article: SECTION 1. SHORT TITLE; REFERENCES. (a) Short Title.--This Act may be cited as the ``Student Loan Evaluation and Stabilization Act of 1995''. (b) References.--References in this Act to ``the Act'' are references to the Higher Education Act of 1965 (20 U.S.C. 1001 et seq.). SEC. 2. FINDINGS. The Congress finds that: (1) The current public/private student loan partnership is fulfilling the mission set for it by Congress, delivering loans to students reliably and in a timely fashion, and should be preserved. (2) The Administration's dismantling of the Federal Family Education Loan (FFEL) Program which has begun in order to replace it with an unproven direct Government lending program, which increases the Federal debt, further enlarges the Federal bureaucracy, adds major new financial oversight activities to the already overburdened Department of Education, and forces Congress to depend on estimated budget savings which may prove illusory, needs to be stopped so that a true and valid comparison of the student loan programs can occur. (3) The Federal Direct Student Loan (FDSL) Program pilot is only now getting started and has proceeded fairly smoothly when dealing with 5 percent of new loan volume. This slow and cautious approach should be continued as the volume increases to 40 percent. This pilot program should continue to proceed slowly and cautiously and demonstrate successful results before expanding it to additional loan volume. (4) While the FDSL Program pilot continues its test phase, reform of the FFEL Program which will benefit students and institutions of higher education should be a continuing priority for the Department of Education. SEC. 3. PARTICIPATION OF INSTITUTIONS AND ADMINISTRATION OF DIRECT LOAN PROGRAMS. (a) Limitation on Proportion of Loans Made Under Direct Loan Program.--Section 453(a) of the Act (20 U.S.C. 1087c(a)) is amended-- (1) by amending paragraph (2) to read as follows: ``(2) Determination of number of agreements.--In the exercise of the Secretary's discretion, the Secretary shall enter into agreements under subsections (a) and (b) of section 454 with institutions for participation in the programs under this part, subject to the following: ``(A) for academic year 1994-1995, loans made under this part shall represent 5 percent of the new student loan volume for such year; and ``(B) for academic year 1995-1996 and for any succeeding fiscal year, loans made under this part shall be limited to loans to students and parents of students attending eligible institutions that have applied and been accepted for participation in the program under this part on or before December 31, 1994.'' (2) by striking paragraph (3); and (3) by redesignating paragraph (4) as paragraph (3). (b) Elimination of Conscription.--Section 453(b)(2) of such Act is amended-- (1) by striking subparagraph (B); (2) by redesignating subparagraphs (A)(i) and (A)(ii) as subparagraphs (A) and (B) respectively; and (3) in such subparagraph (B) (as so redesignated) by striking ``clause (i); and'' and inserting ``subparagraph (A).''. (c) Control of Administrative Expenses.-- (1) In general.--Section 458(a) of the Act is amended to read as follows: ``(a) In General.--Each fiscal year, there shall be available to the Secretary of Education from funds not otherwise appropriated, funds to be obligated for administrative costs under this part, not to exceed (from such funds not otherwise appropriated) $260,000,000 in fiscal year 1994, $295,000,000 in fiscal year 1995, $395,000,000 in fiscal year 1996, $400,000,000 in fiscal year 1997, and $400,000,000 in fiscal year 1998. Such administrative costs shall include the costs of annually assessing the program under this part and, subject to subsection (e) of this section, payment of an administrative cost allowance for the expenses of guaranty agencies in servicing outstanding loans in their portfolios and in guaranteeing new loans. If in any fiscal year the Secretary determines that additional funds for administrative expenses are needed, the Secretary is authorized to use funds available under this section for a subsequent fiscal year for such expenses, except that the total expenditures by the Secretary (from such funds not otherwise appropriated) shall not exceed $1,750,000,000 in fiscal years 1994 through 1998. The Secretary is also authorized to carry over funds available under this section to a subsequent fiscal year.''. (2) Improved congressional oversight of administration.-- Section 458 of the Act is further amended-- (A) by redesignating subsection (d) as subsection (g); and (B) by inserting after subsection (c) the following new subsections: ``(d) Funding Triggers.