Student Loan Evaluation and Stabilization Act of 1995

SECTION 1. SHORT TITLE; REFERENCES.

    (a) Short Title.--This Act may be cited as the ``Student Loan 
Evaluation and Stabilization Act of 1995''.
    (b) References.--References in this Act to ``the Act'' are 
references to the Higher Education Act of 1965 (20 U.S.C. 1001 et 
seq.).

SEC. 2. FINDINGS.

    The Congress finds that:
            (1) The current public/private student loan partnership is 
        fulfilling the mission set for it by Congress, delivering loans 
        to students reliably and in a timely fashion, and should be 
        preserved.
            (2) The Administration's dismantling of the Federal Family 
        Education Loan (FFEL) Program which has begun in order to 
        replace it with an unproven direct Government lending program, 
        which increases the Federal debt, further enlarges the Federal 
        bureaucracy, adds major new financial oversight activities to 
        the already overburdened Department of Education, and forces 
        Congress to depend on estimated budget savings which may prove 
        illusory, needs to be stopped so that a true and valid 
        comparison of the student loan programs can occur.
            (3) The Federal Direct Student Loan (FDSL) Program pilot is 
        only now getting started and has proceeded fairly smoothly when 
        dealing with 5 percent of new loan volume. This slow and 
        cautious approach should be continued as the volume increases 
        to 40 percent. This pilot program should continue to proceed 
        slowly and cautiously and demonstrate successful results before 
        expanding it to additional loan volume.
            (4) While the FDSL Program pilot continues its test phase, 
        reform of the FFEL Program which will benefit students and 
        institutions of higher education should be a continuing 
        priority for the Department of Education.

SEC. 3. PARTICIPATION OF INSTITUTIONS AND ADMINISTRATION OF DIRECT LOAN 
              PROGRAMS.

