II 

Calendar No. 113 

109TH CONGRESS 

1ST SESSION S. 1098 

To prevent abuse of the special allowance subsidies under the Federal Family 

Education Loan Program. 

IN THE SENATE OF THE UNITED STATES 

MAY 23, 2005 

Mr. KENNEDY (for himself, Mrs. MURRAY, Ms. MIKULSKI, Mrs. CLINTON, Mr. 

DORGAN, and Mr. DURBIN) introduced the following bill; which was read 

the first time 

MAY 24, 2005 

Read the second time and placed on the calendar 

A BILL 

To prevent abuse of the special allowance subsidies under 

the Federal Family Education Loan Program. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Student Loan Abuse 

5 Prevention Act of 2005’’. 
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1 SEC. 2. PURPOSE. 

2 It is the purpose of this Act to stop ensuring that 

3 lenders in the Federal Family Education Loan Program 

4 continue to receive extraordinary and unnecessary tax5 payer subsidies, to make public college tuition free for fu6 ture mathematics, science, and special education teachers, 

7 and to provide additional assistance to students eligible 

8 to receive a Federal Pell Grant under subpart 1 of part 

9 A of title IV of the Higher Education Act of 1965 (20 

10 U.S.C. 1070a et seq.). 

11 SEC. 3. ENDING THE 9.5 PERCENT GUARANTEED RATE OF 

12 RETURN ON FEDERAL FAMILY EDUCATION 

13 LOANS. 

14 (a) TECHNICAL CORRECTION.—Section 2 of the Tax15 payer-Teacher Protection Act of 2004 (Public Law 108– 

16 409; 118 Stat. 2299) is amended in the matter preceding 

17 paragraph (1) by inserting ‘‘of the Higher Education Act 

18 of 1965’’ after ‘‘Section 438(b)(2)(B)’’. 

19 (b) PROSPECTIVE SPECIAL ALLOWANCES.— 

20 (1) IN GENERAL.—Section 438(b)(2)(B) of the 

21 Higher Education Act of 1965 (20 U.S.C. 1087– 

22 1(b)(2)(B)), as amended by the Taxpayer-Teacher 

23 Protection Act of 2004, is amended— 

24 (A) in clause (iv), by striking ‘‘1993, or re25 funded after September 30, 2004, and before 

26 January 1, 2006, the’’ and inserting ‘‘1993, or 
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1 refunded on or after the date of enactment of 

2 the Taxpayer-Teacher Protection Act of 2004, 

3 the’’; and 

4 (B) by striking clause (v) and inserting the 

5 following: 

6 ‘‘(v) Notwithstanding clauses (i) and 

7 (ii), the quarterly rate of the special allow8 ance shall be the rate determined under 

9 subparagraph (A), (E), (F), (G), (H), or 

10 (I) of this paragraph, or paragraph (4), as 

11 the case may be, for loans— 

12 ‘‘(I) originated, transferred, or 

13 purchased on or after the date of en14 actment of the Taxpayer-Teacher Pro15 tection Act of 2004; 

16 ‘‘(II) financed by an obligation 

17 that has matured, been retired, or 

18 defeased on or after the date of enact19 ment of the Taxpayer-Teacher Protec20 tion Act of 2004; 

21 ‘‘(III) which the special allowance 

22 was determined under such subpara23 graphs or paragraph, as the case may 

24 be, on or after the date of enactment 
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1 of the Taxpayer-Teacher Protection 

2 Act of 2004; 

3 ‘‘(IV) for which the maturity 

4 date of the obligation from which 

5 funds were obtained for such loans 

6 was extended on or after the date of 

7 enactment of the Taxpayer-Teacher 

8 Protection Act of 2004; or 

9 ‘‘(V) sold or transferred to any 

10 other holder on or after the date of 

11 enactment of the Taxpayer-Teacher 

12 Protection Act of 2004.’’. 

13 (2) RULE OF CONSTRUCTION.—Nothing in the 

14 amendment made by paragraph (1) shall be con15 strued to abrogate a contractual agreement between 

16 the Federal Government and a student loan pro17 vider. 

18 (c) PREPAYMENT OF CURRENT LOANS.— 

19 (1) IN GENERAL.—The Secretary of Education 

20 shall encourage a borrower to consolidate such bor21 rower’s loans under section 428C or 455(g) of the 

22 Higher Education Act of 1965 (20 U.S.C. 1078–3 

23 and 1087e(g)) if 1 or more of such loans is a loan 

24 for which the holder of the loan is entitled to a spe25 cial allowance payment determined under section 
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1 438(b)(2)(B) of such Act (20 U.S.C. 1087– 

2 1(b)(2)(B)) that ensures the holder a minimum 9.5 

3 percent rate of return on such loan, by offering the 

4 borrower an incentive, as described in paragraph 

5 (2). 

6 (2) INCENTIVE.—Except as provided in para7 graph (3), an incentive to a borrower regarding a 

8 loan for which the holder of the loan is entitled to 

9 a special allowance payment determined under sec10 tion 438(b)(2)(B) of the Higher Education Act of 

11 1965 (20 U.S.C. 1087–1(b)(2)(B)) that ensures the 

12 holder a minimum 9.5 percent rate of return on 

13 such loan, shall take the form of— 

14 (A) an immediate $1,000 reduction in the 

15 principal of such loan; or 

16 (B) not less than a 1-percent reduction in 

17 the interest rate payments on such loan. 

