[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[S. 920 Introduced in Senate (IS)]

103d CONGRESS
  1st Session
                                 S. 920

 To amend the Higher Education Act of 1965 to simplify the delivery of 
student loans to borrowers and eliminate borrower confusion; to provide 
  a variety of repayment plans, including income contingent repayment 
 through the EXCEL account, to borrowers so that they have flexibility 
in managing their student loan repayment obligations, and so that those 
obligations do not foreclose community service-oriented career choices 
  for those borrowers; to replace, through an orderly transition, the 
 Federal Family Education Loan Program with the Federal Direct Student 
     Loan Program; to avoid the unnecessary cost, to taxpayers and 
 borrowers, and administrative complexity associated with the Federal 
Family Education Loan Program through the use of a direct student loan 
                    program, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                May 6 (legislative day, April 19), 1993

 Mr. Kennedy (for himself, Mr. Simon, Mr. Durenberger, Mr. Wellstone, 
Mr. Lieberman, Mr. Bradley, and Mr. Riegle) (by request) introduced the 
 following bill; which was read twice and referred to the Committee on 
                       Labor and Human Resources

_______________________________________________________________________

                                 A BILL


 
 To amend the Higher Education Act of 1965 to simplify the delivery of 
student loans to borrowers and eliminate borrower confusion; to provide 
  a variety of repayment plans, including income contingent repayment 
 through the EXCEL account, to borrowers so that they have flexibility 
in managing their student loan repayment obligations, and so that those 
obligations do not foreclose community service-oriented career choices 
  for those borrowers; to replace, through an orderly transition, the 
 Federal Family Education Loan Program with the Federal Direct Student 
     Loan Program; to avoid the unnecessary cost, to taxpayers and 
 borrowers, and administrative complexity associated with the Federal 
Family Education Loan Program through the use of a direct student loan 
                    program, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled, That this Act may be 
cited as the ``Student Loan Reform Act of 1993''.

    TITLE I--AMENDMENTS TO FEDERAL DIRECT LOAN DEMONSTRATION PROGRAM

                            heading for part

    Sec. 111. Part D of title IV of the Higher Education Act of 1965 
(20 U.S.C. 1001 et seq.; hereinafter referred to as ``the Act'') is 
amended in the part heading--
            (1) by inserting ``Student'' immediately following 
        ``Direct''; and
            (2) by striking out ``Demonstration''.

                     purpose; program authorization

    Sec. 112. Section 451 of the Act is amended to read as follows:

                    ``purpose; program authorization

    ``Sec. 451. (a) Purpose.--It is the purpose of this part--
            ``(1) to simplify the delivery of student loans to 
        borrowers and eliminate borrower confusion;
            ``(2) to provide a variety of repayment plans, including 
        income contingent repayment through the EXCEL account, to 
        borrowers so that they have flexibility in managing their 
        student loan repayment obligations, and so that those 
        obligations do not foreclose community service-oriented career 
        choices for those borrowers;
            ``(3) to replace, through an orderly transition, the 
        Federal Family Education Loan Program under part B of this 
        title with the Federal Direct Student Loan Program under this 
        part;
            ``(4) to avoid the unnecessary cost, to taxpayers and 
        borrowers, and administrative complexity associated with the 
        Federal Family Education Loan Program under part B of this 
        title through the use of a direct student loan program; and
            ``(5) to create a more streamlined student loan program 
        that can be managed more effectively at the Federal level.
    ``(b) Program Authority.--There are hereby made available, in 
accordance with the provisions of this part, such sums as may be 
necessary to make loans to all eligible students in attendance at 
participating institutions of higher education selected by the 
Secretary (and the eligible parents of such students), to enable such 
students to pursue their courses of study at such institutions during 
the period beginning July 1, 1994, and ending on June 30, 1998. Such 
loans shall be made by participating institutions that also have 
agreements with the Secretary to originate loans, or by alternative 
originators designated by the Secretary to make loans for students in 
attendance at participating institutions (and their parents).''.

             funds for origination of direct student loans

    Sec.  113. Section 452 of the Act is amended to read as follows:

            ``funds for origination of direct student loans

    ``Sec. 452. (a) In General.--The Secretary shall provide funds for 
student and parent loans under this part (1) directly to an institution 
of higher education that has an agreement with the Secretary under 
section 454(a) to participate in the direct student loan programs under 
this part and that also has an agreement with the Secretary under 
section 454(b) to originate loans under this part, or (2) through an 
alternative originator designated by the Secretary, on the basis of the 
need and the eligibility of students at each participating institution, 
and parents of such students, for such loans.
    ``(b) Fees for Origination Services.--(1) The Secretary shall pay 
fees to institutions of higher education with agreements under section 
454(b), in an amount established by the Secretary, to assist in meeting 
the costs of loan origination. Such fees--
            ``(A) shall be paid by the Secretary based on all the loans 
        made under this part to a particular borrower in the same 
        academic year;
            ``(B) shall be subject to a sliding scale that decreases 
        the amount of such fees as the number of borrowers increases; 
        and
            ``(C)(i) for academic year 1994-1995, shall not exceed a 
        program-wide average of $10 per borrower for all the loans made 
        under this part to such borrower in the same academic year; and
            ``(ii) for succeeding academic years, the Secretary shall 
        establish such average fee in regulations.
    ``(2) The Secretary shall pay fees for loan origination services to 
alternative originators of loans made under this part in an amount 
established by the Secretary in accordance with the terms of the 
contract between the Secretary and each such alternative originator.
    ``(c) No Entitlement To Participate or Originate.--No institution 
of higher education shall have a right to participate in the programs 
authorized by this part, originate loans, or perform any program 
function under this part. Nothing in this subsection shall be construed 
so as to limit the entitlement of an eligible student attending a 
participating institution (or the eligible parent of such student) to 
borrow under this part.''.

