Federal Accountability and Institutional Reform in Education Act of 1995

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Federal Accountability and 
Institutional Reform in Education Act of 1995''.

SEC. 2. FINDINGS.

    The Congress finds that--
            (1) the Federal Government is reducing spending in all 
        areas, including postsecondary education;
            (2) reductions in postsecondary education spending fall on 
        students, schools, State loan guaranty agencies and lenders;
            (3) the administration of postsecondary education is the 
        responsibility of the Department of Education; and
            (4) reforms should be made to postsecondary education 
        programs to provide greater accountability from the Department, 
        educational institutions, lenders, and guarantee agencies and 
        to enhance institutional compliance with Department policies.

SEC. 3. STUDENT LOAN COHORT DEFAULT MANAGEMENT REFORMS.

    (a) Administrative and Fiscal Procedures.--Section 428(c)(2)(A) of 
the Higher Education Act of 1965 is amended by striking ``proof that 
reasonable attempts were made'' and inserting ``proof that the 
institution was contacted and other reasonable attempts were made''
    (b) Reimbursement.--Section 428(c)(2)(G) of the Higher Education 
Act of 1965 is amended by striking ``certifies to the Secretary that 
diligent attempts have been made'' and inserting ``demonstrates to the 
Secretary that diligent attempts, including direct contact with the 
institution have been made.''.
    (c) Limitation.--Section 428 of the Higher Education Act of 1965 is 
amended by adding at the end the following:
    ``(o) Limitation.--Notwithstanding any other provision of this 
section, the Secretary shall not reimburse or permit any eligible 
lender, servicer, or guaranty agency (or its affiliates) who previously 
filed a claim for reimbursement on a loan to retain any proceeds from 
rehabilitation of a defaulted loan to the extent that such funds, when 
added to the amount of prior reimbursement under this section, exceed 
100 percent of the original principal of the loan.''.
    (d) Notice to Secretary and Payment of Loss.--Section 430(a) of the 
Higher Education Act of 1965 is amended--
            (1) by inserting ``all'' after ``required to meet''; and
            (2) by inserting ``the institution was contacted and 
        other'' after ``submit proof that''.
    (e) Annual Report.--Section 430 of the Higher Education Act of 1965 
is amended by adding at the end the following:
    ``(f) Annual Report.--The Secretary shall report annually to 
Congress that lenders, servicers and guaranty agencies have attested to 
their compliance with servicing and due diligence requirements, under 
both statute and regulation. The Secretary shall also provide 
information on the successful practices of low-default lenders, 
servicers and guaranty agencies to other financial, servicing and 
guaranty institutions participating in this title to encourage 
duplication of successful servicing and collection programs.''.
    (f) Circumstances.--Section 435(a)(2) of the Higher Education Act 
of 1965 is amended by adding at the end the following:
            ``(D) The circumstances referred to in subparagraph (A)(ii) 
        shall be uniformly applied to all eligible institutions and 
        shall require that such an institution meet the following 
        criteria:
                    ``(i) Not less than 50 percent of the students 
                enrolled in eligible programs qualify for an award 
                under subpart 1 of part A of title IV.
                    ``(ii) The institution's student completion rate, 
                as calculated under the Student Right to Know 
                provisions of this title, is 60 percent or greater.
                    ``(iii) The initial job placement rate of program 
                graduates is 60 percent or greater.''.
    (g) Cohort Default Rate.--Section 435(m)(1)(B) of the Higher 
Education Act of 1965 is amended by striking ``paid claims'' and 
inserting ``properly paid claims as required in section 430 of this 
Act''.

SEC. 4. ELIGIBLE INSTITUTION REFORM.

    Section 481 (b) of the Higher Education Act of 1965 is amended--
            (1) by inserting before the period at the end of the first 
        sentence the following: ``on the basis of a review by the 
        institution's independent auditor using generally accepted 
        accounting principles''; and
            (2) by inserting before the second sentence the following:
``For the purposes of paragraph (6), revenues from sources that are not 
derived from funds under this title include revenues from programs of 
education or training that do not meet the definition of an eligible 
program in subsection (e), but are provided on a contractual basis 
under Federal, State or local training programs, to business and 
industry, or to other eligible applicants. For the purposes of 
determining whether an institution meets the requirements of paragraph 
(6), the Secretary shall not consider the financial information of any 
institution for a fiscal year that began on or before April 30, 
1994.''.

SEC. 5. ACCOUNTING PROCEDURES FOR INSTITUTIONAL PROGRAM PARTICIPATION.

    Section 498(c) of the Higher Education Act of 1965 is amended by 
inserting ``, based on an audited financial statement using any 
generally accepted accounting principles'' after ``is able''.

Summary: Federal Accountability and Institutional Reform in Education Act of 1995 - Amends the Higher Education Act of 1965 (HEA) to revise the accountability provisions and reform certain programs of such Act. Revises provisions for student loan cohort default management. Requires proof that the institution was contacted, under certain administrative and fiscal procedures. Requires, under certain reimbursement provisions, a demonstration to the Secretary of Education that diligent attempts, including direct contact with the institution, have been made. Prohibits the Secretary from reimbursing or permitting any eligible lender, servicer, or guaranty agency who previously filed a claim for reimbursement on a loan to retain any proceeds from rehabilitation of a defaulted loan to the extent that such funds, when added to the amount of prior reimbursement, exceed the whole amount of the original principal of the loan. Revises provisions relating to notice to the Secretary, payment of loss, and cohort default rate. Directs the Secretary to: (1) report annually to the Congress that lenders, servicers and guaranty agencies have attested to their compliance with servicing and due diligence requirements. And (2) provide information on the successful practices of low-default lenders, servicers, and guaranty agencies to other financial, servicing, and guaranty institutions participating in HEA student aid programs, to encourage duplication of successful servicing and collection programs. Requires that certain mitigating circumstances, which allow an institution to continue in the student loan insurance program despite its having a high default rate, be uniformly applied to all eligible institutions, requiring that they meet the following criteria: (1) at least 50 percent of the students enrolled in eligible programs qualify for a Pell grant. (2) an institution's student completion rate is 60 percent or greater. And (3) the initial job placement rate of program graduates is 60 percent or greater. Revises the definition of proprietary institution of higher education, for purposes of eligibility for HEA student aid programs. Requires, for purposes of the requirement that such an institution have at least 15 percent of its revenues from sources that are not derived from funds provided under HEA student aid programs, a review by the institution's independent auditor using generally accepted accounting principles. Requires further that revenues from sources that are not derived from HEA student aid program funds include revenues from programs of education or training that do not meet the definition of an eligible program, but are provided on a contractual basis under Federal, State, or local training programs, to business and industry, or to other eligible applicants. Prohibits the Secretary from considering the financial information of any institution for a fiscal year that began on or before April 30, 1994. Revises accounting procedures for institutional program participation to require that specified information be based on an audited financial statement using any generally accepted accounting principles.