II 113th CONGRESS 2d Session S. 2993 IN THE SENATE OF THE UNITED STATES December 10, 2014 Mr. Murphy (for himself and Mr. Harkin ) 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, and to authorize the establishment of an institutional risk-sharing commission.

1. Short title This Act may be cited as the Students Before Profits Act . 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. . 3. Institutional Risk-Sharing Commission (a) Establishment of Commission (1) In general The Secretary of Education shall establish an Institutional Risk-Sharing Commission (referred to in this section as the Commission ) whose members shall be selected by the Secretary and comprised of the following relevant stakeholders: (A) 2 representatives of national or regional student advocacy organizations with a track record of engagement and expertise on issues related to college costs, consumer protection, and institutional accountability and an alternate member. (B) 1 student representative who is attending an institution of higher education on the date of the selection and an alternate member. (C) 1 member of the Bureau of Consumer Financial Protection with demonstrated knowledge of student loan borrowing and an alternate member. (D) 2 administrative officers from different types of institutions of higher education and an alternate member. (E) 1 higher education researcher and an alternate member. (F) 1 State postsecondary education data system director and an alternate member. (G) 1 representative from the National Center for Education Statistics and an alternate member. (H) 1 representative from the Government Accountability Office and an alternate member. (I) 1 representative from the Department of the Treasury and an alternate member. (2) Functions Each member selected under paragraph (1) shall participate for the purpose of determining agreement by majority vote on the Commission on the report and its contents described in subsection (b)(4). Each alternate member shall participate for the purpose of determining the majority vote in the absence of the member. Either the member or an alternate member may speak during the negotiations. In the event that the Commission is unable to form agreement on the contents of the report by majority vote, the contents of the report shall be determined by a plurality vote. (b) Study (1) In general Not later than 270 days after the date that all members of the Commission have been selected under subsection (a), the Commission shall complete a study and develop recommendations for implementation of a new risk-sharing system for institutions of higher education that participate in the Federal Direct Loan Program under part D of title IV of the Higher Education Act of 1965 ( 20 U.S.C. 1087a et seq. ) through which institutions would be held financially accountable for poor student outcomes. (2) Content of study In conducting the study required under paragraph (1), the Commission shall, at a minimum, consider the following issues: (A) Identifying an annual measure or set of measures for the risk-sharing system that would provide the most accurate assessment of an institution’s level of success or failure at providing their students with basic educational outcomes, such as degree completion, ability to repay loans made, insured, or guaranteed under title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.), post-graduation employment, and post-graduation earnings. Such possible measures may include cohort default rates, loan repayment rates, graduation rates, graduate earnings, and other measure that the Commission considers an accurate reflection of student outcomes, regardless of the feasibility of access to the data required to implement collection of such measures. (B) What specific metrics would require the lowest performing institutions to make annual payments into the risk-sharing system, and what metrics would exempt institutions from making an annual risk-sharing payment based on performance measures that exceeded a minimum level (which level would be identified by the Commission). (C) How the payments for each institution should be calculated, including whether the use of a percentage of Federal Direct Loans disbursed the year prior to identification, the percentage of loans in default, or any other calculation should be used. (D) Whether a sliding scale of payments should be required of institutions based on their performance on the identified measures. (E) Any legislative safeguards or mechanisms to ensure that an institution required to participate in the risk-sharing system would not pass any prospective costs directly or indirectly onto students, or limit access to low-income students. (F) How an institution’s level of access to low-income students (such as measured by the percentage of students enrolled at the institution who receive Federal Pell Grants under subpart 1 of part A of title IV of the Higher Education Act of 1965 (20 U.S.C. 1070a et seq.)) and affordability (as measured by average net price) should be considered in the risk-sharing system. (G) Specifying a means for the risk-sharing system payments to go primarily towards students in default, additional aid to low-income students, or any other form of aid to student borrowers most in need, including after degree completion. (H) Whether any extraordinary consideration exists that warrants allowing a waiver process through which a very limited number of institutions would be eligible to apply for a waiver from a risk-sharing payment on a yearly basis, and under what conditions. (3) Outside recommendations As part of the study required under paragraph (1), the Commission shall develop a public process for soliciting recommendations for the risk-sharing system and shall consider these recommendations as part of the study. The Commission shall factor in any financial or other interests of any submitting party in