II 113th CONGRESS 1st Session S. 546 IN THE SENATE OF THE UNITED STATES March 13, 2013 Mr. Harkin (for himself, Ms. Mikulski , Mrs. Murray , Mr. Franken , Ms. Warren , Mr. Blumenthal , Mr. Sanders , Mr. Rockefeller , Mr. Durbin , Mr. Lautenberg , and Mr. Murphy ) introduced the following bill; which was read twice and referred to the Committee on Health, Education, Labor, and Pensions A BILL To amend entrance counseling and exit counseling for borrowers under the Higher Education Act of 1965, and for other purposes.

1. Short title This Act may be cited as the Smarter Borrowing Act . 2. Amendments to the Higher Education Act of 1965 (a) Notification of Pell grant eligibility Section 401 of the Higher Education Act of 1965 ( 20 U.S.C. 1070a ) is amended by adding at the end the following: (k) Notification of Pell grant eligibility (1) In General Each eligible institution shall, not less than once every 2 years while a student is enrolled in the institution, notify each student enrolled in the institution who is receiving a Federal Pell Grant of the period of time that the student has remaining before the student will not be eligible for a Federal Pell Grant in accordance with subsection (c)(5) because the period of time for which the student has received a Federal Pell Grant, in the aggregate, exceeds the period of enrollment described in subsection (c)(5). (2) Pell Grant Recipients who are borrowers In the case of a student who is receiving a Federal Pell Grant who is also a borrower of a loan made, insured, or guaranteed under part B (other than a loan made pursuant to section 428C or a loan made on behalf of a student pursuant to section 428B) or made under part D (other than a Federal Direct Consolidation Loan or a Federal Direct PLUS loan made on behalf of a student), the requirement described in paragraph (1) shall be carried out in accordance with the notification and counseling requirements described in section 485(o). . (b) Institution Eligibility Section 435 of the Higher Education Act of 1965 (20 U.S.C. 1085) is amended— (1) in subsection (a)(7)— (A) in subparagraph (A), by adding at the end the following: (iii) Summary of default prevention plan Each institution subject to this subparagraph shall prepare a summary of the plan described under clause (i) that is directed to a student audience, and shall make the summary available to students at the institution. ; and (B) by inserting after subparagraph (B) the following: (C) Additional notification and loan counseling requirements An institution whose cohort default rate is equal to or greater than the threshold percentage specified in paragraph (2)(B)(iv) in any fiscal year shall, in order to retain or regain, as the case may be, status as an eligible institution, carry out the additional notification and loan counseling requirements described under section 485(o)(3). . (c) Student Loan Counseling Section 485 of the Higher Education Act of 1965 ( 20 U.S.C. 1092 ) is amended— (1) in subsection (b)— (A) in paragraph (1)(A)— (i) by striking clause (i) and inserting the following: (i) personalized information that reflects the borrower's actual borrowing circumstances, which shall include— (I) the repayment plans available, including income-based and pay-as-you-earn repayment options; (II) a description of the different features of each plan; and (III) personalized information showing estimates of the borrower's anticipated monthly payments and the difference in total interest paid and total payments under each plan; ; (ii) by redesignating clauses (viii) and (ix) as clauses (ix) and (x), respectively; (iii) by inserting after clause (vii) the following: (viii) a statement that student loans must be repaid even if the student is dissatisfied with the quality of education that the student receives; ; and (iv) by adding at the end the following: (C) The counseling described in subparagraph (A)— (i) shall be provided in a simple and understandable manner that includes mechanisms to check for comprehension; and (ii) shall be provided— (I) during an exit counseling session conducted in person; or (II) online. ; and (B) in paragraph (2)(A)(iv), by striking , address, social security number, references, and driver's license number and inserting , postal address, social security number, references, driver's license number, phone number, and personal electronic mailing address ; (2) in subsection (l)— (A) by striking paragraph (1) and inserting the following: (1) Disclosure required prior to signing master promissory note Each eligible institution shall, prior to the signing of the master promissory note to a first-time borrower at such institution of a loan made under part D (other than a Federal Direct Consolidation Loan or a Federal Direct PLUS loan made on behalf of a student), ensure that the borrower receives comprehensive information on the terms and conditions of the loan and of the responsibilities the borrower has with respect to such loan in accordance with paragraph (2). Such information— (A) shall be provided through the use of interactive programs that test the borrower’s understanding of the terms and conditions of the borrower’s loans under part D, using simple and understandable language and clear formatting; and (B) shall be provided— (i) during an