                       selection of institutions

    Sec. 114. Section 453 of the Act is amended--
            (1) by amending subsections (a) and (b) to read as follows:
    ``(a) Phase-In of Program.--(1)(A) The Secretary shall enter into 
agreements pursuant to section 454(a) with institutions of higher 
education to participate in the direct student loan programs under this 
part, and agreements pursuant to section 454(b) with institutions of 
higher education to originate loans in such programs, for academic 
years beginning on or after July 1, 1994. Alternative origination 
services, through which an entity other than the participating 
institution at which the student is in attendance originates the loan, 
shall be provided by the Secretary, through one or more contracts under 
section 456 or such other means as the Secretary may provide, for 
students attending participating institutions that do not originate 
direct student loans under this part. Such agreements for the first 
year of the program shall, to the extent feasible, be entered into not 
later than January 1, 1994.
    ``(B) In order to ensure an expeditious but orderly transition from 
the loan programs under part B of this title to the direct student loan 
programs under this part, the Secretary shall, in the exercise of his 
or her discretion, determine the number of institutions with which he 
or she shall enter into agreements under sections 454 (a) and (b) for 
any academic year, except that the Secretary shall exercise such 
discretion so as to achieve the following goals--
            ``(i) for academic year 1994-1995, loans made under this 
        part shall represent 4 percent of the sum of new student loan 
        volume under this part and part B of this title;
            ``(ii) for academic year 1995-1996, loans made under this 
        part shall represent 25 percent of the sum of new student loan 
        volume under this part and part B of this title;
            ``(iii) for academic year 1996-1997, loans made under this 
        part shall represent 60 percent of the sum of new student loan 
        volume under this part and part B of this title;
            ``(iv) for academic year 1997-1998, loans made under this 
        part shall represent 100 percent of the sum of new student loan 
        volume under this part and part B of this title.
    ``(2) The requirements of the Cash Management Improvement Act of 
1990 (Public Law 101-453) shall apply to the program under this part 
only to the extent specified in a schedule established by the 
Secretaries of Education and the Treasury, except that such schedule 
shall provide for the application of all such requirements not later 
than July 1, 1998.
    ``(b) Selection Criteria.--(1) Participation.--(A) Each institution 
of higher education desiring to participate in the direct student loan 
program under this part shall submit an application satisfactory to the 
Secretary containing such information and assurances as the Secretary 
may require.
    ``(B) When the program authorized under this part is fully 
implemented, the Secretary shall enter into agreements under section 
454(a) with institutions that submit applications in accordance with 
subparagraph (A).
    ``(C) Until such full implementation, the Secretary shall select 
institutions for participation in the direct student loan program under 
this part, and shall enter into agreements with them under section 
454(a), from among those institutions that submit the applications 
described in subparagraph (A), and meet such other eligibility 
requirements as the Secretary may prescribe, by--
            ``(i)(I) categorizing such institutions according to 
        anticipated loan volume, length of academic program, and 
        control of the institution; and
            ``(II) selecting institutions that are reasonably 
        representative of the respective categories; and
            ``(ii) if needed to carry out the purposes of this part, 
        selecting additional institutions.
    ``(2) Origination.--(A) The Secretary may enter into a supplemental 
agreement with an institution (or a consortium of such institutions) 
that--
            ``(i) has an agreement under subsection 454(a);
            ``(ii) desires to originate loans under this part; and
            ``(iii) meets the criteria specified in subparagraph (B).
    ``(B)(i) For academic year 1994-1995, the Secretary may approve an 
institution to originate loans only if such institution--
            ``(I) made loans under part E of this title in academic 
        year 1993-1994 and did not exceed the applicable maximum 
        default rate under section 462(g) for the most recent fiscal 
        year for which data are available;
            ``(II) is not on the reimbursement system of payment for 
        any of the programs under subpart 1 or 3 of part A, part C, or 
        part E;
            ``(III) is not overdue on program or financial reports or 
        audits required under this title;
            ``(IV) is not subject to an emergency action, or a 
        limitation, suspension, or termination under section 
        428(b)(1)(T), 432(h), or 487(c);
            ``(V) in the opinion of the Secretary, has not had 
        significant deficiencies identified by the State postsecondary 
        review entity under subpart 1 of part H of this title;
            ``(VI) in the opinion of the Secretary, has not had severe 
        performance deficiencies for any of the programs under this 
        title, including those demonstrated by audits or program 
        reviews submitted or conducted during the five calendar years 
        immediately preceding the date of application; and
            ``(VII) provides an assurance that it has no delinquent 
        outstanding debts to the United States, unless such debts are 
        being repaid under or in accordance with a repayment 
        arrangement satisfactory to the United States, or the Secretary 
        in his or her discretion determines that the existence or 
        amount of such debts has not been finally determined by the 
        cognizant Federal agency or agencies.
    ``(ii) For academic year 1995-1996 and subsequent academic years, 
the Secretary shall publish regulations governing the approval of 
institutions to originate loans.'';
            (2) by striking out subsections (c), (d), (e), and (f);
            (3) by amending subsection (g) to read as follows:
    ``(g) Consortia.--Subject to such requirements as the Secretary may 
prescribe, eligible institutions of higher education with agreements 
under section 454(a) may apply to originate loans under this part for 
students in attendance at such institutions, as consortia. Such 
institutions shall be required to meet the requirements to participate 
in the program under this part individually.''; and
            (4) by redesignating subsection (g) as subsection (c).

                      agreements with institutions

    Sec. 115. Section 454 of the Act is amended to read as follows:

                     ``agreements with institutions

    ``Sec. 454. (a) Participation.--An agreement with any institution 
of higher education for participation in the direct student loan 
program under this part shall--
            ``(1) provide for the establishment and maintenance of a 
        direct student loan program at the institution under which--
                    ``(A) the institution will--
                            ``(i) identify eligible students who seek 
                        student financial assistance at such 
                        institution in accordance with section 484;
                            ``(ii) estimate the need of each such 
                        student as required by part F of this title for 
                        an academic year: Provided, That, any loan 
                        obtained by a student under this part with the 
                        same terms (except as otherwise provided in 
                        this part) as loans made under section 428A or 
                        428H, or a loan obtained by a parent under this 
                        part with the same terms (except as otherwise 
                        provided in this part) as loans made under 
                        section 428B, or obtained under any State-
                        sponsored or private loan program, may be used 
                        to offset the expected family contribution of 
                        the student for that year; and
                            ``(iii) provide a statement that certifies 
                        the eligibility of any student to receive a 
                        loan under this part that is not in excess of 
                        the maximum amount applicable to such loan, 
                        except that the institution may, in exceptional 
                        circumstances specified by the Secretary, 
                        refuse to certify a statement that permits a 
                        student to receive a loan under this part, or 
                        certify a loan amount that is less than the 
                        student's determination of need (as determined 
                        under part F of this title), if the reason for 
                        such action is documented and provided in 
                        written form to such student;
                    ``(B) the institution will set forth a schedule for 
                disbursement of the proceeds of the loan in 
                installments, consistent with the requirements of 
                section 428G; and
                    ``(C) the institution will provide timely and 
                accurate information--
                            ``(i) concerning the status of student 
                        borrowers (and students on whose behalf parents 
                        borrow under this part) while such students are 
                        in attendance at the institution and concerning 
                        any new information of which the institution 
                        becomes aware for such students (or their 
                        parents) after they leave the institution, to 
                        the Secretary for the servicing and collecting 
                        of loans made under this part; and
                            ``(ii) if the institution does not have an 
                        agreement with the Secretary under subsection 
                        (b), concerning student eligibility and need, 
                        as determined under subparagraph (A), to the 
                        Secretary as needed for the alternative 
                        origination of loans to eligible students and 
                        parents in accordance with this part;
            ``(2) provide assurances that the institution will comply 
        with requirements established by the Secretary relating to 
        student loan information with respect to loans made under this 
        part;
            ``(3) provide that the institution accepts responsibility 
        and financial liability stemming from its failure to perform 
        its functions pursuant to the agreement;
            ``(4) provide that students at the institution and their 
        parents (with respect to such students) will not be eligible to 
        participate in the programs under part B of this title for the 
        period during which such institituion participates in the 
        direct student loan program under this part;
            ``(5) provide for the implementation of a quality assurance 
        system, as established by the Secretary, to ensure that the 
        institution is complying with program requirements and meeting 
        program objectives;
            ``(6) provide that the institution will not charge any fees 
        of any kind, however described, to student or parent borrowers 
        for origination activities or the provision of any information 
        necessary for a student or parent to receive a loan under this 
        part, or any benefits associated with such loan; and
            ``(7) include such other provisions as the Secretary 
        determines are necessary to protect the interests of the United 
        States and to promote the purposes of this part.
    ``(b) Origination.--An agreement with any institution of higher 
education for the origination of loans under this part shall--
            ``(1) supplement the agreement entered into in accordance 
        with subsection (a);
            ``(2) include provisions established by the Secretary that 
        are similar to the participation agreement provisions described 
        in paragraphs (1)(G), (2), (3), (4), (5), (6), and (7) of 
        subsection (a), as modified to relate to the origination of 
        loans by the institution;
            ``(3) provide that the institution will originate loans to 
        eligible students and parents in accordance with this part; and
            ``(4) provide that the note or evidence of obligation on 
        the loan shall be the property of the Secretary.
    ``(c) Withdrawal and Termination Procedures.--The Secretary shall 
establish procedures by which institutions may withdraw or be 
terminated from the program under this part.''.

                             terms of loans

    Sec. 116. Section 456 of the Act is amended to read as follows:

