(a) Short title.—This Act may be cited as the “Preventing Risky Operations from Threatening the Education and Career Trajectories of Students Act of 2019” or the “PROTECT Students Act of 2019”.

(b) Table of contents.—The table of contents for this Act is as follows:

Sec. 1. Short title; table of contents.
Sec. 2. References.
Sec. 3. Effective date.
Sec. 4. Definitions.

Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Higher Education Act of 1965 (20 U.S.C. 1001 et seq.).

Except as otherwise specified, this Act, and the amendments made by this Act, shall take effect beginning on July 1, 2020.

(a) In general.—Section 103 (20 U.S.C. 1003) is amended—

(1) by redesignating paragraphs (15) through (22), (23), and (24) as paragraphs (17) through (24), (26), and (27);

(2) by inserting after paragraph (14) the following:

“(16) REVENUE SHARING ARRANGEMENTS.—The term ‘revenue sharing arrangement’ means an arrangement between an institution of higher education and a third party contractor under which—

“(A) the third party contractor provides, exclusively or nonexclusively, educational products or services to prospective students or students attending the institution of higher education; and

“(B) the third party contractor or institution of higher education pays a fee or provides other material benefits, including revenue- or profit-sharing, to the institution of higher education or third party contractor in connection with the educational products or services provided to prospective students or students attending the institution of higher education.”; and

(3) by inserting after paragraph (24), as redesignated by paragraph (1), the following:

“(25) THIRD PARTY CONTRACTOR.—The term ‘third party contractor’ means any State, person, or entity that enters into a contract or agreement, including a revenue sharing arrangement, with an eligible institution of higher education to act on the institution’s behalf, including any entity that—

“(A) sells the names of prospective students (also known as a ‘lead generator’); or

“(B) offers services including recruiting, financial aid packaging, curriculum development, facilities management, hiring and oversight of faculty, and the provision of student services representatives, job placement counselors, or other employees (also known as an ‘online program manager’).”.

(b) Renaming proprietary institutions for-Profit institutions.—

(1) IN GENERAL.—Section 102 (20 U.S.C. 1002) is amended—

(A) in subsection (a)(1)(A), by striking “proprietary institution” and inserting “for-profit institution”; and

(B) in subsection (b)—

(i) in the subsection heading, by striking “Proprietary” and inserting “For-Profit”;

(ii) in the matter preceding subparagraph (A) of paragraph (1), by striking “proprietary” and inserting “for-profit”; and

(iii) in paragraph (2), by striking “proprietary” each place the term appears and inserting “for-profit”.

(2) CONFORMING AMENDMENTS.—

(A) DEPARTMENT OF EDUCATION ORGANIZATION ACT.—The Department of Education Organization Act (20 U.S.C. 3401 et seq.) is amended—

(i) in section 219 (20 U.S.C. 3426)—

(I) in the section heading, by striking “Proprietary” and inserting “For-profit”;

(II) by striking “Proprietary” each place the term appears and inserting “For-Profit”; and

(III) by striking “proprietary” each place the term appears and inserting “for-profit”; and

(ii) in section 1, by striking the item relating to section 219 in the table of contents and inserting the following:

“219. Liaison for For-Profit Institutions of Higher Education.”.

(B) HIGHER EDUCATION ACT OF 1965.—The Act (20 U.S.C. 1001 et seq.) is amended—

(i) in each of sections 435 and 443(b)(8), by striking “proprietary” each place the term appears and inserting “for-profit”; and

(ii) in section 807(d)(1)(A)(iii), by striking “proprietary” and inserting “for-profit”.

(C) SCIENTIFIC AND ADVANCED-TECHNOLOGY ACT OF 1992.—Section 3(j)(2)(B) of the Scientific and Advanced-Technology Act of 1992 (20 U.S.C. 1862i(j)(2)(B)) is amended by striking “proprietary institution” and inserting “for-profit institution”.

(3) REFERENCES.—

(A) PROPRIETARY INSTITUTION.—Any reference to a proprietary institution, as defined in section 102(b) of the Higher Education Act of 1965 (20 U.S.C. 1002) on the day before the date of enactment of this Act, in any law, rule, regulation, certificate, directive, instruction, or other official paper in force on the date of enactment of this Act shall be considered to refer and apply to a for-profit institution, as defined in section 102(b) of the Higher Education Act of 1965 (20 U.S.C. 1002(b)), as amended by this Act.

(B) LIAISON.—Any reference to the Liaison for Proprietary Institutions of Higher Education in any law, rule, regulation, certificate, directive, instruction, or other official paper in force on the date of enactment of this Act shall be considered to refer and apply to the Liaison for For-Profit Institutions of Higher Education established under section 219 of the Department of Education Organization Act (20 U.S.C. 3401), as amended by this Act.

(a) In general.—Section 102(b) (20 U.S.C. 1002), as amended by section 4(b), is further amended—

(1) in paragraph (1)—

(A) in subparagraph (D), by striking “and” after the semicolon;

(B) in subparagraph (E), by striking the period at the end and inserting “; and”; and

(C) by adding at the end the following:

“(F) meets the requirements of paragraph (2).”;

(2) by redesignating paragraph (2) as paragraph (3); and

(3) by inserting after paragraph (1) the following:

“(2) REVENUE SOURCES.—

“(A) IN GENERAL.—In order to qualify as a for-profit institution of higher education under this subsection, an institution shall derive not less than 15 percent of the institution’s revenues from sources other than Federal education assistance funds, as calculated in accordance with subparagraphs (B) and (C).

“(B) FEDERAL EDUCATION ASSISTANCE FUNDS.—In this paragraph, the term ‘Federal education assistance funds’ means any Federal financial assistance provided, under this Act or any other Federal law, through a grant, contract, subsidy, loan, guarantee, insurance, or other means to an institution of higher education, including Federal financial assistance that is disbursed or delivered to an institution or on behalf of a student or to a student to be used to attend the institution, except that such term shall not include any monthly housing stipend provided under the Post-9/11 Veterans Educational Assistance Program under chapter 33 of title 38, United States Code.

“(C) IMPLEMENTATION OF NON-FEDERAL REVENUE REQUIREMENT.—In making calculations under subparagraph (A), an institution of higher education shall—

“(i) use the cash basis of accounting;

“(ii) consider as revenue only those funds generated by the institution from—

“(I) tuition, fees, and other institutional charges for students enrolled in programs eligible for assistance under title IV;

“(II) activities conducted by the institution that are necessary for the education and training of the institution’s students, if such activities are—

“(aa) conducted on campus or at a facility under the control of the institution;

“(bb) performed under the supervision of a member of the institution’s faculty; and

“(cc) required to be performed by all students in a specific educational program at the institution; and

“(III) a contractual arrangement with a Federal agency for the purpose of providing job training to low-income individuals who are in need of such training;

“(iii) presume that any Federal education assistance funds that are disbursed or delivered to an institution on behalf of a student or directly to a student will be used to pay the student’s tuition, fees, or other institutional charges, regardless of whether the institution credits such funds to the student’s account or pays such funds directly to the student, except to the extent that the student’s tuition, fees, or other institutional charges are satisfied by—

“(I) grant funds provided by an outside source that—

“(aa) has no affiliation with the institution; and

“(bb) shares no employees, executives, or board members with the institution;

“(II) funds provided under a contractual arrangement with a Federal, State, or local government agency for the purpose of providing job training to low-income individuals who are in need of that training; or

“(III) institutional scholarships described in clause (v);

“(iv) include no loans made by an institution of higher education as revenue to the school, except for payments made by students on such loans;

“(v) include a scholarship provided by the institution—

“(I) only if the scholarship is in the form of monetary aid based upon the academic achievements or financial need of students, disbursed to qualified student recipients during each fiscal year from an established restricted account; and

“(II) only to the extent that funds in that account represent designated funds, or income earned on such funds, from an outside source that—

“(aa) has no affiliation with the institution; and

“(bb) shares no employees, executives, or board members with the institution; and

“(vi) exclude from revenues—

“(I) the amount of funds the institution received under part C of title IV, unless the institution used those funds to pay a student’s institutional charges;

“(II) the amount of funds the institution received under subpart 4 of part A of title IV;

“(III) the amount of funds provided by the institution as matching funds for any Federal program;

“(IV) the amount of Federal education assistance funds provided to the institution to pay institutional charges for a student that were refunded or returned; and

“(V) the amount charged for books, supplies, and equipment, unless the institution includes that amount as tuition, fees, or other institutional charges.