18 (3) EXCEPTION.—The Secretary of Education 

19 shall not offer an incentive under paragraph (2) to 

20 a borrower of a loan described in such paragraph if 

21 offering the incentive will increase the long-term 

22 costs to the Federal Government of such loan. 
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1 SEC. 4. TUITION-FREE COLLEGE FOR FUTURE MATHE2 MATICS, SCIENCE, AND SPECIAL EDUCATION 

3 TEACHERS. 

4 (a) ADDITIONAL AMOUNTS FOR TEACHERS IN MATH5 EMATICS, SCIENCE, AND SPECIAL EDUCATION.— 

6 (1) FFEL LOANS.—Section 428J(c)(3) of the 

7 Higher Education Act of 1965 (20 U.S.C. 1078– 

8 10(c)(3)) is amended by striking ‘‘$17,500’’ and in9 serting ‘‘$23,000’’. 

10 (2) DIRECT LOANS.—Section 460(c)(3) of the 

11 Higher Education Act of 1965 (20 U.S.C. 

12 1087j(c)(3)) is amended by striking ‘‘$17,500’’ and 

13 inserting ‘‘$23,000’’. 

14 (b) EFFECTIVE DATE.—The amendments made by 

15 this section shall apply only with respect to eligible individ16 uals who are new borrowers on or after October 1, 1998. 

17 SEC. 5. INCREASED GRANT AID TO PELL GRANT RECIPI18 ENTS. 

19 (a) IN GENERAL.—Any funds available to the Sec20 retary of Education as a result of reduced expenditures 

21 under section 438 of the Higher Education Act of 1965 

22 (20 U.S.C. 1087–1) secured by the enactment of section 

23 3 shall first be used by the Secretary for loan cancellation 

24 and loan forgiveness for teachers under sections 428J and 

25 460 of the Higher Education Act of 1965 (20 U.S.C. 

26 1078–10 and 1087j), as amended by section 4. 
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1 (b) REMAINING FUNDS.— 

2 (1) IN GENERAL.—Any such funds remaining 

3 after carrying out subsection (a) shall be used by the 

4 Secretary of Education to make payments to each 

5 nonprofit lender in an amount that bears the same 

6 relation to the remaining funds as the amount the 

7 nonprofit lender receives for fiscal year 2005 under 

8 section 438(b)(2)(B) of the Higher Education Act of 

9 1965 (20 U.S.C. 1087–1(b)(2)(B)) bears to the total 

10 amount received by nonprofit lenders for fiscal year 

11 2005 under such section. 

12 (2) DEFINITION OF NONPROFIT LENDER.—In 

13 this subsection, the term ‘‘nonprofit lender’’ means 

14 an eligible lender (as defined in section 435(d) of the 

15 Higher Education Act of 1965 (20 U.S.C. 1085(d)) 

16 that— 

17 (A) is an organization described in section 

18 501(c)(3) of the Internal Revenue Code of 

19 1986; 

20 (B) is a nonprofit entity as defined by ap21 plicable State law; and 

22 (C) meets the following requirements: 

23 (i) The nonprofit lender does not con24 fer a salary or benefits to any employee of 

25 the nonprofit lender in an amount that is 
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1 in excess of the salary and benefits pro2 vided to the Secretary of Education by the 

3 Department of Education. 

4 (ii) The nonprofit lender does not 

5 maintain an ongoing relationship whereby 

6 the nonprofit lender passes on revenue di7 rectly or indirectly through lease, 

8 securitization, resale, or any other financial 

9 instrument to a for-profit entity or to 

10 shareholders. 

11 (iii) The nonprofit lender does not 

12 offer benefits to a borrower in a manner 

13 directly or indirectly predicated on such 

14 borrower’s participation— 

15 (I) in a program under part B or 

16 D of title IV of the Higher Education 

17 Act of 1965 (20 U.S.C. 1071 et seq. 

18 and 1087a et seq.); or 

19 (II) with any particular lender. 

20 (iv) The nonprofit lender certifies that 

21 the nonprofit lender uses the payment re22 ceived pursuant to paragraph (1) to confer 

23 grant or scholarship benefits to students 

24 who are eligible to receive Federal Pell 

25 Grants under subpart 1 of part A of title 
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1 IV of the Higher Education Act of 1965 

2 (20 U.S.C. 1070a et seq.). 

3 (v) The nonprofit lender is subject to 

4 public oversight through either a State 

5 charter or through not less than 50 per6 cent of the nonprofit lender’s board of di7 rectors consisting of State-appointed rep8 resentatives. 

9 (vi) The nonprofit lender does not en10 gage in the marketing of the relative value 

11 of programs under part B of title IV of the 

12 Higher Education Act of 1965 (20 U.S.C. 

13 1071 et seq.) as compared to programs 

14 under part D of title IV of the Higher 

15 Education Act of 1965 (20 U.S.C. 1087a 

16 et seq.), nor does the nonprofit lender en17 gage in the marketing of loans or pro18 grams offered by for-profit lenders. This 

19 clause shall not be construed to prohibit 

20 the nonprofit lender from conferring basic 

21 information on lenders under part B of 

22 title IV of the Higher Education Act of 

23 1965 (20 U.S.C. 1071 et seq.) and the re24 lated benefits offered by such nonprofit 

25 lenders. 
Calendar No. 113 

109TH CONGRESS 

1ST SESSION S. 1098 

A BILL 

To prevent abuse of the special allowance subsidies 

gram. under the Federal Family Education Loan ProMAY 24, 2005 

Read the second time and placed on the calendar