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[Congressional Bills 113th Congress]
[From the U.S. Government Publishing Office]
[S. 546 Introduced in Senate (IS)]

113th CONGRESS
  1st Session
                                 S. 546

 To amend entrance counseling and exit counseling for borrowers under 
       the Higher Education Act of 1965, and for other purposes.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                             March 13, 2013

 Mr. Harkin (for himself, Ms. Mikulski, Mrs. Murray, Mr. Franken, Ms. 
 Warren, Mr. Blumenthal, Mr. Sanders, Mr. Rockefeller, Mr. Durbin, Mr. 
 Lautenberg, and Mr. Murphy) introduced the following bill; which was 
 read twice and referred to the Committee on Health, Education, Labor, 
                              and Pensions

_______________________________________________________________________

                                 A BILL

 
 To amend entrance counseling and exit counseling for borrowers under 
       the Higher Education Act of 1965, and for other purposes.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Smarter Borrowing Act''.

SEC. 2. AMENDMENTS TO THE HIGHER EDUCATION ACT OF 1965.

    (a) Notification of Pell Grant Eligibility.--Section 401 of the 
Higher Education Act of 1965 (20 U.S.C. 1070a) is amended by adding at 
the end the following:
    ``(k) Notification of Pell Grant Eligibility.--
            ``(1) In general.--Each eligible institution shall, not 
        less than once every 2 years while a student is enrolled in the 
        institution, notify each student enrolled in the institution 
        who is receiving a Federal Pell Grant of the period of time 
        that the student has remaining before the student will not be 
        eligible for a Federal Pell Grant in accordance with subsection 
        (c)(5) because the period of time for which the student has 
        received a Federal Pell Grant, in the aggregate, exceeds the 
        period of enrollment described in subsection (c)(5).
            ``(2) Pell grant recipients who are borrowers.--In the case 
        of a student who is receiving a Federal Pell Grant who is also 
        a borrower of a loan made, insured, or guaranteed under part B 
        (other than a loan made pursuant to section 428C or a loan made 
        on behalf of a student pursuant to section 428B) or made under 
        part D (other than a Federal Direct Consolidation Loan or a 
        Federal Direct PLUS loan made on behalf of a student), the 
        requirement described in paragraph (1) shall be carried out in 
        accordance with the notification and counseling requirements 
        described in section 485(o).''.
    (b) Institution Eligibility.--Section 435 of the Higher Education 
Act of 1965 (20 U.S.C. 1085) is amended--
            (1) in subsection (a)(7)--
                    (A) in subparagraph (A), by adding at the end the 
                following:
                            ``(iii) Summary of default prevention 
                        plan.--Each institution subject to this 
                        subparagraph shall prepare a summary of the 
                        plan described under clause (i) that is 
                        directed to a student audience, and shall make 
                        the summary available to students at the 
                        institution.''; and
                    (B) by inserting after subparagraph (B) the 
                following:
                    ``(C) Additional notification and loan counseling 
                requirements.--An institution whose cohort default rate 
                is equal to or greater than the threshold percentage 
                specified in paragraph (2)(B)(iv) in any fiscal year 
                shall, in order to retain or regain, as the case may 
                be, status as an eligible institution, carry out the 
                additional notification and loan counseling 
                requirements described under section 485(o)(3).''.
    (c) Student Loan Counseling.--Section 485 of the Higher Education 
Act of 1965 (20 U.S.C. 1092) is amended--
            (1) in subsection (b)--
                    (A) in paragraph (1)(A)--
                            (i) by striking clause (i) and inserting 
                        the following:
            ``(i) personalized information that reflects the borrower's 
        actual borrowing circumstances, which shall include--
                    ``(I) the repayment plans available, including 
                income-based and pay-as-you-earn repayment options;
                    ``(II) a description of the different features of 
                each plan; and
                    ``(III) personalized information showing estimates 
                of the borrower's anticipated monthly payments and the 
                difference in total interest paid and total payments 
                under each plan;'';
                            (ii) by redesignating clauses (viii) and 
                        (ix) as clauses (ix) and (x), respectively;
                            (iii) by inserting after clause (vii) the 
                        following:
            ``(viii) a statement that student loans must be repaid even 
        if the student is dissatisfied with the quality of education 
        that the student receives;''; and
                            (iv) by adding at the end the following:
    ``(C) The counseling described in subparagraph (A)--
            ``(i) shall be provided in a simple and understandable 
        manner that includes mechanisms to check for comprehension; and
            ``(ii) shall be provided--
                    ``(I) during an exit counseling session conducted 
                in person; or
                    ``(II) online.''; and
                    (B) in paragraph (2)(A)(iv), by striking ``, 
                address, social security number, references, and 
                driver's license number'' and inserting ``, postal 
                address, social security number, references, driver's 
                license number, phone number, and personal electronic 
                mailing address'';
            (2) in subsection (l)--
                    (A) by striking paragraph (1) and inserting the 
                following:
            ``(1) Disclosure required prior to signing master 
        promissory note.--Each eligible institution shall, prior to the 
        signing of the master promissory note to a first-time borrower 
        at such institution of a loan made under part D (other than a 
        Federal Direct Consolidation Loan or a Federal Direct PLUS loan 
        made on behalf of a student), ensure that the borrower receives 
        comprehensive information on the terms and conditions of the 
        loan and of the responsibilities the borrower has with respect 
        to such loan in accordance with paragraph (2). Such 
        information--
                    ``(A) shall be provided through the use of 
                interactive programs that test the borrower's 
