Overview
Title
To amend the Higher Education Act of 1965 to provide for institutional ineligibility based on low cohort repayment rates and to require risk-sharing payments of institutions of higher education.
ELI5 AI
This new bill wants schools to help students pay back their loans. If too many students can't pay, the schools might not get money from the government anymore. Schools that do a good job helping students with their loans can get extra money as a reward.
Summary AI
The bill S. 4565, titled the "Student Protection and Success Act," aims to amend the Higher Education Act of 1965 to address low cohort repayment rates and establish risk-sharing payments for institutions of higher education. Beginning in 2027, colleges and universities with low loan repayment rates could lose eligibility to participate in federal student aid programs. The bill also proposes a College Opportunity Bonus Program to provide grants to institutions with higher repayment rates, encouraging them to make education more affordable for low- and moderate-income students. Additionally, the bill would require institutions to make financial contributions if their students consistently fail to reduce their loan balances.
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AnalysisAI
Overview of the Bill
The proposed legislation, known as the "Student Protection and Success Act," aims to amend the Higher Education Act of 1965. It introduces measures to make institutions of higher education accountable for student loan repayment rates. The bill proposes that colleges with low cohort repayment rates, defined as institutions where 15% or fewer of graduates are repaying their loans, would face ineligibility to participate in certain federal education programs. Additionally, the bill establishes a risk-sharing system where institutions must make payments if their graduates fail to repay their loans. The legislation also includes provisions for a College Opportunity Bonus Program, which would issue grants to institutions making higher education more accessible and affordable for low- and moderate-income students starting in 2027.
Significant Issues
One noteworthy concern is the complexity and potential ambiguity of the "cohort repayment rate" calculation. Institutions might struggle to interpret these guidelines consistently, leading to confusion and possible disputes over eligibility. The bill's reliance on this measure could disproportionately affect colleges serving disadvantaged populations, as these institutions may have lower repayment rates due to the socio-economic challenges their students face.
The risk-sharing requirements, which mandate financial payments from schools when students cannot repay loans, pose another issue. These payments could impose significant financial burdens, especially on smaller or financially precarious institutions, potentially destabilizing them. The provisions for calculating these payments include numerous exemptions and adjustments that might offer opportunities for manipulation or inconsistent application.
Impact on the Public
The bill reflects a growing focus on holding educational institutions accountable for the outcomes of their students, particularly concerning student debt. For students and families, this could potentially lead to more informed choices about where to study, based on an institution's financial responsibility in relation to student outcomes. However, there might be unintended consequences of reduced financial support for students attending colleges with low cohort repayment rates, potentially limiting access to education for students who need it the most.
Impact on Specific Stakeholders
Institutions of Higher Education: Colleges and universities that traditionally serve disadvantaged populations might face new challenges due to their typically lower cohort repayment rates. This could result in reduced eligibility for federal programs, impacting their ability to support students financially. The risk-sharing payments might impose further financial strain, particularly on smaller institutions with less diversified income streams.
Students and Families: For students, especially those from low-income backgrounds, the legislation might introduce both risks and benefits. On one hand, they might benefit from attending institutions that are financially incentivized to ensure students graduate with manageable debt. On the other hand, the loss of federal aid eligibility could increase their out-of-pocket education costs, making higher education less accessible.
Government and Educational Policy Makers: Policy makers might see this legislation as a tool to drive improved educational outcomes. However, the bill would require rigorous enforcement to ensure that the new measures are implemented fairly and effectively, avoiding loopholes and ensuring that at-risk students are still supported adequately. The overall effectiveness of this legislation heavily relies on transparent implementation and monitoring by government agencies.
In summary, while the Student Protection and Success Act seeks to tackle the pivotal issue of student debt repayment, its success will largely depend on the fairness and clarity of its execution. The potential for unintended negative consequences for vulnerable student populations and educational institutions necessitates careful consideration and possibly further refinement of the proposed measures.
Financial Assessment
The bill titled "Student Protection and Success Act" introduces several financial mechanisms and obligations aimed at institutions of higher education, primarily revolving around student loan repayment performance. The primary focus is on risk-sharing payments, institutional ineligibility, and the College Opportunity Bonus Program.
