II

104TH CONGRESS

1ST SESSION S. 495

To amend the Higher Education Act of 1965 to stabilize the student loan

programs, improve congressional oversight, and for other purposes.

IN THE SENATE OF THE UNITED STATES

MARCH 3 (legislative day, FEBRUARY 22), 1995

Mrs. KASSEBAUM introduced the following bill; which was read twice and

referred to the Committee on Labor and Human Resources

A BILL

To amend the Higher Education Act of 1965 to stabilize

the student loan programs, improve congressional oversight, 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,

3 SECTION 1. SHORT TITLE; REFERENCES.

4 (a) SHORT TITLE..—This Act may be cited as the

5 ‘‘Student Loan Evaluation and Stabilization Act of 1995’’.

6 (b) REFERENCES.—References in this Act to ‘‘the

7 Act’’ are references to the Higher Education Act of 1965

8 (20 U.S.C. 1001 et seq.).

9 SEC. 2. FINDINGS.

10 The Congress finds that:
2

•S 495 IS

1 (1) The current public/private student loan

2 partnership is fulfilling the mission set for it by

3 Congress, delivering loans to students reliably and in

4 a timely fashion, and should be preserved.

5 (2) The Administration’s dismantling of the

6 Federal Family Education Loan (FFEL) Program

7 which has begun in order to replace it with an

8 unproven direct Government lending program, which

9 increases the Federal debt, further enlarges the Fed10 eral bureaucracy, adds major new financial oversight

11 activities to the already overburdened Department of

12 Education, and forces Congress to depend on esti13 mated budget savings which may prove illusory,

14 needs to be stopped so that a true and valid com15 parison of the student loan programs can occur.

16 (3) The Federal Direct Student Loan (FDSL)

17 Program pilot is only now getting started and has

18 proceeded fairly smoothly when dealing with 5 per19 cent of new loan volume. This slow and cautious ap20 proach should be continued as the volume increases

21 to 40 percent. This pilot program should continue to

22 proceed slowly and cautiously and demonstrate suc23 cessful results before expanding it to additional loan

24 volume.
3

•S 495 IS

1 (4) While the FDSL Program pilot continues

2 its test phase, reform of the FFEL Program which

3 will benefit students and institutions of higher edu4 cation, should be a continuing priority for the De5 partment of Education.

6 SEC. 3. PARTICIPATION OF INSTITUTIONS AND ADMINIS7 TRATION OF DIRECT LOAN PROGRAMS.

8 (a) LIMITATION ON PROPORTION OF LOANS MADE

9 UNDER THE DIRECT LOAN PROGRAM.—Section 453(a) of

10 the Act (20 U.S.C. 1087c(a)) is amended—

11 (1) by amending paragraph (2) to read as fol12 lows:

13 ‘‘(2) DETERMINATION OF NUMBER OF AGREE14 MENTS.—In the exercise of the Secretary’s discre15 tion, the Secretary shall enter into agreements under

16 subsections (a) and (b) of section 454 with institu17 tions for participation in the programs under this

18 part, subject to the following:

19 ‘‘(A) for academic year 1994–1995, loans

20 made under this part shall represent 5 percent

21 of new student loan volume for such year; and

22 ‘‘(B) for academic year 1995–1996 and for

23 any succeeding fiscal year, loans made under

24 this part shall represent 40 percent of new stu25 dent loan volume for such year, except that the
4

•S 495 IS

1 Secretary may not enter into agreements under

2 subsections (a) and (b) of section 454 with any

3 additional eligible institutions that have not ap4 plied and been accepted for participation in the

5 program under this part on or before December

6 31, 1994.’’

7 (2) by striking paragraph (3); and

8 (3) by redesignating paragraph (4) as para9 graph (3).

10 (b) ELIMINATION OF CONSCRIPTION.—Section

11 453(b)(2) of the Act is amended—

12 (1) by striking subparagraph (B);

13 (2) by redesignating subparagraphs (A)(i) and

14 (A)(ii) as subparagraphs (A) and (B) respectively;

15 and

16 (3) in such subparagraph (B) (as so redesig17 nated) by striking ‘‘clause (i); and’’ and inserting

18 ‘‘subparagraph (A).’’.

