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a loan on which the applicable interest rate 
is determined under section 427A(l), the 
percentage to be added under clause 
(i)(III) in computing the special allowance 
payment pursuant to this subparagraph 
shall be the following: 
‘‘(I) IN
GENERAL
AND
PLUS 
LOANS.—1.79 percent in the case of a 
loan described in clause (i) or (iii) for 
which the first disbursement of prin-
cipal is made on or after October 1, 
2007. 
‘‘(II) IN SCHOOL AND GRACE PE-
RIOD.—1.19 percent in the case of a 
loan described in clause (ii)(II) for 
which the first disbursement of prin-
cipal is made on or after October 1, 
2007. 
‘‘(III) CONSOLIDATION LOANS.— 
2.09 percent in the case of a loan de-
scribed in clause (iv) made on or after 
October 1, 2007.’’.
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SEC. 114. ELIMINATION OF EXCEPTIONAL PERFORMER 
STATUS FOR LENDERS. 
(a) ELIMINATION OF STATUS.—Part B of title IV (20 
U.S.C. 1071 et seq.) is amended by striking section 428I 
(20 U.S.C. 1078–9). 
(b) CONFORMING AMENDMENTS.—Part B of title IV 
is further amended— 
(1) 
in 
section 
428(c)(1) 
(20 
U.S.C. 
1078(c)(1))— 
(A) by striking subparagraph (D); and 
(B) by redesignating subparagraphs (E) 
through (H) as subparagraphs (D) through 
(G), respectively; and 
(2) in section 438(b)(5) (20 U.S.C. 1087– 
1(b)(5)), by striking the matter following subpara-
graph (B). 
SEC. 115. REDUCTION OF LENDER INSURANCE PERCENT-
AGE. 
(a) AMENDMENT.—Subparagraph (G) of section 
428(b)(1) (20 U.S.C. 1078(b)(1)(G)) is amended to read 
as follows: 
‘‘(G) insures 95 percent of the unpaid 
principal of loans insured under the program, 
except that— 
‘‘(i) such program shall insure 100 
percent of the unpaid principal of loans
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made with funds advanced pursuant to sec-
tion 428(j) or 439(q); and 
‘‘(ii) notwithstanding the preceding 
provisions of this subparagraph, such pro-
gram shall insure 100 percent of the un-
paid principal amount of exempt claims as 
defined in subsection (c)(1)(G);’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall take effect with respect to loans made 
on or after October 1, 2007. 
SEC. 116. GUARANTY AGENCY COLLECTION RETENTION. 
Clause (ii) of section 428(c)(6)(A) (20 U.S.C. 
1078(c)(6)(A)(ii)) is amended to read as follows: 
‘‘(ii) an amount equal to 23 percent of 
such payments for use in accordance with 
section 422B, except that beginning Octo-
ber 1, 2007, this subparagraph shall be ap-
plied by substituting ‘16 percent’ for ‘23 
percent’.’’. 
SEC. 117. ACCOUNT MAINTENANCE FEES. 
Section 458(b) (20 U.S.C. 1087h(b)) is amended by 
striking ‘‘0.10 percent’’ and inserting ‘‘0.06 percent’’. 
SEC. 118. INCREASED LOAN FEES FROM LENDERS. 
Paragraph (2) of section 438(d) (20 U.S.C. 1087– 
1(d)(2)) is amended to read as follows:
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‘‘(2) AMOUNT OF LOAN FEES.— 
‘‘(A) AMOUNT.—The amount of the loan 
fee which shall be deducted under paragraph 
(1), but which may not be collected from the 
borrower, shall be equal to— 
‘‘(i) except as provided in clauses (ii) 
and (iii), 0.50 percent of the principal 
amount of the loan with respect to any 
loan under this part for which the first dis-
bursement was made on or after October 
1, 1993; 
‘‘(ii) 1.0 percent of the principal 
amount of the loan with respect to any 
loan under this part for which the first dis-
bursement was made on or after October 
1, 2007, that is held by any holder other 
than a holder described in subclause (I) or 
(II) of clause (iii); and 
‘‘(iii) 0.0 percent of the principal 
amount of the loan with respect to any 
loan under this part for which the first dis-
bursement was made on or after October 
1, 2007, that is held by— 
‘‘(I) any holder that, together 
with its affiliated holders, is des-
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ignated by the Secretary annually as a 
small lender under subparagraph (B); 
or 
‘‘(II) any holder that— 
‘‘(aa) is a unit of a State or 
local government or a nonprofit 
private entity; and 
‘‘(bb) is not owned in whole 
or in part by, or controlled or op-
erated by a for-profit entity. 