                understanding of the terms and conditions of the 
                borrower's loans under part D, using simple and 
                understandable language and clear formatting; and
                    ``(B) shall be provided--
                            ``(i) during an entrance counseling session 
                        conducted in person; or
                            ``(ii) online.'';
                    (B) in paragraph (2), by adding at the end the 
                following:
                    ``(L)(i) A disclosure that Federal student loans 
                offer generally more favorable terms and beneficial 
                repayment options than private education loans, an 
                explanation of the difference and relevance between 
                student loans with a fixed interest rate as compared to 
                student loans with a variable interest rate, and a 
                recommendation that students examine available Federal 
                student loan options before applying for private 
                education loans.
                    ``(ii) An explanation written by the Secretary, in 
                consultation with the heads of relevant Federal 
                agencies, including the Director of the Consumer 
                Financial Protection Bureau and the Commissioner of the 
                Internal Revenue Service, of--
                            ``(I) the benefits unique to student loans 
                        made under part D, including repayment plans, 
                        loan forgiveness, and loan deferment; and
                            ``(II) the loan terms that borrowers should 
                        examine carefully if considering a private 
                        education loan.
                    ``(M) An explanation, if applicable, that a student 
                may refuse all or part of a student loan made under 
                part D that is made to the student, which could help 
                minimize the student's debt obligations.
                    ``(N) Information relating to the institution's 
                cohort default rate, including--
                            ``(i) the cohort default rate, as described 
                        in section 435(m), of the institution and an 
                        easy to understand description of what a cohort 
                        default rate is;
                            ``(ii) the percentage of students at the 
                        institution of higher education who borrow 
                        Federal student loans under this title;
                            ``(iii) the national average cohort default 
                        rate (as determined by the Secretary in 
                        accordance with section 435(m)); and
                            ``(iv) if the cohort default rate for the 
                        institution (as described in clause (i)) is 
                        greater than the national average cohort 
                        default rate (as described in clause (iii)), 
                        then the institution shall provide--
                                    ``(I) the loan repayment rate at 
                                the institution, as calculated by the 
                                Secretary in accordance with subsection 
                                (n), and, if applicable, the loan 
                                repayment rate of each program at the 
                                institution that is subject to gainful 
                                employment regulations under section 
                                668.7 of title 34, Code of Federal 
                                Regulations;
                                    ``(II) an easy to understand 
                                description of what a loan repayment 
                                rate is; and
                                    ``(III) a disclosure to the student 
                                that the institution's cohort default 
                                rate is above the national average.
                    ``(O) A statement that student loans must be repaid 
                even if the student is dissatisfied with the quality of 
                education that the student receives.
                    ``(P) The percent of students at the institution 
                who obtain a degree or certificate within 150 percent 
                of the normal time for completion of, or graduation 
                from, the student's program.''; and
                    (C) by adding at the end the following:
            ``(3) Borrower contact information.--Each eligible 
        institution shall require that a borrower who receives entrance 
        counseling under this subsection on or after the date of 
        enactment of the Smarter Borrowing Act submit to the 
        institution, during the entrance counseling required by this 
        subsection, the borrower's contact information at the time of 
        the entrance counseling, including the borrower's--
                    ``(A) phone number;
                    ``(B) postal address; and
                    ``(C) personal electronic mailing address.''; and
            (3) by adding at the end the following:
    ``(n) Loan Repayment Rate.--
            ``(1) In general.--Not less than once every fiscal year, 
        the Secretary shall calculate the loan repayment rate for each 
        institution of higher education that is participating in a 
        program under this title or seeking to regain eligibility to 
        participate in a program under this title. The Secretary shall 
        make the loan repayment rate for each such institution publicly 
        available on the `College Navigator' website of the National 
        Center for Education Statistics.
            ``(2) Method of calculation.--
                    ``(A) In general.--For purposes of this subsection, 
                the loan repayment rate for an institution shall be 
                equal to the proportion that--
                            ``(i) the sum of the total original 
                        outstanding principal balance of all loans paid 
                        in full of the institution plus the total 
                        original outstanding principal balance of all 
                        payments-made loans of the institution; bears 
                        to
                            ``(ii) the original outstanding principal 
                        balance of all loans described in subparagraph 
                        (B) of the institution.
                    ``(B) Original outstanding principal balance.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A), the original outstanding 
                        principal balance is the total amount of the 
                        outstanding balance, including capitalized 
                        interest, on loans under part B and part D owed 
                        by students for attendance at the institution 