19 (c) CONTROL OF ADMINISTRATIVE EXPENSES.—

20 (1) ADMINISTRATIVE EXPENSES.—Section

21 458(a) of the Act is amended to read as follows:

22 ‘‘(a) IN GENERAL.—For each fiscal year, there shall

23 be available to the Secretary from funds not otherwise ap24 propriated, funds for all direct and indirect expenses asso-
5

•S 495 IS

1 ciated with the Direct Student Loan program under this

2 part.’’.

3 (2) IMPROVED CONGRESSIONAL OVERSIGHT OF

4 ADMINISTRATION.—

5 (A) Section 458(b) of the Act is amended

6 to read as follows:

7 ‘‘(b) FUNDING TRIGGERS.—For each fiscal year,

8 funds available under this section may be obligated only

9 in such amounts and according to such schedule as speci10 fied in the appropriations Act for the Department of Edu11 cation of a detailed proposal of expenditures under this

12 section.’’.

13 (B) Section 458 (d) of the Act is amended

14 to read as follows:

15 ‘‘(d) QUARTERLY REPORT.—The Secretary shall pro16 vide a detailed quarterly report of all monies expended

17 under this section to the Chairman of the Committee on

18 Labor and Human Resources of the Senate and the Chair19 man of the Committee on Economic and Educational Op20 portunities of the House of Representatives. Such report

21 shall specifically identify all contracts entered into by the

22 Department for services supporting the loan programs

23 under parts B and D of this title and the current and

24 projected costs of such contracts.’’.
6

•S 495 IS

1 (3) ADMINISTRATIVE COST ALLOWANCE.—Sec2 tion 428(f) of the Act is amended—

3 (A) in subsection (A) by striking out ‘‘for

4 a fiscal year prior to fiscal year 1994, the’’ and

5 inserting in lieu thereof ‘‘The’’; and

6 (B) by inserting after the first sentence of

7 subsection (B) the following new sentence: ‘‘For

8 fiscal year 1996 and each succeeding fiscal

9 year, each guaranty agency shall elect to receive

10 an administrative costs allowance, payable quar11 terly, for such fiscal year calculated on the

12 basis of either of the following:

13 ‘‘(i) 0.85 percent of the total principal

14 amount of the loans upon which insurance

15 was issued under part B during such fiscal

16 year by such guaranty agency; or

17 ‘‘(ii) 0.08 percent of the original prin18 cipal amount of loans guaranteed by the

19 guaranty agency that was outstanding at

20 the end of the previous fiscal year.’’.

21 (d) ELIMINATION OF TRANSITION TO DIRECT

22 LOANS.—The Act is further amended—

23 (1) in section 422(c)(7)—
7

•S 495 IS

1 (A) by striking ‘‘during the transition’’ and

2 all that follows through ‘‘part D of this title’’

3 in subparagraph (A); and

4 (B) by striking ‘‘section 428(c)(10)(F)(v)’’

5 in subparagraph (B) and inserting ‘‘section

6 428(c)(9)(F)(v)’’;

7 (2) in section 428(c)(8)—

8 (A) by striking ‘‘(A)’’ after the paragraph

9 designation; and

10 (B) by striking subparagraph (B);

11 (3) in section 428(c)(9)(E)—

12 (A) by inserting ‘‘or’’ after the semicolon

13 at the end of clause (iv);

14 (B) by striking ‘‘; or’’ at the end of clause

15 (v) and inserting a period; and

16 (C) by striking clause (vi);

17 (4) in clause (vii) of section 428(c)(9)(F)—

18 (A) by inserting ‘‘and’’ before ‘‘to avoid

19 disruption’’; and

20 (B) by striking ‘‘, and to ensure an orderly

21 transition’’ and all that follows through the end

22 of such clause and inserting a period;

