Protect Student Borrowers Act of 2022
Bill: S.5065 | Sponsor: Sen. Reed, Jack (D-RI)
Policy area: Education

Summary:
Protect Student Borrowers Act of 2022
This bill requires institutions of higher education (IHEs) participating in the William D. Ford Federal Direct Loan program to accept specified risk-sharing requirements for defaulted student loans, which shall include requiring certain IHEs to make payments to address the risk of such defaults. The bill also establishes in the Treasury a separate account for the deposit of such risk-sharing payments.

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

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Protect Student Borrowers Act of 
2022''.

SEC. 2. PURPOSE.

    The purpose of this Act is to protect student loan borrowers and 
taxpayers by requiring institutions of higher education to assume some 
of the costs of default for student loans under part D of title IV of 
the Higher Education Act of 1965 (20 U.S.C. 1087a et seq.).

SEC. 3. INSTITUTIONAL REBATES TO THE DEPARTMENT OF EDUCATION FOR 
              DEFAULTED LOANS.

    Section 454 of the Higher Education Act of 1964 (20 U.S.C. 1087d) 
is amended--
            (1) in subsection (a)--
                    (A) in paragraph (5), by striking ``and'' after the 
                semicolon;
                    (B) in paragraph (6), by striking the period at the 
                end and inserting ``; and''; and
                    (C) by adding at the end the following:
            ``(7) provide that the institution accepts the 
        institutional risk-sharing requirements under subsection (d), 
        if applicable.''; and
            (2) by adding at the end the following:
    ``(d) Institutional Risk-Sharing for Student Loan Defaults.--
            ``(1) In general.--Subject to paragraph (3), each 
        institution of higher education participating in the direct 
        student loan program under this part for a fiscal year that has 
        a rate of participation in such program for all students 
        enrolled at that institution for such fiscal year that is 33 
        percent or higher or a cohort repayment rate of 50 percent or 
        lower shall remit, at such times as the Secretary may specify, 
        a risk-sharing payment based on a percentage of the volume of 
        student loans under this part that are in default, as 
        determined under paragraph (2).
            ``(2) Determination of risk-sharing payments.--Subject to 
        paragraph (3), with respect to each fiscal year, an institution 
        of higher education described in paragraph (1) that has a 
        cohort default rate (as defined in section 435(m))--
                    ``(A) that is 20 percent or higher for the most 
                recent fiscal year for which data are available, shall 
                pay to the Secretary for the fiscal year an amount that 
                is equal to 20 percent of the total amount owed on 
                loans by borrowers from the covered cohort that are in 
                default;
                    ``(B) that is lower than 20 percent but not lower 
                than 15 percent for the most recent fiscal year for 
                which data are available, shall pay to the Secretary 
                for the fiscal year an amount that is equal to 15 
                percent of the total amount owed on loans by borrowers 
                from the covered cohort that are in default;
                    ``(C) that is lower than 15 percent but not lower 
                than 10 percent for the most recent fiscal year for 
                which data are available, shall pay to the Secretary 
                for the fiscal year an amount that is equal to 10 
                percent of the total amount owed on loans by borrowers 
                from the covered cohort that are in default; or
                    ``(D) that is lower than 10 percent but not lower 
                than 5 percent for the most recent fiscal year for 
                which data are available, shall pay to the Secretary 
                for the fiscal year an amount that is equal to 5 
                percent of the total amount owed on loans by borrowers 
                from the covered cohort that are in default.
            ``(3) Waiver and reduced risk-sharing payments.--
                    ``(A) Waiver.--The Secretary shall waive the risk-
                sharing payments described in paragraph (1) for an 
                institution described in paragraph (2)(D) that meets 
                the requirements of this paragraph.
                    ``(B) Reduced risk-sharing payments.--If an 
                institution has in place a student loan management plan 
                described in subparagraph (D) that is approved by the 
                Secretary, the Secretary shall reduce the total annual 
                amount of risk-sharing payments as follows:
                            ``(i) With respect to an institution with a 
                        cohort default rate described in paragraph 
