[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[S. 495 Introduced in Senate (IS)]







104th CONGRESS
  1st Session
                                  S. 495

To amend the Higher Education Act of 1965 to stabilize the student loan 
   programs, improve congressional oversight, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

              March 3 (legislative day, February 22), 1995

Mrs. Kassebaum 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 stabilize the student loan 
   programs, improve congressional oversight, 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; REFERENCES.

    (a) Short Title..--This Act may be cited as the ``Student Loan 
Evaluation and Stabilization Act of 1995''.
    (b) References.--References in this Act to ``the Act'' are 
references to the Higher Education Act of 1965 (20 U.S.C. 1001 et 
seq.).

SEC. 2. FINDINGS.

    The Congress finds that:
            (1) The current public/private student loan partnership is 
        fulfilling the mission set for it by Congress, delivering loans 
        to students reliably and in a timely fashion, and should be 
        preserved.
            (2) The Administration's dismantling of the Federal Family 
        Education Loan (FFEL) Program which has begun in order to 
        replace it with an unproven direct Government lending program, 
        which increases the Federal debt, further enlarges the Federal 
        bureaucracy, adds major new financial oversight activities to 
        the already overburdened Department of Education, and forces 
        Congress to depend on estimated budget savings which may prove 
        illusory, needs to be stopped so that a true and valid 
        comparison of the student loan programs can occur.
            (3) The Federal Direct Student Loan (FDSL) Program pilot is 
        only now getting started and has proceeded fairly smoothly when 
        dealing with 5 percent of new loan volume. This slow and 
        cautious approach should be continued as the volume increases 
        to 40 percent. This pilot program should continue to proceed 
        slowly and cautiously and demonstrate successful results before 
        expanding it to additional loan volume.
            (4) While the FDSL Program pilot continues its test phase, 
        reform of the FFEL Program which will benefit students and 
        institutions of higher education, should be a continuing 
        priority for the Department of Education.

SEC. 3. PARTICIPATION OF INSTITUTIONS AND ADMINISTRATION OF DIRECT LOAN 
              PROGRAMS.

