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failure to achieve a specified level of perform-
ance on 1 or more performance standards;
‘‘(E) regarding the circumstances in which
a guaranty agency’s agreement under this sec-
tion may be ended in advance of its expiration
date;
‘‘(F) regarding such other businesses, pre-
viously 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; and
‘‘(G) 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;
and
‘‘(4) shall provide for uniform lender participa-
tion with the guaranty agency under the terms of
the agreement.
‘‘(c) TERMINATION.—At the expiration or early ter-
mination of an agreement under this section, the Sec-
retary shall reinstate the guaranty agency’s prior agree-
ments under subsections (b) and (c) of section 428, sub-
ject only to such additional requirements as the Secretary
determines to be necessary in order to ensure the efficient
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transfer of responsibilities between the agreement under
this section and the agreements under subsections (b) and
(c) of section 428, including the guaranty agency’s compli-
ance with reserve requirements under sections 422 and
428.’’.
SEC. 419. FEDERAL CONSOLIDATION LOANS.
(a) AGREEMENTS WITH LENDERS.—Section 428C(a)
(20 U.S.C. 1078–3(a)) is amended—
(1) by striking subclause (II) of paragraph
(3)(B)(i) and inserting the following:
‘‘(II) that loans received during the 180-
day period following the making of the consoli-
dation loan may be added to the consolidation
loan.’’; and
(2) by striking subparagraph (C) of paragraph
(4) and inserting the following:
‘‘(C) made under part D of this title;’’.
(b) CONTENTS OF AGREEMENTS.—Section 428C(b)
is amended—
(1) in paragraph (1)(A), by striking ‘‘under this
section and (i)’’ and everything that follows and in-
serting ‘‘under this section;’’;
(2) in paragraph (4)(C)(ii)—
(A) by redesignating subclause (III) as
subclause (IV);
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(B) by inserting after subclause (II) the
following new clause:
‘‘(III) by the Secretary, in the case of
a consolidation loan for which the applica-
tion is received by an eligible lender on or
after October 1, 1998, except that the Sec-
retary shall pay such interest only on that
portion of the loan that repays Federal
Stafford Loans for which the student bor-
rower received an interest subsidy under
section 428 or Federal Direct Stafford
Loans for which the borrower received an
interest subsidy under section 455; or’’;
and
(C) in subclause (IV) (as redesignated), by
striking ‘‘subclause (I) or (II)’’ and inserting
‘‘subclause (I), (II), or (III)’’; and
(3) in paragraph (6)(A), by inserting before the
semicolon at the end the following: ‘‘except that (i)
a lender is not required to consolidate loans de-
scribed in subparagraph (D) or (E) of subsection
(a)(4); and (ii) a lender is not prohibited from estab-
lishing a minimum loan balance for which it will
process a consolidation loan application’’.
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(c) EXTENSION OF AUTHORITY.—Section 428C(e) is
amended by striking ‘‘September 30, 2002’’ and inserting
‘‘September 30, 2004’’.
SEC. 420. DISBURSEMENT.
(a) REQUIREMENTS.—Section 428G(a)(1) (20 U.S.C.
1078–7(a)(1)) is amended by inserting ‘‘greater than one
semester, one trimester, one quarter, or four months’’
after ‘‘period of enrollment’’.
(b) DISBURSEMENT.—Section 428G(b)(1) is amend-
ed by adding at the end the following new sentence: ‘‘An
institution whose cohort default rate (as determined under
section 435(a)) for each of the three most recent fiscal
years for which data are available is less than 10 percent
shall be exempt from the requirements of this para-
graph.’’.
(c) WITHHOLDING OF SECOND DISBURSEMENT.—
Section 428G(d)(2) is amended by inserting ‘‘by more
than $300’’ after ‘‘under this title’’.
SEC. 421. UNSUBSIDIZED STAFFORD LOANS.
(a) ELIGIBLE BORROWERS.—Section 428H(b) (20
U.S.C. 1078–8(b)) is amended by striking ‘‘which—’’ and
everything that follows and inserting the following:
‘‘which certifies the eligibility of the student to receive a
loan under this part and the amount of the loan for which
such student is eligible. A student shall qualify for a loan
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if the eligible institution has provided the lender with a
statement that sets forth a schedule for disbursement of
the proceeds of the loan in installments, consistent with
the requirements of section 428G.’’.
(b) LOAN LIMITS.—Section 428H(d)(2)(A) is amend-
ed—
(1) by inserting ‘‘and’’ after the semicolon at
the end of clause (i); and
(2) by striking clauses (ii) and (iii) and insert-
ing the following:
‘‘(ii) if such student is enrolled in a
program of undergraduate education which
is less than one academic year, the maxi-
mum annual loan amount that such stu-
dent may receive may not exceed the
amount that bears the same ratio to the
amount specified in clause (i) as the length
of such program measured in semester, tri-
mester, quarter, or clock hours bears to
one academic year;’’.
(c) 
CAPITALIZATION
OF
INTEREST.—Section
428H(e)(2) is amended to read as follows:
‘‘(2) CAPITALIZATION OF INTEREST.—Interest
on loans made under this section for which pay-
ments of principal are not required during the in-
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school and grace periods or for which payments are
deferred 
under 
sections 
427(a)(2)(C) 
and
428(b)(1)(M) shall, if agreed upon by the borrower
and the lender—
‘‘(A) be paid monthly or quarterly; or
‘‘(B) be added to the principal amount of
the loan by the lender only—
‘‘(i) when the loan enters repayment;
‘‘(ii) at the expiration of a grace pe-
riod, in the case of a loan that qualifies for
a grace period;
‘‘(iii) at the expiration of a period of
deferment; and
‘‘(iv) when the borrower defaults.
Such capitalization of interest shall not be
deemed to exceed the annual insurable limit on
account of the student.’’.
(d) QUALIFICATION.—Section 428H(e) is amended
by adding at the end the following new paragraph:
‘‘(7) 
QUALIFICATION
FOR
FORBEARANCE,
DEFERMENT, 
AND
INCOME-SENSITIVE
REPAY-
MENT.—A borrower of a loan made under this sec-
tion may qualify for a forbearance or deferment, or
an income-sensitive repayment plan for which the
borrower is eligible, immediately upon receipt by the
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lender or holder of a request from the borrower. Any
necessary supporting documentation shall be secured
by the lender or holder within 30 days of the request
in order to continue the forbearance, deferment, or
income-sensitive repayment plan.’’.
(e) REPEAL.—Section 428H(f ) is repealed.
SEC. 422. REPEAL OF LOAN FORGIVENESS.
Section 428J (20 U.S.C. 1078–10) is repealed.
SEC. 423. LEGAL POWERS AND RESPONSIBILITIES.
(a) GENERAL
POWERS.—Section 432(a)(2) (20
U.S.C. 1082(a)(2)) is amended by inserting ‘‘except that
this section shall not be deemed to limit court review
under chapter 7 of title 5, United States Code’’ after ‘‘Sec-
retary’s control’’.
