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ED 443 361 TITLE INSTITUTION ISBN PUB DATE NOTE AVAILABLE FROM PUB TYPE EDRS PRICE DESCRIPTORS IDENTIFIERS ABSTRACT DOCUMENT RESUME HE 033 119 A Compilation of Federal Education Laws: Volume III--Higher Education, as Amended through December 1999. Prepared for the Use of the Committee on Education and the Workforce of the U.S. House of Representatives, Serial No. 106-B, and for the Use of the Committee on Health, Education, Labor, and Pensions of the United States Senate, S. Prt. 106-30. One Hundred Sixth Congress, First Session. [Committee Print]. Congress of the U.S., Washington, DC. Senate Committee on Health, Education, Labor, and Pensions.; Congress of the U.S., Washington, DC. House Committee on Education and the Workforce. ISBN-0-16-059389-1 1999-09-00 648p. U.S. Government Printing Office, Superintendent of Documents, Mail Stop: SSOP, Washington, D.C. 20402-9328. Legal/Legislative/Regulatory Materials (090) MF03/PC26 Plus Postage. Civil Liberties; Community Colleges; *Federal Indian Relationship; *Federal Programs; Grants; Higher Education; Human Services; *Land Grant Universities; Scholarships; Student Financial Aid; Tribally Controlled Education Higher Education Act Amendments 1986; Higher Education Act Amendments 1992; Higher Education Act Amendments 1998; Higher Education Act 1965; Higher Education Amendments 1968; Howard University DC; National Science Foundation Act 1950; Pell Grant Program This compilation of Federal Education Laws pertaining to higher education presents the full text of each statute. Statutes are organized in four sections: (1) general higher education programs; (2) Native American higher education; (3) National Science Foundation; and (4) assistance to specified institutions. The following is a unified listing of the statutes included: Act of March 2, 1867 (Howard University); Bankhead-Jones Act; Calvin Coolidge Memorial Foundation; Claiborne Pell Institute for International Relations and Public Policy Act; Edmund S. Muskie Foundation; Education Amendments of 1972, Land-Grant Status for the College of the Virgin Islands and the University of Guam; Education Amendments of 1980, Title XIII, Parts G and I; Education Amendments of 1980, Title XIII, Part H (Miscellaneous Provisions); First Morrill Act; George Bush School of Government and Public Service Act; Grants to Eisenhower College and to Samuel Rayburn Library; Harry S. Truman Memorial Scholarship Act; Herbert Hoover Memorial; Higher Education Act of 1965; Higher Education Amendments of 1968; Higher Education Amendments of 1986; Higher Education Amendments of 1992--Title IV, V, and XV; Higher Education Amendments of 1992--Title XIII; Higher Education Amendments of 1998; Howard University Endowment Act; Human Rights, Refugee, and Other Foreign Relations Provisions Act of 1996; Human Services Reauthorization Act, Title V; Morris K. Udall Scholarship and Excellence in National Environmental and Native American Public Policy Act of 1992; National Science Foundation Act of 1950; Navajo Community College Act; Public Law 98-480, Title III (Higher Education Projects); Public Law 98-558, Reproductions supplied by EDRS are the best that can be made from the original document. Title V (Higher Education and Research Project); Second Morrill Act; and Tribally Controlled Community College Assistance Act of 1978. (RH) Reproductions supplied by EDRS are the best that can be made from the original document. [COMMITTEE PRINTI w. 4 a A COMPILATION OF FEDERAL EDUCATION LAWS VOLUME IIIHIGHER EDUCATION As Amended Through 1999 PREPARED FOR THE USE OF THE COMMITTEE ON EDUCATION AND THE WORKFORCE U.S. HOUSE OF REPRESENTATIVES 106-B AND FOR THE USE OF THE _ COMMITTEE ON HEI ALT11,.. EDUCATION. LABOR, AND .PENSIONS --OF THE UNITED STATES SENATE S. Prt. 10G-30 ONE HUNDRED sucni CONGRESS FIRST 'SESSION - SEPTEMBER 1999 :;=-11. srCOPY AV IA toLE U.S. DEPARTMENT OF EDUCATION Office of Educational Research and Improvement EDUCATIONAL RESOURCES INFORMATION CENTER (ERIC) \i) This document has been reproduced as received from the person or organization originating It. 0 Minor changes have been made to improve reproduction quality. Points of view or opinions stated in this document do not necessarily represent official OERI position or policy. [COMMITTEE PRINT]. A COMPILATION OF FEDERAL EDUCATION LAWS VOLUME III-HIGHER EDUCATION As Amended Through December 1999 