Student Loan Privatization Act of 1995

Summary: TABLE OF CONTENTS: 
     Title I:  Reforms to Improve the Accuracy of the Federal 
          Credit Reform Act with Respect to Budget Scoring the 
               Cost of the Federal Direct Student Loan Program 
     Title II:  Phase-Out of the Federal Direct Student Loan 
          Program 
     Title III:  Improvements to the Federal Family Education Loan 
          Program 
Student Loan Privatization Act of 1995 - 
Title I:  Reforms to Improve the Accuracy of the Federal Credit Reform Act with Respect to Budget Scoring the Cost of the Federal Direct Student Loan Program
 - Amends the Congressional Budget Act to revise its Federal Credit Reform Act provisions relating to budget accuracy of accounting for Federal costs associated with the Federal Direct Student Loan Program. 
Title II:  Phase-Out of the Federal Direct Student Loan Program
 - Amends the Higher Education Act of 1965 (HEA) to direct the Secretary of Education to phase-out the Federal Direct Student Loan Program (FDSL) in a specified manner.  Eliminates related requirements involving loan volume limits and administrative expenses for such program.  Repeals HEA authority for such program as of the end of FY 1997. 
Title III:  Improvements to the Federal Family Education Loan Program
 - Amends HEA to revise provisions under the Federal Family Education Loan Program (FFEL) relating to:  (1) recovery of guaranty agency reserves; and (2) return to the Treasury of reserve funds returned or recovered by the Secretary. 
Terminates FDSL consolidation loan authority.  Consolidates FDSL program loans under the FFEL program. 
Prohibits certain administrative funds from being expended to support public relations activities (by Department of Education employees or pursuant to contracts with the Department) or marketing of institutions to encourage participation in the FDSL program. 
Provides for sale of FDSL loan portfolios.  Directs the Secretary to provide a copy of all reports and analyses prepared in connection with auctions, for purposes of such sales, to the Directors of the Congressional Budget Office and of the Office of Management and Budget. Requires all proceeds received as a result of such auctions to be returned to the Department of the Treasury after deduction of connected expenses incurred by the Department of Education.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Student Loan Privatization Act of 
1995''.

SEC. 2. FINDINGS.

    The Congress finds the following:
            (1) The Federal Direct Student Loan Program will result in 
        an increase of at least 500 full-time equivalent employees at 
        the United States Department of Education and the hiring of 
        over 15,000 Federal contract employees, assuming full 
        implementation of the program.
            (2) The involvement of private sector financial 
        institutions and not-for-profit corporations chartered for the 
        purpose of providing or supporting Federal student assistance 
        results in increased efficiency, maintenance of quality of 
        service to students and institutions, and innovation in and the 
        use of modern data processing technology.
            (3) The Federal Family Education Loan Program is subject to 
        excessive regulation resulting in burdensome administrative 
        requirements for students, schools, and other program 
        participants, the reduction of which would ease administrative 
        burdens and improve program management.
            (4) The program costs of the Federal Direct Student Loan 
        program are inaccurately reflected under the provisions of the 
        Federal Credit Reform Act due to the exclusion of accounting 
        for certain administrative costs associated with the program 
        under that Act.
            (5) The budget scoring of Federal student loans under the 
        Federal Credit Reform Act led to projections of savings which 
        are highly unlikely to occur in reality for the Federal Direct 
        Student Loan Program.

 TITLE I--REFORMS TO IMPROVE THE ACCURACY OF THE FEDERAL CREDIT REFORM 
   ACT WITH RESPECT TO BUDGET SCORING THE COST OF THE FEDERAL DIRECT 
                          STUDENT LOAN PROGRAM

SEC. 101. AMENDMENTS TO THE FEDERAL CREDIT REFORM ACT.

