II 

110TH CONGRESS 

1ST SESSION S. 1262 

To protect students receiving student loans, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

MAY 2, 2007 

Mr. ENZI (for himself, Mr. ALEXANDER, Mr. ALLARD, Mr. BURR, Mr. 

ISAKSON, Ms. MURKOWSKI, and Mr. ROBERTS) introduced the following 

bill; which was read twice and referred to the Committee on Health, Education, Labor, and Pensions 

A BILL 

To protect students receiving student loans, 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. 

4 This Act may be cited as the ‘‘Student Loan Account5 ability and Disclosure Reform Act’’. 

6 SEC. 2. INSURANCE PROGRAM AGREEMENTS. 

7 Paragraph (3) of section 428(b) of the Higher Edu8 cation Act of 1965 (20 U.S.C. 1078(b)(3)) is amended 

9 to read as follows: 


bajohnson on PROD1PC77 with BILLS
2 

•S 1262 IS

1 ‘‘(3) RESTRICTIONS ON INDUCEMENTS, PAY2 MENTS, MAILINGS, AND ADVERTISING.—A guaranty 

3 agency shall not— 

4 ‘‘(A) offer, directly or indirectly, premiums, 

5 payments, stock or other securities, prizes, trav6 el, entertainment expenses, tuition repayment, 

7 or other inducements to— 

8 ‘‘(i) any institution of higher edu9 cation or the employees of an institution of 

10 higher education in order to secure appli11 cants for loans made under this part; or 

12 ‘‘(ii) any lender, or any agent, em13 ployee, or independent contractor of any 

14 lender or guaranty agency, in order to ad15 minister or market loans made under this 

16 part (other than a loan made under section 

17 428H or a loan made as part of the guar18 anty agency’s lender-of-last-resort program 

19 pursuant to section 439(q)) for the pur20 pose of securing the designation of the 

21 guaranty agency as the insurer of such 

22 loans; 

23 ‘‘(B) conduct unsolicited mailings, by post24 al or electronic means, of student loan applica25 tion forms to students enrolled in secondary 


bajohnson on PROD1PC77 with BILLS
3 

•S 1262 IS

1 school or postsecondary educational institutions, 

2 or to the parents of such students, except that 

3 applications may be mailed, by postal or elec4 tronic means, to students or borrowers who 

5 have previously received loans guaranteed under 

6 this part by the guaranty agency; 

7 ‘‘(C) perform, for an institution of higher 

8 education participating in a program under this 

9 title and without appropriate compensation by 

10 such institution, any function that the institu11 tion is required to perform under part B, D, or 

12 G (except for the exit counseling described in 

13 section 485(b)); 

14 ‘‘(D) pay, on behalf of the institution of 

15 higher education, another person to perform 

16 any function that the institution of higher edu17 cation is required to perform under part B, D, 

18 or G (except for the exit counseling described in 

19 section 485(b)); or 

20 ‘‘(E) conduct fraudulent or misleading ad21 vertising concerning loan availability, terms, or 

22 conditions. 

23 It shall not be a violation of this paragraph for a 

24 guaranty agency to provide assistance to institutions 

25 of higher education comparable to the kinds of asVerDate Aug 31 2005 04:27 May 03, 2007 Jkt 059200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S1262.IS S1262

bajohnson on PROD1PC77 with BILLS
4 

•S 1262 IS

1 sistance provided to institutions of higher education 

2 by the Department.’’. 

3 SEC. 3. DISCLOSURE RULES FOR EDUCATIONAL LOANS. 

4 Title I of the Higher Education Act of 1965 (20 

5 U.S.C. 1001 et seq.) is amended by adding at the end 

6 the following: 

7 ‘‘PART E—DISCLOSURE RULES FOR 

8 EDUCATIONAL LOANS 

9 ‘‘SEC. 151. DISCLOSURE RULES RELATING TO EDU10 CATIONAL LOANS. 

11 ‘‘(a) DEFINITIONS.—In this part: 

12 ‘‘(1) COST OF ATTENDANCE.—The term ‘cost of 

13 attendance’ has the meaning given the term in sec14 tion 472. 

15 ‘‘(2) INSTITUTION OF HIGHER EDUCATION.— 

16 The term ‘institution of higher education’— 

17 ‘‘(A) has the meaning given the term in 

18 section 102; and 

19 ‘‘(B) includes an employee or agent of the 

20 institution of higher education or any organiza21 tion or entity directly or indirectly controlled by 

22 such institution. 

