and 
‘‘(III) for which the full faith and 
credit of such State, local government, or 
Indian tribal government is pledged for the 
timely payment of such obligations; or 
‘‘(ii) that is an instrumentality of a 
State or local government (as such terms 
are defined in subparagraph (A)). 
‘‘(B) INSTRUMENTALITY OF A STATE OR 
LOCAL GOVERNMENT.—An institution shall be 
considered an instrumentality of a State or 
local government for purposes of this paragraph 
if the institution meets all of the following re-
quirements: 
‘‘(i) The employees of the institution 
are employees of the State or local govern-
ment. 
‘‘(ii) Any liability of the institution is 
payable to the same degree as if the liabil-
ity was a liability of the State or local gov-
ernment, in the State or local government 
jurisdiction where the institution is formed. 
‘‘(iii) The institution is subject to the 
same financial oversight and open public 
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records laws as the State or local govern-
ment, in the State or local government ju-
risdiction where the institution is formed.’’. 
SEC. 305. ENHANCED CIVIL PENALTIES, STATE ENFORCE-
MENT, AND PRIVATE RIGHT OF ACTION. 
(a) IN GENERAL.—Part G of title IV (20 U.S.C. 
1088 et seq.) is amended by inserting after section 489 
the following: 
‘‘SEC. 489A. ENHANCED CIVIL PENALTIES, STATE ENFORCE-
MENT, AND PRIVATE RIGHT OF ACTION. 
‘‘(a) DEFINITIONS.—In this section: 
‘‘(1) MISREPRESENTATION.—The term ‘mis-
representation’ means any false, erroneous, or mis-
leading statement an eligible institution of higher 
education, a third party servicer that contracts with 
such institution, or a third party contractor makes 
directly or indirectly to a student, prospective stu-
dent, or any member of the public, or to an accred-
iting agency or association, State approval agency, 
or the Secretary. A misrepresentation includes— 
‘‘(A) the making of a statement that has 
the likelihood or tendency to deceive; or 
‘‘(B) the omission of any material facts 
necessary in order to make any statements 
made, in light of the circumstances under which 
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126 
they were made, not false, deceptive, unfair, er-
roneous, or misleading. 
‘‘(2) OFFICER OF AN INSTITUTION OF HIGHER 
EDUCATION.—The term ‘officer of an institution of 
higher education’ including at any nonprofit, for- 
profit, or public institution of higher education, in-
cludes the president, chief executive officer, and 
chief financial officer of an institution of higher edu-
cation as well as all officers charged with overseeing 
a principal business unit, division, or function, such 
as sales, administration, or finance. 
‘‘(3) PROSPECTIVE STUDENT.—The term ‘pro-
spective student’ means any individual who has con-
tacted an institution of higher education for the pur-
pose of requesting information about enrolling at the 
institution of higher education or who has been con-
tacted directly or indirectly by the institution of 
higher education or a third party contractor through 
advertising about enrolling at the institution. 
‘‘(4) STATE
APPROVAL
AGENCY.—The term 
‘State approval agency’ means any State agency that 
determines whether an institution of higher edu-
cation is legally authorized within such State to pro-
vide a program of education beyond secondary edu-
cation. 
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127 
‘‘(5) SUBSTANTIAL MISREPRESENTATION.—The 
term ‘substantial misrepresentation’ means any mis-
representation on which the person to whom it was 
made could reasonably be expected to rely, or has 
reasonably relied, to that person’s detriment. 
‘‘(b) LIMITATION, SUSPENSION, OR TERMINATION OF 
ELIGIBILITY STATUS.— 
‘‘(1) IN GENERAL.—Upon determination, after 
reasonable notice and opportunity for a hearing, that 
an eligible institution, a third party servicer that 
contracts with such institution, or a third party con-
tractor has violated or failed to carry out any provi-
sion of this title, any regulation prescribed under 
this title, or any applicable special arrangement, 
agreement, or limitation, the Secretary may limit, 
suspend, or terminate the participation of that insti-
tution in any program under this title, or the eligi-
bility of that third party contractor or third party 
servicer to contract with any institution, subject to 
the requirements of paragraph (2). 
‘‘(2) SUSPENSION PROCEDURES.—No period of 
suspension under this section shall exceed 60 days 
unless the institution and the Secretary agree to an 
extension or unless limitation or termination pro-
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ceedings are initiated by the Secretary within that 
period of time. 
‘‘(3) 
SUBSTANTIAL
MISREPRESENTATION.— 
Upon determination, after reasonable notice and op-
portunity for a hearing, that an eligible institution, 
a third party servicer that contracts with such insti-
tution, or a third party contractor has engaged in 
substantial misrepresentation, including a misrepre-
sentation relating to the nature of an educational 
program, financial charges, the space availability in 
a program of the institution for which a student is 
considering enrollment, admission requirements, the 
transferability of credits, whether one of that institu-
tion’s programs meets necessary State standards to 
obtain certification or sit for licensing examinations, 
the passage rates of students in obtaining certifi-
cations or sitting for licensing examinations, or the 
employability or earnings of graduates, the Secretary 
may suspend, limit, or terminate the eligibility sta-
tus for any or all programs under this title of any 
otherwise eligible institution, or of any third party 
contractor or third party servicer to contract with 
any institution, in accordance with procedures speci-
fied in paragraph (1), until the Secretary finds that 
such practices have been corrected. 
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129 
‘‘(c) CIVIL PENALTIES.— 
‘‘(1) IN GENERAL.—The Secretary shall impose 
a civil penalty upon an eligible institution, a third 
party servicer that contracts with such institution, 
or a third party contractor, upon making a deter-
mination, after reasonable notice and opportunity 
for a hearing, that an eligible institution, a third 
party servicer that contracts with such institution, 
or a third party contractor has— 
‘‘(A) violated or failed to carry out any 
provision of this title or any regulation pre-
scribed under this title; or 
‘‘(B) engaged in a substantial misrepresen-
tation, including a substantial misrepresenta-
tion described in subsection (b)(3). 
‘‘(2) AMOUNT OF CIVIL PENALTIES.— 
‘‘(A) A civil penalty imposed for a violation 
or failure described under paragraph (1)(A) 
shall not exceed $100,000 (subject to such ad-
justments for inflation as may be prescribed in 
regulation) for each such violation. 
‘‘(B) A civil penalty imposed for a violation 
described under paragraph (1)(B) shall be in an 
amount not to exceed the greater of— 
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‘‘(i) $100,000 (subject to such adjust-
ments for inflation as may be prescribed in 
regulation) for each such violation; or 
‘‘(ii)(I) in the case of an institution, 
1.0 percent of the amount of funds the in-
stitution received through this title in the 
most recent award year prior to the deter-
mination for each such violation; and 
‘‘(II) in the case of a third party 
servicer that contracts with such institu-
tion or a third party contractor, the 
amount of the contract with the institu-
tion. 
‘‘(3) TREATMENT
OF
MULTIPLE
INSTITU-
TIONS.—For the purpose of determining the amount 
of civil penalties under this subsection, any violation 
by a particular institution will accrue against all 
identification codes used by the Office of Postsec-
ondary Education to designate campuses and insti-
tutions affiliated with the institution, and within the 
period of participation for the institution as defined 
in section 668.13(b) of title 34, Code of Federal 
Regulations, or any successor regulation. 
‘‘(d) EMERGENCY ACTION.—The Secretary may take 
an emergency action against an institution, a third party 
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