entrance counseling session conducted in person; or (ii) online. ; (B) in paragraph (2), by adding at the end the following: (L) (i) A disclosure that Federal student loans offer generally more favorable terms and beneficial repayment options than private education loans, an explanation of the difference and relevance between student loans with a fixed interest rate as compared to student loans with a variable interest rate, and a recommendation that students examine available Federal student loan options before applying for private education loans. (ii) An explanation written by the Secretary, in consultation with the heads of relevant Federal agencies, including the Director of the Consumer Financial Protection Bureau and the Commissioner of the Internal Revenue Service, of— (I) the benefits unique to student loans made under part D, including repayment plans, loan forgiveness, and loan deferment; and (II) the loan terms that borrowers should examine carefully if considering a private education loan. (M) An explanation, if applicable, that a student may refuse all or part of a student loan made under part D that is made to the student, which could help minimize the student's debt obligations. (N) Information relating to the institution's cohort default rate, including— (i) the cohort default rate, as described in section 435(m), of the institution and an easy to understand description of what a cohort default rate is; (ii) the percentage of students at the institution of higher education who borrow Federal student loans under this title; (iii) the national average cohort default rate (as determined by the Secretary in accordance with section 435(m)); and (iv) if the cohort default rate for the institution (as described in clause (i)) is greater than the national average cohort default rate (as described in clause (iii)), then the institution shall provide— (I) the loan repayment rate at the institution, as calculated by the Secretary in accordance with subsection (n), and, if applicable, the loan repayment rate of each program at the institution that is subject to gainful employment regulations under section 668.7 of title 34, Code of Federal Regulations; (II) an easy to understand description of what a loan repayment rate is; and (III) a disclosure to the student that the institution's cohort default rate is above the national average. (O) A statement that student loans must be repaid even if the student is dissatisfied with the quality of education that the student receives. (P) The percent of students at the institution who obtain a degree or certificate within 150 percent of the normal time for completion of, or graduation from, the student's program. ; and (C) by adding at the end the following: (3) Borrower Contact Information Each eligible institution shall require that a borrower who receives entrance counseling under this subsection on or after the date of enactment of the Smarter Borrowing Act submit to the institution, during the entrance counseling required by this subsection, the borrower's contact information at the time of the entrance counseling, including the borrower's— (A) phone number; (B) postal address; and (C) personal electronic mailing address. ; and (3) by adding at the end the following: (n) Loan Repayment Rate (1) In General Not less than once every fiscal year, the Secretary shall calculate the loan repayment rate for each institution of higher education that is participating in a program under this title or seeking to regain eligibility to participate in a program under this title. The Secretary shall make the loan repayment rate for each such institution publicly available on the College Navigator website of the National Center for Education Statistics. (2) Method of Calculation (A) In General For purposes of this subsection, the loan repayment rate for an institution shall be equal to the proportion that— (i) the sum of the total original outstanding principal balance of all loans paid in full of the institution plus the total original outstanding principal balance of all payments-made loans of the institution; bears to (ii) the original outstanding principal balance of all loans described in subparagraph (B) of the institution. (B) Original outstanding principal balance (i) In General For purposes of subparagraph (A), the original outstanding principal balance is the total amount of the outstanding balance, including capitalized interest, on loans under part B and part D owed by students for attendance at the institution on the date those loans first entered repayment, subject to clauses (ii) and (iii). (ii) Exclusion The original outstanding principal balance does not include loans made to parent borrowers under section 428B or the Federal Direct PLUS Loan Program. (iii) Consolidation Loans For loans made under section 428C or Federal Direct Consolidation Loans, the original outstanding principal balance is the original outstanding principal balance of the loans under part B and part D attributable to a borrower’s attendance at the institution. (C) Loans Paid in Full (i) In General For purposes of subparagraph (A)(i), a loan paid in full is a loan described in subparagraph (B) that— (I) (aa) has never been in default; or (bb) in the case of a loan made under section 428C or a