23 ‘‘(3) LENDER.—The term ‘lender’ means— 


bajohnson on PROD1PC77 with BILLS
5 

•S 1262 IS

1 ‘‘(A) any lender of a loan made, insured, 

2 or guaranteed under title IV, including a con3 solidation loan under section 428C; 

4 ‘‘(B) any lender that is a financial institu5 tion, as such term is defined in section 509 of 

6 the Gramm-Leach-Bliley Act (15 U.S.C. 6809); 

7 and 

8 ‘‘(C) for any loan issued or provided to a 

9 student under part D of title IV, the Secretary. 

10 ‘‘(4) PRIVATE EDUCATIONAL LOAN.—The term 

11 ‘private educational loan’ means a private loan 

12 that— 

13 ‘‘(A) is not made, insured, or guaranteed 

14 under title IV; and 

15 ‘‘(B) is offered to a borrower by an institu16 tion of higher education through an award let17 ter or other notification. 

18 ‘‘(b) DISCLOSURES.— 

19 ‘‘(1) DISCLOSURES BY LENDERS.—Before a 

20 lender issues or otherwise provides a loan under title 

21 IV or a private educational loan to a student, the 

22 lender shall provide the student, in writing, with the 

23 disclosures described in paragraph (2). 


bajohnson on PROD1PC77 with BILLS
6 

•S 1262 IS

1 ‘‘(2) DISCLOSURES.—The disclosures required 

2 by this paragraph shall include a clear and promi3 nent statement— 

4 ‘‘(A) that the borrower may qualify for 

5 Federal financial assistance through a program 

6 under title IV, in lieu of or in addition to a loan 

7 from a non-Federal source; 

8 ‘‘(B) of the interest rates available with re9 spect to such Federal financial assistance; 

10 ‘‘(C) showing sample educational loan 

11 costs, disaggregated by type; 

12 ‘‘(D) that describes, with respect to each 

13 loan being provided to the student by the lend14 er— 

15 ‘‘(i) how the applicable interest rate is 

16 determined, including whether the rate is 

17 based on the credit score of the borrower; 

18 ‘‘(ii) the types of repayment plans 

19 that are available; 

20 ‘‘(iii) whether, and under what condi21 tions, early repayment may be made with22 out penalty; 

23 ‘‘(iv) when and how often the loan 

24 would be recapitalized; 


bajohnson on PROD1PC77 with BILLS
7 

•S 1262 IS

1 ‘‘(v) all fees, deferments, or forbear2 ance; 

3 ‘‘(vi) all available repayment benefits, 

4 and the percentage of all borrowers who 

5 qualify for such benefits; 

6 ‘‘(vii) the collection practices in the 

7 case of default; 

8 ‘‘(viii) the late payment penalties and 

9 associated fees; and 

10 ‘‘(ix) whether the amount of all loans 

11 issued by the lender to the borrower ex12 ceeds the student’s cost of attendance; and 

13 ‘‘(E) such other information as the Sec14 retary may require.’’. 

15 SEC. 4. REVIEW OF PRIVATE EDUCATIONAL LOAN MARKET. 

16 Section 495 of the Higher Education Act of 1965 (20 

17 U.S.C. 1099a) is amended by adding at the end the fol18 lowing: 

19 ‘‘(c) REVIEW OF PRIVATE EDUCATION LOAN MAR20 KETS.—The Secretary and the Secretary of the Treasury 

21 shall conduct an evaluation of markets for educational 

22 loans to— 

23 ‘‘(1) evaluate any variations in availability, 

24 terms, and conditions of educational loans provided 

25 to students who qualify for a simplified needs test 


bajohnson on PROD1PC77 with BILLS
8 

•S 1262 IS

1 under section 479 or any income-contingent sim2 plified version of the Free Application for Federal 

3 Student Aid; 

4 ‘‘(2) identify possible discriminatory lending 

5 patterns affecting students described in paragraph 

6 (1); and 

7 ‘‘(3) report, not later than 1 year after the date 

8 of enactment of the Student Loan Accountability 

9 and Disclosure Reform Act to the Committee on 

10 Health, Education, Labor, and Pensions and the 

11 Committee on Banking, Housing, and Urban Affairs 

12 of the Senate, and the Committee on Education and 

13 Labor and the Committee on Financial Services of 

14 the House of Representatives, on findings and rec15 ommendations for the need to afford protections 

16 from predatory lending practices to such students.’’. 