PREPARED FOR THE USE OF THE COMMITTEE ON EDUCATION AND THE WORKFORCE OF THE U.S. HOUSE OF REPRESENTATIVES Serial No. 106-B AND FOR THE.USE OF THE COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS OF THE UNITED STATES SENATE S. Prt. 106-30 ONE HUNDRED SIXTH CONGRESS FIRST SESSION SEPTEMBER 1999 U.S. GOVERNMENT PRINTING OFFICE 54-653 WASHINGTON : 1999 For sale by the U.S. Government Printing Office Superintendent of Documents, Mail Stop: SSOP, Washington, DC 20402-9328 ISBN 0-16-059389-1 COMMITTEE ON EDUCATION AND THE WORKFORCE WILLIAM F. GOODLING, Pennsylvania, Chairman THOMAS E. PETRI, Wisconsin MARGE ROUKEMA, New Jersey CASS BALLENGER, North Carolina BILL BARRETT, Nebraska JOHN A. BOEHNER, Ohio PETER HOEKSTRA, Michigan HOWARD P. "BUCK" McKEON, California MICHAEL N. CASTLE, Delaware SAM JOHNSON, Texas JAMES M. TALENT, Missouri JAMES C. GREENWOOD, Pennsylvania LINDSEY 0. GRAHAM, South Carolina MARK E. SOUDER, Indiana DAVID M. McINTOSH, Indiana CHARLIE NORWOOD, Georgia RON PAUL, Texas BOB SCHAFFER, Colorado FRED UPTON, Michigan NATHAN DEAL, Georgia VAN HILLEARY, Tennessee VERNON J. EHLERS, Michigan MATT SALMON, Arizona THOMAS G. TANCREDO, Colorado ERNIE FLETCHER, Kentucky JIM DEMINT, South Carolina JOHNNY ISAKSON, Georgia WILLIAM (BILL) CLAY, Missouri GEORGE MILLER, California DALE E. KILDEE, Michigan MATTHEW G. MARTINEZ, California MAJOR R. OWENS, New York DONALD M. PAYNE, New Jersey PATSY T. MINK, Hawaii ROBERT E. ANDREWS, New Jersey TIM ROEMER, Indiana ROBERT C. SCOTT, Virginia LYNN C. WOOLSEY, California, CARLOS A. ROMERO-BARCELO, Puerto Rico CHAKA FATTAH, Pennsylvania RUBEN HINOJOSA, Texas CAROLYN McCARTHY, New York JOHN F. TIERNEY, Massachusetts RON KIND, Wisconsin LORETTA SANCHEZ, California HAROLD E. FORD, JR., Tennessee DENNIS J. KUCINICH, Ohio DAVID WU, Oregon RUSH D. HOLT, New Jersey KEVIN TALLEY, Majority Staff Director GAIL WEISS, Minority Staff Director COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS JAMES M. JEFFORDS, Vermont, Chairman JUDD GREGG, New Hampshire BILL FRIST, Tennessee MIKE DeWINE, Ohio MICHAEL B. ENZI, Wyoming TIM HUTCHINSON, Arkansas SUSAN M. COLLINS, Maine SAM BROWNBACK, Kansas CHUCK HAGEL, Nebraska JEFF SESSIONS, Alabama EDWARD M. KENNEDY, Massachusetts CHRISTOPHER J. DODD, Connecticut TOM HARKIN, Iowa BARBARA A. MIKULSKI, Maryland JEFF BINGAMAN, New Mexico PAUL D. WELLSTONE, Minnesota PATTY MURRAY, Washington JACK REED, Rhode Island MARK E. POWDEN, Staff Director SUSAN K HA'rrAN, Deputy Staff Director J. MICHAEL MYERS, Minority Staff Director and Chief Counsel ALPHABETICAL LISTING OF STATUTES CONTAINED IN VOLUME III Page Act of March 2,1867 (Howard University) 631 Bankhead-Jones Act 564 Calvin Coolidge Memorial Foundation 572 Claiborne Pell Institute for International Relations and Public Policy Act 571 Edmund S. Muskie Foundation 572 Education Amendments of 1972, Land-Grant Status for the College of the Virgin Islands and the University of Guam 500 Education Amendments of 1980; Title XIII, Parts G and I 501 Education Amendments of 1980, Title XIII, Part H (Miscellaneous Provisions) 639 First Morrill Act 558 George Bush School of Government and Public Service Act 571 Grants to Eisenhower College and to Samuel Rayburn Library 638 Harry S Truman Memorial Scholarship Act 565 Herbert Hoover Memorial 636 Higher Education Act of 1965 1 Higher Education Amendments of 1968 499 Higher Education Amendments of 1986 503 Higher Education Amendments of 1992Title IV, V, and XV 524 Higher Education Amendments of 1992Title XIII 601 Higher Education Amendments of 1998 532 Howard University Endowment Act 633 Human Rights, Refugee, and Other Foreign Relations Provisions Act of 1996 571 Human Services Reauthorization Act, Title V 643 Morris K. Udall Scholarship and Excellence in National Environmental and Native American Public Policy Act of 1992 573 National Science Foundation Act of 1950 619 Navajo Community College Act 583 Public Law 98-480, Title III (Higher Education Projects) 641 Public Law 98-558, Title V (Higher Education and Research Project) 643 Second Morrill Act 561 Tribally Controlled Community College Assistance Act of 1978 587 (m) TABLE OF CONTENTS VOLUME IIIHIGHER EDUCATION PART IGENERAL HIGHER EDUCATION PROGRAMS Page Higher Education Act of 1965 1 Title IGeneral Provisions 1 Part ADefinitions 1 Part BAdditional General Provisions 7 Part CCost of Higher Education 19 Part DAdministrative Provisions for Delivery of Student Financial