[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 560 Introduced in Senate (IS)]







105th CONGRESS
  1st Session
                                 S. 560

   To amend the Higher Education Act of 1965 to provide significantly 
increased financial aid for needy students, provide universal access to 
  postsecondary education, reduce student loan costs while improving 
student loan benefits, to streamline the Federal Family Education Loan 
                    Program, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             April 10, 1997

 Mr. Daschle (for himself and Mr. Kennedy) (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 provide significantly 
increased financial aid for needy students, provide universal access to 
  postsecondary education, reduce student loan costs while improving 
student loan benefits, to streamline 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,

               TITLE I--STUDENT FINANCIAL AID PROVISIONS

                        short title; references

    Sec. 101. (a) Short Title.--This title may be cited as the 
``Student Financial Aid Improvements Act of 1997''.
    (b) References.--References in this title to ``the Act'' shall 
refer to the Higher Education Act of 1965 (20 U.S.C. 1001 et seq.).

                          Part A--Pell Grants

                        pell grant maximum award

    Sec. 111. Section 401(b)(2)(A) of the Act is amended by adding at 
the end thereof the following: ``Except as otherwise provided in this 
section, in no case shall the maximum basic grant be less than 
$3,000.''.

                    Part B--Student Loan Provisions

                  management and recovery of reserves

    Sec. 121. (a) Section 422 of the Act is amended--
            (1) by amending subsection (g)(1) to read as follows:
            ``(1) Authority to recover funds.--(A) Notwithstanding any 
        other provision of law, the reserve funds of the guaranty 
        agencies, and any assets purchased or developed with such 
        reserve funds, regardless of who holds or controls the reserves 
        or assets, shall remain the property of the United States.
            ``(B) The Secretary may 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, that the Secretary determines are 
        required--
                    ``(i) to pay the program expenses and contingent 
                liabilities of the guaranty agency;
                    ``(ii) to satisfy the guaranty agency's 
                requirements under subsection (h); or
                    ``(iii) for the orderly termination of the guaranty 
                agency's operations and the liquidation of its assets.
            ``(C) The Secretary may direct a guaranty agency, or such 
        agency's officers or directors, to cease any activity involving 
        expenditure, use, or transfer of the guaranty agency's reserve 
        funds or assets that the Secretary determines is a 
        misapplication, misuse, or improper expenditure of such funds 
        or assets.''; and
            (2) by adding after subsection (g) the following new 
        subsections:
    ``(h) Recall of Reserves in Fiscal Years 1997 Through 2002; 
Limitations on Use of Reserve Funds and Assets.--(1)(A) Notwithstanding 
any other provision of law, the Secretary shall, except as otherwise 
provided in this subsection, recall from the reserve funds held by 
guaranty agencies (which for purposes of this subsection shall include 
any reserve funds held by, or under the control of, any other entity) 
not less than--
            ``(i) $731,000,000 in fiscal year 1998;
            ``(ii) $127,000,000 in fiscal year 1999;
            ``(iii) $186,000,000 in each of the fiscal years 2000 and 
        2001; and
            ``(iv) $1,271,000,000 in fiscal year 2002.
    ``(B) Funds returned to the Secretary under this subsection shall 
be deposited in the Treasury.
    ``(C) The Secretary shall require each guaranty agency to return 
reserve funds under subparagraph (A) based on its proportionate share, 
as determined by the Secretary, of all reserve funds held by guaranty 
agencies as of September 30, 1996.
    ``(2)(A) Within 45 days of enactment of this subsection, all 
reserve funds held by a guaranty agency that have not yet been recalled 
by the Secretary under paragraph (1) shall be transferred by the 
guaranty agency to a restricted account (of a type specified by the 
Secretary) established by the guaranty agency, and be invested in 
United States Government securities specified by the Secretary. The 
manner and timeframe in which reserve funds so invested are recalled 
shall be specified by the Secretary, consistent with the requirements 
of this subsection. Except as described in subparagraph (B), the 
guaranty agency shall not use the reserve funds in such account, which 
shall include the earnings thereon, for any purpose without the express 
permission of the Secretary.
    ``(B)(i) In order to assist guaranty agencies in meeting program 
expenses, the Secretary shall permit the use of not more than an 
aggregate of $350,000,000 of the reserve funds held in the restricted 
accounts described in subparagraph (A) by guaranty agencies with 
agreements under section 428(c), as working capital to be used for such 
purposes as the Secretary may specify. The Secretary shall specify the 
amount of reserve funds in each guaranty agency's restricted account 
that may be used as working capital, based on the guaranty agency's 
proportionate share of all borrower accounts outstanding on September 
30, 1996. The guaranty agency shall repay such amount to its restricted 
account (or returned to the Treasury, if so directed by the Secretary) 
by no later than September 30, 2002, or the date on which such agency's 
agreement under section 428(c) ends (through resignation, expiration, 
or termination), whichever is earlier.
    ``(ii) The guaranty agency may use the earnings from its restricted 
account for fiscal year 1998 to assist in meeting its operational 
expenses for such year.
    ``(C) Non-liquid reserve fund assets, such as buildings and 
equipment purchased or developed by the guaranty agency with reserve 
funds, and any liquid assets remaining in a guaranty agency's 
restricted account after the recalls in paragraph (1)(A), shall--
            ``(i) remain the property of the United States;
            ``(ii) be used only for such purposes as the Secretary 
        determines are appropriate; and
            ``(iii) be subject to recall by the Secretary no later than 
        the date on which such agency's agreement under section 428(c) 
        ends (through resignation, expiration, or termination, as the 
        case may be).''.

                            repayment terms

    Sec. 122. (a) Section 427 of the Act 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 five 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 ten 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, not to exceed ten years.
            ``(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) Section 428(b) of the Act 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 
                five 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 ten 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, not to exceed ten 
                        years.
                    ``(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) Section 428C of the Act is amended--
            (1) in subsection (b)(3)(F), by striking ``alternative''; 
        and
            (2) in subsection (c)--
                    (A) 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 five 
                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 ten 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, not to exceed ten 
                        years.
                    ``(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) Section 455(d) of the Act 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,''; and
                    (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
            (2) in paragraph (2), by striking ``subparagraph (A), (B), 
        or (C) of paragraph (1).'' and inserting ``paragraph (1)(A).''.

