Title: Students Before Profits Act of 2017
Policy area: Education

Summary:
Students Before Profits Act of 2017
This bill amends title IV (Student Assistance) of the Higher Education Act of 1965 to require the Department of Education (ED) to recalculate the cohort default rate and redetermine title IV eligibility for an institution of higher education (IHE) that engages in default manipulation.
ED may impose enhanced civil penalties and sanctions on IHEs and officers for substantial misrepresentation or other serious violations of title IV requirements. The bill requires ED to establish the Student Relief Fund, financed by civil penalties, to provide financial relief to students enrolled in an IHE that is sanctioned or fails to comply with title IV requirements.
If ED takes an enforcement action (e.g., heightened financial oversight) against a proprietary (i.e., for-profit) IHE, then ED may hold the executive officer of such proprietary IHE personally liable for financial losses related to the enforcement action. Additionally, ED may pursue claims against an IHE's executive officers and board of directors to recover discharged federal student loans.
A proprietary IHE must, as a condition of continued eligibility to participate in title IV programs, prohibit an individual who defrauds students from being a member of the board of directors or an executive officer of the institution.

[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[S. 1784 Introduced in Senate (IS)]

<DOC>






115th CONGRESS
  1st Session
                                S. 1784

To amend the Higher Education Act of 1965 to improve the determination 
 of cohort default rates and provide for enhanced civil penalties, to 
   ensure personal liability of owners, officers, and executives of 
       institutions of higher education, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                           September 11, 2017

  Mr. Murphy (for himself, Mr. Blumenthal, Mr. Brown, Mr. Durbin, Mr. 
  Franken, Ms. Harris, 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 amend the Higher Education Act of 1965 to improve the determination 
 of cohort default rates and provide for enhanced civil penalties, to 
   ensure personal liability of owners, officers, and executives of 
       institutions of higher education, and for other purposes.

    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 ``Students Before Profits Act of 
2017''.

SEC. 2. IMPROVED DETERMINATION OF COHORT DEFAULT RATES.

    Section 435 (20 U.S.C. 1085) is amended--
            (1) in subsection (a)(2), by adding at the end the 
        following:
            ``(E)(i) In any case where the Secretary has determined 
        that the institution has engaged in default manipulation, the 
        Secretary--
                    ``(I) shall recalculate the cohort default rate for 
                the institution under this section using corrected data 
                and information, for all fiscal years for which the 
                default manipulation has occurred; and
                    ``(II) using the recalculated cohort default rate, 
                shall redetermine whether the institution is ineligible 
                to participate in a program under this title.
            ``(ii) In this section, the term `default manipulation' 
        means engaging in a device or practice, such as branching, 
        consolidation of campuses, consolidation or manipulation of the 
        identification codes used by the Office of Postsecondary 
        Education to designate campuses and institutions, change of 
        ownership or control, serial forbearance, or any similar device 
        or practice (as determined by the Secretary) when, but for the 
        device or practice, one or more campuses of an institution of 
        higher education would be at risk of cohort default rate 
        sanctions under this section or student default risk sanctions 
        under section 489A.''; and
            (2) in subsection (m)(3), by striking ``through the use 
        of'' and all that follows through the period at the end and 
        inserting ``through default manipulation.''.

SEC. 3. CIVIL PENALTIES.

    (a) In General.--Part G of title IV of the Higher Education Act of 
1965 (20 U.S.C. 1088 et seq.) is amended by inserting after section 489 
the following:

``SEC. 489A. CIVIL PENALTIES AND OTHER REMEDIES.

