[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2140 Introduced in House (IH)]







105th CONGRESS
  1st Session
                                H. R. 2140

To amend the Higher Education Act of 1965 to improve accountability and 
                        reform certain programs.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             July 10, 1997

   Mr. Klink (for himself, Mr. Fox of Pennsylvania, Mr. Kildee, Mr. 
  English of Pennsylvania, Mr. Mascara, Ms. DeLauro, Ms. Woolsey, Mr. 
Andrews, Mr. Doyle, Mr. Holden, and Mr. Coyne) introduced the following 
    bill; which was referred to the Committee on Education and the 
                               Workforce

_______________________________________________________________________

                                 A BILL


 
To amend the Higher Education Act of 1965 to improve accountability and 
                        reform certain programs.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; REFERENCE.

    (a) Short Title.--This Act may be cited as the ``Federal 
Accountability and Institutional Reform in Education Act of 1997''.
    (b) References.--Except as otherwise expressly provided, whenever 
in this Act an amendment or repeal is expressed in terms of an 
amendment to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provision of the 
Higher Education Act of 1965 (20 U.S.C. 1001 et seq.).

SEC. 2. FINDINGS.

    The Congress finds that--
            (1) the Federal Government is reducing spending in all 
        areas, including postsecondary education;
            (2) reductions in postsecondary education spending fall on 
        students, institutions, State loan guaranty agencies and 
        lenders;
            (3) the administration of postsecondary education is the 
        responsibility of the Department of Education; and
            (4) reforms should be made to postsecondary education 
        programs--
                    (A) to provide greater accountability from the 
                Department, educational institutions, lenders, guaranty 
                agencies, servicers, and secondary markets; and
                    (B) to enhance institutional compliance with 
                Department policies.

SEC. 3. STUDENT LOAN COHORT DEFAULT MANAGEMENT REFORMS.

    (a) Administrative and Fiscal Procedures.--Section 428(c)(2)(A) (20 
U.S.C. 1078(c)(2)(A)) is amended by striking ``proof that reasonable 
attempts were made'' and inserting ``proof that the institution and the 
State licensing board were contacted and other reasonable attempts were 
made''
    (b) Reimbursement.--Section 428(c)(2)(G) (20 U.S.C. 1078(c)(2)(G)) 
is amended by striking ``certifies to the Secretary that diligent 
attempts have been made'' and inserting ``demonstrates to the Secretary 
that diligent attempts, including direct contact with the institution 
and the State licensing board, have been made.''.
    (c) Limitation.--Section 428 (20 U.S.C. 1078) is amended by adding 
at the end the following:
    ``(o) Limitation.--Notwithstanding any other provision of this 
section, the Secretary shall not reimburse or permit any eligible 
lender, servicer, or guaranty agency (or its affiliates) who previously 
filed a claim for reimbursement on a loan to retain any proceeds from 
subsequent collection of a defaulted loan to the extent that such 
funds, when added to the amount of prior reimbursement under this 
section, exceed 100 percent of the original principal of the loan.''.
    (d) Notice to Secretary and Payment of Loss.--The third sentence of 
section 430(a) (20 U.S.C. 1080(a)) is amended--
            (1) by inserting ``all'' after ``required to meet''; and
            (2) by inserting ``the institution and the State licensing 
        board were contacted and other'' after ``submit proof that''.
    (e) Annual Report.--Section 430 (20 U.S.C. 1080) is amended by 
adding at the end the following:
    ``(f) Annual Report.--The Secretary shall report annually to 
Congress that lenders, servicers and guaranty agencies have 
demonstrated their compliance with servicing and due diligence 
requirements, under both statute and regulation. The Secretary shall 
also provide information on the successful practices of low-default 
lenders, servicers and guaranty agencies to other financial, servicing 
and guaranty institutions participating in this title to encourage 
duplication of successful servicing and collection programs.''.
    (f) Notice to Institutions of Credit Bureau Information.--Section 
430A(e) (20 U.S.C. 1080a(e)) is amended by striking ``is authorized 
to'' and inserting ``shall''.
    (g) Circumstances.--Section 435(a)(2) (20 U.S.C. 1085(a)(2)) is 
amended by adding at the end the following:
            ``(D) The circumstances referred to in subparagraph (A)(ii) 
        shall be uniformly applied to all eligible institutions and 
        shall require that such an institution meet the following 
        criteria:
                    ``(i) Not less than 50 percent of the students 
                enrolled in eligible programs qualify for an award 
                under subpart 1 of part A of title IV.
                    ``(ii) The institution's student completion rate is 
                60 percent or greater.
                    ``(iii) The initial job placement rate of program 
                graduates is 60 percent or greater.''.
    (h) Cohort Default Rate.--Section 435(m) (20 U.S.C. 1085(m)) is 
amended--
            (1) in paragraph (1)--
                    (A) in subparagraph (A), by striking ``30 or more 
                current'' and inserting ``75 or more current'';
                    (B) in subparagraph (B), by striking ``paid 
                claims'' and inserting ``properly paid claims for 
                insurance as required by section 430''; and
                    (C) in subparagraph (C), by striking ``fewer than 
                30'' and inserting ``fewer than 75''; and
            (2) in paragraph (2)--
                    (A) by redesignating subparagraph (D) as 
                subparagraph (E); and
                    (B) by inserting after subparagraph (C) the 
                following new subparagraph:
                    ``(D) Any loan for which the Secretary has 
                reimbursed the guaranty agency for claims on the 
                insurance on a defaulted loan, and the agency has 
                subsequently brought the loan into current repayment 
                under section 428(c)(6), shall be removed from an 
                institution's default rate and the institution's rate 
                shall be recalculated to reflect an accurate percentage 
                of the borrowers in default for the three most recent 
                cohorts used to determine institutional eligibility 
                under this subsection.''.