Federal Direct Consolidation Loan, neither the consolidation loan nor the underlying loan or loans has ever been in default; and (II) has been paid in full by a borrower. (ii) Consolidation loans and refinancing A loan that is paid through a loan made under section 428C, a Federal Direct Consolidation Loan, or under another refinancing process provided for under this Act, is not counted as a loan paid in full for purposes of this subparagraph until the consolidation loan or other financial instrument is paid in full by the borrower. (D) Payments-Made Loans (i) In General In this paragraph, the term payments-made loan is a loan described in subparagraph (B) that has never been in default or, in the case of a loan made under section 428C or a Federal Direct Consolidation Loan, neither the consolidation loan nor the underlying loan or loans have ever been in default, where— (I) for all undergraduate programs, payments made by a borrower during the most recently completed fiscal year reduce the outstanding balance of a loan, including the outstanding balance of a loan made under section 428C or a Federal Direct Consolidation Loan, to an amount that is less than the outstanding balance of the loan at the beginning of that fiscal year; (II) for post-baccalaureate certificate, master’s degree, doctoral degree, or first-professional degree programs, the total outstanding balance of a loan made under section 428C or a Federal Direct Consolidation Loan at the end of the most recently completed fiscal year is less than the total outstanding balance of the consolidation loan at the beginning of the fiscal year; or (III) a borrower is in the process of qualifying for public service loan forgiveness under section 455(m) and submits an employment certification to the Secretary that demonstrates the borrower is engaged in qualifying employment and the borrower made qualifying payments on the loan during the most recently completed fiscal year. (ii) Outstanding balance of a loan (I) In General The outstanding balance of a loan includes any unpaid accrued interest that has not been capitalized. (II) Consolidation loan The outstanding balance of a loan made under section 428C or a Federal Direct Consolidation Loan includes any unpaid accrued interest that has not been capitalized. (E) Exclusions For the most recently completed fiscal year, the original outstanding principal balance of the following loans is excluded from both the numerator and the denominator of the ratio: (i) Loans that were in an in-school deferment status under section 428(b)(1)(M)(i) or 455(f)(2)(A) during any part of the fiscal year. (ii) Loans that were in a military-related deferment status under section 428(b)(1)(M)(ii) or 455(f)(2)(C) during any part of the fiscal year. (iii) Loans that were discharged as a result of the death of the borrower under subsection (a)(1) or (d) of section 437. (iv) Loans that were assigned or transferred to the Secretary and that are being considered for discharge as a result of the total and permanent disability of the borrower, or were discharged by the Secretary on that basis under section 437(a). (o) Additional notifications and counseling for borrowers (1) Annual Notifications Subject to subparagraph (E), each eligible institution shall, not less than once every year while a student is enrolled in the institution, carry out the notification requirements described in subparagraphs (A), (B), (C), and (D) with respect to a borrower of a loan made, insured, or guaranteed under part B (other than a loan made pursuant to section 428C or a loan made on behalf of a student pursuant to section 428B) or made under part D (other than a Federal Direct Consolidation Loan or a Federal Direct PLUS loan made on behalf of a student). Such notification requirements may be fulfilled by notifications provided through existing methods of communication, such as the annual financial aid award letter. (A) Student Loan Balance; Loan Terms The eligible institution shall provide the borrower with a written notification of— (i) the borrower's outstanding balance of principal and interest owing on any loan made, insured, or guaranteed under this title; (ii) the borrower's repayment options; and (iii) a disclosure that Federal student loans offer generally more favorable terms and beneficial repayment options than private education loans, an explanation of the difference and relevance between student loans with a fixed interest rate as compared to student loans with a variable interest rate, and a recommendation that students examine available Federal student loan options before applying for private education loans. (B) Federal Direct Stafford Loan Eligibility In addition to the notifications under subparagraph (A) and under subparagraph (C), if applicable, in the case of a borrower described in paragraph (1) who qualifies for a Federal Direct Stafford Loan and who was a new borrower on or after July 1, 2013, the institution shall provide— (i) a written notification of the period of time that the borrower has remaining before the borrower will not be eligible for a Federal Direct Stafford Loan in accordance with section 455(q) because the period of time for which the borrower has received Federal Direct Stafford Loans, in the aggregate, exceeds the period