(b) AUDIT OF FINANCIAL TRANSACTIONS.—Section
432(f )(1) is amended—
(1) in subparagraph (B), by striking ‘‘section
435(d)(1) (D), (F), or (H);’’ and inserting ‘‘section
435(d)(1); and’’;
(2) in subparagraph (C)—
(A) by striking ‘‘and Labor’’ and inserting
‘‘and the Workforce’’; and
(B) by striking ‘‘; and’’ inserting a period;
and
(3) by striking subparagraph (D).
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(c) PROGRAM OF ASSISTANCE.—Section 432(k)(3) is
amended by striking ‘‘Within 1 year’’ and everything that
follows through ‘‘1992, the’’ and inserting ‘‘The’’.
(d) 
COMMON
FORMS
AND
FORMATS.—Section
432(m) is amended—
(1) in paragraph (1)(A), by striking ‘‘The Sec-
retary’’ and inserting ‘‘Subject to paragraph (2), the
Secretary’’;
(2) by striking subparagraph (C) of paragraph
(1);
(3) in subparagraph (D), by striking ‘‘Nothing’’
and inserting ‘‘Subject to paragraph (2), nothing’’;
(4) by redesignating subparagraph (D) of such
paragraph as subparagraph (C);
(5) by redesignating paragraphs (2) and (3) as
paragraphs (3) and (4), respectively;
(6) by inserting after paragraph (1) the follow-
ing new paragraph:
‘‘(2) FREE APPLICATION FOR FEDERAL STU-
DENT
AID.—For academic year 1999–2000 and
thereafter, the Secretary shall prescribe the Free
Application for Federal Student Aid as the applica-
tion form under this part (other than sections 428B
and 428C).’’; and
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(7) by adding at the end the following new
paragraph:
‘‘(5) MASTER PROMISSORY NOTE.—
‘‘(A) DEVELOPMENT
AND
APPROVAL.—
Within 180 days of enactment of this Act, the
Secretary, in cooperation with representatives of
guaranty agencies, eligible lenders, institutions,
students, and organizations involved in student
financial assistance, shall develop and approve a
master promissory note that will allow for a
multiyear line of credit. Such note shall address
the needs of participants in the programs under
this part. The Secretary shall also develop and
approve a corresponding master promissory
note for use under part D of this title that ad-
dresses the needs of participants in the pro-
grams under such part.
‘‘(B) SALE AND ASSIGNMENT; ENFORCE-
MENT.—Notwithstanding the preceding provi-
sions of this section, each loan made under a
master promissory note providing for a line of
credit may be sold and assigned independently
of any other loan made under the same promis-
sory note, and each such loan shall be sepa-
rately enforceable in all State and Federal
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courts on the basis of an original or copy of the
master promissory note in accordance with its
terms.’’.
(e) DEFAULT REDUCTION MANAGEMENT.—Section
432(n) is amended—
(1) in paragraph (1), by striking ‘‘1993’’ and
inserting ‘‘1999’’; and
(2) in paragraph (3), by striking ‘‘and Labor’’
and inserting ‘‘and the Workforce’’.
(f ) REPORTING REQUIREMENT.—Section 432(p) is
amended by striking ‘‘State postsecondary reviewing enti-
ties designated under subpart 1 of part H,’’.
SEC. 424. STUDENT LOAN INFORMATION.
Section 433 (20 U.S.C. 1083) is amended—
(1) in the first sentence of subsection (a), by in-
serting ‘‘in simple and understandable terms’’ after
‘‘to the borrower’’; and
(2) in the first sentence of subsection (b), by in-
serting ‘‘in simple and understandable terms’’ after
‘‘under this subsection’’.
SEC. 425. DEFINITIONS.
(a) COHORT DEFAULT RATE.—Section 435(a) (20
U.S.C. 1085(a)) is amended—
(1) in subparagraph (A) of paragraph (2)—
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(A) by striking ‘‘or’’ at the end of clause
(i); and
(B) by striking clause (ii) and inserting the
following:
‘‘(ii) there are exceptional mitigating cir-
cumstances within the meaning of paragraph
(4); or
‘‘(iii) there are, in the judgment of the
Secretary, other exceptional mitigating cir-
cumstances that would make the application of
this paragraph inequitable.’’;
(2) in subparagraph (C) of paragraph (2), by
striking ‘‘July 1, 1998,’’ and inserting ‘‘July 1,
1999,’’;
(3) in paragraph (3), by inserting ‘‘or, at the
request of the institution, a complete copy of the
records for loans made under this part or of the di-
rect loan servicer for loans made under part D’’
after ‘‘and loan servicers’’; and
(4) by adding at the end the following new
paragraphs:
‘‘(4) 
DEFINITION
OF
MITIGATING
CIR-
CUMSTANCES.—For purposes of paragraph (2), an
institution shall be treated as having exceptional
mitigating circumstances that make application of
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that paragraph inequitable if such institution is cer-
tified by a certified public accountant to meet each
of the following criteria:
‘‘(A) at least two-thirds of the students en-
rolled on at least a half-time basis at the insti-
tution—
‘‘(i) are eligible to receive a Federal
Pell Grant award that is at least equal to
one-half the maximum Federal Pell Grant
award for which the student would be eligi-
ble based on his or her enrollment status;
or
‘‘(ii) have an adjusted gross income of
the student, and his or her parents (unless
the student is an independent student), of
less than the poverty level, as determined
under criteria established by the Depart-
ment of Health and Human Services;
‘‘(B) at least two-thirds of the students en-
rolled on a full-time basis at the institution in
any 12-month period ending not more than six
months prior to the date the institution submits
its appeal, and who remain enrolled beyond the
point at which the student would be entitled to
a tuition refund of 100 percent—
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‘‘(i) complete the educational program
in which they are enrolled within the time
normally required to complete that pro-
gram, as specified in the institution’s en-
rollment contract, catalog, or other mate-
rials; or
‘‘(ii) continue to be enrolled and are
making satisfactory academic progress to-
ward completion of their program; or
‘‘(iii) have entered active duty in the
armed forces of the United States; and
‘‘(C) at least two-thirds of the students en-
rolled on a full-time basis at the institution who
complete the educational program in which they
are enrolled within any 12-month period ending
not more than six months prior to the date the
institution submits its appeal are placed for at
least 13 weeks in an employment position for
which they have been trained, or are enrolled
for at least 13 weeks in higher level education
program for which the educational program of
the institution provided substantial preparation,
or have entered active duty in the armed forces
of the United States.
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‘‘(5) REDUCTION OF DEFAULT RATES AT CER-
TAIN MINORITY INSTITUTIONS.—
‘‘(A) BENEFICIARIES OF EXCEPTION RE-
QUIRED TO ESTABLISH MANAGEMENT PLAN.—
After July 1, 1998, any institution that has a
cohort default rate that equals or exceeds 25
percent for each of the three most recent fiscal
years for which data are available and that re-
lies on the exception in paragraph (2)(C) of this
subsection to continue to be an eligible institu-
tion shall—
‘‘(i) submit to the Secretary a default
management plan which the Secretary, in
his discretion, after consideration of the in-
stitution’s history, resources, dollars in de-
fault, and targets for default reduction, de-
termines is acceptable and provides reason-
able assurance that the institution will, by
July 1, 2001, have a cohort default rate
that is less than 25 percent;
‘‘(ii) engage an independent third
party (which may be paid with funds re-
ceived under part B of title III) to provide
technical assistance in implementing such
default management plan; and
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‘‘(iii) provide to the Secretary, on an
annual basis or at such other intervals as
the Secretary may require, evidence of co-
hort default rate improvement and success-
ful implementation of such default man-
agement plan.