SEC. 4. LIMITED INJUNCTIVE RELIEF.

    Section 432(a)(2) (20 U.S.C. 1082(a)(2)) is amended by striking 
``Secretary's control and'' and inserting ``Secretary's control, except 
that, notwithstanding the provisions of this paragraph, any district 
court of the United States, in reviewing any final determination of the 
Secretary concerning eligibility for, or the terms of participation in, 
any loan or grant program under this title, may enter any order that 
would be appropriate under sections 705 and 706 of title 5, United 
States Code, and''.

SEC. 5. EXPANDED REVIEW OF LOAN SERVICING AND COLLECTION RECORDS.

    Section 435(a)(3) (20 U.S.C. 1085(a)(3)) is amended by inserting 
after ``loan servicers'' the following ``, or at the request of the 
institution, a complete copy of the records,''.

SEC. 6. REPAYMENT TERMS.

    (a) Insured Loans.--Section 427 (20 U.S.C. 1077) is amended--
            (1) in subsection (a)(2)--
                    (A) in subparagraph (B), in the matter preceding 
                clause (i), by striking ``over a period'' through ``nor 
                more than 10 years'' and inserting ``in accordance with 
                the repayment plan selected under subsection (d),'';
                    (B) in subparagraph (C), at the end of the 
                subparagraph, by striking out ``the 10-year period 
                described in subparagraph (B);'' and inserting the 
                following: ``the length of the repayment period under a 
                repayment plan described in subsection (d);'';
                    (C) by striking subparagraph (F);
                    (D) by redesignating subparagraphs (G), (H), and 
                (I) as subparagraphs (F), (G), and (H), respectively; 
                and
                    (E) in subparagraph (G) (as redesignated by 
                subparagraph (D)), by striking ``the option'' through 
                the end of the subparagraph and inserting ``the 
                repayment options described in subsection (d); and'';
            (2) in subsection (c), by striking ``in subsection 
        (a)(2)(H),'' and inserting the following: ``by a repayment plan 
        selected by the borrower under subparagraph (C) or (D) of 
        subsection (d)(1),''; and
            (3) by adding after subsection (c) the following new 
        subsection:
    ``(d) Repayment Plans.--
            ``(1) Design and selection.--In accordance with regulations 
        of the Secretary, the lender shall offer a borrower of a loan 
        made under this part the plans described in this subsection for 
        repayment of such loan, including principal and interest 
        thereon. No plan may require a borrower to repay a loan in less 
        than 5 years. The borrower may choose from--
                    ``(A) a standard repayment plan, with a fixed 
                annual repayment amount paid over a fixed period of 
                time, not to exceed 10 years;
                    ``(B) an extended repayment plan, with a fixed 
                annual repayment amount paid over an extended period of 
                time, not to exceed 30 years, except that the borrower 
                shall repay annually a minimum amount determined in 
                accordance with subsection (c);
                    ``(C) a graduated repayment plan, with annual 
                repayment amounts established at 2 or more graduated 
                levels and paid over an extended period of time, not to 
                exceed 30 years, except that 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
                    ``(D) an income-sensitive repayment plan, with 
                income-sensitive repayment amounts paid over a fixed 
                period of time prescribed by the Secretary, not to 
                exceed 25 years, at the end of which any remaining 
                obligation of the borrower shall be discharged under 
                section 437(e).
            ``(2) Lender selection of option if borrower does not 
        select.--If a borrower of a loan made under this part does not 
        select a repayment plan described in paragraph (1), the lender 
        shall provide the borrower with a repayment plan described in 
        paragraph (1)(A).
            ``(3) Changes in selections.--The borrower of a loan made 
        under this part may change the borrower's selection of a 
        repayment plan under paragraph (1), or the lender's selection 
        of a plan for the borrower under paragraph (2), as the case may 
        be, under such conditions as may be prescribed by the Secretary 
        in regulation.
            ``(4) Acceleration permitted.--Under any of the plans 