Assistance 21 Title IITeacher Quality Enhancement Grants for States and Partnerships 34 Title IIIInstitutional Aid 48 Part AStrengthening Institutions 48 Part BStrengthening Historically Black Colleges and Universities 56 Part CEndowment Challenge Grants for Institutions Eligible for Assistance Under Part a or Part B 64 Part DHistorically Black College and University Capital Financing 68 Part EMinority Science and Engineering Improvement Program 75 Subpart 1Minority Science and Engineering Improvement Program 75 Subpart 2Administrative and General Provisions 77 Part FGeneral Provisions 80 Title IVStudent Assistance 86 Part AGrants to Students in Attendance at Institutions of Higher Education 86 Subpart 1Federal Pell Grants 86 Subpart 2Federal Early Outreach and Student Services Programs 91 Chapter 1Federal Trio Programs 91 Chapter 2Gaining Early Awareness and Readiness for Un- dergraduate Programs 102 Chapter 3Academic Achievement Incentive Scholarships 109 Subpart 3Federal Supplemental Education Opportunity Grants 111 Subpart 4Grants to States for State Student Incentives 116 Subpart 5Special Programs for Students Whose Families are Engaged in Migrant and Seasonal Farmwork 121 Subpart 6Robert C. Byrd Honors Scholarship Program 124 *ERR11*Subpart 7Child Care Access Means Parents in School 127 Subpart 8Learning Anytime Anywhere Partnerships 130 Part BFederal Family Education Loan Program 132 Part CFederal Work-Study Programs 293 Part DWilliam D. Ford Federal Direct Loan Program 304 Part EFederal Perkins Loans 321 Part FNeed Analysis 344 Part GGeneral Provisions Relating to Student Assistance Programs 373 Part HProgram Integrity Triad 435 Subpart 1State Role 435 Subpart 2Accrediting Agency Recognition 435 (V) VI Page Higher Education Act of 1965Continued Title IVStudent AssistanceContinued Part HProgram Integrity TriadContinued Subpart 3Eligibility and Certification Procedures 441 Title VDeveloping Institutions 450 Part AHispanic-Serving Institutions 450 Part BGeneral Provisions 455 Title VIInternational Education Programs 460 Part AInternational and Foreign Language Studies 460 Part BBusiness and International Education Programs 469 Part CInstitute for International Public Policy 475 Part DGeneral Provisions 478 Title VIIGraduate and Postsecondary Improvement Programs 480 Part AGraduate Education Programs 480 Subpart 1Jacob K. Javits Fellowship Program 480 Subpart 2Graduate Assistance in Areas of National Need 484 Subpart 3Thurgood Marshall Legal Educational Opportunity Program 488 Subpart 4General Provisions 490 Part BFund for the Improvement of Postsecondary Education 490 Part CUrban Community Service 493 Part DDemonstration Projects to Ensure Students With Disabil- ities Receive a Quality Higher Education 496 Higher Education Amendments of 1968, Section 507 499 Education Amendments of 1972, Land-Grant Status for the College of the Virgin Islands and the University of Guam 500 Education Amendments of 1980 501 Title XIIIMiscellaneous Provisions 501 Part GNew Land Grant Colleges 501 Part ITechnical Provisions 501 Higher Education Amendments of 1986 503 Title IVStudent Assistance 503 Title XVAmerican Indian, Alaska Native, and Native Hawaiian Culture and Art Development 506 Higher Education Amendments of 1992 524 Effective Dates and Related Implementation Provisions 524 Title IVStudent Assistance 524 Title VEducator Recruitment, Retention, and Development 527 Title XVRelated Programs and Amendments to Other Laws 529 Higher Education Amendments of 1998 532 Title VIII Studies, Reports, and Related Programs 532 Part AStudies 532 Part BAdvanced Placement Incentive Program 537 Part C-- Community Scholarship Mobilization 539 Part DGrants to States for Workplace and Community Transition Training for Incarcerated Youth Offenders 542 Part EGrants to Combat Violent Crimes Against Women on Cam- puses 545 Part FImproving United States Understanding of Science, Engineering, and Technology in East Asia 549 Part GOlympic Scholarships 550 Part HUnderground Railroad 550 Part ISummer Travel and Work Programs 551 Part JWeb-Based Education Commission 552 Part KMiscellaneous 555 First Morrill Act 558 Second Morrill Act 561 Bankhead-Jones Act 564 Harry S Truman Memorial Scholarship Act 565 Human Rights, Refugee, and Other Foreign Relations Provisions Act of 1996 571 Claiborne Pell Institute for International Relations and Public Policy Act 571 George Bush School of Government and Public