                    ``terms and conditions of loans

    ``Sec. 456. (a) In General.--(1) Unless otherwise specified in this 
part, loans made to borrowers under this part shall have the same 
terms, conditions, and benefits as loans made to borrowers under 
sections 428, 428A, 428B, and 428H of this title.
    ``(2) Loans made to borrowers under this part that, except as 
otherwise specified in this part, have the same terms, conditions, and 
benefits as loans made to borrowers under--
            ``(A) section 428 shall be known as `Federal Direct 
        Stafford Loans';
            ``(B) section 428A shall be known as `Federal Direct 
        Supplemental Loans for Students';
            ``(C) section 428B shall be known as `Federal Direct PLUS 
        Loans'; and
            ``(D) section 428H shall be known as `Federal Direct 
        Unsubsidized Stafford Loans'.
    ``(b) Interest Rate.--(1) Section 427A(a) shall not apply to loans 
made under this part.
    ``(2)(A) For Federal Direct Stafford Loans and Federal Direct 
Unsubsidized Stafford Loans made before July 1, 1997, the applicable 
rate of interest shall, during any twelve-month period beginning on 
July 1 and ending on June 30, be determined on the preceding June 1 and 
be equal to--
            ``(i) the bond equivalent rate of ninety-one-day Treasury 
        bills auctioned at the final auction held prior to such June 1; 
        plus
            ``(ii) 3.1 percent,
except that such rate shall not exceed 9 percent.
    ``(B) For Federal Direct Stafford Loans and Federal Direct 
Unsubsidized Stafford Loans made on or after July 1, 1997, the 
applicable rate of interest shall, during any twelve-month period 
beginning on July 1 and ending on June 30, be determined on the 
preceding June 1 for all such loans and be equal to--
            ``(i) the bond equivalent rate of the security with a 
        comparable maturity; plus
            ``(ii) 1 percent,
except that such rate shall not exceed 9 percent.
    ``(3)(A) For Federal Direct Supplemental Loans for Students made 
before July 1, 1997, the applicable rate of interest shall, during any 
twelve-month period beginning on July 1 and ending on June 30, be 
determined on the preceding June 1 and be equal to--
            ``(i) the bond equivalent rate of fifty-two-week Treasury 
        bills auctioned at the final auction held prior to such June 1; 
        plus
            ``(ii) 3.1 percent,
except that such rate shall not exceed 11 percent.
    ``(B) For Federal Direct Supplemental Loans for Students made on or 
after July 1, 1997, the applicable rate of interest shall, during any 
twelve-month period beginning on July 1 and ending on June 30, be 
determined on the preceding June 1 for all such loans and be equal to--
            ``(i) the bond equivalent rate of the security with a 
        comparable maturity; plus
            ``(ii) 1.5 percent,
except that such rate shall not exceed 11 percent.
    ``(4)(A) For Federal Direct PLUS Loans made before July 1, 1997, 
the applicable rate of interest shall, during any twelve-month period 
beginning on July 1 and ending on June 30, be determined on the 
preceding June 1 for loans and be equal to--
            ``(i) the bond equivalent rate of fifty-two-week Treasury 
        bills auctioned at the final auction held prior to such June 1; 
        plus
            ``(ii) 3.1 percent,
except that such rate shall not exceed 10 percent.
    ``(B) For Federal PLUS Loans made on or after July 1, 1997, the 
applicable rate of interest shall, during any twelve-month period 
beginning on July 1 and ending on June 30, be determined on the 
preceding June 1 for all such loans and be equal to--
            ``(i) the bond equivalent rate of the security with a 
        comparable maturity; plus
            ``(ii) 2.1 percent,
except that such rate shall not exceed 10 percent.
    ``(c) Loan Fee.--The Secretary shall charge the borrower of a loan 
made under this part a loan fee of not less than 5 percent, but not 
more than 6.5 percent, of the principal amount of the loan.
    ``(d) Repayment Plans.--(1)(A) The Secretary shall design each 
repayment plan under this subsection so that, to the extent possible, 
the cost to the Federal Government for each cohort of borrowers does 
not exceed what such cost would be if all borrowers in the cohort 
selected the standard repayment plan described in clause (i). 
Consistent with criteria established by the Secretary, the Secretary 
shall offer a borrower of a loan made under this part a variety of 
plans for repayment of such loan, including principal and interest on 
the loan. The borrower may choose--
            ``(i) a standard repayment plan, with a fixed annual 
        repayment amount paid over a fixed period of time;
            ``(ii) an extended repayment plan, with a fixed annual 
        repayment amount paid over an extended period of time: 
        Provided, That, the borrower annually repays a minimum amount 
        determined by the Secretary;
            ``(iii) a graduated repayment plan, with annual repayment 
        amounts established at two or more graduated levels and paid 
        over a fixed or extended period of time: Provided, That, any of 
        the borrower's scheduled payments shall not be less than 50 
        percent, nor more than 150 percent, of what the amortized 
        payment on the amount owed would be if the loan were repaid 
        under the standard repayment plan; and
            ``(iv) except for the borrower of a Federal Direct PLUS 
        Loan, an income contingent repayment plan known as an `EXCEL 
        account,' with varying annual repayment amounts based on the 
        income of the borrower, paid over an extended period of time, 
        not to exceed a maximum length of time determined by the 
        Secretary.
    ``(B) If a borrower of a loan made under this part does not select 
a repayment plan described in subparagraph (A), the Secretary may 
provide the borrower with a repayment plan described in clause (i), 
(ii), or (iii) of subparagraph (A).
    ``(C) The borrower of a loan made under this part may change his or 
her selection of a repayment plan under subparagraph (A), or the 
Secretary's selection of a plan for the borrower under subparagraph 
(B), as the case may be, under such terms and conditions as may be 
established by the Secretary.
    ``(D) The Secretary may provide an alternative repayment plan to a 
borrower of a loan made under this part who demonstrates to the 
satisfaction of the Secretary that the terms and conditions of the 
repayment plans available under subparagraph (A) are not adequate to 
accommodate the borrower's exceptional circumstances.
    ``(E) The Secretary may require any borrower who has defaulted on a 
loan made under this part to--
            ``(i) pay all reasonable collection costs associated with 
        such loan; and
            ``(ii) repay the loan pursuant to an EXCEL account.
    ``(2)(A) The Secretary may obtain such information as is reasonably 
necessary regarding the income of a borrower (and the borrower's 
spouse, if applicable) of a loan made under this part that is, or may 
be, repaid pursuant to an EXCEL account for the purpose of determining 
the annual repayment obligation of the borrower. The Secretary shall 
establish procedures for determining the borrower's repayment 
obligation on that loan for such year, and such other procedures as are 
necessary to implement effectively repayment pursuant to an EXCEL 
account.
    ``(B)(i) A repayment schedule for a loan made under this part and 
repaid pursuant to an EXCEL account shall be based on the adjusted 
gross income (as defined in section 62 of the Internal Revenue Code of 
1986, 26 U.S.C. 62) of the borrower or, if the borrower is married and 
files a Federal income tax return jointly with his or her spouse, on 
the adjusted gross income of the borrower and his or her spouse.
    ``(ii) A borrower who chooses, or is required, to repay a loan made 
under this part pursuant to an EXCEL account, and for whom adjusted 
gross income is unavailable or does not reasonably reflect his or her 
current income, shall provide to the Secretary other documentation of 
income satisfactory to the Secretary, which documentation the Secretary 
may use to determine an appropriate repayment schedule.
    ``(iii) EXCEL account repayment schedules shall be established by 
the Secretary through regulations and shall require payments measured 
as a percentage of the appropriate portion of the annual income of the 
borrower (and the borrower's spouse, if applicable) as determined by 
the Secretary.
    ``(iv) The balance due on a loan made under this part that is 
repaid pursuant to an EXCEL account shall equal the unpaid principal 
amount of the loan, any accrued interest, and any fees, such as late 
charges, assessed on such loan. The Secretary may limit by regulation 
the amount of interest that may be capitalized on such loan, and the 
timing of any such capitalization.
    ``(C) The Secretary shall establish procedures under which a 
borrower of a loan made under this part who chooses or is required to 
repay such loan pursuant to an EXCEL account is notified of the terms 
and conditions of such plan, including notification of such borrower--
            ``(i) that the Internal Revenue Service will disclose to 
        the Secretary the most recent available information concerning 
        the borrower's income; and
            ``(ii) that if a borrower considers that special 
        circumstances, such as a loss of employment by the borrower or 
        his or her spouse, warrant an adjustment in the borrower's loan 
        repayment as determined using the information described in 
        clause (i), or the alternative documentation described in 
        subparagraph (B)(ii), the borrower may contact the Secretary, 
        who shall determine whether such adjustment is appropriate, in 
        accordance with criteria established by the Secretary.
    ``(e) Deferment.--(1) A borrower of a loan made under this part who 
meets the requirements described in paragraph (2) shall be eligible for 
a deferment, during which periodic installments of principal need not 
be paid, and interest--
            ``(A) shall not accrue, in the case of a Federal Direct 
        Stafford Loan or a Federal Direct Consolidation Loan that 
        consolidated only Federal Direct Stafford Loans, or a 
        combination of such loans and Federal Stafford Loans for which 
        the student borrower received an interest subsidy under section 
        428; or
            ``(B) shall accrue and be capitalized or paid by the 
        borrower, in the case of a Federal Direct Supplemental Loan for 
        Students loan, a Federal Direct PLUS Loan, a Federal Direct 
        Unsubsidized Stafford Loan, or a Federal Direct Consolidation 
        Loan other than those described in subparagraph (A).
    ``(2) A borrower of a loan made under this part shall be eligible 
for a deferment during any period--
            ``(A) during which the borrower--
                    ``(i) is pursuing at least a half-time course of 
                study at an eligible institution, as determined by such 
                institution; or
                    ``(ii) is pursuing a course of study pursuant to a 
                graduate fellowship program approved by the Secretary, 
                or pursuant to a rehabilitation training program for 
                individuals with disabilities approved by the 
                Secretary.
except that no borrower shall be eligible for a deferment under this 
subparagraph, or a loan made this part (other than a Federal Direct 
PLUS Loan, or a Federal Direct Consolidation Loan), while serving in a 
medical internship or residency program;
            ``(B) not in excess of three years during which the 
        borrower is seeking and unable to find full-time employment;
            ``(C) not in excess of three years during which the 
        Secretary determines, in accordance with regulations prescribed 
        under section 345(o), that the borrower has experienced or will 
        experience an economic hardship, regardless of the reason for 
        such hardship.
    ``(f) Forbearance.--(1)(A) A borrower of a loan made under this 
part shall be eligible for forbearance, as defined in subparagraph (B), 
which shall be granted by the Secretary if the Secretary determines 
that the borrower is willing but unable to make schedule loan payments.
    ``(B) The term `forbearance' means permitting the temporary 
cessation of payments, allowing an extension of time for making 
payments, or temporarily accepting smaller payments than previously 
scheduled. Interest shall continue to accrue on a loan for which a 
borrower receives forbearance and shall be capitalized or paid by the 
borrower.
    ``(2)(A) A borrower of a loan made under this part who is serving 
in a national service position, for which he or she receives a national 
service educational award under the National Service Trust Act of 1993, 
shall be eligible for forbearance granted by the Secretary during 
periods in which the borrower is serving in such position.
    ``(B) For purposes of this paragraph, `forbearance' shall mean the 
temporary cessation of payments unless the borrower selects another 
option described in paragraph (1)(B).
    ``(g) Federal Direct Consolidation Loans.--A borrower of a loan 
made under this part may consolidate such loan with the loans described 
in subsection (a)(4) and (d)(1)(C) of section 428C only under the terms 
and conditions established by the Secretary under this part. Loans made 
under this subsection shall be known as `Federal Direct Consolidation 
Loans';
    ``(h) Borrower Defenses.--Notwithstanding any other provision of 
State or Federal law, the Secretary shall specify in regulations 
(except as authorized under section 458(a)), which acts or omissions of 
an institution of higher education a borrower may assert as a defense 
to repayment of a loan made under this part, except that in no event 
may a borrower recover from the Secretary, in any action arising from 
or relating to a loan made under this part, an amount in excess of the 
amount such borrower has repaid on such loan.
    ``(i) Optically Imaged Documents.--Records maintained in accordance 
with section 484A(c) may be used in any proceeding, as permitted by 
section 484A(c), with respect to a loan made under this part.
    ``(j) Nondischargeability in Bankruptcy.--Notwithstanding any other 
provision of law, a loan made under this part shall not be 
dischargeable in bankruptcy.''.