    ``(a) Definitions.--In this section:
            ``(1) Officer of an institution of higher education.--The 
        term `officer of an institution of higher education' includes 
        the president, chief executive officer, and chief financial 
        officer of an institution of higher education or their 
        equivalents.
            ``(2) Student default risk.--The term `student default 
        risk' means a risk that is reflected as a percentage that is 
        calculated by taking an institution's 3-year cohort default 
        rate, as defined in section 435(m), for the most recent fiscal 
        year available, and multiplying it by the percentage of 
        students enrolled at such institution receiving a Federal 
        student loan authorized under this title during the previous 
        academic year.
            ``(3) Substantial misrepresentation or other serious 
        violation.--The term `substantial misrepresentation or other 
        serious violation' means either of the following:
                    ``(A) A substantial misrepresentation regarding--
                            ``(i) the nature of the educational program 
                        of an institution of higher education;
                            ``(ii) the financial charges of the 
                        institution;
                            ``(iii) the space availability in a program 
                        of the institution for which a student is 
                        considering enrollment;
                            ``(iv) the admission requirements of the 
                        institution;
                            ``(v) the transferability of credits from 
                        the institution;
                            ``(vi) whether a program of the institution 
                        meets the necessary standards to qualify 
                        students to sit for licensing examinations, or 
                        obtain certification required as a precondition 
                        for employment, in the State in which the 
                        students reside;
                            ``(vii) the passage rates of students at 
                        the institution in obtaining certification 
                        requirements;
                            ``(viii) the passage rates of students who 
                        sit for licensing examinations; or
                            ``(ix) the employability of the graduates 
                        of the institution.
                    ``(B) A violation as follows that is determined to 
                constitute an unfair, deceptive, or abusive act or 
                practice:
                            ``(i) A violation of section 487(a)(20).
                            ``(ii) A violation of the default 
                        manipulation regulations promulgated by the 
                        Secretary under section 435(m)(3).
                            ``(iii) Failure to comply with the program 
                        review process described in section 498A.
                            ``(iv) A violation of the program integrity 
                        regulations promulgated by the Secretary under 
                        this Act.
                            ``(v) A violation of this Act that the 
                        Secretary has determined, by regulation, to be 
                        a serious violation for purposes of this 
                        section.
    ``(b) Sanctions for Substantial Misrepresentations or Serious 
Violations.--
            ``(1) Civil penalties.--
                    ``(A) In general.--The Secretary may impose a civil 
                penalty upon an eligible institution upon making a 
                determination, after reasonable notice and opportunity 
                for a hearing, that an eligible institution has engaged 
                in a substantial misrepresentation or other serious 
                violation.
                    ``(B) Amount of civil penalties.--A civil penalty 
                imposed for a violation under subparagraph (A) shall be 
                not less than $100,000 or--
                            ``(i) in the case of a first violation, an 
                        amount equal to the product of $1,000,000 
                        multiplied by the institution's student default 
                        risk, whichever is larger;
                            ``(ii) in the case of a second violation, 
                        an amount equal to the product of $2,000,000 
                        multiplied by the institution's student default 
                        risk, whichever is larger; and
                            ``(iii) in the case of a third or 
                        subsequent violation, an amount equal to the 
                        product of $3,000,000 multiplied by the 
                        institution's student default risk, whichever 
                        is larger.
                    ``(C) Treatment of multiple institutions.--For the 
                purpose of determining the number of violations under 
                subparagraph (B), any violation by a particular 
                institution will accrue against all identification 
                codes used by the Office of Postsecondary Education to 
                designate campuses and institutions 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.
    ``(c) Sanctions for Other Violations of This Title.--Upon 
determination, after reasonable notice and opportunity for a hearing, 
that an eligible institution has engaged in a violation of any other 
provision of this title, including the failure to carry out any 
provision of this title, that is not a significant misrepresentation or 
other serious violation, the Secretary may impose a civil penalty upon 
such institution of not more than $100,000 (subject to such adjustments 
for inflation as may be prescribed in regulation) for each such 
violation.
    ``(d) Civil Penalties and Sanctions for Officers of Institutions.--
Upon determination, after reasonable notice and an opportunity for a 
hearing, that an officer of an institution of higher education that 
participates in a program under this title has knowingly and willfully, 
or with gross negligence, violated a provision of this title, the 
Secretary may sanction the officer. Such sanctions may include the 
following:
            ``(1) Prohibiting the institution of higher education that 
        has employed the officer of an institution of higher education 
        and that participates in a program under this title, or any 
        other institution of higher education that participates in a 