of enrollment described in section 455(q)(3); and (ii) a written notification to such student when the period of time for which the borrower has received Federal Direct Stafford Loans, in the aggregate, reaches— (I) except as provided in subclause (II) or (III), a period equal to 100 percent of the published length of the educational program in which the student is enrolled; (II) in the case of a borrower who was previously enrolled in 1 or more other educational programs that began on or after July 1, 2013, a period equivalent to 2/3 of the maximum period of time that the borrower is eligible to receive a Federal Direct Stafford Loan, as calculated in accordance with section 455(q)(3)(A)(ii); or (III) in the case of a borrower who was or is enrolled on less than a full-time basis or in the case of a borrower whose course of study or program is described in paragraph (3)(B) or (4)(B) of section 484(b), a period equivalent to 2/3 of the maximum period of time that the borrower is eligible to receive a Federal Direct Stafford Loan, as calculated in accordance with section 455(q)(3)(B). (C) Pell Grant Eligibility In addition to the notifications under subparagraph (A) and under subparagraph (B), if applicable, in the case of a borrower described in paragraph (1) who is receiving a Federal Pell Grant, the institution shall provide a written notification to such borrower of the period of time that the borrower has remaining before the borrower will not be eligible for a Federal Pell Grant in accordance with section 401(c)(5) because the period of time for which the borrower has received a Federal Pell Grant, in the aggregate, exceeds the period of enrollment described in section 401(c)(5). (D) Confirmation of Receipt of Notification Each eligible institution shall require the borrower, for each applicable notification described in this paragraph, to provide written confirmation (including through electronic means) that the borrower has received the notification and understands the information contained in that notification. (E) Notifications by certain institutions In the case of an institution described in paragraph (2)(A), the notification requirements under this paragraph (including the confirmation of notification described in subparagraph (D)) shall be carried out annually during the interim in-school counseling described in paragraph (2)(B). (2) Additional counseling requirements for institutions with greater than average cohort default rates (A) Applicability In addition to the counseling required under subsections (b) and (l), and any other requirements under this subsection, each eligible institution that has a cohort default rate that is greater than the national average cohort default rate (as determined by the Secretary in accordance with section 435(m)) shall carry out the additional loan counseling described in subparagraphs (B), (C), and (D). Such counseling shall be provided in a simple and understandable manner that includes mechanisms to check for comprehension. (B) Interim in-school counseling Each eligible institution described in subparagraph (A) shall require each borrower of a loan made, insured, or guaranteed under part B (other than a loan made pursuant to section 428C or a loan made on behalf of a student pursuant to section 428B) or made under part D (other than a Federal Direct Consolidation Loan or a Federal Direct PLUS loan made on behalf of a student), to undertake not less than 1 online, or in-person, counseling session at the beginning of each academic year that the borrower is enrolled at such institution, which shall include— (i) the applicable notification requirements described in paragraph (1); and (ii) a statement that student loans must be repaid even if the borrower is dissatisfied with the quality of education that the borrower receives. (C) Additional loan counseling requirements for certain student borrowers (i) In General Each eligible institution described in subparagraph (A) shall require each borrower described in clause (ii) to participate in an additional loan counseling session, which shall— (I) be coordinated jointly by the student’s academic advisor and the financial aid office; (II) include disclosure of the estimated additional cost of attendance that the borrower may incur by failing to progress through the borrower's educational program at a pace that meets the requirements for satisfactory progress, as described in section 484(c); and (III) in the case of a borrower described in clause (ii)(II)(bb), include the development of an institutionally approved academic plan designed to ensure that the borrower will complete the borrower's educational program within a reasonable timeframe. (ii) Borrowers in need of additional loan counseling A borrower shall be subject to the requirements described in clause (i) if— (I) the borrower has a loan made, insured, or guaranteed under part B (other than a loan made pursuant to section 428C or a loan made on behalf of a student pursuant to section 428B) or made under part D (other than a Federal Direct Consolidation Loan or a Federal Direct PLUS loan made on behalf of a student); and (II) (aa) the borrower has transferred to the institution from another institution of higher education; or (bb) the borrower meets certain