(ii) by striking ‘‘The Secretary’’ and 
inserting the following: 
‘‘(A) IN GENERAL.—The Secretary’’; and 
(iii) by adding at the end the fol-
lowing: 
‘‘(B) AWARDING CONTRACTS FOR SERVICING 
LOANS.—The Secretary shall, if practicable, 
award multiple contracts, through a competitive 
bidding process, to entities, including eligible 
not-for-profit servicers, to service loans origi-
nated under this part. The competitive bidding 
process shall take into account price, servicing 
capacity, and capability, and may take into ac-
count the capacity and capability to provide de-
fault aversion activities and outreach services. 
‘‘(C) JOB
RETENTION
INCENTIVE
PAY-
MENT.—(i) In a contract with an entity under 
subparagraph (B) for the servicing of loans, the 
Secretary shall provide a job retention incentive 
payment, in an amount and manner determined 
by the Secretary, if such entity agrees to give 
priority for hiring for positions created as a re-
sult of such a contract to those geographical loca-
tions at which the entity performed student loan 
origination or servicing activities under the Fed-
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eral Family Education Loan Program as of the 
date of enactment of the Student Aid and Fiscal 
Responsibility Act of 2009. 
‘‘(ii) In determining the allocation of loans 
to be serviced by an entity awarded such a con-
tract, the Secretary shall consider the retention 
of highly qualified employees of such entity a 
positive factor in determining such allocation.’’; 
(B) in paragraph (2)— 
(i) in the first sentence, by inserting ‘‘, 
including eligible not-for-profit servicers,’’ 
after ‘‘The entities’’; 
(ii) by amending the third sentence to 
read as follows: ‘‘The entities with which the 
Secretary may enter into such contracts 
shall include, where practicable, agencies 
with agreements with the Secretary under 
sections 428(b) and (c) on the date of the 
enactment of the Student Aid and Fiscal 
Responsibility Act of 2009, and eligible not- 
for-profit servicers, if such agencies or 
servicers meet the qualifications as deter-
mined by the Secretary under this sub-
section and if those agencies or servicers 
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have such experience and demonstrated ef-
fectiveness.’’; and 
(iii) by striking the last sentence and 
inserting the following: ‘‘In awarding con-
tracts to such State agencies, and such eligi-
ble not-for-profit servicers, the Secretary 
shall, to the extent practicable and con-
sistent with the purposes of this part, give 
special consideration to State agencies and 
such servicers with a history of high quality 
performance and demonstrated integrity in 
conducting operations with institutions of 
higher education and the Secretary.’’; 
(C) by redesignating paragraph (3) as 
paragraph (4), and by inserting in such para-
graph ‘‘, or of any eligible not-for-profit servicer 
to enter into an agreement for the purposes of 
this section as a member of a consortium of such 
entities’’ before the period at the end; and 
(D) by inserting after paragraph (2) the fol-
lowing new paragraph: 
‘‘(3) SERVICING
BY
ELIGIBLE
NOT-FOR-PROFIT 
SERVICERS.— 
‘‘(A) IN
GENERAL.—Notwithstanding any 
other provision of this section, in each State 
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where one or more eligible not-for-profit servicer 
has its principal place of business, the Secretary 
shall contract with each such servicer to service 
loans originated under this part on behalf of bor-
rowers attending institutions located within such 
State, provided that the servicer demonstrates 
that it meets the standards for servicing Federal 
assets and providing quality service and agrees 
to service the loans at a competitive market rate, 
as determined by the Secretary. In determining 
such a competitive market rate, the Secretary 
may take into account the volume of loans serv-
iced by the servicer. Contracts awarded under 
this paragraph shall be subject to the same re-
quirements for quality, performance, and ac-
countability as contracts awarded under para-
graph (2) for similar activities. 
