SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CON-
TENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘College Access and Affordability Act of 1997’’.
(b) REFERENCES.—References in this Act to ‘‘the
Act’’ shall refer to the Higher Education Act of 1965 (20
U.S.C. 1001 et seq.).
(c) TABLE OF CONTENTS.—The table of contents for
this Act is as follows:
Sec. 1. Short title; references.
Sec. 2. Pell grant extension.
Sec. 3. Loan forgiveness.
Sec. 4. Extension of exemption.
Sec. 5. Cost-of-living increases for independent students.
Sec. 6. Management and recovery of reserves.
Sec. 7. Repayment terms.
Sec. 8. Interest rates.
Sec. 9. Lender and holder risk sharing.
Sec. 10. Fees and insurance premiums.
Sec. 11. Functions of guaranty agencies.
Sec. 12. Repeal of State share of default costs.
Sec. 13. Consolidation loans.
Sec. 14. Contracts with other entities.
Sec. 15. Eligible lender.
Sec. 16. Special allowance.
Sec. 17. Student loan marketing association offset fee.
Sec. 18. Direct loan transition fee.
Sec. 19. Funds for administrative expenses.
Sec. 20. Extension of student aid programs.
Sec. 21. Effective dates.
SEC. 2. PELL GRANT EXTENSION.
Section 401 of the Act (20 U.S.C. 1070a) is amend-
ed—
(1) by striking paragraph (2)(A) of subsection
(b) and inserting the following:
‘‘(2)(A) The amount of the basic grant for a student
eligible under this part shall be—
‘‘(i) $3,300 for academic year 1998–1999,
‘‘(ii) $3,600 for academic year 1999–2000,
‘‘(iii) $3,900 for academic year 2000–2001,
‘‘(iv) $4,200 for academic year 2001–2002, and
‘‘(v) $4,500 for academic year 2002–2003,
less an amount equal to the amount determined to be the
expected family contribution with respect to that student
for that year.’’;
(2) in paragraph (7) of such subsection, by
striking ‘‘the appropriate Appropriation Act for this
subpart for such year’’ and inserting ‘‘subsection
(g)’’;
(3) by striking paragraph (3) of such subsection
and redesignating paragraphs (4) through (8) of
such subsection as paragraphs (3) through (7), re-
spectively;
(4) by striking subsections (g) and (h) and in-
serting the following:
‘‘(g) AVAILABILITY OF FUNDS.—(1) Each fiscal year,
there shall be available to the Secretary of Education from
funds not otherwise appropriated, funds to be obligated
for the payment of grants under this part in the amounts
determined under this section, not to exceed (from such
funds not otherwise appropriated) $8,581,000,000 in fis-
cal year 1998, $9,882,000,000 in fiscal year 1999,
$11,022,000,000 in fiscal year 2000, $12,183,000,000 in
fiscal year 2001, and $13,288,000,000 in fiscal year 2002.
‘‘(2) If the amount made available under paragraph
(1) in a fiscal year is not sufficient to pay all grants under
this subpart in the amounts determined under this section,
the Secretary may make such reductions in awards as may
be necessary, by either a fixed or variable percentage re-
duction or by a fixed dollar reduction.’’; and
(5) by redesignating subsection (i) as subsection
(h).
SEC. 3. LOAN FORGIVENESS.
(a) GUARANTEED LOANS.—Section 437 of the Act is
amended—
(1) in the section heading, by striking out the
period at the end thereof and inserting in lieu there-
of a semicolon and ‘‘LOAN
FORGIVENESS
FOR
TEACHING’’;
(2) by amending the heading for subsection (c)
to read as follows: ‘‘DISCHARGE
RELATED
TO
SCHOOL CLOSURE OR FALSE CERTIFICATION.—’’;
and
(3) by adding at the end thereof the following
new subsection:
‘‘(e) CANCELLATION OF LOANS FOR TEACHING.—(1)
The Secretary shall discharge the liability of a borrower
of a loan made under section 428, 428H, or 428C (to the
extent that a loan made under section 428C repays a loan
made under section 428 or 428H) on or after the date
of enactment of the College Access and Affordability Act
of 1997, to students who have not previously borrowed
under any of such sections, by repaying the amount owed
on the loan, to the extent specified in paragraph (3), for
service described in paragraph (2).
‘‘(2) A loan shall be discharged under paragraph (1)
for service by the borrower as a full-time teacher for 1
or more academic years in a public elementary or second-
ary school—
‘‘(A)(i) in the school district of a local edu-
cational agency that is eligible in that academic year
for assistance under title I of the Elementary and
Secondary Education Act of 1965; and
‘‘(ii) that, for that academic year, has been de-
termined by the Secretary to be a school in which
the enrollment of children counted under section
1124(c) of that Act exceeds 30 percent of the total
enrollment of that school; or
‘‘(B) as a full-time teacher of mathematics,
science, foreign languages, bilingual education, or
any other field of expertise where the State edu-
cational agency determines to the satisfaction of the
Secretary that there is a shortage of qualified teach-
ers.
‘‘(3)(A) Loans shall be discharged under subpara-
graph (A) at the rate of—
‘‘(i) 15 percent for the first or second complete
academic year of service as described in subpara-
graph (B);
‘‘(ii) 20 percent for the third or fourth complete
year of such service; and
‘‘(iii) 30 percent for the fifth complete year of
such service.
‘‘(B) If a portion of a loan is discharged under sub-
paragraph (A) for any year, the entire amount of interest
on that loan that accrues for that year shall also be dis-
charged by the Secretary.
‘‘(C) Nothing in this section shall be construed to au-
thorize refunding of any repayment of a loan.
‘‘(4) The amount of a loan, and interest on a loan,
that is canceled under this subsection shall not be consid-
ered income for purposes of the Internal Revenue Code
of 1986.
‘‘(5) No borrower may, for the same volunteer serv-
ice, receive a benefit under both this subsection and sub-
title D of title I of the National and Community Service
Act of 1990 (42 U.S.C. 12571 et seq.).
‘‘(6) The Secretary shall specify in regulations the
manner in which lenders shall be reimbursed for loans
made under this part, or portions thereof, that are dis-
charged under this subsection.
‘‘(7) If the list of schools in which a teacher may per-
form service pursuant to paragraph (2) is not available
before May 1 of any year, the Secretary may use the list
for the year preceding the year for which the determina-
tion is made to make such service determination.
‘‘(8) Any teacher who performs service in a school
which—
‘‘(A) meets the requirements of paragraph (2)
in any year during such service; and
‘‘(B) in a subsequent year fails to meet the re-
quirements of such subsection,
may continue to teach in such school and shall be eligible
for loan cancellation pursuant to paragraph (1) with re-
spect to such subsequent years.’’.
(b) DIRECT LOANS.—Part D of title IV of the Act
is amended by inserting after section 458 (20 U.S.C.
1087h) the following new section:
‘‘SEC. 459. CANCELLATION OF LOANS FOR CERTAIN PUBLIC
SERVICE.
‘‘(a) CANCELLATION
OF PERCENTAGE
OF DEBT
BASED ON YEARS OF QUALIFYING SERVICE.—
‘‘(1) IN
GENERAL.—The percent specified in
paragraph (3) of the total amount of any loan made
under this part after the date of enactment of the
College Access and Affordability Act of 1997, to stu-
dents who have not previously borrowed under this
part, shall be canceled for each complete year of
service after such date by the borrower under cir-
cumstances described in paragraph (2).
‘‘(2) QUALIFYING
SERVICE.—Loans shall be
canceled under paragraph (1) for service by the bor-
rower as a full-time teacher for 1 or more academic
years in a public elementary or secondary school—
‘‘(A)(i) in the school district of a local edu-
cational agency that is eligible in that academic
year for assistance under title I of the Elemen-
tary and Secondary Education Act of 1965; and
‘‘(ii) that, for that academic year, has been
determined by the Secretary to be a school in
which the enrollment of children counted under
section 1124(c) of that Act exceeds 30 percent
of the total enrollment of that school; or
‘‘(5) TREATMENT OF CANCELED AMOUNTS.—
The amount of a loan, and interest on a loan, which
is canceled under this section shall not be considered
income for purposes of the Internal Revenue Code of
1986.
‘‘(6) PREVENTION OF DOUBLE BENEFITS.—No
borrower may, for the same volunteer service, receive
a benefit under both this section and subtitle D of
title I of the National and Community Service Act
of 1990 (42 U.S.C. 12571 et seq.).