    (a) Limitation on Proportion of Loans Made Under the Direct Loan 
Program.--Section 453(a) of the Act (20 U.S.C. 1087c(a)) is amended--
            (1) by amending paragraph (2) to read as follows:
            ``(2) Determination of Number of Agreements.--In the 
        exercise of the Secretary's discretion, the Secretary shall 
        enter into agreements under subsections (a) and (b) of section 
        454 with institutions for participation in the programs under 
        this part, subject to the following:
                    ``(A) for academic year 1994-1995, loans made under 
                this part shall represent 5 percent of new student loan 
                volume for such year; and
                    ``(B) for academic year 1995-1996 and for any 
                succeeding fiscal year, loans made under this part 
                shall represent 40 percent of new student loan volume 
                for such year, except that the Secretary may not enter 
                into agreements under subsections (a) and (b) of 
                section 454 with any additional eligible institutions 
                that have not applied and been accepted for 
                participation in the program under this part on or 
                before December 31, 1994.''
            (2) by striking paragraph (3); and
            (3) by redesignating paragraph (4) as paragraph (3).
    (b) Elimination of Conscription.--Section 453(b)(2) of the Act is 
amended--
            (1) by striking subparagraph (B);
            (2) by redesignating subparagraphs (A)(i) and (A)(ii) as 
        subparagraphs (A) and (B) respectively; and
            (3) in such subparagraph (B) (as so redesignated) by 
        striking ``clause (i); and'' and inserting ``subparagraph 
        (A).''.
    (c) Control of Administrative Expenses.--
            (1) Administrative expenses.--Section 458(a) of the Act is 
        amended to read as follows:
    ``(a) In General.--For each fiscal year, there shall be available 
to the Secretary from funds not otherwise appropriated, funds for all 
direct and indirect expenses associated with the Direct Student Loan 
program under this part.''.
            (2) Improved congressional oversight of administration.--
                    (A) Section 458(b) of the Act is amended to read as 
                follows:
    ``(b) Funding Triggers.--For each fiscal year, funds available 
under this section may be obligated only in such amounts and according 
to such schedule as specified in the appropriations Act for the 
Department of Education of a detailed proposal of expenditures under 
this section.''.
                    (B) Section 458 (d) of the Act is amended to read 
                as follows:
    ``(d) Quarterly Report.--The Secretary shall provide a detailed 
quarterly report of all monies expended under this section to the 
Chairman of the Committee on Labor and Human Resources of the Senate 
and the Chairman of the Committee on Economic and Educational 
Opportunities of the House of Representatives. Such report shall 
specifically identify all contracts entered into by the Department for 
services supporting the loan programs under parts B and D of this title 
and the current and projected costs of such contracts.''.
            (3) Administrative cost allowance.--Section 428(f) of the 
        Act is amended--
                    (A) in subsection (A) by striking out ``for a 
                fiscal year prior to fiscal year 1994, the'' and 
                inserting in lieu thereof ``The''; and
                    (B) by inserting after the first sentence of 
                subsection (B) the following new sentence: ``For fiscal 
                year 1996 and each succeeding fiscal year, each 
                guaranty agency shall elect to receive an 
                administrative costs allowance, payable quarterly, for 
                such fiscal year calculated on the basis of either of 
                the following:
                            ``(i) 0.85 percent of the total principal 
                        amount of the loans upon which insurance was 
                        issued under part B during such fiscal year by 
                        such guaranty agency; or
                            ``(ii) 0.08 percent of the original 
                        principal amount of loans guaranteed by the 
                        guaranty agency that was outstanding at the end 
                        of the previous fiscal year.''.
    (d) Elimination of Transition to Direct Loans.--The Act is further 
amended--
            (1) in section 422(c)(7)--
                    (A) by striking ``during the transition'' and all 
                that follows through ``part D of this title'' in 
                subparagraph (A); and
                    (B) by striking ``section 428(c)(10)(F)(v)'' in 
                subparagraph (B) and inserting ``section 
                428(c)(9)(F)(v)'';
            (2) in section 428(c)(8)--
                    (A) by striking ``(A)'' after the paragraph 
                designation; and
                    (B) by striking subparagraph (B);
            (3) in section 428(c)(9)(E)--
                    (A) by inserting ``or'' after the semicolon at the 
                end of clause (iv);
                    (B) by striking ``; or'' at the end of clause (v) 
                and inserting a period; and
                    (C) by striking clause (vi);
            (4) in clause (vii) of section 428(c)(9)(F)--
                    (A) by inserting ``and'' before ``to avoid 
                disruption''; and
                    (B) by striking ``, and to ensure an orderly 
                transition'' and all that follows through the end of 
                such clause and inserting a period;
            (5) in section 428(c)(9)(K), by striking ``the progress of 
        the transition from the loan programs under this part to'' and 
        inserting ``the integrity and administration of'';
            (6) in section 428(e)(1)(B)(ii), by striking ``during the 
        transition'' and all that follows through ``part D of this 
        title'';
            (7) in section 428(e)(3), by striking ``of transition'';
            (8) in section 428(j)(3)--
                    (A) by striking ``during transition to direct 
                lending'' in the heading of paragraph (3); and
                    (B) by striking ``during the transition'' and all 
                that follows through ``part D of this title,'' and 
                inserting a comma;
            (9) in section 453(c)(2), by striking ``transition'' and 
        inserting ``institutional'' in the heading of paragraph (2);
            (10) in section 453(c)(3), by striking ``after transition'' 
        in the heading of paragraph (3); and
            (11) in section 456(b)--
                    (A) by inserting ``and'' after the semicolon at the 
                end of paragraph (3);
                    (B) by striking paragraph (4);
                    (C) by redesignating paragraph (5) as paragraph 
                (4); and
                    (D) in such paragraph (4) (as redesignated), by 
                striking ``successful operation'' and inserting 
                ``integrity and efficiency''.

