I
103D CONGRESS
1ST SESSION
H. R. 2055
To amend the Higher Education Act of 1965 to simplify the delivery of
student loans to borrowers and eliminate borrower confusion; to provide
a variety of repayment plans, including income contingent repayment
through the EXCEL Account, to borrowers so that they have flexibility
in managing their student loan repayment obligations, and so that those
obligations do not foreclose community service-oriented career choices
for those borrowers; to replace, through an orderly transition, the Federal
Family Education Loan Program with the Federal Direct Student Loan
Program; to avoid the unnecessary cost, to taxpayers and borrowers,
and administrative complexity associated with the Federal Family Edu-
cation Loan Program through the use of a direct student loan program,
and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MAY 11, 1993
Mr. ANDREWS of New Jersey (for himself, Mr. FORD of Michigan, Mr. CLAY,
Mr. MILLER of California, Mr. MURPHY, Mr. KILDEE, Mr. MARTINEZ,
Mr. ROEMER, Mr. BECERRA, Mr. BAESLER, and Mr. UNDERWOOD) intro-
duced the following bill; which was referred to the Committee on
Education and Labor
A BILL
To amend the Higher Education Act of 1965 to simplify
the delivery of student loans to borrowers and eliminate
borrower confusion; to provide a variety of repayment
plans, including income contingent repayment through
the EXCEL Account, to borrowers so that they have
flexibility in managing their student loan repayment obli-
gations, and so that those obligations do not foreclose
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community service-oriented career choices for those bor-
rowers; to replace, through an orderly transition, the
Federal Family Education Loan Program with the Fed-
eral Direct Student Loan Program; to avoid the unneces-
sary cost, to taxpayers and borrowers, and administrative
complexity associated with the Federal Family Education
Loan Program through the use of a direct student loan
program, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
That this Act may be cited as the ‘‘Student Loan Reform
Act of 1993’’.
TITLE I—AMENDMENTS TO FEDERAL DIRECT
LOAN DEMONSTRATION PROGRAM
HEADING FOR PART
SEC. 111. Part D of title IV of the Higher Education
Act of 1965 (20 U.S.C. 1001 et seq.; hereinafter referred
to as ‘‘the Act’’) is amended in the part heading—
(1) by inserting ‘‘STUDENT’’ immediately fol-
lowing ‘‘DIRECT’’; and
(2) by striking out ‘‘DEMONSTRATION’’.
PURPOSE; PROGRAM AUTHORIZATION
SEC. 112. Section 451 of the Act is amended to read
as follows:
‘‘PURPOSE; PROGRAM AUTHORIZATION
‘‘SEC. 451. (a) PURPOSE.—It is the purpose of this
part—
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‘‘(1) to simplify the delivery of student loans to
borrowers and eliminate borrower confusion;
‘‘(2) to provide a variety of repayment plans,
including income contingent repayment through the
EXCEL Account, to borrowers so that they have
flexibility in managing their student loan repayment
obligations, and so that those obligations do not
foreclose community service-oriented career choices
for those borrowers;
‘‘(3) to replace, through an orderly transition,
the Federal Family Education Loan Program under
part B of this title with the Federal Direct Student
Loan Program under this part;
‘‘(4) to avoid the unnecessary cost, to taxpayers
and borrowers, and administrative complexity associ-
ated with the Federal Family Education Loan Pro-
gram under part B of this title through the use of
a direct student loan program; and
‘‘(5) to create a more streamlined student loan
program that can be managed more effectively at
the Federal level.
‘‘(b) PROGRAM AUTHORITY.—There are hereby made
available, in accordance with the provisions of this part,
such sums as may be necessary to make loans to all eligi-
ble students in attendance at participating institutions of
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higher education selected by the Secretary (and the eligi-
ble parents of such students), to enable such students to
pursue their courses of study at such institutions during
the period beginning July 1, 1994 and ending on June
30, 1998. Such loans shall be made by participating insti-
tutions that also have agreements with the Secretary to
originate loans, or by alternative originators designated by
the Secretary to make loans for students in attendance
at participating institutions (and their parents).’’.
FUNDS FOR ORIGINATION OF DIRECT STUDENT LOANS
SEC. 113. Section 452 of the Act is amended to read
as follows:
‘‘FUNDS FOR ORIGINATION OF DIRECT STUDENT LOANS
‘‘SEC. 452. (a) IN GENERAL.—The Secretary shall
provide funds for student and parent loans under this part
(1) directly to an institution of higher education that has
an agreement with the Secretary under section 454(a) to
participate in the direct student loan programs under this
part and that also has an agreement with the Secretary
under section 454(b) to originate loans under this part,
or (2) through an alternative originator designated by the
Secretary, on the basis of the need and the eligibility of
students at each participating institution, and parents of
such students, for such loans.
‘‘(b) FEES FOR ORIGINATION SERVICES.—(1) The
Secretary shall pay fees to institutions of higher education
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with agreements under section 454(b), in an amount es-
tablished by the Secretary, to assist in meeting the costs
of loan origination. Such fees—
‘‘(A) shall be paid by the Secretary based on all
the loans made under this part to a particular bor-
rower in the same academic year;
‘‘(B) shall be subject to a sliding scale that de-
creases the amount of such fees as the number of
borrowers increases; and
‘‘(C)(i) for academic year 1994–1995, shall not
exceed a program-wide average of $10 per borrower
for all the loans made under this part to such bor-
rower in the same academic year; and
‘‘(ii) for succeeding academic years, the Sec-
retary shall establish such average fee in regulations.
‘‘(2) The Secretary shall pay fees for loan origination
services to alternative originators of loans made under this
part in an amount established by the Secretary in accord-
ance with the terms of the contract between the Secretary
and each such alternative originator.
