[Congressional Record Volume 153, Number 71 (Wednesday, May 2, 2007)]
[Senate]
[Pages S5499-S5502]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
By Mr. ENZI (for himself, Mr. Alexander, Mr. Allard, Mr. Burr,
Mr. Isakson, Ms. Murkowski, and Mr. Roberts):
S. 1262. A bill to protect students receiving student loans, and for
other purposes; to the Committee on Health, Education, Labor, and
Pensions.
S. 1262
Mr. ENZI. Mr. President, I rise to speak about the Student Loan
Accountability and Disclosure Reform Act which I, along with Senators
Alexander, Burr, Isakson, Allard and Murkowski, am introducing today.
In this era of rising college costs, it is more important than ever to
make sure that the colleges, lenders and guaranty agencies that provide
loans to help students pay for college operate in a fair, accountable
and transparent manner.
In fiscal year 2007, the Federal Government, through the Federal
Family Education Loan, FFEL, and Direct
[[Page S5500]]
Loan programs is expected to back and provide $65.9 billion in new
loans to students and their parents for attendance at over 6,000
schools. The FFEL program accounts for about 79 percent of new student
loan volume. There are approximately 3,200 FFEL lenders. Thirty-five
State and private, nonprofit guaranty agencies back the FFEL loans.
Overall, the programs are expected to provide financing to 14.3
million students and their families this year. These students and their
families are depending upon us to protect them from those individuals
who are using the financial loan programs to benefit themselves to the
detriment of students.
The focus of this bill is to make colleges, lenders and guaranty
agencies accountable, by prohibiting lenders and guaranty agencies from
offering inducements, and colleges from accepting them, and by
requiring disclosures to students, their families and the public.
There are a lot of ethical, hard-working financial aid administrators
and lenders who have spent their lives helping students go to college.
It is a shame that a few bad actors have cast a shadow over the whole
student loan industry. However, in light of recent revelations about
the behavior of a few college officials and a few lenders, it is clear
that we need to take steps to protect students and their families from
any actions and arrangements that are not fully disclosed.
A key part of this bill is a Code of Conduct for institutions of
higher education. It prohibits colleges and their employees with
responsibility for student financial aid from receiving anything of
value from any lender in exchange for advantages sought by the lender.
The prohibition applies not only to gifts and trips, but to
compensation for service on advisory boards and consulting contracts.
Colleges are prohibited from designating ``preferred lenders.''
However, they may collect information from lenders, at the college's
invitation or upon the request of a lender, including interest rates,
payment of origination and other fees, discounts, services and terms
and conditions of the loans, and the lender's contact information, on a
standard electronic template. All templates submitted will be made
available to current and prospective students and their families.
Colleges will provide students and parents with a guide that enables
the students and parents to do their own evaluation of the loan
products, benefits, and services offered by the lenders. An annual
attestation of college compliance by a high level college official with
the Code of Conduct is required.
The bill expands prohibitions on guaranty agencies and lenders,
including provisions that prohibit the offering of any premiums,
payments, prizes, and tuition payments. Guaranty agencies are precluded
from performing any services for colleges without compensation. Lenders
may not provide information technology equipment at below market value.
Both lenders and guaranty agencies are prohibited from sending
unsolicited electronic mailings to potential borrowers.
Finally, the recent revelations of questionable relationships between
colleges and lenders have led to new calls to eliminate any areas of
potential conflicts of interest. For this reason, it is time to phase
out the ability of colleges to act as lenders in the FFEL program, a
provision commonly referred to as ``school-as-lender.''
Higher education is crucial to maintaining America's competitiveness.
Education at all levels, including lifelong education opportunities, is
vital to ensuring that America retains its competitive edge in the
global economy. In this global economy, learning is never over and
school is never out. If students and families are to make informed
decisions about how to pay for college, they must have clear, accurate,
comprehensive information on which to base their decisions.
We must help and protect the 14.3 million students and their families
who will seek student loans this year to pay for the education they
need. Therefore, we must maintain the integrity of the student loan
programs. Let's fix the system and restore the confidence of students
that they are being treated fairly from the beginning, and through the
time they are repaying their loans and realizing their goals.
I want to thank Senators Alexander, Burr, Isakson, Allard, and
Murkowski for joining me in this effort.
Mr. President, I ask unanimous consent that the text of the bill be
printed in the Record.
There being no objection, the text of the bill was ordered to be
printed in the Record, as follows:
S. 1262
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--
[[Page S5501]]
``(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
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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.''.
______