                             interest rates

    Sec. 123. (a) Section 427A of the Act is amended--
            (1) in subsection (g)(2)--
                    (A) by inserting after the paragraph heading the 
                subparagraph designation ``(A)'';
                    (B) by redesignating subparagraphs (A) and (B) as 
                clauses (i) and (ii), respectively;
                    (C) by striking ``paragraph (1),'' and inserting 
                ``paragraph (1), and except as provided in subparagraph 
                (B),''; and
                    (D) by adding after subparagraph (A) (as 
                redesignated by subparagraph (A)) the following new 
                subparagraph:
                    ``(B) In the case of loans made or insured under 
                section 428 or 428H for which the first disbursement is 
                made on or after October 1, 1997, for purposes of 
                paragraph (1), the rate determined under this paragraph 
                shall, during any 12-month period beginning on July 1 
                and ending on June 30, be determined on the preceding 
                June 1 and be equal to the bond equivalent rate of the 
                securities with a comparable maturity, as established 
                by the Secretary, except that such rate shall not 
                exceed 8.25 percent.'';
            (2) in subsection (h)--
                    (A) in the heading thereof, by striking ``July 1, 
                1998.--'' and inserting ``October 1, 1997.--'';
                    (B) in paragraph (1)--
                            (i) by striking ``(f), and (g)'' and 
                        inserting ``and (f),''; and
                            (ii) by striking ``July 1, 1998,'' and 
                        inserting ``October 1, 1997,''; and
                    (C) in paragraph (2)--
                            (i) in the heading, by striking ``july 1, 
                        1998.--'' and inserting ``october 1, 1997.--''; 
                        and
                            (ii) by striking ``July 1, 1998,'' and 
                        inserting ``October 1, 1997,''; and
            (3) in subsection (i)(7)(B), by adding at the end the 
        following: ``Notwithstanding any other provision of law, the 
        interest rate determined under this subparagraph shall be used 
        solely to determine the rebate of excess interest required by 
        this paragraph and shall not be used to calculate or pay 
        special allowances under section 438.''.
    (b) Section 455(b) of the Act is amended--
            (1) in paragraph (2)(B)--
                    (A) by redesignating clauses (i) and (ii) as 
                subclauses (I) and (II), respectively;
                    (B) by inserting after the subparagraph heading the 
                clause designation ``(i)'';
                    (C) by striking ``subparagraph (A),'' and inserting 
                ``subparagraph (A) and except as provided in clause 
                (ii),''; and
                    (D) by adding after clause (i) (as redesignated by 
                subparagraph (B)) the following new clause:
                            ``(ii) In the case of Federal Direct 
                        Stafford/Ford Loans or Federal Direct 
                        Unsubsidized Stafford/Ford Loans for which the 
                        first disbursement is made on or after October 
                        1, 1997, for purposes of subparagraph (A), the 
                        rate determined under this subparagraph shall, 
                        during any 12-month period beginning on July 1 
                        and ending on June 30, be determined on the 
                        preceding June 1 and be equal to the bond 
                        equivalent rate of the securities with a 
                        comparable maturity, as established by the 
                        Secretary, except that such rate shall not 
                        exceed 8.25 percent.'';
            (2) in paragraph (3)--
                    (A) by striking ``and (2),'' and inserting ``, and 
                except as provided in paragraph (2),''; and
                    (B) by striking ``made on or after July 1, 1998,'' 
                and inserting ``for which the first disbursement is 
                made on or after October 1, 1997,''; and
            (3) in paragraph (4)(B), by striking ``July 1, 1998,'' and 
        inserting ``October 1, 1997,''.

                     lender and holder risk sharing

    Sec. 124. Section 428(b)(1)(G) of the Act is amended by striking 
``not less than 98 percent'' and inserting ``95 percent''.

                      fees and insurance premiums

    Sec. 125. (a) Section 428(b)(1)(H) of the Act is amended--
            (1) by inserting the clause designation ``(i)'' following 
        the subparagraph designation;
            (2) by striking ``the loan,'' and inserting ``any loan made 
        under section 428 or 428B before July 1, 1998,''; and
            (3) after clause (i) (as redesignated by paragraph (1)), by 
        adding ``and'' and the following new clause:
                    ``(ii) provides that no insurance premiums shall be 
                charged to the borrower of any loan made under section 
                428 or 428B on or after July 1, 1998;''.
    (b) Section 428H(h) of the Act is amended--
            (1) by inserting the paragraph designation ``(1)'' 
        following the subsection heading;
            (2) by striking ``under this section'' and inserting ``of a 
        loan made under this section made before July 1, 1998''; and
            (3) by adding at the end of paragraph (1) (as redesignated 
        by paragraph (1)) the following new paragraph:
            ``(2) No insurance premium may be charged to the borrower 
        on any loan made under this section made on or after July 1, 
        1998.''.
    (d) Section 438(c) of the Act is amended--
            (1) in paragraph (2), by striking ``paragraph (6)'' and 
        inserting ``paragraphs (6) and (8)''; and
            (2) by adding after paragraph (7) the following new 
        paragraph:
            ``(8) Origination fee on subsidized loans on or after july 
        1, 1998.--In the case of any loan made or insured under section 
        428 on or after July 1, 1998, paragraph (2) shall be applied by 
        substituting `2.0 percent' for `3.0 percent'.''.
    (e) Section 455(c) of the Act is amended--
            (1) by striking ``The Secretary'' and inserting ``(1) For 
        loans made under this part before July 1, 1998, the 
        Secretary'';
            (2) by striking ``of a loan made under this part''; and
            (3) by adding at the end thereof the following new 
        paragraph:
            ``(2) For loans made under this part on or after July 1, 
        1998, the Secretary shall charge the borrower an origination 
        fee of--
                    ``(A) 2.0 percent of the principal amount of the 
                loan, in the case of Federal Direct Stafford/Ford 
                Loans; or
                    ``(B) 3.0 percent of the principal amount of the 
                loan, in the case of Federal Direct Unsubsidized 
                Stafford/Ford Loans or Federal Direct PLUS Loans.''.