‘‘(c) NO ENTITLEMENT TO PARTICIPATE OR ORIGI-
NATE.—No institution of higher education shall have a
right to participate in the programs authorized by this
part, originate loans, or perform any program function
under this part. Nothing in this subsection shall be con-
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strued so as to limit the entitlement of an eligible student
attending a participating institution (or the eligible parent
of such student) to borrow under this part.’’.
SELECTION OF INSTITUTIONS
SEC. 114. Section 453 of the Act is amended—
(1) by amending subsections (a) and (b) to read
as follows:
‘‘(a) PHASE-IN OF PROGRAM.—(1)(A) The Secretary
shall enter into agreements pursuant to section 454(a)
with institutions of higher education to participate in the
direct student loan programs under this part, and agree-
ments pursuant to section 454(b) with institutions of
higher education to originate loans in such programs, for
academic years beginning on or after July 1, 1994. Alter-
native origination services, through which an entity other
than the participating institution at which the student is
in attendance originates the loan, shall be provided by the
Secretary, through one or more contracts under section
456 or such other means as the Secretary may provide,
for students attending participating institutions that do
not originate direct student loans under this part. Such
agreements for the first year of the program shall, to the
extent feasible, be entered into not later than January 1,
1994.
‘‘(B) In order to ensure an expeditious but orderly
transition from the loan programs under part B of this
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title to the direct student loan programs under this part,
the Secretary shall, in the exercise of his or her discretion,
determine the number of institutions with which he or she
shall enter into agreements under sections 454 (a) and
(b) for any academic year, except that the Secretary shall
exercise such discretion so as to achieve the following
goals—
‘‘(i) for academic year 1994–1995, loans made
under this part shall represent 4 percent of the sum
of new student loan volume under this part and part
B of this title;
‘‘(ii) for academic year 1995–1996, loans made
under this part shall represent 25 percent of the
sum of new student loan volume under this part and
part B of this title;
‘‘(iii) for academic year 1996–1997, loans made
under this part shall represent 60 percent of the
sum of new student loan volume under this part and
part B of this title; and
‘‘(iv) for academic year 1997–1998, loans made
under this part shall represent 100 percent of the
sum of new student loan volume under this part and
part B of this title.
‘‘(2) The requirements of the Cash Management Im-
provement Act of 1990 (Public Law 101–453) shall apply
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‘‘(i)(I) categorizing such institutions ac-
cording to anticipated loan volume, length of
academic program, and control of the institu-
tion; and
‘‘(II) selecting institutions that are reason-
ably representative of the respective categories;
and
‘‘(ii) if needed to carry out the purposes of
this part, selecting additional institutions.
‘‘(2) ORIGINATION.—(A) The Secretary may
enter into a supplemental agreement with an institu-
tion (or a consortium of such institutions) that—
‘‘(i) has an agreement under subsection
454(a);
‘‘(ii) desires to originate loans under this
part; and
‘‘(iii) meets the criteria specified in sub-
paragraph (B).
‘‘(B)(i) For academic year 1994–1995, the Sec-
retary may approve an institution to originate loans
only if such institution—
‘‘(I) made loans under part E of this title
in academic year 1993–1994 and did not exceed
the applicable maximum default rate under sec-
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tion 462(g) for the most recent fiscal year for
which data are available;
‘‘(II) is not on the reimbursement system
of payment for any of the programs under sub-
part 1 or 3 of part A, part C, or part E;
‘‘(III) is not overdue on program or finan-
cial reports or audits required under this title;
‘‘(IV) is not subject to an emergency ac-
tion, or a limitation, suspension, or termination
under section 428(b)(1)(T), 432(h), or 487(c);
‘‘(V) in the opinion of the Secretary, has
not had significant deficiencies identified by the
State postsecondary review entity under subpart
1 of part H of this title;
‘‘(VI) in the opinion of the Secretary, has
not had severe performance deficiencies for any
of the programs under this title, including those
demonstrated by audits or program reviews
submitted or conducted during the five calendar
years immediately preceding the date of appli-
cation; and
‘‘(VII) provides an assurance that it has
no delinquent outstanding debts to the United
States, unless such debts are being repaid
under or in accordance with a repayment ar-
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rangement satisfactory to the United States, or
the Secretary in his or her discretion deter-
mines that the existence or amount of such
debts has not been finally determined by the
cognizant Federal agency or agencies.
‘‘(ii) For academic year 1995–1996 and subse-
quent academic years, the Secretary shall publish
regulations governing the approval of institutions to
originate loans.’’;
(2) by striking out subsections (c), (d), (e), and
(f);
(3) by amending subsection (g) to read as fol-
lows:
‘‘(g) CONSORTIA.—Subject to such requirements as
the Secretary may prescribe, eligible institutions of higher
education with agreements under section 454(a) may
apply to originate loans under this part for students in
attendance at such institutions, as consortia. Such institu-
tions shall be required to meet the requirements to partici-
pate in the program under this part individually.’’; and
(4) by redesignating subsection (g) as sub-
section (c).