‘‘(B) ALLOCATIONS.—(i) ONE SERVICER.— 
In the case of a State with only one eligible not- 
for-profit servicer with a contract described in 
subparagraph (A), the Secretary shall, at a min-
imum, allocate to such servicer, on an annual 
basis and subject to such contract, the servicing 
rights for the lesser of— 
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‘‘(I) the loans of 100,000 borrowers (in-
cluding borrowers who borrowed loans in a 
prior year that were serviced by the 
servicer) 
attending 
institutions 
located 
within the State; or 
‘‘(II) the loans of all the borrowers at-
tending institutions located within the 
State. 
‘‘(ii) MULTIPLE SERVICERS.—In the case of 
a State with more than one eligible not-for-profit 
servicer with a contract described in subpara-
graph (A), the Secretary shall, at a minimum, 
allocate to each such servicer, on an annual basis 
and subject to such contract, the servicing rights 
for the lesser of— 
‘‘(I) the loans of 100,000 borrowers (in-
cluding borrowers who borrowed loans in a 
prior year that were serviced by the 
servicer) 
attending 
institutions 
located 
within the State; or 
‘‘(II) an equal share of the loans of all 
borrowers attending institutions located 
within the State, except the Secretary shall 
adjust such shares as necessary to ensure 
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that the loans of any single borrower re-
main with a single servicer. 
‘‘(iii) ADDITIONAL ALLOCATION.—The Sec-
retary may allocate additional servicing rights 
to an eligible not-for-profit servicer based on the 
performance of such servicer, as determined by 
the Secretary, including performance in the 
areas of customer service and default aversion. 
‘‘(C) MULTIPLE
LOANS.—Notwithstanding 
the allocations required by subparagraph (B), 
the Secretary may transfer loans among servicers 
who are awarded contracts to service loans pur-
suant to this section to ensure that the loans of 
any single borrower remain with a single 
servicer.’’; and 
(2) by adding at the end the following: 
‘‘(c) REPORT TO CONGRESS.—Not later than 3 years 
after the date of the enactment of the Student Aid and Fis-
cal Responsibility Act of 2009, the Secretary shall prepare 
and submit to the authorizing committees, a report evalu-
ating the performance of all eligible not-for-profit servicers 
awarded a contract under this section to service loans origi-
nated under this part. Such report shall give consideration 
to— 
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‘‘(1) customer satisfaction of borrowers and in-
stitutions with respect to the loan servicing provided 
by the servicers; 
‘‘(2) compliance with applicable regulations by 
the servicers; and 
‘‘(3) the effectiveness of default aversion activi-
ties, and outreach services (if any), provided by the 
servicers. 
‘‘(d) DEFINITIONS.—In this section: 
‘‘(1) DEFAULT AVERSION ACTIVITIES.—The term 
‘default aversion activities’ means activities that are 
directly related to providing collection assistance to 
the Secretary on a delinquent loan, prior to the loan 
being legally in a default status, including due dili-
gence activities required pursuant to regulations. 
‘‘(2) ELIGIBLE NOT-FOR-PROFIT SERVICER.— 
‘‘(A) IN GENERAL.—The term ‘eligible not- 
for-profit servicer’ means an entity that, on the 
date of enactment of the Student Aid and Fiscal 
Responsibility Act of 2009— 
‘‘(i) meets the definition of an eligible 
not-for-profit holder under section 435(p), 
except that such term does not include eligi-
ble lenders described in paragraph (1)(D) of 
such section; 
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‘‘(ii) notwithstanding clause (i), is the 
sole beneficial owner of a loan for which the 
special allowance rate is calculated under 
section 438(b)(2)(I)(vi)(II) because the loan 
is held by an eligible lender trustee that is 
an eligible not-for-profit holder as defined 
under section 435(p)(1)(D); or 
‘‘(iii) is an affiliated entity of an eligi-
ble not-for-profit servicer described in clause 
(i) or (ii) that— 
‘‘(I) directly employs, or will di-
rectly employ (on or before the date the 
entity begins servicing loans under a 
contract awarded by the Secretary pur-
suant to subsection (a)(3)(A)), the ma-
jority of individuals who perform stu-
dent loan servicing functions; and 
‘‘(II) on such date of enactment, 
was performing, or had entered into a 
contract with a third party servicer (as 
such term is defined in section 481(c)) 
who was performing, student loan serv-
icing functions for loans made under 
part B of this title. 