Service Act 571 Edmund S. Muskie Foundation 572 Calvin Coolidge Memorial Foundation 572 VII Page Morris K. Udall Scholarship and Excellence in National Environmental and Native American Public Policy Act of 1992 573 PART II NATIVE AMERICAN HIGHER EDUCATION Navajo Community College Act 583 Tribally Controlled College or University Assistance Act of 1978 587 Title ITribally Controlled Colleges or Universities 588 Title IIITribally Controlled College or University Endowment Program 597 Title IVTribal Economic Development 599 Higher Education Amendments of 1992 601 Title XIIIIndian Higher Educations Programs 601 Part ATribally Controlled Community Colleges 601 Part BHigher Education Tribal Grant Authorization Act 601 Part CCritical Needs for Tribal Development Act 607 Part DInstitute of American Indian. Native Culture and Arts Development 609 Part ETribal Development Student Assistance Revolving Loan Program 610 Part FAmerican Indian Postsecondary Economic Development Scholarship 614 Part GAmerican Indian Teacher Training 616 PART IIINATIONAL SCIENCE FOUNDATION National Science Foundation Act of 1950 619 PART IVASSISTANCE TO SPECIFIED INSTITUTIONS Act of March 2,1867 631 Howard University Endowment Act 633 Title IIHoward University Endowment 633 Herbert Hoover Memorial 636 Grants to Eisenhower College and to the Samuel Rayburn Library 638 Education Amendments of 1980 639 Title XIII Miscellaneous Provisions 639 Part HMemorials 639 Subpart 1The Robert A. Taft Institute 639 Subpart 2General Daniel James Memorial Health Education Center 639 Subpart 3The William Levi Dawson Chair ofPublic Affairs 640 Public Law 98-480 641 Title IIIHigher Education Projects 641 Human Services Reauthorization Act (P.L. 98-558) 643 Title VHigher Education and Research Project 643 PART IGENERAL HIGHER EDUCATION PROGRAMS Higher Education Act of 1965 (P.L. 89-329) Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act may be cited as the "Higher Education Act of 1965". TITLE I-GENERAL PROVISIONS PART A DEFINITIONS SEC. 101. [20 U.S.C. 1001] GENERAL DEFINITION OF INSTITUTION OF HIGHER EDUCATION. (a) INSTITUTION OF HIGHER EDUCATION.For purposes of this Act, other than title IV, the term "institution of higher education" means an educational institution in any State that (1) admits as regular students only persons having a cer- tificate of graduation from a school providing secondary edu- cation, or the recognized equivalent of such a certificate; (2) is legally authorized within such State to provide a pro- gram of education beyond secondary education; (3) provides an educational program for which the institu- tion awards a bachelor's degree or provides not less than a 2- year program that is acceptable for full credit toward such a degree; (4) is a public or other nonprofit institution; and (5) is accredited by a nationally recognized accrediting agency or association, or if not so accredited, is an institution that has be!n granted preaccreditation status by such an agen- cy or association that has been recognized by the Secretary for the granting of preaccreditation status, and the Secretary has determined that there is satisfactory assurance that the insti- tution will meet the accreditation standards of such an agency or association within a reasonable time. (b) ADDITIONAL INSTITUTIONS INCLUDED.For purposes of this Act, other than title IV, the term "institution of higher education" also includes (1) any school that provides not less than a 1-year program of training to prepare students for gainful employment in a recognized occupation and that meets the provision of para- graphs (1), (2), (4), and (5) of subsection (a); and (2) a public or nonprofit private educational institution in any State that, in lieu of the requirement in subsection (a)(1), admits as regular students persons who are beyond the age of 1 Sec. 102 NIGHER EDUCATION ACT Of 1965 2 compulsory school attendance in the State in which the institu- tion is located. (c) LIST OF ACCREDITING AGENCIES.For purposes of this sec- tion and section 102, the Secretary shall publish a list of nationally recognized accrediting agencies or associations that the Secretary determines, pursuant to subpart 2 of part H of title IV, to be reli- able authority as to the quality of the education or training offered. SEC. 102. [20 U.S.C. 1002] DEFINITION OF INSTITUTION OF HIGHER EDUCATION FOR PURPOSES OF TITLE IV PROGRAMS. (a) DEFINITION OF INSTITUTION