AGREEMENTS WITH INSTITUTIONS
SEC. 115. Section 454 of the Act is amended to read
as follows:
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‘‘AGREEMENTS WITH INSTITUTIONS
‘‘SEC. 454. (a) PARTICIPATION.—An agreement with
any institution of higher education for participation in the
direct student loan program under this part shall—
‘‘(1) provide for the establishment and mainte-
nance of a direct student loan program at the insti-
tution under which—
‘‘(A) the institution will—
‘‘(i) identify eligible students who seek
student financial assistance at such institu-
tion in accordance with section 484;
‘‘(ii) estimate the need of each such
student as required by part F of this title
for an academic year: Provided, That, any
loan obtained by a student under this part
with the same terms (except as otherwise
provided in this part) as loans made under
section 428A or 428H, or a loan obtained
by a parent under this part with the same
terms (except as otherwise provided in this
part) as loans made under section 428B,
or obtained under any State-sponsored or
private loan program, may be used to off-
set the expected family contribution of the
student for that year; and
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‘‘(iii) provide a statement that cer-
tifies the eligibility of any student to re-
ceive a loan under this part that is not in
excess of the maximum amount applicable
to such loan, except that the institution
may, in exceptional circumstances specified
by the Secretary, refuse to certify a state-
ment that permits a student to receive a
loan under this part, or certify a loan
amount that is less than the student’s de-
termination of need (as determined under
part F of this title), if the reason for such
action is documented and provided in writ-
ten form to such student;
‘‘(B) the institution will set forth a sched-
ule for disbursement of the proceeds of the loan
in installments, consistent with the require-
ments of section 428G; and
‘‘(C) the institution will provide timely and
accurate information—
‘‘(i) concerning the status of student
borrowers (and students on whose behalf
parents borrow under this part) while such
students are in attendance at the institu-
tion and concerning any new information
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of which the institution becomes aware for
such students (or their parents) after they
leave the institution, to the Secretary for
the servicing and collecting of loans made
under this part; and
‘‘(ii) if the institution does not have
an agreement with the Secretary under
subsection (b), concerning student eligi-
bility and need, as determined under sub-
paragraph (A), to the Secretary as needed
for the alternative origination of loans to
eligible students and parents in accordance
with this part;
‘‘(2) provide assurances that the institution will
comply with requirements established by the Sec-
retary relating to student loan information with re-
spect to loans made under this part;
‘‘(3) provide that the institution accepts respon-
sibility and financial liability stemming from its fail-
ure to perform its functions pursuant to the agree-
ment;
‘‘(4) provide that students at the institution
and their parents (with respect to such students)
will not be eligible to participate in the programs
under part B of this title for the period during
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which such institution participates in the direct stu-
dent loan program under this part;
‘‘(5) provide for the implementation of a quality
assurance system, as established by the Secretary, to
ensure that the institution is complying with pro-
gram requirements and meeting program objectives;
‘‘(6) provide that the institution will not charge
any fees of any kind, however described, to student
or parent borrowers for origination activities or the
provision of any information necessary for a student
or parent to receive a loan under this part, or any
benefits associated with such loan; and
‘‘(7) include such other provisions as the Sec-
retary determines are necessary to protect the inter-
ests of the United States and to promote the pur-
poses of this part.
‘‘(b) ORIGINATION.—An agreement with any institu-
tion of higher education for the origination of loans under
this part shall—
‘‘(1) supplement the agreement entered into in
accordance with subsection (a);
‘‘(2) include provisions established by the Sec-
retary that are similar to the participation agree-
ment provisions described in paragraphs (1)(G), (2),
(3), (4), (5), (6), and (7) of subsection (a), as modi-
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fied to relate to the origination of loans by the insti-
tution;
‘‘(3) provide that the institution will originate
loans to eligible students and parents in accordance
with this part; and
‘‘(4) provide that the note or evidence of obliga-
tion on the loan shall be the property of the
Secretary.
‘‘(c) WITHDRAWAL
AND
TERMINATION
PROCE-
DURES.—The Secretary shall establish procedures by
which institutions may withdraw or be terminated from
the program under this part.’’.
TERMS OF LOANS
SEC. 116. Section 456 of the Act is amended to read
as follows:
‘‘TERMS AND CONDITIONS OF LOANS
‘‘SEC. 456. (a) IN GENERAL.—(1) Unless otherwise
specified in this part, loans made to borrowers under this
part shall have the same terms, conditions, and benefits
as loans made to borrowers under sections 428, 428A,
428B, and 428H of this title.
‘‘(2) Loans made to borrowers under this part that,
except as otherwise specified in this part, have the same
terms, conditions, and benefits as loans made to borrowers
under—
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‘‘(A) section 428 shall be known as ‘Federal Di-
rect Stafford Loans’;
‘‘(B) section 428A shall be known as ‘Federal
Direct Supplemental Loans for Students’;
‘‘(C) section 428B shall be known as ‘Federal
Direct PLUS Loans’; and
‘‘(D) section 428H shall be known as ‘Federal
Direct Unsubsidized Stafford Loans’.
‘‘(b) INTEREST RATE.—(1) Section 427A(a) shall not
apply to loans made under this part.
‘‘(2)(A) For Federal Direct Stafford Loans and Fed-
eral Direct Unsubsidized Stafford Loans made before July
1, 1997, the applicable rate of interest shall, during any
twelve-month period beginning on July 1 and ending on
June 30, be determined on the preceding June 1 and be
equal to—
‘‘(i) the bond equivalent rate of ninety-one-day
Treasury bills auctioned at the final auction held
prior to such June 1; plus
‘‘(ii) 3.1 percent,
except that such rate shall not exceed 9 percent.
‘‘(B) For Federal Direct Stafford Loans and Federal
Direct Unsubsidized Stafford Loans made on or after July
1, 1997, the applicable rate of interest shall, during any
twelve-month period beginning on July 1 and ending on
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June 30, be determined on the preceding June 1 for all
such loans and be equal to—
‘‘(i) the bond equivalent rate of the security
with a comparable maturity; plus
‘‘(ii) 1 percent,
except that such rate shall not exceed 9 percent.
‘‘(3)(A) For Federal Direct Supplemental Loans for
Students made before July 1, 1997, the applicable rate
of interest shall, during any twelve-month period begin-
ning on July 1 and ending on June 30, be determined
on the preceding June 1 and be equal to—
‘‘(i) the bond equivalent rate of fifty-two-week
Treasury bills auctioned at the final auction held
prior to such June 1; plus
‘‘(ii) 3.1 percent,
except that such rate shall not exceed 11 percent.