                        (2)(A), the risk-sharing payment shall be in an 
                        amount that is equal to 15 percent of the total 
                        amount owed on loans by borrowers from the 
                        covered cohort that are in default.
                            ``(ii) With respect to an institution with 
                        a cohort default rate described in paragraph 
                        (2)(B), the risk-sharing payment shall be in an 
                        amount that is equal to 10 percent of the total 
                        amount owed on loans by borrowers from the 
                        covered cohort that are in default.
                            ``(iii) With respect to an institution with 
                        a cohort default rate described in paragraph 
                        (2)(C), the risk-sharing payment shall be in an 
                        amount that is equal to 5 percent of the total 
                        amount owed on loans by borrowers from the 
                        covered cohort that are in default.
                    ``(C) Continuation of waiver or reduced payments.--
                An institution that receives a waiver under 
                subparagraph (A) or a reduced risk-sharing payment 
                under subparagraph (B) may receive a waiver or reduced 
                payment for a subsequent fiscal year only if the 
                Secretary determines that the institution is making 
                satisfactory progress in carrying out the student loan 
                management plan described in subparagraph (D), 
                including evidence of the effectiveness of the 
                individualized financial aid counseling for students.
                    ``(D) Student loan management plan.--An institution 
                that seeks a waiver or reduction of its risk-sharing 
                payment, shall develop and carry out a student loan 
                management plan that shall include an analysis of the 
                risk factors correlated with higher student loan 
                defaults that are present at the institution and 
                actions that the institution will take to address such 
                factors. Such plan shall include individualized 
                financial aid counseling for students and strategies to 
                minimize student loan default and delinquency.
                    ``(E) Waiver or reduction for certain 
                institutions.--In addition to the other risk-sharing 
                payment waivers and reductions described in this 
                paragraph, the Secretary may waive or reduce risk-
                sharing payments if--
                            ``(i) an institution is eligible under--
                                    ``(I) part A or part B of title 
                                III; or
                                    ``(II) title V; and
                            ``(ii) the Secretary determines that--
                                    ``(I) the institution is making 
                                satisfactory progress in carrying out 
                                the institution's student loan 
                                management plan described under 
                                subparagraph (D); and
                                    ``(II) granting a waiver or 
                                reduction of risk-sharing payments 
                                would be in the best financial interest 
                                of students at the institution.
            ``(4) Prohibition.--An institution of higher education 
        shall not deny admission or financial aid to a student who 
        otherwise meets the admission requirements of the institution 
        based on such student having a risk factor associated with 
        higher student loan default rates, such as those described in 
        section 456(c)(1)(C).
            ``(5) Fund for the deposit of risk-sharing payments.--
                    ``(A) In general.--There is established in the 
                Treasury of the United States a separate account for 
                the deposit of risk-sharing payments collected under 
                this subsection for the purpose of reducing student 
                loan debt, delinquency, and default. The Secretary 
                shall deposit any payments collected pursuant to this 
                subsection into such fund.
                    ``(B) Use of funds.--Of the amounts in the fund 
                described in subparagraph (A), for each fiscal year--
                            ``(i) not more than 50 percent of such 
                        amounts shall be made available to the 
                        Secretary to enter into contracts or 
                        cooperative agreements for delinquency and 
                        default prevention or rehabilitation under 
                        section 456(c); and