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‘‘(B) AFFILIATED
ENTITY.—For the pur-
poses of subparagraph (A), the term ‘affiliated 
entity’ means an entity contracted to perform 
services for an eligible not-for-profit servicer 
that— 
‘‘(i) is a nonprofit entity or is wholly 
owned by a nonprofit entity; and 
‘‘(ii) is not owned or controlled, in 
whole or in part, by— 
‘‘(I) a for-profit entity; or 
‘‘(II) an entity having its prin-
cipal place of business in another 
State. 
‘‘(3) OUTREACH SERVICES.—The term ‘outreach 
services’ means programs offered to students and fam-
ilies, including programs delivered in coordination 
with institutions of higher education that— 
‘‘(A) encourage— 
‘‘(i) students to attend and complete a 
degree or certification program at an insti-
tution of higher education; and 
‘‘(ii) students and families to obtain fi-
nancial aid, but minimize the borrowing of 
education loans; and 
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‘‘(B) deliver financial literacy and coun-
seling tools.’’. 
SEC. 215. INTEREST RATES. 
Section 455(b)(7) (20 U.S.C. 1087e(b)(7)) is amended 
by adding at the end the following new subparagraph: 
‘‘(E) 
REDUCED
RATES
FOR
UNDER-
GRADUATE FDSL ON AND AFTER JULY 1, 2012.— 
Notwithstanding the preceding paragraphs of 
this subsection and subparagraph (A) of this 
paragraph, for Federal Direct Stafford Loans 
made to undergraduate students for which the 
first disbursement is made on or after July 1, 
2012, the applicable rate of interest shall, during 
any 12-month period beginning on July 1 and 
ending on June 30, be determined on the pre-
ceding June 1 and be equal to— 
‘‘(i) the bond equivalent rate of 91-day 
Treasury bills auctioned at the final auc-
tion held prior to such June 1; plus 
‘‘(ii) 2.5 percent, 
except that such rate shall not exceed 6.8 per-
cent.’’. 
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Subtitle B—Perkins Loan Reform 
SEC. 221. FEDERAL DIRECT PERKINS LOANS TERMS AND 
CONDITIONS. 
Part D of title IV (20 U.S.C. 1087a et seq.) is amended 
by inserting after section 455 the following new section: 
‘‘SEC. 455A. FEDERAL DIRECT PERKINS LOANS. 
‘‘(a) DESIGNATION OF LOANS.—Loans made to bor-
rowers under this section shall be known as ‘Federal Direct 
Perkins Loans’. 
‘‘(b) IN GENERAL.—It is the purpose of this section 
to authorize loans to be awarded by institutions of higher 
education through agreements established under section 
463(f). Unless otherwise specified in this section, all terms 
and conditions and other requirements applicable to Fed-
eral Direct Unsubsidized Stafford loans established under 
section 455(a)(2)(D) shall apply to loans made pursuant 
to this section. 
‘‘(c) ELIGIBLE BORROWERS.—Any student meeting 
the requirements for student eligibility under section 464(b) 
(including graduate and professional students as defined in 
regulations promulgated by the Secretary) shall be eligible 
to borrow a Federal Direct Perkins Loan, provided the stu-
dent attends an eligible institution with an agreement with 
the Secretary under section 463(f), and the institution uses 
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its authority under that agreement to award the student 
a loan. 
‘‘(d) LOAN LIMITS.—The annual and aggregate limits 
for loans under this section shall be the same as those estab-
lished under section 464, and aggregate limits shall include 
loans made by institutions under agreements under section 
463(a). 
‘‘(e) APPLICABLE RATES OF INTEREST.—Loans made 
pursuant to this section shall bear interest, on the unpaid 
balance of the loan, at the rate of 5 percent per year.’’. 
SEC. 222. AUTHORIZATION OF APPROPRIATIONS. 