SEC. 4. DIRECT LOANS HAVE THE SAME TERMS AND CONDITIONS AS FEDERAL 
              FAMILY EDUCATION LOANS.

    (a) In General.--Section 455(a)(1) of the Act (20 U.S.C. 
1087e(a)(1)) is amended to read as follows:
            ``(1) Parallel terms, conditions, benefits and amounts.--
        Unless otherwise specified in this part, loans made to 
        borrowers under this part shall have the same terms, 
        conditions, eligibility requirements and benefits, and be 
        available in the same amounts, as the corresponding types of 
        loans made to borrowers under sections 428, 428B, 428C, and 
        428H of this title.''.
    (b) Direct Consolidation Loans.--Section 455(a)(2) of the Act is 
amended--
            (1) by striking ``and'' at the end of subparagraph (B);
            (2) by redesignating subparagraph (C) as subparagraph (D); 
        and
            (3) by inserting after subparagraph (B) the following new 
        subparagraph:
                    ``(C) section 428C shall be known as `Federal 
                Direct Consolidation Loans'; and''.

SEC. 5. ABILITY OF BORROWERS TO CONSOLIDATE UNDER DIRECT AND GUARANTEED 
              LOAN PROGRAMS.

    (a) Ability of Part D Borrowers To Obtain Federal Stafford 
Consolidation Loans.--Section 428C(a)(4) of the Act (20 U.S.C. 1078-
3(a)(4)) is amended--
            (1) by striking ``or'' at the end of subparagraph (B);
            (2) by redesignating subparagraphs (C) and (D) as 
        subparagraphs (D) and (E); and
            (3) by inserting after subparagraph (B) the following new 
        subparagraph:
                    ``(C) made under part D of this title;''.
    (b) Ability of Part B Borrowers To Obtain Federal Direct 
Consolidation Loans.--Section 428C(b)(5) of the Act is amended to read 
as follows:
            ``(5) Direct consolidation loans for borrowers in specified 
        circumstances.--
                    ``(A) The Secretary may offer a borrower a direct 
                consolidation loan if a borrower otherwise eligible for 
                a consolidation loan pursuant to this section is--
                            ``(i) unable to obtain a consolidation loan 
                        from a lender with an agreement under 
                        subsection (a)(1); or
                            ``(ii) unable to obtain a consolidation 
                        loan with an income contingent repayment 
                        schedule from a lender with an agreement under 
                        subsection (a)(1).
                    ``(B) The Secretary shall establish appropriate 
                certification procedures to verify the eligibility of 
                borrowers for loans pursuant to this paragraph.
                    ``(C) The Secretary shall not offer such 
                consolidation loans if, in the Secretary's judgment, 
                the Department of Education does not have the necessary 
                origination and servicing arrangements in place for 
                such loans, or the projected volume in the program 
                would be destabilizing to the availability of loans 
                otherwise available under this part.''.

SEC. 6. INCOME CONTINGENT REPAYMENT IN THE FEDERAL FAMILY EDUCATION 
              LOAN PROGRAM.

    (a) Insurance Program Agreements.--Section 428(b)(1)(E)(i) of the 
Act (20 U.S.C. 1078(b)(1)(E)(i)) is amended by striking ``or income-
sensitive repayment schedule'' and inserting in lieu thereof 
``repayment schedule or either an income-sensitive or income contingent 
repayment schedule''.
    (b) Repayment Schedules.--Section 428C(c)(2)(A) of the Act is 
amended by striking ``or income-sensitive repayment schedules'' and 
inserting in lieu thereof ``repayment schedules or either income 
sensitive or income contingent repayment schedules''.
    (c) Definitions.--Section 435 of the Act is amended by adding a new 
subsection (n):
    ``(n) Income Contingent Repayment Schedules.--For the purpose of 
this part, income contingent repayment schedules established pursuant 
to section 428(b)(1)(E)(i) and 428(c)(2)(A) may have terms and 
conditions comparable to terms and conditions established by the 
Secretary pursuant to section 455(e)(4).''.