                               contracts

    Sec. 117. Section 457 of the Act is amended to read as follows:

                              ``contracts

    ``Sec. 457. (a)(1) The Secretary may award one or more contracts 
for services and supplies under subsection (b). The entities with which 
the Secretary may enter into such contracts may include, but are not 
limited to, agencies with agreements with the Secretary under sections 
428 (b) and (c), if such agencies are otherwise qualified and comply 
with the procedures applicable to the award of such contracts.
    ``(2) The Secretary may, through June 30, 1998, award contracts 
under this section without regard to the requirements in 41 U.S.C. 253, 
41 U.S.C. 416, and 15 U.S.C. 637(e) and the corresponding requirements 
of the Federal Acquisition Regulations if he or she determines, on a 
case-by-case basis, that exemption from such requirements is in the 
public interest and necessary for the orderly transition from the loan 
programs under part B to the direct student loan programs under this 
part.
    ``(3) On and after July 1, 1998, all statutory and regulatory 
requirements described in paragraph (2) shall apply to the award of a 
contract under this section.
    ``(b) The Secretary may enter into one or more contracts for--
            ``(1) the alternative origination of loans to students 
        attending institutions with agreements to participate in the 
        program under this part (or their parents), if such 
        institutions do not have agreements with the Secretary under 
        section 454(b);
            ``(2) the servicing and collection of loans made under this 
        part;
            ``(3) the establishment and operation of one or more data 
        systems for the maintenance of records on all loans made under 
        this part;
            ``(4) services to assist in the orderly transition from the 
        loan programs under part B to the direct student loan programs 
        under this part; and
            ``(5) such other aspects of the direct student loan 
        programs as the Secretary determines are necessary to ensure 
        the successful operation of the programs.''.

                                reports

    Sec. 118. Section 458 of the Act is amended--
            (1) in subsection (a), by striking out ``demonstration 
        program.'' and inserting in lieu thereof ``program under this 
        part.'';
            (2) by striking out subsections (b), (c), (d), and (e); and
            (3) adding at the end thereof the following new 
        subsections:
    ``(b) Research, Demonstration, and Evaluation.--The Secretary may 
use a portion of the funds described in section 459 for research on, or 
the demonstration or evaluation of, any aspects of the program 
authorized by this part, including flexible repayment plans.
    ``(c) Plan for IRS Participation and Other Repayment Options.--(1) 
The Secretaries of Education and the Treasury shall, within six months 
of the date of enactment, submit a plan to the President that--
            ``(A) provides for repayment for loans made under this part 
        through wage withholding by the Internal Revenue Service; and
            ``(B) evaluates the feasibility of other wage-withholding 
        repayment options for such loans.
    ``(2) If the President determines that the implementation of one or 
more repayment options contained in the plan described in paragraph (1) 
would further the purposes of this part, the Secretaries of Education 
and the Treasury shall be authorized to take such actions as are 
reasonable and necessary to implement such repayment options, including 
entering into an agreement pursuant to section 6306 of the Internal 
Revenue Code of 1986.
    ``(3) The Secretary of Education may use such amounts as may be 
necessary for the funds available under section 459 to implement the 
repayment options selected by the President under paragraph (2) and 
shall make available to the Secretary of the Treasury such amounts 
under section 459 as the Secretaries determine to be necessary to 
implement those repayment options carried out by the Internal Revenue 
Service.''.

                         secretarial activities

    Sec. 119. Section 459 of the Act is amended--
            (1) in the section heading, by striking out ``schedule 
        of'';
            (2) by striking out subsection (a) and inserting in lieu 
        thereof the following new subsection:
    ``(a) Notice in Lieu of Regulations for First Year of Program.--The 
Secretary shall publish in the Federal Register whatever standards, 
criteria, and procedures, consistent with the provisions of this part, 
the Secretary determines are reasonable and necessary to the successful 
implementation of the first year of the direct student loan program 
authorized by this part. Section 431 of the General Education 
Provisions Act shall not apply to the publication of such standards, 
criteria, and procedures.'';
            (3) by striking out subsections (b) and (e);
            (4) in subsection (c)--
                    (A) by inserting ``a date not later than'' 
                immediately preceding ``October 1, 1993,''; and
                    (B) by striking out ``participate'' through the end 
                thereof and inserting in lieu thereof the following: 
                ``participate in the first year of the direct student 
                loan program under this part.'';
            (5) in subsection (d), by striking out ``participate'' 
        through the end thereof and inserting in lieu thereof the 
        following: ``participate in the first year of the loan program 
        under this part.''; and
            (6) by redesignating subsections (c) and (d) as subsections 
        (b) and (c), respectively.

                       repeals and redesignations

    Sec. 120. (a) Section 455 of the Act is repealed.
    (b) Sections 456, 457, 458, 459, and 459A are redesignated as 
sections 455, 456, 457, 458, and 459, respectively.

                   funds for administrative expenses

    Sec. 121. Section 459 of the Act (as redesignated by section 120) 
is amended by striking out ``administrative costs under this part,'' 
through the end thereof and inserting in lieu thereof the following: 
``administrative costs under this part, including the costs of the 
transition from the loan programs under part B to the direct student 
loan programs under this part and transition support for the expenses 
of guaranty agencies in servicing outstanding loans in their portfolios 
and in guaranteeing new loans, not to exceed $261,000,000 in fiscal 
year 1994, $346,000,000 in fiscal year 1995, $552,000,000 in fiscal 
year 1996, $596,000,000 in fiscal year 1997, and $749,000,000 in fiscal 
year 1998. If in any fiscal year, the Secretary determines that 
additional funds for administrative expenses are needed as a result of 
such transition, or the expansion of the direct student loan programs 
under this part, the Secretary is authorized to use funds available 
under this section for a subsequent fiscal year for such expenses. The 
Secretary is also authorized to carry over funds available under this 
section to a subsequent fiscal year.''.

