This bill aims to push wealthy colleges to have better student loan outcomes. If a college with a very large endowment has many borrowers who default, fall behind on payments, or make payments but their balances still grow, the college must pay a big penalty to the Department of Education. The thresholds start in 2025 and get stricter each year through 2030. For example, in 2025, if 11% or more of a school’s borrowers default, the school pays a penalty equal to 30% of the outstanding balance on those loans; by 2030, a 6% default rate triggers a 20% penalty, and similar penalties apply for delinquency and “underpayment” rates that meet set levels. Paying these penalties does not change any borrower’s loan rights or duties.

It also raises taxes on certain schools with very large endowments if they hike tuition above an inflation‑adjusted baseline. In those cases, the tax on their investment income would jump from 1.4% to 25%, starting with tax years after December 31, 2025. The “baseline” is the school’s average tuition in 2025, adjusted for inflation in later years.

Key points

• Who is affected: Colleges with endowments of $2.5 billion or more; students at those schools are indirectly affected.
• What changes: Schools pay penalties if many borrowers default, are 31–360 days late, or make payments but balances still rise; a higher 25% tax applies if these schools raise tuition beyond the allowed inflation‑adjusted amount.
• When: Penalties phase in from 2025 to 2030; the higher tax can apply to tax years beginning after December 31, 2025.

Notes on terms

• Default rate: Share of a school’s borrowers who default in a year. Delinquency rate: Share 31–360 days late. Underpayment rate: Share making regular payments but whose balances still grow.