H.R. 713 — Preventing Financial Exploitation in Higher Education Act

This section establishes penalties in new section 454A of the Higher Education Act for covered institutions of higher education based on cohort default rates (calculated under existing HEA §435(m)), cohort delinquency rates, and cohort underpayment rates (both as determined by the Secretary) for Federal Direct Student Loans for FY2025–FY2029. Penalties equal specified percentages (1) of the total outstanding principal and interest due on Direct Loans included in the relevant cohort calculation and phase in annually with declining thresholds and percentages: for default rates, 11% or more at 30% in FY2025 decreasing to 7% or more at 22% in FY2029; for delinquency rates, 10% or more at 28% decreasing to 6% or more at 20%; and for underpayment rates, 9% or more at 26% decreasing to 6% or more at 20% through FY2028. (As background, the Federal Direct Student Loan Program provides low-cost federal loans to eligible students enrolled at participating institutions; the cohort default rate measures the percentage of an institution's borrowers entering repayment in a fiscal year who default within three years.)

This section increases the excise tax on net investment income under Section 4968(a) of the Internal Revenue Code from 1.4% to 25% for disqualified large applicable educational institutions (generally, private colleges and universities with at least 500 tuition-paying students and student-adjusted endowments of at least $500,000) for taxable years beginning after December 31, 2025. A disqualified large applicable educational institution is one that (1) is an applicable educational institution under Section 4968, (2) charges average tuition to full-time students for semesters during the taxable year exceeding its inflation-adjusted base amount (i.e., its average tuition to specified students during 2025, adjusted for cost-of-living increases using 2024 as the base year), and (3) holds aggregate fair market value of at least $2.5 billion in assets (other than those used directly for its exempt purpose) as of the end of the preceding taxable year. Special rules apply to new institutions, basing amounts on their first full calendar year of existence and generally delaying the higher rate until after that year.