[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 486 Introduced in Senate (IS)]







110th CONGRESS
  1st Session
                                 S. 486

   To establish requirements for lenders and institutions of higher 
 education in order to protect students and other borrowers receiving 
                           educational loans.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            February 1, 2007

  Mr. Kennedy (for himself, Mr. Durbin, Mrs. Clinton, Mr. Harkin, Mr. 
Rockefeller, Mr. Kerry, and Mr. Schumer) introduced the following bill; 
     which was read twice and referred to the Committee on Health, 
                     Education, Labor, and Pensions

_______________________________________________________________________

                                 A BILL


 
   To establish requirements for lenders and institutions of higher 
 education in order to protect students and other borrowers receiving 
                           educational loans.

    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 Sunshine Act''.

SEC. 2. INSTITUTION AND LENDER REPORTING AND DISCLOSURE REQUIREMENTS.

    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--LENDER AND INSTITUTION REQUIREMENTS RELATING TO EDUCATIONAL 
                                 LOANS

``SEC. 151. DEFINITIONS.

    ``In this part:
            ``(1) Covered institution.--The term `covered 
        institution'--
                    ``(A) means any educational institution that offers 
                a postsecondary educational degree, certificate, or 
                program of study (including any institution of higher 
                education, as such term is defined in section 102) and 
                receives any Federal funding or assistance; and
                    ``(B) includes an agent of the educational 
                institution (including an alumni association, booster 
                club, or other organization directly or indirectly 
                associated with such institution) or employee of such 
                institution.
            ``(2) Educational loan.--The term `educational loan' 
        (except when used as part of the term `private educational 
        loan') means--
                    ``(A) any loan made, insured, or guaranteed under 
                title IV; or
                    ``(B) a private educational loan (as defined in 
                paragraph (5)).
            ``(3) Educational loan arrangement.--
                    ``The term `educational loan arrangement' means an 
                arrangement or agreement between a lender and a covered 
                institution--
                    ``(A) under which arrangement or agreement a lender 
                provides or otherwise issues educational loans to the 
                students attending the covered institution or the 
                parents of such students; and
                    ``(B) which arrangement or agreement--
                            ``(i) relates to the covered institution 
                        recommending, promoting, endorsing, or using 
                        the loan product of the lender; and
                            ``(ii) involves the payment of any fee or 
                        provision of other material benefit by the 
                        lender to the institution or to groups of 
                        students who attend the institution.
            ``(4) Lender.--
                    ``(A) In general.--The term `lender'--
                            ``(i) means a creditor, except that such 
                        term shall not include an issuer of credit 
                        under a residential mortgage transaction; and
                            ``(ii) includes an agent of a lender.
                    ``(B) Incorporation of tila definitions.--The terms 
                `creditor' and `residential mortgage transaction' have 
                the meanings given such terms in section 103 of the 
                Truth in Lending Act (15 U.S.C. 1602).
            ``(5) Private educational loan.--The term `private 
        educational loan' means a private loan provided by a lender 
        that--
                    ``(A) is not made, insured, or guaranteed under 
                title IV; and
                    ``(B) is issued by a lender for postsecondary 
                educational expenses to a student, or the parent of the 
                student, regardless of whether the loan is provided 
                through the educational institution that the student 
                attends or directly to the student or parent from the 
                lender.
            ``(6) Postsecondary educational expenses.--The term 
        `postsecondary educational expenses' means any of the expenses 
        that are included as part of a student's cost of attendance, as 
        defined under section 472.

``SEC. 152. REQUIREMENTS FOR LENDERS AND INSTITUTIONS PARTICIPATING IN 
              EDUCATIONAL LOAN ARRANGEMENTS.

