To amend the Higher Education Act of 1965 to achieve savings in the operation of the student loan programs under part B of title IV of that Act, and for other purposes.

Summary: Amends the Higher Education Act of 1965 to revise or add to the guaranteed student loan program (also known as the Stafford Loan or the Federal Family Education Loan Program) with respect to:  (1) in-school and grace period interest rate limits; (2) loan transfer fees; (3) decrease of guaranty agency reinsurance percentage; (4) required risk sharing by the Student Loan Marketing Association; (5) shares of post-default collections; (6) decrease of administrative cost allowances; (7) reinsurance fees; (8) parent loan (PLUS) amount limits and multiple disbursement requirements; (8) reduction and limitation of consolidation loan interest rates; (9) limitation of interest subsidy during deferment; (10) insurance fees from lenders; (11) longer periods for default determinations; (12) special allowances on tax exempt funds and purchase premiums; (13) origination fees from lenders; (14) the lender-of-last-resort requirement; (15) Student Loan Marketing Association alternative status study; and (16) repayment options (including income sensitive) availability and information.

SECTION 1. FINDINGS.

    The Congress finds the following:
            (1) The current public/private partnership has succeeded in 
        fulfilling the mission set for it by Congress--delivering loans 
        to students reliably and in a timely fashion--and as such 
        should be preserved.
            (2) The current Federal Family Education Loan (FFEL) 
        program is, however, in need of reform. Many important positive 
        changes were made during the reauthorization of the Higher 
        Education Act in the 102d Congress, but further changes are 
        needed to make the FFEL program more efficient.
            (3) It would be preferable to improve on a public/private 
        partnership that is known to work rather than dismantle it in 
        favor of an unproved direct Government lending program, which 
        would increase the Federal debt, further enlarge the Federal 
        bureaucracy, add major new financial oversight activities to 
        the already overburdened Department of Education, and force the 
        Congress to depend on estimated savings which may prove 
        illusory.
            (4) The large Direct Lending Demonstration Program that was 
        begun by the Higher Education Amendments of 1992 is only now 
        getting started. It would be better to allow this Demonstration 
        Program to proceed and show some results before expanding it to 
        cover the entire federally insured student lending system.
            (5) Reforming the FFEL system with the immediate savings 
        and efficiencies that are contained in this bill will in no way 
        prevent the passage and implementation of legislation that 
        would begin a National Service Program, as proposed by the 
        President.
            (6) Reforming the current FFEL system will produce 
        immediate savings without increasing the size and debt of the 
        Federal Government. It will also assure students and their 
        parents that they will continue to receive the funds they need 
        for higher education when they need them.

SEC. 2. INTEREST RATES.

    Section 427A of the Act (20 U.S.C. 1077a) is amended--
            (1) by redesignating subsection (h) as subsection (i); and
            (2) by inserting after subsection (g) the following new 
        subsection:
    ``(h) In-School and Grace Period Interest Rates.--
            ``(1) Applicable rate.--Notwithstanding any other provision 
        of this section, with respect to any loan for which the first 
        disbursement is made on or after October 1, 1993, the 
        applicable rate of interest for interest which accrues--
                    ``(A) prior to the beginning of the repayment 
                period of the loan, or
                    ``(B) during the period in which principal need not 
                be paid (whether or not such principal is in fact paid) 
                by reason of a provision described in section 
                428(b)(1)(M) or 427(a)(2)(C),
        shall not exceed the rate determined under paragraph (2).
            ``(2) Method of calculation.--For purposes of paragraph (1) 
        the rate determined under this paragraph shall, during any 12-
        month period beginning on July 1 and ending on June 30, be 
        determined on the preceding June 1 and be equal to--
                    ``(A) the bond equivalent rate of 91-day Treasury 
                bills auctioned at the final auction prior to such June 
                1; plus
                    ``(B) 2.6 percent.''.

SEC. 3. LOAN TRANSFER FEES.

    Section 428(b)(2) of the Act (20 U.S.C. 1078(b)(2)) is amended--
            (1) by striking ``and'' at the end of subparagraph (E);
            (2) by striking the period at the end of subparagraph (F) 
        and inserting ``; and''; and
            (3) by adding at the end thereof the following new 
        subparagraph:
                    ``(G) provide that, if a lender or holder, on or 
                after October 1, 1993, sells, transfers, or assigns a 
                loan under this part, then the transferee shall pay to 
                the Secretary a transfer fee in an amount equal to 0.25 
                percent the principal and accrued unpaid interest of 
                the loan.''.

SEC. 4. RISK SHARING.