SEC. 7. RESERVE FUND REFORMS.

    (a) Guaranty Agency Reserve Levels.--Section 428(c)(9) of such Act 
(20 U.S.C. 1078(c)(9)) is amended--
            (1) in subparagraph (E)--
                    (A) by striking ``The Secretary'' and inserting 
                ``After notice and opportunity for a hearing on the 
                record, the Secretary''; and
            (2) in subparagraph (F)--
                    (A) by inserting ``dedicated to the functions of 
                the agency under the loan insurance program under this 
                part'' after ``assets of the guaranty agency'' in 
                clause (vi); and
                    (B) in clause (vi), by inserting before ``; or'' 
                the phrase ``, except that the Secretary may not take 
                any action to require the guaranty agency to provide to 
                the Secretary the unencumbered non-Federal portion of a 
                reserve fund (as defined in section 422(a)(2))''.
    (b) Additional Amendments.--Section 422 of the Act is further 
amended--
            (1) in the last sentence of subsection (a)(2), by striking 
        ``Except as provided in section 428(c)(10) (E) or (F), such'' 
        and inserting ``Such'';
            (2) in subsection (g), by striking paragraph (4) and 
        inserting the following:
            ``(4) Disposition of funds returned to or recovered by the 
        secretary.--Any funds that are returned to or otherwise 
        recovered by the Secretary pursuant to this subsection shall be 
        returned to the Treasury of the United States for purposes of 
        reducing the Federal debt and shall be deposited into the 
        special account under section 3113(d) of title 31, United 
        States Code.''.

SEC. 8. DEFAULT RATE LIMITATIONS ON DIRECT LENDING.

    (a) Ineligibility Based On Default Rates.--Section 435(a)(2) of the 
Act (20 U.S.C. 1085(a)(2)) is amended by inserting ``or part D'' after 
``under this part''.
    (b) Cohort Default Rate.--Section 435(m)(1) of the Act is amended 
by--
            (1) striking ``428, 428A, or 428H'' in paragraph (A) and 
        inserting ``428, 428A, 428H, or part D of the Act (except for 
        Federal Direct PLUS Loans)'';
            (2) striking ``428C'' in paragraph (A) and inserting ``428C 
        or 455(g)'';
            (3) striking ``428C'' in paragraph (C) and inserting ``428C 
        or 455(g)''; and
            (4)(A) in paragraph (B), by striking ``only''; and
            (B) in paragraph (B) by inserting ``and loans made under 
        part D determined to be in default,'' after ``for insurance.''.
    (c) Income Contingent Repayment.--Section 435(m) of the Act is 
amended by adding at the end thereof the following new paragraph:
            ``(5)(A) The Secretary shall produce an annual report on 
        loans subject to repayment schedules under sections 
        428(b)(1)(E)(i), 428C(c)(2)(A), and 455(e)(4) at the end of 
        each fiscal year detailing, by institution and for the title 
        IV, parts B and D programs separately and together--
                    ``(i) the number and amount of loans scheduled for 
                payments that did not equal the interest accruing on 
                the loan,
                    ``(ii) the number and amount of loans where no 
                payment was scheduled to be received from the borrower 
                due to their low-income status,
                    ``(iii) the number and amount of loans where a 
                scheduled payment was more than 90 days delinquent, and
                    ``(iv) the projected amount of interest and 
                principal to be forgiven at the end of the 25 year 
                repayment period, based on the projected payment 
                schedule for the borrower over that period.
            ``(B) Such report shall be made available at the same time 
        as the reports required under section 435(m)(4) of this Act.''.
    (d) Termination of Institutional Participation.--Section 455 of the 
Act is amended by adding at the end the following new subsection:
    ``(k) Termination of Institutions for High Default Rates.--
            ``(1) Methodology and criteria.--After consultation with 
        institutions of higher education and other members of the 
        higher education community, the Secretary shall develop--
                    ``(A) a methodology for the calculation of 
                institutional default rates under the loan programs 
                operated pursuant to this part;
                    ``(B) criteria for the initiation of termination 
                proceedings on the basis of such default rates; and
                    ``(C) procedures for the conduct of such 
                termination proceedings.
            ``(2) Comparability to part b.--In developing the 
        methodology, criteria, and procedures required by paragraph 
        (1), the Secretary shall, to the maximum extent possible, 
        establish standards for the termination of institutions from 
        participation in loan programs under this part that are 
        comparable to the standards established for the termination of 
        institutions from participation in the loan programs under part 
        B. Such procedures shall also include provisions for the appeal 
        of default rate calculations based on deficiencies in the 
        servicing of loans under this part that are comparable to the 
        provisions for such appeals based on deficiencies in the 
        servicing of loans under part B.''.
            ``(3) Limitation on authorization to issue new loans under 
        this part.--Such standards and procedures required by 
        paragraphs (1) and (2) shall be promulgated in final form no 
        later than 120 days after date of enactment of this paragraph. 
        Notwithstanding any other provision of this part, no new loan 
        under this part shall be issued after 120 days after the date 
        of enactment of this paragraph if the standards and procedures 
        required under this section have not been promulgated prior to 
        that date. The authority to issue new loans under this part 
        shall resume upon the Secretary's issuance of such standards 
        and procedures.''.