‘‘(B) For Federal Direct Supplemental Loans for
Students made on or after July 1, 1997, the applicable
rate of interest shall, during any twelve-month period be-
ginning on July 1 and ending on June 30, be determined
on the preceding June 1 for all such loans and be equal
to—
‘‘(i) the bond equivalent rate of the security
with a comparable maturity; plus
‘‘(ii) 1.5 percent,
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except that such rate shall not exceed 11 percent.
‘‘(4)(A) For Federal Direct PLUS Loans made be-
fore July 1, 1997, the applicable rate of interest shall, dur-
ing any twelve-month period beginning on July 1 and end-
ing on June 30, be determined on the preceding June 1
for loans and be equal to—
‘‘(i) the bond equivalent rate of fifty-two-week
Treasury bills auctioned at the final auction held
prior to such June 1; plus
‘‘(ii) 3.1 percent,
except that such rate shall not exceed 10 percent.
‘‘(B) For Federal Direct PLUS Loans made on or
after July 1, 1997, the applicable rate of interest shall,
during any twelve-month period beginning on July 1 and
ending on June 30, be determined on the preceding June
1 for all such loans and be equal to—
‘‘(i) the bond equivalent rate of the security
with a comparable maturity; plus
‘‘(ii) 2.1 percent,
except that such rate shall not exceed 10 percent.
‘‘(c) LOAN FEE.—The Secretary shall charge the bor-
rower of a loan made under this part a loan fee of not
less than 5 percent, but not more than 6.5 percent, of
the principal amount of the loan.
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‘‘(d) REPAYMENT PLANS.—(1)(A) The Secretary
shall design each repayment plan under this subsection so
that, to the extent possible, the cost to the Federal Gov-
ernment for each cohort of borrowers does not exceed what
such cost would be if all borrowers in the cohort selected
the standard repayment plan described in clause (i). Con-
sistent with criteria established by the Secretary, the Sec-
retary shall offer a borrower of a loan made under this
part a variety of plans for repayment of such loan, includ-
ing principal and interest on the loan. The borrower may
choose—
‘‘(i) a standard repayment plan, with a fixed
annual repayment amount paid over a fixed period
of time;
‘‘(ii) an extended repayment plan, with a fixed
annual repayment amount paid over an extended pe-
riod of time: Provided, That, the borrower annually
repays a minimum amount determined by the
Secretary;
‘‘(iii) a graduated repayment plan, with annual
repayment amounts established at two or more grad-
uated levels and paid over a fixed or extended period
of time: Provided, That, any of the borrower’s sched-
uled payments shall not be less than 50 percent, nor
more than 150 percent, of what the amortized pay-
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ment on the amount owed would be if the loan were
repaid under the standard repayment plan; and
‘‘(iv) except for the borrower of a Federal Di-
rect PLUS Loan, an income contingent repayment
plan known as an ‘EXCEL Account,’ with varying
annual repayment amounts based on the income of
the borrower, paid over an extended period of time,
not to exceed a maximum length of time determined
by the Secretary.
‘‘(B) If a borrower of a loan made under this part
does not select a repayment plan described in subpara-
graph (A), the Secretary may provide the borrower with
a repayment plan described in clause (i), (ii), or (iii) of
subparagraph (A).
‘‘(C) The borrower of a loan made under this part
may change his or her selection of a repayment plan under
subparagraph (A), or the Secretary’s selection of a plan
for the borrower under subparagraph (B), as the case may
be, under such terms and conditions as may be established
by the Secretary.
‘‘(D) The Secretary may provide an alternative repay-
ment plan to a borrower of a loan made under this part
who demonstrates to the satisfaction of the Secretary that
the terms and conditions of the repayment plans available
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under subparagraph (A) are not adequate to accommodate
the borrower’s exceptional circumstances.
‘‘(E) The Secretary may require any borrower who
has defaulted on a loan made under this part to—
‘‘(i) pay all reasonable collection costs associ-
ated with such loan; and
‘‘(ii) repay the loan pursuant to an EXCEL
Account.
‘‘(2)(A) The Secretary may obtain such information
as is reasonably necessary regarding the income of a bor-
rower (and the borrower’s spouse, if applicable) of a loan
made under this part that is, or may be, repaid pursuant
to an EXCEL Account for the purpose of determining the
annual repayment obligation of the borrower. The Sec-
retary shall establish procedures for determining the bor-
rower’s repayment obligation on that loan for such year,
and such other procedures as are necessary to implement
effectively repayment pursuant to an EXCEL Account.
‘‘(B)(i) A repayment schedule for a loan made under
this part and repaid pursuant to an EXCEL Account shall
be based on the adjusted gross income (as defined in sec-
tion 62 of the Internal Revenue Code of 1986, 26 U.S.C.
62) of the borrower or, if the borrower is married and
files a Federal income tax return jointly with his or her
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spouse, on the adjusted gross income of the borrower and
his or her spouse.
‘‘(ii) A borrower who chooses, or is required, to repay
a loan made under this part pursuant to an EXCEL Ac-
count, and for whom adjusted gross income is unavailable
or does not reasonably reflect his or her current income,
shall provide to the Secretary other documentation of in-
come satisfactory to the Secretary, which documentation
the Secretary may use to determine an appropriate repay-
ment schedule.
‘‘(iii) EXCEL Account repayment schedules shall be
established by the Secretary through regulations and shall
require payments measured as a percentage of the appro-
priate portion of the annual income of the borrower (and
the borrower’s spouse, if applicable) as determined by the
Secretary.
