[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 1262 Introduced in Senate (IS)]







110th CONGRESS
  1st Session
                                S. 1262

  To protect students receiving student loans, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                              May 2, 2007

    Mr. Enzi (for himself, Mr. Alexander, Mr. Allard, Mr. Burr, Mr. 
Isakson, Ms. Murkowski, and Mr. Roberts) introduced the following bill; 
     which was read twice and referred to the Committee on Health, 
                     Education, Labor, and Pensions

_______________________________________________________________________

                                 A BILL


 
  To protect students receiving student loans, and for other purposes.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Student Loan Accountability and 
Disclosure Reform Act''.

SEC. 2. INSURANCE PROGRAM AGREEMENTS.

    Paragraph (3) of section 428(b) of the Higher Education Act of 1965 
(20 U.S.C. 1078(b)(3)) is amended to read as follows:
            ``(3) Restrictions on inducements, payments, mailings, and 
        advertising.--A guaranty agency shall not--
                    ``(A) offer, directly or indirectly, premiums, 
                payments, stock or other securities, prizes, travel, 
                entertainment expenses, tuition repayment, or other 
                inducements to--
                            ``(i) any institution of higher education 
                        or the employees of an institution of higher 
                        education in order to secure applicants for 
                        loans made under this part; or
                            ``(ii) any lender, or any agent, employee, 
                        or independent contractor of any lender or 
                        guaranty agency, in order to administer or 
                        market loans made under this part (other than a 
                        loan made under section 428H or a loan made as 
                        part of the guaranty agency's lender-of-last-
                        resort program pursuant to section 439(q)) for 
                        the purpose of securing the designation of the 
                        guaranty agency as the insurer of such loans;
                    ``(B) conduct unsolicited mailings, by postal or 
                electronic means, of student loan application forms to 
                students enrolled in secondary school or postsecondary 
                educational institutions, or to the parents of such 
                students, except that applications may be mailed, by 
                postal or electronic means, to students or borrowers 
                who have previously received loans guaranteed under 
                this part by the guaranty agency;
                    ``(C) perform, for an institution of higher 
                education participating in a program under this title 
                and without appropriate compensation by such 
                institution, any function that the institution is 
                required to perform under part B, D, or G (except for 
                the exit counseling described in section 485(b));
                    ``(D) pay, on behalf of the institution of higher 
                education, another person to perform any function that 
                the institution of higher education is required to 
                perform under part B, D, or G (except for the exit 
                counseling described in section 485(b)); or
                    ``(E) conduct fraudulent or misleading advertising 
                concerning loan availability, terms, or conditions.
        It shall not be a violation of this paragraph for a guaranty 
        agency to provide assistance to institutions of higher 
        education comparable to the kinds of assistance provided to 
        institutions of higher education by the Department.''.

SEC. 3. DISCLOSURE RULES FOR EDUCATIONAL LOANS.

    Title I of the Higher Education Act of 1965 (20 U.S.C. 1001 et 
seq.) is amended by adding at the end the following:

            ``PART E--DISCLOSURE RULES FOR EDUCATIONAL LOANS

``SEC. 151. DISCLOSURE RULES RELATING TO EDUCATIONAL LOANS.