‘‘(b) SPECIAL RULES.—
‘‘(1) LIST.—If the list of schools in which a
teacher may perform service pursuant to subsection
(a)(2)(A) is not available before May 1 of any year,
the Secretary may use the list for the year preceding
the year for which the determination is made to
make such service determination.
‘‘(2) CONTINUING
ELIGIBILITY.—Any teacher
who performs service in a school which—
‘‘(A) meets the requirements of subsection
(a)(2)(A) in any year during such service; and
‘‘(B) in a subsequent year fails to meet the
requirements of such subsection,
may continue to teach in such school and shall be
eligible for loan cancellation pursuant to subsection
(a)(1) with respect to such subsequent years.’’.
SEC. 4. EXTENSION OF EXEMPTION.
Section 435(a) of the Act (20 U.S.C. 1085(a)) is
amended—
(1) in paragraph (2)(C), by striking ‘‘July 1,
1998’’ and inserting ‘‘October 1, 2002’’;
(2) by redesignating paragraph (3) as para-
graph (4); and
(3) by inserting after paragraph (2) the follow-
ing new paragraph:
‘‘(3) EXEMPTION FROM RELATED ADMINISTRA-
TIVE ACTIONS.—An institution that is exempt from
the cohort default rate trigger under paragraph
(2)(C) shall also be exempt from administrative ac-
tion by the Secretary based solely on such institu-
tion’s cohort default rate under sections 668.16(m),
668.17(a)(2), and 668.17(a)(3) of title 34 of the
Code of Federal Regulations.’’.
SEC. 5. ADJUSTMENTS IN NEED ANALYSIS.
(a) STATUTORY ADJUSTMENT IN INCOME PROTEC-
TION ALLOWANCE.—
(1) 
DEPENDENT
STUDENTS.—Section
475(g)(2)(D) 
of 
the 
Act 
(20 
U.S.C.
1087oo(g)(2)(D)) is amended by striking ‘‘$1,750’’
and inserting ‘‘$4,200’’.
(2) INDEPENDENT
STUDENTS
WITHOUT
DE-
PENDENTS
(OTHER
THAN
A
SPOUSE).—Section
476(b)(1)(A)(iv) 
of 
such 
Act 
(20 
U.S.C.
1087pp(b)(1)(A)(iv))is amended—
(A) by striking ‘‘allowance of—’’ and in-
serting ‘‘allowance of the following amount (or
a successor amount prescribed by the Secretary
under section 478)’’;
(B) by striking ‘‘$3,000’’ each place it ap-
pears in subclauses (I) and (II) and inserting
‘‘$6,000’’; and
(C) by striking ‘‘$6,000’’ in subclause (III)
and inserting ‘‘$9,000’’.
(b) ADMINISTRATIVE
ADJUSTMENTS
IN
INCOME
PROTECTION ALLOWANCE.—Section 478(b) of such Act
(20 U.S.C. 1087rr(b)) is amended—
(1) by striking ‘‘For each academic year’’ and
inserting the following:
‘‘(1) REVISED
TABLES.—For each academic
year’’; and
(2) by adding at the end the following new
paragraph:
‘‘(2) REVISED AMOUNTS.—For each academic
year after academic year 1997–1998, the Secretary
shall publish in the Federal Register revised income
protection allowances for the purpose of sections
475(g)(2)(D) and 476(b)(1)(A)(iv). Such revised al-
lowances shall be developed by increasing each of the
dollar amounts contained in such section by a per-
centage equal to the estimated percentage increase
in the Consumer Price Index (as determined by the
Secretary) between December 1996 and the Decem-
ber next preceding the beginning of such academic
year, and rounding the result to the nearest $10.’’.
SEC. 6. MANAGEMENT AND RECOVERY OF RESERVES.
Section 422 of the Act is amended—
(1) by amending subsection (g)(1) to read as
follows:
‘‘(1) AUTHORITY
TO
RECOVER
FUNDS.—(A)
Notwithstanding any other provision of law, the re-
serve funds of the guaranty agencies, and any assets
purchased or developed with such reserve funds, re-
gardless of who holds or controls the reserves or as-
sets, shall remain the property of the United States.
‘‘(B) The Secretary may direct the guaranty
agency to require the return, to the guaranty agency
or to the Secretary, of any reserve funds or assets
held by, or under the control of, any other entity,
that the Secretary determines are required—
‘‘(i) to pay the program expenses and con-
tingent liabilities of the guaranty agency;
‘‘(ii) to satisfy the guaranty agency’s re-
quirements under subsection (h); or
‘‘(iii) for the orderly termination of the
guaranty agency’s operations and the liquida-
tion of its assets.
‘‘(C) The Secretary may direct a guaranty
agency, or such agency’s officers or directors, to
cease any activity involving expenditure, use, or
transfer of the guaranty agency’s reserve funds or
assets 
that 
the 
Secretary 
determines 
is 
a
misapplication, misuse, or improper expenditure of
such funds or assets.’’; and
(2) by adding after subsection (g) the following
new subsections:
‘‘(h) RECALL OF RESERVES IN FISCAL YEARS 1998
THROUGH 2002; LIMITATIONS
ON USE
OF RESERVE
FUNDS AND ASSETS.—(1)(A) Notwithstanding any other
provision of law, the Secretary shall, except as otherwise
provided in this subsection, recall from the reserve funds
held by guaranty agencies (which for purposes of this sub-
section shall include any reserve funds held by, or under
the control of, any other entity) not less than—
‘‘(i) $731,000,000 in fiscal year 1998;
‘‘(ii) $127,000,000 in fiscal year 1999;
‘‘(iii) $186,000,000 in each of the fiscal years
2000 and 2001; and
‘‘(iv) $1,271,000,000 in fiscal year 2002.
‘‘(B) Funds returned to the Secretary under this sub-
section shall be deposited in the Treasury.
‘‘(C) The Secretary shall require each guaranty agen-
cy to return reserve funds under subparagraph (A) based
on its proportionate share, as determined by the Sec-
retary, of all reserve funds held by guaranty agencies as
of September 30, 1996.
‘‘(2)(A) Within 45 days of enactment of this sub-
section, all reserve funds held by a guaranty agency that
have not yet been recalled by the Secretary under para-
graph (1) shall be transferred by the guaranty agency to
a restricted account (of a type specified by the Secretary)
established by the guaranty agency, and be invested in
United States Government securities specified by the Sec-
retary. The manner and timeframe in which reserve funds
so invested are recalled shall be specified by the Secretary,
consistent with the requirements of this subsection. Ex-
cept as described in subparagraph (B), the guaranty agen-
cy shall not use the reserve funds in such account, which
shall include the earnings thereon, for any purpose with-
out the express permission of the Secretary.
‘‘(B)(i) In order to assist guaranty agencies in meet-
ing program expenses, the Secretary shall permit the use
of not more than an aggregate of $350,000,000 of the
reserve funds held in the restricted accounts described in
subparagraph (A) by guaranty agencies with agreements
under section 428(c), as working capital to be used for
such purposes as the Secretary may specify. The Secretary
shall specify the amount of reserve funds in each guaranty
agency’s restricted account that may be used as working
capital, based on the guaranty agency’s proportionate
share of all borrower accounts outstanding on September
30, 1996. The guaranty agency shall repay such amount
to its restricted account (or return such amount to the
Treasury, if so directed by the Secretary) by no later than
September 30, 2002, or the date on which such agency’s
agreement under section 428(c) ends (through resigna-
tion, expiration, or termination), whichever is earlier.
‘‘(ii) The guaranty agency may use the earnings from
its restricted account for fiscal year 1998 to assist in
meeting its operational expenses for such year.
‘‘(C) Nonliquid reserve fund assets, such as buildings
and equipment purchased or developed by the guaranty
agency with reserve funds, and any liquid assets remaining
in a guaranty agency’s restricted account after the recalls
in paragraph (1)(A), shall—
‘‘(i) remain the property of the United States;
‘‘(ii) be used only for such purposes as the Sec-
retary determines are appropriate; and
‘‘(iii) be subject to recall by the Secretary no
later than the date on which such agency’s agree-
ment under section 428(c) ends (through resigna-
tion, expiration, or termination, as the case may
be).’’.
SEC. 7. REPAYMENT TERMS.