    (a) Limitation on Proportion of Loans Made Under Direct Loan 
Program.--Section 453(a) of the Act (20 U.S.C. 1087c(a)) is amended--
            (1) by amending paragraph (2) to read as follows:
            ``(2) Determination of number of agreements.--In the 
        exercise of the Secretary's discretion, the Secretary shall 
        enter into agreements under subsections (a) and (b) of section 
        454 with institutions for participation in the programs under 
        this part, subject to the following:
                    ``(A) for academic year 1994-1995, loans made under 
                this part shall represent 5 percent of the new student 
                loan volume for such year; and
                    ``(B) for academic year 1995-1996 and for any 
                succeeding fiscal year, loans made under this part 
                shall be limited to loans to students and parents of 
                students attending eligible institutions that have 
                applied and been accepted for participation in the 
                program under this part on or before December 31, 
                1994.''
            (2) by striking paragraph (3); and
            (3) by redesignating paragraph (4) as paragraph (3).
    (b) Elimination of Conscription.--Section 453(b)(2) of such Act is 
amended--
            (1) by striking subparagraph (B);
            (2) by redesignating subparagraphs (A)(i) and (A)(ii) as 
        subparagraphs (A) and (B) respectively; and
            (3) in such subparagraph (B) (as so redesignated) by 
        striking ``clause (i); and'' and inserting ``subparagraph 
        (A).''.
    (c) Control of Administrative Expenses.--
            (1) In general.--Section 458(a) of the Act is amended to 
        read as follows:
    ``(a) In General.--Each fiscal year, there shall be available to 
the Secretary of Education from funds not otherwise appropriated, funds 
to be obligated for administrative costs under this part, not to exceed 
(from such funds not otherwise appropriated) $260,000,000 in fiscal 
year 1994, $295,000,000 in fiscal year 1995, $395,000,000 in fiscal 
year 1996, $400,000,000 in fiscal year 1997, and $400,000,000 in fiscal 
year 1998. Such administrative costs shall include the costs of 
annually assessing the program under this part and, subject to 
subsection (e) of this section, payment of an administrative cost 
allowance for the expenses of guaranty agencies in servicing 
outstanding loans in their portfolios and in guaranteeing new loans. If 
in any fiscal year the Secretary determines that additional funds for 
administrative expenses are needed, the Secretary is authorized to use 
funds available under this section for a subsequent fiscal year for 
such expenses, except that the total expenditures by the Secretary 
(from such funds not otherwise appropriated) shall not exceed 
$1,750,000,000 in fiscal years 1994 through 1998. The Secretary is also 
authorized to carry over funds available under this section to a 
subsequent fiscal year.''.
            (2) Improved congressional oversight of administration.--
        Section 458 of the Act is further amended--
                    (A) by redesignating subsection (d) as subsection 
                (g); and
                    (B) by inserting after subsection (c) the following 
                new subsections:
    ``(d) Funding Triggers.--For each fiscal year, funds available 
under this section may be obligated only in such amounts and according 
to such schedule as specified in the appropriations Act for the 
Department of Education after submission by the Department of Education 
of a detailed proposal of expenditures under this section.
    ``(e) Administrative Cost Allowance.--
            ``(1) Conditions of receipt.--A guaranty agency may not 
        obtain an administrative cost allowance from funds available 
        under subsection (a) unless the guaranty agency has submitted 
        an application in accordance with section 428(f)(2). A guaranty 
        agency that receives such an allowance may expend such 
        allowance for the purposes described in clauses (i) through (v) 
        of section 428(f)(1)(A).
            ``(2) Election of payment rate.--For each fiscal year, at 
        the time of its application for payments under section 
        428(f)(2), each guaranty agency shall elect to receive an 
        administrative cost allowance, payable quarterly, for the next 
        fiscal year calculated on the basis of either of the following:
                    ``(A) 0.85 percent of the total principal amount of 
                the loans upon which insurance was issued under part B 
                during such fiscal year by such guaranty agency; or
                    ``(B) 0.08 percent of the original principal amount 
                of loans guaranteed by the guaranty agency that was 
                outstanding at the end of the previous fiscal year.
            ``(3) Ratable reduction.--If the total amount of funds to 
        be expended by the Secretary for purposes of paying the 
        administrative cost allowances to all guaranty agencies in 
        accordance with this provision exceeds $150,000,000 for any 
        fiscal year, the Secretary shall ratably reduce such payments 
        to all guaranty agencies.
    ``(f) Quarterly Report.--The Secretary shall provide a detailed 
quarterly report of all monies expended under this section to the 
Chairman of the Committee on Labor and Human Resources of the Senate 
and the Chairman of the Committee on Economic and Educational 
Opportunities of the House of Representatives. Such report shall 
specifically identify all contracts entered into by the Department for 
services supporting the loan programs under parts B and D of this title 
and the current and projected costs of such contracts.''.
    (d) Elimination of Transition to Direct Loans.--The Act is further 
amended--
            (1) in section 422(c)(7)--
                    (A) by striking ``during the transition'' and all 
                that follows through ``part D of this title'' in 
                subparagraph (A); and
                    (B) by striking ``section 428(c)(10)(F)(v)'' in 
                subparagraph (B) and inserting ``section 
                428(c)(9)(F)(v)'';
            (2) in section 428(c)(8)--
                    (A) by striking ``(A)'' after the paragraph 
                designation; and
                    (B) by striking subparagraph (B);
            (3) in section 428(c)(9)(E)--
                    (A) by inserting ``or'' after the semicolon at the 
                end of clause (iv);
                    (B) by striking ``; or'' at the end of clause (v) 
                and inserting a period; and
                    (C) by striking clause (vi);
            (4) in clause (vii) of section 428(c)(9)(F)--
                    (A) by inserting ``and'' before ``to avoid 
                disruption''; and
                    (B) by striking ``, and to ensure an orderly 
                transition'' and all that follows through the end of 
                such clause and inserting a period;
            (5) in section 428(c)(9)(K), by striking ``the progress of 
        the transition from the loan programs under this part to'' and 
        inserting ``the integrity and administration of'';
            (6) in section 428(e)(1)(B)(ii), by striking ``during the 
        transition'' and all that follows through ``part D of this 
        title'';
            (7) in section 428(e)(3), by striking ``of transition'';
            (8) in section 428(j)(3)--
                    (A) by striking ``during transition to direct 
                lending''; and
                    (B) by striking ``during the transition'' and all 
                that follows through ``part D of this title,'' and 
                inserting a comma;
            (9) in section 453(c)(2), by striking ``Transition'' and 
        inserting ``Institutional'';
            (10) in section 453(c)(3), by striking ``after 
        transition''; and
            (11) in section 456(b)--
                    (A) by inserting ``and'' after the semicolon at the 
                end of paragraph (3);
                    (B) by striking paragraph (4);
                    (C) by redesignating paragraph (5) as paragraph 
                (4); and
                    (D) in such paragraph (4) (as redesignated), by 
                striking ``successful operation'' and inserting 
                ``integrity and efficiency''.

