I

104TH CONGRESS

1ST SESSION H. R. 1501

To amend the Federal Credit Reform Act to improve budget accuracy of

accounting for Federal costs associated with student loans, to phaseout the Federal Direct Student Loan Program, to make improvements

in the Federal Family Education Loan Program, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

APRIL 7, 1995

Mr. ISTOOK (for himself, Mr. BAKER of Louisiana, Mr. BOEHNER, Mr. BONO,

Mrs. CHENOWETH, Mr. DOOLITTLE, Mr. HUTCHINSON, Mr. INGLIS of

South Carolina, Mr. SAM JOHNSON of Texas, Mr. KASICH, Mr. KIM, Mr.

KLUG, Mr. MCINTOSH, Mr. MILLER of Florida, Mr. NORWOOD, Mr. PORTER, Mr. SAXTON, Mr. SCARBOROUGH, Mr. TALENT, Mr. WATTS of

Oklahoma, and Mr. WELLER) introduced the following bill; which was referred to the Committee on Economic and Educational Opportunities,

and in addition to the Committee on Government Reform and Oversight,

for a period to be subsequently determined by the Speaker, in each case

for consideration of such provisions as fall within the jurisdiction of the

committee concerned

A BILL

To amend the Federal Credit Reform Act to improve budget

accuracy of accounting for Federal costs associated with

student loans, to phase-out the Federal Direct Student

Loan Program, to make improvements in the Federal

Family Education Loan Program, and for other purposes.

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

2 This Act may be cited as the ‘‘Student Loan Privat3 ization Act of 1995’’.

4 SEC. 2. FINDINGS.

5 The Congress finds the following:

6 (1) The Federal Direct Student Loan Program

7 will result in an increase of at least 500 full-time

8 equivalent employees at the United States Depart9 ment of Education and the hiring of over 15,000

10 Federal contract employees, assuming full implemen11 tation of the program.

12 (2) The involvement of private sector financial

13 institutions and not-for-profit corporations chartered

14 for the purpose of providing or supporting Federal

15 student assistance results in increased efficiency,

16 maintenance of quality of service to students and in17 stitutions, and innovation in and the use of modern

18 data processing technology.

19 (3) The Federal Family Education Loan Pro20 gram is subject to excessive regulation resulting in

21 burdensome administrative requirements for stu22 dents, schools, and other program participants, the

23 reduction of which would ease administrative bur24 dens and improve program management.

25 (4) The program costs of the Federal Direct

26 Student Loan program are inaccurately reflected
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1 under the provisions of the Federal Credit Reform

2 Act due to the exclusion of accounting for certain

3 administrative costs associated with the program

4 under that Act.

5 (5) The budget scoring of Federal student loans

6 under the Federal Credit Reform Act led to projec7 tions of savings which are highly unlikely to occur

8 in reality for the Federal Direct Student Loan Pro9 gram.

10 TITLE I—REFORMS TO IMPROVE

11 THE ACCURACY OF THE FED12 ERAL CREDIT REFORM ACT

13 WITH RESPECT TO BUDGET

14 SCORING THE COST OF THE

15 FEDERAL DIRECT STUDENT

16 LOAN PROGRAM

17 SEC. 101. AMENDMENTS TO THE FEDERAL CREDIT REFORM

18 ACT.

19 Section 502(5)(B) of the Congressional Budget Act

20 is amended to read as follows:

21 ‘‘(B) The cost of a direct loan shall be the

22 net present value, at the time when the direct

23 loan is disbursed, of the following cash flows for

24 the estimated life of the loan—

25 ‘‘(i) loan disbursements;
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1 ‘‘(ii) repayments of principal;

2 ‘‘(iii) payments of interest and other

3 payments by or to the Government over

4 the life of the loan after adjusting for esti5 mated defaults, prepayments, fees, pen6 alties and other recoveries; and

7 ‘‘(iv) in the case of a direct loan made

8 pursuant to a program for which the Office

9 of Management and Budget estimates that

10 for the coming fiscal year (or for any prior

11 fiscal year) loan commitments will equal or

12 exceed $5,000,000,000, direct and indirect

13 expenses, including but not limited to the

14 following: expenses arising from credit pol15 icy and oversight; activities related to cred16 it extension; loan origination; loan servic17 ing; technical assistance; training; program

18 promotion; payments to contractors, other

19 government entities, and program partici20 pants; collection of delinquent loans; write21 off and close-out of loans; and an amount

22 equal to 1 basis point multiplied by the

23 amount of the total Federal debt obliga24 tions outstanding on the last day of the

25 Federal fiscal year for each
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1 $50,000,000,000 outstanding in such di2 rect loans.’’.

