The bill amends the Higher Education Act to make institutions ineligible for Title IV programs if their cohort repayment rate is 15% or below, starting in fiscal year 2028, and to require participating institutions to make annual risk-sharing payments tied to cohorts that fail to reduce principal balances. It also creates a College Opportunity Bonus grant program for institutions with stronger repayment performance (cohort repayment >25%), funded by the new risk-sharing receipts, and tightens data reporting on student service expenditures.
The changes reconfigure accountability and funding flows: institutions with very low repayment performance face multi-year loss of access to federal student aid, while other institutions can receive targeted grants if they demonstrate better outcomes and serve Pell-eligible students. The bill builds in appeal procedures, exceptions for common deferments and military service, and an unemployment adjustment to the risk-sharing calculation — all of which will shape how institutions manage enrollment, financial aid, and student supports.
At a Glance
What It Does
From FY2028, an institution with a cohort repayment rate ≤15% becomes ineligible for Title IV programs for that year and the next two, subject to appeal; institutions must also remit a periodic risk-sharing payment equal to 2% of a cohort's nonrepayment loan balance (with a revenue-based cap). The Secretary will publish repayment rates and run a grant program for higher-performing institutions funded from those payments.
Who It Affects
All institutions that participate in the Direct Loan program and other Title IV programs, especially schools with low repayment performance (including some for-profit and open-access institutions) as well as institutions that qualify for the new bonus grants (those with cohort repayment >25% and high Pell enrollments). The Department of Education will take on new administrative tasks for notifications, appeals, collections, and grant allocations.
Why It Matters
The bill links institutional access to federal aid and new financial obligations directly to student loan repayment behavior rather than default alone, creating stronger incentives for institutions to improve post-enrollment outcomes — while reallocating funds from underperforming schools to reward higher-performing, higher-Pell-serving institutions.
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What This Bill Actually Does
The core accountability lever is a new cohort repayment threshold. The bill inserts a new subsection into section 455 defining a ‘cohort repayment rate’ and making an institution ineligible for Title IV participation if that rate is 15% or less.
The metric counts borrowers who reduce their original principal balance by at least $1 within two fiscal years after entering repayment (with a different multi-year pooling rule for very small cohorts). The statute spells out a set of borrower statuses to exclude — common deferments, certain military service windows, mandatory forbearance, and Peace Corps or similar service — and requires the Secretary to publish the calculated rates.
Institutions may appeal a loss of eligibility within 30 days; while an appeal is pending the Secretary may allow continued Title IV participation if the institution persuades the Department that recalculation would move it over the 15% threshold. If participation continues during the appeal and the appeal ultimately fails, the institution must repay to the Department the amounts of loans and related subsidy payments the Department made while the appeal was pending, plus interest and related charges.The bill layers in a risk-sharing mechanism: starting FY2028, each institution must remit a payment tied to the cohort nonrepayment loan balance — broadly, the principal outstanding for borrowers who have not reduced their principal for three consecutive fiscal years after entering repayment/deferment/forbearance.
The payment is set at 2% of that balance, subject to a cap equal to 2.5% of the institution’s recent audited revenues (with auxiliary and hospital revenues excluded). The statute reduces the effective amount by an unemployment adjustment: the cohort balance is offset by a figure equal to the cohort loan balance multiplied by the recent three-year national unemployment rate average.Funds collected through risk-sharing payments feed a new College Opportunity Bonus Program.
That grant program awards funds to eligible institutions with cohort repayment rates over 25% under a formula that equally weighs Pell enrollment, Pell recipient cohort repayment, and student-service spending relative to student-service resources. Grants may be used for need-based aid, student supports, and accelerated learning, are capped at 2.5% of institutional revenues, and must supplement — not supplant — state or institutional spending.
The bill also directs the Secretary to issue a report within six months after enactment identifying best practices for improving repayment, and it amends statistical reporting definitions to standardize how student-service expenditures and student-service resources are measured for use in the grant formula.
The Five Things You Need to Know
An institution whose cohort repayment rate is 15% or less (as defined in the bill) becomes ineligible for Title IV aid for that fiscal year and the two following fiscal years, starting in FY2028.
Institutions can appeal within 30 days; if they keep participating during the appeal and lose, they must reimburse the Department for loans and all related subsidy or reinsurance payments made while the appeal was pending, plus interest.
The risk-sharing payment equals 2% of the cohort nonrepayment loan balance (borrowers who made no principal reduction in three consecutive fiscal years), but the payment is capped at 2.5% of the institution’s recent audited revenues and reduced by an unemployment-based offset.
The College Opportunity Bonus Program awards grants only to institutions with cohort repayment rates above 25% and distributes funds via a formula that equally weights Pell share, Pell cohort repayment, and student-service expenditures relative to student-service resources.
The bill clarifies which borrower statuses are excluded from repayment and nonrepayment calculations (multiple deferments, military service windows, mandatory forbearance, Peace Corps/domestic volunteer service) and requires the Secretary to publish the repayment rates used for enforcement.