                        on the date those loans first entered 
                        repayment, subject to clauses (ii) and (iii).
                            ``(ii) Exclusion.--The original outstanding 
                        principal balance does not include loans made 
                        to parent borrowers under section 428B or the 
                        Federal Direct PLUS Loan Program.
                            ``(iii) Consolidation loans.--For loans 
                        made under section 428C or Federal Direct 
                        Consolidation Loans, the original outstanding 
                        principal balance is the original outstanding 
                        principal balance of the loans under part B and 
                        part D attributable to a borrower's attendance 
                        at the institution.
                    ``(C) Loans paid in full.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A)(i), a loan paid in full is a 
                        loan described in subparagraph (B) that--
                                    ``(I)(aa) has never been in 
                                default; or
                                    ``(bb) in the case of a loan made 
                                under section 428C or a Federal Direct 
                                Consolidation Loan, neither the 
                                consolidation loan nor the underlying 
                                loan or loans has ever been in default; 
                                and
                                    ``(II) has been paid in full by a 
                                borrower.
                            ``(ii) Consolidation loans and 
                        refinancing.--A loan that is paid through a 
                        loan made under section 428C, a Federal Direct 
                        Consolidation Loan, or under another 
                        refinancing process provided for under this 
                        Act, is not counted as a loan paid in full for 
                        purposes of this subparagraph until the 
                        consolidation loan or other financial 
                        instrument is paid in full by the borrower.
                    ``(D) Payments-made loans.--
                            ``(i) In general.--In this paragraph, the 
                        term payments-made loan is a loan described in 
                        subparagraph (B) that has never been in default 
                        or, in the case of a loan made under section 
                        428C or a Federal Direct Consolidation Loan, 
                        neither the consolidation loan nor the 
                        underlying loan or loans have ever been in 
                        default, where--
                                    ``(I) for all undergraduate 
                                programs, payments made by a borrower 
                                during the most recently completed 
                                fiscal year reduce the outstanding 
                                balance of a loan, including the 
                                outstanding balance of a loan made 
                                under section 428C or a Federal Direct 
                                Consolidation Loan, to an amount that 
                                is less than the outstanding balance of 
                                the loan at the beginning of that 
                                fiscal year;
                                    ``(II) for post-baccalaureate 
                                certificate, master's degree, doctoral 
                                degree, or first-professional degree 
                                programs, the total outstanding balance 
                                of a loan made under section 428C or a 
                                Federal Direct Consolidation Loan at 
                                the end of the most recently completed 
                                fiscal year is less than the total 
                                outstanding balance of the 
                                consolidation loan at the beginning of 
                                the fiscal year; or
                                    ``(III) a borrower is in the 
                                process of qualifying for public 
                                service loan forgiveness under section 
                                455(m) and submits an employment 
                                certification to the Secretary that 
                                demonstrates the borrower is engaged in 
                                qualifying employment and the borrower 
                                made qualifying payments on the loan 
                                during the most recently completed 
                                fiscal year.
                            ``(ii) Outstanding balance of a loan.--
                                    ``(I) In general.--The outstanding 
                                balance of a loan includes any unpaid 
                                accrued interest that has not been 
                                capitalized.
                                    ``(II) Consolidation loan.--The 
                                outstanding balance of a loan made 
                                under section 428C or a Federal Direct 
                                Consolidation Loan includes any unpaid 
                                accrued interest that has not been 
                                capitalized.
                    ``(E) Exclusions.--For the most recently completed 
                fiscal year, the original outstanding principal balance 
                of the following loans is excluded from both the 
                numerator and the denominator of the ratio:
                            ``(i) Loans that were in an in-school 
                        deferment status under section 428(b)(1)(M)(i) 
                        or 455(f)(2)(A) during any part of the fiscal 
                        year.
                            ``(ii) Loans that were in a military-
                        related deferment status under section 
                        428(b)(1)(M)(ii) or 455(f)(2)(C) during any 
                        part of the fiscal year.
                            ``(iii) Loans that were discharged as a 
                        result of the death of the borrower under 
                        subsection (a)(1) or (d) of section 437.
                            ``(iv) Loans that were assigned or 
                        transferred to the Secretary and that are being 
                        considered for discharge as a result of the 
                        total and permanent disability of the borrower, 
                        or were discharged by the Secretary on that 
                        basis under section 437(a).
    ``(o) Additional Notifications and Counseling for Borrowers.--
            ``(1) Annual notifications.--Subject to subparagraph (E), 