‘‘(B) DISCRETIONARY ELIGIBILITY CONDI-
TIONED
ON
IMPROVEMENT.—Notwithstanding
the expiration of the exception in paragraph
(2)(C), the Secretary may, in his discretion,
continue to treat an institution described in
subparagraph (A) of this paragraph as an eligi-
ble institution for each of the one-year periods
beginning on July 1, 1999, and July 1, 2000,
only if the institution submits by the beginning
of such period evidence satisfactory to the Sec-
retary that—
‘‘(i) such institution has complied and
is continuing to comply with the require-
ments of subparagraph (A); and
‘‘(ii) such institution has made sub-
stantial improvement, during each of the
preceding one-year periods, in its cohort
default rate.
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‘‘(6) SPECIAL RULE BASED ON PARTICIPATION
RATE
INDICES.—(A) An institution that dem-
onstrates to the Secretary that its participation rate
index (as defined in regulations in effect on July 1,
1996) is equal to or less than .0375 for any of the
three most recent fiscal years for which data are
available shall not be subject to paragraph (2).
‘‘(B) An institution shall provide the Secretary
with sufficient data to determine its participation
rate index within 30 days after receiving an initial
notification of its draft cohort default rate.
‘‘(C) Prior to publication of a final cohort de-
fault rate for an institution that provides the data
under subparagraph (B), the Secretary shall notify
the institution of its compliance or noncompliance
with subparagraph (A).
‘‘(7) AUTHORITY OF THE SECRETARY TO AS-
SIST DISTRESSED INSTITUTIONS.—The Secretary is
authorized pursuant to section 326(c)(7) to provide
administrative, fiscal, management, strategic plan-
ning, and technical assistance through a qualified
third-party consultant identified by the institution or
an organization representing such institutions. Insti-
tutions eligible for such assistance include those in-
stitutions which qualify for the exemption in para-
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graph (2)(C)(i), (ii), and (iii) of this subsection, or
which have submitted a default management plan
under paragraph (5) which has been accepted by the
Secretary.’’.
(b) ELIGIBLE LENDER.—Section 435(d) is amend-
ed—
(1) in paragraph (1)(A)(ii)—
(A) by striking ‘‘or’’ at the end of sub-
clause (I); and
(B) by inserting before the semicolon at
the end of subclause (II) the following: ‘‘, or
(III) it is a bank that is a wholly owned sub-
sidiary of a nonprofit foundation, the founda-
tion is described in section 501(c)(3) of the In-
ternal Revenue Code of 1986 and exempt from
taxation under section 501(a) of such Code and
has been participating in the program author-
ized by this part for three years as of the date
of enactment of the Higher Education Amend-
ments of 1998 and only makes loans to under-
graduate students who are 22 years of age or
younger and has a portfolio of not more than
$10,000,000; and in determining whether the
making or holding of loans to students and par-
ents under this part is the primary consumer
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credit function of the eligible lender, all loans
(including student loans and other consumer
loans) made or held as trustee or in a trust ca-
pacity for the benefit of a third party shall be
considered’’;
(2) in paragraph (1)—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (I);
(B) by striking the period at the end of
subparagraph (J) and inserting ‘‘; and’’; and
(C) by adding at the end the following new
subparagraph:
‘‘(K) a wholly owned subsidiary of a pub-
licly held holding company which, for the three
years preceding the date of enactment of this
subparagraph, through one or more subsidiaries
(i) acts as a finance company, and (ii) partici-
pates in the program authorized by this part
pursuant to subparagraph (C).’’; and
(3) in paragraph (5), by adding at the end the
following new sentence:
‘‘It shall not be a violation of this paragraph for a
lender to provide assistance to institutions of higher
education comparable to the kinds of assistance pro-
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vided to institutions of higher education by the De-
partment of Education.’’.
(c) LINE OF CREDIT.—Section 435(e) is amended to
read as follows:
‘‘(e) LINE OF CREDIT.—The term ‘line of credit’
means an agreement between the lender and the borrower
pursuant to a master promissory note under which the
lender may make and disburse, in addition to the initial
loan, additional loans in subsequent years.’’.
(d) DEFINITION OF DEFAULT.—
(1) AMENDMENT.—Section 435(l) is amend-
ed—
(A) by striking ‘‘180 days’’ and inserting
‘‘270 days’’; and
(B) by striking ‘‘240 days’’ and inserting
‘‘330 days’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply with respect to loans
for which the first day of delinquency occurs on or
after the date of enactment of this Act.
(e) COHORT DEFAULT RATE: REHABILITATION.—
Section 435(m)(2)(C) is amended by adding at the end
the following new sentences: ‘‘Within 2 years after the
date of enactment of the Higher Education Amendments
of 1998, the Secretary shall, by regulation, require guar-
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anty agencies to collect data with respect to defaulted
loans in a manner that will permit the identification of
any defaulted loan for which (i) the borrower is currently
making payments and has made not less than 6 consecu-
tive on-time payments by the end of such following fiscal
year, and (ii) a guaranty agency has renewed the borrow-
er’s title IV eligibility as provided in section 428F(b).
Upon a determination by the Secretary that such data is
available, the Secretary shall, by regulation, prescribe the
extent to which any such defaulted loan may be excluded
from the calculation of the cohort default rate under this
subsection.’’.
SEC. 426. DISCHARGE.
Section 437(c)(1) is amended—
(1) by inserting after ‘‘falsely certified by the
eligible institution,’’ the following: ‘‘or if the institu-
tion failed to make a refund of loan proceeds which
it owed to such student’s lender,’’; and
(2) by adding at the end the following new sen-
tences: ‘‘In the case of a discharge based upon a
failure to refund, the amount of the discharge shall
not exceed that portion of the loan which should
have been refunded. The Secretary shall report to
the Committee on Education and the Workforce of
the House of Representatives and the Committee on
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Labor and Human Resources of the Senate annually
as to the dollar amount of loan discharges attrib-
utable to failures to make refunds.’’.
SEC. 427. CANCELLATION OF LOANS FOR CERTAIN PUBLIC
SERVICE.
Section 437 is further 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) FUNCTIONS
OF
SECRETARY.—The Sec-
retary shall discharge the liability of a borrower of
a qualifying loan by repaying the amount owed on
the loan, to the extent specified in paragraph (4),
for service described in paragraph (3).
‘‘(2) QUALIFYING LOANS.—
‘‘(A) IN GENERAL.—For purposes of this
subsection, a loan is a qualifying loan if—
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‘‘(i) the loan was made under section
428 on or after the date of enactment of
the Higher Education Amendments of
1998 to a borrower who, on the date of en-
tering into the note or other written evi-
dence of the loan, had no outstanding bal-
ance of principal or interest on any loan
made before such date; and
‘‘(ii) the loan was obtained to cover
the cost of instruction for an academic
year after the first and second year of un-
dergraduate education.