criteria that the institution has determined may place a borrower at greater risk of defaulting on student loans, such as switching majors or declaring a major late, withdrawing prematurely from an educational program, or being in danger of failing to meet standards of academic progress. (D) Counseling for parent PLUS borrowers (i) In General Each eligible institution described in subparagraph (A) shall, prior to disbursement of a Federal Direct PLUS loan made on behalf of a student in an amount that is greater than $10,000 (either in a single award year or in the aggregate), ensure that the borrower receives comprehensive information on the terms and conditions of the loan and of the responsibilities the borrower has with respect to such loan. Such information— (I) shall be provided through the use of interactive programs that test the borrower’s understanding of the terms and conditions of the borrower’s loan, using simple and understandable language and clear formatting; and (II) shall be provided— (aa) during a counseling session conducted in person; or (bb) online. (ii) Information to be provided The information to be provided to the borrower under clause (i) shall include the following: (I) Information on how interest accrues and is capitalized during periods when the interest is not paid by the borrower. (II) An explanation of when loan repayment begins and what options are available for a borrower who may need a deferment. (III) The repayment plans that are available to the borrower, including personalized information showing— (aa) estimates of the borrower’s anticipated monthly payments under each repayment plan that is available; and (bb) the difference in interest paid and total payments under each repayment plan. (IV) The obligation of the borrower to repay the full amount of the loan, regardless of whether the student on whose behalf the loan was made completes or does not complete the program in which the student is enrolled within the regular time for program completion. (V) The obligation of the borrower to repay the full amount of the loan even if the student on whose behalf the loan was made is dissatisfied with the quality of education that the student receives. (VI) The likely consequences of default on the loan, including adverse credit reports, delinquent debt collection procedures under Federal law, and litigation. (VII) The name of and contact information for the individual the borrower may contact if the borrower has any questions about the borrower’s rights and responsibilities or the terms and conditions of the loan. (3) Additional counseling requirements for certain institutions (A) Applicable Institutions (i) Institutions that may lose eligibility The Secretary shall require that an institution that has a cohort default rate that is equal to or greater than the threshold percentage specified in section 435(a)(2)(B) for the most recent fiscal year for which data is available (except in the case of an institution that meets the criteria for a participation rate index appeal, as described in section 435(a)(8)) shall certify that the institution has met the counseling requirements under subsections (b) and (l) and under this subsection, including the requirements described in subparagraph (B). The counseling shall be provided in a simple and understandable manner that includes mechanisms to check for comprehension. (ii) Institutions that wish to regain eligibility The Secretary shall require that an institution that loses eligibility under part B or part D of this title, or under any other program described in this Act, in accordance with section 435(a)(2)(B) or section 668.206a of title 34, Code of Federal Regulations (as in effect on the day before the date of enactment of the Smarter Borrowing Act ), shall certify that the institution has met the counseling requirements described in subparagraph (B) as a condition of regaining such eligibility. The counseling shall be provided in a simple and understandable manner that includes mechanisms to check for comprehension. (B) Notification and Counseling Requirements In addition to the counseling required under subsections (b) and (l), and any other requirements under this subsection, an institution described in subparagraph (A) shall, for each fiscal year that the institution has a cohort default rate that is equal to or greater than the threshold percentage specified in section 435(a)(2)(B), include in the institution's default prevention plan described under section 668.217 of title 34, Code of Federal Regulations (as in effect on the day before the date of enactment of the Smarter Borrowing Act ) a specification that the institution will— (i) provide each student at the institution with a notification that the institution is an at-risk institution that is subject to losing eligibility (or has lost eligibility, as the case may be) for certain Federal student aid programs due to the institution’s cohort default rate; and (ii) provide each student at the institution who is receiving funds under this title with a counseling session, either in person or over the telephone, for the purpose of helping the student to develop a budget. . (d) Program Participation Agreements Section 487(a) is amended by adding at the end the following: (30) The institution will provide the Secretary with any information that the Secretary requests in order to meet the requirements of section 435(n). . (e) Required Data Any data that an institution of higher education does not have access to and that is required for compliance with this section shall be provided or made available by the Department of Education, or other Federal agencies, as appropriate. 