        each eligible institution shall, not less than once every year 
        while a student is enrolled in the institution, carry out the 
        notification requirements described in subparagraphs (A), (B), 
        (C), and (D) with respect to a borrower of a loan made, 
        insured, or guaranteed under part B (other than a loan made 
        pursuant to section 428C or a loan made on behalf of a student 
        pursuant to section 428B) or made under part D (other than a 
        Federal Direct Consolidation Loan or a Federal Direct PLUS loan 
        made on behalf of a student). Such notification requirements 
        may be fulfilled by notifications provided through existing 
        methods of communication, such as the annual financial aid 
        award letter.
                    ``(A) Student loan balance; loan terms.--The 
                eligible institution shall provide the borrower with a 
                written notification of--
                            ``(i) the borrower's outstanding balance of 
                        principal and interest owing on any loan made, 
                        insured, or guaranteed under this title;
                            ``(ii) the borrower's repayment options; 
                        and
                            ``(iii) a disclosure that Federal student 
                        loans offer generally more favorable terms and 
                        beneficial repayment options than private 
                        education loans, an explanation of the 
                        difference and relevance between student loans 
                        with a fixed interest rate as compared to 
                        student loans with a variable interest rate, 
                        and a recommendation that students examine 
                        available Federal student loan options before 
                        applying for private education loans.
                    ``(B) Federal direct stafford loan eligibility.--In 
                addition to the notifications under subparagraph (A) 
                and under subparagraph (C), if applicable, in the case 
                of a borrower described in paragraph (1) who qualifies 
                for a Federal Direct Stafford Loan and who was a new 
                borrower on or after July 1, 2013, the institution 
                shall provide--
                            ``(i) a written notification of the period 
                        of time that the borrower has remaining before 
                        the borrower will not be eligible for a Federal 
                        Direct Stafford Loan in accordance with section 
                        455(q) because the period of time for which the 
                        borrower has received Federal Direct Stafford 
                        Loans, in the aggregate, exceeds the period of 
                        enrollment described in section 455(q)(3); and
                            ``(ii) a written notification to such 
                        student when the period of time for which the 
                        borrower has received Federal Direct Stafford 
                        Loans, in the aggregate, reaches--
                                    ``(I) except as provided in 
                                subclause (II) or (III), a period equal 
                                to 100 percent of the published length 
                                of the educational program in which the 
                                student is enrolled;
                                    ``(II) in the case of a borrower 
                                who was previously enrolled in 1 or 
                                more other educational programs that 
                                began on or after July 1, 2013, a 
                                period equivalent to \2/3\ of the 
                                maximum period of time that the 
                                borrower is eligible to receive a 
                                Federal Direct Stafford Loan, as 
                                calculated in accordance with section 
                                455(q)(3)(A)(ii); or
                                    ``(III) in the case of a borrower 
                                who was or is enrolled on less than a 
                                full-time basis or in the case of a 
                                borrower whose course of study or 
                                program is described in paragraph 
                                (3)(B) or (4)(B) of section 484(b), a 
                                period equivalent to \2/3\ of the 
                                maximum period of time that the 
                                borrower is eligible to receive a 
                                Federal Direct Stafford Loan, as 
                                calculated in accordance with section 
                                455(q)(3)(B).
                    ``(C) Pell grant eligibility.--In addition to the 
                notifications under subparagraph (A) and under 
                subparagraph (B), if applicable, in the case of a 
                borrower described in paragraph (1) who is receiving a 
                Federal Pell Grant, the institution shall provide a 
                written notification to such borrower of the period of 
                time that the borrower has remaining before the 
                borrower will not be eligible for a Federal Pell Grant 
                in accordance with section 401(c)(5) because the period 
                of time for which the borrower has received a Federal 
                Pell Grant, in the aggregate, exceeds the period of 
                enrollment described in section 401(c)(5).
                    ``(D) Confirmation of receipt of notification.--
                Each eligible institution shall require the borrower, 
                for each applicable notification described in this 
                paragraph, to provide written confirmation (including 
                through electronic means) that the borrower has 
                received the notification and understands the 
                information contained in that notification.
                    ``(E) Notifications by certain institutions.--In 
                the case of an institution described in paragraph 
                (2)(A), the notification requirements under this 
                paragraph (including the confirmation of notification 
                described in subparagraph (D)) shall be carried out 
                annually during the interim in-school counseling 
                described in paragraph (2)(B).
            ``(2) Additional counseling requirements for institutions 
        with greater than average cohort default rates.--
                    ``(A) Applicability.--In addition to the counseling 
                required under subsections (b) and (l), and any other 
                requirements under this subsection, each eligible 
