I

104TH CONGRESS

1ST SESSION H. R. 530

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

programs, improve congressional oversight, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 17, 1995

Mr. GOODLING (for himself, Mr. MCKEON, Mr. GUNDERSON, Mr. HOEKSTRA,

Mr. BARRETT of Nebraska, Mr. GORDON, Mr. POMEROY, Mr. PETERSON

of Florida, and Mr. STENHOLM) 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 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’’.
2

•HR 530 IH

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

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

3 (20 U.S.C. 1001 et seq.).

4 SEC. 2. FINDINGS.

5 The Congress finds that:

6 (1) The current public/private student loan

7 partnership is fulfilling the mission set for it by

8 Congress, delivering loans to students reliably and in

9 a timely fashion, and should be preserved.

10 (2) The Administration’s dismantling of the

11 Federal Family Education Loan (FFEL) Program

12 which has begun in order to replace it with an

13 unproven direct Government lending program, which

14 increases the Federal debt, further enlarges the Fed15 eral bureaucracy, adds major new financial oversight

16 activities to the already overburdened Department of

17 Education, and forces Congress to depend on esti18 mated budget savings which may prove illusory,

19 needs to be stopped so that a true and valid com20 parison of the student loan programs can occur.

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

22 Program pilot is only now getting started and has

23 proceeded fairly smoothly when dealing with 5 per24 cent of new loan volume. This slow and cautious ap25 proach should be continued as the volume increases
3

•HR 530 IH

1 to 40 percent. This pilot program should continue to

2 proceed slowly and cautiously and demonstrate suc3 cessful results before expanding it to additional loan

4 volume.

5 (4) While the FDSL Program pilot continues

6 its test phase, reform of the FFEL Program which

7 will benefit students and institutions of higher edu8 cation should be a continuing priority for the De9 partment of Education.

10 SEC. 3. PARTICIPATION OF INSTITUTIONS AND ADMINIS11 TRATION OF DIRECT LOAN PROGRAMS.

12 (a) LIMITATION ON PROPORTION OF LOANS MADE

13 UNDER DIRECT LOAN PROGRAM.—Section 453(a) of the

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

15 (1) by amending paragraph (2) to read as

16 follows:

17 ‘‘(2) DETERMINATION OF NUMBER OF AGREE18 MENTS.—In the exercise of the Secretary’s discre19 tion, the Secretary shall enter into agreements under

20 subsections (a) and (b) of section 454 with institu21 tions for participation in the programs under this

22 part, subject to the following:

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

24 made under this part shall represent 5 percent
4

•HR 530 IH

1 of the new student loan volume for such year;

2 and

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

4 any succeeding fiscal year, loans made under

5 this part shall be limited to loans to students

6 and parents of students attending eligible insti7 tutions that have applied and been accepted for

8 participation in the program under this part on

9 or before December 31, 1994.’’

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

11 (3) by redesignating paragraph (4) as para12 graph (3).

13 (b) ELIMINATION OF CONSCRIPTION.—Section

14 453(b)(2) of such Act is amended—

15 (1) by striking subparagraph (B);

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

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

18 and

19 (3) in such subparagraph (B) (as so redesig20 nated) by striking ‘‘clause (i); and’’ and inserting

21 ‘‘subparagraph (A).’’.

22 (c) CONTROL OF ADMINISTRATIVE EXPENSES.—

23 (1) IN GENERAL.—Section 458(a) of the Act is

24 amended to read as follows:
5

•HR 530 IH

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

2 available to the Secretary of Education from funds not

3 otherwise appropriated, funds to be obligated for adminis4 trative costs under this part, not to exceed (from such

5 funds not otherwise appropriated) $260,000,000 in fiscal

6 year 1994, $295,000,000 in fiscal year 1995,

7 $395,000,000 in fiscal year 1996, $400,000,000 in fiscal

8 year 1997, and $400,000,000 in fiscal year 1998. Such

9 administrative costs shall include the costs of annually as10 sessing the program under this part and, subject to sub11 section (e) of this section, payment of an administrative