(a) INSURED LOANS.—Section 427 of the Act is
amended—
(1) in subsection (a)(2)—
(A) in subparagraph (B), in the matter
preceding clause (i), by striking ‘‘over a period’’
through ‘‘nor more than 10 years’’ and insert-
ing ‘‘in accordance with the repayment plan se-
lected under subsection (d),’’;
(B) in subparagraph (C), at the end of the
subparagraph, by striking out ‘‘the 10-year pe-
riod described in subparagraph (B);’’ and in-
serting the following: ‘‘the length of the repay-
ment period under a repayment plan described
in subsection (d);’’;
(C) by striking subparagraph (F);
(D) by redesignating subparagraphs (G),
(H), and (I) as subparagraphs (F), (G), and
(H), respectively; and
(E) in subparagraph (G) (as redesignated
by subparagraph (D)), by striking ‘‘the option’’
through the end of the subparagraph and in-
serting ‘‘the repayment options described in
subsection (d); and’’;
(2) in subsection (c), by striking ‘‘in subsection
(a)(2)(H),’’ and inserting the following: ‘‘by a repay-
ment plan selected by the borrower under subpara-
graph (C) or (D) of subsection (d)(1),’’; and
(3) by adding after subsection (c) the following
new subsection:
‘‘(d) REPAYMENT PLANS.—
‘‘(1) DESIGN AND SELECTION.—In accordance
with regulations of the Secretary, the lender shall
offer a borrower of a loan made under this part the
plans described in this subsection for repayment of
such loan, including principal and interest thereon.
No plan may require a borrower to repay a loan in
less than 5 years. The borrower may choose from—
‘‘(A) a standard repayment plan, with a
fixed annual repayment amount paid over a
fixed period of time, not to exceed 10 years;
‘‘(B) an extended repayment plan, with a
fixed annual repayment amount paid over an
extended period of time, not to exceed 30 years,
except that the borrower shall repay annually a
minimum amount determined in accordance
with subsection (c);
‘‘(C) a graduated repayment plan, with an-
nual repayment amounts established at 2 or
more graduated levels and paid over an ex-
tended period of time, not to exceed 30 years,
except that the borrower’s scheduled payments
shall not be less than 50 percent, nor more
than 150 percent, of what the amortized pay-
ment on the amount owed would be if the loan
were repaid under the standard repayment
plan; and
‘‘(D) an income-sensitive repayment plan,
with income-sensitive repayment amounts paid
over a fixed period of time, not to exceed 10
years.
‘‘(2) LENDER SELECTION OF OPTION IF BOR-
ROWER DOES NOT SELECT.—If a borrower of a loan
made under this part does not select a repayment
plan described in paragraph (1), the lender shall
provide the borrower with a repayment plan de-
scribed in paragraph (1)(A).
‘‘(3) CHANGES IN SELECTIONS.—The borrower
of a loan made under this part may change the bor-
rower’s selection of a repayment plan under para-
graph (1), or the lender’s selection of a plan for the
borrower under paragraph (2), as the case may be,
under such conditions as may be prescribed by the
Secretary in regulation.
‘‘(4) ACCELERATION PERMITTED.—Under any
of the plans described in this subsection, the bor-
rower shall be entitled to accelerate, without penalty,
repayment on the borrower’s loans under this part.’’.
(b) GUARANTEED LOANS.—Section 428(b) of the Act
is amended—
(1) in paragraph (1)—
(A) in subparagraph (D), by striking
clauses (i) and (ii) and the clause designation
‘‘(iii)’’;
(B) in subparagraph (E)—
(i) in clause (i)—
(I) 
by 
striking 
‘‘or 
section
428A,’’ and inserting ‘‘or section
428H,’’; and
(II) by striking ‘‘the option’’
through the end of the clause and in-
serting ‘‘the repayment options de-
scribed in paragraph (9); and’’; and
(ii) in clause (ii)—
(I) by striking ‘‘over a period’’
through ‘‘nor more than 10 years’’
and inserting ‘‘in accordance with the
repayment plan selected under para-
graph (9), and’’; and
(II) by striking ‘‘of this sub-
section;’’ at the end of clause (ii) and
inserting a semicolon; and
(C) in subparagraph (L)(i), by inserting
after the clause designation the following: ‘‘ex-
cept as otherwise provided by a repayment plan
selected by the borrower under paragraph
(9)(A)(iii) or (iv),’’; and
(2) by adding after paragraph (8) the following
new paragraph:
‘‘(9) REPAYMENT PLANS.—
‘‘(A) DESIGN AND SELECTION.—In accord-
ance with regulations of the Secretary, the lend-
er shall offer a borrower of a loan made under
this part the plans described in this subpara-
graph for repayment of such loan, including
principal and interest thereon. No plan may re-
quire a borrower to repay a loan in less than
5 years. The borrower may choose from—
‘‘(i) a standard repayment plan, with
a fixed annual repayment amount paid
over a fixed period of time, not to exceed
10 years;
‘‘(ii) an extended repayment plan,
with a fixed annual repayment amount
paid over an extended period of time, not
to exceed 30 years, except that the bor-
rower shall repay annually a minimum
amount determined in accordance with
paragraph (2)(L);
‘‘(iii) a graduated repayment plan,
with annual repayment amounts estab-
lished at 2 or more graduated levels and
paid over an extended period of time, not
to exceed 30 years, except that the borrow-
er’s scheduled payments shall not be less
than 50 percent, nor more than 150 per-
cent, of what the amortized payment on
the amount owed would be if the loan were
repaid under the standard repayment plan;
and
‘‘(iv) an income-sensitive repayment
plan, 
with 
income-sensitive 
repayment
amounts paid over a fixed period of time,
not to exceed 10 years.
‘‘(B) LENDER SELECTION OF OPTION IF
BORROWER DOES NOT SELECT.—If a borrower
of a loan made under this part does not select
a repayment plan described in subparagraph
(A), the lender shall provide the borrower with
a repayment plan described in subparagraph
(A)(i).
‘‘(C) CHANGES IN SELECTIONS.—The bor-
rower of a loan made under this part may
change the borrower’s selection of a repayment
plan under subparagraph (A), or the lender’s
selection of a plan for the borrower under sub-
paragraph (B), as the case may be, under such
conditions as may be prescribed by the Sec-
retary in regulation.
‘‘(D) ACCELERATION PERMITTED.—Under
any of the plans described in this paragraph,
the borrower shall be entitled to accelerate,
without penalty, repayment on the borrower’s
loans under this part.
‘‘(E) COMPARABLE
FFEL
AND
DIRECT
LOAN REPAYMENT PLANS.—The Secretary shall
ensure that the repayment plans offered to bor-
rowers under this part are comparable, to the
extent practicable and not otherwise provided in
statute, to the repayment plans offered under
part D.’’.
(c) CONSOLIDATION LOANS.—Section 428C of the
Act is amended—
(1) in subsection (b)(3)(F), by striking ‘‘alter-
native’’; and
(2) in subsection (c) by amending paragraph
(2) to read as follows:
‘‘(2) REPAYMENT PLANS.—
‘‘(A) DESIGN AND SELECTION.—In accord-
ance with regulations of the Secretary, the lend-
er shall offer a borrower of a loan made under
this section the plans described in this para-
graph for repayment of such loan, including
principal and interest thereon. No plan may re-
quire a borrower to repay a loan in less than
5 years. The borrower may choose from—
‘‘(i) a standard repayment plan, with
a fixed annual repayment amount paid
over a fixed period of time, not to exceed
10 years;
‘‘(ii) an extended repayment plan,
with a fixed annual repayment amount
paid over an extended period of time, not
to exceed 30 years, except that the bor-
rower shall repay annually a minimum
amount determined in accordance with
paragraph (3);
‘‘(iii) a graduated repayment plan,
with annual repayment amounts estab-
lished at 2 or more graduated levels and
paid over an extended period of time, not
to exceed 30 years, except that the borrow-
er’s scheduled payments shall not be less
than 50 percent, nor more than 150 per-
cent, of what the amortized payment on
the amount owed would be if the loan were
repaid under the standard repayment plan;
and
‘‘(iv) an income-sensitive repayment
plan, 
with 
income-sensitive 
repayment
amounts paid over a fixed period of time,
not to exceed 10 years.
‘‘(B) LENDER SELECTION OF OPTION IF
BORROWER DOES NOT SELECT.—If a borrower
of a loan made under this section does not se-
lect a repayment plan described in subpara-
graph (A), the lender shall provide the borrower
with a repayment plan described in subpara-
graph (A)(i).