                    TITLE II--CONFORMING AMENDMENTS

   Part A--Conforming Amendments to the Higher Education Act of 1965

                         preserving loan access

    Sec. 211. (a) Purpose.--It is the purpose of the amendments made by 
this section to provide the Secretary with flexible authority as needed 
to preserve access to student and parent loans under part B of title IV 
of the Act during the transition from the Federal Family Education Loan 
Program under such part to the Federal Direct Student Loan Program 
under part D of such title.
    (b) Advances to Guaranty Agencies for Lender-of-Last-Resort 
Services.--(1) Section 428(j) of the Act is amended by adding at the 
end thereof the following new paragraph:
    ``(4) Advances to Guaranty Agencies for Lender-of-Last-Resort 
Services During Transition to Direct Lending.--(A) In order to ensure 
the availability of loan capital during the transition from the Federal 
Family Education Loan Program under this part to the Federal Direct 
Student Loan Program under part D of this title, the Secretary is 
authorized to provide a guaranty agency with additional advance funds 
in accordance with section 422(c)(7), with such restrictions on the use 
of such funds as are determined appropriate by the Secretary, in order 
to ensure that the guaranty agency will make loans as the lender-of-
last-resort. Such agency shall make such loans in accordance with this 
subsection and the requirements of the Secretary.
    ``(B) Notwithstanding any other provision in this part, a guaranty 
agency serving as a lender-of-last-resort under this paragraph shall be 
paid a fee, established by the Secretary, for making such loans in lieu 
of interest and special allowance subsidies, and shall be required to 
assign such loans to the Secretary on demand. Upon such assignment, the 
portion of the advance represented by the loans assigned shall be 
considered repaid by such guaranty agency.''.
    (2) Section 422(c)(7) of the Act is amended by striking out ``to a 
guaranty agency'' through the end thereof and inserting in lieu thereof 
the following: ``to a guaranty agency--
            ``(A) in accordance with section 428(j), in order to ensure 
        that the guaranty agency shall make loans as the lender-of-
        last-resort during the transition from the Federal Family 
        Education Loan Program under this part to the Federal Direct 
        Student Loan Program under part D of this title; or
            ``(B) if the Secretary is seeking to terminate the guaranty 
        agency's agreement, or assuming the guaranty agency's 
        functions, in accordance with section 428(c)(10)(F)(v), in 
        order to assist the agency in meeting its immediate cash needs, 
        ensure the uninterrupted payment of claims, or ensure that the 
        guaranty agency shall make loans as described in subparagraph 
        (A);''.
    (c) Lender Referral Services.--Section 428(e) of the Act is 
amended--
            (1) in paragraph (1)--
                    (A) by amending the paragraph heading to read as 
                follows: ``In general; agreements with guaranty 
                agencies.--'';
                    (B) by inserting the subparagraph designation 
                ``(A)'' immediately after the paragraph designation;
                    (C) by striking out ``in any State'' and inserting 
                in lieu thereof ``with which the Secretary has an 
                agreement under subparagraph (B)''; and
                    (D) by adding at the end thereof the following new 
                subparagraph:
                    ``(B)(i) The Secretary may enter into agreements 
                with guaranty agencies that meet standards established 
                by the Secretary to provide lender referral services in 
                geographic areas specified by the Secretary. Such 
                guaranty agencies shall be paid in accordance with 
                paragraph (3) for such services.
                    ``(ii) The Secretary shall publish in the Federal 
                Register whatever standards, criteria, and procedures, 
                consistent with the provisions of this part and part D 
                of this title, the Secretary determines are reasonable 
                and necessary to provide lender referral services under 
                this subsection and ensure loan access to student and 
                parent borrowers during the transition from the loan 
                programs under this part to the direct student loan 
                programs under part D of this title. Section 431 of the 
                General Education Provisions Act shall not apply to the 
                publication of such standards, criteria, and 
                procedures.'';
            (2) in paragraph (2)--
                    (A) in the matter preceding subparagraph (A), by 
                striking out ``in a State'' and inserting in lieu 
                thereof ``with which the Secretary has an agreement 
                under paragraph (1)(B)'';
                    (B) by amending subparagraph (A) to read as 
                follows:
                    ``(A)(i) such student is either a resident of, or 
                is accepted for enrollment in, or is attending, an 
                eligible institution located in a geographic area for 
                which the Secretary (I) determines that loans are not 
                available to all eligible students, and (II) has 
                entered into an agreement with a guaranty agency under 
                paragraph (1)(B) to provide lender referral services; 
                and'';
            (3) in paragraph (3), by striking out ``The'' and inserting 
        in lieu thereof ``From funds available for costs of transition 
        under section 459 of the Act, the''; and
            (4) by striking out paragraph (5).
    (d) Student Loan Marketing Association.--Section 439(q) of the Act 
is amended--
            (1) in paragraph (1)(A)--
                    (A) in the first sentence, by striking out ``the 
                Association or its designated agent may begin making 
                loans'' and inserting in lieu thereof ``the Association 
                or its designated agent shall, subject to the 
                limitations in section 428(j)(3), begin making loans to 
                such eligible borrowers''; and
                    (B) by striking out the second sentence therein;
            (2) in paragraph (2)(A), by striking out ``the Association 
        or its designated agent may'' and inserting in lieu thereof 
        ``the Association or its designated agent shall, subject to the 
        limitations in section 428(j)(3),''; and
            (3) in paragraph (3), by striking out ``that--'' through 
        the end thereof and inserting in lieu thereof the following: 
        ``that the conditions that caused the implementation of this 
        subsection have ceased to exist.''.

                        guaranty agency reserves

    Sec. 212. Section 422 of the Act is amended by adding at the end 
thereof the following new subsection:
    ``(g) Preservation of Guaranty Agency Reserves.--(1) 
Notwithstanding any other provision of law, the reserve funds of the 
guaranty agencies, and any assets purchased with such reserve funds, 
regardless of who holds or controls the reserves or assets, shall be 
considered to be the property of the United States to be used in the 
operation of the program authorized by this part or the program 
authorized by part D of this title. However, the Secretary may not 
require the return of all of a guaranty agency reserve funds to the 
Secretary unless he or she determines that such return is essential to 
the operation of the program authorized by this part or the program 
authorized by part D of this title, or to ensure the orderly 
termination of the guaranty agency's operations and the liquidation of 
its assets. The reserves shall be maintained by each guaranty agency to 
pay program expenses and contingent liabilities, as authorized by the 
Secretary, except that the Secretary may--
            ``(A) direct a guaranty agency to return to the Secretary a 
        portion of its reserve fund which the Secretary determines is 
        unnecessary to pay the program expenses and contingent 
        liabilities of the guaranty agency; and
            ``(B) direct the guaranty agency to require the return, to 
        the guaranty agency or to the Secretary, of any reserve funds 
        or assets held by, or under the control of, any other entity, 
        which the Secretary determines are necessary to pay the program 
        expenses and contingent liabilities of the guaranty agency, or 
        which are required for the orderly termination of the guaranty 
        agency's operations and the liquidation of its assets.
    ``(2) To ensure that the funds and assets of the guaranty agency 
are preserved, any contract with respect to the administration of a 
guaranty agency's reserve funds, or the administration of any assets 
purchased or acquired with the reserve funds of the guaranty agency, 
that is entered into or extended by the guaranty agency, or any other 
party on behalf of or with the concurrence of the guaranty agency, 
after the effective date of this provision shall provide that the 
contract is terminable by the Secretary upon thirty days notice to the 
contracting parties if the Secretary determines that such contract 
includes an impermissible transfer of the reserve funds or assets, or 
is otherwise inconsistent with the terms or purposes of this 
section.''.