‘‘(B) LIMITATION.—The Secretary may
not repay loans described in subparagraph (A)
to cover the costs of instruction for more than
two academic years, or three academic years in
the case of a program of instruction normally
requiring five years.
‘‘(C) 
TREATMENT
OF
CONSOLIDATION
LOANS.—A loan made under section 428C may
be a qualifying loan for the purposes of this
subsection only to the extent that such loan was
used to repay a loan or loans that meet the re-
quirements of subparagraphs (A) and (B), as
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determined in accordance with regulations pre-
scribed by the Secretary.
‘‘(3) QUALIFYING
SERVICE.—A loan shall be
discharged under paragraph (1) for service by the
borrower as a full-time teacher for each complete
academic year of service, after completion of the sec-
ond academic year of service, in a public or other
nonprofit private elementary or secondary school—
‘‘(A) which is in the school district of a
local educational agency which is eligible in
such year for assistance pursuant to title I of
the Elementary and Secondary Education Act
of 1965; and
‘‘(B) which for the purpose of this para-
graph and for that year has been determined by
the State educational agency of the State in
which the school is located to be a school in
which the enrollment of children counted under
section 1124(c) of the Elementary and Second-
ary Education Act of 1965 exceeds 30 percent
of the total enrollment of that school.
‘‘(4) RATE OF DISCHARGE.—(A) Loans shall be
discharged under this subsection at the rate of—
‘‘(i) 30 percent for the first or second com-
plete academic year of qualifying service as de-
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scribed in paragraph (3) (after completion of
two years of service); and
‘‘(ii) 40 percent for the third complete year
of such qualifying service.
‘‘(B) The total amount that may be discharged
under this subsection for any borrower shall not ex-
ceed $17,750.
‘‘(C) If a portion of a loan is discharged under
subparagraph (A) for any year, the entire amount of
interest on that loan that accrues for that year shall
also be discharged by the Secretary.
‘‘(D) Nothing in this section shall be construed
to authorize refunding of any repayment of a loan.
‘‘(5) LIMITATION ON TEACHER ELIGIBILITY.—
‘‘(A) SECONDARY SCHOOL TEACHERS.—A
borrower may not receive assistance under this
subsection by virtue of teaching in a secondary
school unless such borrower majored in the sub-
ject area in which they are teaching.
‘‘(B) ELEMENTARY SCHOOL TEACHERS.—
A borrower may not receive assistance under
this subsection by virtue of teaching in a ele-
mentary school unless such borrower dem-
onstrates, in accordance with State teacher cer-
tification or licensing requirements, subject
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matter knowledge and teaching skills in read-
ing, writing, mathematics, and other subjects
taught in elementary schools.
‘‘(6) PREVENTION OF DOUBLE BENEFITS.—No
borrower may, for the same service, receive a benefit
under both this subsection and subtitle D of title I
of the National and Community Service Act of 1990
(42 U.S.C. 12571 et seq.).
‘‘(7) METHOD
OF
PAYMENT.—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 discharged
under this subsection.
‘‘(8) LIST.—If the list of schools in which a
teacher may perform service pursuant to paragraph
(3) 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.
‘‘(9) CONTINUING
ELIGIBILITY.—Any teacher
who performs service in a school which—
‘‘(A) meets the requirements of paragraph
(3) in any year during such service; and
‘‘(B) in a subsequent year fails to meet the
requirements of such subsection,
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may continue to teach in such school and shall be
eligible for loan cancellation pursuant to this sub-
section with respect to such subsequent years.’’.
SEC. 428. DEBT MANAGEMENT OPTIONS.
Section 437A (20 U.S.C. 1087–O) is repealed.
SEC. 429. SPECIAL ALLOWANCES.
(a) COMPUTATION.—Section 438(b)(2) (20 U.S.C.
1087–1(b)(2)) is amended—
(1) in subparagraph (A), by striking ‘‘(E), and
(F)’’ and inserting ‘‘and (E)’’; and
(2) in subparagraph (B)(iv), by striking ‘‘, (E),
or (F)’’ and inserting ‘‘or (E)’’.
(b) ORIGINATION FEES.—Section 438(c) is amend-
ed—
(1) in paragraph (2)—
(A) by striking ‘‘(other than’’ and inserting
‘‘(including loans made under section 428H,
but excluding’’; and
(B) by adding at the end the following new
sentence: ‘‘Except as provided in paragraph (8),
a lender is not authorized to assess an origina-
tion fee under this paragraph unless the lender
assesses the same fee to all student borrow-
ers.’’; and
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(2) by adding at the end the following new
paragraph:
‘‘(8) EXCEPTION.—Notwithstanding paragraph
(2), a lender may assess a lesser origination fee for
a borrower demonstrating greater financial need as
determined by such borrower’s adjusted gross family
income.’’.
(c) LENDING FROM PROCEEDS OF TAX EXEMPT OB-
LIGATIONS.—Section 438 is amended—
(1) by striking subsection (e); and
(2) by redesignating subsection (f ) as sub-
section (e).
(d) STUDY.—Section 438 is amended by adding at
the end the following new subsection:
‘‘(f ) STUDY.—The Comptroller General shall conduct
a statistical analysis of the subsidized and unsubsidized
student loan programs under part B to gather data on
lenders’ policies on charging origination fees and to deter-
mine if there are any anomalies that would indicate any
institutional, programmatic, or socioeconomic discrimina-
tion in the assessing or waiving of such fees. The Comp-
troller General shall report to the appropriate committees
of Congress within two years after the date of enactment
of the Higher Education Amendments of 1998.’’.
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SEC. 430. LOAN FORGIVENESS FOR CHILD CARE PROVID-
ERS.
(a) PURPOSE.—It is the purpose of this section—
(1) to bring more highly trained individuals into
the early child care profession; and
(2) to keep more highly trained child care pro-
viders in the early child care field for longer periods
of time.
(b) LOAN FORGIVENESS FOR CHILD CARE PROVID-
ERS.—Part B (20 U.S.C. 1071 et seq.) is amended by in-
serting after section 428J (as added by section 432) (20
U.S.C. 1078–10) the following:
‘‘SEC. 428K. LOAN FORGIVENESS FOR CHILD CARE PROVID-
ERS.
‘‘(a) DEFINITIONS.—In this section:
‘‘(1) CHILD CARE FACILITY.—The term ‘child
care facility’ means a facility, including a home,
that—
‘‘(A) provides child care services; and
‘‘(B) meets applicable State or local gov-
ernment licensing, certification, approval, or
registration requirements, if any.
‘‘(2) CHILD CARE SERVICES.—The term ‘child
care services’ means activities and services provided
for the education and care of children from birth
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through age 5 by an individual who has a degree in
early childhood education.
‘‘(3) DEGREE.—The term ‘degree’ means an as-
sociate’s or bachelor’s degree awarded by an institu-
tion of higher education.