‘‘(iv) The balance due on a loan made under this part
that is repaid pursuant to an EXCEL Account shall equal
the unpaid principal amount of the loan, any accrued in-
terest, and any fees, such as late charges, assessed on such
loan. The Secretary may limit by regulation the amount
of interest that may be capitalized on such loan, and the
timing of any such capitalization.
‘‘(C) The Secretary shall establish procedures under
which a borrower of a loan made under this part who
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chooses or is required to repay such loan pursuant to an
EXCEL Account is notified of the terms and conditions
of such plan, including notification of such borrower—
‘‘(i) that the Internal Revenue Service will dis-
close to the Secretary the most recent available in-
formation concerning the borrower’s income; and
‘‘(ii) that if a borrower considers that special
circumstances, such as a loss of employment by the
borrower or his or her spouse, warrant an adjust-
ment in the borrower’s loan repayment as deter-
mined using the information described in clause (i),
or the alternative documentation described in sub-
paragraph (B)(ii), the borrower may contact the
Secretary, who shall determine whether such adjust-
ment is appropriate, in accordance with criteria es-
tablished by the Secretary.
‘‘(e) DEFERMENT.—(1) A borrower of a loan made
under this part who meets the requirements described in
paragraph (2) shall be eligible for a deferment, during
which periodic installments of principal need not be paid,
and interest—
‘‘(A) shall not accrue, in the case of a Federal
Direct Stafford Loan or a Federal Direct Consolida-
tion Loan that consolidated only Federal Direct
Stafford Loans, or a combination of such loans and
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‘‘(B) not in excess of three years during which
the borrower is seeking and unable to find full-time
employment;
‘‘(C) not in excess of three years during which
the Secretary determines, in accordance with regula-
tions prescribed under section 435(o), that the bor-
rower has experienced or will experience an economic
hardship, regardless of the reason for such hardship.
‘‘(f) FORBEARANCE.—(1)(A) A borrower of a loan
made under this part shall be eligible for forbearance, as
defined in subparagraph (B), which shall be granted by
the Secretary if the Secretary determines that the bor-
rower is willing but unable to make scheduled loan pay-
ments.
‘‘(B) The term ‘forbearance’ means permitting the
temporary cessation of payments, allowing an extension of
time for making payments, or temporarily accepting small-
er payments than previously scheduled. Interest shall con-
tinue to accrue on a loan for which a borrower receives
forbearance and shall be capitalized or paid by the
borrower.
‘‘(2)(A) A borrower of a loan made under this part
who is serving in a national service position, for which he
or she receives a national service educational award under
the National Service Trust Act of 1993, shall be eligible
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for forbearance granted by the Secretary during periods
in which the borrower is serving in such position.
‘‘(B) For purposes of this paragraph, ‘forbearance’
shall mean the temporary cessation of payments unless the
borrower selects another option described in paragraph
(1)(B).
‘‘(g) FEDERAL DIRECT CONSOLIDATION LOANS.—A
borrower of a loan made under this part may consolidate
such loan with the loans described in subsection (a)(4) and
(d)(1)(C) of section 428C only under the terms and condi-
tions established by the Secretary under this part. Loans
made under this subsection shall be known as ‘Federal
Direct Consolidation Loans’;
‘‘(h) BORROWER DEFENSES.—Notwithstanding any
other provision of State or Federal law, the Secretary shall
specify in regulations (except as authorized under section
458(a)), which acts or omissions of an institution of higher
education a borrower may assert as a defense to repay-
ment of a loan made under this part, except that in no
event may a borrower recover from the Secretary, in any
action arising from or relating to a loan made under this
part, an amount in excess of the amount such borrower
has repaid on such loan.
‘‘(i) OPTICALLY
IMAGED
DOCUMENTS.—Records
maintained in accordance with section 484A(c) may be
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used in any proceeding, as permitted by section 484A(c),
with respect to a loan made under this part.
‘‘(j) NONDISCHARGEABILITY IN BANKRUPTCY.—Not-
withstanding any other provision of law, a loan made
under this part shall not be dischargeable in bankruptcy.’’.
CONTRACTS
SEC. 117. Section 457 of the Act is amended to read
as follows:
‘‘CONTRACTS
‘‘SEC. 457. (a)(1) The Secretary may award one or
more contracts for services and supplies under subsection
(b). The entities with which the Secretary may enter into
such contracts may include, but are not limited to, agen-
cies with agreements with the Secretary under sections
428 (b) and (c), if such agencies are otherwise qualified
and comply with the procedures applicable to the award
of such contracts.
‘‘(2) The Secretary may, through June 30, 1998,
award contracts under this section without regard to the
requirements in section 253 of title 41, United States
Code, section 416 of title 41, United States Code, and sec-
tion 637(e) of title 15, United States Code and the cor-
responding requirements of the Federal Acquisition Regu-
lations if he or she determines, on a case-by-case basis,
that exemption from such requirements is in the public
interest and necessary for the orderly transition from the
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loan programs under part B to the direct student loan
programs under this part.
‘‘(3) On and after July 1, 1998, all statutory and
regulatory requirements described in paragraph (2) shall
apply to the award of a contract under this section.
‘‘(b) The Secretary may enter into one or more con-
tracts for—
‘‘(1) the alternative origination of loans to stu-
dents attending institutions with agreements to par-
ticipate in the program under this part (or their par-
ents), if such institutions do not have agreements
with the Secretary under section 454(b);
‘‘(2) the servicing and collection of loans made
under this part;
‘‘(3) the establishment and operation of one or
more data systems for the maintenance of records
on all loans made under this part;
‘‘(4) services to assist in the orderly transition
from the loan programs under part B to the direct
student loan programs under this part; and
‘‘(5) such other aspects of the direct student
loan programs as the Secretary determines are nec-
essary to ensure the successful operation of the pro-
grams.’’.