“(D) REPORT TO CONGRESS.—Not later than July 1, 2020, and by July 1 of each succeeding year, the Secretary shall submit to the authorizing committees a report that contains, for each for-profit institution of higher education that receives assistance under title IV and as provided in the audited financial statements submitted to the Secretary by each institution pursuant to the requirements of section 487(c)—

“(i) the amount and percentage of such institution’s revenues received from Federal education assistance funds; and

“(ii) the amount and percentage of such institution’s revenues received from other sources.”.

(b) Repeal of existing requirements.—Section 487 (20 U.S.C. 1094) is amended—

(1) in subsection (a)—

(A) by striking paragraph (24);

(B) by redesignating paragraphs (25) through (29) as paragraphs (24) through (28), respectively;

(C) in paragraph (24)(A)(ii) (as redesignated by subparagraph (B)), by striking “subsection (e)” and inserting “subsection (d)”; and

(D) in paragraph (26) (as redesignated by subparagraph (B)), by striking “subsection (h)” and inserting “subsection (g)”;

(2) by striking subsection (d);

(3) by redesignating subsections (e) through (j) as subsections (d) through (i), respectively;

(4) in subsection (d) (as redesignated by paragraph (3)), by striking “(a)(25)” and inserting “(a)(24)”;

(5) in subsection (f)(1) (as redesignated by paragraph (3)), by striking “subsection (e)(2)” and inserting “subsection (d)(2)”; and

(6) in subsection (g)(1) (as redesignated by paragraph (3)), by striking “subsection (a)(27)” in the matter preceding subparagraph (A) and inserting “subsection (a)(26)”.

(c) Conforming amendments.—The Act (20 U.S.C. 1001 et seq.) is amended—

(1) in section 152 (20 U.S.C. 1019a)—

(A) in subsection (a)(1)(A), by striking “subsections (a)(27) and (h) of section 487” and inserting “subsections (a)(26) and (g) of section 487”; and

(B) in subsection (b)(1)(B)(i)(I), by striking “section 487(e)” and inserting “section 487(d)”;

(2) in section 153(c)(3) (20 U.S.C. 1019b(c)(3)), by striking “section 487(a)(25)” each place the term appears and inserting “section 487(a)(24)”;

(3) in section 496(c)(3)(A) (20 U.S.C. 1099b(c)(3)(A)), by striking “section 487(f)” and inserting “section 487(e)”; and

(4) in section 498(k)(1) (20 U.S.C. 1099c(k)(1)), by striking “section 487(f)” and inserting “section 487(e)”.

(a) Conversion process.—Part B of title I (20 U.S.C. 1011 et seq.) is further amended by adding at the end the following:

(b) Review and enforcement process.—

(1) IN GENERAL.—Section 487(c)(1) of the Act (20 U.S.C. 1094(c)(1)) is amended—

(A) by redesignating subparagraphs (B) through (I) as subparagraphs (C) through (J), respectively; and

(B) by inserting after subparagraph (A) the following:

“(B) (i) a requirement that an institution of higher education shall use the same qualified, independent organization or person, in accordance with standards established by the Comptroller General for the audit of governmental organizations, programs, and functions, and as prescribed in regulations of the Secretary, for both the financial and compliance audits required for a given year under subparagraph (A);

“(ii) a requirement that the qualified, independent organization or person chosen to conduct the annual financial and compliance audits under subparagraph (A) shall document, in the audit, any transactions or relationships that may conflict with an institution’s status as a nonprofit institution of higher education or public institution of higher education; and

“(iii) in accordance with section 489A, in any case where the Secretary determines, after providing an institution with reasonable notice and an opportunity for a hearing, that the institution is classified as a public institution of higher education or a nonprofit institution for purposes of this Act but is in violation of, or has failed to carry out, any requirements relating to such nonprofit or public status in accordance with paragraphs (13) and (15) of section 103 or section 124, a process through which the Secretary may—

“(I) limit, suspend, or terminate the institution’s participation in any program under this title under section 489A(b)(1);

“(II) impose a civil penalty under section 489A(c); or

“(III) take an emergency action under section 498A(d) against an institution.”.

(2) CONFORMING AMENDMENTS.—Section 487(i) (20 U.S.C. 1094(i)), as redesignated by section 101(b)(3), is further amended—

(A) by striking “subsection (c)(1)(D),”; and

(B) by inserting “or subsection (b)(1) or (c) of section 489A” after “of this section”.

Part B of title I (20 U.S.C. 1011 et seq.), as amended by section 102, is further amended by adding at the end the following:

(a) In general.—Section 102 (20 U.S.C. 1002), as amended by sections 4(b) and 101, is further amended—

(1) in subsection (b)(1)(A)—

(A) by striking clause (ii);

(B) by striking “(i) provides” and inserting “provides”; and

(C) by striking “recognized occupation; or” and inserting “recognized occupation, as described in subsection (e);”;

(2) in subsection (c)(1)(A), by inserting “, as described in subsection (e)” after “recognized occupation”; and

(3) by adding at the end the following:

“(e) Gainful employment in a recognized occupation.—

“(1) DEFINITIONS.—In this subsection:

“(A) DEBT-TO-EARNINGS RATES.—The term ‘debt-to-earnings rates’ means the discretionary income rate and the annual earnings rate, as determined under the gainful employment rules.

“(B) ELIGIBLE TRAINING PROGRAM.—The term ‘eligible training program’ means a program of training that—

“(i) in order to qualify for assistance under title IV, is required under subsection (b)(1)(A)(i) or (c)(1)(A), or section 101(b)(1), to satisfy the gainful employment requirements of this subsection; and

“(ii) is offered by an institution eligible to receive assistance under such title.

“(C) GAINFUL EMPLOYMENT RULES.—The term ‘gainful employment rules’ means the rules issued under subpart Q of title 34, Code of Federal Regulations, as published on October 31, 2014, relating to gainful employment in a recognized occupation.

“(2) IN GENERAL.—An eligible training program prepares students for gainful employment in a recognized occupation if the eligible training program complies with all requirements of the gainful employment rules (including any modifications made by this subsection), including—

“(A) the provisions relating to the calculation of debt-to-earnings rates for the eligible training program, using actual annual earnings data of students who completed the eligible training program;

“(B) the provisions relating to the determination of outcomes for an eligible training program based on the debt-to-earnings rates, including whether an eligible training program is a ‘passing’, ‘failing’, or ‘zone’ program;

“(C) the provisions relating to the associated consequences for an eligible training program that is not passing the debt-to-earnings rates, including a student warning and ultimate loss of eligibility for assistance under title IV;

“(D) the requirements relating to disclosure, reporting, and certification; and

“(E) the calculation of completion rates, withdrawal rates, repayment rates, program cohort default rates, and median loan debt for the eligible training program.