23 (5) in section 428(c)(9)(K), by striking ‘‘the

24 progress of the transition from the loan programs
8

•S 495 IS

1 under this part to’’ and inserting ‘‘the integrity and

2 administration of’’;

3 (6) in section 428(e)(1)(B)(ii), by striking

4 ‘‘during the transition’’ and all that follows through

5 ‘‘part D of this title’’;

6 (7) in section 428(e)(3), by striking ‘‘of transi7 tion’’;

8 (8) in section 428(j)(3)—

9 (A) by striking ‘‘DURING TRANSITION TO

10 DIRECT LENDING’’ in the heading of paragraph

11 (3); and

12 (B) by striking ‘‘during the transition’’

13 and all that follows through ‘‘part D of this

14 title,’’ and inserting a comma;

15 (9) in section 453(c)(2), by striking ‘‘TRANSI16 TION’’ and inserting ‘‘INSTITUTIONAL’’ in the head17 ing of paragraph (2);

18 (10) in section 453(c)(3), by striking ‘‘AFTER

19 TRANSITION’’ in the heading of paragraph (3); and

20 (11) in section 456(b)—

21 (A) by inserting ‘‘and’’ after the semicolon

22 at the end of paragraph (3);

23 (B) by striking paragraph (4);

24 (C) by redesignating paragraph (5) as

25 paragraph (4); and
9

•S 495 IS

1 (D) in such paragraph (4) (as redesig2 nated), by striking ‘‘successful operation’’ and

3 inserting ‘‘integrity and efficiency’’.

4 SEC. 4. DIRECT LOANS HAVE THE SAME TERMS AND CONDI5 TIONS AS FEDERAL FAMILY EDUCATION

6 LOANS.

7 (a) IN GENERAL.—Section 455(a)(1) of the Act (20

8 U.S.C. 1087e(a)(1)) is amended to read as follows:

9 ‘‘(1) PARALLEL TERMS, CONDITIONS, BENEFITS

10 AND AMOUNTS.—Unless otherwise specified in this

11 part, loans made to borrowers under this part shall

12 have the same terms, conditions, eligibility require13 ments and benefits, and be available in the same

14 amounts, as the corresponding types of loans made

15 to borrowers under sections 428, 428B, 428C, and

16 428H of this title.’’.

17 (b) DIRECT CONSOLIDATION LOANS.—Section

18 455(a)(2) of the Act is amended—

19 (1) by striking ‘‘and’’ at the end of subpara20 graph (B);

21 (2) by redesignating subparagraph (C) as sub22 paragraph (D); and

23 (3) by inserting after subparagraph (B) the fol24 lowing new subparagraph:
10

•S 495 IS

1 ‘‘(C) section 428C shall be known as ‘Fed2 eral Direct Consolidation Loans’; and’’.

3 SEC. 5. ABILITY OF BORROWERS TO CONSOLIDATE UNDER

4 DIRECT AND GUARANTEED LOAN PROGRAMS.

5 (a) ABILITY OF PART D BORROWERS TO OBTAIN

6 FEDERAL STAFFORD CONSOLIDATION LOANS.—Section

7 428C(a)(4) of the Act (20 U.S.C. 1078–3(a)(4)) is amend8 ed—

9 (1) by striking ‘‘or’’ at the end of subparagraph

10 (B);

11 (2) by redesignating subparagraphs (C) and

12 (D) as subparagraphs (D) and (E); and

13 (3) by inserting after subparagraph (B) the fol14 lowing new subparagraph:

15 ‘‘(C) made under part D of this title;’’.

16 (b) ABILITY OF PART B BORROWERS TO OBTAIN

17 FEDERAL DIRECT CONSOLIDATION LOANS.—Section

18 428C(b)(5) of the Act is amended to read as follows:

19 ‘‘(5) DIRECT CONSOLIDATION LOANS FOR BOR20 ROWERS IN SPECIFIED CIRCUMSTANCES.—

21 ‘‘(A) The Secretary may offer a borrower

22 a direct consolidation loan if a borrower other23 wise eligible for a consolidation loan pursuant

24 to this section is—
11

•S 495 IS

1 ‘‘(i) unable to obtain a consolidation

2 loan from a lender with an agreement

3 under subsection (a)(1); or

4 ‘‘(ii) unable to obtain a consolidation

5 loan with an income contingent repayment

6 schedule from a lender with an agreement

7 under subsection (a)(1).

