Short title

This Act may be cited as the

Student Loan Abuse Prevention Act of 2005

Purpose

It is the purpose of this Act to stop ensuring that lenders in the Federal Family Education Loan Program continue to receive extraordinary and unnecessary taxpayer subsidies, to make public college tuition free for future mathematics, science, and special education teachers, and to provide additional assistance to students eligible to receive a Federal Pell Grant under subpart 1 of part A of title IV of the Higher Education Act of 1965 (20 U.S.C. 1070a et seq.).

Ending the 9.5 percent guaranteed rate of return on federal family education loans

(a)

Technical correction

Section 2 of the Taxpayer-Teacher Protection Act of 2004 (Public Law 108–409; 118 Stat. 2299) is amended in the matter preceding paragraph (1) by inserting of the Higher Education Act of 1965 after Section 438(b)(2)(B). (b)

Prospective special allowances

(1)

In general

Section 438(b)(2)(B) of the Higher Education Act of 1965 (20 U.S.C. 1087–1(b)(2)(B)), as amended by the Taxpayer-Teacher Protection Act of 2004, is amended— (A)in clause (iv), by striking 1993, or refunded after September 30, 2004, and before January 1, 2006, the and inserting 1993, or refunded on or after the date of enactment of the Taxpayer-Teacher Protection Act of 2004, the; and (B)by striking clause (v) and inserting the following:

(v)Notwithstanding clauses (i) and (ii), the quarterly rate of the special allowance shall be the rate determined under subparagraph (A), (E), (F), (G), (H), or (I) of this paragraph, or paragraph (4), as the case may be, for loans— (I)originated, transferred, or purchased on or after the date of enactment of the Taxpayer-Teacher Protection Act of 2004; (II)financed by an obligation that has matured, been retired, or defeased on or after the date of enactment of the Taxpayer-Teacher Protection Act of 2004; (III)which the special allowance was determined under such subparagraphs or paragraph, as the case may be, on or after the date of enactment of the Taxpayer-Teacher Protection Act of 2004; (IV)for which the maturity date of the obligation from which funds were obtained for such loans was extended on or after the date of enactment of the Taxpayer-Teacher Protection Act of 2004; or (V)sold or transferred to any other holder on or after the date of enactment of the Taxpayer-Teacher Protection Act of 2004.

(2)

Rule of construction

Nothing in the amendment made by paragraph (1) shall be construed to abrogate a contractual agreement between the Federal Government and a student loan provider. (c)

Prepayment of current loans

(1)

In general

The Secretary of Education shall encourage a borrower to consolidate such borrower's loans under section 428C or 455(g) of the Higher Education Act of 1965 (20 U.S.C. 1078–3 and 1087e(g)) if 1 or more of such loans is a loan for which the holder of the loan is entitled to a special allowance payment determined under section 438(b)(2)(B) of such Act (20 U.S.C. 1087–1(b)(2)(B)) that ensures the holder a minimum 9.5 percent rate of return on such loan, by offering the borrower an incentive, as described in paragraph (2). (2)

Incentive

Except as provided in paragraph (3), an incentive to a borrower regarding a loan for which the holder of the loan is entitled to a special allowance payment determined under section 438(b)(2)(B) of the Higher Education Act of 1965 (20 U.S.C. 1087–1(b)(2)(B)) that ensures the holder a minimum 9.5 percent rate of return on such loan, shall take the form of— (A)an immediate $1,000 reduction in the principal of such loan; or (B)not less than a 1-percent reduction in the interest rate payments on such loan. (3)

Exception

The Secretary of Education shall not offer an incentive under paragraph (2) to a borrower of a loan described in such paragraph if offering the incentive will increase the long-term costs to the Federal Government of such loan.

Tuition-free college for future mathematics, science, and special education teachers

(a)

Additional amounts for teachers in mathematics, science, and special education

(1)

FFEL loans

Section 428J(c)(3) of the Higher Education Act of 1965 (20 U.S.C. 1078–10(c)(3)) is amended by striking $17,500 and inserting $23,000. (2)

Direct loans

Section 460(c)(3) of the Higher Education Act of 1965 (20 U.S.C. 1087j(c)(3)) is amended by striking $17,500 and inserting $23,000. (b)

Effective date

The amendments made by this section shall apply only with respect to eligible individuals who are new borrowers on or after October 1, 1998.

Increased grant aid to pell grant recipients

(a)

In general

Any funds available to the Secretary of Education as a result of reduced expenditures under section 438 of the Higher Education Act of 1965 (20 U.S.C. 1087–1) secured by the enactment of section 3 shall first be used by the Secretary for loan cancellation and loan forgiveness for teachers under sections 428J and 460 of the Higher Education Act of 1965 (20 U.S.C. 1078–10 and 1087j), as amended by section 4. (b)

Remaining funds

(1)

In general

Any such funds remaining after carrying out subsection (a) shall be used by the Secretary of Education to make payments to each nonprofit lender in an amount that bears the same relation to the remaining funds as the amount the nonprofit lender receives for fiscal year 2005 under section 438(b)(2)(B) of the Higher Education Act of 1965 (20 U.S.C. 1087–1(b)(2)(B)) bears to the total amount received by nonprofit lenders for fiscal year 2005 under such section. (2)

Definition of nonprofit lender

In this subsection, the term nonprofit lender means an eligible lender (as defined in section 435(d) of the Higher Education Act of 1965 (20 U.S.C. 1085(d)) that— (A)is an organization described in section 501(c)(3) of the Internal Revenue Code of 1986; (B)is a nonprofit entity as defined by applicable State law; and (C)meets the following requirements: (i)The nonprofit lender does not confer a salary or benefits to any employee of the nonprofit lender in an amount that is in excess of the salary and benefits provided to the Secretary of Education by the Department of Education. (ii)The nonprofit lender does not maintain an ongoing relationship whereby the nonprofit lender passes on revenue directly or indirectly through lease, securitization, resale, or any other financial instrument to a for-profit entity or to shareholders. (iii)The nonprofit lender does not offer benefits to a borrower in a manner directly or indirectly predicated on such borrower's participation— (I)in a program under part B or D of title IV of the Higher Education Act of 1965 (20 U.S.C. 1071 et seq. and 1087a et seq.); or (II)with any particular lender. (iv)The nonprofit lender certifies that the nonprofit lender uses the payment received pursuant to paragraph (1) to confer grant or scholarship benefits to students who are eligible to receive Federal Pell Grants under subpart 1 of part A of title IV of the Higher Education Act of 1965 (20 U.S.C. 1070a et seq.). (v)The nonprofit lender is subject to public oversight through either a State charter or through not less than 50 percent of the nonprofit lender's board of directors consisting of State-appointed representatives. (vi)The nonprofit lender does not engage in the marketing of the relative value of programs under part B of title IV of the Higher Education Act of 1965 (20 U.S.C. 1071 et seq.) as compared to programs under part D of title IV of the Higher Education Act of 1965 (20 U.S.C. 1087a et seq.), nor does the nonprofit lender engage in the marketing of loans or programs offered by for-profit lenders. This clause shall not be construed to prohibit the nonprofit lender from conferring basic information on lenders under part B of title IV of the Higher Education Act of 1965 (20 U.S.C. 1071 et seq.) and the related benefits offered by such nonprofit lenders.