“(3) ANNUAL CALCULATIONS AND VERIFICATIONS.—The Secretary shall carry out all of the following:

“(A) On an annual calendar year basis (notwithstanding section 668.403(c)(5) of the gainful employment rules) and for each eligible training program, calculate for each award year both of the debt-to-earnings rates for the eligible training program, issue a notice of determination, and enforce restrictions based on those determinations. In order to carry out the preceding sentence, the Secretary shall—

“(i) create a list of students who completed the eligible training program during the cohort period identified by the Secretary;

“(ii) provide the list to the institution offering the eligible training program and allow the institution a 45-day period beginning the day after the date that the Secretary provides the list to the institution, to submit any corrections to the list;

“(iii) after resolving any corrections, provide the institution with the final list and submit the final list of students who completed the eligible training program to the Social Security Administration, the Internal Revenue Service, or any other Federal agency that administers a database that contains earnings information that can be matched to the individuals named in the final list, and retrieve the mean and median annual earnings of students on the lists, in aggregate and not in individual form, within 10 business days after submission;

“(iv) calculate and send the debt-to-earnings rates to the institution offering the eligible training program and allow the institution a 45-day period, beginning after the date the Secretary notifies an institution of the debt-to-earnings rates, to challenge the accuracy of information used to calculate the eligible training program’s median loan debt;

“(v) subject to the resolution of any challenge, issue a notice of determination informing the institution—

“(I) of the final debt-to-earnings rates of each eligible training program to the institution offering the program;

“(II) of the final determination regarding whether the program is a passing, failing, or zone program, or is ineligible, and the consequences of that determination;

“(III) whether the program could become ineligible based on its final debt-to-earnings rates for the next award year;

“(IV) whether the institution is required to provide warnings to enrolled students and prospective students; and

“(V) if the program is determined to be a failing or zone program due to the final debt-to-earnings rates, how the program may make an alternate earnings appeal, in accordance with paragraph (4);

“(vi) with respect to an institution that receives a notification from the Secretary under clause (v)(III) and that does not submit an intent to appeal in accordance with paragraph (4) or for which the appeal is denied, require the institution, not later than 30 days after receiving the notification of the determination or denial, to—

“(I) issue warnings to enrolled students and prospective students; and

“(II) update the disclosure template, as required by the gainful employment rules, as modified by paragraph (5); and

“(vii) enforce restrictions whereby—

“(I) an institution may not disburse program funds under title IV to students enrolled in an ineligible program; and

“(II) an institution may not seek to reestablish the eligibility of a failing or zone program that it discontinued voluntarily, reestablish the eligibility of a program that is ineligible under the debt-to-earnings rates, or establish the eligibility of a program that is substantially similar to the discontinued or ineligible program, until 3 years following the date specified in the notice of determination informing the institution of the program’s ineligibility or the date the institution discontinued the failing or zone program; and

“(B) develop processes to verify, on an annual calendar year basis, that—

“(i) required warnings under the gainful employment rules are delivered to enrolled students and prospective students and are published on the eligible training program’s disclosure template, in accordance with subparagraph (A)(vii); and

“(ii) each eligible training program is publishing the disclosure template on the website of the eligible training program, as required by the gainful employment rules, as modified by paragraph (5).

“(4) ALTERNATE EARNINGS APPEALS PROCESS.—The Secretary shall establish and enforce an appeals process for any institution of higher education that wish to file an alternate earnings appeal for an eligible training program that is a failing or zone program under the debt-to-earnings rates. The appeals process shall be carried out in accordance with the gainful employment rules, except that the appeals process shall also—

“(A) allow an institution to file an alternate earnings appeal, in accordance with the gainful employment rules, to request the recalculation of a gainful employment program’s most recent final debt-to-earnings rates issued by the Secretary, except that—

“(i) any institution that elects to submit alternate earnings from an institutional survey shall, in addition to the other requirements in the gainful employment rules—

“(I) include a test for non-response bias;

“(II) allow for an exception to issues of bias due to sample sizes below 10; and

“(III) subject the institutional survey instrument and survey responses to an audit by the Inspector General of the Department; and

“(ii) the Inspector General of the Department shall—

“(I) audit the institutional survey instrument, and the survey responses, submitted by an institution under clause (i); and

“(II) furnish data showing the Inspector General verified the accuracy of student survey responses; and

“(B) require the Secretary to accept the alternate earnings estimate from an institutional survey if the test for non-response bias includes a response rate that guarantees that the lower bound of the 95 percent confidence interval of the alternate earnings estimate is at or above the earnings level retrieved from the Social Security Administration, the Internal Revenue Service, or any other Federal agency with a database containing individual-level earnings data.

“(5) GAINFUL EMPLOYMENT DISCLOSURE REQUIREMENTS.—Notwithstanding section 668.412(a) of the gainful employment rules, the Secretary shall include in the disclosure template all the information listed in paragraphs (1) through (16) of section 668.412(a) of the gainful employment rules, unless the Secretary—

“(A) determines that consumer testing supports the noninclusion of the information listed in any such paragraph; and

“(B) publishes the Secretary's determination, and the consumer testing supporting the determination, on the public website of the Department.

“(6) ROLE OF SOCIAL SECURITY ADMINISTRATION, THE INTERNAL REVENUE SERVICE, AND OTHER FEDERAL AGENCIES.—The Commissioner of Social Security, the Commissioner of Internal Revenue, and the head of any other Federal agency that administers the database of individual-level earnings data shall, in coordination with the Secretary, timely provide the Secretary with the earnings information as required in accordance with paragraph (3)(A)(iii) and the gainful employment rules.”.

(b) Conforming amendment.—Section 101(b)(1) (20 U.S.C. 1001(b)(1)) is amended by inserting “, as described in section 102(e),” after “recognized occupation”.

(c) Effective date.—Notwithstanding section 3, this section shall take effect on the date of enactment of this Act.

(a) Enforcement of arbitration agreements.—

(1) IN GENERAL.—Chapter 1 of title 9, United States Code (relating to the enforcement of arbitration agreements), shall not apply to an enrollment agreement made between a student and an institution of higher education.

(2) DEFINITION.—In this section, the term “institution of higher education” has the meaning given such term in section 102 of the Higher Education Act of 1965 (20 U.S.C. 1002), as amended by section 101 of this Act.

(b) Prohibition on limitations on ability of students To pursue claims against certain institutions of higher education.—Section 487(a) (20 U.S.C. 1094(a)), as amended by section 101, is further amended by adding at the end the following:

“(29) The institution will not require any student to agree to, and will not enforce, any limitation or restriction (including a limitation or restriction on any available choice of applicable law, a jury trial, or venue) on the ability of a student to pursue a claim, individually or with others, against an institution in court.”.

(c) Effective date.—Notwithstanding section 3, this section shall take effect on the date of enactment of this Act.

Section 141 (20 U.S.C. 1018) is amended—

(1) by redesignating subsections (g) through (i) as subsections (h) through (j), respectively; and

(2) by inserting after subsection (f) the following:

“(g) Enforcement unit.—

“(1) IN GENERAL.—The Chief Operating Officer, in consultation with the Secretary, shall establish an enforcement unit within the PBO (referred to in this section as the ‘enforcement unit’).