12 cost allowance for the expenses of guaranty agencies in

13 servicing outstanding loans in their portfolios and in guar14 anteeing new loans. If in any fiscal year the Secretary de15 termines that additional funds for administrative expenses

16 are needed, the Secretary is authorized to use funds avail17 able under this section for a subsequent fiscal year for

18 such expenses, except that the total expenditures by the

19 Secretary (from such funds not otherwise appropriated)

20 shall not exceed $1,750,000,000 in fiscal years 1994

21 through 1998. The Secretary is also authorized to carry

22 over funds available under this section to a subsequent

23 fiscal year.’’.
6

•HR 530 IH

1 (2) IMPROVED CONGRESSIONAL OVERSIGHT OF

2 ADMINISTRATION.—Section 458 of the Act is further

3 amended—

4 (A) by redesignating subsection (d) as sub5 section (g); and

6 (B) by inserting after subsection (c) the

7 following new subsections:

8 ‘‘(d) FUNDING TRIGGERS.—For each fiscal year,

9 funds available under this section may be obligated only

10 in such amounts and according to such schedule as speci11 fied in the appropriations Act for the Department of Edu12 cation after submission by the Department of Education

13 of a detailed proposal of expenditures under this section.

14 ‘‘(e) ADMINISTRATIVE COST ALLOWANCE.—

15 ‘‘(1) CONDITIONS OF RECEIPT.—A guaranty

16 agency may not obtain an administrative cost allow17 ance from funds available under subsection (a) un18 less the guaranty agency has submitted an applica19 tion in accordance with section 428(f)(2). A guar20 anty agency that receives such an allowance may ex21 pend such allowance for the purposes described in

22 clauses (i) through (v) of section 428(f)(1)(A).

23 ‘‘(2) ELECTION OF PAYMENT RATE.—For each

24 fiscal year, at the time of its application for pay25 ments under section 428(f)(2), each guaranty agen-
7

•HR 530 IH

1 cy shall elect to receive an administrative cost allow2 ance, payable quarterly, for the next fiscal year cal3 culated on the basis of either of the following:

4 ‘‘(A) 0.85 percent of the total principal

5 amount of the loans upon which insurance was

6 issued under part B during such fiscal year by

7 such guaranty agency; or

8 ‘‘(B) 0.08 percent of the original principal

9 amount of loans guaranteed by the guaranty

10 agency that was outstanding at the end of the

11 previous fiscal year.

12 ‘‘(3) RATABLE REDUCTION.—If the total

13 amount of funds to be expended by the Secretary for

14 purposes of paying the administrative cost allow15 ances to all guaranty agencies in accordance with

16 this provision exceeds $150,000,000 for any fiscal

17 year, the Secretary shall ratably reduce such pay18 ments to all guaranty agencies.

19 ‘‘(f) QUARTERLY REPORT.—The Secretary shall pro20 vide a detailed quarterly report of all monies expended

21 under this section to the Chairman of the Committee on

22 Labor and Human Resources of the Senate and the Chair23 man of the Committee on Economic and Educational Op24 portunities of the House of Representatives. Such report

25 shall specifically identify all contracts entered into by the
8

•HR 530 IH

1 Department for services supporting the loan programs

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

3 projected costs of such contracts.’’.