REPORTS
SEC. 118. Section 458 of the Act is amended—
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(1) in subsection (a), by striking out ‘‘dem-
onstration program.’’ and inserting in lieu thereof
‘‘program under this part.’’;
(2) by striking out subsections (b), (c), (d), and
(e); and
(3) adding at the end thereof the following new
subsections:
‘‘(b) RESEARCH, DEMONSTRATION, AND EVALUA-
TION.—The Secretary may use a portion of the funds de-
scribed in section 459 for research on, or the demonstra-
tion or evaluation of, any aspects of the program author-
ized by this part, including flexible repayment plans.
‘‘(c) PLAN FOR IRS PARTICIPATION AND OTHER RE-
PAYMENT OPTIONS.—(1) The Secretaries of Education
and the Treasury shall, within six months of the date of
enactment, submit a plan to the President that—
‘‘(A) provides for repayment for loans made
under this part through wage withholding by the
Internal Revenue Service; and
‘‘(B) evaluates the feasibility of other wage-
withholding repayment options for such loans.
‘‘(2) If the President determines that the implemen-
tation of one or more repayment options contained in the
plan described in paragraph (1) would further the pur-
poses of this part, the Secretaries of Education and the
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Treasury shall be authorized to take such actions as are
reasonable and necessary to implement such repayment
options, including entering into an agreement pursuant to
section 6306 of the Internal Revenue Code of 1986.
‘‘(3) The Secretary of Education may use such
amounts as may be necessary for the funds available
under section 459 to implement the repayment options se-
lected by the President under paragraph (2) and shall
make available to the Secretary of the Treasury such
amounts under section 459 as the Secretaries determine
to be necessary to implement those repayment options car-
ried out by the Internal Revenue Service.’’.
SECRETARIAL ACTIVITIES
SEC. 119. Section 459 of the Act is amended—
(1) in the section heading, by striking out
‘‘SCHEDULE OF’’;
(2) by striking out subsection (a) and inserting
in lieu thereof the following new subsection:
‘‘(a) NOTICE IN LIEU OF REGULATIONS FOR FIRST
YEAR OF PROGRAM.—The Secretary shall publish in the
Federal Register whatever standards, criteria, and proce-
dures, consistent with the provisions of this part, the Sec-
retary determines are reasonable and necessary to the suc-
cessful implementation of the first year of the direct stu-
dent loan program authorized by this part. Section 431
of the General Education Provisions Act shall not apply
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to the publication of such standards, criteria, and proce-
dures.’’;
(3) by striking out subsections (b) and (e);
(4) in subsection (c)—
(A) by inserting ‘‘a date not later than’’
immediately preceding ‘‘October 1, 1993,’’; and
(B) by striking out ‘‘participate’’ through
the end thereof and inserting in lieu thereof the
following: ‘‘participate in the first year of the
direct student loan program under this part.’’;
(5) in subsection (d), by striking out ‘‘partici-
pate’’ through the end thereof and inserting in lieu
thereof the following: ‘‘participate in the first year of
the loan program under this part.’’; and
(6) by redesignating subsections (c) and (d) as
subsections (b) and (c), respectively.
REPEALS AND REDESIGNATIONS
SEC. 120. (a) Section 455 of the Act is repealed.
(b) Sections 456, 457, 458, 459, and 459A are redes-
ignated as sections 455, 456, 457, 458, and 459, respec-
tively.
FUNDS FOR ADMINISTRATIVE EXPENSES
SEC. 121. Section 459 of the Act (as redesignated
by section 120) is amended by striking out ‘‘administra-
tive costs under this part,’’ through the end thereof and
inserting in lieu thereof the following: ‘‘administrative
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costs under this part, including the costs of the transition
from the loan programs under part B to the direct student
loan programs under this part and transition support for
the expenses of guaranty agencies in servicing outstanding
loans in their portfolios and in guaranteeing new loans,
not to exceed $261,000,000 in fiscal year 1994,
$346,000,000 in fiscal year 1995, $552,000,000 in fiscal
year 1996, $596,000,000 in fiscal year 1997, and
$749,000,000 in fiscal year 1998. If in any fiscal year,
the Secretary determines that additional funds for admin-
istrative expenses are needed as a result of such transi-
tion, or the expansion of the direct student loan programs
under this part, the Secretary is authorized to use funds
available under this section for a subsequent fiscal year
for such expenses. The Secretary is also authorized to
carry over funds available under this section to a subse-
quent fiscal year.’’.
TITLE II—CONFORMING AMENDMENTS
PART A—CONFORMING AMENDMENTS TO THE HIGHER
EDUCATION ACT OF 1965
PRESERVING LOAN ACCESS
SEC. 211. (a) PURPOSE.—It is the purpose of the
amendments made by this section to provide the Secretary
with flexible authority as needed to preserve access to stu-
dent and parent loans under part B of title IV of the Act
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during the transition from the Federal Family Education
Loan Program under such part to the Federal Direct
Student Loan Program under part D of such title.
(b) ADVANCES TO GUARANTY AGENCIES FOR LEND-
ER-OF-LAST-RESORT SERVICES.—(1) Section 428(j) of
the Act is amended by adding at the end thereof the
following new paragraph:
‘‘(4) ADVANCES
TO
GUARANTY
AGENCIES
FOR
LENDER-OF-LAST-RESORT SERVICES DURING TRANSI-
TION TO DIRECT LENDING.—(A) In order to ensure the
availability of loan capital during the transition from the
Federal Family Education Loan Program under this part
to the Federal Direct Student Loan Program under part
D of this title, the Secretary is authorized to provide a
guaranty agency with additional advance funds in accord-
ance with section 422(c)(7), with such restrictions on the
use of such funds as are determined appropriate by the
Secretary, in order to ensure that the guaranty agency will
make loans as the lender-of-last-resort. Such agency shall
make such loans in accordance with this subsection and
the requirements of the Secretary.