3 SEC. 102. EFFECTIVE DATE.

4 The amendment made by section 101 shall apply to

5 all fiscal years beginning on or after October 1, 1995, and

6 to statutory changes made on or after the date of enact7 ment of this Act.

8 TITLE II—PHASE-OUT OF THE

9 FEDERAL DIRECT STUDENT

10 LOAN PROGRAM

11 SEC. 201. PHASE-OUT OF PROGRAM.

12 Section 453 of the Higher Education Act of 1965 (20

13 U.S.C. 1087c) (hereinafter in this title and in title III re14 ferred to as ‘‘the Act’’) is amended by adding at the end

15 the following new subsection:

16 ‘‘(f) PHASE-OUT OF PROGRAM.—

17 ‘‘(1) GENERAL AUTHORITY.—The Secretary

18 shall modify or phase-out agreements entered into

19 with institutions of higher education pursuant to

20 section 454(a) to implement the phase-out of the

21 Federal Direct Student Loan Program as specified

22 in paragraph (2) of this section.

23 ‘‘(2) MODIFICATION OR PHASE-OUT OF AGREE24 MENTS.—In order to ensure an expeditious but or25 derly phase-out of the programs authorized under
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1 this part, the Secretary shall modify or phase-out

2 agreements entered into pursuant to section 454

3 with institutions of higher education to achieve the

4 following results:

5 ‘‘(A) For academic year 1995–1996, loans

6 made under this part shall represent not more

7 than 5 percent of new student loan volume for

8 such year.

9 ‘‘(B) For academic year 1996–1997 and

10 all subsequent academic years, no loans shall be

11 made pursuant to this part.

12 ‘‘(3) NEW STUDENT LOAN VOLUME.—For the

13 purposes of this subsection, the term ‘new student

14 loan volume’ has the same meaning as under sub15 section (a)(4) of this section.

16 ‘‘(4) MODIFICATION OF SOFTWARE AND SYS17 TEMS FOR PHASE-OUT OF DIRECT LOANS.—The Sec18 retary shall not make system modifications or up19 grades to software used in support of the program

20 under this part after the date of enactment of this

21 subsection.

22 ‘‘(5) REGULATIONS GOVERNING PHASE-OUT OF

23 DIRECT LOANS.—The Secretary shall promulgate

24 regulations governing the phase-out of the Federal

25 Direct Student Loan Program not later than 90
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1 days after the date of enactment of this subsection.

2 Such regulation shall not be subject to the provisions

3 of the Master Calendar as specified under section

4 482 of this title. The provisions of this subsection

5 shall be implemented notwithstanding the

6 nonpublication of regulations required under this

7 subsection by the Secretary.’’.

8 SEC. 202. DIRECT LOAN VOLUME LIMITS.

9 Section 453(a) of the Act (20 U.S.C. 1087(a)) is

10 amended by striking paragraphs (2) and (3).

11 SEC. 203. ADMINISTRATIVE EXPENSES.

12 Section 458(a) of the Act (20 U.S.C. 1087h(a)) is

13 amended to read as follows:

14 ‘‘(a) IN GENERAL.—Each fiscal year there shall be

15 available, from funds not otherwise appropriated, funds to

16 be obligated for administrative costs under this part, and

17 for certain expenditures in support of the program author18 ized under part B, not to exceed (from such funds not

19 otherwise appropriated) $50,000,000 in fiscal year 1996,

20 $45,000,000 in fiscal year 1997, and no funds available

21 in fiscal year 1998. The total expenditures by the Sec22 retary (from such funds not otherwise appropriated) shall

23 not exceed $700,000,000 in fiscal years 1994 through

24 1998. The Secretary is also authorized to carry over funds

25 available under this section to a subsequent fiscal year.’’.
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1 SEC. 204. REPEAL.

2 Part D of title IV of the Higher Education Act, as

3 amended by this title, is repealed effective October 1,

4 1997.

5 TITLE III—IMPROVEMENTS TO

6 THE FEDERAL FAMILY EDU7 CATION LOAN PROGRAM

8 SEC. 301. RECOVERY OF GUARANTY AGENCY RESERVES.

9 The last sentence of section 422(a)(2) of the Act (20

10 U.S.C. 1072(a)(2)) is amended by striking ‘‘Except as

11 provided in section 428(c)(10)(E) or (F), such’’ and in12 serting in lieu thereof ‘‘Such’’.