4 (d) ELIMINATION OF TRANSITION TO DIRECT

5 LOANS.—The Act is further amended—

6 (1) in section 422(c)(7)—

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

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

9 in subparagraph (A); and

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

11 in subparagraph (B) and inserting ‘‘section

12 428(c)(9)(F)(v)’’;

13 (2) in section 428(c)(8)—

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

15 designation; and

16 (B) by striking subparagraph (B);

17 (3) in section 428(c)(9)(E)—

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

19 at the end of clause (iv);

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

21 (v) and inserting a period; and

22 (C) by striking clause (vi);

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

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

25 disruption’’; and
9

•HR 530 IH

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

2 transition’’ and all that follows through the end

3 of such clause and inserting a period;

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

5 progress of the transition from the loan programs

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

7 administration of’’;

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

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

10 ‘‘part D of this title’’;

11 (7) in section 428(e)(3), by striking ‘‘of transi12 tion’’;

13 (8) in section 428(j)(3)—

14 (A) by striking ‘‘DURING TRANSITION TO

15 DIRECT LENDING’’; and

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

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

18 title,’’ and inserting a comma;

19 (9) in section 453(c)(2), by striking ‘‘TRANSI20 TION’’ and inserting ‘‘INSTITUTIONAL’’;

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

22 TRANSITION’’; and

23 (11) in section 456(b)—

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

25 at the end of paragraph (3);
10

•HR 530 IH

1 (B) by striking paragraph (4);

2 (C) by redesignating paragraph (5) as

3 paragraph (4); and

4 (D) in such paragraph (4) (as redesig5 nated), by striking ‘‘successful operation’’ and

6 inserting ‘‘integrity and efficiency’’.

7 SEC. 4. ABILITY OF BORROWERS TO CONSOLIDATE UNDER

8 DIRECT AND GUARANTEED LOAN PROGRAMS.

9 (a) ABILITY OF PART D BORROWERS TO OBTAIN

10 FEDERAL STAFFORD CONSOLIDATION LOANS.—Section

11 428C(a)(4) of the Act (20 U.S.C. 1078–3(a)(4)) is

12 amended—

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

14 (B);

15 (2) by redesignating subparagraphs (C) and

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

17 (3) by inserting after subparagraph (B) the fol18 lowing new subparagraph:

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

20 (b) ABILITY OF PART B BORROWERS TO OBTAIN

21 FEDERAL DIRECT CONSOLIDATION LOANS.—Section

22 428C(b)(5) of such Act is amended to read as follows:

23 ‘‘(5) DIRECT CONSOLIDATION LOANS FOR BOR24 ROWERS IN SPECIFIED CIRCUMSTANCES.—
11

•HR 530 IH

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

2 a direct consolidation loan in the event that a

3 borrower otherwise eligible for a consolidation

4 loan pursuant to this section is—

5 ‘‘(i) unable to obtain a consolidation

6 loan from a lender with an agreement

7 under subsection (a)(1), or

8 ‘‘(ii)(I) evidences a substantial exist9 ing or projected difficulty in repaying loans

10 received under this part; and

11 ‘‘(II) desires a consolidation loan with

12 an income contingent repayment schedule

13 as offered to borrowers under part D of

14 this title.

15 ‘‘(B) The Secretary shall establish appro16 priate certification procedures to verify the eli17 gibility of borrowers for loans pursuant to this

18 paragraph.

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

20 consolidation loans if, in the Secretary’s judg21 ment, the Department of Education does not

22 have the necessary origination and servicing ar23 rangements in place for such loans, or the pro24 jected volume in the program would be desta-
12

•HR 530 IH

1 bilizing to the availability of loans otherwise

2 available under this part.’’.

3 SEC. 5. RESERVE FUND PROGRAMS.

4 (a) GUARANTY AGENCY RESERVE LEVELS.—Section

5 428(c)(9) of such Act (20 U.S.C. 1078(c)(9)) is

6 amended—

7 (1) in subparagraph (E)—

8 (A) by striking ‘‘The Secretary’’ and in9 serting ‘‘After notice and opportunity for a

10 hearing on the record, the Secretary’’;

11 (B) by inserting ‘‘or’’ after the semicolon

12 at the end of clause (iv);

13 (C) by striking ‘‘; or’’ at the end of clause

14 (v) and inserting a period; and

15 (D) by striking clause (vi); and

16 (2) in subparagraph (F)—

17 (A) by inserting ‘‘dedicated to the func18 tions of the agency under the loan insurance