SEC. 4. ABILITY OF BORROWERS TO CONSOLIDATE UNDER DIRECT AND GUARANTEED 
              LOAN PROGRAMS.

    (a) Ability of Part D Borrowers to Obtain Federal Stafford 
Consolidation Loans.--Section 428C(a)(4) of the Act (20 U.S.C. 1078-
3(a)(4)) is amended--
            (1) by striking ``or'' at the end of subparagraph (B);
            (2) by redesignating subparagraphs (C) and (D) as 
        subparagraphs (D) and (E); and
            (3) by inserting after subparagraph (B) the following new 
        subparagraph:
                    ``(C) made under part D of this title;''.
    (b) Ability of Part B Borrowers to Obtain Federal Direct 
Consolidation Loans.--Section 428C(b)(5) of such Act is amended to read 
as follows:
            ``(5) Direct consolidation loans for borrowers in specified 
        circumstances.--
                    ``(A) The Secretary may offer a borrower a direct 
                consolidation loan in the event that a borrower 
                otherwise eligible for a consolidation loan pursuant to 
                this section is--
                            ``(i) unable to obtain a consolidation loan 
                        from a lender with an agreement under 
                        subsection (a)(1), or
                            ``(ii)(I) evidences a substantial existing 
                        or projected difficulty in repaying loans 
                        received under this part; and
                            ``(II) desires a consolidation loan with an 
                        income contingent repayment schedule as offered 
                        to borrowers under part D of this title.
                    ``(B) The Secretary shall establish appropriate 
                certification procedures to verify the eligibility of 
                borrowers for loans pursuant to this paragraph.
                    ``(C) The Secretary shall not offer such 
                consolidation loans if, in the Secretary's judgment, 
                the Department of Education does not have the necessary 
                origination and servicing arrangements in place for 
                such loans, or the projected volume in the program 
                would be destabilizing to the availability of loans 
                otherwise available under this part.''.

SEC. 5. RESERVE FUND PROGRAMS.

    (a) Guaranty Agency Reserve Levels.--Section 428(c)(9) of such Act 
(20 U.S.C. 1078(c)(9)) is amended--
            (1) in subparagraph (E)--
                    (A) by striking ``The Secretary'' and inserting 
                ``After notice and opportunity for a hearing on the 
                record, the Secretary'';
                    (B) by inserting ``or'' after the semicolon at the 
                end of clause (iv);
                    (C) by striking ``; or'' at the end of clause (v) 
                and inserting a period; and
                    (D) by striking clause (vi); and
            (2) in subparagraph (F)--
                    (A) by inserting ``dedicated to the functions of 
                the agency under the loan insurance program under this 
                part'' after ``assets of the guaranty agency'' in 
                clause (vi); and
                    (B) in clause (vi), by inserting before ``; or'' 
                the following ``, except that the Secretary may not 
                take any action to require the guaranty agency to 
                provide to the Secretary the unencumbered non-Federal 
                portion of a reserve fund (as defined in section 
                422(a)(2))''.
    (b) Additional Amendments.--Section 422 of such Act is further 
amended--
            (1) in the last sentence of subsection (a)(2), by striking 
        ``Except as provided in section 428(c)(10) (E) or (F), such'' 
        and inserting ``Such'';
            (2) in subsection (g), by striking paragraph (4) and 
        inserting the following:
            ``(4) Disposition of funds returned to or recovered by the 
        secretary.--Any funds that are returned to or otherwise 
        recovered by the Secretary pursuant to this subsection shall be 
        returned to the Treasury of the United States for purposes of 
        reducing the Federal debt and shall be deposited into the 
        special account under section 3113(d) of title 31, United 
        States Code.''.

SEC. 6. DEFAULT RATE LIMITATIONS ON DIRECT LENDING.