                             terms of loans

    Sec. 213. Section 428 of the Act is amended--
            (1) in subsection (b)(1)--
                    (A) in subparagraph (D), by striking out ``be 
                subject to'' through the end thereof and inserting in 
                lieu thereof the following: ``be subject to income 
                contingent repayment in accordance with subsection 
                (m);'';
                    (B) by redesignating subparagraphs (W), (X), and 
                (Y) as subparagraphs (X), (Y), and (Z), respectively; 
                and
                    (C) by inserting immediately after subparagraph (V) 
                the following new subparagraph:
                    ``(W)(i) provides that, upon written request, a 
                lender shall grant a borrower forbearance on such terms 
                as are otherwise consistent with the regulations of the 
                Secretary, during periods in which the borrower is 
                serving in a national service position, for which he or 
                she receives a national service educational award under 
                the National Service Trust Act of 1993;
                    ``(ii) provides that clauses (iii) and (iv) of 
                subparagraph (V) shall also apply to a forbearance 
                granted under this subparagraph; and
                    ``(iii) provides that interest shall continue to 
                accrue on a loan for which a borrower receives 
                forbearance under this subparagraph and shall be 
                capitalized or paid by the borrower;'';
            (2) in subsection (c)(3)(A), by striking out ``subsection 
        (b)(1)(V)'' through the end thereof and inserting in lieu 
        thereof the following: ``subsections (b)(1)(V) and (W);''; and
            (3) in subsection (m)--
                    (A) by amending paragraph (1) to read as follows:
            ``(1) The Secretary may require any borrower who has 
        defaulted on a loan made under this part that is assigned to 
        the Secretary under subsection (c)(8) to repay that loan under 
        an income contingent repayment plan, the terms and conditions 
        of which shall be established by the Secretary and the same as, 
        or similar to, the EXCEL account established for purposes of 
        part D of this title.'';
                    (B) by striking out paragraphs (2) and (4);
                    (C) by amending paragraph (3) to read as follows:
            ``(3) Loans for which income contingent repayment may be 
        required.--A loan made under this part may be required to be 
        repaid under this section if the note or other evidence of the 
        loan has been assigned to the Secretary pursuant to subsection 
        (c)(8).''; and
                    (D) by redesignating paragraph (3) as paragraph 
                (2).

                          assignment of loans

    Sec. 214. (a) Section 428(c)(8) of the Act is amended--
            (1) by inserting the subparagraph designation ``(A)'' 
        immediately following the section heading;
            (2) by striking out the second and third sentences therein; 
        and
            (3) adding at the end thereof the following new 
        subparagraphs:
                    ``(B) An orderly transition from the Federal Family 
                Education Loan Program under this part to the Federal 
                Direct Student Loan Program under part D of this title 
                shall be deemed to be in the Federal fiscal interest, 
                and a guaranty agency shall promptly assign loans to 
                the Secretary under this paragraph upon his or her 
                request.''.

               termination of guaranty agency agreements;

        assumption of guaranty agency functions by the secretary

    Sec. 215. Section 428(c)(10) of the Act is amended--
            (1) in subparagraph (C), by inserting a comma and ``as 
        appropriate,'' immediately following ``the Secretary shall'';
            (2) in subparagraph (D)--
                    (A) by inserting the clause designation ``(i)'' 
                immediately following the subparagraph designation;
                    (B) by striking out ``Each'' and inserting in lieu 
                thereof ``If the Secretary is not seeking to terminate 
                the guaranty agency's agreement under subparagraph (E), 
                or assuming the guaranty agency's functions under 
                subparagraph (F), a'';
                    (C) by adding at the end thereof the following new 
                clause:
                            ``(ii) If the Secretary is seeking to 
                        terminate the guaranty agency's agreement under 
                        subparagraph (E), or assuming the guaranty 
                        agency's functions under subparagraph (F), a 
                        management plan described in subparagraph (C) 
                        shall include the means by which the Secretary 
                        and the guaranty agency shall work together to 
                        ensure the orderly termination of the 
                        operations, and liquidation of the assets, of 
                        the guaranty agency.'';
            (3) in subparagraph (E)--
                    (A) in clause (ii), by striking out ``or'' at the 
                end thereof;
                    (B) in clause (iii), by striking out the period at 
                the end thereof and inserting in lieu thereof a 
                semicolon; and
                    (C) by adding at the end thereof the following new 
                clauses:
                            ``(iv) the Secretary determines that such 
                        action is necessary to protect the Federal 
                        fiscal interest;
                            ``(v) the Secretary determines that such 
                        action is necessary to ensure the continued 
                        availability of loans to student or parent 
                        borrowers; or
                            ``(vi) the Secretary determines that such 
                        action is necessary to ensure an orderly 
                        transition from the loan programs under this 
                        part to the direct student loan programs under 
                        part D of this title.'';
            (4) in subparagraph (F)--
                    (A) in the matter preceding clause (i), by striking 
                out ``Except as provided in subparagraph (G), if'' and 
                inserting in lieu thereof ``If'';
                    (B) by amending clause (v) to read as follows:
                            ``(v) provide the guaranty agency with 
                        additional advance funds in accordance with 
                        section 422(c)(7), with such restrictions on 
                        the use of such funds as is determined 
                        appropriate by the Secretary, in order to--
                                    ``(I) meet the immediate cash needs 
                                of the guaranty agency;
                                    ``(II) ensure the uninterrupted 
                                payment of claims; or
                                    ``(III) ensure that the guaranty 
                                agency will make loans as the lender-
                                of-last-resort, in accordance with 
                                subsection (j)(4);'';
                    (C) in clause (vi)--
                            (i) by striking out ``and to avoid'' and 
                        inserting in lieu thereof ``to avoid'';
                            (ii) by striking out the period at the end 
                        thereof and inserting in lieu thereof a comma 
                        and ``and to ensure an orderly transition from 
                        the loan programs under this part to the direct 
                        student loan programs under part D of this 
                        title.''; and
                            (iii) by redesignating such clause as 
                        clause (vii); and
                    (D) by inserting immediately following clause (v) 
                the following new clause:
                            ``(vi) use all funds and assets of the 
                        guaranty agency to assist in the activities 
                        undertaken in accordance with this subparagraph 
                        and take appropriate action to require the 
                        return, to the guaranty agency or the 
                        Secretary, of any funds or assets provided by 
                        the guaranty agency, under contract or 
                        otherwise, to any person or organization; or'';
            (5) by striking out subparagraph (G);
            (6) by redesignating subparagraphs (H), (I), and (J) as 
        subparagraphs (I), (J), and (K), respectively;
            (7) by inserting immediately following subparagraph (F) the 
        following new subparagraphs:
                    ``(G) Notwithstanding any other provision of 
                Federal or State law, if the Secretary has terminated 
                or is seeking to terminate a guaranty agency's 
                agreement under subparagraph (E), or has assumed a 
                guaranty agency's functions under subparagraph (F)--
                            ``(i) such guaranty agency may not file for 
                        bankruptcy;
                            ``(ii) no State court may issue any order 
                        affecting the Secretary's actions with respect 
                        to such guaranty agency;
                            ``(iii) any contract with respect to the 
                        administration of a guaranty agency's reserve 
                        funds, or the administration of any assets 
                        purchased or acquired with the reserve funds of 
                        the guaranty agency, that is entered into or 
                        extended by the guaranty agency, or any other 
                        party on behalf of or with the concurrence of 
                        the guaranty agency, after the effective date 
                        of this provision shall provide that the 
                        contract is terminable by the Secretary upon 
                        thirty days notice to the contracting parties 
                        if the Secretary determines that such contract 
                        includes an impermissible transfer of the 
                        reserve funds or assets, or is otherwise 
                        inconsistent with the terms or purposes of this 
                        section; and
                            ``(iv) no provision of State law shall 
                        apply to the actions of the Secretary in 
                        terminating the operations of a guaranty 
                        agency;
                    ``(H) Notwithstanding any other provision of law, 
                the Secretary's liability for any outstanding 
                liabilities of a guaranty agency (other than 
                outstanding student loan guarantees under this part), 
                the functions of which the Secretary has assumed, shall 
                not exceed the fair market value of the reserves of the 
                guaranty agency, minus any necessary liquidation or 
                other administrative costs.''; and
            (8) in subparagraph (K) (as redesignated by paragraph (5)), 
        by striking out ``system, together'' through the end thereof 
        and inserting in lieu thereof the following: ``system and the 
        progress of the transition from the loan programs under this 
        part to the direct student loan programs under part D of this 
        title.''.

                     administrative cost allowance

    Sec. 216. Section 428(f)(1) of the Act is amended--
            (1) in subparagraph (A), by striking out ``The Secretary'' 
        and inserting in lieu thereof ``For a fiscal year prior to 
        fiscal year 1994, the Secretary''; and
            (2) in subparagraph (B), inserting ``prior to fiscal year 
        1994'' immediately following ``any fiscal year''.