‘‘(4) EARLY
CHILDHOOD
EDUCATION.—The
term ‘early childhood education’ means education in
the areas of early child education, child care, or any
other educational area related to child care that the
Secretary determines appropriate.
‘‘(b) DEMONSTRATION PROGRAM.—
‘‘(1) IN GENERAL.—The Secretary may carry
out a demonstration program of assuming the obli-
gation to repay, pursuant to subsection (c), a loan
made, insured or guaranteed under this part or part
D (excluding loans made under sections 428B and
428C) for any new borrower after the date of enact-
ment of the Higher Education Amendments of 1998,
who—
‘‘(A) completes a degree in early childhood
education; and
‘‘(B) obtains employment in a child care
facility.
‘‘(2) AWARD BASIS; PRIORITY.—
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‘‘(A) AWARD BASIS.—Subject to subpara-
graph (B), loan repayment under this section
shall be on a first-come, first-served basis and
subject to the availability of appropriations.
‘‘(B) PRIORITY.—The Secretary shall give
priority in providing loan repayment under this
section for a fiscal year to student borrowers
who received loan repayment under this section
for the preceding fiscal year.
‘‘(3) REGULATIONS.—The Secretary is author-
ized to prescribe such regulations as may be nec-
essary to carry out the provisions of this section.
‘‘(c) LOAN REPAYMENT.—
‘‘(1) IN GENERAL.—The Secretary shall assume
the obligation to repay—
‘‘(A) after the second year of employment
described in subparagraphs (B) and (C) of sub-
section (b)(1), 20 percent of the total amount
of all loans made after date of enactment of the
Higher Education Amendments of 1998, to a
student under this part or part D;
‘‘(B) after the third year of such employ-
ment, 20 percent of the total amount of all such
loans; and
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‘‘(C) after each of the fourth and fifth
years of such employment, 30 percent of the
total amount of all such loans.
‘‘(2) CONSTRUCTION.—Nothing in this section
shall be construed to authorize the refunding of any
repayment of a loan made under this part or part
D.
‘‘(3) INTEREST.—If a portion of a loan is re-
paid by the Secretary under this section for any
year, the proportionate amount of interest on such
loan which accrues for such year shall be repaid by
the Secretary.
‘‘(4) SPECIAL RULE.—In the case where a stu-
dent borrower who is not participating in loan repay-
ment pursuant to this section returns to an institu-
tion of higher education after graduation from an in-
stitution of higher education for the purpose of ob-
taining a degree in early childhood education, the
Secretary is authorized to assume the obligation to
repay the total amount of loans made under this
part or part D incurred for a maximum of two aca-
demic years in returning to an institution of higher
education for the purpose of obtaining a degree in
early childhood education. Such loans shall only be
repaid for borrowers who qualify for loan repayment
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pursuant to the provisions of this section, and shall
be repaid in accordance with the provisions of para-
graph (1).
‘‘(5) INELIGIBILITY
OF
NATIONAL
SERVICE
AWARD RECIPIENTS.—No student borrower may, for
the same volunteer service, receive a benefit under
both this section and subtitle D of title I of the Na-
tional and Community Service Act of 1990 (42
U.S.C. 12601 et seq.).
‘‘(d) REPAYMENT TO ELIGIBLE LENDERS.—The Sec-
retary shall pay to each eligible lender or holder for each
fiscal year an amount equal to the aggregate amount of
loans which are subject to repayment pursuant to this sec-
tion for such year.
‘‘(e) APPLICATION FOR REPAYMENT.—
‘‘(1) IN GENERAL.—Each eligible individual de-
siring loan repayment under this section shall sub-
mit a complete and accurate application to the Sec-
retary at such time, in such manner, and containing
such information as the Secretary may require.
‘‘(2) CONDITIONS.—An eligible individual may
apply for loan repayment under this section after
completing each year of qualifying employment. The
borrower shall receive forbearance while engaged in
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qualifying employment unless the borrower is in
deferment while so engaged.
‘‘(f ) EVALUATION.—
‘‘(1) IN GENERAL.—The Secretary shall con-
duct, by grant or contract, an independent national
evaluation of the impact of the demonstration pro-
gram assisted under this section on the field of early
childhood education.
‘‘(2) COMPETITIVE BASIS.—The grant or con-
tract described in subsection (a) shall be awarded on
a competitive basis.
‘‘(3) CONTENTS.—The evaluation described in
this subsection shall—
‘‘(A) determine the number of individuals
who were encouraged by the demonstration pro-
gram assisted under this section to pursue early
childhood education;
‘‘(B) determine the number of individuals
who remain employed in a child care facility as
a result of participation in the program;
‘‘(C) identify the barriers to the effective-
ness of the program;
‘‘(D) assess the cost-effectiveness of the
program in improving the quality of—
‘‘(i) early childhood education; and
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‘‘(ii) child care services;
‘‘(E) identify the reasons why participants
in the program have chosen to take part in the
program;
‘‘(F) identify the number of individuals
participating in the program who received an
associate’s degree and the number of such indi-
viduals who received a bachelor’s degree; and
‘‘(G) identify the number of years each in-
dividual participates in the program.
‘‘(4) INTERIM
AND
FINAL
EVALUATION
RE-
PORTS.—The Secretary shall prepare and submit to
the President and the Congress such interim reports
regarding the evaluation described in this subsection
as the Secretary deems appropriate, and shall pre-
pare and so submit a final report regarding the eval-
uation by January 1, 2002.
‘‘(g) AUTHORIZATION OF APPROPRIATIONS.—There
are authorized to be appropriated to carry out this section
$10,000,000 for fiscal year 1999, and such sums as may
be necessary for each of the 4 succeeding fiscal years.’’.
PART C—FEDERAL WORK-STUDY PROGRAMS
SEC. 435. AMENDMENTS TO PART C.
(a) EXTENSION OF AUTHORITY; DEFINITION.—
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(1) ELIGIBLE STUDENTS.—Section 441(a) (20
U.S.C. 2751(a)) is amended by inserting after ‘‘pro-
fessional students’’ the following: ‘‘, including stu-
dents participating in an internship or practicum, or
as a research assistant, as determined by the Sec-
retary,’’.
(2) 
EXTENSION
OF
AUTHORITY.—Section
441(b) is amended by striking ‘‘$800,000,000 for
fiscal year 1993’’ and inserting ‘‘$1,000,000,000 for
fiscal year 1999’’.
(3) DEFINITION
OF
COMMUNITY
SERVICE.—
Section 441(c) is amended by striking ‘‘which are’’
and inserting ‘‘that are performed off-campus or on-
campus and that are’’.
(b) ALLOCATION
OF
FUNDS.—Section 442 (42
U.S.C. 2752) is amended—
(1) by striking subsection (b);
(2) in subsection (c)(1), by striking ‘‘three-
quarters of the remainder’’ and inserting ‘‘the re-
mainder’’;
(3) in subsection (c)(2)(A)(i), by striking ‘‘sub-
section (d)’’ and inserting ‘‘subsection (c)’’;
(4) in subsection (e)(1), by striking ‘‘subsection
(c)’’ and inserting ‘‘subsection (b)’’; and
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(5) by redesignating subsections (c), (d), (e),
and (f ) as subsections (b), (c), (d), and (e), respec-
tively.