                     functions of guaranty agencies

    Sec. 126. (a) Section 428 of the Act is further amended--
            (1) in subsection (a)--
                    (A) in paragraph (1)(B)--
                            (i) in the matter preceding clause (i), by 
                        striking ``which is insured'' and inserting 
                        ``which, before October 1, 1997, is''; and
                            (ii) in clause (ii), by inserting ``as in 
                        effect the day before the day of enactment of 
                        this section,'' after ``subsection (b),''; and
                    (B) in paragraph (3)--
                            (i) by striking subparagraph (B); and
                            (ii) in subparagraph (A)--
                                    (I) in clause (ii), by striking 
                                ``under any'' through the end of the 
                                clause and inserting a period;
                                    (II) by striking the subparagraph 
                                designation ``(A)'';
                                    (III) by redesignating clauses (i) 
                                and (ii) as subparagraphs (A) and (B), 
                                respectively; and
                                    (IV) by redesignating subclauses 
                                (I) and (II) as clauses (i) and (ii), 
                                respectively;
            (2) in subsection (b)--
                    (A) by amending the heading to read as follows: 
                ``Requirements To Qualify Loans for Insurance and 
                Interest Sub- 
                sidies.--'';
                    (B) in paragraph (1)--
                            (i) by amending the heading to read as 
                        follows: ``Requirements.--'';
                            (ii) by amending the matter preceding 
                        subparagraph (A) to read as follows: ``A loan 
                        by an eligible lender shall be insurable by the 
                        Secretary, and students who receive such loans 
                        shall be entitled to have made on their behalf 
                        the payments provided for in subsection (a), 
                        under a program of student loan insurance 
                        that--'';
                            (iii) by amending subparagraph (K) to read 
                        as follows:
                    ``(K) provides that the holder of any such loan 
                will be required to submit to the Secretary, at such 
                time or times and in such manner as the Secretary may 
                prescribe, statements containing such information as 
                may be required by regulation for the purpose of 
                enabling the Secretary to determine the amount of the 
                payment which must be made with respect to that 
                loan;'';
                            (iv) by amending subparagraph (O) to read 
                        as follows:
                    ``(O) provides that, if the sale, assignment, or 
                other transfer of a loan made under this part to 
                another holder will result in a change in the identity 
                of the party to whom the borrower must send subsequent 
                payments or direct any communications concerning the 
                loans, then--
                            ``(i) the transferor and the transferee 
                        shall be required, not later than 45 days from 
                        the date the transferee acquires a legally 
                        enforceable right to receive payment from the 
                        borrower on such loan, either jointly or 
                        separately to provide a notice to the borrower 
                        of--
                                    ``(I) the sale, assignment, or 
                                other transfer;
                                    ``(II) the identity of the 
                                transferee;
                                    ``(III) the name and address of the 
                                party to whom subsequent payments or 
                                communications must be sent; and
                                    ``(IV) the telephone numbers of 
                                both the transferor and the transferee; 
                                and
                            ``(ii) the transferee shall be required to 
                        notify the Secretary, and, upon the request of 
                        an institution of higher education, the 
                        Secretary shall notify the last such 
                        institution the student attended prior to the 
                        beginning of the repayment period of any loan 
                        made under this part, of--
                                    ``(I) any sale, assignment, or 
                                other transfer of the loan; and
                                    ``(II) the address and telephone 
                                number by which contact may be made 
                                with the new holder concerning 
                                repayment of the loan;
                        except that this subparagraph shall apply only 
                        if the borrower is in the grace period 
                        described in section 427(a)(2)(B) or 428(b)(7) 
                        or is in repayment status.'';
                            (v) in subparagraph (Q), by striking 
                        ``guarantee'' and ``428A'' and inserting 
                        ``insurance'' and ``428H'', respectively;
                            (vi) by amending subparagraph (R) to read 
                        as follows:
                    ``(R) provides for the making of such reports, in 
                such form and containing such information, including 
                financial information, as the Secretary may reasonably 
                require to carry out the Secretary's functions under 
                this part and protect the financial interest of the 
                United States, and for keeping such records and for 
                affording such access thereto as the Secretary may find 
                necessary to ensure the correctness and verification of 
                such reports;'';
                            (vii) by amending subparagraph (S) to read 
                        as follows:
                    ``(S) provides that a lender shall pay a default 
                prevention fee in accordance with subsection (g);
                            (viii) in subparagraph (T)--
                                    (I) in clause (i), by inserting ``, 
                                by the guaranty agency, in accordance 
                                with regulations prescribed by the 
                                Secretary,'' after ``limitation''; and
                                    (II) in clause (ii)--
                                            (aa) in the matter 
                                        preceding subclause (I), by 
                                        inserting ``, in accordance 
                                        with regulations prescribed by 
                                        the Secretary,'' after 
                                        ``institution'';
                                            (bb) by striking subclauses 
                                        (I) and (II); and
                                            (cc) redesignating 
                                        subclauses (III), (IV), and (V) 
                                        as subclauses (I), (II), and 
                                        (III), respectively;
                            (ix) by amending subparagraph (U) to read 
                        as follows:
                     ``(U) provides--
                                     ``(i) for such additional criteria 
                                concerning the eligibility of lenders 
                                described in section 435(d)(1) as may 
                                be permitted by the Secretary; and