17 SEC. 5. DISQUALIFICATION OF ELIGIBLE LENDER. 

18 Section 435(d)(5) of the Higher Education Act of 

19 1965 (20 U.S.C. 1085(d)(5)) is amended— 

20 (1) by redesignating subparagraphs (C) and 

21 (D) as subparagraphs (H) and (I), respectively; and 

22 (2) by striking subparagraphs (A) and (B) and 

23 inserting the following: 

24 ‘‘(A) offered, directly or indirectly, points, 

25 premiums, payments (including payments for 


bajohnson on PROD1PC77 with BILLS
9 

•S 1262 IS

1 referrals and for processing or finder fees), 

2 prizes, stock or other securities, travel, enter3 tainment expenses, tuition repayment, the pro4 vision of information technology equipment at 

5 below-market value, additional financial aid 

6 funds, or other inducements to any institution 

7 of higher education or any employee of an insti8 tution of higher education in order to secure 

9 applicants for loans under this part; 

10 ‘‘(B) conducted unsolicited mailings, by 

11 postal or electronic means, of student loan ap12 plication forms to students enrolled in sec13 ondary school or postsecondary institutions, or 

14 to parents of such students, except that applica15 tions may be mailed, by postal or electronic 

16 means, to students or borrowers who have pre17 viously received loans under this part from such 

18 lender; 

19 ‘‘(C) entered into any type of consulting 

20 arrangement, or other contract to provide serv21 ices to a lender, with an employee who is em22 ployed in the financial aid office of an institu23 tion of higher education, or who otherwise has 

24 responsibilities with respect to student loans or 

25 other financial aid of the institution; 


bajohnson on PROD1PC77 with BILLS
10 

•S 1262 IS

1 ‘‘(D) compensated an employee who is em2 ployed in the financial aid office of an institu3 tion of higher education, or who otherwise has 

4 responsibilities with respect to student loans or 

5 other financial aid of the institution, and who 

6 is serving on an advisory board, commission, or 

7 group established by a lender or group of lend8 ers for providing such service, except that the 

9 eligible lender may reimburse such employee for 

10 reasonable expenses incurred in providing such 

11 service; 

12 ‘‘(E) performed for an institution of higher 

13 education, without compensation from the insti14 tution, any function that the institution of high15 er education is required to carry out under part 

16 B, D, or G (except for general debt counseling, 

17 such as the exit counseling described in section 

18 485(b)); 

19 ‘‘(F) paid, on behalf of an institution of 

20 higher education, another person to perform 

21 any function that the institution of higher edu22 cation is required to perform under part B, D, 

23 or G (except for general debt counseling, such 

24 as the exit counseling described in section 

25 485(b)); 


bajohnson on PROD1PC77 with BILLS
11 

•S 1262 IS

1 ‘‘(G) provided payments or other benefits 

2 to a student at an institution of higher edu3 cation to act as the lender’s representative to 

4 secure applications under this title from indi5 vidual prospective borrowers, unless such stu6 dent— 

7 ‘‘(i) is also employed by the lender for 

8 other purposes; and 

9 ‘‘(ii) made all appropriate disclosures 

10 regarding such employment;’’. 

11 SEC. 6. CERTIFICATIONS; CODE OF CONDUCT REGARDING 

12 STUDENT LOANS. 

13 Section 487 of the Higher Education Act of 1965 (20 

14 U.S.C. 1094) is amended— 

15 (1) in subsection (a)— 

16 (A) by striking paragraph (6) and insert17 ing the following: 

18 ‘‘(6) The institution will not provide any stu19 dent with any statement or certification to a lender 

20 that qualifies the student for a loan or loans in ex21 cess of the amount that student is eligible to borrow 

22 in accordance with sections 425(a), 428(a)(2), and 

23 subparagraphs (A) and (B) of section 428(b)(1) un24 less— 


bajohnson on PROD1PC77 with BILLS
12 

•S 1262 IS

1 ‘‘(A) the loan in question is a private edu2 cational loan as defined under section 151(a); 

3 and 

4 ‘‘(B) the student does not qualify for the 

5 simplified needs test under section 479 or any 

6 income-contingent simplified version of the Free 

7 Application for Federal Student Aid.’’; 

8 (B) by redesignating paragraphs (21), 

9 (22), and (23) as (22), (23), and (24), respec10 tively; and 

11 (C) by inserting after paragraph (20) the 

12 following: 

13 ‘‘(21)(A) The institution will establish, follow, 

14 and enforce a code of conduct regarding student 

15 loans that includes not less than the following: 

16 ‘‘(i) REVENUE SHARING PROHIBITION.— 

17 The institution is prohibited from receiving any18 thing of value from any lender in exchange for 

19 any advantage sought by the lender. 