(c) TUTORING AND LITERACY ACTIVITIES.—
Section 443 of the Higher Education Act of 1965 (42
U.S.C. 2753) is amended—
(1) in subsection (b)(2)—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (A);
(B) by redesignating subparagraph (B) as
subparagraph (C); and
(C) by inserting after subparagraph (A)
the following new subparagraph:
‘‘(B) in academic year 1999 and succeed-
ing academic years, an institution shall use at
least 2 percent of the total amount of funds
granted to such institution under this section
for such academic year in accordance with sub-
section (d); and’’;
(2) by adding at the end the following new sub-
section:
‘‘(d) TUTORING AND LITERACY ACTIVITIES.—
‘‘(1) USE OF FUNDS.—In any academic year to
which subsection (b)(2)(B) applies, an institution
shall use the amount required to be used in accord-
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ance with this subsection to compensate (including
compensation for time spent in directly related train-
ing and travel) students—
‘‘(A) employed as a reading tutor for chil-
dren who are in preschool through elementary
school; or
‘‘(B) employed in family literacy projects.
‘‘(2) PRIORITY FOR SCHOOLS.—An institution
shall—
‘‘(A) give priority, in using such funds, to
the employment of students in the provision of
tutoring services in schools that—
‘‘(i) are identified for school improve-
ment under section 1116(c) of the Elemen-
tary and Secondary Education Act of
1965; or
‘‘(ii) are selected by a local edu-
cational agency under section 15104(a)(2)
of such Act; and
‘‘(B) ensure that any student compensated
with such funds who is employed in a school se-
lected under section 15104(a)(2) of the Ele-
mentary and Secondary Education Act of 1965
is trained in the instructional practices based
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on reliable, replicable research on reading used
by the school pursuant to such section 15104.
‘‘(3) FEDERAL SHARE.—The Federal share of
the compensation of work study students com-
pensated under this subsection may exceed 75 per-
cent.
‘‘(4) WAIVER.—The Secretary may waive the
requirements of this subsection if the Secretary de-
termines that enforcing such requirements would
cause a hardship for students at the institution.
‘‘(5) RETURN OF FUNDS.—Any institution that
does not use the amount required under this sub-
section, and that does not request and receive a
waiver from the Secretary under paragraph (4),
shall return to the Secretary, at such time as the
Secretary may require for reallocation under para-
graph (6), any balance of such amount that is not
used as so required.
‘‘(6) 
REALLOCATION.—The 
Secretary 
shall
reallot any amounts returned pursuant to paragraph
(5) among institutions that used at least 4 percent
of the total amount of funds granted to such institu-
tion under this section to compensate students em-
ployed in tutoring and literacy activities in the pre-
ceding academic year. Such funds shall be reallotted
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among such institutions on the same basis as excess
eligible amounts are allocated to institutions pursu-
ant to section 442(c). Funds received by institutions
pursuant to this paragraph shall be used in the
same manner as amounts required to be used in ac-
cordance with this subsection.’’.
(d) GRANT REQUIREMENTS.—
(1) 
COMMUNITY
SERVICE.—Section
443(b)(2)(A) (42 U.S.C. 2753(b)(2)(A)) is amend-
ed—
(A) by striking ‘‘in fiscal year 1994 and
succeeding fiscal years,’’; and
(B) by inserting ‘‘(including time spent in
travel or training, or both, directly related to
such community service)’’ after ‘‘community
service’’.
(2) 
USE
OF
FUNDS
FOR
INDEPENDENT
AND
LESS-THAN-FULL-TIME
STUDENTS.—Section
443(b)(3) (42 U.S.C. 2753(b)(3)) is amended to
read as follows:
‘‘(3) provide that in the selection of students
for employment under such work-study program,
only students, who demonstrate financial need in ac-
cordance with part F of this title, and who meet the
requirements of section 484 will be assisted, except
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that if the institution’s grant under this part is di-
rectly or indirectly based in part on the financial
need demonstrated by students who are (A) attend-
ing the institution less than full time, or (B) inde-
pendent students, then grant funds shall be made
available to such less than full-time and independent
students;’’.
(3) AVAILABILITY
OF
EMPLOYMENT.—Section
443(b)(6) is amended by striking everything after
‘‘in need thereof’’ and inserting a semicolon.
(4) ACADEMIC RELEVANCE.—Section 443(c)(4)
is amended by inserting before the semicolon at the
end the following: ‘‘, to the maximum extent prac-
ticable’’.
(e) FLEXIBLE USE OF FUNDS.—Section 445(b) (42
U.S.C. 2755(b)) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(3) An eligible institution may, with the permission
of a student, make payments to the student under this
part by crediting the student’s account at the institution
or by making a direct deposit to the student’s account at
a depository institution. An eligible institution may only
credit the student’s account at the institution for (A) tui-
tion and fees, (B) in the case of institutionally owned
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housing, room and board, and (C) other institutionally
provided goods and services.’’.
(f ) JOB
LOCATION
AND
DEVELOPMENT
PRO-
GRAMS.—Section 446 (42 U.S.C. 2756) is amended—
(1) in subsection (a)(1)—
(A) by striking ‘‘$50,000’’ and inserting
‘‘$60,000’’; and
(B) by striking ‘‘community service jobs,
for currently enrolled students’’ and inserting
‘‘community service jobs and cooperative edu-
cation jobs, for currently enrolled students, in-
cluding students participating in work-study
programs under this part’’; and
(2) in subsection (b)—
(A) 
by 
redesignating 
paragraphs 
(4)
through (6) as paragraphs (5) through (7); and
(B) by inserting after paragraph (3) the
following new paragraph:
‘‘(4) provide that the institution will notify the
Secretary if the institution will use funds under this
section to develop cooperative education jobs and will
provide assurances that—
‘‘(A) the funds provided under this para-
graph will supplement and not supplant any co-
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operative education funds available to the insti-
tution;
‘‘(B) in the case of 2-year programs, funds
will be used to develop and expand cooperative
education, jobs for associate degree or certifi-
cate students only;
‘‘(C) the work portion of a cooperative edu-
cation job developed or expanded under this
paragraph will be related to a student’s aca-
demic program; and
‘‘(D) the institution will furnish the Sec-
retary a report on cooperative education jobs
expanded and developed under this paragraph,
including—
‘‘(i) how the funds were used;
‘‘(ii) a list of employers and whether
the employer is a for-profit or not-for-prof-
it entity; and
‘‘(iii) the employers’ role in the coop-
erative education job.’’.
(g) WORK COLLEGES EXTENSION OF AUTHORITY.—
Section 448(f ) (42 U.S.C. 2756b(f )) is amended by strik-
ing ‘‘1993’’ and inserting ‘‘1999’’.
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PART D—WILLIAM D. FORD FEDERAL DIRECT
LOAN PROGRAM
SEC. 436. SELECTION OF INSTITUTIONS.