SEC. 9. USE OF ELECTRONIC FORMS.

    Section 484(a) of the Act (20 U.S.C. 1091b(a)) is amended by adding 
the following new paragraph after paragraph (a)(4):
            ``(5) Electronic forms.--(A) Nothing in this Act shall 
        preclude the development, production, distribution or use of 
        the form described in subsection (a)(1) in an electronic format 
        through software produced or distributed by guaranty agencies 
        or eligible lenders, or consortia thereof. Such electronic form 
        need not require the signature of the applicant to be collected 
        at the time the form is submitted, if the applicant certifies 
        the output of the application in a subsequent document. No fee 
        may be charged in connection with use of the electronic form 
        described in subsection (a)(1).
            ``(B) The Secretary shall approve the use of an electronic 
        form submitted for approval that is not inconsistent with the 
        provisions of this part or part B within 30 days of such 
        submission. In the case of any electronic form not approved, 
        the Secretary shall specifically identify the changes to the 
        form necessary to secure approval.''.

SEC. 10. APPLICATION FOR PART B LOANS USING FREE FEDERAL APPLICATION.

    Section 483(a) of the Act (20 U.S.C. 1090(a)) is amended--
            (1) in paragraph (1)--
                    (A) by inserting ``B,'' after ``assistance under 
                parts A,'';
                    (B) by striking ``part A) and to determine the need 
                of a student for the purpose of part B of this title'' 
                and inserting ``part A).''; and
                    (C) by striking the last sentence and inserting the 
                following: ``Such form may be in an electronic or any 
                other format (subject to section 485B) in order to 
                facilitate use by borrowers and institutions.''; and
            (2) in paragraph (3), by striking ``and States shall 
        receive,'' and inserting ``, any guaranty agency authorized by 
        any such institution, and States shall receive, at their 
        request and''.

SEC. 11. CREDIT REFORM.

    (a) Amendment.--Section 502(5)(B) of the Congressional Budget Act 
(31 U.S.C. 661a(5)(B)) 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) In the case of a direct student loan made 
                pursuant to the program authorized under part D of 
                title IV of the Higher Education Act of 1965, direct 
                and indirect expenses, including but not limited to the 
                following: expenses arising from credit policy and 
                oversight, activities related to credit extension, loan 
                origination, loan servicing, training, program 
                promotion and payments to contractors, other Government 
                entities, and program participants, collection of 
                delinquent loans, and write-off and close-out of 
                loans.''.
    (b) Effective Date.--The amendment made by subsection (a) of this 
section 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.
                                 <all>