20 ‘‘(ii) GIFT AND TRIP PROHIBITION.—Any 

21 employee who is employed in the financial aid 

22 office of the institution, or who otherwise has 

23 responsibilities with respect to student loans or 

24 other financial aid of the institution, is prohib25 ited from taking from any lender any gift or 


bajohnson on PROD1PC77 with BILLS
13 

•S 1262 IS

1 trip worth more than nominal value, except for 

2 reasonable expenses for professional develop3 ment that will improve the efficiency and effec4 tiveness of programs under this title and for do5 mestic travel to such professional development. 

6 ‘‘(iii) CONTRACTING ARRANGEMENTS.— 

7 Any employee who is employed in the financial 

8 aid office of the institution, or who otherwise 

9 has responsibilities with respect to student 

10 loans or other financial aid of the institution, 

11 shall be prohibited from entering into any type 

12 of consulting arrangement or other contract to 

13 provide services to a lender. 

14 ‘‘(iv) ADVISORY BOARD COMPENSATION.— 

15 Any employee who is employed in the financial 

16 aid office of the institution, or who otherwise 

17 has responsibilities with respect to student 

18 loans or other financial aid of the institution, 

19 and who serves on an advisory board, commis20 sion, or group established by a lender or group 

21 of lenders shall be prohibited from receiving 

22 anything of value as compensation from the 

23 lender or group of lenders for serving on such 

24 advisory board, commission, or group, except 

25 that the employee may be reimbursed for reaVerDate Aug 31 2005 04:27 May 03, 2007 Jkt 059200 PO 00000 Frm 00013 Fmt 6652 Sfmt 6201 E:\BILLS\S1262.IS S1262

bajohnson on PROD1PC77 with BILLS
14 

•S 1262 IS

1 sonable expenses incurred in providing such 

2 service. 

3 ‘‘(v) LENDER INFORMATION REQUIRE4 MENTS.—The institution— 

5 ‘‘(I) will not designate any lender as 

6 a preferred lender for loans under this title 

7 or private educational loans; 

8 ‘‘(II) may invite a lender of such 

9 loans to submit to the institution a stand10 ard electronic template that specifies the 

11 rates, services, discounts, and terms and 

12 conditions of the loans, and the lender’s 

13 contact information; 

14 ‘‘(III) upon request of a lender inter15 ested in offering loans under this title or 

16 private educational loans to students at the 

17 institution, will provide the lender with the 

18 ability to submit the standard electronic 

19 template described in subclause (II) to the 

20 institution; 

21 ‘‘(IV) will make all submitted stand22 ard electronic templates available to cur23 rent and prospective students of the insti24 tution, and the parents of such students; 


bajohnson on PROD1PC77 with BILLS
15 

•S 1262 IS

1 ‘‘(V) if such student, or a parent of 

2 such student, requests information on the 

3 lenders that have submitted standard elec4 tronic templates to the institution, will pro5 vide the student or parent with a guide 

6 that— 

7 ‘‘(aa) enables students and par8 ents to do their own evaluation of the 

9 loan products, benefits, and services 

10 offered by such lenders; and 

11 ‘‘(bb) includes the disclosures re12 quired under clause (vi). 

13 ‘‘(vi) DISCLOSURES.—An institution re14 quired to make the disclosures under this clause 

15 will— 

16 ‘‘(I) disclose the criteria and process 

17 used to develop the guide described in 

18 clause (v)(V) regarding the products of19 fered by each lender that submitted a 

20 standard electronic template, as described 

21 in clause (v)(II); 

22 ‘‘(II) disclose which lenders listed in 

23 the guide have an agreement in place to 

24 sell the loans of the lender to another lend25 er; and 


bajohnson on PROD1PC77 with BILLS
16 

•S 1262 IS

1 ‘‘(III) provide a notice to the student 

2 that the student has the right to select a 

3 lender of the student’s choosing, regardless 

4 of any information regarding the lender in 

5 the institution’s guide under clause (v) or 

6 whether the lender submitted a standard 

7 electronic template to the institution. 

8 ‘‘(vii) LENDER SERVICES TO INSTITUTIONS

9 OF HIGHER EDUCATION.— 

10 ‘‘(I) Any agent, employee, or inde11 pendent contractor of a lender who is per12 forming any service for the institution shall 

13 disclose the individual’s relationship with 

14 the lender to any students and parents for 

15 whom the individual provides such service. 