“(2) APPOINTMENT.—

“(A) CHIEF ENFORCEMENT OFFICER.—The Chief Operating Officer, in consultation with the Secretary, shall appoint a Chief Enforcement Officer as a senior manager, in accordance with subsection (e), to perform the functions described in this subsection. The Chief Enforcement Officer shall report solely and directly to the Chief Operating Officer.

“(B) BONUS.—Notwithstanding subsection (e), the Chief Enforcement Officer may receive a bonus, separately determined from the methodology which applies to the calculation of bonuses for other senior managers, based upon the Chief Operating Officer’s evaluation of the Chief Enforcement Officer’s performance in relation to the goals set forth in a performance agreement related to the specific duties of the enforcement unit.

“(3) DUTIES.—The enforcement unit shall—

“(A) receive, process, and analyze allegations and complaints regarding the potential violation of Federal or State law (including civil and criminal law) or other unfair, deceptive, or abusive acts or practices, by institutions of higher education, third party servicers that contract with such institutions, and third party contractors;

“(B) investigate and coordinate investigations of potential or actual misconduct of institutions of higher education, third party servicers that contract with such institutions, and third party contractors; and

“(C) enforce compliance with laws governing Federal student financial assistance programs under title IV, including through the use of an emergency action in accordance to section 489A, the limitation, suspension, or termination of the participation of an eligible institution in a program under title IV, or the imposition of a civil penalty in accordance with section 489A.

“(4) COORDINATION AND STAFFING.—The enforcement unit shall—

“(A) coordinate with relevant Federal and State agencies and oversight bodies, including the For-Profit Education Oversight Coordination Committee established under section 125; and

“(B) hire staff, (including by appointing not more than 10 individuals in positions of excepted service, as described in subsection (h)(3)) with such expertise as is necessary to conduct investigations, respond to allegations and complaints, and enforce compliance with laws governing Federal student financial assistance programs under title IV.

“(5) DIVISIONS.—

“(A) IN GENERAL.—The enforcement unit shall have separate divisions with the following focus areas:

“(i) An investigations division to investigate potential or actual misconduct at institutions of higher education, third party servicers that contract with such institutions, and third party contractors.

“(ii) A division focused on evaluating the claims of borrowers who assert a defense to repayment of Federal student loans, or groups of borrowers who qualify to assert such a defense to repayment, under section 455(h).

“(iii) A division focused on oversight of the Jeanne Clery Disclosure of Campus Security Policy and Campus Crime Statistics Act, the reporting of crime and fire statistics by institutions of higher education, and the oversight and enforcement of section 120 (relating to drug and alcohol abuse prevention).

“(iv) A division to administer the Secretary’s authority to fine, limit, suspend, terminate, or take action against institutions of higher education, third party servicers that contract with such institutions, and third party contractors, participating in the Federal student financial assistance programs under title IV.

“(v) A division that administers a program of compliance monitoring and oversight of institutions of higher education, third party servicers that contract with such institutions, and third party contractors, including systems and procedures to support the eligibility, certification, and oversight of program participants, for all institutions of higher education participating in the Federal student financial assistance programs under title IV.

“(vi) Any other division that the Chief Enforcement Officer, in coordination with the Chief Operating Officer and the Secretary, determines is necessary.

“(B) REPORTING.—The staff of each division described in subparagraph (A) shall report to the Chief Enforcement Officer.

“(6) ACTIONS RECOMMENDED.—The Chief Enforcement Officer may recommend, as appropriate to the particular circumstance, that the Chief Operating Officer—

“(A) terminate, suspend, or limit an institution of higher education, a third party servicer that contracts with such institution, or a third party contractor, from participation in one or more programs under title IV (in accordance with section 489A), or provisionally certify such participation (in accordance to section 498(h));

“(B) impose a civil penalty in accordance with section 489A;

“(C) make a recommendation to the Secretary about whether to approve or deny the claims of borrowers, including groups of borrowers, who assert a defense to repayment in accordance with section 455(h); or

“(D) carry out any other enforcement activity applicable to the Department under section 489A.

“(7) DEFINITIONS.—In this subsection—

“(A) the term ‘institution of higher education’ has the meaning given that term in section 102; and

“(B) the term ‘third party servicer’ has the meaning given that term in section 481(c).”.

Title I (20 U.S.C. 1001 et seq.) is amended by adding at the end the following new part:

Section 455(h) (20 U.S.C. 1087e) is amended to read as follows:

“(h) Borrower defenses.—

“(1) APPLICATION.—

“(A) IN GENERAL.—A borrower of a loan under this part or part B may submit an application to the Secretary claiming a defense to repayment of the loan (as described in paragraph (7)) (referred to in this subsection as a ‘borrower defense’), at any time and regardless of the current payment status of the loan. The application shall—

“(i) certify that the borrower received the proceeds of a loan or loans issued under this part or part B to attend an eligible institution of higher education;

“(ii) provide evidence that supports the borrower defense;

“(iii) indicate whether the borrower has made a claim with respect to the information underlying the borrower defense with any third party, such as the holder of a performance bond or a tuition recovery program, and, if so, the amount of any payment received by the borrower or credited to the borrower’s loan obligation; and

“(iv) provide any other information or supporting documentation reasonably requested by the Secretary.

“(B) BORROWER DEFENSE FOR A GROUP.—

“(i) IN GENERAL.—

“(I) GROUP DEFENSE.—The Secretary may initiate and carry out a process to determine whether a group of borrowers, identified by the Secretary, has a borrower defense.

“(II) IDENTIFICATION OF GROUP.—The Secretary may—

“(aa) identify members of such a group from individually filed applications submitted under subparagraph (A); or

“(bb) if the Secretary determines that there are common facts and claims that apply to borrowers who have not filed an application under subparagraph (A), identify such members based on information in the possession of the Secretary.

“(III) REPRESENTATIVE.—In the case of a group identified by the Secretary under this clause, the Secretary shall designate a Department official to present the group’s claim in the process described under paragraph (2).

“(ii) APPLICATION FOR A GROUP.—A State attorney general or nonprofit legal assistance organization that represents borrowers may submit an application described in subparagraph (A) on behalf of a group of borrowers whose claims are similar or identical, without requiring an application from each individual borrower in that group or class.

“(iii) NOTIFICATION.—

“(I) Upon initiation of the process under clause (i) or receipt of an application under clause (ii), the Secretary shall provide the borrowers who may be members of a group borrower defense claim with a written notice of such initiation or receipt, as the case may be, and an option to opt out of the proceeding under this subsection for that group.

“(II) Upon receipt of an application on behalf of a group of borrowers under clause (ii), the Secretary shall provide the entity submitting that application with a written determination, not later than 120 days after receipt of the application, stating—

“(aa) whether the Secretary will forgo the review of claims for individual borrowers and instead will review the claims for the group described in that application (or for a subset of borrowers in that group, if applicable);

“(bb) if the Secretary determines not to evaluate the application for that group (or not to evaluate the application for all the requested members of that group), the reasons for the determination; and

“(cc) that the Secretary may reconsider the determination in item (bb) if presented with new evidence that would allow for the consideration of claims for the group described in the application.

“(iv) RELIEF.—If the Secretary approves a group application for relief under this subsection, all borrowers in the group who have not affirmatively opted out are entitled to relief, regardless of whether an individual borrower filed an application.