‘‘(B) Notwithstanding any other provision in this
part, a guaranty agency serving as a lender-of-last-resort
under this paragraph shall be paid a fee, established by
the Secretary, for making such loans in lieu of interest
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and special allowance subsidies, and shall be required to
assign such loans to the Secretary on demand. Upon such
assignment, the portion of the advance represented by the
loans assigned shall be considered repaid by such guaranty
agency.’’.
(2) Section 422(c)(7) of the Act is amended by strik-
ing out ‘‘to a guaranty agency’’ through the end thereof
and inserting in lieu thereof the following: ‘‘to a guaranty
agency—
‘‘(A) in accordance with section 428(j), in order
to ensure that the guaranty agency shall make loans
as the lender-of-last-resort during the transition
from the Federal Family Education Loan Program
under this part to the Federal Direct Student Loan
Program under part D of this title; or
‘‘(B) if the Secretary is seeking to terminate
the guaranty agency’s agreement, or assuming the
guaranty agency’s functions, in accordance with sec-
tion 428(c)(10)(F)(v), in order to assist the agency
in meeting its immediate cash needs, ensure the un-
interrupted payment of claims, or ensure that the
guaranty agency shall make loans as described in
subparagraph (A);’’.
(c) LENDER REFERRAL SERVICES.—Section 428(e)
of the Act is amended—
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(1) in paragraph (1)—
(A) by amending the paragraph heading to
read as follows: ‘‘IN
GENERAL; AGREEMENTS
WITH GUARANTY AGENCIES.—’’;
(B) by inserting the subparagraph designa-
tion ‘‘(A)’’ immediately after the paragraph
designation;
(C) by striking out ‘‘in any State’’ and in-
serting in lieu thereof ‘‘with which the Sec-
retary has an agreement under subparagraph
(B)’’; and
(D) by adding at the end thereof the fol-
lowing new subparagraph:
‘‘(B)(i) The Secretary may enter into
agreements with guaranty agencies that meet
standards established by the Secretary to pro-
vide lender referral services in geographic areas
specified by the Secretary. Such guaranty agen-
cies shall be paid in accordance with paragraph
(3) for such services.
‘‘(ii) The Secretary shall publish in the
Federal Register whatever standards, criteria,
and procedures, consistent with the provisions
of this part and part D of this title, the Sec-
retary determines are reasonable and necessary
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to provide lender referral services under this
subsection and ensure loan access to student
and parent borrowers during the transition
from the loan programs under this part to the
direct student loan programs under part D of
this title. Section 431 of the General Education
Provisions Act shall not apply to the publication
of such standards, criteria, and procedures.’’;
(2) in paragraph (2)—
(A) in the matter preceding subparagraph
(A), by striking out ‘‘in a State’’ and inserting
in lieu thereof ‘‘with which the Secretary has an
agreement under paragraph (1)(B)’’;
(B) by amending subparagraph (A) to read
as follows:
‘‘(A)(i) such student is either a resident of,
or is accepted for enrollment in, or is attending,
an eligible institution located in a geographic
area for which the Secretary (I) determines
that loans are not available to all eligible stu-
dents, and (II) has entered into an agreement
with a guaranty agency under paragraph (1)(B)
to provide lender referral services; and’’;
(3) in paragraph (3), by striking out ‘‘The’’ and
inserting in lieu thereof ‘‘From funds available for
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costs of transition under section 459 of the Act,
the’’; and
(4) by striking out paragraph (5).
(d) STUDENT LOAN MARKETING ASSOCIATION.—
Section 439(q) of the Act is amended—
(1) in paragraph (1)(A)—
(A) in the first sentence, by striking out
‘‘the Association or its designated agent may
begin making loans’’ and inserting in lieu there-
of ‘‘the Association or its designated agent
shall, subject to the limitations in section
428(j)(3), begin making loans to such eligible
borrowers’’; and
(B) by striking out the second sentence
therein;
(2) in paragraph (2)(A), by striking out ‘‘the
Association or its designated agent may’’ and insert-
ing in lieu thereof ‘‘the Association or its designated
agent shall, subject to the limitations in section
428(j)(3),’’; and
(3) in paragraph (3), by striking out ‘‘that—’’
through the end thereof and inserting in lieu thereof
the following: ‘‘that the conditions that caused the
implementation of this subsection have ceased to
exist.’’.
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GUARANTY AGENCY RESERVES
SEC. 212. Section 422 of the Act is amended by add-
ing at the end thereof the following new subsection:
‘‘(g) PRESERVATION
OF GUARANTY AGENCY RE-
SERVES.—(1) Notwithstanding any other provision of law,
the reserve funds of the guaranty agencies, and any assets
purchased with such reserve funds, regardless of who
holds or controls the reserves or assets, shall be considered
to be the property of the United States to be used in the
operation of the program authorized by this part or the
program authorized by part D of this title. However, the
Secretary may not require the return of all of a guaranty
agency reserve funds to the Secretary unless he or she de-
termines that such return is essential to the operation of
the program authorized by this part or the program au-
thorized by part D of this title, or to ensure the orderly
termination of the guaranty agency’s operations and the
liquidation of its assets. The reserves shall be maintained
by each guaranty agency to pay program expenses and
contingent liabilities, as authorized by the Secretary, ex-
cept that the Secretary may—
‘‘(A) direct a guaranty agency to return to the
Secretary a portion of its reserve fund which the
Secretary determines is unnecessary to pay the pro-
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gram expenses and contingent liabilities of the guar-
anty agency; and
‘‘(B) 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, which the Secretary de-
termines are necessary to pay the program expenses
and contingent liabilities of the guaranty agency, or
which are required for the orderly termination of the
guaranty agency’s operations and the liquidation of
its assets.