‘‘(C) CHANGES IN SELECTIONS.—The bor-
rower of a loan made under this section may
change the borrower’s selection of a repayment
plan under subparagraph (A), or the lender’s
selection of a plan for the borrower under sub-
paragraph (B), as the case may be, under such
conditions as may be prescribed by the Sec-
retary in regulation.’’.
(d) DIRECT LOANS.—Section 455(d) of the Act is
amended—
(1) in paragraph (1)—
(A) in subparagraph (B), by inserting after
‘‘an extended period of time,’’ the following:
‘‘not to exceed 30 years,’’; and
(B) in subparagraph (C), by striking ‘‘a
fixed or extended period of time,’’ and inserting
the following: ‘‘an extended period of time, not
to exceed 30 years,’’; and
(2) in paragraph (2), by striking ‘‘subpara-
graph (A), (B), or (C) of paragraph (1).’’ and in-
serting ‘‘paragraph (1)(A).’’.
SEC. 8. INTEREST RATES.
(a) GUARANTEED LOANS.—Section 427A of the Act
is amended—
(1) in subsection (g)(2)—
(A) by inserting after the paragraph head-
ing the subparagraph designation ‘‘(A)’’;
(B) by redesignating subparagraphs (A)
and (B) as clauses (i) and (ii), respectively;
(C) by striking ‘‘paragraph (1),’’ and in-
serting ‘‘paragraph (1), and except as provided
in subparagraph (B),’’; and
(D) by adding after subparagraph (A) (as
redesignated by subparagraph (A)) the follow-
ing new subparagraph:
‘‘(B) In the case of loans made or insured
under section 428 or 428H for which the first dis-
bursement is made on or after October 1, 1997, for
purposes of paragraph (1), the rate determined
under this paragraph shall, during any 12-month pe-
riod beginning on July 1 and ending on June 30, be
determined on the preceding June 1 and be equal to
the bond equivalent rate of the securities with a
comparable maturity, as established by the Sec-
retary, except that such rate shall not exceed 8.25
percent.’’;
(2) in subsection (h)—
(A) in the heading thereof, by striking
‘‘JULY 1, 1998.—’’ and inserting ‘‘OCTOBER 1,
1997.—’’;
(B) in paragraph (1)—
(i) by striking ‘‘(f), and (g)’’ and in-
serting ‘‘and (f),’’; and
(ii) by striking ‘‘July 1, 1998,’’ and
inserting ‘‘October 1, 1997,’’; and
(C) in paragraph (2)—
(i) in the heading, by striking ‘‘JULY
1, 1998.—’’ and inserting ‘‘OCTOBER
1,
1997.—’’; and
(ii) by striking ‘‘July 1, 1998,’’ and
inserting ‘‘October 1, 1997,’’; and
(3) in subsection (i)(7)(B), by adding at the
end the following: ‘‘Notwithstanding any other provi-
sion of law, the interest rate determined under this
subparagraph shall be used solely to determine the
rebate of excess interest required by this paragraph
and shall not be used to calculate or pay special al-
lowances under section 438.’’.
(b) DIRECT LOANS.—Section 455(b) of the Act is
amended—
(1) in paragraph (2)(B)—
(A) by redesignating clauses (i) and (ii) as
subclauses (I) and (II), respectively;
(B) by inserting after the subparagraph
heading the clause designation ‘‘(i)’’;
(C) by striking ‘‘subparagraph (A),’’ and
inserting ‘‘subparagraph (A) and except as pro-
vided in clause (ii),’’; and
(D) by adding after clause (i) (as redesig-
nated by subparagraph (B)) the following new
clause:
‘‘(ii) In the case of Federal Direct Stafford/
Ford Loans or Federal Direct Unsubsidized Staf-
ford/Ford Loans for which the first disbursement is
made on or after October 1, 1997, for purposes of
subparagraph (A), the rate determined under this
subparagraph shall, during any 12-month period be-
ginning on July 1 and ending on June 30, be deter-
mined on the preceding June 1 and be equal to the
bond equivalent rate of the securities with a com-
parable maturity, as established by the Secretary,
except that such rate shall not exceed 8.25 per-
cent.’’;
(2) in paragraph (3)—
(A) by striking ‘‘and (2),’’ and inserting ‘‘,
and except as provided in paragraph (2),’’; and
(B) by striking ‘‘made on or after July 1,
1998,’’ and inserting ‘‘for which the first dis-
bursement is made on or after October 1,
1997,’’; and
(3) in paragraph (4)(B), by striking ‘‘July 1,
1998,’’ and inserting ‘‘October 1, 1997,’’.
SEC. 9. LENDER AND HOLDER RISK SHARING.
Section 428(b)(1)(G) of the Act is amended by strik-
ing ‘‘not less than 98 percent’’ and inserting ‘‘95 percent’’.
SEC. 10. FEES AND INSURANCE PREMIUMS.
(a) INSURANCE PREMIUMS.—
(1) IN GENERAL.—Section 428(b)(1)(H) of the
Act is amended—
(A) by inserting the clause designation
‘‘(i)’’ following the subparagraph designation;
(B) by striking ‘‘the loan,’’ and inserting
‘‘any loan made under section 428 or 428B be-
fore July 1, 1998,’’; and
(C) after clause (i) (as redesignated by
paragraph (1)), by adding ‘‘and’’ and the fol-
lowing new clause:
‘‘(ii) provides that no insurance premiums
shall be charged to the borrower of any loan
made under section 428 or 428B on or after
July 1, 1998;’’.
(2) UNSUBSIDIZED
LOANS.—Section 428H(h)
of the Act is amended—
(A) by inserting the paragraph designation
‘‘(1)’’ following the subsection heading;
(B) by striking ‘‘under this section’’ and
inserting ‘‘of a loan made under this section
made before July 1, 1998’’; and
(C) by adding at the end of paragraph (1)
(as redesignated by paragraph (1)) the follow-
ing new paragraph:
‘‘(2) No insurance premium may be charged to the
borrower on any loan made under this section made on
or after July 1, 1998.’’.
(b) ORIGINATION FEES.—
(1) GUARANTEED
LOANS.—Section 438(c) of
the Act is amended—
(A) in paragraph (2), by striking ‘‘para-
graph (6)’’ and inserting ‘‘paragraphs (6) and
(8)’’; and
(B) by adding after paragraph (7) the fol-
lowing new paragraph:
‘‘(8) PHASEOUT OF ORIGINATION FEE ON SUB-
SIDIZED LOANS.—In the case of any loan made or
insured under section 428, paragraph (2) shall be
applied by substituting—
‘‘(A) ‘2.0 percent’ for ‘3.0 percent’ with re-
spect to such a loan made or insured on or
after July 1, 1998, and before January 1,
2000,
‘‘(B) ‘1.0 percent’ for ‘3.0 percent’ with re-
spect to such a loan made or insured during
calendar year 2000 or 2001, and
‘‘(C) ‘0.0 percent’ for ‘3.0 percent’ with re-
spect to such a loan made or insured on or
after January 1, 2002.’’.
(2) DIRECT LOANS.—Section 455(c) of the Act
is amended—
(A) by striking ‘‘The Secretary’’ and in-
serting ‘‘(1) For loans made under this part be-
fore July 1, 1998, the Secretary’’;
(B) by striking ‘‘of a loan made under this
part’’; and
(C) by adding at the end thereof the fol-
lowing new paragraphs:
‘‘(2) For loans made under this part on or after July
1, 1998, and before January 1, 2002, the Secretary shall
charge the borrower an origination fee of—
‘‘(A) in the case of Federal Direct Stafford/
Ford Loans—
‘‘(i) 2.0 percent of the principal amount of
the loan in the case of loans made on or after
July 1, 1998, and before January 1, 2000, and
‘‘(ii) 1.0 percent of the principal amount of
the loan in the case of loans made during cal-
endar year 2000 or 2001; and
‘‘(B) in the case of Federal Direct Unsubsidized
Stafford/Ford Loans or Federal Direct PLUS
Loans—
‘‘(i) 3.0 percent of the principal amount of
the loan in the case of loans made on or after
July 1, 1998, and before January 1, 2000,
‘‘(ii) 2.0 percent of the principal amount of
the loan in the case of loans made during cal-
endar year 2000, and
‘‘(iii) 1.0 percent of the principal amount
of the loan in the case of loans made during
calendar year 2001.