        described in this subsection, the borrower shall be entitled to 
        accelerate, without penalty, repayment on the borrower's loans 
        under this part.''.
    (b) Guaranteed Loans.--Section 428(b) (20 U.S.C. 1078) is amended--
            (1) in paragraph (1)--
                    (A) in subparagraph (D), by striking clauses (i) 
                and (ii) and the clause designation ``(iii)'';
                    (B) in subparagraph (E)--
                            (i) in clause (i)--
                                    (I) by striking ``or section 
                                428A,'' and inserting ``or section 
                                428H,''; and
                                    (II) by striking ``the option'' 
                                through the end of the clause and 
                                inserting ``the repayment options 
                                described in paragraph (9); and''; and
                            (ii) in clause (ii)--
                                    (I) by striking ``over a period'' 
                                through ``nor more than 10 years'' and 
                                inserting ``in accordance with the 
                                repayment plan selected under paragraph 
                                (9), and''; and
                                    (II) by striking ``of this 
                                subsection;'' at the end of clause (ii) 
                                and inserting a semicolon; and
                    (C) in subparagraph (L)(i), by inserting after the 
                clause designation the following: ``except as otherwise 
                provided by a repayment plan selected by the borrower 
                under paragraph (9)(A)(iii) or (iv),''; and
            (2) by adding after paragraph (8) the following new 
        paragraph:
            ``(9) Repayment plans.--
                    ``(A) Design and selection.--In accordance with 
                regulations of the Secretary, the lender shall offer a 
                borrower of a loan made under this part the plans 
                described in this subparagraph for repayment of such 
                loan, including principal and interest thereon. No plan 
                may require a borrower to repay a loan in less than 5 
                years. The borrower may choose from--
                            ``(i) a standard repayment plan, with a 
                        fixed annual repayment amount paid over a fixed 
                        period of time, not to exceed 10 years;
                            ``(ii) an extended repayment plan, with a 
                        fixed annual repayment amount paid over an 
                        extended period of time, not to exceed 30 
                        years, except that the borrower shall repay 
                        annually a minimum amount determined in 
                        accordance with paragraph (2)(L);
                            ``(iii) a graduated repayment plan, with 
                        annual repayment amounts established at 2 or 
                        more graduated levels and paid over an extended 
                        period of time, not to exceed 30 years, except 
                        that 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) an income-sensitive repayment plan, 
                        with income-sensitive repayment amounts paid 
                        over a fixed period of time by the Secretary, 
not to exceed 25 years, at the end of which any remaining obligation of 
the borrower shall be discharged under section 437(e).
                    ``(B) Lender selection of option if borrower does 
                not select.--If a borrower of a loan made under this 
                part does not select a repayment plan described in 
                subparagraph (A), the lender shall provide the borrower 
                with a repayment plan described in subparagraph (A)(i).
                    ``(C) Changes in selections.--The borrower of a 
                loan made under this part may change the borrower's 
                selection of a repayment plan under subparagraph (A), 
                or the lender's selection of a plan for the borrower 
                under subparagraph (B), as the case may be, under such 
                conditions as may be prescribed by the Secretary in 
                regulation.
                    ``(D) Acceleration permitted.--Under any of the 
                plans described in this paragraph, the borrower shall 
                be entitled to accelerate, without penalty, repayment 