    Section 455 of the Act is amended by adding at the end the 
following new subsection:
    ``(k) Termination of Institutions for High Default Rates.--
            ``(1) Methodology and criteria.--After consultation with 
        institutions of higher education and other members of the 
        higher education community, the Secretary shall develop--
                    ``(A) a methodology for the calculation of 
                institutional default rates under the loan programs 
                operated pursuant to this part;
                    ``(B) criteria for the initiation of termination 
                proceedings on basis of such default rates; and
                    ``(C) procedures for the conduct of such 
                termination proceedings.
            ``(2) Comparability to part b.--In developing the 
        methodology, criteria, and procedures required by paragraph 
        (1), the Secretary shall, to the maximum extent possible, 
        establish standards for the termination of institutions from 
        participation in loan programs under this part that are 
        comparable to the standards established for the termination of 
        institutions from participation in the loan programs under part 
        B. Such procedures shall also include provisions for the appeal 
        of default rate calculations based on deficiencies in the 
        servicing of loans under this part that are comparable to the 
        provisions for such appeals based on deficiencies in the 
        servicing of loans under part B.''.

SEC.  7.  APPLICATION FOR PART B LOANS USING FREE FEDERAL APPLICATION.

    Section 483(a) of the Act (20 U.S.C. 1090(a)) is amended--
            (1) in paragraph (1)--
                    (A) by inserting ``B,'' after ``assistance under 
                parts A,'';
                    (B) by striking ``part A) and to determine the need 
                of a student for the purpose of part B of this title'' 
                and inserting ``part A).''; and
                    (C) by striking the last sentence and inserting the 
                following: ``Such form may be in an electronic or any 
                other format (subject to section 485B) in order to 
                facilitate use by borrowers and institutions.''; and
            (2) in paragraph (3), by striking ``and States shall 
        receive,'' and inserting ``, any guaranty agency authorized by 
        any such institution, and States shall receive, at their 
        request and''.

SEC. 8. CREDIT REFORM.

    (a) Amendment.--Section 502(5)(B) of the Congressional Budget Act 
(31 U.S.C. 661a(5)(B)) 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.
                    ``(iv) In the case of a direct student loan made 
                pursuant to the program authorized under part D of 
                title IV of the Higher Education Act of 1965, 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, training, program 
                promotion and payments to contractors, other Government 
                entities, and program participants, collection of 
                delinquent loans, and write-off and close-out of 
                loans.''.
    (b) Effective Date.--The amendment made by subsection (a) of this 
section 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.
                                 
HR 530 IH----2

Summary: Student Loan Evaluation and Stabilization Act of 1995 - Amends the Higher Education Act of 1965 with respect to student loan programs. Revises the Federal Direct Student Loan program to limit the proportion of loans made under such program: (1) for academic year 1994-1995, to five percent of the new student loan volume for such year. And (2) for academic year 1995-1996 and any succeeding fiscal year, to loans to students and parents of students attending eligible institutions which have applied and been accepted for institutional participation in such program on or before December 31, 1994. Eliminates provisions for selecting additional institutions to participate in such pilot program. Reduces the maximum amount of funds for administrative expenses of such program allowed for certain periods. Revises the items which such funds must cover, including the costs of annually assessing such program and payment of an administrative cost allowance for the expenses of guaranty agencies in servicing outstanding loans in their portfolios and in guaranteeing new loans. Revises provisions for congressional oversight of program administration, by providing for funding triggers which allow administrative funds to be obligated only in such amounts and according to such schedule as specified in the appropriations Act for the Department of Education after submission by the Department of a detailed proposal for such expenditures. Requires a guaranty agency to: (1) submit a specified application before obtaining an administrative cost allowance from such funds, (2) expend such allowance only for specified purposes. And (3) elect a payment rate on the basis of one of two specified formulas. Provides for ratable reductions of such allowances when total payments exceed a specified level. Directs the Secretary of Education to provide a detailed quarterly report of all such expenditures to specified congressional committee chairs. Requires such report to specifically identify all contracts entered into by the Department for services supporting the Federal Family Education Loan (FFEL) Program and the Federal Perkins Loan Program, as well as the current and projected costs of such contracts. Eliminates the transition to the Federal Direct Loan Program. Sets forth conditions under which: (1) Federal Perkins Loan borrowers can obtain FFEL consolidation loans. And (2) FFEL borrowers can obtain Federal direct consolidation loans. Revises provisions relating to reserve fund programs. Sets institutional default rate limitations on direct lending. Provides for applications for FFEL loans using the free Federal application form, which is already in use for other types of student aid. Allows such form to be in an electronic or any other format, subject to certain conditions, in order to facilitate use by borrowers and institutions. Provides for authorized guaranty agencies to receive such form. Amends the Congressional Budget Act to prescribe a formula for determining the cost of a direct loan on the basis of the net present value, at the time the direct loan is disbursed, of specified types of cash flows for the estimated life of the loan.