    ``(a) Reporting for Lenders.--In addition to any other disclosure 
required under Federal law, each lender that participates in 1 or more 
educational loan arrangements shall prepare and submit to the Secretary 
(at a time to be determined by the Secretary) an annual report that 
includes, with respect to each educational loan arrangement, the 
following:
            ``(1) The date on which the arrangement was entered into 
        and the period for which the arrangement applies.
            ``(2) A summary of the terms of the arrangement related to 
        the marketing, recommending, endorsing, or use of, the loans.
            ``(3) The full details of any aspect of the arrangement 
        relating to the covered institution issuing loans and the 
        lender (or a financial partner of the lender) servicing or 
        purchasing such loans.
            ``(4) A summary of any direct or indirect benefit provided 
        or paid to any party in connection with the arrangement.
    ``(b) Provision of Loan Information.--A lender may not provide a 
private educational loan to a student attending a covered institution 
with which the lender has an educational loan arrangement, or the 
parent of such student, until the covered institution has informed the 
student or parent of their remaining options for borrowing under title 
IV, including information on any terms and conditions of available 
loans under such title that are more favorable to the borrower.
    ``(c) Use of Institution Name.--
            ``(1) In general.--A covered institution that has entered 
        into an educational loan arrangement with a lender regarding 
        private educational loans shall not allow the lender to use the 
        name, emblem, mascot, or logo of the institution, or other 
        words, pictures, or symbols readily identified with the 
        institution, in the marketing of private educational loans to 
        the students attending the institution in any way that implies 
        that the institution endorses the private educational loans 
        offered by the lender.
            ``(2) Applicability.--Paragraph (1) shall apply to any 
        educational loan arrangement, or extension of such arrangement, 
        entered into or renewed after the date of enactment of the 
        Student Loan Sunshine Act.

``SEC. 153. INTEREST RATE REPORT FOR INSTITUTIONS AND LENDERS 
              PARTICIPATING IN EDUCATIONAL LOAN ARRANGEMENTS.

    ``(a) Secretary Duties.--
            ``(1) Report and model format.--Not later than 180 days 
        after the date of enactment of the Student Loan Sunshine Act, 
        the Secretary shall--
                    ``(A) prepare a report on the adequacy of the 
                information provided to students and the parents of 
                such students about educational loans (including loans 
                made, insured, or guaranteed under title IV and private 
                educational loans), after consulting with students, 
                representatives of covered institutions (including 
                financial aid administrators, registrars, and business 
                officers), lenders (including lenders of private 
                educational loans), loan servicers, and guaranty 
                agencies;
                    ``(B) include in the report a model format, based 
                on the report's findings, to be used by lenders and 
                covered institutions in carrying out subsections (b) 
                and (c)--
                            ``(i) that provides information on the 
                        applicable interest rates and other terms and 
                        conditions of the educational loans provided by 
                        a lender to students attending the institution, 
                        or the parents of such students, disaggregated 
                        by each type of educational loans provided to 
                        such students or parents by the lender, 
                        including--
                                    ``(I) the interest rate and terms 
                                and conditions of the loans offered by 
                                the lender for the upcoming academic 
                                year;
                                    ``(II) with respect to such loans, 
                                any benefits that are contingent on the 
                                repayment behavior of the borrower;
                                    ``(III) the annual percentage rate 
                                for such loans, based on the actual 
                                disbursed amount of the loan;
                                    ``(IV) the average amount borrowed 
                                from the lender by students enrolled in 
                                the institution who obtain loans of 
                                such type from the lender for the 
                                preceding academic year; and
                                    ``(V) the average interest rate on 
                                such loans provided to such students 
                                for the preceding academic year; and
                            ``(ii) which format shall be easily usable 
                        by lenders, institutions, guaranty agencies, 
                        and loan servicers; and
                    ``(C)(i) submit the report and model format to the 
                Committee on Health, Education, Labor, and Pensions of 
                the Senate and the Committee on Education and Labor of 
                the House of Representatives; and
                    ``(ii) make the report and model format available 
                to covered institutions, lenders, and the public.
            ``(2) Format update.--Not later than 1 year after the 
        submission of the report and model format described in 
        paragraph (1), the Secretary shall--
                    ``(A) assess the adequacy of the model format 
                included in the report;
                    ``(B) after consulting with students, 
                representatives of covered institutions (including 
                financial aid administrators, registrars, and business 
                officers), lenders (including lenders of private 
                educational loans), loan servicers, and guaranty 
                agencies--
                            ``(i) prepare a list of any improvements to 
                        the model format that have been identified as 
                        beneficial to borrowers; and
                            ``(ii) update the model format after taking 
                        such improvements into consideration; and
                    ``(C)(i) submit the list of improvements and 
                updated model format to the Committee on Health, 
                Education, Labor, and Pensions of the Senate and the 
                Committee on Education and Labor of the House of 
                Representatives; and
                    ``(ii) make the list of improvements and updated 
                model format available to covered institutions, 
                lenders, and the public.
            ``(3) Use of form.--The Secretary shall take such steps as 
        necessary to make the model format, and any updated model 
        format, available to covered institutions and to encourage--
                    ``(A) lenders subject to subsection (b) to use the 
                model format or updated model format (if available) in 
                providing the information required under subsection 
                (b); and
                    ``(B) covered institutions to use such format in 
                preparing the information report under subsection (c).
    ``(b) Lender Duties.--Each lender that has an educational loan 
arrangement with a covered institution shall annually, by a date 
determined by the Secretary, provide to the covered institution and to 
the Secretary the information included on the model format or an 
updated model format (if available) for each type of educational loan 
provided by the lender to students attending the covered institution, 
or the parents of such students, for the preceding academic year.
    ``(c) Covered Institution Duties.--Each covered institution shall--
            ``(1) prepare and submit to the Secretary an annual report, 
        by a date determined by the Secretary, that includes, for each 
        lender that has an educational loan arrangement with the 
        covered institution and that has submitted to the institution 
        the information required under subsection (b)--
                    ``(A) the information included on the model format 
                or updated model format (if available) for each type of 
                educational loan provided by the lender to students 
                attending the covered institution, or the parents of 
                such students; and
                    ``(B) a detailed explanation of why the covered 
                institution believes the terms and conditions of each 
                type of educational loan provided pursuant to the 
                agreement are beneficial for students attending the 
                covered institution, or the parents of such students; 
                and
            ``(2) ensure that the report required under paragraph (1) 
        is made available to the public and provided to students 
        attending or planning to attend the covered institution, and 
        the parents of such students, in time for the student or parent 
        to take such information into account before applying for or 
        selecting an educational loan.