                institution that has a cohort default rate that is 
                greater than the national average cohort default rate 
                (as determined by the Secretary in accordance with 
                section 435(m)) shall carry out the additional loan 
                counseling described in subparagraphs (B), (C), and 
                (D). Such counseling shall be provided in a simple and 
                understandable manner that includes mechanisms to check 
                for comprehension.
                    ``(B) Interim in-school counseling.--Each eligible 
                institution described in subparagraph (A) shall require 
                each borrower of a loan made, insured, or guaranteed 
                under part B (other than a loan made pursuant to 
                section 428C or a loan made on behalf of a student 
                pursuant to section 428B) or made under part D (other 
                than a Federal Direct Consolidation Loan or a Federal 
                Direct PLUS loan made on behalf of a student), to 
                undertake not less than 1 online, or in-person, 
                counseling session at the beginning of each academic 
                year that the borrower is enrolled at such institution, 
                which shall include--
                            ``(i) the applicable notification 
                        requirements described in paragraph (1); and
                            ``(ii) a statement that student loans must 
                        be repaid even if the borrower is dissatisfied 
                        with the quality of education that the borrower 
                        receives.
                    ``(C) Additional loan counseling requirements for 
                certain student borrowers.--
                            ``(i) In general.--Each eligible 
                        institution described in subparagraph (A) shall 
                        require each borrower described in clause (ii) 
                        to participate in an additional loan counseling 
                        session, which shall--
                                    ``(I) be coordinated jointly by the 
                                student's academic advisor and the 
                                financial aid office;
                                    ``(II) include disclosure of the 
                                estimated additional cost of attendance 
                                that the borrower may incur by failing 
                                to progress through the borrower's 
                                educational program at a pace that 
                                meets the requirements for satisfactory 
                                progress, as described in section 
                                484(c); and
                                    ``(III) in the case of a borrower 
                                described in clause (ii)(II)(bb), 
                                include the development of an 
                                institutionally approved academic plan 
                                designed to ensure that the borrower 
                                will complete the borrower's 
                                educational program within a reasonable 
                                timeframe.
                            ``(ii) Borrowers in need of additional loan 
                        counseling.--A borrower shall be subject to the 
                        requirements described in clause (i) if--
                                    ``(I) the borrower has a loan made, 
                                insured, or guaranteed under part B 
                                (other than a loan made pursuant to 
                                section 428C or a loan made on behalf 
                                of a student pursuant to section 428B) 
                                or made under part D (other than a 
                                Federal Direct Consolidation Loan or a 
                                Federal Direct PLUS loan made on behalf 
                                of a student); and
                                    ``(II)(aa) the borrower has 
                                transferred to the institution from 
                                another institution of higher 
                                education; or
                                    ``(bb) the borrower meets certain 
                                criteria that the institution has 
                                determined may place a borrower at 
                                greater risk of defaulting on student 
                                loans, such as switching majors or 
                                declaring a major late, withdrawing 
                                prematurely from an educational 
                                program, or being in danger of failing 
                                to meet standards of academic progress.
                    ``(D) Counseling for parent plus borrowers.--
                            ``(i) In general.--Each eligible 
                        institution described in subparagraph (A) 
                        shall, prior to disbursement of a Federal 
                        Direct PLUS loan made on behalf of a student in 
                        an amount that is greater than $10,000 (either 
                        in a single award year or in the aggregate), 
                        ensure that the borrower receives comprehensive 
                        information on the terms and conditions of the 
                        loan and of the responsibilities the borrower 
                        has with respect to such loan. Such 
                        information--
                                    ``(I) shall be provided through the 
                                use of interactive programs that test 
                                the borrower's understanding of the 
                                terms and conditions of the borrower's 
                                loan, using simple and understandable 
                                language and clear formatting; and
                                    ``(II) shall be provided--
                                            ``(aa) during a counseling 
                                        session conducted in person; or
                                            ``(bb) online.
                            ``(ii) Information to be provided.--The 
                        information to be provided to the borrower 
                        under clause (i) shall include the following:
                                    ``(I) Information on how interest 
                                accrues and is capitalized during 
                                periods when the interest is not paid 
                                by the borrower.
                                    ``(II) An explanation of when loan 
                                repayment begins and what options are 
