Congress penalizes wealthy colleges for student loan defaults—but borrowers see no relief
H.R. 713 — Preventing Financial Exploitation in Higher Education Act · Filed by Beth Van Duyne (R-TX) · Introduced Jan 23, 2025 · Referred to committee
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What it does
This bill imposes financial penalties on colleges and universities with endowments of $2.5 billion or more if their students have high rates of federal student loan default, delinquency, or underpayment. Penalties range from 16–30% of outstanding loan balances, phased in from 2025–2030. The bill also increases the federal tax on investment income for these same wealthy institutions from 1.4% to 25% if they raise tuition above inflation-adjusted 2025 baseline levels. Penalties flow to the federal government; borrowers' loan status is unaffected.
Why we flagged it
The bill's core mechanism is a penalty regime targeting wealthy institutions' student loan outcomes and tuition practices. It is framed as accountability but functions as a revenue-raising and behavioral-incentive tool. The title accurately describes the intent (preventing financial exploitation), though the mechanism is indirect and may not achieve the stated goal.
What the text implies
- Penalties are calculated on total outstanding loan balances, not institution revenue or endowment size, creating potentially massive liabilities for schools with large loan portfolios—a single institution could owe hundreds of millions in a single year.
- The bill does not define how institutions should respond to penalties; schools may reduce financial aid, cut programs, or shift costs to non-endowed students rather than improve loan outcomes.
The full analysis lists 5 implications of this text.
Who stands to gain
U.S. Department of Education (penalty revenue); Federal government (increased tax revenue from net investment income)