‘‘(3) The Secretary shall not charge the borrower an
origination fee on any loan made under this part on or
after January 1, 2002.’’.
SEC. 11. FUNCTIONS OF GUARANTY AGENCIES.
(a) Section 428 of the Act is further amended—
(1) in subsection (a)—
(A) in paragraph (1)(B)—
(i) in the matter preceding clause (i),
by striking ‘‘which is insured’’ and insert-
ing ‘‘which, before October 1, 1997, is’’;
and
(ii) in clause (ii), by inserting ‘‘as in
effect the day before the day of enactment
of this section,’’ after ‘‘subsection (b),’’;
and
(B) in paragraph (3)—
(i) by striking subparagraph (B); and
(ii) in subparagraph (A)—
(I) in clause (ii), by striking
‘‘under any’’ through the end of the
clause and inserting a period;
(II) by striking the subparagraph
designation ‘‘(A)’’;
(III) by redesignating clauses (i)
and (ii) as subparagraphs (A) and
(B), respectively; and
(IV) by redesignating subclauses
(I) and (II) as clauses (i) and (ii), re-
spectively;
(2) in subsection (b)—
(A) by amending the heading to read
as follows: ‘‘REQUIREMENTS
TO
QUALIFY
LOANS
FOR
INSURANCE
AND
INTEREST
SUBSIDIES.—’’;
(B) in paragraph (1)—
(i) by amending the heading to read
as follows: ‘‘REQUIREMENTS.—’’;
(ii) by amending the matter preceding
subparagraph (A) to read as follows: ‘‘A
loan by an eligible lender shall be insurable
by the Secretary, and students who receive
such loans shall be entitled to have made
on their behalf the payments provided for
in subsection (a), under a program of stu-
dent loan insurance that—’’;
(iii) by amending subparagraph (K) to
read as follows:
‘‘(K) provides that the holder of any such
loan will be required to submit to the Secretary,
at such time or times and in such manner as
the Secretary may prescribe, statements con-
taining such information as may be required by
regulation for the purpose of enabling the Sec-
retary to determine the amount of the payment
which must be made with respect to that loan;’’;
(iv) by amending subparagraph (O) to
read as follows:
‘‘(O) provides that, if the sale, assignment,
or other transfer of a loan made under this part
to another holder will result in a change in the
identity of the party to whom the borrower
must send subsequent payments or direct any
communications concerning the loans, then—
‘‘(i) the transferor and the transferee
shall be required, not later than 45 days
from the date the transferee acquires a le-
gally enforceable right to receive payment
from the borrower on such loan, either
jointly or separately to provide a notice to
the borrower of—
‘‘(I) the sale, assignment, or
other transfer;
‘‘(II) the identity of the trans-
feree;
‘‘(III) the name and address of
the party to whom subsequent pay-
ments or communications must be
sent; and
‘‘(IV) the telephone numbers of
both the transferor and the trans-
feree; and
‘‘(ii) the transferee shall be required
to notify the Secretary, and, upon the re-
quest of an institution of higher education,
the Secretary shall notify the last such in-
stitution the student attended prior to the
beginning of the repayment period of any
loan made under this part, of—
‘‘(I) any sale, assignment, or
other transfer of the loan; and
‘‘(II) the address and telephone
number by which contact may be
made with the new holder concerning
repayment of the loan;
except that this subparagraph shall apply
only if the borrower is in the grace period
described 
in 
section 
427(a)(2)(B) 
or
428(b)(7) or is in repayment status.’’;
(v) in subparagraph (Q), by striking
‘‘guarantee’’ and ‘‘428A’’ and inserting
‘‘insurance’’ and ‘‘428H’’, respectively;
(vi) by amending subparagraph (R) to
read as follows:
‘‘(R) provides for the making of such re-
ports, in such form and containing such infor-
mation, including financial information, as the
Secretary may reasonably require to carry out
the Secretary’s functions under this part and
protect the financial interest of the United
States, and for keeping such records and for af-
fording such access thereto as the Secretary
may find necessary to ensure the correctness
and verification of such reports;’’;
(vii) by amending subparagraph (S) to
read as follows:
‘‘(S) provides that a lender shall pay a de-
fault prevention fee in accordance with sub-
section (g);’’;
(viii) in subparagraph (T)—
(I) in clause (i), by inserting ‘‘,
by the guaranty agency, in accordance
with regulations prescribed by the
Secretary,’’ after ‘‘limitation’’; and
(II) in clause (ii)—
(aa) in the matter preceding
subclause (I), by inserting ‘‘, in
accordance with regulations pre-
scribed by the Secretary,’’ after
‘‘institution’’;
(bb) by striking subclauses
(I) and (II); and
(cc) by redesignating sub-
clauses (III), (IV), and (V) as
subclauses (I), (II), and (III), re-
spectively;
(ix) by amending subparagraph (U) to
read as follows:
‘‘(U) provides—
‘‘(i) for such additional criteria con-
cerning the eligibility of lenders described
in section 435(d)(1) as may be permitted
by the Secretary; and
‘‘(ii) an assurance that the guaranty
agency will report to the Secretary con-
cerning changes in criteria under clause
(i), including any procedures in effect
under such program to take emergency ac-
tion, limit, suspend, or terminate lenders;
and’’; and
(x) by striking subparagraphs (V),
(W), and (X);
(C) by amending paragraph (2) to read as
follows:
‘‘(2) SKIP-TRACING
REQUIREMENT.—In the
case of a default claim based on an inability to lo-
cate the borrower, a lender shall certify to the Sec-
retary, at the time of submission of the default
claim, that diligent attempts have been made to lo-
cate the borrower through the use of reasonable
skip-tracing techniques in accordance with regula-
tions prescribed by the Secretary.’’;
(D) in paragraph (3)(B), by striking the
parenthetical through the end of the subpara-
graph and inserting a period; and
(E) by striking out paragraph (5) and in-
serting in lieu thereof the following new para-
graph:
‘‘(5) COMPLIANCE AUDITS.—(A) Except as pro-
vided in subparagraph (B) or by the Single Audit
Act Amendments of 1996, an eligible lender that
originates or holds more than $5,000,000 in loans
made under this title during an annual audit period
shall submit to the Secretary a compliance audit for
that audit period which is conducted by a qualified,
independent organization or person in accordance
with the Government Auditing Standards issued by
the Comptroller General, and the regulations of the
Secretary.
‘‘(B) The Secretary may permit a lender to sub-
mit the results of an audit conducted for other pur-
poses if the Secretary determines that such other
audit results provide the same information as re-
quired under subparagraph (A).’’;
(3) in subsection (c)—
(A) by amending the heading to read as
follows: 
‘‘AGREEMENTS
WITH
GUARANTY
AGENCIES.—’’
(B) in paragraph (3)—
(i) in the matter preceding subpara-
graph (A), by striking ‘‘A guaranty agree-
ment’’ and inserting ‘‘An agreement be-
tween the Secretary and a guaranty agen-
cy’’;
(ii) in the flush left language at the
end of the paragraph, by striking ‘‘Guar-
anty agencies’’ and inserting ‘‘The Sec-
retary’’; and
(iii) by redesignating paragraph (3) as
paragraph (11);
(C) by striking paragraphs (1), (2), (4),
and (5);
(D) by inserting after the subsection head-
ing the following new paragraphs:
‘‘(1) AUTHORITY
TO
ENTER
INTO
AGREE-
MENTS.—(A)(i) The Secretary may enter into an
agreement with a guaranty agency, under which the
Secretary shall insure loans made under this section
through the guaranty agency as the agent of the
Secretary.
‘‘(ii) Any guaranty agency that had an agree-
ment with the Secretary under section 428(b) as of
the day before the date of enactment of the College
Access and Affordability Act of 1997 may enter into
an initial agreement with the Secretary under this
subsection.
‘‘(iii) An agreement under this subsection shall
be 5 years in duration, and may be renewed by the
Secretary for successive 5-year periods.
‘‘(iv) The Secretary may terminate the agree-
ment prior to its expiration in accordance with para-
graph (9).
‘‘(2) EFFECT
ON
PRIOR
GUARANTY
AGREE-
MENTS AND LOAN INSURANCE BY GUARANTY AGEN-
CIES.—(A) All guaranty agreements made under
this subsection as it was in effect on the day before
the date of enactment of the College Access and Af-
fordability Act of 1997 shall terminate not later
than 180 days after the date of enactment of that
Act.