“(2) PROCESS.—

“(A) IN GENERAL.—Upon receipt of an application from an individual borrower or upon receipt of an application from a group of borrowers or initiation of a claim on behalf of a group of borrowers, as described in paragraph (1)(B), the Secretary shall carry out the following activities:

“(i) With regard to the borrower's payment status (including each borrower in such group who does not opt out under paragraph (1)(B)(iii)(I)), the Secretary shall—

“(I) grant an administrative forbearance without requiring documentation from the borrower, including a forbearance for any period necessary for the Secretary to determine the borrower's eligibility for discharge;

“(II) notify the borrower of the option to decline that forbearance and continue making payments on the loan;

“(III) provide the borrower with information about the availability of an income-based repayment plan; and

“(IV) if the borrower’s loan is in default—

“(aa) suspend collection activity on the loan, including any garnishments or offsets, until a decision on the borrower’s claim is issued;

“(bb) notify the borrower of the suspension of collection activity;

“(cc) notify the borrower that if the Secretary determines the borrower does not qualify for a discharge of the loan, collection activity will resume unless the borrower chooses to make payments under any repayment plan, including income-based repayment described under section 493C; and

“(dd) notify the borrower that if the Secretary determines the borrower does not qualify for a discharge of the loan, and if the borrower makes payments under any repayment plan, including an income-based repayment, as described in item (cc), the Secretary shall submit a report to the consumer reporting agencies to which the Secretary previously made adverse credit reports with regard to the borrower’s loan under this part or part B to remove the borrower's record of default and the Secretary shall refund any collection costs paid by the borrower subsequent to the borrower submitting an application under paragraph (1), but prior to the suspension of the collection activity, as described in item (aa).

“(ii) With regard to the fact-finding process, the Secretary shall designate a Department official (which shall not be an official designated under paragraph (1)(B)(i)(III) and shall be a staff member in the enforcement unit, in accordance with section 141(g)) to—

“(I) notify the institution of higher education of the borrower defense application or the initiation of the borrower defense claim;

“(II) determine whether the borrower has established a borrower defense, which shall include—

“(aa) consideration of evidence or argument presented by the borrower; and

“(bb) consideration of additional information, including—

“(AA) Department records;

“(BB) any response or submission from the institution; and

“(CC) any additional information; and

“(III) upon the borrower’s reasonable request, identify and provide to the borrower any records the Secretary is considering as part of the borrower’s claim.

“(iii) Not later than 18 months after the date of receipt of an application under paragraph (1)(A) or (1)(B)(ii), or the initiation of a claim under paragraph (1)(B)(i), as the case may be, the Secretary shall determine if a borrower or group of borrowers has a successful borrower defense claim. If the Secretary fails to issue a determination by the date that is 18 months after the date of receipt of such application or initiation, the loan underlying the borrower defense claim shall be automatically discharged.

“(B) INSTITUTION'S RESPONSE.—An institution shall provide information to the Secretary, not later than 30 days after the date of a request by the Secretary, and as directed by the Secretary, regarding any response or submission that is requested from the Secretary relating to a borrower defense claim.

“(3) STANDARD OF EVIDENCE.—A borrower defense claim shall be approved under this subsection, if the Secretary finds that a preponderance of the evidence shows that the borrower has established a borrower defense that meets the requirements of this subsection.

“(4) SUCCESSFUL BORROWER DEFENSE CLAIM.—

“(A) BORROWER RELIEF.—If a borrower is determined to have a borrower defense in accordance with this subsection, the Secretary shall—

“(i) discharge the borrower of the borrower’s obligation to repay the loan (including associated interest, costs, and fees that the borrower would otherwise be obligated to pay) in regards to which there is a borrower defense;

“(ii) notify the borrower of the discharge described in clause (i) and the other information described in subparagraph (C);

“(iii) retroactively waive any interest that accrued after the borrower submitted an application under this subsection;

“(iv) provide the borrower such further relief as the Secretary determines is appropriate under the circumstances, which shall include—

“(I) reimbursing the borrower for amounts paid toward the loan voluntarily or through enforced collection; and

“(II) determining that the borrower is not in default on the loan and is eligible to receive assistance under title IV; and

“(v) not later than 30 days after the date of such determination, submit new reports to consumer reporting agencies to which the Secretary previously made adverse credit reports with regard to the borrower’s loan under this part or part B.

“(B) AMOUNT OF LOAN DISCHARGE.—

“(i) IN GENERAL.—There shall be a presumption that on the finding of a successful borrower defense claim, the full amount of the borrower's loan shall be discharged as described in subparagraph (A). If the Secretary determines that discharge of the full amount of the loan is not appropriate in a particular case, the Secretary shall provide the borrower with—

“(I) a written explanation as to why partial relief is appropriate; and

“(II) if the borrower defense is a defense based on State law and described in paragraph (7)(B)(i) or is a defense described in paragraph (7)(B)(ii) or (7)(B)(iii), include an assurance that the amount of relief is not less than the amount of relief that would be afforded under State law.

“(ii) SUBSTANTIAL MISREPRESENTATION.—Notwithstanding clause (i), in the case of a determination that a borrower defense based on paragraph (7)(B)(iv) has been established, the full amount of the borrower's loan shall be discharged.

“(iii) LIMITATION.—The total amount of relief granted with respect to a borrower defense regarding a loan under this part or part B shall not exceed the amount of the loan under this part or part B, as the case may be, and any associated interest, costs, and fees. Such amount will be reduced by the amount of any refund, reimbursement, indemnification, restitution, compensatory damages, settlement, debt forgiveness, discharge, cancellation, compromise, or any other financial benefit received by, or on behalf of, the borrower that was related to the borrower defense and that reduced the borrower’s debt for the loan under this part or part B.

“(iv) RELIEF FOR A NON-FEDERAL LOAN OR OUT-OF-POCKET EXPENSES.—Any relief provided to a borrower, such as relief for an education loan that is not a Federal loan or refunds from a State tuition recovery fund for out-of-pocket expenses, shall not decrease the amount of relief that the borrower shall be entitled to for a loan under this part or part B based on a borrower defense.

“(v) MINIMUM AMOUNT OF RELIEF.—A borrower that has a borrower defense based on State law and described in paragraph (7)(B)(i) or a defense described in paragraph (7)(B)(ii) or (7)(B)(iii) shall not receive an amount of relief that is less than the relief the borrower would receive under the applicable State law.

“(C) NOTIFICATION.—If a borrower defense is successful the Secretary shall notify the borrower (or the entity that submitted the application, in the case of an application described in paragraph (1)(B)(ii)) in writing—

“(i) of the reasons for the approval and the evidence that was relied upon;

“(ii) that the borrower is relieved of the obligation to repay the loan (or a portion of the loan, as described in subparagraph (B)) and associated costs and fees that the borrower would otherwise be obligated to pay;

“(iii) in the event the Secretary does not grant a discharge of the full amount of the loan, an explanation of the reason why partial relief is granted, and (if applicable) an assurance described in subparagraph (B)(i)(II);

“(iv) that the borrower will be reimbursed for some or all of the amounts paid toward the loan voluntarily or through enforced collection, if applicable;

“(v) of the amount of any portion of the loan that is due and payable to the Secretary;

“(vi) that if any balance remains on the loan, the loan will return to the status prior to the borrower's submission of the application, except that in the case of a loan that was in default prior to such application, the borrower shall first be removed from default status and given the opportunity to enter repayment, including income-based repayment described under section 493C, before the loan will be sent to collections;

“(vii) that if the borrower chooses to make payments, including payments under income-based repayment as described in clause (vi), the Secretary shall—

“(I) submit a report to the consumer reporting agencies to which the Secretary previously made adverse credit reports with regard to the borrower’s loan under this part or part B to remove the record of default; and

“(II) refund any collection costs paid with regard to that loan by the borrower subsequent to the borrower submitting an application under paragraph (1);

“(viii) that if only some of the loan will be discharged, the borrower will have the opportunity for reconsideration of the borrower's claim as described in paragraph (6);

“(ix) that the borrower is eligible to receive assistance under title IV, if applicable; and

“(x) that reports to consumer reporting agencies to which the Secretary previously made adverse credit reports with regard to the borrower’s loan shall be updated not later than 30 days from the date the determination under this paragraph was made.