    (a) Guaranty Agency Reinsurance Percentage.--Section 428(c)(1) of 
the Act (20 U.S.C. 1078(c)(1)) is amended--
            (1) in subparagraph (A), by striking ``100 percent'' and 
        inserting ``96 percent'';
            (2) in subparagraph (B)(i), by striking ``90 percent'' and 
        inserting ``86 percent''; and
            (3) in subparagraph (B), by striking ``80 percent'' and 
        inserting ``76 percent''.
    (b) Risk Sharing by the Student Loan Marketing Association.--
            (1) GSL program.--Section 428(b)(1)(G) of the Act is 
        amended by inserting before the semicolon at the end thereof 
        the following: ``, except that for loans held by the Student 
        Loan Marketing Association (other than loans made pursuant to 
        section 439(q)) such percentage shall be 90 percent''.
            (2) FISL program.--Section 425(b)(1) of the Act is amended 
        by inserting after ``interest'' in the matter preceding clause 
        (i) the following: ``, except that for loans held by the 
        Student Loan Marketing Association (other than loans made 
        pursuant to section 439(q)) such liability shall be 90 percent 
        of such unpaid balance, and''.
    (c) Effective Date.--The amendments made by this section shall 
apply to any loan on which a default (as defined in section 435 of the 
Act) occurs on or after the date of enactment of this Act.

SEC. 5. SHARES OF POST-DEFAULT COLLECTIONS.

    Section 428(c)(6) of the Act (20 U.S.C. 1078(c)(6)(A) is amended by 
adding at the end the following new subparagraph:
            ``(D) Subparagraph (A)(ii) shall be applied with respect to 
        determinations of the Secretary's equitable share of payments 
        made by borrowers--
                    ``(i) during fiscal years 1994 and 1995, by 
                substituting `27 percent' for `30 percent'; and
                    ``(ii) during fiscal year 1996 and succeeding 
                fiscal years, by substituting `26 percent' for `30 
                percent'.''.

SEC. 6. FEDERAL ADMINISTRATIVE EXPENSES.

    (a) Administrative Cost Allowances.--Section 428(f)(1)(B) of the 
Higher Education Act of 1965 (20 U.S.C. 1078(f)(1)(B)) is amended by 
striking ``1 percent'' and inserting ``0.50 percent''.
    (b) Reinsurance Fees.--Section 428(c) of the Act is amended--
            (1) by striking paragraph (9); and
            (2) by redesignating paragraph (10) as paragraph (9).
    (c) Effective Date.--The amendments made by this section shall 
apply to loans made on or after October 1, 1993.

SEC. 7. PLUS LOAN AMOUNTS AND DISBURSEMENTS.

    (a) Loan Amounts.--Section 428B(b) of the Act (20 U.S.C. 1078-2(b)) 
is amended to read as follows:
    ``(b) Limitations on Amounts of Loans.--
            ``(1) Annual limit.--Subject to paragraph (2), the maximum 
        amount parents may borrow for one student in any academic year 
        or its equivalent (as defined by regulation of the Secretary) 
        is $10,000.
            ``(2) Limitation based on need.--Any loan under this 
        section may be counted as part of the expected family 
        contribution in the determination of need under this title, but 
        no loan may be made to any parent under this section for any 
        academic year in excess of (A) the student's estimated cost of 
        attendance, minus (B) other financial aid as certified by the 
        eligible institution under section 428(a)(2)(A). The annual 
        insurable limit on account of any student shall not be deemed 
        to be exceeded by a line of credit under which actual payments 
        to the borrower will not be made in any year in excess of the 
        annual limit.''.
    (b) Multiple Disbursement Required.--
            (1) Amendment.--Section 428B(c) of the Act is amended by 
        inserting after ``under this section'' the following: ``shall 
        be disbursed in accordance with the requirements of section 
        428G and''.
            (2) Conforming amendments.--Section 428G(e) of the Act (20 
        U.S.C. 1078-7(e) is amended--
                    (A) by striking ``PLUS, Consolidation,'' and 
                inserting ``Consolidation''; and
                    (B) by striking ``section 428B or 428C'' and 
                inserting ``section 428C''.
            (3) FISL amendment.--Section 427(b)(2) of the Act (20 
        U.S.C. 1077(b)(2)) is amended by striking ``section 428B or 
        428C'' and inserting ``section 428B''.

SEC. 8. CONSOLIDATION LOAN SAVINGS.

