[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

[[Page S5502]]

     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.''.
                                 ______