‘‘(2) To ensure that the funds and assets of the guar-
anty agency are preserved, any contract with respect to
the administration of a guaranty agency’s reserve funds,
or the administration of any assets purchased or acquired
with the reserve funds of the guaranty agency, that is en-
tered into or extended by the guaranty agency, or any
other party on behalf of or with the concurrence of the
guaranty agency, after the effective date of this provision
shall provide that the contract is terminable by the Sec-
retary upon thirty days notice to the contracting parties
if the Secretary determines that such contract includes an
impermissible transfer of the reserve funds or assets, or
is otherwise inconsistent with the terms or purposes of this
section.’’.
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TERMS OF LOANS
SEC. 213. Section 428 of the Act is amended—
(1) in subsection (b)(1)—
(A) in subparagraph (D), by striking out
‘‘be subject to’’ through the end thereof and in-
serting in lieu thereof the following: ‘‘be subject
to income contingent repayment in accordance
with subsection (m);’’;
(B) by redesignating subparagraphs (W),
(X), and (Y) as subparagraphs (X), (Y), and
(Z), respectively; and
(C) by inserting immediately after sub-
paragraph (V) the following new subparagraph:
‘‘(W)(i) provides that, upon written re-
quest, a lender shall grant a borrower forbear-
ance on such terms as are otherwise consistent
with the regulations of the Secretary, during
periods in which the borrower is serving in a
national service position, for which he or she re-
ceives a national service educational award
under the National Service Trust Act of 1993;
‘‘(ii) provides that clauses (iii) and (iv) of
subparagraph (V) shall also apply to a forbear-
ance granted under this subparagraph; and
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‘‘(iii) provides that interest shall continue
to accrue on a loan for which a borrower re-
ceives forbearance under this subparagraph and
shall be capitalized or paid by the borrower;’’;
(2) in subsection (c)(3)(A), by striking out
‘‘subsection (b)(1)(V)’’ through the end thereof and
inserting in lieu thereof the following: ‘‘subsections
(b)(1)(V) and (W);’’; and
(3) in subsection (m)—
(A) by amending paragraph (1) to read as
follows:
‘‘(1) The Secretary may require any borrower
who has defaulted on a loan made under this part
that is assigned to the Secretary under subsection
(c)(8) to repay that loan under an income contingent
repayment plan, the terms and conditions of which
shall be established by the Secretary and the same
as, or similar to, the EXCEL Account established
for purposes of part D of this title.’’;
(B) by striking out paragraphs (2) and
(4);
(C) by amending paragraph (3) to read as
follows:
‘‘(3) LOANS FOR WHICH INCOME CONTINGENT
REPAYMENT
MAY
BE
REQUIRED.—A loan made
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under this part may be required to be repaid under
this section if the note or other evidence of the loan
has been assigned to the Secretary pursuant to sub-
section (c)(8).’’; and
(D) by redesignating paragraph (3) as
paragraph (2).
ASSIGNMENT OF LOANS
SEC. 214. (a) Section 428(c)(8) of the Act is amend-
ed—
(1) by inserting the subparagraph designation
‘‘(A)’’ immediately following the section heading;
(2) by striking out the second and third sen-
tences therein; and
(3) adding at the end thereof the following new
subparagraphs:
‘‘(B) An orderly transition from the Fed-
eral Family Education Loan Program under
this part to the Federal Direct Student Loan
Program under part D of this title shall be
deemed to be in the Federal fiscal interest, and
a guaranty agency shall promptly assign loans
to the Secretary under this paragraph upon his
or her request.’’.
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TERMINATION OF GUARANTY AGENCY AGREEMENTS;
ASSUMPTION OF GUARANTY AGENCY FUNCTIONS BY THE
SECRETARY
SEC. 215. Section 428(c)(10) of the Act is amend-
ed—
(1) in subparagraph (C), by inserting a comma
and ‘‘as appropriate,’’ immediately following ‘‘the
Secretary shall’’;
(2) in subparagraph (D)—
(A) by inserting the clause designation
‘‘(i)’’ immediately following the subparagraph
designation;
(B) by striking out ‘‘Each’’ and inserting
in lieu thereof ‘‘If the Secretary is not seeking
to terminate the guaranty agency’s agreement
under subparagraph (E), or assuming the guar-
anty agency’s functions under subparagraph
(F), a’’;
(C) by adding at the end thereof the fol-
lowing new clause:
‘‘(ii) If the Secretary is seeking to ter-
minate the guaranty agency’s agreement
under subparagraph (E), or assuming the
guaranty agency’s functions under sub-
paragraph (F), a management plan de-
scribed in subparagraph (C) shall include
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the means by which the Secretary and the
guaranty agency shall work together to en-
sure the orderly termination of the oper-
ations, and liquidation of the assets, of the
guaranty agency.’’;
(3) in subparagraph (E)—
(A) in clause (ii), by striking out ‘‘or’’ at
the end thereof;
(B) in clause (iii), by striking out the pe-
riod at the end thereof and inserting in lieu
thereof a semicolon; and
(C) by adding at the end thereof the fol-
lowing new clauses:
‘‘(iv) the Secretary determines that
such action is necessary to protect the
Federal fiscal interest;
‘‘(v) the Secretary determines that
such action is necessary to ensure the con-
tinued availability of loans to student or
parent borrowers; or
‘‘(vi) the Secretary determines that
such action is necessary to ensure an or-
derly transition from the loan programs
under this part to the direct student loan
programs under part D of this title.’’;