(a) GENERAL
AUTHORITY.—Section 453(a) (20
U.S.C. 1087c(a)) is amended—
(1) by striking ‘‘PHASE-IN’’ and everything that
follows through ‘‘GENERAL AUTHORITY.—’’ and in-
serting ‘‘GENERAL AUTHORITY.—’’; and
(2) by striking paragraphs (2), (3), and (4).
(b) SELECTION CRITERIA.—Section 453(b)(2) is
amended by striking ‘‘prescribe,’’ and everything that fol-
lows through the end of subparagraph (B) and inserting
‘‘prescribe.’’.
(c) ORIGINATION.—Section 453(c) is amended—
(1) in paragraph (2)—
(A) in the heading, by striking ‘‘TRANSI-
TION SELECTION CRITERIA’’ and inserting ‘‘SE-
LECTION CRITERIA’’±±;
(B) by striking ‘‘For academic year 1994–
1995, the Secretary’’ and inserting ‘‘The Sec-
retary’’;
(C) by striking subparagraph (A); and
(D) in subparagraph (E), by striking ev-
erything after ‘‘deficiencies’’ and inserting a
semicolon; and
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(E) by redesignating subparagraphs (B)
through (H) as subparagraphs (A) through (G);
and
(2) in paragraph (3)—
(A) in the heading, by striking ‘‘AFTER
TRANSITION’’; and
(B) by striking ‘‘For academic year 1995–
1996 and subsequent academic years, the Sec-
retary’’ and inserting ‘‘The Secretary’’.
SEC. 437. TERMS AND CONDITIONS.
(a) INTEREST RATES.—
(1) AMENDMENT.—Section 455(b) (20 U.S.C.
1087e(b)) is amended to read as follows:
‘‘(b) INTEREST RATE.—
‘‘(1) RATES FOR FDSL AND FDUSL.—For Fed-
eral Direct Stafford Loans and Federal Direct Un-
subsidized Stafford Loans for which the first dis-
bursement is made on or after July 1, 1998, the ap-
plicable rate of interest shall, during any 12-month
period beginning on July 1 and ending on June 30,
be determined on the preceding June 1 and be equal
to—
‘‘(A) the bond equivalent rate of 91-day
Treasury bills auctioned at the final auction
held prior to such June 1; plus
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‘‘(B) 2.3 percent,
except that such rate shall not exceed 8.25 percent.
‘‘(2) IN SCHOOL AND GRACE PERIOD RULES.—
With respect to any Federal Direct Stafford Loan or
Federal Direct Unsubsidized Stafford Loan for
which the first disbursement is made on or after
July 1, 1995, the applicable rate of interest for in-
terest which accrues—
‘‘(A) prior to the beginning of the repay-
ment period of the loan; or
‘‘(B) during the period in which principal
need not be paid (whether or not such principal
is in fact paid) by reason of a provision de-
scribed 
in 
section 
428(b)(1)(M) 
or
427(a)(2)(C),
shall be determined under paragraph (1) by sub-
stituting ‘1.7 percent’ for ‘2.3 percent’.
‘‘(3) PLUS LOANS.—With respect to Federal
Direct PLUS Loan for which the first disbursement
is made on or after July 1, 1998, the applicable rate
of interest shall be determined under paragraph
(1)—
‘‘(A) by substituting ‘3.1 percent’ for ‘2.3
percent’; and
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‘‘(B) by substituting ‘9.0 percent’ for ‘8.25
percent’.
‘‘(4) CONSOLIDATION LOANS.—Any Federal Di-
rect Consolidation loan for which the application is
received on or after October 1, 1998, shall bear in-
terest at an annual rate on the unpaid principal bal-
ance of the loan that is equal to the lesser of—
‘‘(i) the weighted average of the interest
rates on the loans consolidated, rounded to the
nearest higher one-eighth of one percent; or
‘‘(ii) 8.25 percent.
‘‘(5) REPAYMENT INCENTIVES.—Notwithstand-
ing any other provision of this part, the Secretary is
authorized to prescribe in regulation such reductions
in the interest rate paid by a borrower of a loan
made under this part as the Secretary determines
appropriate to encourage on-time repayment. Such
reductions may be offered only if the Secretary de-
termines they are both cost neutral and in the best
financial interest of the Federal Government. Any
increase in subsidy costs resulting from such reduc-
tions must be completely offset by corresponding
savings in funds available for the Direct Loan Pro-
gram in that fiscal year from section 458 and other
administrative accounts.
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‘‘(6) PUBLICATION.—The Secretary shall deter-
mine the applicable rates of interest under this sub-
section after consultation with the Secretary of the
Treasury and shall publish such rate in the Federal
Register as soon as practicable after the date of de-
termination.’’.
(2) EFFECTIVE
DATE.—Except as otherwise
provided therein, the amendments made by this sec-
tion shall apply with respect to any loan made under
part D of title IV of the Higher Education Act of
1965 for which the first disbursement is made on or
after July 1, 1998.
(b) CONSOLIDATION LOANS.—The first sentence of
section 455(g) is amended by striking everything after
‘‘section 428C(a)(4)’’ and inserting a period.
SEC. 438. CONTRACTS.
Section 456(b) (20 U.S.C. 1087f(b)) is amended—
(1) by inserting ‘‘and’’ after the semicolon at
the end of paragraph (3);
(2) by striking paragraph (4); and
(3) by redesignating paragraph (5) as para-
graph (4).
SEC. 439. FUNDS FOR ADMINISTRATIVE EXPENSES.
Section 458 (20 U.S.C. 1087h) is amended—
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(1) in subsection (a)(1), by striking subpara-
graph (B) and everything that follows and inserting
the following:
‘‘(B) account maintenance fees payable to
guaranty agencies under part B and calculated
in accordance with paragraph (2),
not to exceed (from such funds not otherwise appro-
priated) 
$626,000,000 
in 
fiscal 
year 
1999,
$726,000,000 in fiscal year 2000, $770,000,000 in
fiscal year 2001, $780,000,000 in fiscal year 2002,
and $795,000,000 in fiscal year 2003. Account
maintenance fees under subparagraph (B) of this
paragraph shall be paid quarterly and deposited in
the Operating Fund established under 422B. The
Secretary may carry over funds available under this
section to a subsequent fiscal year.’’;
(2) by striking paragraph (2) of subsection (a)
and inserting the following:
‘‘(2) CALCULATION
BASIS.—Account mainte-
nance fees payable to guaranty agencies under para-
graph (1)(B) shall be calculated for fiscal year 1999
and fiscal year 2000, on the basis of 0.12 percent
of the original principal amount of outstanding loans
on which insurance was issued under part B, and for
fiscal years 2001 and succeeding fiscal years, shall
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be calculated on the basis of 0.10 percent of the
original principal amount of outstanding loans on
which insurance was issued under part B.’’; and
(3) by striking subsection (d).
SEC. 440. AUTHORITY TO SELL LOANS.
Part D of title IV (20 U.S.C. 1087a et seq.) is
amended by adding at the end the following new section:
‘‘SEC. 459. AUTHORITY TO SELL LOANS.