Institutional Ineligibility Based on Low Cohort Repayment Rate
The bill proposes that starting in fiscal year 2027, institutions with low cohort repayment rates will face the risk of losing eligibility to participate in federal student aid programs. A low cohort repayment rate is defined as one falling at or below 15 percent. This measure introduces a financial stick approach, penalizing underperforming institutions. The exclusion from participating in federal aid programs could significantly impact these institutions' financial stability, a concern reflected in the issue that this may disproportionately affect schools serving disadvantaged populations. Such institutions, often dependent on federal aid, could face severe operational challenges.
Risk-Sharing Payments
Beginning in fiscal year 2027, institutions will be required to make risk-sharing payments. These payments are calculated based on the balance of loans not being repaid by students (termed the "cohort nonrepayment loan balance"). The formula includes subtracting a calculated amount influenced by the national unemployment rate from the total nonrepayment loan balance, with institutions owing 2 percent of this amount. However, payments are capped at 2.5 percent of an institution’s adjusted annual revenues and investment returns. This setup, while incentivizing institutions to improve loan repayment rates, could contribute to financial strain, particularly on schools with less diversified income streams. Additionally, the scheme's reliance on the unemployment rate, a fluctuating external factor, introduces uncertainty in institutional financial planning.
College Opportunity Bonus Program
This program aims to reward institutions with high cohort repayment rates. The bill provides for grants to these institutions starting in fiscal year 2027, rewarding those schools deemed effective in making college more affordable and accessible for low- and moderate-income students. While the program has a potential positive impact on education access, the financial allotments stem from a formula determined by the Secretary of Education, which remains unspecified. This raises concerns over transparency and potential arbitrariness in grant distribution. The bill includes a cap on grant amounts, limiting them to 2.5 percent of an institution's adjusted annual revenues. This cap could favor larger institutions with higher revenue streams, potentially disadvantaging smaller or less financially diverse schools.
Financial Planning and Student Service Expenditures
The bill also incorporates provisions tied to how student service expenditures are defined and tracked, potentially affecting financial reporting and allocation across institutions. The broad definition might result in inconsistent application, impacting how institutions plan and allocate their resources.
In summary, while the bill introduces financial structures intended to incentivize better student loan repayment outcomes, it also brings forth potential challenges related to financial burdens, transparency in grant distribution, and equity among institutions of varying financial standings.
Issues
The section on institutional ineligibility based on low cohort repayment rates (Section 2) is complex and could disproportionately affect institutions serving disadvantaged populations, potentially leading to reduced access to student aid for those who need it most.
The requirement in Section 2 for institutions to make risk-sharing payments if they are unsuccessful in appeals can impose a significant financial burden, discouraging legitimate appeals and affecting institutions' financial stability.
The method for calculating 'cohort repayment rate' in Section 2 is excessively detailed and potentially confusing, potentially leading to varying interpretations and applications by institutions.
The College Opportunity Bonus Program in Sections 3 and 401B relies on a formula undisclosed in the bill, allowing the Secretary too much discretion which could lead to inconsistent and potentially unfair distribution of funds.
Section 4's reliance on risk-sharing payments as a funding source in combination with fluctuating factors like the national unemployment rate creates uncertainty in program funding and could complicate institutional planning.
The exemptions in cohort repayment rate calculations in Section 2 require better outlining, as they could create confusion or loopholes where borrowers can avoid institutions’ risk-sharing obligations.
Section 401B's criteria for eligible institutions based on 'cohort repayment rate' may exclude institutions effectively supporting low-income students, which could limit funding aimed at improving access and achievement for these students.
Section 3's 'supplement not supplant' provision lacks specific mechanisms for compliance, increasing the risk of misuse of grant funds intended for college affordability and support of low-income students.
The cap on grant funds in Sections 3 and 401B ties funding to total annual revenues and investment returns, benefiting larger institutions and potentially disadvantaging those with less diversified income streams.
Section 6's broad definition of 'student service expenditures' might result in variation in how institutions interpret and apply these guidelines, leading to inconsistencies in resource allocation.