--For each fiscal year, funds available under this section may be obligated only in such amounts and according to such schedule as specified in the appropriations Act for the Department of Education after submission by the Department of Education of a detailed proposal of expenditures under this section. ``(e) Administrative Cost Allowance.-- ``(1) Conditions of receipt.--A guaranty agency may not obtain an administrative cost allowance from funds available under subsection (a) unless the guaranty agency has submitted an application in accordance with section 428(f)(2). A guaranty agency that receives such an allowance may expend such allowance for the purposes described in clauses (i) through (v) of section 428(f)(1)(A). ``(2) Election of payment rate.--For each fiscal year, at the time of its application for payments under section 428(f)(2), each guaranty agency shall elect to receive an administrative cost allowance, payable quarterly, for the next fiscal year calculated on the basis of either of the following: ``(A) 0.85 percent of the total principal amount of the loans upon which insurance was issued under part B during such fiscal year by such guaranty agency; or ``(B) 0.08 percent of the original principal amount of loans guaranteed by the guaranty agency that was outstanding at the end of the previous fiscal year. ``(3) Ratable reduction.--If the total amount of funds to be expended by the Secretary for purposes of paying the administrative cost allowances to all guaranty agencies in accordance with this provision exceeds $150,000,000 for any fiscal year, the Secretary shall ratably reduce such payments to all guaranty agencies. ``(f) Quarterly Report.--The Secretary shall provide a detailed quarterly report of all monies expended under this section to the Chairman of the Committee on Labor and Human Resources of the Senate and the Chairman of the Committee on Economic and Educational Opportunities of the House of Representatives. Such report shall specifically identify all contracts entered into by the Department for services supporting the loan programs under parts B and D of this title and the current and projected costs of such contracts.''. (d) Elimination of Transition to Direct Loans.--The Act is further amended-- (1) in section 422(c)(7)-- (A) by striking ``during the transition'' and all that follows through ``part D of this title'' in subparagraph (A); and (B) by striking ``section 428(c)(10)(F)(v)'' in subparagraph (B) and inserting ``section 428(c)(9)(F)(v)''; (2) in section 428(c)(8)-- (A) by striking ``(A)'' after the paragraph designation; and (B) by striking subparagraph (B); (3) in section 428(c)(9)(E)-- (A) by inserting ``or'' after the semicolon at the end of clause (iv); (B) by striking ``; or'' at the end of clause (v) and inserting a period; and (C) by striking clause (vi); (4) in clause (vii) of section 428(c)(9)(F)-- (A) by inserting ``and'' before ``to avoid disruption''; and (B) by striking ``, and to ensure an orderly transition'' and all that follows through the end of such clause and inserting a period; (5) in section 428(c)(9)(K), by striking ``the progress of the transition from the loan programs under this part to'' and inserting ``the integrity and administration of''; (6) in section 428(e)(1)(B)(ii), by striking ``during the transition'' and all that follows through ``part D of this title''; (7) in section 428(e)(3), by striking ``of transition''; (8) in section 428(j)(3)-- (A) by striking ``during transition to direct lending''; and (B) by striking ``during the transition'' and all that follows through ``part D of this title,'' and inserting a comma; (9) in section 453(c)(2), by striking ``Transition'' and inserting ``Institutional''; (10) in section 453(c)(3), by striking ``after transition''; and (11) in section 456(b)-- (A) by inserting ``and'' after the semicolon at the end of paragraph (3); (B) by striking paragraph (4); (C) by redesignating paragraph (5) as paragraph (4); and (D) in such paragraph (4) (as redesignated), by striking ``successful operation'' and inserting ``integrity and efficiency''. SEC. 4. ABILITY OF BORROWERS TO CONSOLIDATE UNDER DIRECT AND GUARANTEED LOAN PROGRAMS. (a) Ability of Part D Borrowers to Obtain Federal Stafford Consolidation Loans.--Section 428C(a)(4) of the Act (20 U.S.C. 1078- 3(a)(4)) is amended-- (1) by striking ``or'' at the end of subparagraph (B); (2) by redesignating subparagraphs (C) and (D) as subparagraphs (D) and (E); and (3) by inserting after subparagraph (B) the following new subparagraph: ``(C) made under part D of this title;''. (b) Ability of Part B Borrowers to Obtain Federal Direct Consolidation Loans.