Section 461 (20 U.S.C. 1087aa) is amended— 
(1) in subsection (a), by inserting ‘‘, before July 
1, 2010,’’ after ‘‘The Secretary shall’’; 
(2) in subsection (b)— 
(A) in paragraph (1)— 
(i) by striking ‘‘(1) For the purpose’’ 
and inserting ‘‘For the purpose’’; and 
(ii) by striking ‘‘and for each of the 
five succeeding fiscal years’’; and 
(B) by striking paragraph (2); and 
(3) by striking subsection (c). 
SEC. 223. ALLOCATION OF FUNDS. 
Section 462 (20 U.S.C. 1087bb) is amended— 
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(1) in subsection (a)(1), by striking ‘‘From’’ and 
inserting ‘‘For any fiscal year before fiscal year 2010, 
from’’; and 
(2) in subsection (i)(1), by striking ‘‘for any fis-
cal year,’’ and inserting ‘‘for any fiscal year before 
fiscal year 2010,’’. 
SEC. 224. FEDERAL DIRECT PERKINS LOAN ALLOCATION. 
Part E of title IV is further amended by inserting after 
section 462 (20 U.S.C. 1087bb) the following: 
‘‘SEC. 462A. FEDERAL DIRECT PERKINS LOAN ALLOCATION. 
‘‘(a) PURPOSES.—The purposes of this section are— 
‘‘(1) to allocate, among eligible and partici-
pating institutions (as such terms are defined in this 
section), the authority to make Federal Direct Perkins 
Loans under section 455A with a portion of the an-
nual loan authority described in subsection (b); and 
‘‘(2) to make funds available, in accordance with 
section 452, to each participating institution from a 
portion of the annual loan authority described in sub-
section (b), in an amount not to exceed the sum of an 
institution’s allocation of funds under subparagraphs 
(A), (B), and (C) of subsection (b)(1) to enable each 
such institution to make Federal Direct Perkins 
Loans to eligible students at the institution. 
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‘‘(b) AVAILABLE DIRECT PERKINS ANNUAL LOAN AU-
THORITY.— 
‘‘(1) AVAILABILITY
AND
ALLOCATIONS.—There 
are hereby made available, from funds made available 
for loans made under part D, not to exceed 
$6,000,000,000 of annual loan authority for award 
year 2010–2011 and each succeeding award year, to 
be allocated as follows: 
‘‘(A) The Secretary shall allocate not more 
than 1⁄2 of such funds for each award year by al-
locating to each participating institution an 
amount equal to the adjusted self-help need 
amount of the institution, as determined in ac-
cordance with subsection (c) for such award 
year. 
‘‘(B) The Secretary shall allocate not more 
than 1⁄4 of such funds for each award year by al-
locating to each participating institution an 
amount equal to the low tuition incentive 
amount of the institution, as determined in ac-
cordance with subsection (d). 
‘‘(C) The Secretary shall allocate not more 
than 1⁄4 of such funds for each award year by al-
locating to each participating institution an 
amount which bears the same ratio to the funds 
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allocated under this subparagraph as the ratio 
determined in accordance with subsection (e) for 
the calculation of the Federal Pell Grant and de-
gree recipient amount of the institution. 
‘‘(2) NO FUNDS TO NON-PARTICIPATING INSTITU-
TIONS.—The Secretary shall not make funds available 
under this subsection to any eligible institution that 
is not a participating institution. The adjusted self- 
help need amount (determined in accordance with 
subsection (c)) of an eligible institution that is not a 
participating institution shall not be made available 
to any other institution. 
‘‘(c) ADJUSTED SELF-HELP NEED AMOUNT.—For the 
purposes of subsection (b)(1)(A), the Secretary shall cal-
culate the adjusted self-help need amount of each eligible 
institution for an award year as follows: 
‘‘(1) 
USE
OF
BASE
SELF-HELP
NEED 
AMOUNTS.— 
‘‘(A) IN GENERAL.—Except as provided in 
paragraphs (2), (3), and (4), the adjusted self- 
help need amount of each eligible institution 
shall be the institution’s base self-help need 
amount, which is the sum of— 
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‘‘(i) the self-help need of the institu-
tion’s eligible undergraduate students for 
such award year; and 
‘‘(ii) the self-help need of the institu-
tion’s eligible graduate and professional stu-
dents for such award year. 