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

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

21 (B) in clause (vi), by inserting before ‘‘;

22 or’’ the following ‘‘, except that the Secretary

23 may not take any action to require the guar24 anty agency to provide to the Secretary the
13

•HR 530 IH

1 unencumbered non-Federal portion of a reserve

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

3 (b) ADDITIONAL AMENDMENTS.—Section 422 of

4 such Act is further amended—

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

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

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

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

9 and inserting the following:

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

11 RECOVERED BY THE SECRETARY.—Any funds that

12 are returned to or otherwise recovered by the Sec13 retary pursuant to this subsection shall be returned

14 to the Treasury of the United States for purposes of

15 reducing the Federal debt and shall be deposited

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

17 title 31, United States Code.’’.

18 SEC. 6. DEFAULT RATE LIMITATIONS ON DIRECT LEND19 ING.

20 Section 455 of the Act is amended by adding at the

21 end the following new subsection:

22 ‘‘(k) TERMINATION OF INSTITUTIONS FOR HIGH DE23 FAULT RATES.—

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

25 consultation with institutions of higher education
14

•HR 530 IH

1 and other members of the higher education commu2 nity, the Secretary shall develop—

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

4 institutional default rates under the loan pro5 grams operated pursuant to this part;

6 ‘‘(B) criteria for the initiation of termi7 nation proceedings on basis of such default

8 rates; and

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

10 termination proceedings.

11 ‘‘(2) COMPARABILITY TO PART B.—In develop12 ing the methodology, criteria, and procedures re13 quired by paragraph (1), the Secretary shall, to the

14 maximum extent possible, establish standards for

15 the termination of institutions from participation in

16 loan programs under this part that are comparable

17 to the standards established for the termination of

18 institutions from participation in the loan programs

19 under part B. Such procedures shall also include

20 provisions for the appeal of default rate calculations

21 based on deficiencies in the servicing of loans under

22 this part that are comparable to the provisions for

23 such appeals based on deficiencies in the servicing of

24 loans under part B.’’.
15

•HR 530 IH

1 SEC. 7. APPLICATION FOR PART B LOANS USING FREE

2 FEDERAL APPLICATION.

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

4 amended—

5 (1) in paragraph (1)—

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

7 under parts A,’’;

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

9 the need of a student for the purpose of part

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

11 (C) by striking the last sentence and in12 serting the following: ‘‘Such form may be in an

13 electronic or any other format (subject to sec14 tion 485B) in order to facilitate use by borrow15 ers and institutions.’’; and

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

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

18 authorized by any such institution, and States shall

19 receive, at their request and’’.

20 SEC. 8. CREDIT REFORM.

21 (a) AMENDMENT.—Section 502(5)(B) of the Con22 gressional Budget Act (31 U.S.C. 661a(5)(B)) is amended

23 to read as follows:

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

25 present value, at the time when the direct loan is
16

•HR 530 IH

1 disbursed, of the following cash flows for the esti2 mated life of the loan:

3 ‘‘(i) Loan disbursements.

4 ‘‘(ii) Repayments of principal.

5 ‘‘(iii) Payments of interest and other

6 payments by or to the Government over the life

7 of the loan after adjusting for estimated de8 faults, prepayments, fees, penalties, and other

9 recoveries.

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

11 made pursuant to the program authorized

12 under part D of title IV of the Higher Edu13 cation Act of 1965, direct and indirect ex14 penses, including but not limited to the follow15 ing: expenses arising from credit policy and

16 oversight, activities related to credit extension,

17 loan origination, loan servicing, training, pro18 gram promotion and payments to contractors,

19 other Government entities, and program partici20 pants, collection of delinquent loans, and write21 off and close-out of loans.’’.

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

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

24 beginning on or after October 1, 1995, and to statutory
17

•HR 530 IH

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

2 Act.

Æ

HR 530 IH——2