A bill to prevent abuse of the special allowance subsidies under the Federal Family Education Loan Program.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Student Loan Abuse Prevention Act of 
2005''.

SEC. 2. PURPOSE.

    It is the purpose of this Act to stop ensuring that lenders in the 
Federal Family Education Loan Program continue to receive extraordinary 
and unnecessary taxpayer subsidies, to make public college tuition free 
for future mathematics, science, and special education teachers, and to 
provide additional assistance to students eligible to receive a Federal 
Pell Grant under subpart 1 of part A of title IV of the Higher 
Education Act of 1965 (20 U.S.C. 1070a et seq.).

SEC. 3. ENDING THE 9.5 PERCENT GUARANTEED RATE OF RETURN ON FEDERAL 
              FAMILY EDUCATION LOANS.

    (a) Technical Correction.--Section 2 of the Taxpayer-Teacher 
Protection Act of 2004 (Public Law 108-409; 118 Stat. 2299) is amended 
in the matter preceding paragraph (1) by inserting ``of the Higher 
Education Act of 1965'' after ``Section 438(b)(2)(B)''.
    (b) Prospective Special Allowances.--
            (1) In general.--Section 438(b)(2)(B) of the Higher 
        Education Act of 1965 (20 U.S.C. 1087-1(b)(2)(B)), as amended 
        by the Taxpayer-Teacher Protection Act of 2004, is amended--
                    (A) in clause (iv), by striking ``1993, or refunded 
                after September 30, 2004, and before January 1, 2006, 
                the'' and inserting ``1993, or refunded on or after the 
                date of enactment of the Taxpayer-Teacher Protection 
                Act of 2004, the''; and
                    (B) by striking clause (v) and inserting the 
                following:
                            ``(v) Notwithstanding clauses (i) and (ii), 
                        the quarterly rate of the special allowance 
                        shall be the rate determined under subparagraph 
                        (A), (E), (F), (G), (H), or (I) of this 
                        paragraph, or paragraph (4), as the case may 
                        be, for loans--
                                    ``(I) originated, transferred, or 
                                purchased on or after the date of 
                                enactment of the Taxpayer-Teacher 
                                Protection Act of 2004;
                                    ``(II) financed by an obligation 
                                that has matured, been retired, or 
                                defeased on or after the date of 
                                enactment of the Taxpayer-Teacher 
                                Protection Act of 2004;
                                    ``(III) which the special allowance 
                                was determined under such subparagraphs 
                                or paragraph, as the case may be, on or 
                                after the date of enactment of the 
                                Taxpayer-Teacher Protection Act of 
                                2004;
                                    ``(IV) for which the maturity date 
                                of the obligation from which funds were 
                                obtained for such loans was extended on 
                                or after the date of enactment of the 
                                Taxpayer-Teacher Protection Act of 
                                2004; or
                                    ``(V) sold or transferred to any 
                                other holder on or after the date of 
                                enactment of the Taxpayer-Teacher 
                                Protection Act of 2004.''.
            (2) Rule of construction.--Nothing in the amendment made by 
        paragraph (1) shall be construed to abrogate a contractual 
        agreement between the Federal Government and a student loan 
        provider.
    (c) Prepayment of Current Loans.--
            (1) In general.--The Secretary of Education shall encourage 
        a borrower to consolidate such borrower's loans under section 
        428C or 455(g) of the Higher Education Act of 1965 (20 U.S.C. 
        1078-3 and 1087e(g)) if 1 or more of such loans is a loan for 
        which the holder of the loan is entitled to a special allowance 
        payment determined under section 438(b)(2)(B) of such Act (20 
        U.S.C. 1087-1(b)(2)(B)) that ensures the holder a minimum 9.5 
        percent rate of return on such loan, by offering the borrower 
        an incentive, as described in paragraph (2).
            (2) Incentive.--Except as provided in paragraph (3), an 
        incentive to a borrower regarding a loan for which the holder 
        of the loan is entitled to a special allowance payment 
        determined under section 438(b)(2)(B) of the Higher Education 
        Act of 1965 (20 U.S.C. 1087-1(b)(2)(B)) that ensures the holder 
        a minimum 9.5 percent rate of return on such loan, shall take 
        the form of--
                    (A) an immediate $1,000 reduction in the principal 
                of such loan; or
                    (B) not less than a 1-percent reduction in the 
                interest rate payments on such loan.
            (3) Exception.--The Secretary of Education shall not offer 
        an incentive under paragraph (2) to a borrower of a loan 
        described in such paragraph if offering the incentive will 
        increase the long-term costs to the Federal Government of such 
        loan.

SEC. 4. TUITION-FREE COLLEGE FOR FUTURE MATHEMATICS, SCIENCE, AND 
              SPECIAL EDUCATION TEACHERS.

    (a) Additional Amounts for Teachers in Mathematics, Science, and 
Special Education.--
            (1) FFEL loans.--Section 428J(c)(3) of the Higher Education 
        Act of 1965 (20 U.S.C. 1078-10(c)(3)) is amended by striking 
        ``$17,500'' and inserting ``$23,000''.
            (2) Direct loans.--Section 460(c)(3) of the Higher 
        Education Act of 1965 (20 U.S.C. 1087j(c)(3)) is amended by 
        striking ``$17,500'' and inserting ``$23,000''.
    (b) Effective Date.--The amendments made by this section shall 
apply only with respect to eligible individuals who are new borrowers 
on or after October 1, 1998.