Section-by-Section Breakdown
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New Title IV ineligibility tied to cohort repayment rate
This added subsection defines ‘cohort repayment rate’ and makes it a trigger for Title IV ineligibility when the rate is ≤15%. The measurement uses a two-year post-repayment window to check whether borrowers reduced original principal by at least $1, with a three-year rolling calculation for very small cohorts. The section also creates an appeal right with a 30-day deadline and gives the Secretary discretion to allow continued participation while appeals await resolution.
Cross-program ineligibility extensions (Pell, loan insurance, Perkins)
The bill links the new cohort-repayment ineligibility to other Title IV programs by amending sections governing Pell eligibility, the student loan insurance program, and Perkins loan eligibility to treat institutions ineligible under the new cohort rule as ineligible for those programs as well. Several of these amendments include transitional language that ties certain provisions to fiscal year 2028 and earlier reporting periods.
College Opportunity Bonus Program funded by risk-sharing receipts
Creates a grant program for institutions with cohort repayment rates greater than 25%. The Secretary will allocate funds by a formula that equally weights (1) the number and share of Pell students, (2) the cohort repayment rate among Pell students, and (3) student-service expenditures as a share of student-service resources. Grants are capped at 2.5% of institutional revenues (IPEDS definition) and must be used to expand need-based aid, student supports, or accelerated learning, and cannot replace state or existing institutional spending.
Institutional risk-sharing payments based on cohort nonrepayment
Adds a requirement for annual risk-sharing remittances calculated from a cohort nonrepayment loan balance (borrowers who made no principal reduction in three consecutive fiscal years). The statute excludes common deferments and military service from that calculation. The payment formula sets a 2% rate on the nonrepayment balance, applies an unemployment-based offset tied to the three-year national unemployment average, and caps payments at 2.5% of audited institutional revenues.
Secretary report on repayment best practices
Directs the Secretary to deliver to Congress within six months a report identifying best practices institutions can use to improve repayment, with emphasis on schools serving high proportions of low-income students. That report is the legislative hook for guidance and will likely inform Department rulemaking, technical assistance, and the grant program's evaluation criteria.
Standardized reporting for student-service expenditures and resources
Amends IPEDS reporting definitions to include a clearer definition of ‘student service expenditures’ and ‘student service resources’ (what counts as revenues that could support student services and what does not). Those fields feed the grant program formula and create a standardized way to compare institutions’ investments in student supports.
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Explore Education in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Pell-eligible students at higher-performing institutions — the bonus grants are targeted to institutions with high Pell shares and better Pell cohort repayment, directing more need-based aid and support services to students who are low- and moderate-income.
- Institutions with strong repayment performance — will receive competitive grant funding for student success initiatives and public recognition through published repayment rates, creating a revenue and reputational advantage.
- Taxpayers and the Department of Education — by shifting some financial responsibility to institutions for cohorts that fail to repay, the bill aims to reduce federal subsidy costs associated with persistent nonrepayment.
Who Bears the Cost
- Institutions with low cohort repayment rates (≤15%) — face loss of Title IV eligibility for multiple years and may owe significant sums if they continue participating during unsuccessful appeals, creating the risk of lost tuition revenue and reputational damage.
- Open-access or mission-driven colleges serving economically disadvantaged students — they often enroll borrowers at higher repayment risk; the metric may impose disproportionate financial strain and force programmatic changes or enrollment restrictions.
- Department of Education — must build and operate the notification, publication, appeal review, risk-payment collection, unemployment-offset calculations, and the new grant allocation system, increasing administrative workload and enforcement responsibilities.
Key Issues
The Core Tension
The bill pits two legitimate aims against each other: protecting federal funds and students from institutions whose students make little progress on loan principal versus preserving access to higher education for students who disproportionately attend open-enrollment or mission-driven institutions. Strengthening accountability reduces taxpayer exposure but risks excluding or financially burdening schools that serve higher-risk, lower-income populations, potentially narrowing educational access unless accompanied by targeted supports and careful metric design.
The bill replaces default-based accountability with a repayment-focused framework that looks at principal reductions rather than defaults alone. That change reduces one set of distortions but introduces new measurement challenges: a $1 principal reduction threshold is a blunt proxy for meaningful repayment, and the two-year (or three-year for small cohorts) lookback can capture borrowers temporarily unemployed or in income-driven plans without reflecting long-term repayment trajectories.
The statute attempts to mitigate obvious anomalies by excluding certain deferments and recent military service, but many real-world statuses (long-term IDR recertification delays, administrative wage garnishments, periods of partial payment) are not expressly handled and could skew results.
The risk-sharing formula includes an unemployment offset, which recognizes macroeconomic effects on repayment but also complicates predictability — institutions in regions with persistent economic distress may remain exposed even after the offset. The appeal provision allows continued Title IV access while contesting the calculation, but imposing a requirement to repay all loans and subsidy payments made during the appeal period if the appeal fails creates a high-stakes dynamic: schools may choose not to continue participation during an appeal to avoid potential liability, which would immediately cut off student aid and disrupt enrollments.
Finally, funding the grant program with risk-sharing receipts ties incentives: if collections fall short, the bonus program could be underfunded, and institutions may have incentives to game reporting categories (e.g., how student-service expenditures are classified) or to alter admissions and financial-aid packaging to influence cohort metrics.
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