    ``(a) Definitions.--In this part:
            ``(1) Cost of attendance.--The term `cost of attendance' 
        has the meaning given the term in section 472.
            ``(2) Institution of higher education.--The term 
        `institution of higher education'--
                    ``(A) has the meaning given the term in section 
                102; and
                    ``(B) includes an employee or agent of the 
                institution of higher education or any organization or 
                entity directly or indirectly controlled by such 
                institution.
            ``(3) Lender.--The term `lender' means--
                    ``(A) any lender of a loan made, insured, or 
                guaranteed under title IV, including a consolidation 
                loan under section 428C;
                    ``(B) any lender that is a financial institution, 
                as such term is defined in section 509 of the Gramm-
                Leach-Bliley Act (15 U.S.C. 6809); and
                    ``(C) for any loan issued or provided to a student 
                under part D of title IV, the Secretary.
            ``(4) Private educational loan.--The term `private 
        educational loan' means a private loan that--
                    ``(A) is not made, insured, or guaranteed under 
                title IV; and
                    ``(B) is offered to a borrower by an institution of 
                higher education through an award letter or other 
                notification.
    ``(b) Disclosures.--
            ``(1) Disclosures by lenders.--Before a lender issues or 
        otherwise provides a loan under title IV or a private 
        educational loan to a student, the lender shall provide the 
        student, in writing, with the disclosures described in 
        paragraph (2).
            ``(2) Disclosures.--The disclosures required by this 
        paragraph shall include a clear and prominent statement--
                    ``(A) that the borrower may qualify for Federal 
                financial assistance through a program under title IV, 
                in lieu of or in addition to a loan from a non-Federal 
                source;
                    ``(B) of the interest rates available with respect 
                to such Federal financial assistance;
                    ``(C) showing sample educational loan costs, 
                disaggregated by type;
                    ``(D) that describes, with respect to each loan 
                being provided to the student by the lender--
                            ``(i) how the applicable interest rate is 
                        determined, including whether the rate is based 
                        on the credit score of the borrower;
                            ``(ii) the types of repayment plans that 
                        are available;
                            ``(iii) whether, and under what conditions, 
                        early repayment may be made without penalty;
                            ``(iv) when and how often the loan would be 
                        recapitalized;
                            ``(v) all fees, deferments, or forbearance;
                            ``(vi) all available repayment benefits, 
                        and the percentage of all borrowers who qualify 
                        for such benefits;
                            ``(vii) the collection practices in the 
                        case of default;
                            ``(viii) the late payment penalties and 
                        associated fees; and
                            ``(ix) whether the amount of all loans 
                        issued by the lender to the borrower exceeds 
                        the student's cost of attendance; and
                    ``(E) such other information as the Secretary may 
                require.''.

SEC. 4. REVIEW OF PRIVATE EDUCATIONAL LOAN MARKET.

    Section 495 of the Higher Education Act of 1965 (20 U.S.C. 1099a) 
is amended by adding at the end the following:
    ``(c) Review of Private Education Loan Markets.--The Secretary and 
the Secretary of the Treasury shall conduct an evaluation of markets 
for educational loans to--
            ``(1) evaluate any variations in availability, terms, and 
        conditions of educational loans provided to students who 
        qualify for a simplified needs test under section 479 or any 
        income-contingent simplified version of the Free Application 
        for Federal Student Aid;
            ``(2) identify possible discriminatory lending patterns 
        affecting students described in paragraph (1); and
            ``(3) report, not later than 1 year after the date of 
        enactment of the Student Loan Accountability and Disclosure 
        Reform Act to the Committee on Health, Education, Labor, and 
        Pensions and the Committee on Banking, Housing, and Urban 
        Affairs of the Senate, and the Committee on Education and Labor 
        and the Committee on Financial Services of the House of 
        Representatives, on findings and recommendations for the need 
        to afford protections from predatory lending practices to such 
        students.''.

SEC. 5. DISQUALIFICATION OF ELIGIBLE LENDER.

    Section 435(d)(5) of the Higher Education Act of 1965 (20 U.S.C. 
1085(d)(5)) is amended--
            (1) by redesignating subparagraphs (C) and (D) as 
        subparagraphs (H) and (I), respectively; and
            (2) by striking subparagraphs (A) and (B) and inserting the 
        following:
                    ``(A) offered, directly or indirectly, points, 
                premiums, payments (including payments for referrals 
                and for processing or finder fees), prizes, stock or 
                other securities, travel, entertainment expenses, 
                tuition repayment, the provision of information 
                technology equipment at below-market value, additional 
                financial aid funds, or other inducements to any 
                institution of higher education or any employee of an 
                institution of higher education in order to secure 
                applicants for loans under this part;
                    ``(B) conducted unsolicited mailings, by postal or 
                electronic means, of student loan application forms to 
                students enrolled in secondary school or postsecondary 
                institutions, or to parents of such students, except 
                that applications may be mailed, by postal or 
                electronic means, to students or borrowers who have 
                previously received loans under this part from such 
                lender;
                    ``(C) entered into any type of consulting 
                arrangement, or other contract to provide services to a 
                lender, with an employee who is employed in the 
                financial aid office of an institution of higher 
                education, or who otherwise has responsibilities with 
                respect to student loans or other financial aid of the 
                institution;
                    ``(D) compensated an employee who is employed in 
                the financial aid office of an institution of higher 
                education, or who otherwise has responsibilities with 
                respect to student loans or other financial aid of the 
                institution, and who is serving on an advisory board, 
                commission, or group established by a lender or group 
                of lenders for providing such service, except that the 
                eligible lender may reimburse such employee for 
                reasonable expenses incurred in providing such service;
                    ``(E) performed for an institution of higher 
                education, without compensation from the institution, 
                any function that the institution of higher education 
                is required to carry out under part B, D, or G (except 
                for general debt counseling, such as the exit 
                counseling described in section 485(b));
                    ``(F) paid, on behalf of an institution of higher 
                education, another person to perform any function that 
                the institution of higher education is required to 
                perform under part B, D, or G (except for general debt 
                counseling, such as the exit counseling described in 
                section 485(b));
                    ``(G) provided payments or other benefits to a 
                student at an institution of higher education to act as 
                the lender's representative to secure applications 
                under this title from individual prospective borrowers, 
                unless such student--
                            ``(i) is also employed by the lender for 
                        other purposes; and
                            ``(ii) made all appropriate disclosures 
                        regarding such employment;''.