weighing and considering such recommendations. (4) Report (A) Content Not later than 90 days after completing the study required under paragraph (1), the Commission shall issue, by majority vote, or if unable to achieve a majority vote, then a plurality vote, a report regarding its recommendations for a risk-sharing system. The report shall include the following: (i) A description of the Commission’s findings as to the issues described in paragraph (2). (ii) A data analysis using the Commission’s recommended metrics that demonstrates how each institution of higher education that participates in the Federal Direct Loan Program under part D of title IV of the Higher Education Act of 1965 (20 U.S.C. 1087a et seq.) as of the period of the Commission’s study would fare under the proposed risk-sharing system, including projections for the amounts of payments the lowest performing institutions would have to pay. (iii) An evaluation of the feasibility and unintended consequences of implementing the recommended risk-sharing system, including any legislative or regulatory action needed to implement such a system. (B) Availability The report described in subparagraph (A) shall be— (i) provided to the Secretary of Education, the Committee on Health, Education, Labor, and Pensions of the Senate, and the Committee on Education and the Workforce of the House of Representatives; and (ii) made publicly available. (c) Securing information and privacy (1) In general Subject to paragraph (2), the Commission may secure directly from any Federal department or agency such information as the Commission considers necessary to carry out its duties under this section. The Commission may request the head of any State or local department or agency to furnish such information to the Commission. (2) Privacy Any Federal department or agency, State or local department or agency, or institution of higher education in providing information to the Commission under this section shall not share any personally identifiable information and shall act in accordance with section 444 of the General Education Provisions Act ( 20 U.S.C. 1232g , commonly known as the Family Educational Rights and Privacy Act of 1974 ). 4. Civil penalties 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: 489A. Civil penalties and other remedies (a) Definitions In this section: (1) Substantial misrepresentation or other serious violation The term substantial misrepresentation or other serious violation means any 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 knowing and willful misuse of Federal student aid from any source. (C) A violation of section 487(a)(20). (D) A violation of the default manipulation regulations promulgated by the Secretary under section 435(m)(3). (E) Failure to comply with the program review process described in section 498A, including any disclosure requirement described in paragraph (2) or (5) of section 498A(b). (F) A violation of the program integrity regulations promulgated by the Secretary under this Act. (G) A violation of this Act that the Secretary has determined, by regulation, to be a serious violation for purposes of this section. (2) 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. (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 on the record, 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) In general Amounts collected under this section shall be transferred to the Secretary, who shall determine the distribution of collected amounts, in accordance with paragraphs (2) and (3). (2) Use for program integrity efforts and program reviews (A) In general For each fiscal year, an amount equal to not more than 50 percent of the amounts recovered or collected under this section— (i) shall be available to the Secretary to carry out program reviews under section 498A and other efforts by the Secretary related to program integrity under part H; and (ii) may be credited, if applicable, for that purpose by the Secretary to any appropriations and funds that are available to the Secretary for obligation at the time of collection. (B) Supplement not supplant Amounts made available under subparagraph (A) shall be used to supplement and not supplant any other amounts available to the Secretary for the purpose described in such subparagraph. (C) Availability for funds Any amounts collected under this section that are made available under subparagraph (A) shall remain available until expended. (3) Use for student relief fund For each fiscal year, an amount equal to not less than 50 percent of the amounts recovered or collected under this section shall be deposited into the Student Relief Fund established under subsection (k). (4) Report The Secretary shall regularly publish, on the website of the Department, a detailed description that includes— (A) the amount of funds that were distributed for the purposes described in paragraph (2) and the amount used for the Student Relief Fund under paragraph (3); and (B) how funds were distributed among the purposes described in paragraph (2)(A)(i). (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) Determination of relief The Secretary, in consultation with Director of the Bureau of Consumer Financial Protection— (A) shall determine the manner of relief to be provided under paragraph (1), which may include tuition reimbursement or full or partial loan forgiveness; and (B) may issue regulations regarding how the amounts in the Fund will be distributed among students eligible for the funds. (3) 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. (4) 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. (5) 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 . (6) 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 2015 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 pursuant to the requirements of paragraph (2); (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. .