``SEC. 154. PRIVATE EDUCATIONAL LOAN DISCLOSURE REQUIREMENTS FOR 
              COVERED INSTITUTIONS.

    ``A covered institution that provides information to any student, 
or the parent of such student, regarding a private educational loan 
from a lender shall, prior to or concurrent with such information--
            ``(1) inform the student or parent of--
                    ``(A) the student or parent's eligibility for 
                assistance and loans under title IV; and
                    ``(B) the terms and conditions of such private 
                educational loan that are less favorable than the terms 
                and conditions of educational loans for which the 
                student or parent is eligible, including interest 
                rates, repayment options, and loan forgiveness; and
            ``(2) ensure that information regarding such private 
        educational loans is presented in such a manner as to be 
        distinct from information regarding loans that are made, 
        insured, or guaranteed under title IV.

``SEC. 155. GIFT BAN FOR EMPLOYEES OF INSTITUTIONS.

    ``(a) Gift Ban.--A lender or guarantor of educational loans shall 
not offer any gift to an employee or agent of a covered institution.
    ``(b) Reports of Gift Ban Violations.--
            ``(1) Employee report.--Each employee or agent of a covered 
        institution shall report to the Inspector General of the 
        Department of Education any instance of a lender or guarantor 
        of educational loans (including an agent of the lender or 
        guarantor) that attempts to give a gift to the employee or 
        agent in violation of subsection (a).
            ``(2) Inspector general report.--The Inspector General of 
        the Department of Education shall investigate any reported 
        violation of this subsection and shall annually submit a report 
        to the Committee on Health, Education, Labor, and Pensions of 
        the Senate and the Committee on Education and Labor of the 
        House of Representatives identifying all reported violations of 
        the gift ban under subsection (a), including the lenders 
        involved in each such violation, for the preceding year.
    ``(c) Definition of Gift.--
            ``(1) In general.--In this section, the term `gift' means 
        any gratuity, favor, discount, entertainment, hospitality, 
        loan, or other item having a monetary value of more than $10. 
        The term includes a gift of services, transportation, lodging, 
        or meals, whether provided in kind, by purchase of a ticket, 
        payment in advance, or reimbursement after the expense has been 
        incurred.
            ``(2) Exceptions.--The term `gift' shall not include any of 
        the following:
                    ``(A) Standard informational material related to a 
                loan, such as a brochure.
                    ``(B) Food, refreshments, training, or 
                informational material furnished to an employee or 
                agent of an institution as an integral part of a 
                training session or through participation in an 
                advisory council that is designed to improve the 
                lender's service to the covered institution, if such 
                training or participation contributes to the 
                professional development of the employee or agent of 
                the institution.
                    ``(C) Favorable terms, conditions, and borrower 
                benefits on an educational loan provided to a student 
                employed by the covered institution.
            ``(3) Rule for gifts to family members.--For purposes of 
        this section, a gift to a family member of an employee or an 
        agent of a covered institution, or a gift to any other 
        individual based on that individual's relationship with the 
        employee or agent, shall be considered a gift to the employee 
        or agent if--
                    ``(A) the gift is given with the knowledge and 
                acquiescence of the employee or agent; and
                    ``(B) the employee or agent has reason to believe 
                the gift was given because of the official position of 
                the employee or agent.