‘‘(B) DESIGNATION OF SMALL LENDERS.— 
In determining which holders of eligible loans 
qualify as small lenders for purposes of sub-
paragraph (A)(iii)(I), the Secretary shall, using 
the most recently available data with respect to 
the total principal amount of eligible loans held 
by holders— 
‘‘(i) rank all holders of eligible loans 
(combined with their affiliated holders) in 
descending order by total principal amount 
of eligible loans held; 
‘‘(ii) calculate the total principal 
amount of eligible loans held by all holders; 
and
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‘‘(iii) identify the subset of consecu-
tively ranked holders under clause (i), 
starting with the lowest ranked holder, 
that together hold a total principal amount 
of such loans equal to 15 percent of the 
total amount calculated under clause (ii), 
but excluding the holder, if any, whose 
holdings when added cause the total hold-
ings of the subset to equal but not exceed 
such 15 percent of such total amount cal-
culated; and 
‘‘(iv) designate as small lenders any 
holder identified as a member of the subset 
under clause (iii).’’. 
SEC. 119. MARKET-BASED DETERMINATION OF LENDER RE-
TURNS. 
(a) JOINT PLANNING STUDY TO SELECT AUCTION 
MECHANISMS FOR TESTING.— 
(1) PLANNING
STUDY.—The Secretaries of 
Education and Treasury jointly shall conduct a plan-
ning study, in consultation with the Office of Man-
agement and Budget, the Congressional Budget Of-
fice, the General Accounting Office, and other indi-
viduals and entities the Secretaries determines ap-
propriate, to—
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(A) examine the matters described in para-
graph (2) in order to determine which market- 
based mechanisms for determining lender re-
turns on loans made, insured, or guaranteed 
under part B of title IV of the Higher Edu-
cation Act of 1965 (20 U.S.C. 1071 et seq.) 
shall be tested under the pilot programs de-
scribed in subsection (c); and 
(B) determine what related administrative 
and other changes will be required in order to 
ensure that high-quality services are provided 
under a successful implementation of market- 
based determinations of lender returns for all 
loans made, insured, or guaranteed under such 
part. 
(2) MATTERS EXAMINED.—The planning study 
under this subsection shall examine— 
(A) whether it is most appropriate to auc-
tion existing loans under part B of title IV of 
such Act, to auction the rights to originate 
loans under such part, or whether the sale of 
securities backed by federally-owned student 
loan assets originated by banks acting as agents 
of the Federal Government would provide the 
most efficient market-based alternative;
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(B) matters related to efficient financial 
organization of any auctions or sales of loans 
under such part, including how loans and origi-
nation rights are bundled, the capital structure 
of any securitization plan, and issues related to 
servicing; and 
(C) how to ensure that statutory, regu-
latory, and administrative requirements do not 
impede separate management and ownership of 
loans or assets backed by loans under part B 
of title IV of such Act. 
(3) MECHANISMS.—In determining which mar-
ket-based mechanisms are the most promising mod-
els to test the pilot programs under subsection (b), 
the planning study shall take into account whether 
a particular market-based mechanism will— 
(A) ensure loan availability under part B 
of title IV of such Act to all eligible students 
at all participating institutions; 
(B) minimize administrative complexity for 
borrowers, institutions, lenders, and the Federal 
Government; and 
(C) reduce Federal costs if used on a pro-
gram-wide basis.
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(4) REPORT.—A report on the results of the 
planning study, together with a plan for implementa-
tion of one or more pilot programs using promising 
market-based approaches for determining lender re-
turns, shall be transmitted to Congress not later 
than 6 months after the date of enactment of this 
Act. 
(b) PILOT PROGRAMS TO BE TESTED.— 
(1) AUTHORIZATION.— 
(A) IN
GENERAL.—Notwithstanding any 
other provision of law, after the report de-
scribed in subsection (a)(4) is transmitted to 
Congress, the Secretary of Education shall, in 
consultation with the Secretary of the Treasury, 
begin preparations necessary to carry out pilot 
programs meeting the requirements of this sub-
section in accordance with the implementation 
plan included in such report. 
(B) IMPLEMENTATION
DATE.—The Sec-
retary of Education shall commence implemen-
tation of the pilot programs under this sub-
section not earlier than July 1, 2008. 
(C) DURATION AND LOAN VOLUME.—The 
pilot programs under this subsection shall be 
not more than two academic years in duration,
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and the Secretary of Education may use the 
pilot programs to determining the lender re-
turns for not more than— 
(i) 10 percent of the annual loan vol-
ume under part B of title IV of the Higher 
Education Act of 1965 during the first 
year of the pilot programs under this sub-
section; and 
(ii) 20 percent of the annual loan vol-
ume under part B of title IV of such Act 
during the second year of the pilot pro-
grams under this subsection. 