                          consolidation loans

    Sec. 217. Section 428C of the Act is amended--
            (1) by amending subsection (a)(3)(A) to read as follows:
                    ``(A) For the purpose of this section, the term 
                `eligible borrower' means a borrower who, at the time 
                of application for a consolidation loan is in repayment 
                status, or in a grace period preceding repayment, or is 
                a delinquent or defaulted borrower who will reenter 
                repayment through loan consolidation.'';
            (2) in subsection (b)--
                    (A) in paragraph (1)--
                            (i) in subparagraph (A)(ii), by inserting 
                        ``with income-sensitive repayment terms'' 
                        immediately following ``obtain a consolidation 
                        loan'';
                            (ii) by redesignating subparagraph (E) as 
                        subparagraph (F); and
                            (iii) by inserting immediately following 
                        subparagraph (D) the following new 
                        subparagraph:
                    ``(E) that the lender shall offer an income-
                sensitive repayment schedule, established by the lender 
                in accordance with the regulations of the Secretary, to 
                the borrower of any consolidation loan made by the 
                lender on or after July 1, 1994; and'';
                    (B) in paragraph (4), by amending subparagraph (C) 
                to read as follows:
                    ``(C)(i) provides that periodic installments of 
                principal need not be paid, but interest shall accrue 
                and be paid in accordance with clause (ii), during any 
                period for which the borrower would be eligible for a 
                deferral under section 428(b)(1)(M), and that any such 
                period shall not be included in determining the 
                repayment period pursuant to subsection (c)(2) of this 
                section; and
                    ``(ii) provides that interest shall accrue and be 
                paid--
                            ``(I) by the Secretary, in the case of a 
                        consolidation loan that consolidated only 
                        Federal Stafford Loans for which the student 
                        borrower received an interest subsidy under 
                        section 428: or
                            ``(II) by the borrower, or capitalized, in 
                        the case of a consolidation loan other than one 
                        described in subclause (I) ;''; and
                    (C) by adding at the end thereof the following new 
                paragraph:
            ``(5) In the event that a borrower is unable to obtain a 
        consolidation loan with income-sensitive repayment terms 
        acceptable to the borrower from a lender with an agreement 
        under subsection (a)(1), the Secretary shall offer any such 
        borrower who applies for it, a direct consolidation loan to be 
        repaid pursuant to an EXCEL account under part D of this title, 
        except that the Secretary shall not offer such loans if, in his 
        or her judgment, the Department does not yet have the necessary 
        origination and servicing arrangements in place for such 
        loans.''; and
            (3) in subsection (c)--
                    (A) in paragraph (1), by amending subparagraphs (B) 
                and (C) to read as follows:
                    ``(B) A consolidation loan made before July 1, 
                1994, shall bear interest at an annual rate on the 
                unpaid principal balance of the loan that is equal to 
                the greater of--
                            ``(i) the weighted average of the interest 
                        rates on the loans consolidated, rounded to the 
                        nearest whole percent; or
                            ``(ii) 9 percent.
                    ``(C) a consolidation loan made on or after July 1, 
                1994 shall interest at an annual rate on the unpaid 
                principal balance of the loan that is equal to the 
                weighted average of the interest rates on the loans 
                consolidated, rounded upward to the nearest whole 
                percent.'';
                    (B) in paragraph (2)--
                            (i) in subparagraph (A)--
                                    (I) in the matter preceding clause 
                                (i), by striking out ``income sensitive 
                                repayment schedules. Such repayment 
                                terms'' and inserting in lieu thereof 
                                ``income sensitive repayment schedules, 
                                established by the lender in accordance 
                                with the regulations of the Secretary. 
                                Except as required by such income 
                                sensitive repayment schedules, or by 
                                the terms of repayment pursuant to an 
                                EXCEL account offered by the Secretary 
                                under subsection (b)(5), such repayment 
                                terms''
                                    (II) by redesignating clauses (i), 
                                (ii), (iii), (iv), and (v) as clauses 
                                (ii), (iii), (iv), (v), and (vi), 
                                respectively; and
                                    (III) by inserting immediately 
                                preceding clause (ii) (as redesignated 
                                by subclause (II)) the following new 
                                clause:
                            ``(i) is less than $7,500, then such 
                        consolidation loan shall be repaid in not more 
                        than ten years;'';
                            (ii) by striking out subsection (B); and
                            (iii) by redesignating subparagraph (C) as 
                        subparagraph (B); and
                    (C) in paragraph (3)(A), by inserting immediately 
                following the subparagraph designation the following: 
                ``except as required by the terms of repayment pursuant 
                to an EXCEL account offered by the Secretary under 
                subsection (b)(5),''.

                   student loan marketing association

    Sec. 218. Section 439 of the Act is further amended by adding at 
the end thereof the following new subsection:
    ``(s) Transition Study and Activities.--(1) The Secretaries of 
Education and the Treasury, in consultation with the Association, shall 
prepare a study, to be completed within six months of the enactment of 
this provision, which shall examine alternatives concerning the status, 
operations, and purposes of the Association during and after the 
transition from the Federal Family Education Loan program to the 
Federal Direct Student Loan Program. Such alternatives shall include 
providing for an orderly transition of the Association from a 
Government-Sponsored Enterprise to a private corporation when the 
Federal Direct Student Loan Program is fully implemented. Such study 
shall--
            ``(A) consider how best to meet the needs of students and 
        taxpayers;
            ``(B) reflect the need for the Association to maintain 
        liquidity and perform other functions for the Federal Family 
        Education Loan Program during the transition from such program 
        to the Federal Direct Student Loan Program under part D of this 
        title, including additional duties as specified by the 
        Secretary of Education or the Secretary of the Treasury;
            ``(C) consider any appropriate changes to part D of title 
        VII, relating to the College Construction Loan Insurance 
        Association; and
            ``(D) be considered by the Secretaries of Education and the 
        Treasury in developing any legislative proposals concerning any 
        changes to the status of the Association as a Government-
        Sponsored Enterprise or its duties under the Federal Family 
        Education Loan Program.
    ``(2) The Secretaries of Education and the Treasury are directed to 
work with the Association to ensure that any changes in the 
Association's status, operations, or purposes are carried out 
efficiently and effectively.''.

              authority to use optically imaged documents

    Sec. 219. (a) Section 484A of the Act is amended--
            (1) in the heading, by adding a semicolon and ``optically 
        imaged documents'' after ``limitations''; and
            (2) by adding at the end thereof the following new 
        subsection:
    ``(c)(1) In General.--It is the purpose of this subsection to--
            ``(A) allow the Secretary to use optical imaging technology 
        to store and retrieve documents and records, including 
        promissory notes and repayment agreements, required for the 
        administration of the programs authorized under part D of this 
        title, or for the administration of loans made under part B of 
        this title that have been assigned to the Secretary;
            ``(B) permit the Secretary to destroy originals of such 
        documents and records, including promissory notes and repayment 
        agreements, after they have been optically imaged, thereby 
        achieving significant savings in storage and retrieval costs; 
        and
            ``(C) ensure that the Secretary may introduce as evidence 
        in any proceeding with respect to the programs or loans 
        described in subparagraph (A) optically imaged documents and 
        records, including promissory notes and repayment agreements.
    ``(2) Notwithstanding any other provision of Federal or State law, 
an optically imaged copy of any document or record, including a 
promissory note or repayment agreement, may be introduced as evidence 
in any proceeding with respect to the programs or loans described in 
paragraph (1)(A) in any Federal or State court, or other tribunal, and 
such optically imaged copy shall be admissible in any court or tribunal 
of the United States or any State as if it were the original document 
or record and have the same force and effect as the original.
    ``(3) Nothing in this subsection shall be interpreted to preclude 
the admissibility of a duplicate of a document or record required for 
the administration of the programs or loans described in paragraph 
(1)(A) made by a technology other than optical imaging consistent with 
the Federal Rules of Evidence and section 1732 of title 28 of the 
United States Code, or applicable State law.
    ``(4) Nothing in this subsection shall be interpreted to preclude 
the admissibility of an optically imaged copy of any document or record 
in a proceeding outside the scope of this subsection consistent with 
the Federal Rules of Evidence and section 1732 of title 28 of the 
United States Code, or applicable State law.''.
    (b) Section 432 of the Act is amended by adding at the end thereof 
the following new subsection:
    ``(q) Optically Imaged Documents.--Records maintained in accordance 
with section 484A(c) may be used in any proceeding, as permitted by 
section 484A(c), with respect to a loan that was made under this part 
and has been assigned to the Secretary.''.
    (c) Section 487 of the Act is amended by adding at the end thereof 
the following new subsection:
    ``(f) Use of Optically Imaged Documents.--In any proceeding with 
respect to a program or activity under part D of this title, or with 
respect to a loan made under part B of this title that has been 
assigned to the Secretary, records maintained in accordance with 
section 484A may be used as provided in that section.''.