        program under this title, from employing the officer, except 
        that any such prohibition under this subsection shall not be 
        for a period of more than 5 years from the date of the 
        determination of the violation.
            ``(2) Assessing a civil penalty against an officer of an 
        institution of higher education who has knowingly and 
        willfully, or with gross negligence, violated a provision of 
        this title, except that any such civil penalty under this 
        subsection shall not be greater than the amount of the 
        officer's compensation for each year for which the violations 
        are determined to have occurred. For purposes of this 
        paragraph, an officer's compensation shall include proceeds of 
        any sales of stock and any incentive-based compensation 
        (including stock options awarded as compensation) based on 
        information required to be reported to the Secretary or any 
        other Federal agency during the period in which the violations 
        are determined to have occurred.
    ``(e) Limitation, Suspension, or Termination of Eligibility 
Status.--
            ``(1) In general.--Upon determination, after reasonable 
        notice and opportunity for a hearing, that an eligible 
        institution has engaged in a violation of any provision of this 
        title (including the failure to carry out any provision of this 
        title or any regulation prescribed under such provision) or a 
        violation of any applicable special arrangement, agreement, or 
        limitation, the Secretary may limit, suspend, or terminate the 
        participation in any program under this title of an eligible 
        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 proceedings are initiated by the Secretary within 
        that period of time.
    ``(f) Emergency Action.--
            ``(1) In general.--The Secretary may take an emergency 
        action against an institution, under which the Secretary shall, 
        effective on the date on which a notice and statement of the 
        basis of the action is mailed to the institution (by registered 
        mail, return receipt requested), withhold funds from the 
        institution or its students and withdraw the institution's 
        authority to obligate funds under any program under this title, 
        if the Secretary--
                    ``(A) receives information, determined by the 
                Secretary to be reliable, that the institution is 
                violating any provision of this title, any regulation 
                prescribed under this title, or any applicable special 
                arrangement, agreement, or limitation;
                    ``(B) determines that immediate action is necessary 
                to prevent misuse of Federal funds; and
                    ``(C) determines that the likelihood of loss 
                outweighs the importance of the procedures prescribed 
                in subsection (e) for limitation, suspension, or 
                termination.
            ``(2) Time limitation.--An emergency action described in 
        paragraph (1) shall not exceed 30 days unless limitation, 
        suspension, or termination proceedings are initiated by the 
        Secretary against the institution within that period of time.
            ``(3) Opportunity to show cause.--The Secretary shall 
        provide an institution that is the subject of an emergency 
        action under this subsection an opportunity to show cause, if 
        the institution so requests, that the emergency action is 
        unwarranted and should be lifted.
    ``(g) Lifting of Sanctions.--Notwithstanding any other provision of 
this title, an institution of higher education that has been sanctioned 
by the Secretary under this section or any other provision of this 
title may not have such sanctions lifted until the Secretary has 
conducted a subsequent program review under section 498A and has found 
the institution to be in compliance with this title.
    ``(h) Single Course of Conduct; Compromise Authority.--
            ``(1) Same course of conduct.--For purposes of this 
        section, acts and omissions relating to a single course of 
        conduct shall be treated as a single violation.
            ``(2) Compromise authority.--Any civil penalty under this 
        section may be compromised by the Secretary. In determining the 
        amount of such penalty, or the amount agreed upon in 
        compromise, the Secretary shall consider--
                    ``(A) the appropriateness of the penalty to the 
                size of the institution of higher education subject to 
                the determination; and
                    ``(B) the gravity of the violation, failure, or 
                misrepresentation.
    ``(i) Collection of Penalty.--The amount of any penalty under this 
section may be deducted from any sums owing by the United States to the 
institution charged.
    ``(j) Disposition of Amounts Recovered.--
            ``(1) Use for student relief fund.--For each fiscal year, 
        an amount equal to 100 percent of the amounts recovered or 
        collected under this section shall be deposited into the 
        Student Relief Fund established under subsection (k).
            ``(2) Report.--The Secretary shall regularly publish, on 
        the website of the Department, a detailed description that 
        includes the amount of funds that were used for the Student 
        Relief Fund under paragraph (1).
    ``(k) Student Relief Fund.--
            ``(1) Establishment.--The Secretary shall establish a 
        Student Relief Fund (referred to in this subsection as the 
        `Fund') that shall be used, subject to the availability of 
        funds, to provide financial relief to any student enrolled in 
        an institution of higher education that--
                    ``(A) has failed to comply with an eligibility 
                requirement under section 101 or 102 or an obligation 
                incurred under the terms of the program participation 
                agreement under section 487; or
                    ``(B) has been sanctioned under subsection (b) or 
                (c).
            ``(2) Treatment and availability of funds.--
                    ``(A) Funds that are not government funds.--Funds 
                obtained by or transferred to the Fund shall not be 
                construed to be Government funds or appropriated 
                monies.
                    ``(B) Amounts not subject to apportionment.--
                Notwithstanding any other provision of law, amounts in 