8 ‘‘(B) The Secretary shall establish appro9 priate certification procedures to verify the eli10 gibility of borrowers for loans pursuant to this

11 paragraph.

12 ‘‘(C) The Secretary shall not offer such

13 consolidation loans if, in the Secretary’s judg14 ment, the Department of Education does not

15 have the necessary origination and servicing ar16 rangements in place for such loans, or the pro17 jected volume in the program would be desta18 bilizing to the availability of loans otherwise

19 available under this part.’’.

20 SEC. 6. INCOME CONTINGENT REPAYMENT IN THE FED21 ERAL FAMILY EDUCATION LOAN PROGRAM.

22 (a) INSURANCE PROGRAM AGREEMENTS.—Section

23 428(b)(1)(E)(i) of the Act (20 U.S.C. 1078(b)(1)(E)(i))

24 is amended by striking ‘‘or income-sensitive repayment

25 schedule’’ and inserting in lieu thereof ‘‘repayment sched-
12

•S 495 IS

1 ule or either an income-sensitive or income contingent re2 payment schedule’’.

3 (b) REPAYMENT SCHEDULES.—Section

4 428C(c)(2)(A) of the Act is amended by striking ‘‘or in5 come-sensitive repayment schedules’’ and inserting in lieu

6 thereof ‘‘repayment schedules or either income sensitive

7 or income contingent repayment schedules’’.

8 (c) DEFINITIONS.—Section 435 of the Act is amend9 ed by adding a new subsection (n):

10 ‘‘(n) INCOME CONTINGENT REPAYMENT SCHED11 ULES.—For the purpose of this part, income contingent

12 repayment schedules established pursuant to section

13 428(b)(1)(E)(i) and 428(c)(2)(A) may have terms and

14 conditions comparable to terms and conditions established

15 by the Secretary pursuant to section 455(e)(4).’’.

16 SEC. 7. RESERVE FUND REFORMS.

17 (a) GUARANTY AGENCY RESERVE LEVELS.—Section

18 428(c)(9) of such Act (20 U.S.C. 1078(c)(9)) is amend19 ed—

20 (1) in subparagraph (E)—

21 (A) by striking ‘‘The Secretary’’ and in22 serting ‘‘After notice and opportunity for a

23 hearing on the record, the Secretary’’; and

24 (2) in subparagraph (F)—
13

•S 495 IS

1 (A) by inserting ‘‘dedicated to the func2 tions of the agency under the loan insurance

3 program under this part’’ after ‘‘assets of the

4 guaranty agency’’ in clause (vi); and

5 (B) in clause (vi), by inserting before

6 ‘‘; or’’ the phrase ‘‘, except that the Secretary

7 may not take any action to require the guar8 anty agency to provide to the Secretary the

9 unencumbered non-Federal portion of a reserve

10 fund (as defined in section 422(a)(2))’’.

11 (b) ADDITIONAL AMENDMENTS.—Section 422 of the

12 Act is further amended—

13 (1) in the last sentence of subsection (a)(2), by

14 striking ‘‘Except as provided in section 428(c)(10)

15 (E) or (F), such’’ and inserting ‘‘Such’’;

16 (2) in subsection (g), by striking paragraph (4)

17 and inserting the following:

18 ‘‘(4) DISPOSITION OF FUNDS RETURNED TO OR

19 RECOVERED BY THE SECRETARY.—Any funds that

20 are returned to or otherwise recovered by the Sec21 retary pursuant to this subsection shall be returned

22 to the Treasury of the United States for purposes of

23 reducing the Federal debt and shall be deposited

24 into the special account under section 3113(d) of

25 title 31, United States Code.’’.
14

•S 495 IS

1 SEC. 8. DEFAULT RATE LIMITATIONS ON DIRECT LENDING.

2 (a) INELIGIBILITY BASED ON DEFAULT RATES.—

3 Section 435(a)(2) of the Act (20 U.S.C. 1085(a)(2)) is

4 amended by inserting ‘‘or part D’’ after ‘‘under this part’’.

