[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[S. 1198 Introduced in Senate (IS)]







104th CONGRESS
  1st Session
                                S. 1198

 To amend the Federal Credit Reform Act to improve the budget accuracy 
   of accounting for Federal costs associated with student loans, to 
phase-out the Federal Direct Student Loan Program, to make improvements 
 in the Federal Family Education Loan Program, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

               August 11 (legislative day, July 10), 1995

 Mr. Coats (for himself and Mr. Gregg) introduced the following bill; 
 which was read twice and referred to the Committee on Labor and Human 
                               Resources

_______________________________________________________________________

                                 A BILL


 
 To amend the Federal Credit Reform Act to improve the budget accuracy 
   of accounting for Federal costs associated with student loans, to 
phase-out the Federal Direct Student Loan Program, to make improvements 
 in the Federal Family Education 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,
SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Student Loan Privatization Act of 
1995''.

SEC. 2. FINDINGS.

    Congress finds the following:
            (1) The Federal Direct Student Loan Program will result in 
        an increase of at least 500 full-time equivalent employees at 
        the Department of Education and in the hiring of over 15,000 
        Federal contract employees, assuming full implementation of the 
        program.
            (2) The involvement of private sector financial 
        institutions and not-for-profit corporations chartered for 
        purpose of providing or supporting Federal student assistance 
        results in increased efficiency, maintenance of quality of 
        service to students and institutions, and innovation in and the 
        use of modern data processing technology.
            (3) The Federal Family Education Loan Program is subject to 
        excessive regulation resulting in burdensome administrative 
        requirements for students, schools, and other program 
        participants, the reduction of which would ease administrative 
        burdens and improve program management.
            (4) The program costs of the Federal Direct Student Loan 
        Program are inaccurately reflected under the provisions of the 
        Federal Credit Reform Act as in effect prior to the date of 
        enactment of this Act due to the exclusion of accounting for 
        certain administrative costs associated with the Act.
            (5) The budget scoring of Federal student loans under the 
        Federal Credit Reform Act as in effect prior to the date of 
        enactment of this Act led to projections of savings which are 
        highly unlikely to occur in reality for the Federal Direct 
        Student Loan Program.

 TITLE I--REFORMS TO IMPROVE THE ACCURACY OF THE FEDERAL CREDIT REFORM 
                                  ACT

SEC. 101. AMENDMENTS TO THE FEDERAL CREDIT REFORM ACT.

    Subparagraph (B) of section 502(5) of the Congressional Budget Act 
of 1974 is amended to read as follows:
            ``(B) The cost of a direct loan shall be the net present 
        value, at the time when the direct loan is disbursed, of the 
        following cash flows for the estimated life of the loan:
                    ``(i) Loan disbursements.
                    ``(ii) Repayments of principal.
                    ``(iii) Payments of interest and other payments by 
                or to the Government over the life of the loan after 
                adjusting for estimated defaults, prepayments, fees, 
                penalties, and other recoveries.
                    ``(iv) Direct expenses, including--
                            ``(I) activities related to credit 
                        extension, loan origination, loan servicing, 
                        management of contractors, other government 
                        entities, and program participants;
                            ``(II) collection of delinquent loans; and
                            ``(III) writeoff and closeout of loans.''.

SEC. 102. EFFECTIVE DATE.

    The amendment made by section 101 shall apply to all fiscal years 
beginning on or after October 1, 1995, and to statutory changes made on 
or after the date of enactment of this Act.

     TITLE II--PHASE-OUT OF THE FEDERAL DIRECT STUDENT LOAN PROGRAM

SEC. 201. PHASE-OUT OF PROGRAM.

    Section 453 of the Higher Education Act of 1965 (20 U.S.C. 1087c) 
(hereafter referred to in this title and in title III as the ``Act'') 
is amended by adding at the end the following new subsection:
    ``(f) Phase-out of Program.--
            ``(1) General authority.--The Secretary shall modify or 
        phase-out agreements entered into with institutions of higher 
        education pursuant to section 454(a) in accordance with 
        paragraph (2).
            ``(2) Modification or phase-out of agreements.--In order to 
        ensure an expeditious and orderly phase-out of the programs 
        authorized under this part, the Secretary shall modify or 
        phase-out agreements entered into pursuant to section 454 with 
        institutions of higher education to achieve the following 
        results:
                    ``(A) For academic year 1995-1996, loans made under 
                this part shall represent not more than 40 percent of 
                new student loan volume for such year.
                    ``(B) For academic year 1996-1997 and all 
                subsequent academic years, no loans shall be made 
                pursuant to this part.
            ``(3) New student loan volume.--For the purposes of this 
        subsection, the term `new student loan volume' has the same 
        meaning given such term under subsection (a)(4).
            ``(4) Modification of software and systems for phase-out of 
        direct loans.--The Secretary shall not make system 
        modifications or upgrades to software used in support of the 
        program under this part after the date of enactment of this 
        subsection.
            ``(5) Regulations governing phase-out of direct loans.--Not 
        later than 90 days after the date of enactment of this 
        subsection, the Secretary shall promulgate regulations 
        governing the phase-out of the Federal Direct Student Loan 
        Program as provided for in this subsection. Such regulation 
        shall not be subject to the provisions of the Master Calendar 
        as specified under section 482. The provisions of this 
        subsection shall be implemented notwithstanding the 
        nonpublication of regulations required under this subsection by 
        the Secretary.''.

SEC. 202. DIRECT LOAN VOLUME LIMITS.