‘‘(B) Notwithstanding any other provision of
law—
‘‘(i) to the extent that a guaranty agency
had insured loans under this part, loan insur-
ance by such guaranty agency that is outstand-
ing as of the date of the termination under sub-
paragraph (A) shall be replaced on such date by
loan insurance issued by the Secretary, and the
guaranty agency shall be relieved of any further
liability thereon;
‘‘(ii) the Secretary’s liability for any out-
standing liabilities of a guaranty agency (other
than outstanding loan insurance under this
part), shall not exceed the fair market value of
the unrestricted funds of the guaranty agency,
which shall consist of—
‘‘(I) all accumulated earnings not oth-
erwise placed in a restricted account in ac-
cordance with section 422(h)(2)(A); and
‘‘(II) any working capital that may be
provided under section 422(h)(2)(B); and
‘‘(iii) for the first year after the date of en-
actment of the College Access and Affordability
Act of 1997, the Secretary may specify such in-
terim administrative measures as the Secretary
determines to be necessary for the efficient
transfer of the loan insurance function, and to
carry out the purposes of this part.
‘‘(3) TERMS OF AGREEMENT.—The agreement
between the Secretary and a guaranty agency shall
include, but not be limited to—
‘‘(A) provisions regarding the responsibil-
ities of the guaranty agency for—
‘‘(i) administering the issuance of in-
surance on loans made under this section
on behalf of the Secretary;
‘‘(ii) monitoring insurance commit-
ments made under this section;
‘‘(iii) default prevention activities;
‘‘(iv) review of default claims made by
lenders;
‘‘(v) payment of default claims;
‘‘(vi) collection of defaulted loans;
‘‘(vii) adoption of internal systems of
accounting and auditing that are accept-
able to the Secretary, and reporting the re-
sult thereof to the Secretary on a timely,
accurate, and auditable basis;
‘‘(viii) timely and accurate collection
and reporting of such other data as the
Secretary may require to carry out the
purposes of the programs under this title;
‘‘(ix) monitoring of institutions and
lenders participating in the program under
this part; and
‘‘(x) such other program functions as
the Secretary may require of the guaranty
agency;
‘‘(B) provisions regarding the fees the Sec-
retary shall pay to the guaranty agency under
the agreement, and other revenues that the
guaranty agency may receive thereunder, as de-
scribed in paragraphs (4) and (6);
‘‘(C) provisions requiring the guaranty
agency to carry out its responsibilities under
the agreement in accordance with paragraph
(5);
‘‘(D) provisions regarding the use, in ac-
cordance with paragraph (10), of net revenues
in excess of the guaranty agency’s need for
working capital, as determined after compliance
with section 422(h), for such other activities in
support of postsecondary education as may be
agreed to by the Secretary and the guaranty
agency;
‘‘(E) provisions regarding such other busi-
nesses, previously purchased or developed with
reserve funds, that relate to the program under
this part and in which the Secretary permits
the guaranty agency to engage (as determined
on a case-by-case basis);
‘‘(F) provisions setting forth such adminis-
trative and fiscal procedures as may be nec-
essary to protect the United States from the
risk of unreasonable loss thereunder, and to en-
sure proper and efficient administration of the
loan insurance program;
‘‘(G) provisions regarding the submission
of the results of audits of the guaranty agency
that are conducted—
‘‘(i) at least annually;
‘‘(ii) by a qualified, independent orga-
nization or person in accordance with the
standards established by the Comptroller
General for the audit of governmental or-
ganizations, programs, and functions; and
‘‘(iii) in accordance with the regula-
tions of the Secretary;
‘‘(H) provisions requiring the making of
such reports, in such form and containing such
information, including financial information, as
the Secretary may reasonably require to carry
out the Secretary’s functions under this part
and to protect the Federal fiscal interest, and
for keeping such records and for affording such
access thereto as the Secretary may find nec-
essary or appropriate to ensure the correctness
and verification of such reports;
‘‘(I) adequate assurances that the guar-
anty agency will not engage in any pattern or
practice which may result in a denial of a bor-
rower’s access to loans under this part because
of the borrower’s race, sex, color, religion, na-
tional origin, age, handicapped status, income,
attendance at a particular eligible institution,
length of the borrower’s educational program,
or the borrower’s academic year in school;
‘‘(J) assurances that—
‘‘(i) upon the request of an eligible in-
stitution, the guaranty agency shall, sub-
ject to clauses (ii) and (iii), furnish to the
institution information with respect to stu-
dents (including the names and addresses
of such students) who received loans made
or insured under this part for attendance
at the eligible institution and for whom
preclaims assistance activities have been
requested under subsection (l);
‘‘(ii) the guaranty agency shall require
the payment by the institution of a reason-
able fee (as determined in accordance with
regulations prescribed by the Secretary)
for such information; and
‘‘(iii) the institution may use such in-
formation only to remind students of their
obligation to repay student loans and may
not disseminate the information for any
other purpose; and
‘‘(K) such other provisions as the Sec-
retary may determine to be necessary to protect
the United States from the risk of unreasonable
loss and to promote the purposes of this part.
‘‘(4) FEES AND OTHER REVENUES.—(A)(i) The
Secretary shall pay to a guaranty agency with an
agreement under this subsection the following uni-
form fees:
‘‘(I) a 1-time issuance fee for each new
loan made under this part that is insured by
the Secretary through the guaranty agency; and
‘‘(II) an annual maintenance fee for each
active borrower account.
‘‘(ii) The fees described in clause (i) shall be
paid on a quarterly basis, from the funds available
under section 458(a), in such amount as the Sec-
retary determines, for all guaranty agencies with
agreements under this subsection.
‘‘(B) A guaranty agency with an agreement
under this subsection also may receive revenues de-
rived from—
‘‘(i) a default prevention fee paid by lend-
ers in accordance with subsection (g);
‘‘(ii) the collection retention allowance
under paragraph (6);
‘‘(iii) the interest earned on working cap-
ital provided under section 422(h);
‘‘(iv) such other businesses, previously pur-
chased or developed with reserve funds, that re-
late to the program under this part and in
which the Secretary permits the guaranty agen-
cy to engage (as determined on a case-by-case
basis); and
‘‘(v) such other fees as may be authorized
under this part.
‘‘(5) PERFORMANCE
REQUIREMENTS.—(A) A
guaranty agency with an agreement under this sub-
section shall carry out its responsibilities thereunder
in accordance with such measurable performance-
based standards as the Secretary may specify, and
shall submit timely and accurate data to the Sec-
retary in support of its performance.
‘‘(B) The Secretary shall apply the performance
standards uniformly to guaranty agencies with
agreements under this subsection.
‘‘(C) The Secretary shall assess the perform-
ance of each guaranty agency on the basis of the au-
dits required under paragraph (3)(G), and shall
compare 
such 
guaranty 
agency’s 
performance
against the performance of other such guaranty
agencies and publicly disseminate such comparison.
‘‘(D) The Secretary may impose a fine, in ac-
cordance with the terms of the agreement, on a
guaranty agency that fails to achieve a specified
level of performance on 1 or more performance
standards. If the guaranty agency’s failure to
achieve such performance level results in a financial
loss to the United States, the guaranty agency shall
indemnify the Secretary for such loss.’’;
(E) by amending paragraph (6) to read as
follows:
‘‘(6) COLLECTION RETENTION ALLOWANCE.—
‘‘(A) If, after the Secretary has paid a
claim on a loan made under this title, any pay-
ments are made in discharge of the obligation
incurred by the borrower with respect to such
loan (including any payments of interest accru-
ing on such loan after the payment of the de-
fault claim by the Secretary), there shall be
paid over to the Secretary that portion of the
payments remaining after the guaranty agency
with which the Secretary has an agreement
under this subsection has deducted from such
payments an amount for costs related to the
student loan insurance program that—
‘‘(i) shall be specified by the Secretary
on the basis of the Secretary’s review of
payments for similar services in a competi-
tive environment; and
‘‘(ii) in no case shall exceed 18.5 per-
cent of such payments (subject to subpara-
graph (B)).