“(5) DENIAL OF BORROWER DEFENSE CLAIM.—If the Secretary denies a borrower defense, the Secretary shall retroactively waive a portion of interest that accrued during the forbearance period (as described in subparagraph (B)) and notify the borrower—

“(A) of the reasons for the denial and the evidence that was relied upon;

“(B) that the interest accruing on the relevant loan after the first 12-month period of forbearance that occurred from the time the borrower's application was submitted under this subsection will be retroactively waived;

“(C) of the amount of any portion of the loan that is due and payable to the Secretary;

“(D) whether the Secretary will reimburse any amounts previously collected prior to the suspension of the collection activity, as described in paragraph (2)(A)(i)(IV)(aa);

“(E) that if any balance remains on the loan, the loan will return to the status prior to the borrower's submission of the application, except that in the case of a loan that was in default prior to such application, the borrower shall first be removed from default status and given the opportunity to enter repayment, including income-based repayment described under section 493C, before the loan will be sent to collections; and

“(F) that the borrower shall have the opportunity for reconsideration of the borrower's claim as described in paragraph (6).

“(6) RECONSIDERATION.—

“(A) IN GENERAL.—The decision of the Secretary and any relief that may be granted on the claim shall be considered the final agency action that shall be subject to appeal in district court, except that—

“(i) if the borrower defense is denied in full or in part, the borrower may request that the Secretary reconsider the borrower defense upon the identification of new evidence in support of the borrower’s claim; and

“(ii) the Secretary may reopen a borrower defense application at any time to consider evidence that was not considered in making the previous decision on that application.

“(B) PROHIBITION ON RESCINDING RELIEF.—The Secretary shall not reduce the amount of any relief that was previously granted to a borrower under this section, or reinstate any amounts owed on a previously discharged loan.

“(7) BORROWER DEFENSE CLAIMS AND ESTABLISHING A BORROWER DEFENSE.—

“(A) CLAIMS.—

“(i) IN GENERAL.—Notwithstanding any other provision of State or Federal law, a borrower may claim as a defense to repayment of a loan made under this part or part B any borrower defense established under subparagraph (B). Such a borrower defense claim may include—

“(I) a defense to repayment of amounts owed to the Secretary on a loan under this part or part B, in whole or in part; and

“(II) a right to recover amounts previously collected by the Secretary on such loan, in whole or in part.

“(ii) CONSOLIDATION LOAN.—In the case of a Direct Consolidation Loan—

“(I) the Secretary shall consider a borrower defense claim to such loan by determining whether a borrower defense described in subparagraph (B) has been established with regard to a loan made under this part or part B that was paid off by the Direct Consolidation Loan;

“(II) the Secretary shall discharge the appropriate portion of the Direct Consolidation Loan if the borrower is determined to have a borrower defense with respect to a loan made under this part or part B that was paid off by the Direct Consolidation Loan; and

“(III) the Secretary shall return to the borrower any payments made by the borrower or otherwise recovered on the Direct Consolidation Loan or the loans that were paid off by the Direct Consolidation Loan that exceed the amount owed on that portion of the Direct Consolidation Loan that was not discharged, if—

“(aa) the borrower is determined to have a borrower defense with respect to a loan made under this part or part B that was paid off by the Direct Consolidation Loan; and

“(bb) the payment was made directly to the Secretary on the loan.

“(iii) PLUS LOAN.—In the case of a Direct PLUS Loan made on behalf of a student, the Secretary shall consider a borrower defense claim related to the student on whose behalf the Direct PLUS Loan was borrowed. Any amounts discharged will be applied to the parent or borrower of the Direct PLUS Loan.

“(B) ESTABLISHING A BORROWER DEFENSE.—A borrower has established a borrower defense if—

“(i) the borrower (whether as an individual or as a member of a group or class) or a government agency, has obtained against the institution of higher education a judgment relating to the borrower's claim based on State or Federal law in a court or administrative tribunal of competent jurisdiction;

“(ii) the institution of higher education that the borrower attended using a loan under this part failed to perform the institution’s obligations under the terms of a contract with the borrower;

“(iii) the borrower was subject to any act or omission of the institution related to the making of the loan for enrollment at the institution or the provision of educational services for which the loan was provided that would give rise to a cause of action against the institution under applicable State law;

“(iv) the institution of higher education, a third servicer that contracts with such institution, or third party contractor made a substantial misrepresentation; or

“(v) the institution has made any other act or omission that the Secretary, through regulations, or any Federal law, has established is an act or omission that constitutes a borrower defense under this subsection.

“(C) LIMITATION.—A violation by an institution of a requirement in this Act (including implementing regulations) is not a basis for a borrower defense under this subsection unless the violation would otherwise constitute a basis for a borrower defense, as described in this paragraph.

“(8) FINDING OF SUBSTANTIAL MISREPRESENTATION.—An eligible institution is deemed to have engaged in a substantial misrepresentation for purposes of this subsection when an eligible institution, third party servicer that contracts with such institution, or third party contractor, commits a substantial misrepresentation, as defined in section 489A. A sworn statement or attestation from the borrower shall be considered as evidence, and, in the Secretary’s discretion, may be sufficient evidence for the Secretary to find that a substantial misrepresentation was made to a borrower. If the Secretary determines that an eligible institution, third party servicer that contracts with such institution, or third party contractor, has engaged in a substantial misrepresentation, the Secretary shall, in addition to finding a borrower defense under this section, take enforcement action against the institution, third party servicer that contracts with such institution, or third party contractor, in accordance with section 489A.

“(9) ACTION AGAINST THE INSTITUTION.—If a borrower is determined to have established a borrower defense in accordance with this subsection, the Secretary shall initiate an appropriate proceeding to require the institution whose act or omission resulted in the borrower defense to repay to the Secretary the amount discharged under paragraph (7)(A) whether by offset, claim on a letter of credit, or other protection provided by the institution.

“(10) REPORTING.—Not less than once every 3 months, the Secretary shall publish on a website, and report to Congress, data—

“(A) for each institution, on—

“(i) the number of claims considered under this subsection;

“(ii) the number of those claims pending and the date of receipt of the application, or the date of the initiation of the claim by the Secretary, of those claims; and

“(iii) the number of claims under this subsection for which a determination has been made and the results of each such determination; and

“(B) in the aggregate, and disaggregated by State, on—

“(i) the total number of claims pending under this subsection;

“(ii) the number of those claims that are approved borrower defense claims and total dollar amount of relief;

“(iii) the percentage of those total approved claims receiving partial relief and the median student loan debt remaining for borrowers receiving partial relief; and

“(iv) the number of those claims that are denied borrower defense claims.”.

(a) Repeal.—Section 119 of the Higher Education Opportunity Act (20 U.S.C. 1011m) is repealed.