‘‘(B) UNDERGRADUATE
STUDENT
SELF- 
HELP NEED.—To determine the self-help need of 
an institution’s eligible undergraduate students, 
the Secretary shall determine the sum of each eli-
gible undergraduate student’s average cost of at-
tendance for the second preceding award year 
less each such student’s expected family contribu-
tion (computed in accordance with part F) for 
the second preceding award year, except that, for 
each such eligible undergraduate student, the 
amount computed by such subtraction shall not 
be less than zero or more than the lesser of— 
‘‘(i) 25 percent of the average cost of 
attendance with respect to such eligible stu-
dent; or 
‘‘(ii) $5,500. 
‘‘(C) GRADUATE AND PROFESSIONAL STU-
DENT SELF-HELP NEED.—To determine the self- 
help need of an institution’s eligible graduate 
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and professional students, the Secretary shall de-
termine the sum of each eligible graduate and 
professional student’s average cost of attendance 
for the second preceding award year less each 
such student’s expected family contribution (com-
puted in accordance with part F) for such second 
preceding award year, except that, for each such 
eligible graduate and professional student, the 
amount computed by such subtraction shall not 
be less than zero or more than $8,000. 
‘‘(2) RATABLE
REDUCTION
ADJUSTMENTS.—If 
the sum of the base self-help need amounts of all eligi-
ble institutions for an award year as determined 
under paragraph (1) exceeds 1⁄2 of the annual loan 
authority under subsection (b) for such award year, 
the Secretary shall ratably reduce the base self-help 
need amounts of all eligible institutions until the sum 
of such amounts is equal to the amount that is 1⁄2 of 
the annual loan authority under subsection (b). 
‘‘(3) REQUIRED
MINIMUM
AMOUNT.—Notwith-
standing paragraph (2), the adjusted self-help need 
amount of each eligible institution shall not be less 
than the average of the institution’s total principal 
amount of loans made under this part for each of the 
5 most recent award years. 
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‘‘(4) ADDITIONAL
ADJUSTMENTS.—If the Sec-
retary determines that a ratable reduction under 
paragraph (2) results in the adjusted self-help need 
amount of any eligible institution being reduced 
below the minimum amount required under para-
graph (3), the Secretary shall— 
‘‘(A) for each institution for which the min-
imum amount under paragraph (3) is not satis-
fied, increase the adjusted self-help need amount 
to the amount of the required minimum under 
such subparagraph; and 
‘‘(B) ratably reduce the adjusted self-help 
need amounts of all eligible institutions not de-
scribed in subparagraph (A) until the sum of the 
adjusted self-help need amounts of all eligible in-
stitutions is equal to the amount that is 1⁄2 of the 
annual loan authority under subsection (b). 
‘‘(d) LOW TUITION INCENTIVE AMOUNT.— 
‘‘(1) IN GENERAL.—For purposes of subsection 
(b)(1)(B), the Secretary shall determine the low tui-
tion incentive amount for each participating institu-
tion for each award year, by calculating for each such 
institution the sum of— 
‘‘(A) the total amount, if any (but not less 
than zero), by which— 
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‘‘(i) the average tuition and required 
fees for the institution’s sector for the second 
preceding award year; exceeds 
‘‘(ii) the tuition and required fees for 
the second preceding award year for each 
undergraduate and graduate student attend-
ing the institution who had financial need 
(as determined under part F); plus 
‘‘(B) the total amount, if any (but not less 
than zero), by which— 
‘‘(i) the total amount for the second 
preceding award year of non-Federal grant 
aid provided to meet the financial need of 
all undergraduate students attending the in-
stitution (as determined without regard to 
financial aid not received under this title); 
exceeds 
‘‘(ii) the total amount for the second 
preceding award year, if any, by which— 
‘‘(I) the tuition and required fees 
of each such student with such finan-
cial need; exceeds 
‘‘(II) the average tuition and re-
quired fees for the institution’s sector. 
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