SEC. 5. INCREASED GRANT AID TO PELL GRANT RECIPIENTS.

    (a) In General.--Any funds available to the Secretary of Education 
as a result of reduced expenditures under section 438 of the Higher 
Education Act of 1965 (20 U.S.C. 1087-1) secured by the enactment of 
section 3 shall first be used by the Secretary for loan cancellation 
and loan forgiveness for teachers under sections 428J and 460 of the 
Higher Education Act of 1965 (20 U.S.C. 1078-10 and 1087j), as amended 
by section 4.
    (b) Remaining Funds.--
            (1) In general.--Any such funds remaining after carrying 
        out subsection (a) shall be used by the Secretary of Education 
        to make payments to each nonprofit lender in an amount that 
        bears the same relation to the remaining funds as the amount 
        the nonprofit lender receives for fiscal year 2005 under 
        section 438(b)(2)(B) of the Higher Education Act of 1965 (20 
        U.S.C. 1087-1(b)(2)(B)) bears to the total amount received by 
        nonprofit lenders for fiscal year 2005 under such section.
            (2) Definition of nonprofit lender.--In this subsection, 
        the term ``nonprofit lender'' means an eligible lender (as 
        defined in section 435(d) of the Higher Education Act of 1965 
        (20 U.S.C. 1085(d)) that--
                    (A) is an organization described in section 
                501(c)(3) of the Internal Revenue Code of 1986;
                    (B) is a nonprofit entity as defined by applicable 
                State law; and
                    (C) meets the following requirements:
                            (i) The nonprofit lender does not confer a 
                        salary or benefits to any employee of the 
                        nonprofit lender in an amount that is in excess 
                        of the salary and benefits provided to the 
                        Secretary of Education by the Department of 
                        Education.
                            (ii) The nonprofit lender does not maintain 
                        an ongoing relationship whereby the nonprofit 
                        lender passes on revenue directly or indirectly 
                        through lease, securitization, resale, or any 
                        other financial instrument to a for-profit 
                        entity or to shareholders.
                            (iii) The nonprofit lender does not offer 
                        benefits to a borrower in a manner directly or 
                        indirectly predicated on such borrower's 
                        participation--
                                    (I) in a program under part B or D 
                                of title IV of the Higher Education Act 
                                of 1965 (20 U.S.C. 1071 et seq. and 
                                1087a et seq.); or
                                    (II) with any particular lender.
                            (iv) The nonprofit lender certifies that 
                        the nonprofit lender uses the payment received 
                        pursuant to paragraph (1) to confer grant or 
                        scholarship benefits to students who are 
                        eligible to receive Federal Pell Grants under 
                        subpart 1 of part A of title IV of the Higher 
                        Education Act of 1965 (20 U.S.C. 1070a et 
                        seq.).
                            (v) The nonprofit lender is subject to 
                        public oversight through either a State charter 
                        or through not less than 50 percent of the 
                        nonprofit lender's board of directors 
                        consisting of State-appointed representatives.
                            (vi) The nonprofit lender does not engage 
                        in the marketing of the relative value of 
                        programs under part B of title IV of the Higher 
                        Education Act of 1965 (20 U.S.C. 1071 et seq.) 
                        as compared to programs under part D of title 
                        IV of the Higher Education Act of 1965 (20 
                        U.S.C. 1087a et seq.), nor does the nonprofit 
                        lender engage in the marketing of loans or 
                        programs offered by for-profit lenders. This 
                        clause shall not be construed to prohibit the 
                        nonprofit lender from conferring basic 
                        information on lenders under part B of title IV 
                        of the Higher Education Act of 1965 (20 U.S.C. 
                        1071 et seq.) and the related benefits offered 
                        by such nonprofit lenders.
                                                       

Summary: Student Loan Abuse Prevention Act of 2005 - Amends the Higher Education Act of 1965 as amended by the Taxpayer-Teacher Protection Act of 2004 (HEA) to reduce special allowance payments to holders of student loans by making permanent the ending of a 9.5 minimum guaranteed rate of return to such holders. Directs the Secretary of Education to give incentives, in the form of certain reductions in principal or interest rate, to borrowers to consolidate any current loans for which the holder is entitled to a special allowance that ensures such a 9.5 rate of return, provided such an incentive does not increase the cost of such loan to the federal government. Increases to $23,000 the maximum amount of student loan forgiveness under the Federal Family Education Loan and the Federal Direct Student Loan programs for certain eligible teachers of: (1) mathematics or science in secondary schools. And (2) special education in elementary and secondary schools. Directs the Secretary to use funds available from reduced expenditures resulting from this Act's reduction of special allowances to loan holders, as follows: (1) first, for the student loan cancellation and forgiveness programs for teachers under HEA as amended by this Act. And (2) then, the remainder for payments to nonprofit lenders meeting certain criteria and using such payments to confer grant or scholarship benefits on students eligible for Federal Pell Grants.