    (a) Interest Rates.--
            (1) Reduction of rates.--Section 428C(c)(1)(B) of the Act 
        (20 U.S.C. 1078-3(c)(1)(B)) is amended to read as follows:
            ``(B) Except as provided in subparagraph (C), a 
        consolidation loan shall bear interest at an annual rate on the 
        unpaid principal balance of the loan that is equal to the 
        lesser of--
                    ``(i) the weighted average of the interest rates on 
                the loans consolidated, rounded to the nearest whole 
                percent; or
                    ``(ii) for any 12-month period beginning on July 1 
                and ending on June 30, determined on the preceding June 
                1 that is a rate equal to--
                            ``(I) the bond equivalent rate of 52-week 
                        Treasury bills auctioned at the final auction 
                        before such June 1; plus
                            ``(II) 3.10 percent.''.
            (2) 9 percent ceiling.--Section 428C(c)(1)(C) of the Act is 
        amended by striking out ``not less'' and inserting ``not 
        more''.
    (b) Limitation of Interest Subsidy During Deferment.--Section 
428C(c)(4)(C) of the Act is amended to read as follows:
                    ``(C)(i) provides that periodic installments of 
                principal need not be paid, but interest shall accrue 
                and be paid in accordance with clause (ii), during any 
                period for which the borrower would be eligible for a 
                deferral under section 428(b)(1)(M), and that any such 
                period shall not be included in determining the 
                repayment period pursuant to subsection (c)(2) of this 
                section; and
                    ``(ii) provides that interest shall accrue and be 
                paid--
                            ``(I) by the Secretary, in the case of a 
                        consolidation loan that consolidated only 
                        Federal Stafford Loans for which the student 
                        borrower received an interest subsidy under 
                        section 428; or
                            ``(II) by the borrower, or capitalized, in 
                        the case of a consolidation loan other than one 
                        described in subclause (I);''.
    (c) Lender Fees.--Section 428C(c) of the Act is amended by adding 
at the end the following new paragraph:
            ``(6) Insurance fee from lenders.--Each lender shall pay to 
        the Secretary, by quarterly installments, an annual amount 
        equal to 0.5 percent of the average principal amount 
        outstanding on loans under this section held by the lender, as 
        determined in accordance with such regulations as the Secretary 
        shall prescribe.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to loans for which the first disbursement is made on or after 
October 1, 1993.

SEC. 9. DATE OF DEFAULT DETERMINATIONS.

    (a) Amendments.--Section 435(l) of the Act (20 U.S.C. 1085(l)) is 
amended--
            (1) by striking ``180 days'' and inserting ``270 days''; 
        and
            (2) by striking ``240 days'' and inserting ``330 days''.
    (b) Conforming Amendment.--Section 428(c)(1)(A) of the Act (20 
U.S.C. 1078(c)(1)(A)) is amended by striking the last sentence and 
inserting the following: ``A guaranty agency shall file a claim for 
reimbursement under this subsection within 45 days after the agency's 
discharge of its insurance obligation, except that when a guaranty 
agency discharges its insurance obligation prior to 360 days after a 
loan becomes delinquent with respect to any installment thereon, the 
guaranty agency shall file a claim under this subsection within 45 days 
after the loan becomes 360 days delinquent with respect to any such 
installment.''.
    (c) Effective Date.--The amendments made by this section shall 
apply on and after October 1, 1993.

SEC. 10. SPECIAL ALLOWANCES ON TAX EXEMPT FUNDS.

    (a) Special Allowance Amendment.--Section 438(b)(2)(B) of the Act 
(20 U.S.C. 1087-1(b)(2)(B)) is amended--
            (1) by striking the first sentence of division (i) and 
        inserting the following: ``The quarterly rate of the special 
        allowance for holders of loans which were made or purchased 
        with funds obtained by the holder from the issuance of 
        obligations, the income from which is exempt from taxation 
        under the Internal Revenue Code of 1986, shall be 85 percent of 
        the quarterly rate of the special allowance established under 
        subparagraph (A).'';
            (2) by striking division (ii); and
            (3) by redesignating division (iii) as division (ii).
    (b) Purchase Premiums.--Section 438(d)(2) of the Act is amended--
            (1) by striking subparagraph (C); and
            (2) by redesignating subparagraphs (D), (E), and (F) as 
        subparagraphs (C), (D), and (E), respectively.
    (c) Effective Date.--The amendment made by this section shall apply 
to loans made on and after October 1, 1993.

SEC. 11. LENDER ORIGINATION FEES.