                                available for a borrower who may need a 
                                deferment.
                                    ``(III) The repayment plans that 
                                are available to the borrower, 
                                including personalized information 
                                showing--
                                            ``(aa) estimates of the 
                                        borrower's anticipated monthly 
                                        payments under each repayment 
                                        plan that is available; and
                                            ``(bb) the difference in 
                                        interest paid and total 
                                        payments under each repayment 
                                        plan.
                                    ``(IV) The obligation of the 
                                borrower to repay the full amount of 
                                the loan, regardless of whether the 
                                student on whose behalf the loan was 
                                made completes or does not complete the 
                                program in which the student is 
                                enrolled within the regular time for 
                                program completion.
                                    ``(V) The obligation of the 
                                borrower to repay the full amount of 
                                the loan even if the student on whose 
                                behalf the loan was made is 
                                dissatisfied with the quality of 
                                education that the student receives.
                                    ``(VI) The likely consequences of 
                                default on the loan, including adverse 
                                credit reports, delinquent debt 
                                collection procedures under Federal 
                                law, and litigation.
                                    ``(VII) The name of and contact 
                                information for the individual the 
                                borrower may contact if the borrower 
                                has any questions about the borrower's 
                                rights and responsibilities or the 
                                terms and conditions of the loan.
            ``(3) Additional counseling requirements for certain 
        institutions.--
                    ``(A) Applicable institutions.--
                            ``(i) Institutions that may lose 
                        eligibility.--The Secretary shall require that 
                        an institution that has a cohort default rate 
                        that is equal to or greater than the threshold 
                        percentage specified in section 435(a)(2)(B) 
                        for the most recent fiscal year for which data 
                        is available (except in the case of an 
                        institution that meets the criteria for a 
                        participation rate index appeal, as described 
                        in section 435(a)(8)) shall certify that the 
                        institution has met the counseling requirements 
                        under subsections (b) and (l) and under this 
                        subsection, including the requirements 
                        described in subparagraph (B). The counseling 
                        shall be provided in a simple and 
                        understandable manner that includes mechanisms 
                        to check for comprehension.
                            ``(ii) Institutions that wish to regain 
                        eligibility.--The Secretary shall require that 
                        an institution that loses eligibility under 
                        part B or part D of this title, or under any 
                        other program described in this Act, in 
                        accordance with section 435(a)(2)(B) or section 
                        668.206a of title 34, Code of Federal 
                        Regulations (as in effect on the day before the 
                        date of enactment of the Smarter Borrowing 
                        Act), shall certify that the institution has 
                        met the counseling requirements described in 
                        subparagraph (B) as a condition of regaining 
                        such eligibility. The counseling shall be 
                        provided in a simple and understandable manner 
                        that includes mechanisms to check for 
                        comprehension.
                    ``(B) Notification and counseling requirements.--In 
                addition to the counseling required under subsections 
                (b) and (l), and any other requirements under this 
                subsection, an institution described in subparagraph 
                (A) shall, for each fiscal year that the institution 
                has a cohort default rate that is equal to or greater 
                than the threshold percentage specified in section 
                435(a)(2)(B), include in the institution's default 
                prevention plan described under section 668.217 of 
                title 34, Code of Federal Regulations (as in effect on 
                the day before the date of enactment of the Smarter 
                Borrowing Act) a specification that the institution 
                will--
                            ``(i) provide each student at the 
                        institution with a notification that the 
                        institution is an at-risk institution that is 
                        subject to losing eligibility (or has lost 
                        eligibility, as the case may be) for certain 
                        Federal student aid programs due to the 
                        institution's cohort default rate; and
                            ``(ii) provide each student at the 
                        institution who is receiving funds under this 
                        title with a counseling session, either in 
                        person or over the telephone, for the purpose 
                        of helping the student to develop a budget.''.
    (d) Program Participation Agreements.--Section 487(a) is amended by 
adding at the end the following:
            ``(30) The institution will provide the Secretary with any 
        information that the Secretary requests in order to meet the 
        requirements of section 435(n).''.
    (e) Required Data.--Any data that an institution of higher 
education does not have access to and that is required for compliance 
with this section shall be provided or made available by the Department 
of Education, or other Federal agencies, as appropriate.