                                     ``(ii) an assurance that the 
                                guaranty agency will report to the 
                                Secretary concerning changes in 
                                criteria under clause (i), including 
                                any procedures in effect under such 
                                program to take emergency action, 
                                limit, suspend, or terminate lenders; 
                                and''; and
                                    (x) by striking subparagraphs (V), 
                                (W), and (X);
                    (C) by amending paragraph (2) to read as follows:
            ``(2) Skip-tracing requirement.--In the case of a default 
        claim based on an inability to locate the borrower, a lender 
        shall certify to the Secretary, at the time of submission of 
        the default claim, that diligent attempts have been made to 
        locate the borrower through the use of reasonable skip-tracing 
        techniques in accordance with regulations prescribed by the 
        Secretary.'';
                    (D) in paragraph (3)(B), by striking the 
                parenthetical through the end of the subparagraph and 
                inserting a period; and
                    (E) by striking out paragraph (5) and inserting in 
                lieu thereof the following new paragraph:
            ``(5) Compliance audits.--(A) Except as provided in 
        subparagraph (B) or by the Single Audit Act Amendments of 1996, 
        an eligible lender that originates or holds more than 
        $5,000,000 in loans made under this title during an annual 
        audit period shall submit to the Secretary a compliance audit 
        for that audit period which is conducted by a qualified, 
        independent organization or person in accordance with the 
        Government Auditing Standards issued by the Comptroller 
        General, and the regulations of the Secretary.
            ``(B) The Secretary may permit a lender to submit the 
        results of an audit conducted for other purposes if the 
        Secretary determines that such other audit results provide the 
        same information as required under subparagraph (A).'';
            (3) in subsection (c)--
                    (A) by amending the heading to read as follows: 
                ``Agreements With Guaranty Agencies.--'';
                    (B) in paragraph (3)--
                            (i) in the matter preceding subparagraph 
                        (A), by striking ``A guaranty agreement'' and 
                        inserting ``An agreement between the Secretary 
                        and a guaranty agency'';
                            (ii) in the flush left language at the end 
                        of the paragraph, by striking ``Guaranty 
                        agencies'' and inserting ``The Secretary''; and
                            (iii) by redesignating paragraph (3) as 
                        paragraph (11);
                    (C) by striking paragraphs (1), (2), (4), and (5);
                    (D) by inserting after the subsection heading the 
                following new paragraphs:
            ``(1) Authority to Enter into Agreements.--(A)(i) The 
        Secretary may enter into an agreement with a guaranty agency, 
        under which the Secretary shall insure loans made under this 
        section through the guaranty agency as the agent of the 
        Secretary.
            ``(ii) Any guaranty agency that had an agreement with the 
        Secretary under section 428(b) as of the day before the date of 
        enactment of the Student Financial Aid Improvements Act of 1997 
        may enter into an initial agreement with the Secretary under 
        this subsection.
            ``(iii) An agreement under this subsection shall be five 
        years in duration, and may be renewed by the Secretary for 
        successive five-year periods.
            ``(iii) The Secretary may terminate the agreement prior to 
        its expiration in accordance with paragraph (9).
            ``(2) Effect on prior guaranty agreements and loan 
        insurance by guaranty Agencies.--(A) All guaranty agreements 
        made under this subsection as it was in effect on the day 
        before the date of enactment of the Student Financial Aid 
        Improvements Act of 1997 shall terminate not later than 180 
        days after the date of enactment of that Act.
            ``(B) Notwithstanding any other provision of law--
                    ``(i) to the extent that a guaranty agency had 
                insured loans under this part, loan insurance by such 
                guaranty agency that is outstanding as of the date of 
                the termination under subparagraph (A) shall be 
                replaced on such date by loan insurance issued by the 
                Secretary, and the guaranty agency shall be relieved of 
                any further liability thereon;
                    ``(ii) the Secretary's liability for any 
                outstanding liabilities of a guaranty agency (other 
                than outstanding loan insurance under this part), shall 
                not exceed the fair market value of the unrestricted 
                funds of the guaranty agency, which shall consist of--
                            ``(I) all accumulated earnings not 
                        otherwise placed in a restricted account in 
                        accordance with section 422(h)(2)(A); and
                            ``(II) any working capital that may be 
                        provided under section 422(h)(2)(B); and
                    ``(iii) for the first year after the date of 
                enactment of the Student Financial Aid Improvements Act 
                of 1997, the Secretary may specify such interim 
                administrative measures as the Secretary determines to 
                be necessary for the efficient transfer of the loan 
                insurance function, and to carry out the purposes of 
                this part.
            ``(3) Terms of agreement.--The agreement between the 
        Secretary and a guaranty agency shall include, but not be 
        limited to--
                    ``(A) provisions regarding the responsibilities of 
                the guaranty agency for--
                            ``(i) administering the issuance of 
                        insurance on loans made under this section on 
                        behalf of the Secretary;
                            ``(ii) monitoring insurance commitments 
                        made under this section;
                            ``(iii) default prevention activities;
                            ``(iv) review of default claims made by 
                        lenders;
                            ``(v) payment of default claims;
                            ``(vi) collection of defaulted loans;
                            ``(vii) adoption of internal systems of 
                        accounting and auditing that are acceptable to 
                        the Secretary, and reporting the result thereof 
                        to the Secretary on a timely, accurate, and 
                        audible basis;
                            ``(viii) timely and accurate collection and 
                        reporting of such other data as the Secretary 
                        may require to carry out the purposes of the 
                        programs under this title;
                            ``(ix) monitoring of institutions and 
                        lenders participating in the program under this 
                        part; and
                            ``(x) such other program functions as the 
                        Secretary may require of the guaranty agency;
                    ``(B) provisions regarding the fees the Secretary 
                shall pay to the guaranty agency under the agreement, 
                and other revenues that the guaranty agency may receive 
                thereunder, as described in paragraphs (4) and (6);
                    ``(C) provisions requiring the guaranty agency to 
                carry out its responsibilities under the agreement in 