‘‘(B) If, after the Secretary has paid a
claim on a loan made under this title, and the
liability on such loan is discharged by payment
of the proceeds of a consolidation loan under
this part or under part D, the guaranty agency
may not deduct the amount specified in sub-
paragraph (A), but may charge the borrower an
amount specified by the Secretary and not to
exceed 18.5 percent of the principal amount of
the defaulted loan at the time of consolidation,
to defray the guaranty agency’s collection costs
on the defaulted loan to be consolidated.’’;
(F) by amending paragraph (7) to read as
follows:
‘‘(7) SECRETARY AUTHORIZED TO RENEW OR
MAKE ALTERNATE AGREEMENTS.—Notwithstanding
any other provision of law, once the initial agree-
ment with a guaranty agency entered into after the
date of enactment of the College Access and Afford-
ability Act of 1997 has ended (through its expira-
tion, the termination of the guaranty agency agree-
ment by the Secretary in accordance with paragraph
(9), or the resignation of the guaranty agency, as
the case may be), the Secretary, in his discretion,
may enter into—
‘‘(A) another agreement with the guaranty
agency;
‘‘(B) an alternate agreement under which
the functions previously performed by the guar-
anty agency shall be performed by another
State or private nonprofit agency with which
the Secretary has an agreement under this sub-
section; or
‘‘(C) a contract under section 428E.’’;
(G) by amending paragraph (9) to read as
follows:
‘‘(9) TERMINATION
OF
GUARANTY
AGENCY
AGREEMENTS.—(A) A guaranty agency’s agreement
under this subsection may be ended in advance of its
expiration date in accordance with subparagraph (B)
or (C). If its agreement is so ended, the guaranty
agency shall immediately—
‘‘(i) cease to be an agent of the Secretary
for purposes of the program under this part;
and
‘‘(ii) surrender all remaining liquid and
nonliquid reserve funds, and assets purchased
or developed with reserve funds, still held by
the guaranty agency (including reserves held
by, or under the control of, any other entity) to
the Secretary or the Secretary’s designated
agent.
‘‘(B) A guaranty agency’s agreement under this
subsection shall be void, and the Secretary shall im-
mediately so notify such guaranty agency, if—
‘‘(i) the guaranty agency fails to comply in
a timely manner with the recall of reserve re-
quirements of section 422(h);
‘‘(ii) the guaranty agency fails to increase
the amount of funds in its unrestricted account
(as measured by comparing the amount of
funds in such account at the beginning and end
of a year) for each of 2 years (that may or may
not be consecutive) in the 5-year period of the
agreement under this subsection;
‘‘(iii) any other agreement that the guar-
anty agency has with the Secretary is termi-
nated;
‘‘(iv) the guaranty agency becomes insol-
vent or declares bankruptcy; or
‘‘(v) there is any legal impediment to the
guaranty agency substantially performing its re-
sponsibilities under the agreement.
‘‘(C) The Secretary shall, after notice and op-
portunity for a hearing, terminate a guaranty agen-
cy that has substantially failed to achieve an accept-
able level of performance under its agreement with
the Secretary. A substantial performance failure
under this subparagraph may include the existence
of material internal control weaknesses relating to
data quality in the guaranty agency’s audits for each
of 2 years (that may or may not be consecutive) in
the 5-year period of the agreement under this sub-
section.
‘‘(D) Notwithstanding any other provision of
Federal or State law, if the Secretary has termi-
nated or is seeking to terminate a guaranty agency’s
agreement in advance of its expiration date—
‘‘(i) no State court may issue any order af-
fecting the Secretary’s actions with respect to
such guaranty agency;
‘‘(ii) any contract with respect to the ad-
ministration of reserve funds held by a guar-
anty agency, or the administration of any assets
purchased or developed with the reserve funds
of the guaranty agency, that is entered into or
extended by the guaranty agency, or any other
party on behalf of or with the concurrence of
the guaranty agency, after the date of enact-
ment of the College Access and Affordability
Act of 1997 shall provide that the contract is
terminable by the Secretary upon 30 days no-
tice to the contracting parties if the Secretary
determines that such contract includes an im-
permissible transfer of the reserve funds or as-
sets, or is otherwise inconsistent with the terms
or purposes of this section; and
‘‘(iii) no provision of State law shall apply
to the actions of the Secretary in terminating
the operations of a guaranty agency.’’; and
(H) by adding after paragraph (9) the fol-
lowing new paragraph:
‘‘(10) USE OF SURPLUS FUNDS.—(A) A guar-
anty agency with an agreement under this sub-
section may retain the amount determined in accord-
ance with subparagraph (B) for activities in support
of postsecondary education that are approved by the
Secretary.
‘‘(B)(i) A guaranty agency may retain 50 per-
cent of its net revenues for fiscal year 1998 in ex-
cess of the guaranty agency’s need for working cap-
ital for such year, as determined after compliance
with section 422(h), for approved activities.
‘‘(ii) A guaranty agency may retain for ap-
proved activities for fiscal year 1999 and succeeding
fiscal years the lesser of—
‘‘(I) 50 percent of its net revenues for such
year in excess of its need for working capital,
as determined after compliance with section
422(h); or
‘‘(II) the amount of its net revenues for
such year in excess of its need for working cap-
ital, as determined after compliance with sec-
tion 422(h), that is equal to a uniform percent-
age, established annually by the Secretary, of
Federal revenues received by the guaranty
agency for the preceding year. In determining
such percentage, the Secretary shall take into
account all guaranty agencies’ revenues and
costs for the preceding year to determine an
adequate level of economic incentive for guar-
anty agencies to maximize their efficiency.’’;
(4) by amending subsection (g) to read as fol-
lows:
‘‘(g) DEFAULT PREVENTION FEE PAID BY LEND-
ERS.—(1) An eligible lender shall pay a guaranty agency,
to which such lender referred a delinquent loan, a default
prevention fee of not to exceed $100 per borrower account
if the guaranty agency succeeds in bringing such loan into
current repayment status.
‘‘(2) The Secretary shall prescribe in regulations the
circumstances in which a lender may obtain a refund of
a default prevention fee if the borrower of a loan on which
such fee was paid subsequently defaults on such loan.’’;
and
(5) in subsection (l)—
(A) in paragraph (1), by striking the para-
graph designation and the paragraph heading;
and
(B) by striking paragraph (2).
(b) Section 435(j) of the Act is amended by striking
‘‘section 428(b).’’ and inserting ‘‘section 428(c).’’
SEC. 12. REPEAL OF STATE SHARE OF DEFAULT COSTS.
Section 428 of the Act is further amended by striking
subsection (n).
SEC. 13. CONSOLIDATION LOANS.
(a) Section 428C of the Act is further amended—
(1) in subsection (a)(3)—
(A) in subparagraph (A), by inserting ‘‘in
an in-school period,’’ after ‘‘for a consolidation
loan is’’; and
(B) in subparagraph (B), by amending
clause (i) to read as follows:
‘‘(i) Eligible student loans received by
the eligible borrower may be added to a
consolidation loan during the 180-day pe-
riod following the making of such consoli-
dation loan.’’;
(2) in subsection (b)(4)(C), by amending clause
(ii) to read as follows:
‘‘(ii) provides that interest shall accrue and
be paid—
‘‘(I) by the Secretary, in the case of
a consolidation loan made before October
1, 1997, that consolidated only Federal
Stafford Loans for which the student bor-
rower received an interest subsidy under
section 428;
‘‘(II) by the Secretary, in the case of
a consolidation loan made on or after Oc-
tober 1, 1997, except that the Secretary
shall pay such interest only on that portion
of the loan that repays Federal Stafford
Loans for which the student borrower re-
ceived an interest subsidy under section
428; and
‘‘(III) by the borrower, or capitalized,
in the case of a consolidation loan, or por-
tion thereof, other than one described in
subclause (I) or (II);’’; and
(3) in subsection (c)—
(A) in paragraph (1)—
(i) in subparagraph (A), by striking
‘‘subparagraph (B) or (C).’’ and inserting
‘‘subparagraph (B), (C), (D), or (E), and
subject to subparagraph (F).’’;
(ii) in subparagraph (C), by striking
‘‘after July 1, 1994,’’ and inserting ‘‘after
July 1, 1994 and before October 1,
1997,’’; and
(iii) by adding after subparagraph (C)
the following new subparagraphs:
‘‘(D) A consolidation loan made on or after Oc-
tober 1, 1997, that repays loans made under section
428 of 428H, or a combination thereof, shall bear
interest at an annual rate on the unpaid principal
balance of the loan that is equal to—
‘‘(i) the rate specified in section 427A(g),
in the case of a borrower in an in-school or
grace period; or
‘‘(ii) 
the 
rate 
specified 
in 
section
427A(h)(1) in all other cases.