                            ``(ii) the Secretary shall reserve the 
                        remainder of such amounts for a Supplemental 
                        Federal Grant fund that shall be used to award 
                        grants to students--
                                    ``(I) who are eligible for a 
                                Federal Pell Grant; and
                                    ``(II) who attend an institution--
                                            ``(aa) that participates in 
                                        the direct student loan program 
                                        under this part;
                                            ``(bb) in which not less 
                                        than 33 percent of the students 
                                        enrolled at the institution 
                                        have received a Federal Pell 
                                        Grant; and
                                            ``(cc) that is not subject 
                                        to the risk-sharing payments 
                                        under this subsection.
                    ``(C) Supplemental federal grant.--Eligibility for 
                a Federal Pell Grant, including the duration of 
                eligibility and the amount of a Federal Pell Grant, 
                shall not be affected by receipt of a Supplemental 
                Federal Grant.
            ``(6) Applicability.--The Secretary shall carry out this 
        subsection beginning with the cohort default rate for the 2024 
        cohort and the repayment rate for the 2024 cohort. The 2024 
        cohort shall include current and former students who enter 
        repayment in fiscal year 2024.
            ``(7) Report to congress.--The Secretary shall report on an 
        annual basis to the Committee on Health, Education, Labor, and 
        Pensions of the Senate and the Committee on Education and Labor 
        of the House of Representatives the following information:
                    ``(A) A list of institutions that have been subject 
                to risk-sharing payments in the previous year.
                    ``(B) The required risk-sharing payment from such 
                institutions.
                    ``(C) The amount of risk-sharing payments collected 
                from such institutions.
                    ``(D) A list of the institutions that have received 
                waivers from the risk-sharing payment and the reason 
                for such waiver.
                    ``(E) A list of the institutions that have received 
                reductions in the required risk-sharing payment.
                    ``(F) The use of funds deposited from risk-sharing 
                payments, including--
                            ``(i) the amount reserved for contracts or 
                        cooperative agreements for delinquency and 
                        default prevention or rehabilitation;
                            ``(ii) a list of contracts or cooperative 
                        agreements entered into for delinquency and 
                        default prevention or rehabilitation;
                            ``(iii) information on the performance of 
                        such contracts or cooperative agreements;
                            ``(iv) the amount reserved for the Federal 
                        Pell Grant program; and
                            ``(v) a list of institutions for which 
                        students in attendance at the institution are 
                        eligible for the increased maximum Federal Pell 
                        Grant under paragraph (5)(B)(ii) and the amount 
                        of such increase.
            ``(8) Definitions.--In this subsection:
                    ``(A) Covered cohort.--In this paragraph, the term 
                `covered cohort' means the cohort with respect to which 
                the cohort default rate was calculated.
                    ``(B) Repayment rate.--The term `repayment rate' 
                means, for any fiscal year, the percentage of student 
                and parent borrowers who have Federal student loans for 
                attendance at the institution who entered repayment on 
                those loans in the second preceding fiscal year who 
                have paid at least $1 of the principle balance of the 
                borrower's Federal student loans received for 
                attendance at the institution within 3 years of 
                entering repayment. In the case of a loan for a student 
                who has attended and borrowed at more than one 
                institution, the borrower (and such borrower's 
                subsequent repayment or default) is attributed to each 
                institution for attendance at which the borrower 
                received a loan that entered repayment in the fiscal 
                year.''.