                accordance with paragraph (5);
                    ``(D) provisions regarding the use, in accordance 
                with paragraph (10), of net revenues in excess of the 
                guaranty agency's need for working capital, as 
                determined after compliance with section 422(h), for 
                such other activities in support of postsecondary 
                education as may be agreed to by the Secretary and the 
                guaranty agency;
                    ``(E) provisions regarding such other businesses, 
                previously purchased or developed with reserve funds, 
                that relate to the program under this part and in which 
                the Secretary permits the guaranty agency to engage (as 
                determined on a case-by-case basis);
                    ``(F) provisions setting forth such administrative 
                and fiscal procedures as may be necessary to protect 
                the United States from the risk of unreasonable loss 
                thereunder, and to ensure proper and efficient 
                administration of the loan insurance program;
                    ``(G) provisions regarding the submission of the 
                results of audits of the guaranty agency that are 
                conducted--
                            ``(i) at least annually;
                            ``(ii) by a qualified, independent 
                        organization or person in accordance with the 
                        standards established by the Comptroller 
                        General for the audit of governmental 
                        organizations, programs, and functions; and
                            ``(iii) in accordance with the regulations 
                        of the Secretary;
                    ``(H) provisions requiring the making of such 
                reports, in such form and containing such information, 
                including financial information, as the Secretary may 
                reasonably require to carry out the Secretary's 
                functions under this part and to protect the Federal 
                fiscal interest, and for keeping such records and for 
                affording such access thereto as the Secretary may find 
                necessary or appropriate to ensure the correctness and 
                verification of such reports;
                    ``(I) adequate assurances that the guaranty agency 
                will not engage in any pattern or practice which may 
                result in a denial of a borrower's access to loans 
                under this part because of the borrower's race, sex, 
                color, religion, national origin, age, handicapped 
                status, income, attendance at a particular eligible 
                institution, length of the borrower's educational 
                program, or the borrower's academic year in school;
                    ``(J) assurances that--
                            ``(i) upon the request of an eligible 
                        institution, the guaranty agency shall, subject 
                        to clauses (ii) and (iii), furnish to the 
                        institution information with respect to 
                        students (including the names and addresses of 
                        such students) who received loans made or 
                        insured under this part for attendance at the 
                        eligible institution and for whom preclaims 
                        assistance activities have been requested under 
                        subsection (l);
                            ``(ii) the guaranty agency shall require 
                        the payment by the institution of a reasonable 
                        fee (as determined in accordance with 
                        regulations prescribed by the Secretary) for 
                        such information; and
                            ``(iii) the institution may use such 
                        information only to remind students of their 
                        obligation to repay student loans and may not 
                        disseminate the information for any other 
                        purpose; and
                    ``(K) such other provisions as the Secretary may 
                determine to be necessary to protect the United States 
                from the risk of unreasonable loss and to promote the 
                purposes of this part.
            ``(4) Fees and other revenues.--(A)(i) The Secretary shall 
        pay to a guaranty agency with an agreement under this 
        subsection the following uniform fees:
                    ``(I) a one-time issuance fee for each new loan 
                made under this part that is insured by the Secretary 
                through the guaranty agency; and
                    ``(II) an annual maintenance fee for each active 
                borrower account.
            ``(ii) The fees described in clause (i) shall be paid on a 
        quarterly basis, from the funds available under section 458(a), 
        in such amount as the Secretary determines, for all guaranty 
        agencies with agreements under this subsection.
            ``(B) A guaranty agency with an agreement under this 
        subsection also may receive revenues derived from--
                    ``(i) a default prevention fee paid by lenders in 
                accordance with subsection (g);
                    ``(ii) the collection retention allowance under 
                paragraph (6);
                    ``(iii) the interest earned on working capital 
                provided under section 422(h);
                    ``(iv) such other businesses, previously purchased 
                or developed with reserve funds, that relate to the 
                program under this part and in which the Secretary 
                permits the guaranty agency to engage (as determined on 
                a case-by-case basis); and
                    ``(v) such other fees as may be authorized under 
                this part.
            ``(5) Performance requirements.--(A) A guaranty agency with 
        an agreement under this subsection shall carry out its 
        responsibilities thereunder in accordance with such measurable 
        performance-based standards as the Secretary may specify, and 
        shall submit timely and accurate data to the Secretary in 
        support of its performance.
            ``(B) The Secretary shall apply the performance standards 
        uniformly to guaranty agencies with agreements under this 
        subsection.
            ``(C) The Secretary shall assess the performance of each 
        guaranty agency on the basis of the audits required under 
        paragraph (3)(G), and shall compare such guaranty agency's 
        performance against the performance of other such guaranty 
        agencies and publicly disseminate such comparison.
            ``(D) The Secretary may impose a fine, in accordance with 
        the terms of the agreement, on a guaranty agency that fails to 
        achieve a specified level of performance on one or more 
        performance standards. If the guaranty agency's failure to 
        achieve such performance level results in a financial loss to 
        the United States, the guaranty agency shall indemnify the 
        Secretary for such loss.'';
                    (E) by amending paragraph (6) to read as follows:
            ``(6) Collection retention allowance.--(A) If, after the 
        Secretary has paid a claim on a loan made under this title, any 
        payments are made in discharge of the obligation incurred by 
        the borrower with respect to such loan (including any payments 
        of interest accruing on such loan after the payment of the 
        default claim by the Secretary), there shall be paid over to 
        the Secretary that portion of the payments remaining after the 
        guaranty agency with which the Secretary has an agreement under 
        this subsection has deducted from such payments an amount for 
        costs related to the student loan insurance program that--
                    ``(i) shall be specified by the Secretary on the 
                basis of the Secretary's review of payments for similar 