                the Fund shall not be subject to apportionment for 
                purposes of chapter 15 of title 31, United States Code, 
                or under any other authority.
                    ``(C) No fiscal year limitation.--Sums deposited in 
                the Fund shall remain in the Fund and be available for 
                expenditure under this subsection without fiscal year 
                limitation.
            ``(3) Investments.--
                    ``(A) Amounts in fund may be invested.--The 
                Secretary of Education may request the Secretary of the 
                Treasury to invest the portion of the Fund that is not, 
                in the discretion of the Secretary of Education, 
                required to meet the current needs of the Fund.
                    ``(B) Eligible investments.--Investments shall be 
                made by the Secretary of the Treasury in obligations of 
                the United States or obligations that are guaranteed as 
                to principal and interest by the United States, with 
                maturities suitable to the needs of the Fund as 
                determined by the Secretary on the record.
                    ``(C) Interest and proceeds credited.--The interest 
                on, and the proceeds from the sale or redemption of, 
                any obligations held in the Fund shall be credited to 
                the Fund.
            ``(4) Regulations.--The Secretary shall prescribe 
        regulations to implement the requirements of this section 
        within 1 year after the date of enactment of the Students 
        Before Profits Act of 2017.
            ``(5) Authorization of appropriations.--In addition to 
        funds derived from financial penalties assessed pursuant to 
        subsection (j), there are authorized to be appropriated such 
        sums as may be necessary to carry out this subsection for 
        fiscal year 2018 and each of the 5 succeeding fiscal years.
    ``(l) State Enforcement.--
            ``(1) In general.--Any violation of subsection (b), 
        including the regulations promulgated under such subsection, 
        shall be a cause of action enforceable by the State, through 
        the attorney general (or the equivalent thereof) of the State, 
        in any district court of the United States in that State or in 
        a State court that is located in that State and that has 
        jurisdiction over the defendant. The State may seek any relief 
        provided under paragraph (4)(B) for such violation, or any 
        remedies otherwise provided under law.
            ``(2) Notice required.--
                    ``(A) In general.--Before initiating any action in 
                a court or other administrative or regulatory 
                proceeding against any institution of higher education 
                as authorized by paragraph (1) to enforce any provision 
                of this subsection, including any regulation 
                promulgated by the Secretary under this subsection, a 
                State attorney general shall timely provide a copy of 
                the complete complaint to be filed and written notice 
                describing such action or proceeding to the Secretary, 
                except as provided in subparagraph (B).
                    ``(B) Emergency action.--If prior notice is not 
                practicable, the State attorney general shall provide a 
                copy of the complete complaint and the notice to the 
                Secretary immediately upon instituting the action or 
                proceeding.
                    ``(C) Contents of notice.--The notification 
                required under this paragraph shall, at a minimum, 
                describe--
                            ``(i) the identity of the parties;
                            ``(ii) the alleged facts underlying the 
                        proceeding; and
                            ``(iii) whether there may be a need to 
                        coordinate the prosecution of the proceeding so 
                        as not to interfere with any action, including 
                        any rulemaking, undertaken by the Secretary or 
                        another Federal agency.
            ``(3) Regulations.--The Secretary shall prescribe 
        regulations to implement the requirements of this subsection 
        and periodically provide guidance in order to further 
        coordinate actions with the State attorneys general.
            ``(4) Preservation of state authority.--
                    ``(A) State claims.--Nothing in this subsection 
                shall be construed as altering, limiting, or affecting 
                the authority of a State attorney general or any other 
                regulatory or enforcement agency or authority to bring 
                an action or other regulatory proceeding arising solely 
                under the law in effect in that State.
                    ``(B) Relief.--
                            ``(i) In general.--Relief under this 
                        subsection may include, without limitation--
                                    ``(I) rescission or reformation of 
                                contracts;
                                    ``(II) refund of moneys or return 
                                of real property;
                                    ``(III) restitution;
                                    ``(IV) disgorgement or compensation 
                                for unjust enrichment;
                                    ``(V) payment of damages or other 
                                monetary relief;
                                    ``(VI) public notification 
                                regarding the violation, including the 
                                costs of notification; and
                                    ``(VII) limits on the activities or 
                                functions of the person.
                            ``(ii) Exclusion.--Relief under this 
                        subsection shall not include the ability to 
                        suspend or terminate the eligibility status of 
                        an institution of higher education for programs 
                        under this title.''.
    (b) Program Review and Data.--Section 498A(b)(8) of the Higher 
Education Act of 1965 (20 U.S.C. 1099c-1(b)(8)) is amended by inserting 
``and to the applicable State Attorney General if the institution is 
found to have not complied with the program review process under this 
section'' after ``under review''.