(b) Amendment to the Higher Education Act of 1965.—Part B of title I of the Act (20 U.S.C. 1011 et seq.), as amended by title I, is further amended by adding at the end the following:

(a) Sense of Congress regarding incentive compensation.—It is the sense of Congress that—

(1) the use of commission-paid sales practices, also known as incentive compensation, leads to overly aggressive, manipulative, and often misleading tactics in advertising, recruiting, and counseling students;

(2) such practices are inappropriate at any institution benefitting from Federal funding and an implied Federal endorsement through participation in programs under title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.);

(3) previous investigations by the Federal Trade Commission, as well as by Congress, including the Permanent Subcommittee on Investigations of the Senate (referred to as the “Nunn Commission”) in 1991 and the Committee on Health, Education, Labor, and Pensions of the Senate in 2012, found that incentive compensation schemes frequently contribute to high-pressure sales and other predatory abuses at federally supported schools;

(4) the ban on incentive compensation under section 487(a)(20) of the Higher Education Act of 1965 (20 U.S.C. 1094(a)(20)), as amended by subsection (b), is intended to preclude the use of such abusive practices at any point in the process of recruiting or enrolling students, or assisting students in securing employment; and

(5) an institution that receives assistance under title IV of such Act remains responsible for the actions of any entity that performs functions and tasks on the institution’s behalf, and these responsibilities include ensuring that employees, third party servicers that contract with such institutions, and third party contractors are not paid for services that would convert these payments into prohibited incentive compensation because of the activities in which the employees, third party servicers that contract with such institutions, or third party contractors engage.

(b) Amendments.—Section 487 (20 U.S.C. 1094) is amended—

(1) in subsection (a), by striking paragraph (20) and inserting the following:

“(20) The institution, any third party servicer that contracts with such institution, and any third party contractor will comply with the ban on prohibited incentive compensation ban under subsection (j).”; and

(2) by adding at the end the following:

“(j) Incentive Compensation Ban.—

“(1) DEFINITIONS.—In this subsection:

“(A) COVERED ACTIVITY.—

“(i) IN GENERAL.—The term ‘covered activity’ means any of the following activities:

“(I) Securing enrollment of students into the institution of higher education, which includes—

“(aa) activities that an individual or entity engages in at any point in time during an educational program for the purpose of the admission or matriculation of students for any period of time, including contact in any form with a prospective student, such as contact through pre­ad­mis­sion or advising activities, scheduling an appointment to visit the enrollment office or any other office of the institution, attendance at such an appointment, or involvement in a prospective student’s signing of an enrollment agreement or financial aid application; and

“(bb) other recruitment and marketing activities.

“(II) Securing or awarding financial aid to students for attendance at the institution, including—

“(aa) any involvement in a prospective student’s signing of a financial aid application; and

“(bb) completing financial aid applications on behalf of a prospective applicant (including activities authorized by the Department, such as the FAA Access tool, which can be used to enter, correct, verify, or analyze financial aid application data).

“(III) Improving job placement activities for students attending, or who have attended, the institution.

“(IV) Reducing the number of students who default on their student loans.

“(ii) EXCLUSION.—The term ‘covered activity’ does not include—

“(I) the provision of student contact information for prospective students, if any payment for such service is not based on—

“(aa) any additional conduct or action by the third party servicer that contracts with such institutions or third party contractor or the prospective student, such as participation in preadmission or advising activities, scheduling an appointment to visit the enrollment office or any other office of the institution or attendance at such an appointment, or the signing, or being involved in the signing, of a prospective student’s enrollment agreement or financial aid application; or

“(bb) the number of students (calculated at any point in time of an educational program) who apply for enrollment, are awarded financial aid, or are enrolled for any period of time, including through completion of an educational program; or

“(II) student support services not included in the covered activities under clause (i).

“(B) PROHIBITED INCENTIVE COMPENSATION.—

“(i) IN GENERAL.—The term ‘prohibited incentive compensation’ includes—

“(I) any commission, bonus, or other incentive payment, of a sum of money or other item of value, paid to or given to a person or an entity that is not a fixed salary or wages and that is paid or given for meeting a certain quota or numerical target, or avoiding penalties for a benchmark set in Federal law, relating to covered activities;

“(II) other direct or indirect forms of payment for meeting a certain quota or numerical target, or avoiding penalties for a benchmark set in Federal law, relating to covered activities, including—

“(aa) tuition sharing as a measure of compensation when based on a formula that relates the amount payable to the entity to meeting a certain quota or numerical target, or avoiding penalties for a benchmark set in Federal law, as a result of the covered activity of the entity;

“(bb) profit-sharing plans from which distributions are made to individuals based on meeting a certain quota or numerical target, or avoiding penalties for a benchmark set in Federal law, as a result of covered activities by the recipient;

“(cc) salary adjustments that take the form of incentive payments based directly or indirectly on meeting a quota or numerical target, or avoiding penalties for a benchmark set in Federal law, with respect to a covered activity;

“(dd) payments based on meeting a certain quota or numerical target, or avoiding penalties for a benchmark set in Federal law, relating to covered activities; and

“(ee) bonuses or other payments based on meeting a certain quota or numerical target, or avoiding penalties for a benchmark set in Federal law, relating to covered activities;

“(III) a decrease or removal of a payment or benefit described in subclause (I) or (II) (and not excluded under clause (ii)), if that decrease or removal is based directly or indirectly on meeting a certain quota or numerical target, or avoiding penalties for a benchmark set in Federal law, relating to covered activities; and

“(IV) a change in employment status, such as a promotion, demotion, or termination if based on meeting a certain quota or numerical target, or avoiding penalties for a benchmark set in Federal law, relating to covered activities.

“(ii) EXCLUSIONS.—The following payments or benefits shall not be considered prohibited incentive compensation, if the payment or benefit is determined in a way that is not related to the role the recipient plays in any covered activity:

“(I) A profit sharing plan, including a qualified cash or deferred arrangement (as defined in section 401(k)(2) of the Internal Revenue Code of 1986) offered to all employees on a basis that is neutral with respect to the role the recipient plays in any covered activity.

“(II) An employee benefits plan offered to all employees on a basis that is neutral with respect to the role the recipient plays in any covered activity.

“(III) A cost of living adjustment.

“(IV) A payment to a senior executive with responsibility for the development of policies that affect marketing and recruitment, enrollment, financial aid, or student support services, including job placement services.

“(C) RECRUITMENT AND MARKETING ACTIVITY.—The term ‘recruitment and marketing activity’ means—

“(i) broad information dissemination and disseminating targeted information to individuals;

“(ii) soliciting individuals regarding an institution;

“(iii) advertising a program that disseminates information to potential students;

“(iv) collecting contact information;

“(v) contacting potential applicants for the admission or matriculation of a student into an institution;

“(vi) screening pre-enrollment information to determine whether a prospective student meets the requirements that an institution has established for enrollment in an academic program;

“(vii) aiding individuals in filling out any information relating to an application for admission or matriculation into an institution;

“(viii) determining whether an enrollment application is materially complete, as long as the enrollment decision remains with the institution; or

“(ix) any other activity described in section 126(d)(2).

“(D) STUDENT SUPPORT SERVICES.—The term ‘student support services’ means any of the following services:

“(i) Counseling or other nonacademic support activities provided to students that is not a covered activity.

“(ii) Institutional services provided to students, such as information technology assistance, food service, or housing, that is not a covered activity.

“(iii) Other services involved in the administration of support for students that is not a covered activity.

“(2) INCENTIVE COMPENSATION BAN.—

“(A) IN GENERAL.—The institution, any third party servicer that contracts with such institution, and any third party contractor shall not provide any prohibited incentive compensation to any person or entity.