16 ‘‘(II) Any agreement for the perform17 ance of a service by a lender for the insti18 tution shall comply with all applicable 

19 State and institution ethics laws and codes 

20 of ethics. 

21 ‘‘(viii) INTERACTION WITH BORROWERS.— 

22 The institution will not— 

23 ‘‘(I) for any first-time borrower, as24 sign, through award packaging or other 


bajohnson on PROD1PC77 with BILLS
17 

•S 1262 IS

1 methods, the borrower’s loan to a par2 ticular lender; and 

3 ‘‘(II) refuse to certify, or, delay cer4 tification of, any loan in accordance with 

5 paragraph (6) based on the borrower’s se6 lection of a particular lender or guaranty 

7 agency. 

8 ‘‘(B) The institution will designate an indi9 vidual who shall be responsible for signing an annual 

10 attestation on behalf of the institution that the insti11 tution agrees to, and is in compliance with, the re12 quirements of the code of conduct described in this 

13 paragraph. Such individual shall be the chief execu14 tive officer, chief operating officer, chief financial of15 ficer, or comparable official, of the institution, and 

16 shall annually submit the signed attestation to the 

17 Secretary. 

18 ‘‘(C) The institution will make the code of con19 duct widely available to the institution’s faculty 

20 members, students, and parents through a variety of 

21 means, including the institution’s website.’’; 

22 (2) by redesignating subsections (d) and (e) as 

23 subsections (e) and (f), respectively; and 

24 (3) by inserting after subsection (c) the fol25 lowing: 


bajohnson on PROD1PC77 with BILLS
18 

•S 1262 IS

1 ‘‘(d) VIOLATION OF CODE OF CONDUCT REGARDING

2 STUDENT LOANS.— 

3 ‘‘(1) IN GENERAL.—Upon a finding by the Sec4 retary, after reasonable notice and an opportunity 

5 for a hearing, that an institution of higher education 

6 that has entered into a program participation agree7 ment with the Secretary under subsection (a) will8 fully contravened the institution’s attestation of 

9 compliance with the provisions of subsection (a)(21), 

10 the Secretary may impose a penalty described in 

11 paragraph (2). 

12 ‘‘(2) PENALTIES.—A violation of paragraph (1) 

13 shall result in the limitation, suspension, or termi14 nation of the eligibility of the institution for the loan 

15 programs under this title.’’. 

16 SEC. 7. TERMINATION OF SCHOOL-AS-LENDER PROGRAM. 

17 Section 435(d) of the Higher Education Act of 1965 

18 (20 U.S.C. 1085(d)) (as amended by section 5) is further 

19 amended— 

20 (1) in paragraph (1)(E), by inserting ‘‘subject 

21 to paragraph (8),’’ before ‘‘an eligible institution’’; 

22 and 

23 (2) by adding at the end the following: 

24 ‘‘(8) SUNSET OF AUTHORITY FOR SCHOOL AS

25 LENDER PROGRAM.— 


bajohnson on PROD1PC77 with BILLS
19 

•S 1262 IS

1 ‘‘(A) SUNSET.—The authority provided 

2 under subsection (d)(1)(E) for an institution to 

3 serve as an eligible lender, and under paragraph 

4 (7) for an eligible lender to serve as a trustee 

5 for an institution of higher education or an or6 ganization affiliated with an institution of high7 er education, shall expire on June 30, 2008. 

8 ‘‘(B) APPLICATION TO EXISTING INSTITU9 TIONAL LENDERS.—An institution that was an 

10 eligible lender under this subsection, or an eligi11 ble lender that served as a trustee for an insti12 tution of higher education or an organization 

13 affiliated with an institution of higher education 

14 under paragraph (7), before June 30, 2008, 

15 shall— 

16 ‘‘(i) not issue any new loans in such 

17 a capacity under part B after June 30, 

18 2008; and 

19 ‘‘(ii) shall continue to carry out the 

20 institution’s responsibilities for any loans 

21 issued by the institution under part B on 

22 or before June 30, 2008, except that, be23 ginning on June 30, 2010, the eligible in24 stitution or trustee may, notwithstanding 

25 any other provision of this Act, sell or othVerDate Aug 31 2005 04:27 May 03, 2007 Jkt 059200 PO 00000 Frm 00019 Fmt 6652 Sfmt 6201 E:\BILLS\S1262.IS S1262

bajohnson on PROD1PC77 with BILLS
20 

•S 1262 IS

1 erwise dispose of such loans if all profits 

2 from the divestiture are used for need3 based grant programs at the institution.’’. 

Æ 


bajohnson on PROD1PC77 with BILLS