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‘‘(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 
‘‘(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-
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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— 
(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 
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(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; 
(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 
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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. 
(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.— 
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(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, 
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 
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(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 
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-
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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 
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 
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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 
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 
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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’’. 
(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 
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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’’. 
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-
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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 
‘‘(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 
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