‘‘(E) A consolidation loan made on or after Oc-
tober 1, 1997, that repays loans made under section
428B shall bear interest at an annual rate on the
unpaid principal balance of the loan that is equal
to the rate specified in section 427A(h)(2).
‘‘(F) Notwithstanding any other provision of
this section, the Secretary may prescribe in regula-
tion such procedures as may be necessary to ensure
that—
‘‘(i) a borrower of a consolidation loan that
repays a combination of loans eligible to be con-
solidated under this section, shall continue to
receive, after consolidation, any interest subsidy
benefits associated with a loan, without extend-
ing such benefits to any other loans consoli-
dated that do not have interest subsidy benefits;
‘‘(ii) in the case of a consolidation loan
that repays a combination of loans described in
subparagraphs (D) and (E), the interest rate
on such consolidation loan shall be calculated in
a manner that reflects the interest rate applica-
ble to loans made under each such subpara-
graph; and
‘‘(iii) in the case of a consolidation loan
that repays a loan eligible to be consolidated
under this section other than those described in
subparagraphs (D) and (E), the interest rate
applicable to such other loan shall be the inter-
est rate described in subparagraph (D) if such
other loan is considered by the Secretary to be
subsidized, and the interest rate described in
subparagraph (E) if such other loan is consid-
ered by the Secretary to be unsubsidized.’’; and
(B) in paragraph (4)—
(i) by striking ‘‘Repayment’’ and in-
serting ‘‘(A) Except as provided in sub-
paragraph (B), repayment’’; and
(ii) by adding after subparagraph (A)
(as redesignated by clause (i)) the follow-
ing new subparagraph:
‘‘(B) In the case of a consolidation loan that re-
pays a loan made under this part for which the bor-
rower is in an in-school period at the time the con-
solidation application is received, the repayment pe-
riod for such consolidation loan shall commence
after the completion of a grace period, as described
in section 428(b)(7)(i).’’.
SEC. 14. CONTRACTS WITH OTHER ENTITIES.
Part B of title IV of the Act is amended by inserting
after section 428D the following new section:
‘‘SEC. 428E. CONTRACT AUTHORITY.
‘‘The Secretary may enter into 1 or more contracts
to carry out any of the functions that otherwise would be
carried out by a guaranty agency with an agreement under
section 428(c).’’.
SEC. 15. ELIGIBLE LENDER.
Section 435(d) of the Act is amended—
(1) in paragraph (1), by striking ‘‘(6),’’ and in-
serting ‘‘(7),’’; and
(2) by adding after paragraph (6) the following
new paragraph:
‘‘(7) UNIFORM TERMS AND CONDITIONS.—Sub-
ject to such exceptions as the Secretary may pre-
scribe in regulations, the term ‘eligible lender’ shall
not include any lender that offers different terms
and conditions to different borrowers of the same
type of loan made or insured under this part.’’.
SEC. 16. SPECIAL ALLOWANCE.
Section 438 of the Act is amended—
(1) in subsection (a)(3), by striking ‘‘quarterly
rate’’ each place it appears and inserting ‘‘rate’’;
and
(2) in subsection (b)—
(A) in paragraph (2)—
(i) by striking ‘‘subparagraphs (B),
(C), (D), (E), and (F)’’ and inserting
‘‘subparagraphs (B), (C), (D), (E), (F),
and (G)’’; and
(ii) by adding after subparagraph (F)
the following new subparagraph:
‘‘(G)(i) Notwithstanding any other provision of
this section, in the case of loans made or insured
under this part for which the first disbursement is
made on or after October 1, 1997, the special allow-
ance paid pursuant to this subsection shall be com-
puted for any 12-month period beginning on July 1
and ending on June 30 by—
‘‘(I) determining the bond equivalent rate
on the preceding June 1 of the securities with
a comparable maturity, as established by the
Secretary; and
‘‘(II) subtracting the applicable interest
rate on such loans from such amount.
‘‘(ii) The amount of special allowance computed
under clause (i) shall be paid in quarterly incre-
ments for the 3-month periods described in para-
graph (1).’’; and
(B) in paragraph (3), in the second sen-
tence, by striking ‘‘determined for any such 3-
month period shall be paid promptly after the
close of such period,’’ and inserting ‘‘calculated
under this subsection shall be paid promptly
after the close of the 3-month period for which
such special allowance payment is due,’’.
SEC. 17. STUDENT LOAN MARKETING ASSOCIATION OFFSET
FEE.
Section 439(h)(7) of the Act is amended by adding
after subparagraph (C) the following new subparagraph:
‘‘(D) The calculation of the fee required under
subparagraph (A) or (B), as the case may be, shall
be determined on the basis of the principal amount
of all loans (except for loans made under section
428C, 439(o) or 439(q))—
‘‘(i) owned, in whole or in part, by the As-
sociation, any subsidiary of the Association, or
any company, trust or other entity owned by, or
controlled by, the Association; or
‘‘(ii) held by a trust (including by a trustee
on behalf of a trust), or by any other entity in
which the Association, or any subsidiary, holds
more than a minimal beneficial interest (as de-
termined by the Secretary).’’.
SEC. 18. DIRECT LOAN TRANSITION FEE.
Section 452(b) of the Act is amended to read as fol-
lows:
‘‘(b) TRANSITION FEES.—The Secretary shall pay
fees to institutions of higher education (or a consortium
of those institutions) with agreements under section
454(b), in the 1st year of their participation in the pro-
gram authorized by this part, in order to compensate for
costs associated with their transition to the program. The
fees shall not exceed an average of $10 per borrower at
all institutions receiving the fees.’’.
SEC. 19. FUNDS FOR ADMINISTRATIVE EXPENSES.
Section 458(a) of the Act is amended, in the first
sentence, by striking ‘‘$260,000,000’’ through the end of
the sentence and inserting the following: ‘‘$532,000,000
in fiscal year 1998, $610,000,000 in fiscal year 1999,
$705,000,000 in fiscal year 2000, $806,000,000 in fiscal
year 2001, and $904,000,000 in fiscal year 2002.’’.
SEC. 20. EXTENSION OF STUDENT AID PROGRAMS.
Title IV of the Act is amended—
(1) in section 401(a)(1), by striking ‘‘Septem-
ber 30, 1998,’’ and inserting ‘‘September 30,
2002,’’;
(2) in section 424(a), by striking ‘‘1998.’’ and
‘‘2002.’’ and inserting ‘‘2002.’’ and ‘‘2006.’’, respec-
tively;
(3) in section 428(a)(5), by striking ‘‘1998,’’
and ‘‘2002.’’ and inserting ‘‘2002,’’ and ‘‘2006.’’, re-
spectively;
(4) in section 428C(e), by striking ‘‘1998.’’ and
inserting ‘‘2002.’’; and
(5) in section 466—
(A) in subsection (a)—
(i) in the matter preceding paragraph
(1), by striking ‘‘September 30, 1996,’’
and ‘‘March 31, 1997,’’ and inserting
‘‘September 30, 2002,’’ and ‘‘March 31,
2003’’, respectively; and
(ii) in paragraph (1), by striking
‘‘September 30, 1996,’’ and inserting
‘‘September 30, 2002,’’;
(B) in subsection (b), by striking ‘‘Septem-
ber 30, 1996,’’ and inserting ‘‘September 30,
2002,’’; and
(C) in subsection (c), by striking out ‘‘Oc-
tober 1, 1997,’’ and inserting ‘‘October 1,
2002,’’.
SEC. 21. EFFECTIVE DATES.
(a) IN GENERAL.—Except as otherwise provided in
this section, the amendments made by this title shall take
effect on the date of enactment of this Act.
(b) PELL GRANTS.—Section 2 is effective for the cal-
culation of Pell Grant awards for award years beginning
on or after July 1, 1998.
(c) REPAYMENT TERMS.—Section 7 is effective for
a loan made under part B or part D of title IV of the
Act for which the first disbursement is made on or after
October 1, 1997.
(d) INTEREST RATES.—Section 8(a)(3) and section
428(b)(5)(C) of the Act (as added by section 11(a)(2)(E))
are effective as if they were enacted on July 23, 1992.