Preventing Financial Exploitation in Higher Education Act

This bill establishes new financial accountability for certain institutions of higher education regarding federal student loan outcomes. It requires institutions with endowment funds valued at $2.5 billion or more to pay penalties if their students exhibit high rates of federal student loan default, delinquency, or underpayment. These penalties are calculated as a percentage of the total outstanding balance of principal and interest for the affected loans and are phased in with progressively stricter thresholds and varying percentages from fiscal year 2025 through 2030 and subsequent years. The legislation defines a cohort delinquency rate for students 31 to 360 days late on payments and a cohort underpayment rate for those making regular payments but whose outstanding balance exceeds the original loan amount. Institutions must comply with these new accountability requirements as part of their program participation agreements for federal student aid. Importantly, any penalty paid by an institution under these provisions will not affect the rights or obligations of individual student borrowers. Additionally, the bill significantly increases the excise tax on net investment income for these wealthy educational institutions. For taxable years beginning after December 31, 2025, the existing 1.4 percent tax will rise to 25 percent for institutions with $2.5 billion or more in assets that also raise their average full-time student tuition above an inflation-adjusted base amount. This provision aims to link institutional wealth and tuition practices to a higher tax burden.