‘‘The Secretary, in consultation with the Secretary of
the Treasury, is authorized to sell loans made under this
part on such terms as the Secretary determines are in the
best interest of the United States, except that any such
sale shall not result in any cost to the Federal Govern-
ment. Notwithstanding any other provision of law, the pro-
ceeds of any such sale may be used by the Secretary to
offer reductions in the interest rate paid by a borrower
of a loan made under this part as the Secretary deter-
mines appropriate to encourage on-time repayment. Such
reductions may be offered only if the Secretary determines
they are in the best financial interests of the Federal Gov-
ernment.’’.
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SEC. 441. CANCELLATION OF LOANS FOR CERTAIN PUBLIC
SERVICE.
Part D of title IV is amended by inserting after sec-
tion 459, as added by section 440, the following new sec-
tion:
‘‘SEC. 459A. CANCELLATION OF LOANS FOR CERTAIN PUB-
LIC SERVICE.
‘‘(a) CANCELLATION
OF PERCENTAGE
OF DEBT
BASED ON YEARS OF QUALIFYING SERVICE.—
‘‘(1) FUNCTIONS OF SECRETARY.—The percent
specified in paragraph (4) of the total amount of
any qualifying loan shall be canceled for each com-
plete year of service by the borrower described in
paragraph (3).
‘‘(2) QUALIFYING LOANS.—
‘‘(A) IN GENERAL.—For purposes of this
subsection, a loan is a qualifying loan if—
‘‘(i) the loan was a Federal Direct
Stafford Loan made on or after the date of
enactment 
of 
the 
Higher 
Education
Amendments of 1998 to a borrower who,
on the date of entering into the note or
other written evidence of the loan, had no
outstanding balance of principal or interest
on any loan made before such date; and
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‘‘(ii) the loan was obtained to cover
the cost of instruction for an academic
year after the first and second year of un-
dergraduate education.
‘‘(B) LIMITATION.—The Secretary may
not repay loans described in subparagraph (A)
to cover the costs of instruction for more than
two academic years, or three academic years in
the case of a program of instruction normally
requiring five years.
‘‘(C) 
TREATMENT
OF
CONSOLIDATION
LOANS.—A Federal Direct Consolidation Loan
may be a qualifying loan for the purposes of
this subsection only to the extent that such loan
was used to repay a loan or loans that meet the
requirements of subparagraphs (A) and (B), as
determined in accordance with regulations pre-
scribed by the Secretary.
‘‘(3) QUALIFYING
SERVICE.—A loan shall be
cancelled under paragraph (1) for service by the bor-
rower as a full-time teacher for each complete aca-
demic year of service, after completion of the second
academic year of service, in a public or other non-
profit private elementary or secondary school—
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‘‘(A) which is in the school district of a
local educational agency which is eligible in
such year for assistance pursuant to title I of
the Elementary and Secondary Education Act
of 1965; and
‘‘(B) which for the purpose of this para-
graph and for that year has been determined by
the State educational agency of the State in
which the school is located to be a school in
which the enrollment of children counted under
section 1124(c) of the Elementary and Second-
ary Education Act of 1965 exceeds 30 percent
of the total enrollment of that school.
‘‘(4) PERCENTAGE
OF
CANCELLATION.—(A)
The percent of a loan which shall be canceled under
paragraph (1) of this subsection is at the rate of—
‘‘(i) 30 percent for the first or second com-
plete academic year of qualifying service as de-
scribed in paragraph (3) (after completion of
two years of service); and
‘‘(ii) 40 percent for the third complete year
of such qualifying service.
‘‘(B) The total amount that may be canceled
under this subsection for any borrower shall not ex-
ceed $17,750.
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‘‘(C) If a portion of a loan is canceled under
this subsection for any year, the entire amount of in-
terest on such loan which accrues for such year shall
be canceled.
‘‘(D) Nothing in this section shall be construed
to authorize refunding of any repayment of a loan.
‘‘(5) LIMITATION ON TEACHER ELIGIBILITY.—
‘‘(A) SECONDARY SCHOOL TEACHERS.—A
borrower may not receive assistance under this
subsection by virtue of teaching in a secondary
school unless such borrower majored in the sub-
ject area in which they are teaching.
‘‘(B) ELEMENTARY SCHOOL TEACHERS.—
A borrower may not receive assistance under
this subsection by virtue of teaching in a ele-
mentary school unless such borrower dem-
onstrates, in accordance with State teacher cer-
tification or licensing requirements, subject
matter knowledge and teaching skills in read-
ing, writing, mathematics, and other subjects
taught in elementary schools.
‘‘(6) DEFINITION.—For the purpose of this sec-
tion, the term ‘year’ where applied to service as a
teacher means an academic year as defined by the
Secretary.
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‘‘(7) 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)(3) 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)(3) 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.’’.
PART E—FEDERAL PERKINS LOANS
SEC. 445. AMENDMENTS TO PART E.
(a) EXTENSION OF AUTHORITY.—Section 461(b) (20
U.S.C. 1087aa(b)) is amended—
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(1) in paragraph (1), by striking ‘‘1993’’ and
inserting ‘‘1999’’; and
(2) in paragraph (2), by striking ‘‘1997’’ each
place it appears and inserting ‘‘2003’’.
(b) ALLOCATION
OF
FUNDS.—Section 462 (20
U.S.C. 1087bb) is amended—
(1) by striking subsection (b);
(2) in subsection (c)(1), by striking ‘‘three-
quarters of the remainder’’ and inserting ‘‘the re-
mainder’’;
(3) in subsection (c)(2), by striking ‘‘subsection
(g)’’ and inserting ‘‘subsection (f )’’;
(4) in subsection (c)(3)—
(A) by striking ‘‘subsection (d)’’ and in-
serting ‘‘subsection (c)’’;
(B) by striking ‘‘subsection (f )’’ and in-
serting ‘‘subsection (e)’’; and
(C) by striking ‘‘subsection (g)’’ and in-
serting ‘‘subsection (f )’’;
(5) in subsection (f )(1), by striking ‘‘subsection
(g)’’ and inserting ‘‘subsection (f )’’;
(6) in subsection (j)(2)—
(A) by striking ‘‘subsection (c)’’ and in-
serting ‘‘subsection (b)’’; and
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‘‘(7) ENDOWMENT FUND.—For the purpose of
this part, the term ‘endowment fund’ means a fund
that—
‘‘(A) is established by State law, by an in-
stitution of higher education, or by a founda-
tion that is exempt from Federal income tax-
ation;
‘‘(B) is maintained for the purpose of gen-
erating income for the support of the institu-
tion; and
‘‘(C) does not include real estate.
‘‘(b) ENROLLMENT OF NEEDY STUDENTS.—For the
purpose of this part, the term ‘enrollment of needy stu-
dents’ means an enrollment at an institution of higher
education or a junior or community college which in-
cludes—
‘‘(1) at least 50 percent of the degree students
so enrolled who are receiving need-based assistance
under title IV of this Act in the second fiscal year
preceding the fiscal year for which the determination
is being made (other than loans for which an inter-
est subsidy is paid pursuant to section 428); or
‘‘(2) a substantial percentage of students re-
ceiving Pell Grants in the second fiscal year preced-
ing the fiscal year for which determination is being