``SEC. 156. COMPLIANCE AND ENFORCEMENT.

    ``(a) Condition of Any Federal Assistance.--Notwithstanding any 
other provision of law, a covered institution or lender shall comply 
with this part as a condition of receiving Federal funds or assistance 
provided after the date of enactment of the Student Loan Sunshine Act.
    ``(b) Penalties.--Notwithstanding any other provision of law, if 
the Secretary determines, after providing notice and an opportunity for 
a hearing for a covered institution or lender, that the covered 
institution or lender has violated subsection (a)--
            ``(1) in the case of a covered institution, or a lender 
        that does not participate in a loan program under title IV, the 
        Secretary may impose a civil penalty in an amount of not more 
        than $25,000; and
            ``(2) in the case of a lender that does participate in a 
        program under title IV, the Secretary may limit, terminate or 
        suspend the lender's participation in such program.
    ``(c) Considerations.--In taking any action against a covered 
institution or lender under subsection (b), the Secretary shall take 
into consideration the nature and severity of the violation of 
subsection (a).

``SEC. 157. GAO STUDY AND REPORTS.

    ``(a) Study.--The Comptroller General of the United States shall 
conduct a study on--
            ``(1) the gifts or financial or other material benefits 
        that are provided by lenders to covered institutions to secure, 
        or as part of an effort to secure, the covered institutions' 
        educational loan business;
            ``(2) the extent to which lenders issuing private 
        educational loans may be inappropriately using inducements to 
        secure, or as part of an effort to secure, educational loan 
        arrangements with covered institutions; and
            ``(3) whether educational loans made to students attending 
        a covered institution in connection with an educational loan 
        arrangement, and private educational loans made directly to 
        students, provide competitive interest rates, terms, and 
        conditions to students who obtain such loans.
    ``(b) Reports.--The Comptroller General of the United States 
shall--
            ``(1) not later than 1 year after the date of enactment of 
        the Student Loan Sunshine Act, submit to Congress a preliminary 
        report regarding the findings of the study described in 
        subsection (a); and
            ``(2) not later than 2 years after such date of enactment, 
        submit to Congress a final report regarding such findings.''.

SEC. 3. PROGRAM PARTICIPATION AGREEMENTS.

    Section 487(a) of the Higher Education Act of 1965 (20 U.S.C. 
1094(a)) is amended by adding at the end the following:
            ``(24)(A) In the case of an institution (including an 
        employee or agent of an institution) that maintains a preferred 
        lender list, in print or any other medium, through which the 
        institution recommends 1 or more specific lenders for loans 
        made under part B to the students attending the institution (or 
        the parents of such students), the institution will--
                    ``(i) clearly and fully disclose on the preferred 
                lender list--
                            ``(I) why the institution has included each 
                        lender as a preferred lender, especially with 
                        respect to terms and conditions favorable to 
                        the borrower; and
                            ``(II) that the students attending the 
                        institution (or the parents of such students) 
                        do not have to borrow from a lender on the 
                        preferred lender list;
                    ``(ii) ensure, through the use of the list provided 
                by the Secretary under subparagraph (C), that--
                            ``(I) there are not less than 3 lenders 
                        named on the preferred lending list that are 
                        not affiliates of each other; and
                            ``(II) the preferred lender list--
                                    ``(aa) specifically indicates, for 
                                each lender on the list, whether the 
                                lender is or is not an affiliate of 
                                each other lender on the list; and
                                    ``(bb) if the lender is an 
                                affiliate of another lender on the 
                                list, describes the specifics of such 
                                affiliation; and
                    ``(iii) establish a process to ensure that lenders 
                are placed upon the preferred lender list on the basis 
                of the benefits provided to borrowers, including --
                            ``(I) highly competitive interest rates, 
                        terms, or conditions for loans made under part 
                        B;
                            ``(II) high-quality servicing for such 
                        loans; or
                            ``(III) additional benefits beyond the 
                        standard terms and conditions for such loans.
            ``(B) For the purposes of subparagraph (A)(ii)--
                    ``(i) the term `affiliate' means a person that 
                controls, is controlled by, or is under common control 
                with another person; and
                    ``(ii) a person has control over another person 
                if--
                            ``(I) the person directly or indirectly, or 
                        acting through 1 or more others, owns, 
                        controls, or has the power to vote 5 percent or 
                        more of any class of voting securities of such 
                        other person;
                            ``(II) the person controls, in any manner, 
                        the election of a majority of the directors or 
                        trustees of such other person; or
                            ``(III) the Secretary determines (after 
                        notice and opportunity for a hearing) that the 
                        person directly or indirectly exercises a 
                        controlling interest over the management or 
                        policies of such other person.
            ``(C) The Secretary shall maintain and update a list of 
        lender affiliates of all eligible lenders, and shall provide 
        such list to the eligible institutions for use in carrying out 
        subparagraph (A).''.