                services in a competitive environment; and
                    ``(ii) in no case shall exceed 18.5 percent of such 
                payments (subject to subparagraph (B)).
            ``(B) If, after the Secretary has paid a claim on a loan 
        made under this title, and the liability on such loan is 
        discharged by payment of the proceeds of a consolidation loan 
        under this part or under part D, the guaranty agency may not 
        deduct the amount specified in subparagraph (A), but may charge 
        the borrower an amount specified by the Secretary and not to 
        exceed 18.5 percent of the principal amount of the defaulted 
        loan at the time of consolidation, to defray the guaranty 
        agency's collection costs on the defaulted loan to be 
        consolidated.'';
                    (F) by amending paragraph (7) to read as follows:
            ``(7) Secretary authorized to renew or make alternate 
        agreements.--Notwithstanding any other provision of law, once 
        the initial agreement with a guaranty agency entered into after 
        the date of enactment of the Student Financial Aid Improvements 
        Act of 1997 has ended (through its expiration, the termination 
        of the guaranty agency agreement by the Secretary in accordance 
        with paragraph (9), or the resignation of the guaranty agency, 
        as the case may be), the Secretary, in his discretion, may 
        enter into--
                    ``(A) another agreement with the guaranty agency;
                    ``(B) an alternate agreement under which the 
                functions previously performed by the guaranty agency 
                shall be performed by another State or private 
                nonprofit agency with which the Secretary has an 
                agreement under this subsection; or
                    ``(C) a contract under section 428E.'';
                    (G) by amending paragraph (9) to read as follows:
            ``(9) Termination of guaranty agency agreements.--(A) A 
        guaranty agency's agreement under this subsection may be ended 
        in advance of its expiration date in accordance with 
subparagraph (B), or (C). If its agreement is so ended, the guaranty 
agency shall immediately--
                    ``(i) cease to be an agent of the Secretary for 
                purposes of the program under this part; and
                    ``(ii) surrender all remaining liquid and non-
                liquid reserve funds, and assets purchased or developed 
                with reserve funds, still held by the guaranty agency 
                (including reserves held by, or under the control of, 
                any other entity) to the Secretary or the Secretary's 
                designated agent.
            ``(B) A guaranty agency's agreement under this subsection 
        shall be void, and the Secretary shall immediately so notify 
        such guaranty agency, if--
                    ``(i) the guaranty agency fails to comply in a 
                timely manner with the recall of reserve requirements 
                of section 422(h);
                    ``(ii) the guaranty agency fails to increase the 
                amount of funds in its unrestricted account (as 
                measured by comparing the amount of funds in such 
                account at the beginning and end of a year) for each of 
                two years (that may or may not be consecutive) in the 
                five year period of the agreement under this 
                subsection;
                    ``(iii) any other agreement that the guaranty 
                agency has with the Secretary is terminated;
                    ``(iv) the guaranty agency becomes insolvent or 
                declares bankruptcy; or
                    ``(v) there is any legal impediment to the guaranty 
                agency substantially performing its responsibilities 
                under the agreement.
            ``(C) The Secretary shall, after notice and opportunity for 
        a hearing, terminate a guaranty agency that has substantially 
        failed to achieve an acceptable level of performance under its 
        agreement with the Secretary. A substantial performance failure 
        under this subparagraph may include the existence of material 
        internal control weaknesses relating to data quality in the 
        guaranty agency's audits for each of two years (that may or may 
        not be consecutive) in the five year period of the agreement 
        under this subsection.
            ``(D) Notwithstanding any other provision of Federal or 
        State law, if the Secretary has terminated or is seeking to 
        terminate a guaranty agency's agreement in advance of its 
        expiration date--
                    ``(i) no State court may issue any order affecting 
                the Secretary's actions with respect to such guaranty 
                agency;
                    ``(ii) any contract with respect to the 
                administration of reserve funds held by a guaranty 
                agency, or the administration of any assets purchased 
                or developed 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 
                date of enactment of the Student Financial Aid 
                Improvements Act of 1997 shall provide that the 
                contract is terminable by the Secretary upon 30 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
                    ``(iii) no provision of State law shall apply to 
                the actions of the Secretary in terminating the 
                operations of a guaranty agency.''; and
                    (H) by adding after paragraph (9) the following new 
                paragraph:
            ``(10) Use of surplus funds.--(A) A guaranty agency with an 
        agreement under this subsection may retain the amount 
        determined in accordance with subparagraph (B) for activities 
        in support of postsecondary education that are approved by the 
        Secretary.
            ``(B)(i) A guaranty agency may retain 50 percent of its net 
        revenues for fiscal year 1998 in excess of the guaranty 
        agency's need for working capital for such year, as determined 
        after compliance with section 422(h), for approved activities.
            ``(ii) A guaranty agency may retain for approved activities 
        for fiscal year 1999 and succeeding fiscal years the lesser 
        of--
                    ``(I) 50 percent of its net revenues for such year 
                in excess of its need for working capital, as 
                determined after compliance with section 422(h); or
                    ``(II) the amount of its net revenues for such year 
                in excess of its need for working capital, as 
                determined after compliance with section 422(h), that 
                is equal to a uniform percentage, established annually 
                by the Secretary, of federal revenues received by the 
                guaranty agency for the preceding year. In determining 
                such percentage, the Secretary shall take into account 
                all guaranty agencies' revenues and costs for the 
                preceding year to determine an adequate level of 
                economic incentive for guaranty agencies to maximize 
                their efficiency.'';
            (4) by amending subsection (g) to read as follows:
    ``(g) Default Prevention Fee Paid by Lenders.--(1) An eligible 
lender shall pay a guaranty agency, to which such lender referred a 
delinquent loan, a default prevention fee of not to exceed $100 per 
borrower account if the guaranty agency succeeds in bringing such loan 
into current repayment status.
    ``(2) The Secretary shall prescribe in regulations the 
circumstances in which a lender may obtain a refund of a default 
prevention fee if the borrower of a loan on which such fee was paid 
subsequently defaults on such loan.''; and
            (5) in subsection (l)--
                    (A) in paragraph (1), by striking the paragraph 
                designation and the paragraph heading; and
                    (B) by striking paragraph (2).
    (b) Section 435(j) of the Act is amended by striking ``section 
428(b).'' and inserting ``section 428(c).''