13 SEC. 302. RESERVE FUNDS.

14 Section 422(g) of the Act (20 U.S.C. 1072(g)) is

15 amended to read as follows:

16 ‘‘(g) DISPOSITION OF FUNDS RETURNED OR RECOV17 ERED BY THE SECRETARY.—Any funds that are returned

18 or otherwise recovered by the Secretary pursuant to this

19 subsection shall be returned to the United States Treasury

20 for purposes of reducing the Federal debt.’’.

21 SEC. 303. TERMINATION OF FDSL CONSOLIDATION LOAN

22 AUTHORITY.

23 (a) PART B AUTHORITY.—Section 428C(b) of the

24 Act (20 U.S.C. 1078–3(b)) is amended by striking para25 graph (5).
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1 (b) PART D AUTHORITY.—Section 455 of the Act is

2 amended by striking subsection (g).

3 SEC. 304. CONSOLIDATION UNDER FFELP OF LOANS MADE

4 PURSUANT TO PART D.

5 Section 428C(a)(4)(B) of the Act (20 U.S.C. 1087–

6 3(a)(4)(B)) is amended by inserting ‘‘part D or’’ before

7 ‘‘part E’’.

8 SEC. 305. ACCOUNTABILITY OF FUNDS FOR DIRECT LOAN

9 ADMINISTRATIVE EXPENSES.

10 Section 458 of the Act (20 U.S.C. 1087h) is amended

11 by redesignating subsection (d) as subsection (e), and by

12 inserting after subsection (c) thereof the following new

13 subsection:

14 ‘‘(d) PROHIBITION ON CERTAIN EXPENDITURES.—

15 Notwithstanding any other provision of law, funds avail16 able under this section shall not be used to support public

17 relations activities (by Department of Education employ18 ees or pursuant to contracts with the Department) or mar19 keting of institutions to encourage participation in the

20 program authorized under this part.’’.

21 SEC. 306. SALE OF FDSL LOAN PORTFOLIOS.

22 The Act is amended by inserting after section 458

23 of the Act (20 U.S.C. 1087h) the following new section:
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1 ‘‘SEC. 459. SALE OF FEDERAL DIRECT STUDENT LOAN

2 PORTFOLIOS.

3 ‘‘(a) AUCTION SALES OF LOAN PORTFOLIOS.—The

4 Secretary shall conduct auctions to sell the outstanding

5 portfolio of loans made pursuant to this part. Such auc6 tions shall consist of sales of portfolios representative of

7 the overall characteristics of the direct loans held by the

8 Secretary. Auctions shall be held for portfolios of not less

9 than $40,000,000 of loans per sale. The first sale of loans

10 shall take place not later than 120 days after the date

11 of enactment of this section, and shall not include Federal

12 guarantees or reinsurance against the contingency of bor13 rower default, death, or disability.

14 ‘‘(b) LOAN TERMS SUBJECT TO PROMISSORY

15 NOTE.—Such loans shall be subject to the terms and con16 ditions as specified in the borrower promissory note, and

17 shall not be subject to further Federal regulations pursu18 ant to this Act.

19 ‘‘(c) ASSESSMENT OF AUCTION.—The Secretary, fol20 lowing the auctions required pursuant to this section, shall

21 prepare a report on the results of such auctions. Such re22 port shall include (but not be limited to) the following:

23 ‘‘(1) The Secretary’s opinion as to whether the

24 results of the auction represent a true reflection of

25 the Federal subsidy costs associated with federally

26 supported student loans; and
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1 ‘‘(2) an estimate of the reductions in Federal

2 administrative costs achieved through eliminating fu3 ture Federal oversight and administrative respon4 sibilities of affected loans as a result of sale to the

5 private sector.

6 ‘‘(d) TRANSMITTAL OF RESULTS TO CONGRESSIONAL

7 BUDGET OFFICE AND OFFICE OF MANAGEMENT AND

8 BUDGET.—The Secretary shall provide a copy of all re9 ports and analyses prepared in connection with implemen10 tation of this section to the Director of the Congressional

11 Budget Office and the Director of the Office of Manage12 ment and Budget.

13 ‘‘(e) DISPOSITION OF PROCEEDS.—All proceeds re14 ceived as a result of the auctions conducted pursuant to

15 this part shall be returned to the United States Depart16 ment of the Treasury after deduction of expenses incurred

17 by the Department of Education in connection with the

18 auctions required pursuant to this section.’’.

19 SEC. 307. EFFECTIVE DATE.

20 Except as otherwise specified therein, the amend21 ments made by this title shall be effective 30 days after

22 the date of the enactment.

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