SEC. 4. PERSONAL LIABILITY FOR OFFICERS OF INSTITUTIONS.

    Section 498(e) of the Higher Education Act of 1965 (20 U.S.C. 
1099c(e)) is amended--
            (1) in paragraph (4), by striking ``The Secretary'' and 
        inserting ``Except as provided in paragraph (7), the 
        Secretary''; and
            (2) by adding at the end the following:
    ``(7) Notwithstanding paragraph (4), if the Secretary has taken an 
enforcement action against a proprietary institution of higher 
education (as defined in section 102(b)), (which may include heightened 
oversight activities such as heightened cash monitoring, provisional 
certification, or requirements to obtain approval for new educational 
programs and locations), the Secretary may hold an executive officer of 
the institution personally liable for financial losses related to such 
action to the Federal Government, student assistance recipients, and 
other program participants for funds under this title.''.

SEC. 5. GOVERNMENT CLAIMS FOR DISCHARGE.

    (a) FFEL and Direct Loan Programs.--Section 437(c)(1) of the Higher 
Education Act of 1965 (20 U.S.C. 1087(c)(1)) is amended in the first 
sentence by striking ``against the institution and its affiliates and 
principals'' and inserting ``against the institution, its affiliates 
and principals, and any executive officer or board member of the 
institution''.
    (b) Federal Perkins Loans.--Section 464(g)(1) of the Higher 
Education Act of 1965 (20 U.S.C. 1087dd(g)(1)) is amended by striking 
``against the institution and the institution's affiliates and 
principals'' and inserting ``against the institution, the institution's 
affiliates and principals, and any executive officer or board member of 
the institution''.

SEC. 6. PROGRAM PARTICIPATION AGREEMENT.

    Section 487(a) of the Higher Education Act of 1965 (20 U.S.C. 
1094(a)) is amended by adding at the end the following:
            ``(30) In the case of a proprietary institution of higher 
        education (as defined in section 102(b)), such institution will 
        prohibit any individual who has been found guilty of defrauding 
        students from being a member of the board of directors, the 
        chief executive officer, or other executive officer of the 
        institution.''.
                                 <all>