SEC. 4. CONTRACTS AND COOPERATIVE AGREEMENTS.

    Section 456 of the Higher Education Act of 1965 (20 U.S.C. 1087f) 
is amended by adding at the end the following:
    ``(c) Contracts and Cooperative Agreements for Delinquency and 
Default Prevention and for Default Rehabilitation.--The Secretary may 
enter into contracts or cooperative agreements for--
            ``(1) statewide or institutionally based programs for the 
        prevention of Federal student loan delinquency and default at 
        institutions of higher education that--
                    ``(A) have a high cohort default rate as defined 
                under section 435(m);
                    ``(B) have a low repayment rate (as defined in 
                section 454(d)); or
                    ``(C) serve large numbers or percentages of student 
                loan borrowers who have a risk factor associated with 
                higher default rates on Federal student loans under 
                this title, such as coming from a low-income family, 
                being a first generation postsecondary education 
                student, not having a secondary school diploma, or 
                having previously defaulted on, and rehabilitated, a 
                loan made under this title; and
            ``(2) increasing the number of borrowers who successfully 
        repay their loans.''.

SEC. 5. FINANCIAL RESPONSIBILITY.

    Section 498(c)(1) of the Higher Education Act of 1965 (20 U.S.C. 
1099c(c)(1)) is amended by striking subparagraph (C) and inserting the 
following:
                    ``(C) to meet all of its financial obligations, 
                including institutional risk-sharing payments, refunds 
                of institutional charges, and repayments to the 
                Secretary for liabilities and debts incurred in 
                programs administered by the Secretary.''.

SEC. 6. COHORT DEFAULT RATE, REPAYMENT RATE, AND OTHER AMENDMENTS.

    (a) Requirements for Disbursement of Student Loans.--Section 428G 
of the Higher Education Act of 1965 (20 U.S.C. 1078-7) is amended--
            (1) in subsection (a), by striking paragraph (4) and 
        inserting the following:
            ``(4) Amendments to the special rule.--
                    ``(A) Prior to fiscal year 2024.--Beginning on 
                October 1, 2011, and ending on September 30, 2023, the 
                special rule under paragraph (3) shall be applied by 
                substituting `15 percent' for `10 percent'.
                    ``(B) Beginning for fiscal year 2024.--Beginning on 
                October 1, 2023, the special rule under paragraph (3) 
                shall be applied by substituting `5 percent' for `10 
                percent'.''; and
            (2) in subsection (b), by striking paragraph (3) and 
        inserting the following:
            ``(3) Amendment to cohort default rate exemption.--
                    ``(A) Prior to fiscal year 2024.--Beginning on 
                October 1, 2011, and ending on September 30, 2023, the 
                exemption to the requirements of paragraph (1) in the 
                second sentence of such paragraph shall be applied by 
                substituting `15 percent' for `10 percent'.
                    ``(B) Beginning for fiscal year 2024.--Beginning on 
                October 1, 2023, the exemption to the requirements of 
                paragraph (1) in the second sentence of such paragraph 
                shall be applied by substituting `5 percent' for `10 
                percent'.''.
    (b) Default Management Plan for Program Participation Agreements.--
Section 487(a)(14)(C) of the Higher Education Act of 1965 (20 U.S.C. 
1094(a)(14)(C)) is amended by striking ``10 percent'' and inserting ``5 
percent'' each place the term appears.
    (c) Program Review and Data.--Section 498A(a)(2)(A) of the Higher 
Education Act of 1965 (20 U.S.C. 1099c-1(a)(2)(A)) is amended by 
striking ``in excess of 25 percent'' and inserting ``in excess of 20 
percent''.
    (d) Definitions for Student Loan Insurance Program.--Section 435 of 
the Higher Education Act of 1965 (20 U.S.C. 1085) is amended--
            (1) in subsection (a)(2)(B)--
                    (A) in clause (iii), by striking ``and'' after the 
                semicolon;
                    (B) in clause (iv), by striking ``and any 
                succeeding fiscal year.'' and inserting ``through 
                fiscal year 2023; and''; and
                    (C) by adding at the end the following:
                            ``(v) 20 percent for fiscal year 2024 and 
                        any succeeding fiscal year.''; and
            (2) in subsection (m)(1)--
                    (A) in subparagraph (A), in the first sentence, by 
                inserting ``and beginning for the cohort that enters 
                repayment in 2024, including borrowers who enter 
                repayment on Federal Direct PLUS Loans (including for 
                student and parent borrowers) received for attendance 
                at the institution'' after ``loans under section 428, 
                428A, or 428H, received for attendance at the 
                institution,''; and
                    (B) by adding at the end the following:
                    ``(D) Beginning for the cohort that enters 
                repayment in 2024, references in this subsection to a 
                student or former student shall be considered to 
                include a parent who is a borrower of a Federal Direct 
                PLUS Loan.''.
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