SEC. 4. NOTICE OF AVAILABILITY OF FUNDS FROM FEDERAL SOURCES.

    Section 128 of the Truth in Lending Act (15 U.S.C. 1638) is amended 
by adding at the end the following:
    ``(e) Disclosures Relating to Private Educational Loans.--
            ``(1) In general.--In the case of an extension of credit 
        that is a private educational loan, other than a residential 
        mortgage transaction, the creditor shall provide in every 
        application for such extensions of credit and together with any 
        solicitation, marketing, or advertisement of such extensions of 
        credit, written, electronic, or otherwise, the disclosures 
        described in paragraph (2).
            ``(2) Disclosures.--Disclosures required by this subsection 
        shall include a clear and prominent statement--
                    ``(A) that the borrower may qualify for Federal 
                financial assistance through a program under title IV 
                of the Higher Education Act of 1965, 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) describing how the applicable interest rate 
                is determined, including whether it is based on the 
                credit score of the borrower;
                    ``(D) showing sample loan costs, disaggregated by 
                type;
                    ``(E) of the types of repayment plans that are 
                available;
                    ``(F) of whether, and under what conditions, early 
                repayment may be made without penalty;
                    ``(G) of when and how often the loan would be 
                recapitalized;
                    ``(H) describing all fees, deferments, or 
                forbearance;
                    ``(I) describing all available repayment benefits, 
                and the percentage of all borrowers who qualify for 
                such benefits;
                    ``(J) describing collection practices in the case 
                of default;
                    ``(K) describing late payment penalties and 
                associated fees;
                    ``(L) of any complaints (and their resolution) 
                filed with any State or private consumer protection 
                agency (including the Better Business Bureau); and
                    ``(M) such other information as the Board may 
                require.
            ``(3) Provision of information.--Before a creditor may 
        issue any funds with respect to an extension of credit 
        described in paragraph (1) for an amount equal to more than 
        $1,000--
                    ``(A) the creditor shall notify the relevant 
                postsecondary educational institution, in writing, of 
                the proposed extension of credit and the amount 
                thereof; and
                    ``(B) if such relevant institution is a covered 
                institution, the institution shall, in an expedient 
                manner, notify the prospective borrower, in accordance 
                with procedures established by rule of the Board, 
                whether and to what extent the proposed extension of 
                credit exceeds the cost of attendance (as defined in 
                section 472 of the Higher Education Act of 1965) for 
                the student at that institution, after consideration of 
                the Federal and State grant and loan aid and 
                institutional aid that the student has or is eligible 
                to receive.
            ``(4) Regulatory authority.--The Board--
                    ``(A) shall issue such rules and regulations as may 
                be necessary to implement this subsection; and
                    ``(B) may, by rule, establish appropriate 
                exceptions to the disclosures required by this 
                subsection.
            ``(5) Definitions.--As used in this subsection, the terms 
        `private educational loan' and `covered institution' have the 
        same meanings as in section 151 of the Higher Education Act of 
        1965.''.
                                 <all>