SEC. 6. CERTIFICATIONS; CODE OF CONDUCT REGARDING STUDENT LOANS.

    Section 487 of the Higher Education Act of 1965 (20 U.S.C. 1094) is 
amended--
            (1) in subsection (a)--
                    (A) by striking paragraph (6) and inserting the 
                following:
            ``(6) The institution will not provide any student with any 
        statement or certification to a lender that qualifies the 
        student for a loan or loans in excess of the amount that 
        student is eligible to borrow in accordance with sections 
        425(a), 428(a)(2), and subparagraphs (A) and (B) of section 
        428(b)(1) unless--
                    ``(A) the loan in question is a private educational 
                loan as defined under section 151(a); and
                    ``(B) the student does not qualify for the 
                simplified needs test under section 479 or any income-
                contingent simplified version of the Free Application 
                for Federal Student Aid.'';
                    (B) by redesignating paragraphs (21), (22), and 
                (23) as (22), (23), and (24), respectively; and
                    (C) by inserting after paragraph (20) the 
                following:
            ``(21)(A) The institution will establish, follow, and 
        enforce a code of conduct regarding student loans that includes 
        not less than the following:
                    ``(i) Revenue sharing prohibition.--The institution 
                is prohibited from receiving anything of value from any 
                lender in exchange for any advantage sought by the 
                lender.
                    ``(ii) Gift and trip prohibition.--Any employee who 
                is employed in the financial aid office of the 
                institution, or who otherwise has responsibilities with 
                respect to student loans or other financial aid of the 
                institution, is prohibited from taking from any lender 
                any gift or trip worth more than nominal value, except 
                for reasonable expenses for professional development 
                that will improve the efficiency and effectiveness of 
                programs under this title and for domestic travel to 
                such professional development.
                    ``(iii) Contracting arrangements.--Any employee who 
                is employed in the financial aid office of the 
                institution, or who otherwise has responsibilities with 
                respect to student loans or other financial aid of the 
                institution, shall be prohibited from entering into any 
                type of consulting arrangement or other contract to 
                provide services to a lender.
                    ``(iv) Advisory board compensation.--Any employee 
                who is employed in the financial aid office of the 
                institution, or who otherwise has responsibilities with 
                respect to student loans or other financial aid of the 
                institution, and who serves on an advisory board, 
                commission, or group established by a lender or group 
                of lenders shall be prohibited from receiving anything 
                of value as compensation from the lender or group of 
                lenders for serving on such advisory board, commission, 
                or group, except that the employee may be reimbursed 
                for reasonable expenses incurred in providing such 
                service.
                    ``(v) Lender information requirements.--The 
                institution--
                            ``(I) will not designate any lender as a 
                        preferred lender for loans under this title or 
                        private educational loans;
                            ``(II) may invite a lender of such loans to 
                        submit to the institution a standard electronic 
                        template that specifies the rates, services, 
                        discounts, and terms and conditions of the 
                        loans, and the lender's contact information;
                            ``(III) upon request of a lender interested 
                        in offering loans under this title or private 
                        educational loans to students at the 
                        institution, will provide the lender with the 
                        ability to submit the standard electronic 
                        template described in subclause (II) to the 
                        institution;
                            ``(IV) will make all submitted standard 
                        electronic templates available to current and 
                        prospective students of the institution, and 
                        the parents of such students;
                            ``(V) if such student, or a parent of such 
                        student, requests information on the lenders 
                        that have submitted standard electronic 
                        templates to the institution, will provide the 
                        student or parent with a guide that--
                                    ``(aa) enables students and parents 
                                to do their own evaluation of the loan 
                                products, benefits, and services 
                                offered by such lenders; and
                                    ``(bb) includes the disclosures 
                                required under clause (vi).
                    ``(vi) Disclosures.--An institution required to 
                make the disclosures under this clause will--
                            ``(I) disclose the criteria and process 
                        used to develop the guide described in clause 
                        (v)(V) regarding the products offered by each 
                        lender that submitted a standard electronic 
                        template, as described in clause (v)(II);
                            ``(II) disclose which lenders listed in the 
                        guide have an agreement in place to sell the 
                        loans of the lender to another lender; and
                            ``(III) provide a notice to the student 
                        that the student has the right to select a 
                        lender of the student's choosing, regardless of 
                        any information regarding the lender in the 
                        institution's guide under clause (v) or whether 
                        the lender submitted a standard electronic 
                        template to the institution.
                    ``(vii) Lender services to institutions of higher 
                education.--
                            ``(I) Any agent, employee, or independent 
                        contractor of a lender who is performing any 
                        service for the institution shall disclose the 
                        individual's relationship with the lender to 
                        any students and parents for whom the 
                        individual provides such service.
                            ``(II) Any agreement for the performance of 
                        a service by a lender for the institution shall 
                        comply with all applicable State and 
                        institution ethics laws and codes of ethics.
                    ``(viii) Interaction with borrowers.--The 
                institution will not--
                            ``(I) for any first-time borrower, assign, 
                        through award packaging or other methods, the 
                        borrower's loan to a particular lender; and
                            ``(II) refuse to certify, or, delay 
                        certification of, any loan in accordance with 
                        paragraph (6) based on the borrower's selection 
                        of a particular lender or guaranty agency.
            ``(B) The institution will designate an individual who 
        shall be responsible for signing an annual attestation on 
        behalf of the institution that the institution agrees to, and 
        is in compliance with, the requirements of the code of conduct 
        described in this paragraph. Such individual shall be the chief 
        executive officer, chief operating officer, chief financial 
        officer, or comparable official, of the institution, and shall 
        annually submit the signed attestation to the Secretary.
            ``(C) The institution will make the code of conduct widely 
        available to the institution's faculty members, students, and 
        parents through a variety of means, including the institution's 
        website.'';
            (2) by redesignating subsections (d) and (e) as subsections 
        (e) and (f), respectively; and
            (3) by inserting after subsection (c) the following:
    ``(d) Violation of Code of Conduct Regarding Student Loans.--
            ``(1) In general.--Upon a finding by the Secretary, after 
        reasonable notice and an opportunity for a hearing, that an 
        institution of higher education that has entered into a program 
        participation agreement with the Secretary under subsection (a) 
        willfully contravened the institution's attestation of 
        compliance with the provisions of subsection (a)(21), the 
        Secretary may impose a penalty described in paragraph (2).
            ``(2) Penalties.--A violation of paragraph (1) shall result 
        in the limitation, suspension, or termination of the 
        eligibility of the institution for the loan programs under this 
        title.''.