                    Part B--Amendments to Other Laws

                  disclosure of tax return information

    Sec. 221. (a) Section 6103(a)(3) of the Internal Revenue Code of 
1986 (26 U.S.C. 6103(a)(3); relating to confidentiality and disclosure 
of returns and return information; hereinafter referred to as ``the 
Code'') is amended by striking out ``(l)(12)'' and inserting in lieu 
there ``(l) (10), (12), or (13)''.
    (b) Section 6103(l) of the Code is amended--
            (1) in paragraph (10)(B), by striking out ``officers and 
        employees of an agency receiving return information under 
        subparagraph (A) shall use such information'' and inserting in 
        lieu thereof ``return information disclosed under subparagraph 
        (A) may be used by officers and employees of an agency, and by 
        officers, employees, and agents of the Department of 
        Education,''; and
            (2) at the end thereof, by adding a new paragraph to read 
        as follows:
            ``(13) Disclosure of return information to carry out income 
        contingent repayment of student loans.--
                    ``(A) In general.--The Secretary may, upon written 
                request from the Secretary of Education, disclose to 
                officers and employees of the Department of Education 
                return information with respect to a taxpayer who has 
                received a Federal loan under a student loan program 
                and whose loan repayment amounts are based in whole or 
                in part on the taxpayer's income. Such return 
                information shall be limited to--
                            ``(i) taxpayer identity information with 
                        respect to such taxpayer;
                            ``(ii) the filing status of such taxpayer; 
                        and
                            ``(iii) the adjusted gross income of such 
                        taxpayer (as defined in section 62).
                    ``(B) Restriction on use of disclosed 
                information.--Return information disclosed under 
                subparagraph (A) may be used by officers, employees, 
                and agents of the Department of Education only for the 
                purposes of, and to the extent necessary in, 
                establishing an appropriate income contingent repayment 
                level under a student loan program.
                    ``(C) Definitions.--For purposes of this paragraph, 
                the term `student loan program' means the program 
                authorized under part D of title IV of the Higher 
                Education Act of 1965 and includes loans under parts B 
                and E of title IV the Higher Education Act of 1965 that 
                are in default and have been assigned to the Department 
                of Education.''.
    (c) Section 6103(m)(4) of the Code is amended--
            (1) in the heading, by inserting ``owe an overpayment on 
        federal pell grants or'' immediately after ``individuals who'';
            (2) in subparagraph (A)--
                    (A) by redesignating clauses (i) and (ii) as 
                subclauses (I) and (II); and
                    (B) by striking out ``of any taxpayer who'' and 
                inserting in lieu thereof ``of any taxpayer--
                            ``(i) who owes an overpayment of a grant 
                        awarded to that taxpayer under subpart 1 of 
                        part A of title IV of the Higher Education Act 
                        of 1965, or
                            ``(ii) who'';
            (3) in subparagraph (B)--
                    (A) in clause (i), by striking out ``under part B'' 
                and inserting in lieu thereof ``under part B or D''; 
                and
                    (B) in clause (ii), by striking out ``under part 
                E'' and inserting in lieu thereof ``under subpart 1 of 
                part A, part D, or E'';
    (d) Section 6103(p) of the Code is amended--
            (1) in paragraph (3)(A), by striking out ``(11), or (12), 
        (m)'' and inserting in lieu thereof ``(11), (12), or (13), 
        (m)'';
            (2) in paragraph (4)--
                    (A) in the matter preceding subparagraph (A), by 
                striking out ``(10), or (11),'' and inserting in lieu 
                thereof ``(10), (11), or (13),'';
                    (B) in subparagraph (F)(ii), by striking out 
                ``(11), or (12),'' and inserting in lieu thereof 
                ``(11), (12), or (13),''; and
                    (C) in the flush left material after subparagraph 
                (F), by striking out ``under subsection (1)(12)(B)'' 
                and inserting in lieu thereof ``under paragraph (10), 
                (12)(B), or (13) of subsection (1)''.
    (e) Subchapter A of chapter 64 of the Code is further amended by 
adding at the end thereof the following new section:

``SEC. 6306. COLLECTION OF PAYMENTS ON FEDERAL DIRECT STUDENT LOANS.

    ``Upon a determination by the President under section 457(c)(2) of 
the Higher Education Act of 1965 concerning the implementation of a 
plan for the repayment of Federal Direct Student Loans through wage 
withholding or other means by the Internal Revenue Service, the 
Secretary of the Treasury may enter into an agreement with the 
Secretary of Education to provide for the collection of payments on 
loans made pursuant to part D of title IV of such Act. Notwithstanding 
any other provision of law, the Secretary of the Treasury may assess 
and collect such payments as though they were additional income taxes 
due, and may establish such procedures and conventions as are necessary 
under such agreement, including those related to withholding, payment 
of estimated tax, allocation of payments, and dispute resolution.''.
    (f) Section 7213(a)(2) of the Code is amended by striking out 
``(10) or (12)'' and inserting in lieu thereof ``(10), (12), or 
(13),''.

 Amendment to the Balanced Budget and Emergency Deficit Control Act of 
                                  1985

    Sec. 222. The Balanced Budget and Emergency Deficit Control Act of 
1985 is amended--
            (1) in section 252(c)(1)(B), by striking out 
        ``guaranteed'';
            (2) in section 256(b)--
                    (A) by striking out the subsection heading and 
                inserting in lieu thereof the following: ``Effect of 
                Orders on Student Loan Programs.--'';
                    (B) by inserting immediately after the paragraph 
                heading the following: ``federal family education loan 
                program.--(A)'';
                    (C) by redesignating paragraphs (2) and (3) as 
                subparagraphs (A) and (B), respectively;
                    (D) in paragraph (1)(A) (as redesignated in 
                subparagraph (B)), by striking out ``described in 
                paragraphs (2) and (3)'' and inserting in lieu thereof 
                ``described in subparagraphs (B) and (C)'';
                    (E) in paragraph (1)(B) (as redesignated in 
                subparagraph (C)), by redesignating subparagraphs (A) 
                and (B) as clauses (i) and (ii), respectively; and
                    (F) by adding at the end thereof the following new 
                paragraph:
            ``(1) Federal direct student loan program.--(A) Any 
        reductions that are required to be achieved from the Federal 
        Direct Student Loan program operated under part D of title IV 
        of the Higher Education Act of 1965 as a consequence of an 
        order issued pursuant to section 254, shall be achieved only by 
        the application of the measures described in subparagraph (B).
            ``(B) For any loan made during the period beginning on the 
        date that an order issued under section 254 takes effect with 
        respect to a fiscal year, and ending at the close of such 
        fiscal year, the loan fee that is authorized to be collected 
        pursuant to section 456(c) of such Act shall be increased by 
        0.50 percent.''.

                       TITLE III--EFFECTIVE DATES

    Sec. 301. (a) Except as otherwise provided in this section, the 
amendments made by this title shall be effective upon enactment.
    (b) The amendments made by section 213 of this Act shall be 
effective for loans made in accordance with section 428 for periods of 
instruction beginning on or after July 1, 1993, or made on or after 
July 1, 1993, in the case of loans made in accordance with section 
428A, 428B, or 428C of the Act.
    (c) The amendments made by section 216 of this Act shall be 
effective on October 1, 1994.
    (d) The amendments made by section 217 of this Act shall be 
effective for loans made on or after July 1, 1994.

                                 <all>

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