(2) VOLUNTARY PARTICIPATION.— 
(A) Participation in any auction-based 
pilot program under this subsection shall be vol-
untary for eligible institutions and eligible lend-
ers participating under part B of title IV of 
such Act prior to July 1, 2006. 
(B) All savings to the United States Treas-
ury generated by such auctions shall be distrib-
uted to institutions participating under this 
subsection on a basis proportionate to loan vol-
ume under such part for supplemental, need- 
based financial aid, except that an institution 
that is operating as an eligible lender under
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section 435(d)(2) of such Act shall not be eligi-
ble for any such distribution. 
(3) INDEPENDENT EVALUATION.—The Govern-
ment Accountability Office shall conduct an inde-
pendent evaluation of the pilot programs under this 
subsection, which evaluation shall be completed, and 
the results of such submitted to the Secretary of 
Education, the Secretary of the Treasury, and Con-
gress, not later than 120 days after the termination 
of such pilot programs. 
(c) PROGRAM-WIDE
IMPLEMENTATION.—Notwith-
standing any other provision of part B of title IV of the 
Higher Education Act of 1965, for the first academic year 
beginning not less than 120 days after the independent 
evaluation described in subsection (b)(3) has been trans-
mitted to Congress, and succeeding academic years, the 
Secretary of Education is authorized to implement for all 
loans made under such part, a program-wide, market- 
based system to determine returns to all lenders as the 
Secretary of Education determines appropriate, provided 
that— 
(1) the Secretary of Education, in consultation 
with the Secretary of the Treasury, has certified 
that the auction-based system that the Secretary of
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Education intends to implement on a program-wide 
basis would— 
(A) ensure loan availability under such 
part to all eligible students at all participating 
institutions; 
(B) minimize administrative complexity for 
borrowers, institutions, lenders, and the Federal 
Government, including the enhancement of the 
modernization of the student financial aid sys-
tem; and 
(C) reduce Federal costs when used on a 
program-wide basis; and 
(2) the Secretary of Education has notified 
Congress of the Secretary’s intent to implement a 
program-wide auction based system, and has pro-
vided a description of the structure of such auction- 
based system, at least 120 days before implementing 
such system. 
(d) CONSULTATION.— 
(1) IN
GENERAL.—As part of the planning 
study, pilot programs, and program-wide implemen-
tation phases described in this section, the Secretary 
of Education shall consult with representatives of in-
vestment banks, ratings agencies, lenders, institu-
tions of higher education, and students, as well as
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individuals or other entities with pertinent technical 
expertise. The Secretary of Education shall engage 
in such consultations using such methods as, and to 
the extent that, the Secretary determines appro-
priate to the time constraints associated with the 
study, programs, and implementation. 
(2) SERVICES
OF
OTHER
FEDERAL
AGEN-
CIES.—In carrying out the planning study and pilot 
programs described in this section, the Secretary of 
Education may use, on a reimbursable basis, the 
services (including procurement authorities and serv-
ices), equipment, personnel, and facilities of other 
agencies and instrumentalities of the Federal Gov-
ernment. 
SEC. 120. OTHER GUARANTY AGENCY REFORMS. 
(a) AGENCY OPERATING FUNDS.—Section 422B(c) 
(20 U.S.C. 1072b(c)) is amended— 
(1) by striking ‘‘and’’ at the end of paragraph 
(5); 
(2) by redesignating paragraph (6) as para-
graph (7); and 
(3) by inserting after paragraph (5) the fol-
lowing new paragraph: 
‘‘(6) the delinquency prevention fee paid by the 
Secretary in accordance with section 428(o); and’’.
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(b) DELINQUENCY PREVENTION FEE .—Section 428 
(20 U.S.C. 1078) is amended by adding at the end the 
following new subsection: 
‘‘(o) DELINQUENCY PREVENTION FEE.— 
‘‘(1) AMOUNT
OF
FEE.—The Secretary shall 
pay to each guaranty agency, on a monthly basis, a 
delinquency prevention fee equal to 0.0055 percent 
of the original principal amount of loans insured by 
the agency, other than loans in in-school or grace 
period status, that are not in delinquency status as 
of the end of the previous month. 
‘‘(2) DEFINITION.—For the purpose of earning 
the delinquency prevention fee, the term ‘not in de-
linquency status’ means the borrower is less than 60 
days delinquent in making a required payment.’’. 
(c) MINIMUM LOAN PROCESSING
AND ISSUANCE 
FEES.—Section 
428(f)(1)(A)(ii) 
(20 
U.S.C. 