    Section 502(5)(B) of the Congressional Budget Act is amended to 
read as follows:
                    ``(B) The cost of a direct loan shall be the net 
                present value, at the time when the direct loan is 
                disbursed, of the following cash flows for the 
                estimated life of the loan--
                            ``(i) loan disbursements;
                            ``(ii) repayments of principal;
                            ``(iii) payments of interest and other 
                        payments by or to the Government over the life 
                        of the loan after adjusting for estimated 
                        defaults, prepayments, fees, penalties and 
                        other recoveries; and
                            ``(iv) in the case of a direct loan made 
                        pursuant to a program for which the Office of 
                        Management and Budget estimates that for the 
                        coming fiscal year (or for any prior fiscal 
                        year) loan commitments will equal or exceed 
                        $5,000,000,000, direct and indirect expenses, 
                        including but not limited to the following: 
                        expenses arising from credit policy and 
                        oversight; activities related to credit 
                        extension; loan origination; loan servicing; 
                        technical assistance; training; program 
                        promotion; payments to contractors, other 
                        government entities, and program participants; 
                        collection of delinquent loans; write-off and 
                        close-out of loans; and an amount equal to 1 
                        basis point multiplied by the amount of the 
                        total Federal debt obligations outstanding on 
                        the last day of the Federal fiscal year for 
                        each $50,000,000,000 outstanding in such direct 
                        loans.''.

SEC. 102. EFFECTIVE DATE.

    The amendment made by section 101 shall apply to all fiscal years 
beginning on or after October 1, 1995, and to statutory changes made on 
or after the date of enactment of this Act.

     TITLE II--PHASE-OUT OF THE FEDERAL DIRECT STUDENT LOAN PROGRAM

SEC. 201. PHASE-OUT OF PROGRAM.

    Section 453 of the Higher Education Act of 1965 (20 U.S.C. 1087c) 
(hereinafter in this title and in title III referred to as ``the Act'') 
is amended by adding at the end the following new subsection:
    ``(f) Phase-Out of Program.--
            ``(1) General authority.--The Secretary shall modify or 
        phase-out agreements entered into with institutions of higher 
        education pursuant to section 454(a) to implement the phase-out 
        of the Federal Direct Student Loan Program as specified in 
        paragraph (2) of this section.
            ``(2) Modification or phase-out of agreements.--In order to 
        ensure an expeditious but orderly phase-out of the programs 
        authorized under this part, the Secretary shall modify or 
        phase-out agreements entered into pursuant to section 454 with 
        institutions of higher education to achieve the following 
        results:
                    ``(A) For academic year 1995-1996, loans made under 
                this part shall represent not more than 5 percent of 
                new student loan volume for such year.
                    ``(B) For academic year 1996-1997 and all 
                subsequent academic years, no loans shall be made 
                pursuant to this part.
            ``(3) New student loan volume.--For the purposes of this 
        subsection, the term `new student loan volume' has the same 
        meaning as under subsection (a)(4) of this section.
            ``(4) Modification of software and systems for phase-out of 
        direct loans.--The Secretary shall not make system 
        modifications or upgrades to software used in support of the 
        program under this part after the date of enactment of this 
        subsection.
            ``(5) Regulations governing phase-out of direct loans.--The 
        Secretary shall promulgate regulations governing the phase-out 
        of the Federal Direct Student Loan Program not later than 90 
        days after the date of enactment of this subsection. Such 
        regulation shall not be subject to the provisions of the Master 
        Calendar as specified under section 482 of this title. The 
        provisions of this subsection shall be implemented 
        notwithstanding the nonpublication of regulations required 
        under this subsection by the Secretary.''.

SEC. 202. DIRECT LOAN VOLUME LIMITS.

    Section 453(a) of the Act (20 U.S.C. 1087(a)) is amended by 
striking paragraphs (2) and (3).

SEC. 203. ADMINISTRATIVE EXPENSES.

    Section 458(a) of the Act (20 U.S.C. 1087h(a)) is amended to read 
as follows:
    ``(a) In General.--Each fiscal year there shall be available, from 
funds not otherwise appropriated, funds to be obligated for 
administrative costs under this part, and for certain expenditures in 
support of the program authorized under part B, not to exceed (from 
such funds not otherwise appropriated) $50,000,000 in fiscal year 1996, 
$45,000,000 in fiscal year 1997, and no funds available in fiscal year 
1998. The total expenditures by the Secretary (from such funds not 
otherwise appropriated) shall not exceed $700,000,000 in fiscal years 
1994 through 1998. The Secretary is also authorized to carry over funds 
available under this section to a subsequent fiscal year.''.

SEC. 204. REPEAL.

    Part D of title IV of the Higher Education Act, as amended by this 
title, is repealed effective October 1, 1997.