                on the borrower's loans under this part.
                    ``(E) Comparable ffel and direct loan repayment 
                plans.--The Secretary shall ensure that the repayment 
                plans offered to borrowers under this part are 
                comparable, to the extent practicable and not otherwise 
                provided in statute, to the repayment plans offered 
                under part D.''.
    (c) Consolidation Loans.--Section 428C (20 U.S.C. 1078-3) is 
amended--
            (1) in subsection (b)(3)(F), by striking ``alternative''; 
        and
            (2) in subsection (c) by amending paragraph (2) to read as 
        follows:
            ``(2) Repayment plans.--
                    ``(A) Design and selection.--In accordance with 
                regulations of the Secretary, the lender shall offer a 
                borrower of a loan made under this section the plans 
                described in this paragraph for repayment of such loan, 
                including principal and interest thereon. No plan may 
                require a borrower to repay a loan in less than 5 
                years. The borrower may choose from--
                            ``(i) a standard repayment plan, with a 
                        fixed annual repayment amount paid over a fixed 
                        period of time, not to exceed 10 years;
                            ``(ii) an extended repayment plan, with a 
                        fixed annual repayment amount paid over an 
                        extended period of time, not to exceed 30 
                        years, except that the borrower shall repay 
                        annually a minimum amount determined in 
                        accordance with paragraph (3);
                            ``(iii) a graduated repayment plan, with 
                        annual repayment amounts established at 2 or 
                        more graduated levels and paid over an extended 
                        period of time, not to exceed 30 years, except 
                        that 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) an income-sensitive repayment plan, 
                        with income-sensitive repayment amounts paid 
                        over a fixed period of time by the Secretary, 
                        not to exceed 25 years, at the end of which any 
                        remaining obligation of the borrower shall be 
                        discharged under section 437(e).
                    ``(B) Lender selection of option if borrower does 
                not select.--If a borrower of a loan made under this 
                section does not select a repayment plan described in 
                subparagraph (A), the lender shall provide the borrower 
                with a repayment plan described in subparagraph (A)(i).
                    ``(C) Changes in selections.--The borrower of a 
                loan made under this section may change the borrower's 
                selection of a repayment plan under subparagraph (A), 
                or the lender's selection of a plan for the borrower 
                under subparagraph (B), as the case may be, under such 
                conditions as may be prescribed by the Secretary in 
                regulation.''.
    (d) Direct Loans.--Section 455(d) (20 U.S.C. 1087e) is amended--
            (1) in paragraph (1)--
                    (A) in subparagraph (B), by inserting after ``an 
                extended period of time,'' the following: ``not to 
                exceed 30 years,'';
                    (B) in subparagraph (C), by striking ``a fixed or 
                extended period of time,'' and inserting the following: 
                ``an extended period of time, not to exceed 30 
                years,''; and
                    (C) in subparagraph (D), by inserting ``at the end 
                of which any remaining obligation of the borrower shall 
                be discharged,'' after ``25 years,''; and
            (2) in paragraph (2), by striking ``subparagraph (A), (B), 
        or (C) of paragraph (1).'' and inserting ``paragraph (1)(A).''.
    (e) Discharge of Income-Sensitive Borrower Obligations.--Section 
437 (20 U.S.C. 1087) is amended by adding at the end the following new 
subsection:
    ``(e) Payment After 25 Years on Income-Sensitive Loans.--The 
Secretary shall discharge a borrower's liability by repaying to the 
holder of a loan that is subject to an income-sensitive repayment plan 
the amount of the principal and interest that remains unpaid after the 
borrower has completed 25 years of payment in accordance with the 
plan.''.