--Section 428C(b)(5) of such Act is amended to read as follows: ``(5) Direct consolidation loans for borrowers in specified circumstances.-- ``(A) The Secretary may offer a borrower a direct consolidation loan in the event that a borrower otherwise eligible for a consolidation loan pursuant to this section is-- ``(i) unable to obtain a consolidation loan from a lender with an agreement under subsection (a)(1), or ``(ii)(I) evidences a substantial existing or projected difficulty in repaying loans received under this part; and ``(II) desires a consolidation loan with an income contingent repayment schedule as offered to borrowers under part D of this title. ``(B) The Secretary shall establish appropriate certification procedures to verify the eligibility of borrowers for loans pursuant to this paragraph. ``(C) The Secretary shall not offer such consolidation loans if, in the Secretary's judgment, the Department of Education does not have the necessary origination and servicing arrangements in place for such loans, or the projected volume in the program would be destabilizing to the availability of loans otherwise available under this part.''. SEC. 5. RESERVE FUND PROGRAMS. (a) Guaranty Agency Reserve Levels.--Section 428(c)(9) of such Act (20 U.S.C. 1078(c)(9)) is amended-- (1) in subparagraph (E)-- (A) by striking ``The Secretary'' and inserting ``After notice and opportunity for a hearing on the record, the Secretary''; (B) by inserting ``or'' after the semicolon at the end of clause (iv); (C) by striking ``; or'' at the end of clause (v) and inserting a period; and (D) by striking clause (vi); and (2) in subparagraph (F)-- (A) by inserting ``dedicated to the functions of the agency under the loan insurance program under this part'' after ``assets of the guaranty agency'' in clause (vi); and (B) in clause (vi), by inserting before ``; or'' the following ``, except that the Secretary may not take any action to require the guaranty agency to provide to the Secretary the unencumbered non-Federal portion of a reserve fund (as defined in section 422(a)(2))''. (b) Additional Amendments.--Section 422 of such Act is further amended-- (1) in the last sentence of subsection (a)(2), by striking ``Except as provided in section 428(c)(10) (E) or (F), such'' and inserting ``Such''; (2) in subsection (g), by striking paragraph (4) and inserting the following: ``(4) Disposition of funds returned to or recovered by the secretary.--Any funds that are returned to or otherwise recovered by the Secretary pursuant to this subsection shall be returned to the Treasury of the United States for purposes of reducing the Federal debt and shall be deposited into the special account under section 3113(d) of title 31, United States Code.''. SEC. 6. DEFAULT RATE LIMITATIONS ON DIRECT LENDING. Section 455 of the Act is amended by adding at the end the following new subsection: ``(k) Termination of Institutions for High Default Rates.-- ``(1) Methodology and criteria.--After consultation with institutions of higher education and other members of the higher education community, the Secretary shall develop-- ``(A) a methodology for the calculation of institutional default rates under the loan programs operated pursuant to this part; ``(B) criteria for the initiation of termination proceedings on basis of such default rates; and ``(C) procedures for the conduct of such termination proceedings. ``(2) Comparability to part b.--In developing the methodology, criteria, and procedures required by paragraph (1), the Secretary shall, to the maximum extent possible, establish standards for the termination of institutions from participation in loan programs under this part that are comparable to the standards established for the termination of institutions from participation in the loan programs under part B. Such procedures shall also include provisions for the appeal of default rate calculations based on deficiencies in the servicing of loans under this part that are comparable to the provisions for such appeals based on deficiencies in the servicing of loans under part B.''. SEC. 7. APPLICATION FOR PART B LOANS USING FREE FEDERAL APPLICATION. Section 483(a) of the Act (20 U.S.C. 1090(a)) is amended-- (1) in paragraph (1)-- (A) by inserting ``B,'' after ``assistance under parts A,''; (B) by striking ``part A) and to determine the need of a student for the purpose of part B of this title'' and inserting ``part A).''; and (C) by striking the last sentence and inserting the following: ``Such form may be in an electronic or any other format (subject to section 485B) in order to facilitate use by borrowers and institutions.''; and (2) in paragraph (3), by striking ``and States shall receive,'' and inserting ``, any guaranty agency authorized by any such institution, and States shall receive, at their request and''. SEC. 8. CREDIT REFORM. (a) Amendment.