    Section 453(a) of the Act (20 U.S.C. 1087c(a)) is amended by 
striking paragraphs (2) and (3).

SEC. 203. ADMINISTRATIVE EXPENSES.

    Subsection (a) of section 458 of the Act (20 U.S.C. 1087h(a)) is 
amended to read as follows:
    ``(a) In General.--Each fiscal year, there shall be available, from 
funds not otherwise appropriated, funds to be obligated for 
administrative costs under this part, and for certain expenditures in 
support of the program authorized under part B, not to exceed (from 
such funds not otherwise appropriated) $50,000,000 in fiscal year 1996, 
and $45,000,000 in fiscal year 1997. Beginning in fiscal year 1998, no 
funds shall be made available under this
 subsection unless carried over from a prior fiscal year. The total 
expenditures by the Secretary (from such funds not otherwise 
appropriated) under this subsection shall not exceed $700,000,000 for 
fiscal years 1994 through 1998. The Secretary may carry over funds 
available under this section for a subsequent fiscal year.''.

SEC. 204. REPEAL.

    Effective October 1, 1997, part D of title IV of the Higher 
Education Act, as amended by this title, is repealed.

  TITLE III--IMPROVEMENTS TO THE FEDERAL FAMILY EDUCATION LOAN PROGRAM

SEC. 301. RECOVERY OF GUARANTY AGENCY RESERVES.

    The last sentence of section 422(a)(2) of the Act (20 U.S.C. 
1072(a)(2)) is amended by striking ``Except as provided in section 
428(c)(10)(E) or (F), such'' and inserting in lieu thereof ``Such''.

SEC. 302. RESERVE FUNDS.

    Section 422(g) of the Act (20 U.S.C. 1072(g)) is amended to read as 
follows:
    ``(g) Disposition of Funds Returned or Recovered by the 
Secretary.--Any funds that are returned or otherwise recovered by the 
Secretary pursuant to this subsection shall be returned to the United 
States Treasury for purposes of reducing the Federal debt.''.

SEC. 303. TERMINATION OF FDSL CONSOLIDATION LOAN AUTHORITY.

    (a) Part B Authority.--Section 428C(b) of the Act (20 U.S.C. 1078-
3(b)) is amended by striking paragraph (5).
    (b) Part D Authority.--Section 455 of the Act (20 U.S.C. 1087e) is 
amended by striking subsection (g).

SEC. 304. CONSOLIDATION UNDER FFELP OF LOANS MADE PURSUANT TO PART D.

    Section 428C(a)(4)(B) of the Act (20 U.S.C. 1087-3(a)(4)(B)) is 
amended by inserting ``part D or'' before ``part E''.

SEC. 305. ACCOUNTABILITY OF FUNDS FOR DIRECT LOAN ADMINISTRATIVE 
              EXPENSES.

    Section 458 of the Act (20 U.S.C. 1087h) is amended--
            (1) by redesignating subsection (d) as subsection (e); and
            (2) by inserting after subsection (c), the following new 
        subsection:
    ``(d) Prohibition on Certain Expenditures.--Notwithstanding any 
other provision of law, funds available under this section shall not be 
used to support public relation activities (by Department of Education 
employees or pursuant to contracts with the Department) or marketing of 
institutions to encourage participation in the program authorized under 
this part.''.

SEC. 306. SALE OF FDSL LOAN PORTFOLIOS.

    Part D of title IV of the Act is amended by inserting after section 
458 (20 U.S.C. 1087h) the following new section:

``SEC. 459. SALE OF FEDERAL DIRECT STUDENT LOAN PORTFOLIOS.

    ``(a) Auction Sales of Loan Portfolios.--The Secretary shall 
conduct auctions to sell the outstanding portfolios of loans made 
pursuant to this part. Such auctions shall consist of the sale of 
portfolios representative of the overall characteristics of the direct 
loans held by the Secretary. Auctions shall be held for portfolios of 
not less than $40,000,000 worth of loans per sale. The first sale of 
loans shall take place not later than 120 days after the date of 
enactment of this section, and shall not include Federal guarantees or 
reinsurance against the contingency of borrower default, death, or 
disability.
    ``(b) Loan Terms Subject to Promissory Note.--Loans described in 
subsection (a) shall be subject to the terms and conditions as 
specified in the borrower promissory note, and shall not be subject to 
further Federal regulations pursuant to this Act.
    ``(c) Assessment of Auction.--The Secretary, subsequent to holding 
of the auctions under subsection (a), shall prepare a report on the 
results of such actions. Such report shall include the following:
            ``(1) The opinion of the Secretary as to whether the 
        results of the auction represent a true reflection of the 
        Federal subsidy costs associated with federally supported 
        student loans.
            ``(2) An estimate of the reductions in Federal 
        administrative costs achieved through the elimination of future 
        Federal oversight and administrative responsibilities of 
        affected loans as a result of sale to the private sector.
    ``(d) Transmittal of Results to Congressional Budget Office and 
Office of Management and Budget.--The Secretary shall provide a copy of 
all reports and analyses prepared in connection with implementation of 
this section to the Director of the Congressional Budget Office and the 
Director of the Office of Management and Budget.
    ``(e) Disposition of Proceeds.--All proceeds received as a result 
of the auctions conducted under this section shall be returned to the 
Department of the Treasury after deduction of expenses incurred by the 
Department of Education in connection with the auctions required 
pursuant to this section.''.

SEC. 307. EFFECTIVE DATE.

    Except as otherwise specified herein, the amendments made by this 
title shall be effective 30 days after the date of the enactment of 
this Act.
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