                 repeal of state share of default costs

    Sec. 127. Section 428 of the Act is further amended by striking 
subsection (n).

                          consolidation loans

    Sec. 128. (a) Section 428C of the Act is further 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 or 
                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).''.

                     contracts with other entities

    Sec. 129. Part B of title IV of the Act is amended by inserting 
after section 428D the following new section:

                          ``contract authority

    ``Sec. 428E. The Secretary may enter into one or more contracts to 
carry out any of the functions that otherwise would be carried out by a 
guaranty agency with an agreement under section 428(c).''.

                            eligible lender

    Sec. 130. Section 435(d) of the Act is amended--
            (1) in paragraph (1), by striking ``(6),'' and inserting 
        ``(7),''; and
            (2) by adding after paragraph (6) the following new 
        paragraph:
            ``(7) Uniform terms and conditions.--Subject to such 
        exceptions as the Secretary may prescribe in regulations, the 
        term `eligible lender' shall not include any lender that offers 
        different terms and conditions to different borrowers of the 
        same type of loan made or insured under this part.''.

                           special allowance

    Sec. 131. Section 438 of the Act is amended--
            (1) in subsection (a)(3), by striking ``quarterly rate'' 
        each place it appears and inserting ``rate''; and
            (2) in subsection (b)--
                    (A) in paragraph (2)--
                            (i) by striking ``subparagraphs (B), (C), 
                        (D), (E), and (F)'' and inserting 
                        ``subparagraphs (B), (C), (D), (E), (F), and 
                        (G)''; and
                            (ii) by adding after subparagraph (F) the 
                        following new subparagraph:
                    ``(G)(i) Notwithstanding any other provision of 
                this section, in the case of loans made or insured 
                under this part for which the first disbursement is 
                made on or after October 1, 1997, the special allowance 
                paid pursuant to this subsection shall be computed for 
                any 12-month period beginning on July 1 and ending on 
                June 30 by--
                            ``(I) determining the bond equivalent rate 
                        on the preceding June 1 of the securities with 
                        a comparable maturity, as established by the 
                        Secretary; and
                            ``(II) subtracting the applicable interest 
                        rate on such loans from such amount.
                    ``(ii) The amount of special allowance computed 
                under clause (i) shall be paid in quarterly increments 
                for the 3-month periods described in paragraph (1).''; 
                and
                    (B) in paragraph (3), in the second sentence, by 
                striking ``determined for any such 3-month period shall 
                be paid promptly after the close of such period,'' and 
                inserting ``calculated under this subsection shall be 
                paid promptly after the close of the 3-month period for 
                which such special allowance payment is due,''.

             student loan marketing association offset fee

    Sec. 132. Section 439(h)(7) of the Act is amended by adding after 
subparagraph (C) the following new subparagraph:
                    ``(D) The calculation of the fee required under 
                subparagraph (A) or (B), as the case may be, shall be 
                determined on the basis of the principal amount of all 
                loans (except for loans made under sections 428C, 
                439(o) or 439(q))--
                            ``(i) owned, in whole or in part, by the 
                        Association, any subsidiary of the Association, 
                        or any company, trust or other entity owned by, 
                        or controlled by, the Association; or
                            ``(ii) held by a trust (including by a 
                        trustee on behalf of a trust), or by any other 
                        entity in which the Association, or any 
                        subsidiary, holds more than a minimal 
                        beneficial interest (as determined by the 
                        Secretary).''.

                       direct loan transition fee

    Sec. 133. Section 452(b) of the Act is amended to read as follows:
    ``(b) Transition Fees.--The Secretary shall pay fees to 
institutions of higher education (or a consortium of those 
institutions) with agreements under section 454(b), in the first year 
of their participation in the program authorized by this part, in order 
to compensate for costs associated with their transition to the 
program. The fees shall not exceed an average of $10 per borrower at 
all institutions receiving the fees.''.

                   funds for administrative expenses

    Sec. 134. Section 458(a) of the Act is amended, in the first 
sentence, by striking ``$260,000,000'' through the end of the sentence 
and inserting the following: ``$532,000,000 in fiscal year 1998, 
$610,000,000 in fiscal year 1999, $705,000,000 in fiscal year 2000, 
$806,000,000 in fiscal year 2001, and $904,000,000 in fiscal year 
2002.''.

              Part C--Need Analysis and General Provisions

               hope scholarship need analysis amendments

    Sec. 141. (a) Calculation of Available Income.--(1) Section 475 of 
the Act is amended--
            (A) by amending subsection (c)(1)(A) to read as follows:
                    ``(A) the sum of--
                            ``(i) Federal income taxes;
                            ``(ii) the amount of any tax credit taken 
                        under section 24A of the Internal Revenue Code 
                        of 1986; and
                            ``(iii) the amount by which tax liability 
                        determined without regard to the deduction 
                        provided under section 221 of the Internal 
                        Revenue Code exceeds the amount of tax 
                        liability determined after taking such 
                        deduction into account;''; and
            (B) by amending subsection (g)(2)(A) to read as follows:
                    ``(A) the sum of--
                            ``(i) Federal income taxes;
                            ``(ii) the amount of any tax credit taken 
                        by the student under section 24A of the 
                        Internal Revenue Code of 1986; and
                            ``(iii) the amount by which tax liability 
                        determined without regard to the deduction 
                        provided under section 221 of the Internal 
                        Revenue Code exceeds the amount of tax 
                        liability determined after taking such 
                        deduction into account;''.
    (2) Section 476(b)(1)(A)(i) of the Act is amended to read as 
follows:
                    ``(A) the sum of--
                            ``(i) Federal income taxes;
                            ``(ii) the amount of any tax credit taken 
                        under section 24A of the Internal Revenue Code 
                        of 1986; and
                            ``(iii) the amount by which tax liability 
                        determined without regard to the deduction 
                        provided under section 221 of the Internal 
                        Revenue Code exceeds the amount of tax 
                        liability determined after taking such 
                        deduction into account;''.
    (3) Section 477(b)(1)(A) of the Act is amended to read as follows:
                    ``(A) the sum of--
                            ``(i) Federal income taxes;
                            ``(ii) the amount of any tax credit taken 
                        under section 24A of the Internal Revenue Code 
                        of 1986; and
                            ``(iii) the amount by which tax liability 
                        determined without regard to the deduction 
                        provided under section 221 of the Internal 
                        Revenue Code exceeds the amount of tax 
                        liability determined after taking such 
                        deduction into account;''.
    (b) Definitions.--Section 480 of the Act is amended--
            (1) in subsection (a)(2)--
                    (A) by striking ``and no portion'' and inserting 
                ``no portion''; and
                    (B) by inserting after ``(42 U.S.C. 12571 et 
                seq.),'' the following: ``and no portion of any tax 
                credit taken under section 24A of the Internal Revenue 
                Code of 1986,'';
            (2) in subsection (b)--
                    (A) in paragraph (13), by striking ``and'' at the 
                end of the paragraph;
                    (B) by redesignating paragraph (14) as paragraph 
                (15); and
                    (C) by inserting after paragraph (13) the following 
                new paragraph:
            ``(14) any tax deduction taken under section 221 of the 
        Internal Revenue Code of 1986; and'';
    (3) in subsection (e)--
                    (A) in paragraph (3), by striking ``and'' at the 
                end of the paragraph;
                    (B) in paragraph (4), by striking the period at the 
                end of the paragraph and inserting ``; and''; and
                    (C) by adding after paragraph (4) the following new 
                paragraph:
            ``(5) any tax credit taken under section 24A of the 
        Internal Revenue Code of 1986; and'';
            (4) in subsection (j), by adding after paragraph (3) the 
        following new paragraph:
            ``(4) Notwithstanding paragraph (1), a tax credit taken 
        under section 24A of the Internal Revenue Code of 1986 shall 
        not be treated as estimated financial assistance for purposes 
        of section 471(3).''.