SEC. 3. EXPLANATION OF THE BENEFITS OF FEDERAL LOANS.

    The Secretary of Education, in consultation with the heads of 
relevant Federal agencies, shall prepare and make available to eligible 
institutions, as described under section 485(l)(2)(L)(ii) of the Higher 
Education Act of 1965 (20 U.S.C. 1092(l)(2)(L)(ii)), a written 
explanation of the benefits that are unique to Federal student loans 
(including repayment plans, loan forgiveness, and loan deferment) and a 
description of the loan terms that borrowers should examine carefully 
if considering a private education loan.

SEC. 4. LONGITUDINAL STUDY OF THE EFFECTIVENESS OF STUDENT LOAN 
              COUNSELING.

    (a) In General.--Not later than 1 year after the date of enactment 
of the Smarter Borrowing Act, the Secretary of Education, acting 
through the Director of the Institute of Education Sciences, shall 
begin conducting a rigorous longitudinal study of the impact and 
effectiveness of student loan counseling, as provided in accordance 
with subsections (b), (l), and (o) of section 485 of the Higher 
Education Act of 1965 (20 U.S.C. 1092) and through such other means of 
providing student loan counseling services as the Secretary may 
determine. The longitudinal study shall include information about 
student persistence, degree attainment, program completion, successful 
entry into student loan repayment, cumulative borrowing levels, and 
such other factors as the Secretary may determine.
    (b) Interim Reports.--Not later than 18 months after the 
commencement of the study described under this section, and annually 
thereafter, the Secretary shall evaluate the progress of the study and 
report any short-term findings to the appropriate committees of 
Congress.
    (c) Authorization of Appropriations.--There are authorized to be 
appropriated to carry out this section such sums as may be necessary 
for fiscal year 2013 and each of the 5 succeeding fiscal years.