Sections
Sections are presented as they are annotated in the original legislative text. Any missing headers, numbers, or non-consecutive order is due to the original text.
1. Short title Read Opens in new tab
Summary AI
The first section of the bill states that it can be referred to as the "Student Protection and Success Act."
2. Institutional ineligibility based on low cohort repayment rate Read Opens in new tab
Summary AI
The bill section outlines new rules for colleges related to a measure called the "cohort repayment rate," which reflects how well graduates are paying off their student loans. Starting in 2027, colleges with a low repayment rate of 15% or less will not be able to access specific federal education programs for three years, but can appeal this decision by showing errors in the calculations; exceptions apply for certain conditions like military service or further education enrollment.
Money References
- — “(A) IN GENERAL.—In this subsection, the term ‘cohort repayment rate’ means, for any fiscal year beginning with fiscal year 2027— “(i) in the case in which 30 or more borrowers at the institution enter repayment on Federal Direct Stafford Loans, Federal Direct Unsubsidized Stafford Loans, Federal Direct PLUS Loans, or Federal Direct Consolidation Loans, received for attendance at the institution, the percentage of those borrowers who are not in default and who make at least a one dollar reduction on their initial student loan principal balance before the end of the second fiscal year following the fiscal year in which the borrowers entered repayment, except as provided in subparagraph (B); and “(ii) in the case in which less than 30 borrowers at the institution enter repayment on Federal Direct Stafford Loans, Federal Direct Unsubsidized Stafford Loans, Federal Direct PLUS Loans, or Federal Direct Consolidation Loans, received for attendance at the institution, the percentage of those borrowers plus all of the borrowers at the institution who entered repayment on such loans (or on the portion of a loan made under section 428C that is used to repay any such loans) in the 3 fiscal years preceding the fiscal year for which the determination is made, who are not in default and who make at least a one dollar reduction on their initial student loan principal balance before the end of the second fiscal year following the year in which the borrowers entered repayment, except as provided in subparagraph (B).
3. College opportunity bonus program Read Opens in new tab
Summary AI
The College Opportunity Bonus Program is a proposed grant initiative set to start in 2027, aimed at supporting colleges that make education more affordable and accessible for low- and moderate-income students. The program awards grants based on specific criteria, such as the proportion of students receiving Pell Grants and repayment rates, to help institutions enhance financial aid, student services, and learning opportunities.
401B. College opportunity bonus program Read Opens in new tab
Summary AI
The College Opportunity Bonus Program is a grant initiative starting in fiscal year 2027 that provides funds to qualifying colleges with strong records in making education more affordable and accessible for low- and moderate-income students. These grants, funded by risk-sharing payments, are to be used by colleges to increase support services, financial aid, and learning opportunities, but cannot replace existing state or institutional funding for these purposes.
4. Risk-sharing payments Read Opens in new tab
Summary AI
The bill introduces a requirement for colleges to make "risk-sharing payments" based on the number of students who struggle to pay back their loans, starting in 2027. These payments aim to hold schools accountable but include exceptions for students in special situations like military service or further education.
Money References
- — “(i) IN GENERAL.—The cohort nonrepayment loan balance of an institution for a fiscal year equals, from the total amount of the loans described in subparagraph (A), the total loan balance of those borrowers who have not made at least a 1 dollar reduction in their principal balance in the 3 consecutive fiscal years since their loans entered repayment, deferment, or forbearance.
5. Report Read Opens in new tab
Summary AI
The Secretary of Education must provide a report to Congress within six months of the Student Protection and Success Act being enacted. The report should detail the best ways for colleges to improve student loan repayment rates and offer recommendations, focusing especially on schools with many low-income students.
6. Student service expenditures and resources Read Opens in new tab
Summary AI
The section amends a part of the Education Sciences Reform Act of 2002 to specify details about how education is funded and managed. It defines student service expenditures as spending on activities like instruction and technology that support students’ well-being and development, and describes the resources or funds an institution might use for these purposes, but excludes marketing, recruitment, and athletic expenses from student service expenditures.