income protection allowance for independent students without dependents

    Sec. 142. (a) Section 476(b) of the Act is amended--
            (1) in paragraph (1)--
                    (A) in subparagraph (A)--
                            (i) by amending clause (iv) to read as 
                        follows:
                            ``(iv) an income protection allowance, 
                        determined in accordance with paragraph (4);''; 
                        and
                            (ii) in clause (v), by striking ``paragraph 
                        (4);'' and inserting ``paragraph (5);''; and
                    (B) in subparagraph (B), by striking ``paragraph 
                (5).'' and inserting ``paragraph (6).'';
            (2) by redesignating paragraphs (4) and (5) as paragraphs 
        (5) and (6), respectively; and
            (3) by inserting after paragraph (3) the following new 
        paragraph:
            ``(4) Income protection allowance.--The income protection 
        allowance is determined by the following table (or a successor 
        table prescribed by the Secretary under section 478):


                      ``INCOME PROTECTION ALLOWANCE                     
------------------------------------------------------------------------
                                                    Number in college   
        Family size (including student)        -------------------------
                                                     1            2     
------------------------------------------------------------------------
1.............................................        8,000             
2.............................................       10,520     8,720.''
------------------------------------------------------------------------

    (b) Section 478(b) of the Act is amended by striking ``sections 
475(c)(4) and 477(b)(4).'' and inserting ``sections 475(c)(4), 
476(b)(4), and 477(b)(4).''.

                      hope scholarship definitions

    Sec. 143. Section 481 of the Act is amended by adding after 
subsection (f) the following new subsection:
    ``(g) Hope Scholarship Definitions.--(1) As necessary for purposes 
of the tax credit provided under section 24A of the Internal Revenue 
Code of 1986, and the deduction provided under section 221 of such 
Code, the Secretary of Education shall define in regulation the 
following terms:
            ``(A) academic period;
            ``(B) normal full-time workload;
            ``(C) first two years of postsecondary education;
            ``(D) qualifying grade point average;
            ``(E) job skills; and
            ``(F) new job skills.
    ``(2) Notwithstanding any other provision of law, the regulations 
described in paragraph (1) shall not be subject to section 482(c).''.

                   extension of student aid programs

    Sec. 144. Title IV of the Act is amended--
            (1) in section 401(a)(1), by striking ``September 30, 
        1998,'' and inserting ``September 30, 1999,'';
            (2) in section 424(a), by striking ``1998.'' and ``2002.'' 
        and inserting ``2002.'' and ``2006.'', respectively;
            (3) in section 428(a)(5), by striking ``1998,'' and 
        ``2002.'' and inserting ``2002,'' and ``2006.'', respectively;
            (4) in section 428C(e), by striking ``1998.'' and inserting 
        ``2002.''; and
            (5) in section 466--
                    (A) in subsection (a)--
                            (i) in the matter preceding paragraph (1), 
                        by striking ``September 30, 1996,'' and March 
                        31, 1997,'' and inserting ``September 30, 
                        1998,'' and March 31, 1999'', respectively; and
                            (ii) in paragraph (1), by striking 
                        ``September 30, 1996,'' and inserting 
                        ``September 30, 1998,'';
                    (B) in subsection (b), by striking ``September 30, 
                1996,'' and inserting ``September 30, 1998,''; and
                    (C) in subsection (c), by striking out ``October 1, 
                1997,'' and inserting ``October 1, 1998,''.

                        Part D--Effective Dates

                            effective dates

    Sec. 151. (a) Except as otherwise provided in this section, the 
amendments made by this title shall take effect on the date of 
enactment of this Act.
    (b) Section 211 is effective for the calculation of Pell Grant 
awards for award years beginning on or after July 1, 1998.
    (c) Section 222 is effective for a loan made under part B or part D 
of title IV of the Act for which the first disbursement is made on or 
after October 1, 1997.
    (d) Section 223(a)(3) and section 428(b)(5)(C) of the Act (as added 
by section 226(a)(2)(E)) are effective as if they were enacted on July 
23, 1992.
    (e) Sections 224, 229, and 230 take effect on October 1, 1997.
    (f) Section 231 is effective for a loan made or insured under part 
B of title IV of the Act for which the first disbursement is made on or 
after October 1, 1997.
    (g) Section 232 is effective as if it were enacted on August 10, 
1993, but does not apply to the privatized entity that may be created 
as a result of the Student Loan Marketing Association Reorganization 
Act of 1996 (Title VI of the Departments of Labor, Health and Human 
Services, Education, and Related Agencies Appropriations Act, 1997, as 
enacted by section 101(e) of Division A of Public Law 104-208).
    (h) Section 242 is effective for determinations of need for 
academic years beginning on or after July 1, 1998.
                                 <all>