3. Explanation of the benefits of Federal loans The Secretary of Education, in consultation with the heads of relevant Federal agencies, shall prepare and make available to eligible institutions, as described under section 485(l)(2)(L)(ii) of the Higher Education Act of 1965 ( 20 U.S.C. 1092(l)(2)(L)(ii) ), a written explanation of the benefits that are unique to Federal student loans (including repayment plans, loan forgiveness, and loan deferment) and a description of the loan terms that borrowers should examine carefully if considering a private education loan. 4. Longitudinal Study of the Effectiveness of Student Loan Counseling (a) In General Not later than 1 year after the date of enactment of the Smarter Borrowing Act , the Secretary of Education, acting through the Director of the Institute of Education Sciences, shall begin conducting a rigorous longitudinal study of the impact and effectiveness of student loan counseling, as provided in accordance with subsections (b), (l), and (o) of section 485 of the Higher Education Act of 1965 ( 20 U.S.C. 1092 ) and through such other means of providing student loan counseling services as the Secretary may determine. The longitudinal study shall include information about student persistence, degree attainment, program completion, successful entry into student loan repayment, cumulative borrowing levels, and such other factors as the Secretary may determine. (b) Interim Reports Not later than 18 months after the commencement of the study described under this section, and annually thereafter, the Secretary shall evaluate the progress of the study and report any short-term findings to the appropriate committees of Congress. (c) Authorization of Appropriations There are authorized to be appropriated to carry out this section such sums as may be necessary for fiscal year 2013 and each of the 5 succeeding fiscal years. 5. Recommendations (a) National Student Loan Data System Not later than 160 days after the date of enactment of this Act, the Secretary of Education and the Director of the Consumer Financial Protection Bureau shall prepare and submit to Congress a report containing joint recommendations relating to the inclusion of private student loans into the National Student Loan Data System established under section 485B of the Higher Education Act of 1965 ( 20 U.S.C. 1092b ). (b) Recommendations for Student Loan Counseling The Secretary of the Treasury, acting through the President’s Advisory Council on Financial Capability and the Financial Literacy and Education Commission (FLEC), shall prepare and submit to Congress a report containing recommendations about information that should be included in financial literacy counseling for first-time student loan borrowers. 6. Consumer testing of loan counseling and master promissory note (a) Establishment of Consumer Testing Process Not later than 3 months after the date of enactment of the Smarter Borrowing Act , the Secretary of Education shall establish a process for consumer testing the master promissory note and online entrance, exit, and interim loan counseling tools, including online tools that may be used during the counseling that is required under subsections (b), (l), and (o) of section 485 of the Higher Education Act of 1965 ( 20 U.S.C. 1092 ). (b) Participants in Consumer Testing The consumer testing process described in subsection (a) shall include— (1) representatives of students (including low-income students, first generation college students, adult students, and prospective students); (2) students’ families (including low-income families, families with first generation college students, and families with prospective students); (3) institutions of higher education; (4) postsecondary financial aid officers; and (5) nonprofit consumer groups. (c) Duration The Secretary of Education shall ensure that the consumer testing described in this section lasts not longer than 6 months after the process for consumer testing has been established under subsection (a). (d) Use of Consumer Testing Results The Secretary of Education shall use the results of the consumer testing in the final development of online entrance, exit, and interim loan counseling tools, including online tools that may be used during the counseling that is required under subsections (b), (l), and (o) of section 485 of the Higher Education Act of 1965 ( 20 U.S.C. 1092 ), and the final development of a revised master promissory note. (e) Report to Congress Not later than 3 months after the date the consumer testing concludes, the Secretary of Education shall submit to Congress a report that contains— (1) the final online entrance, exit, and interim loan counseling tools that the Department of Education plans to implement, as described under subsection (d), and a revised master promissory note; and (2) the results of the consumer testing conducted under this section.