SEC. 7. NEGATIVE AMORTIZATION WAIVER.

    Section 437A(b) (20 U.S.C. 1087-0(b)) is amended by adding at the 
end the following new paragraph:
            ``(3) Negative amortization waiver.--No loan shall be 
        considered in default for any purpose under this paragraph if 
        the borrower is making regularly scheduled payments towards the 
        repayment of the borrower's loan obligation in the amount 
        required by the borrower's repayment plan, even if those 
        payments are not sufficient to pay the interest accruing on a 
        monthly or quarterly basis.''.

SEC. 8. EQUITY IN LOAN CONSOLIDATION.

    Section 428C (1078-3) is amended--
            (1) in subsection (a)(3)--
                    (A) in subparagraph (A), by inserting ``in an in-
                school period,'' after ``for a consolidation loan is''; 
                and
                    (B) in subparagraph (B), by amending clause (i) to 
                read as follows:
                            ``(i) Eligible student loans received by 
                        the eligible borrower may be added to a 
                        consolidation loan during the 180-day period 
                        following the making of such consolidation 
                        loan.'';
            (2) in subsection (b)(4)(C), by amending clause (ii) to 
        read as follows:
                    ``(ii) provides that interest shall accrue and be 
                paid--
                            ``(I) by the Secretary, in the case of a 
                        consolidation loan made before October 1, 1997, 
                        that consolidated only Federal Stafford Loans 
                        for which the student borrower received an 
                        interest subsidy under section 428;
                            ``(II) by the Secretary, in the case of a 
                        consolidation loan made on or after October 1, 
                        1997, except that the Secretary shall pay such 
                        interest only on that portion of the loan that 
                        repays Federal Stafford Loans for which the 
                        student borrower received an interest subsidy 
                        under section 428; and
                            ``(III) by the borrower, or capitalized, in 
                        the case of a consolidation loan, or portion 
                        thereof, other than one described in subclause 
                        (I) or (II);''; and
            (3) in subsection (c)--
                    (A) in paragraph (1)--
                            (i) in subparagraph (A), by striking 
                        ``subparagraph (B) or (C).'' and inserting 
                        ``subparagraph (B), (C), (D), or (E), and 
                        subject to subparagraph (F).'';
                            (ii) in subparagraph (C), by striking 
                        ``after July 1, 1994,'' and inserting ``after 
                        July 1, 1994 and before October 1, 1997,''; and
                            (iii) by adding after subparagraph (C) the 
                        following new subparagraphs:
            ``(D) A consolidation loan made on or after October 1, 
        1997, that repays loans made under section 428 of 428H, or a 
        combination thereof, shall bear interest at an annual rate on 
        the unpaid principal balance of the loan that is equal to--
                    ``(i) the rate specified in section 427A(g), in the 
                case of a borrower in an in-school or grace period; or
                    ``(ii) the rate specified in section 427A(h)(1) in 
                all other cases.
            ``(E) A consolidation loan made on or after October 1, 
        1997, that repays loans made under section 428B shall bear 
        interest at an annual rate on the unpaid principal balance of 
        the loan that is equal to the rate specified in section 
        427A(h)(2).
            ``(F) Notwithstanding any other provision of this section, 
        the Secretary may prescribe in regulation such procedures as 
        may be necessary to ensure that--
                    ``(i) a borrower of a consolidation loan that 
                repays a combination of loans eligible to be 
                consolidated under this section, shall continue to 
                receive, after consolidation, any interest subsidy 
                benefits associated with a loan, without extending such 
                benefits to any other loans consolidated that do not 
                have interest subsidy benefits;
                    ``(ii) in the case of a consolidation loan that 
                repays a combination of loans described in 
                subparagraphs (D) and (E), the interest rate on such 
                consolidation loan shall be calculated in a manner that 
                reflects the interest rate applicable to loans made 
                under each such subparagraph; and
                    ``(iii) in the case of a consolidation loan that 
                repays a loan eligible to be consolidated under this 
                section other than those described in subparagraphs (D) 
                and (E), the interest rate applicable to such other 
                loan shall be the interest rate described in 
                subparagraph (D) if such other loan is considered by 
                the Secretary to be subsidized, and the interest rate 
                described in subparagraph (E) if such other loan is 
                considered by the Secretary to be unsubsidized.''; and
                    (B) in paragraph (4)--
                            (i) by striking ``Repayment'' and inserting 
                        ``(A) Except as provided in subparagraph (B), 
                        repayment''; and
                            (ii) by adding after subparagraph (A) (as 
                        redesignated by clause (i)) the following new 
                        subparagraph:
            ``(B) In the case of a consolidation loan that repays a 
        loan made under this part for which the borrower is in an in-
        school period at the time the consolidation application is 
        received, the repayment period for such consolidation loan 
        shall commence after the completion of a grace period, as 
        described in section 428(b)(7)(i).''.
                                 <all>