5 (b) COHORT DEFAULT RATE.—Section 435(m)(1) of

6 the Act is amended by—

7 (1) striking ‘‘428, 428A, or 428H’’ in para8 graph (A) and inserting ‘‘428, 428A, 428H, or part

9 D of the Act (except for Federal Direct PLUS

10 Loans)’’;

11 (2) striking ‘‘428C’’ in paragraph (A) and in12 serting ‘‘428C or 455(g)’’;

13 (3) striking ‘‘428C’’ in paragraph (C) and in14 serting ‘‘428C or 455(g)’’; and

15 (4)(A) in paragraph (B), by striking ‘‘only’’;

16 and

17 (B) in paragraph (B) by inserting ‘‘and loans

18 made under part D determined to be in default,’’

19 after ‘‘for insurance.’’.

20 (c) INCOME CONTINGENT REPAYMENT.—Section

21 435(m) of the Act is amended by adding at the end thereof

22 the following new paragraph:

23 ‘‘(5)(A) The Secretary shall produce an annual

24 report on loans subject to repayment schedules

25 under sections 428(b)(1)(E)(i), 428C(c)(2)(A), and

26 455(e)(4) at the end of each fiscal year detailing, by
15

•S 495 IS

1 institution and for the title IV, parts B and D pro2 grams separately and together—

3 ‘‘(i) the number and amount of loans

4 scheduled for payments that did not equal the

5 interest accruing on the loan,

6 ‘‘(ii) the number and amount of loans

7 where no payment was scheduled to be received

8 from the borrower due to their low-income sta9 tus,

10 ‘‘(iii) the number and amount of loans

11 where a scheduled payment was more than 90

12 days delinquent, and

13 ‘‘(iv) the projected amount of interest and

14 principal to be forgiven at the end of the 25

15 year repayment period, based on the projected

16 payment schedule for the borrower over that

17 period.

18 ‘‘(B) Such report shall be made available at the

19 same time as the reports required under section

20 435(m)(4) of this Act.’’.

21 (d) TERMINATION OF INSTITUTIONAL PARTICIPA22 TION.—Section 455 of the Act is amended by adding at

23 the end the following new subsection:

24 ‘‘(k) TERMINATION OF INSTITUTIONS FOR HIGH DE25 FAULT RATES.—
16

•S 495 IS

1 ‘‘(1) METHODOLOGY AND CRITERIA.—After

2 consultation with institutions of higher education

3 and other members of the higher education commu4 nity, the Secretary shall develop—

5 ‘‘(A) a methodology for the calculation of

6 institutional default rates under the loan pro7 grams operated pursuant to this part;

8 ‘‘(B) criteria for the initiation of termi9 nation proceedings on the basis of such default

10 rates; and

11 ‘‘(C) procedures for the conduct of such

12 termination proceedings.

13 ‘‘(2) COMPARABILITY TO PART B.—In develop14 ing the methodology, criteria, and procedures re15 quired by paragraph (1), the Secretary shall, to the

16 maximum extent possible, establish standards for

17 the termination of institutions from participation in

18 loan programs under this part that are comparable

19 to the standards established for the termination of

20 institutions from participation in the loan programs

21 under part B. Such procedures shall also include

22 provisions for the appeal of default rate calculations

23 based on deficiencies in the servicing of loans under

24 this part that are comparable to the provisions for
17

•S 495 IS

1 such appeals based on deficiencies in the servicing of

2 loans under part B.’’.