SEC. 5. RECOMMENDATIONS.

    (a) National Student Loan Data System.--Not later than 160 days 
after the date of enactment of this Act, the Secretary of Education and 
the Director of the Consumer Financial Protection Bureau shall prepare 
and submit to Congress a report containing joint recommendations 
relating to the inclusion of private student loans into the National 
Student Loan Data System established under section 485B of the Higher 
Education Act of 1965 (20 U.S.C. 1092b).
    (b) Recommendations for Student Loan Counseling.--The Secretary of 
the Treasury, acting through the President's Advisory Council on 
Financial Capability and the Financial Literacy and Education 
Commission (FLEC), shall prepare and submit to Congress a report 
containing recommendations about information that should be included in 
financial literacy counseling for first-time student loan borrowers.

SEC. 6. CONSUMER TESTING OF LOAN COUNSELING AND MASTER PROMISSORY NOTE.

    (a) Establishment of Consumer Testing Process.--Not later than 3 
months after the date of enactment of the Smarter Borrowing Act, the 
Secretary of Education shall establish a process for consumer testing 
the master promissory note and online entrance, exit, and interim loan 
counseling tools, including online tools that may be used during the 
counseling that is required under subsections (b), (l), and (o) of 
section 485 of the Higher Education Act of 1965 (20 U.S.C. 1092).
    (b) Participants in Consumer Testing.--The consumer testing process 
described in subsection (a) shall include--
            (1) representatives of students (including low-income 
        students, first generation college students, adult students, 
        and prospective students);
            (2) students' families (including low-income families, 
        families with first generation college students, and families 
        with prospective students);
            (3) institutions of higher education;
            (4) postsecondary financial aid officers; and
            (5) nonprofit consumer groups.
    (c) Duration.--The Secretary of Education shall ensure that the 
consumer testing described in this section lasts not longer than 6 
months after the process for consumer testing has been established 
under subsection (a).
    (d) Use of Consumer Testing Results.--The Secretary of Education 
shall use the results of the consumer testing in the final development 
of online entrance, exit, and interim loan counseling tools, including 
online tools that may be used during the counseling that is required 
under subsections (b), (l), and (o) of section 485 of the Higher 
Education Act of 1965 (20 U.S.C. 1092), and the final development of a 
revised master promissory note.
    (e) Report to Congress.--Not later than 3 months after the date the 
consumer testing concludes, the Secretary of Education shall submit to 
Congress a report that contains--
            (1) the final online entrance, exit, and interim loan 
        counseling tools that the Department of Education plans to 
        implement, as described under subsection (d), and a revised 
        master promissory note; and
            (2) the results of the consumer testing conducted under 
        this section.
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