SEC. 7. TERMINATION OF SCHOOL-AS-LENDER PROGRAM.

    Section 435(d) of the Higher Education Act of 1965 (20 U.S.C. 
1085(d)) (as amended by section 5) is further amended--
            (1) in paragraph (1)(E), by inserting ``subject to 
        paragraph (8),'' before ``an eligible institution''; and
            (2) by adding at the end the following:
            ``(8) Sunset of authority for school as lender program.--
                    ``(A) Sunset.--The authority provided under 
                subsection (d)(1)(E) for an institution to serve as an 
                eligible lender, and under paragraph (7) for an 
                eligible lender to serve as a trustee for an 
                institution of higher education or an organization 
                affiliated with an institution of higher education, 
                shall expire on June 30, 2008.
                    ``(B) Application to existing institutional 
                lenders.--An institution that was an eligible lender 
                under this subsection, or an eligible lender that 
                served as a trustee for an institution of higher 
                education or an organization affiliated with an 
                institution of higher education under paragraph (7), 
                before June 30, 2008, shall--
                            ``(i) not issue any new loans in such a 
                        capacity under part B after June 30, 2008; and
                            ``(ii) shall continue to carry out the 
                        institution's responsibilities for any loans 
                        issued by the institution under part B on or 
                        before June 30, 2008, except that, beginning on 
                        June 30, 2010, the eligible institution or 
                        trustee may, notwithstanding any other 
                        provision of this Act, sell or otherwise 
                        dispose of such loans if all profits from the 
                        divestiture are used for need-based grant 
                        programs at the institution.''.
                                 <all>