1078(f)(1)(A)(ii)) is amended by inserting before the pe-
riod at the end the following: ‘‘, except that the total 
amount of such payments to each guaranty agency in any 
fiscal year shall equal at least $1,500,000’’.
•HR 2669 EH1S 
PART C—REWARDING SERVICE IN REPAYMENT 
SEC. 131. LOAN FORGIVENESS FOR SERVICE IN AREAS OF 
NATIONAL NEED. 
Section 428K (20 U.S.C. 1078–11) is amended to 
read as follows: 
‘‘SEC. 428K. LOAN FORGIVENESS FOR SERVICE IN AREAS OF 
NATIONAL NEED. 
‘‘(a) PROGRAM AUTHORIZED.— 
‘‘(1) LOAN
FORGIVENESS
AUTHORIZED.—The 
Secretary shall forgive, in accordance with this sec-
tion, the student loan obligation of a borrower in the 
amount specified in subsection (c), for any new bor-
rower after the date of enactment of the College 
Cost Reduction Act of 2007, who— 
‘‘(A) is employed full-time in an area of 
national need described in subsection (b); and 
‘‘(B) is not in default on a loan for which 
the borrower seeks forgiveness. 
‘‘(2) METHOD
OF
LOAN
FORGIVENESS.—To 
provide loan forgiveness under paragraph (1), the 
Secretary is authorized to carry out a program— 
‘‘(A) through the holder of the loan, to as-
sume the obligation to repay a qualified loan 
amount for a loan made, insured, or guaranteed 
under this part; and
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‘‘(B) to cancel a qualified loan amount for 
a loan made under part D of this title. 
‘‘(3) REGULATIONS.—The Secretary is author-
ized to issue such regulations as may be necessary 
to carry out the provisions of this section. 
‘‘(b) AREAS OF NATIONAL NEED.—For purposes of 
this section, an individual shall be treated as employed in 
an area of national need if the individual is employed full- 
time as any of the following: 
‘‘(1) EARLY CHILDHOOD EDUCATORS.—An in-
dividual who is employed as an early childhood edu-
cator in an eligible preschool program or eligible 
early childhood education program in a low-income 
community, and who is involved directly in the care, 
development, and education of infants, toddlers, or 
young children age 5 and under. 
‘‘(2) NURSES.—An individual who is em-
ployed— 
‘‘(A) as a nurse in a clinical setting; or 
‘‘(B) as a member of the nursing faculty at 
an accredited school of nursing (as those terms 
are defined in section 801 of the Public Health 
Service Act (42 U.S.C. 296)).
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‘‘(3) FOREIGN
LANGUAGE
SPECIALISTS.—An 
individual who has obtained a baccalaureate degree 
in a critical foreign language and is employed— 
‘‘(A) in an elementary or secondary school 
as a teacher of a critical foreign language; or 
‘‘(B) in an agency of the United States 
Government in a position that regularly re-
quires the use of such critical foreign language. 
‘‘(4) LIBRARIANS.—An individual who is em-
ployed as a librarian in— 
‘‘(A) a public library that serves a geo-
graphic area within which the public schools 
have a combined average of 30 percent or more 
of their total student enrollments composed of 
children counted under section 1113(a)(5) of 
the Elementary and Secondary Education Act 
of 1965; or 
‘‘(B) an elementary or secondary school 
which is in the school district of a local edu-
cational agency which is eligible in such year 
for assistance pursuant to title I of the Elemen-
tary and Secondary Education Act of 1965, and 
which for the purpose of this paragraph and for 
that year has been determined by the Secretary 
(pursuant to regulations and after consultation
•HR 2669 EH1S 
with the State educational agency of the State 
in which the school is located) to be a school in 
which the enrollment of children counted under 
section 1113(a)(5) of the Elementary and Sec-
ondary Education Act of 1965 exceeds 30 per-
cent of the total enrollment of that school. 
‘‘(5) HIGHLY
QUALIFIED
TEACHERS: BILIN-
GUAL
EDUCATION
AND
LOW-INCOME
COMMU-
NITIES.—An individual who— 
‘‘(A) is highly qualified as such term is de-
fined in section 9101 of the Elementary and 
Secondary Education Act of 1965; and 
‘‘(B)(i) is employed as a full-time teacher 
of bilingual education; or 
‘‘(ii) is employed as a teacher in a public 
or nonprofit private elementary or secondary 
school which is in the school district of a local 
educational agency which is eligible in such year 
for assistance pursuant to title I of the Elemen-
tary and Secondary Education Act of 1965, and 
which for the purpose of this paragraph and for 
that year has been determined by the Secretary 
(pursuant to regulations and after consultation 
with the State educational agency of the State 
in which the school is located) to be a school in