--Section 502(5)(B) of the Congressional Budget Act (31 U.S.C. 661a(5)(B)) is amended to read as follows: ``(B) The cost of a direct loan shall be the net present value, at the time when the direct loan is disbursed, of the following cash flows for the estimated life of the loan: ``(i) Loan disbursements. ``(ii) Repayments of principal. ``(iii) Payments of interest and other payments by or to the Government over the life of the loan after adjusting for estimated defaults, prepayments, fees, penalties, and other recoveries. ``(iv) In the case of a direct student loan made pursuant to the program authorized under part D of title IV of the Higher Education Act of 1965, direct and indirect expenses, including but not limited to the following: expenses arising from credit policy and oversight, activities related to credit extension, loan origination, loan servicing, training, program promotion and payments to contractors, other Government entities, and program participants, collection of delinquent loans, and write-off and close-out of loans.''. (b) Effective Date.--The amendment made by subsection (a) of this section shall apply to all fiscal years beginning on or after October 1, 1995, and to statutory changes made on or after the date of enactment of this Act. HR 530 IH----2
summary: Student Loan Evaluation and Stabilization Act of 1995 - Amends the Higher Education Act of 1965 with respect to student loan programs. (Sec. 3) Revises the Federal Direct Student Loan program to limit the proportion of loans made under such program: (1) for academic year 1994-1995, to five percent of the new student loan volume for such year; and (2) for academic year 1995-1996 and any succeeding fiscal year, to loans to students and parents of students attending eligible institutions which have applied and been accepted for institutional participation in such program on or before December 31, 1994. Eliminates provisions for selecting additional institutions to participate in such pilot program. Reduces the maximum amount of funds for administrative expenses of such program allowed for certain periods. Revises the items which such funds must cover, including the costs of annually assessing such program and payment of an administrative cost allowance for the expenses of guaranty agencies in servicing outstanding loans in their portfolios and in guaranteeing new loans. Revises provisions for congressional oversight of program administration, by providing for funding triggers which allow administrative funds to be obligated only in such amounts and according to such schedule as specified in the appropriations Act for the Department of Education after submission by the Department of a detailed proposal for such expenditures. Requires a guaranty agency to: (1) submit a specified application before obtaining an administrative cost allowance from such funds; (2) expend such allowance only for specified purposes; and (3) elect a payment rate on the basis of one of two specified formulas. Provides for ratable reductions of such allowances when total payments exceed a specified level. Directs the Secretary of Education to provide a detailed quarterly report of all such expenditures to specified congressional committee chairs. Requires such report to specifically identify all contracts entered into by the Department for services supporting the Federal Family Education Loan (FFEL) Program and the Federal Perkins Loan Program, as well as the current and projected costs of such contracts. Eliminates the transition to the Federal Direct Loan Program. (Sec. 4) Sets forth conditions under which: (1) Federal Perkins Loan borrowers can obtain FFEL consolidation loans; and (2) FFEL borrowers can obtain Federal direct consolidation loans. (Sec. 5) Revises provisions relating to reserve fund programs. (Sec. 6) Sets institutional default rate limitations on direct lending. (Sec. 7) Provides for applications for FFEL loans using the free Federal application form, which is already in use for other types of student aid. Allows such form to be in an electronic or any other format, subject to certain conditions, in order to facilitate use by borrowers and institutions. Provides for authorized guaranty agencies to receive such form. (Sec. 8) Amends the Congressional Budget Act to prescribe a formula for determining the cost of a direct loan on the basis of the net present value, at the time the direct loan is disbursed, of specified types of cash flows for the estimated life of the loan.