“(B) APPLICABILITY.—The ban on prohibited incentive compensation under this subsection applies to any entity or individual engaged in any covered activity, including—

“(i) with respect to an entity engaged in any student recruitment or admission activity or in making decisions about the award of financial aid, any institution or entity that undertakes the recruiting or the admitting of students or that makes decisions about and awards program funds under this title; and

“(ii) with respect to an individual engaged in any student recruitment or admission activity or in making decisions about the award of financial aid—

“(I) any employee who undertakes recruiting or admitting of students or who makes decisions about and awards program funds under this title; and

“(II) any higher-level employee with responsibility for recruitment or admission of students, or making decisions about awarding program funds under this title.

“(C) EXCLUSION OF CERTAIN EMPLOYEES.—The ban on prohibited incentive compensation under this subsection shall not apply to any senior manager or executive level employee who—

“(i) is involved only in the development of policy related to the manner in which marketing and recruitment, enrollment, financial aid, or student support services will be pursued or provided; and

“(ii) does not engage in individual student contact or other covered activities.

“(D) INDIVIDUAL WITH MULTIPLE ADJUSTMENTS TO COMPENSATION.—An employee of an institution, a third party servicer that contracts with such institution, or a third party contractor, who receives multiple adjustments to compensation in a calendar year and is engaged in a covered activity shall be considered to be engaged in prohibited incentive compensation if the adjustments create compensation that is based in any part, directly or indirectly, upon meeting certain quotas or numerical targets, or avoiding penalties for a benchmark set in Federal law, regarding those covered activities.

“(3) NOTICE OF INCENTIVE COMPENSATION BAN.—

“(A) NOTICE TO SERVICER AND CONTRACTOR.—The institution shall provide notice of the ban on prohibited incentive compensation under this subsection at least once a year to each third party servicer and third party contractor that contracts with the institution.

“(B) NOTICE TO EMPLOYEES.—The institution, and any third party contractor or third party servicer that contracts with such institution, shall—

“(i) provide notice of the ban on prohibited incentive compensation under this subsection at least once a year to employees; and

“(ii) publish a clear statement in all internal recruitment materials, including guides or manuals, acknowledging the ban on prohibited incentive compensation under this subsection.

“(4) CONSEQUENCES FOR INCENTIVE COMPENSATION VIOLATION.—

“(A) IN GENERAL.—The Secretary, in coordination with the Office of the Inspector General of the Department of Education, shall develop a written policy for the enforcement of the ban on prohibited incentive compensation under this subsection, and shall update that policy as needed.

“(B) CONTENTS OF POLICY.—The policy developed under subparagraph (A)—

“(i) shall require that compliance review occur on an annual basis;

“(ii) may include automatic triggers for inquiries by the Department or regular ‘secret shopper’ or audit-based investigations to ensure that institutions of higher education remain in compliance with the ban; and

“(iii) shall explain the range of sanctions, as described in section 489A, that the Secretary may carry out to enforce this subsection.

“(C) REPORT.—The Department shall publish an annual report, and shall submit that report to the authorizing committees and the For-Profit Education Oversight Coordination Committee established under section 125, which shall include—

“(i) a description of the status of any investigations conducted under this subsection;

“(ii) the names of institutions found to be not in compliance with this subsection;

“(iii) the sanctions the non-compliant institution of higher education faced; and

“(iv) in the case of an institution subject to liability for funds under this title pursuant to subparagraph (B)(iii), the amount of such liability.”.

Section 103 (20 U.S.C. 1003) is amended by striking paragraph (13) and inserting the following:

“(13) NONPROFIT.—

“(A) IN GENERAL.—The term ‘nonprofit’—

“(i) as applied to a school, agency, organization, or institution, means a school, agency, organization, or institution controlled, owned, and operated by one or more nonprofit corporations or associations, no part of the net earnings of which inures, or may lawfully inure, to the benefit of any private shareholder or individual; and

“(ii) as applied to an institution of higher education, means an institution—

“(I) that meets the requirements of subparagraph (A);

“(II) that is an organization described in section 170(b)(1)(A)(ii) or (vi) of the Internal Revenue Code of 1986; and

“(III) with respect to which—

“(aa) no member of the governing board of the institution (other than any ex officio member serving at the pleasure of the remainder of the governing board and receiving a fixed salary) receives any substantial direct or indirect economic benefit (including a lease, promissory note, or other contract) from the institution; and

“(bb) no person with the power to appoint or remove members of the governing board receives any such substantial direct or indirect economic benefit (including a lease, promissory note, or other contract) from the institution.

“(B) EXCLUSIONS.—

“(i) IN GENERAL.—An institution of higher education shall not be considered a nonprofit institution of higher education, as defined in this paragraph, if—

“(I) one or more core functions are under the control of, or subject to significant direction from an entity that is not a public institution of higher education or is not formed as a nonprofit corporation; or

“(II) a substantial share of the assets of the institution are committed to a joint venture with a person or entity that is not a public institution of higher education and is not a nonprofit corporation, and the core functions of the venture are conducted by, under the control of, or subject to significant direction from that person or entity.

“(ii) PRESUMPTION OF SIGNIFICANT DIRECTION.—There shall be a conclusive presumption that an entity exercises significant direction if one or more of the entity’s employees or owners serves as an officer, member of the board, or person holding similar authority for the institution of higher education.”.

Section 103 (20 U.S.C. 1003), as amended by section 4, is further amended—

(1) by inserting after paragraph (14) the following:

“(15) PUBLIC INSTITUTION OF HIGHER EDUCATION.—

“(A) IN GENERAL.—The term ‘public’, when used with respect to an institution of higher education, means an institution of higher education—

“(i) (I) operated by—

“(aa) the Federal Government;

“(bb) a State, as defined in section 3306(j)(1) of the Internal Revenue Code of 1986;

“(cc) a local government, as defined in section 1393(a)(5) of such Code; or

“(dd) an Indian tribal government, as defined in section 7701(a)(40) of such Code;

“(II) for which all obligations of the institution are valid and binding obligations of the State, local government, or Indian tribal government; and

“(III) for which the full faith and credit of such State, local government, or Indian tribal government is pledged for the timely payment of such obligations; or

“(ii) that is an instrumentality of a State or local government (as such terms are defined in subparagraph (A)).

“(B) INSTRUMENTALITY OF A STATE OR LOCAL GOVERNMENT.—An institution shall be considered an instrumentality of a State or local government for purposes of this paragraph if the institution meets all of the following requirements:

“(i) The employees of the institution are employees of the State or local government.

“(ii) Any liability of the institution is payable to the same degree as if the liability was a liability of the State or local government, in the State or local government jurisdiction where the institution is formed.

“(iii) The institution is subject to the same financial oversight and open public records laws as the State or local government, in the State or local government jurisdiction where the institution is formed.”.

(a) In general.—Part G of title IV (20 U.S.C. 1088 et seq.) is amended by inserting after section 489 the following:

(b) Conforming amendments.—Section 487(c), as amended by section 102(b), is further amended—

(1) in paragraph (1), by striking subparagraphs (G) through (J);

(2) by striking paragraphs (2) and (3); and

(3) by redesignating paragraphs (4) through (7), as paragraphs (2) through (5), respectively.

Section 487(a) (20 U.S.C. 1094(a)), as amended by section 202(b), is further amended by adding at the end the following:

“(30) The institution will not make a substantial misrepresentation, as defined in section 489A.”.