3 ‘‘(3) LIMITATION ON AUTHORIZATION TO ISSUE

4 NEW LOANS UNDER THIS PART.—Such standards

5 and procedures required by paragraphs (1) and (2)

6 shall be promulgated in final form no later than 120

7 days after date of enactment of this paragraph. Not8 withstanding any other provision of this part, no

9 new loan under this part shall be issued after 120

10 days after the date of enactment of this paragraph

11 if the standards and procedures required under this

12 section have not been promulgated prior to that

13 date. The authority to issue new loans under this

14 part shall resume upon the Secretary’s issuance of

15 such standards and procedures.’’.

16 SEC. 9. USE OF ELECTRONIC FORMS.

17 Section 484(a) of the Act (20 U.S.C. 1091b(a)) is

18 amended by adding the following new paragraph after

19 paragraph (a)(4):

20 ‘‘(5) ELECTRONIC FORMS.—(A) Nothing in this

21 Act shall preclude the development, production, dis22 tribution or use of the form described in subsection

23 (a)(1) in an electronic format through software pro24 duced or distributed by guaranty agencies or eligible

25 lenders, or consortia thereof. Such electronic form
18

•S 495 IS

1 need not require the signature of the applicant to be

2 collected at the time the form is submitted, if the

3 applicant certifies the output of the application in a

4 subsequent document. No fee may be charged in

5 connection with use of the electronic form described

6 in subsection (a)(1).

7 ‘‘(B) The Secretary shall approve the use of an

8 electronic form submitted for approval that is not in9 consistent with the provisions of this part or part B

10 within 30 days of such submission. In the case of

11 any electronic form not approved, the Secretary shall

12 specifically identify the changes to the form nec13 essary to secure approval.’’.

14 SEC. 10. APPLICATION FOR PART B LOANS USING FREE

15 FEDERAL APPLICATION.

16 Section 483(a) of the Act (20 U.S.C. 1090(a)) is

17 amended—

18 (1) in paragraph (1)—

19 (A) by inserting ‘‘B,’’ after ‘‘assistance

20 under parts A,’’;

21 (B) by striking ‘‘part A) and to determine

22 the need of a student for the purpose of part

23 B of this title’’ and inserting ‘‘part A).’’; and

24 (C) by striking the last sentence and in25 serting the following: ‘‘Such form may be in an
19

•S 495 IS

1 electronic or any other format (subject to sec2 tion 485B) in order to facilitate use by borrow3 ers and institutions.’’; and

4 (2) in paragraph (3), by striking ‘‘and States

5 shall receive,’’ and inserting ‘‘, any guaranty agency

6 authorized by any such institution, and States shall

7 receive, at their request and’’.

8 SEC. 11. CREDIT REFORM.

9 (a) AMENDMENT.—Section 502(5)(B) of the Con10 gressional Budget Act (31 U.S.C. 661a(5)(B)) is amended

11 to read as follows:

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

13 present value, at the time when the direct loan is

14 disbursed, of the following cash flows for the esti15 mated life of the loan:

16 ‘‘(i) Loan disbursements.

17 ‘‘(ii) Repayments of principal.

18 ‘‘(iii) Payments of interest and other pay19 ments by or to the Government over the life of

20 the loan after adjusting for estimated defaults,

21 prepayments, fees, penalties, and other recover22 ies.

23 ‘‘(iv) In the case of a direct student loan

24 made pursuant to the program authorized

25 under part D of title IV of the Higher Edu-
20

•S 495 IS

1 cation Act of 1965, direct and indirect ex2 penses, including but not limited to the follow3 ing: expenses arising from credit policy and

4 oversight, activities related to credit extension,

5 loan origination, loan servicing, training, pro6 gram promotion and payments to contractors,

7 other Government entities, and program partici8 pants, collection of delinquent loans, and write9 off and close-out of loans.’’.

10 (b) EFFECTIVE DATE.—The amendment made by

11 subsection (a) of this section shall apply to all fiscal years

12 beginning on or after October 1, 1995, and to statutory

13 changes made on or after the date of enactment of this

14 Act.

Æ