  TITLE III--IMPROVEMENTS TO THE FEDERAL FAMILY EDUCATION LOAN PROGRAM

SEC. 301. RECOVERY OF GUARANTY AGENCY RESERVES.

    The last sentence of section 422(a)(2) of the Act (20 U.S.C. 
1072(a)(2)) is amended by striking ``Except as provided in section 
428(c)(10)(E) or (F), such'' and inserting in lieu thereof ``Such''.

SEC. 302. RESERVE FUNDS.

    Section 422(g) of the Act (20 U.S.C. 1072(g)) is amended to read as 
follows:
    ``(g) Disposition of Funds Returned or Recovered by the 
Secretary.--Any funds that are returned or otherwise recovered by the 
Secretary pursuant to this subsection shall be returned to the United 
States Treasury for purposes of reducing the Federal debt.''.

SEC. 303. TERMINATION OF FDSL CONSOLIDATION LOAN AUTHORITY.

    (a) Part B Authority.--Section 428C(b) of the Act (20 U.S.C. 1078-
3(b)) is amended by striking paragraph (5).
    (b) Part D Authority.--Section 455 of the Act is amended by 
striking subsection (g).

SEC. 304. CONSOLIDATION UNDER FFELP OF LOANS MADE PURSUANT TO PART D.

    Section 428C(a)(4)(B) of the Act (20 U.S.C. 1087-3(a)(4)(B)) is 
amended by inserting ``part D or'' before ``part E''.

SEC. 305. ACCOUNTABILITY OF FUNDS FOR DIRECT LOAN ADMINISTRATIVE 
              EXPENSES.

    Section 458 of the Act (20 U.S.C. 1087h) is amended by 
redesignating subsection (d) as subsection (e), and by inserting after 
subsection (c) thereof the following new subsection:
    ``(d) Prohibition on Certain Expenditures.--Notwithstanding any 
other provision of law, funds available under this section shall not be 
used to support public relations activities (by Department of Education 
employees or pursuant to contracts with the Department) or marketing of 
institutions to encourage participation in the program authorized under 
this part.''.

SEC. 306. SALE OF FDSL LOAN PORTFOLIOS.

    The Act is amended by inserting after section 458 of the Act (20 
U.S.C. 1087h) the following new section:

``SEC. 459. SALE OF FEDERAL DIRECT STUDENT LOAN PORTFOLIOS.

    ``(a) Auction Sales of Loan Portfolios.--The Secretary shall 
conduct auctions to sell the outstanding portfolio of loans made 
pursuant to this part. Such auctions shall consist of sales of 
portfolios representative of the overall characteristics of the direct 
loans held by the Secretary. Auctions shall be held for portfolios of 
not less than $40,000,000 of loans per sale. The first sale of loans 
shall take place not later than 120 days after the date of enactment of 
this section, and shall not include Federal guarantees or reinsurance 
against the contingency of borrower default, death, or disability.
    ``(b) Loan Terms Subject to Promissory Note.--Such loans shall be 
subject to the terms and conditions as specified in the borrower 
promissory note, and shall not be subject to further Federal 
regulations pursuant to this Act.
    ``(c) Assessment of Auction.--The Secretary, following the auctions 
required pursuant to this section, shall prepare a report on the 
results of such auctions. Such report shall include (but not be limited 
to) the following:
            ``(1) The Secretary's opinion as to whether the results of 
        the auction represent a true reflection of the Federal subsidy 
        costs associated with federally supported student loans; and
            ``(2) an estimate of the reductions in Federal 
        administrative costs achieved through eliminating future 
        Federal oversight and administrative responsibilities of 
        affected loans as a result of sale to the private sector.
    ``(d) Transmittal of Results to Congressional Budget Office and 
Office of Management and Budget.--The Secretary shall provide a copy of 
all reports and analyses prepared in connection with implementation of 
this section to the Director of the Congressional Budget Office and the 
Director of the Office of Management and Budget.
    ``(e) Disposition of Proceeds.--All proceeds received as a result 
of the auctions conducted pursuant to this part shall be returned to 
the United States Department of the Treasury after deduction of 
expenses incurred by the Department of Education in connection with the 
auctions required pursuant to this section.''.

SEC. 307. EFFECTIVE DATE.

    Except as otherwise specified therein, the amendments made by this 
title shall be effective 30 days after the date of the enactment.