    Section 438 of the Act (20 U.S.C. 1087-1) is amended--
            (1) in the heading of subsection (c) by inserting ``From 
        Students'' after ``Origination Fees'';
            (2) by redesignating subsections (d) and (e) as subsections 
        (e) and (f), respectively; and
            (3) by inserting after subsection (c) the following new 
        subsection:
    ``(d) Origination Fees From Lenders.--
            ``(1) Deduction from interest and special allowance 
        subsidies.--Notwithstanding subsection (b), the total amount of 
        interest and special allowance payable under section 
        428(a)(3)(A) and subsection (b) of this section, respectively, 
        to any holder shall be reduced by the Secretary by an 
        origination fee in an amount determined in accordance with 
        paragraph (2) of this subsection. If the total amount of 
        interest and special allowance payable under section 
        428(a)(3)(A) and subsection (b) of this section, respectively, 
        is less than the amount of such origination fee, the Secretary 
        shall deduct such excess amount from subsequent quarters' 
        payments until the total amount has been deducted.
            ``(2) Amount of origination fees.--Subject to paragraph (3) 
        of this subsection, with respect to any loan (other than loans 
        made under sections 428A, 428B, 428C, and 428H) for which a 
        completed note or other written evidence of the loan was sent 
        or delivered to the borrower for signing on or after July 1, 
        1993, the amount of the origination fee which shall be deducted 
        under paragraph (1) shall be equal to 1 percent of the 
        principal amount of the loan.
            ``(3) SLS, plus, consolidation, and undsubsidized loans.--
        With respect to any loans made under section 428A, 428B, 428C, 
        and 428H and disbursed on or after October 1, 1993, each 
        eligible lender under this part shall pay to the Secretary an 
        origination fee of 1 percent of the principal amount of the 
        loan.
            ``(4) Distribution of origination fees.--All origination 
        fees collected pursuant to this section on loans authorized 
        under section 428A, 428B, 428C, or 428H shall be paid to the 
        Secretary by the lender and deposited in the fund authorized 
        under section 431 of this part.''.

SEC. 12. LENDER-OF-LAST-RESORT REQUIREMENT.

    Section 439(q)(1)(A) of the Act (20 U.S.C. 1087-2) is amended by 
``may begin'' and inserting ``shall begin''.

SEC. 13. STUDENT LOAN MARKETING ASSOCIATION STUDY.

    Section 439 of the Act is further amended by adding at the end 
thereof the following new subsection:
    ``(s) Transition Study and Activities.--(1) The Secretaries of 
Education and the Treasury, in consultation with the Association, shall 
prepare a study, to be completed within 6 months of the enactment of 
this provision, which shall examine alternatives concerning the status, 
operations, and purposes of the Association. Such alternatives shall 
include providing for an orderly transition of the Association from a 
Government-Sponsored Enterprise to a private corporation. Such study 
shall--
            ``(A) consider how best to meet the needs of students and 
        taxpayers for financing for postsecondary education;
            ``(B) reflect the need for the Association to maintain 
        liquidity and perform other functions for the Federal Education 
        Loan program;
            ``(C) consider any appropriate changes to part D of title 
        VII, relating to the College Construction Loan Insurance 
        Association; and
            ``(D) be considered by the Secretaries of Education and the 
        Treasury in developing any legislative proposals concerning any 
        changes to the status of the Association as a Government-
        Sponsored Enterprise or its duties under the Federal Family 
        Education Loan program.
    ``(2) The Secretaries of Education and the Treasury are directed to 
work with the Association to ensure that any changes in the 
Association's status, operations, or purposes are carried out 
efficiently and effectively.''.

SEC. 14. REPAYMENT OPTIONS.

    (a) Regulations Required.--The Secretary of Education shall, not 
later than 60 days after the date of enactment of this Act--
            (1) prescribe the regulations required for the 
        implementation of the income sensitive repayment options 
        pursuant to section 428(b)(1)(E)(i) and 428(m) of the Act;
            (2) take such steps as may be necessary--
                    (A) to inform borrowers under part B of title IV of 
                the Act of the availability of standard, graduated, and 
                income sensitive repayment options for student loans; 
                and
                    (B) to ensure that lenders under such part permit 
                borrowers to fully exercise such options.
    (b) Conforming Amendments.--Section 428(b)(1) of the Act (20 U.S.C. 
1078(b)(1)) is amended--
            (1) in subparagraph (D)(ii), by inserting ``except as 
        permitted pursuant to subparagraph (E),'';
            (2) in subparagraph (E)--
                    (A) by striking ``subparagraphs (D) and (L)'' and 
                inserting ``subparagraph (L)'';
                    (B) by inserting ``or 428H'' after ``section 
                428A'';
                    (C) by inserting ``under subsection (m)'' after 
                ``regulations of the Secretary''; and
                    (D) by striking ``nor more than 10 years''.

                                 

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