OF HIGHER EDUCATION FOR PURPOSES OF TITLE IV PROGRAMS. (1) INCLUSION OF ADDITIONAL INSTITUTIONS.Subject to paragraphs (2) through (4) of this subsection, the term "institu- tion of higher education" for purposes of title IV includes, in addition to the institutions covered by the definition in section 101 (A) a proprietary institution of higher education (as defined in subsection (b) of this section); (B) a postsecondary vocational institution (as defined in subsection (c) of this section); and (C) only for the purposes of part B of title N, an insti- tution outside the United States that is comparable to an institution of higher education as defined in section 101 and that has been approved by the Secretary for the pur- pose of part B of title IV. (2) INSTITUTIONS OUTSIDE THE UNITED STATES. (A) IN GENERAL.For the purpose of qualifying as an institution under paragraph (1)(C), the Secretary shall es- tablish criteria by regulation for the approval of institu- tions outside the United States and for the determination that such institutions are comparable to an institution of higher education as defined in section 101. In the case of a graduate medical or veterinary school outside the United States, such criteria shall include a requirement that a student attending such school outside the United States is ineligible for loans made, insured, or guaranteed under part B unless (i)(I) at least 60 percent of those enrolled in, and at least 60 percent of the graduates of, the graduate medical school outside the United States were not per- sons described in section 484(a)(5) in the year preced- ing the year for which a student is seeking a loan under part B of title IV; and (II) at least 60 percent of the individuals who were students or graduates of the graduate medical school outside the United States (both nationals of the United States and others) taking the examinations ad- ministered by the Educational Commission for Foreign Medical Graduates received a passing score in the year preceding the year for which a student is seeking a loan under part B of title N; or (ii) the institution has a clinical training program that was approved by a State as of January 1, 1992, or the institution's students complete their clinical 0 3 HIGHER EDUCATION ACT OF 1965 Sec. 102 training at an approved veterinary school located in the United States. (B) ADVISORY PANEL. (i) IN GENERAL.For the purpose of qualifying as an institution under paragraph (1)(C) of this sub- section, the Secretary shall establish an advisory panel of medical experts that shall (I) evaluate the standards of accreditation ap- plied to applicant foreign medical schools; and (II) determine the comparability of those standards to standards for accreditation applied to United States medical schools. (ii) SPECIAL RULE.If the accreditation standards described in clause (i) are determined not to be com- parable, the foreign medical school shall be required to meet the requirements of section 101. (C) FAILURE TO RELEASE INFORMATION.The failure of an institution outside the United States to provide, re- lease, or authorize release to the Secretary of such infor- mation as may be required by subparagraph (A) shall render such institution ineligible for the purpose of part B of title IV. (D) SPECIAL RULE.If, pursuant to this paragraph, an institution loses eligibility to participate in the programs under title W, then a student enrolled at such institution may, notwithstanding such loss of eligibility, continue to be eligible to receive a loan under part B while attending such institution for the academic year succeeding the aca- demic year in which such loss of eligibility occurred. (3) LIMITATIONS BASED ON COURSE OF STUDY OR ENROLL- MENT.An institution shall not be considered to meet the defi- nition of an institution of higher education in paragraph (1) if such institution (A) offers more than 50 percent of such institution's courses by correspondence, unless the institution is an in- stitution that meets the definition in section 521(4)(C) of the Carl D. Perkins Vocational and Applied Technology Education Act; (B) enrolls 50 percent or more of the institution's stu- dents in correspondence courses, unless the institution is an institution that meets the definition in such section, ex- cept that the Secretary, at the request of such institution, may waive the applicability of this subparagraph to such institution for good cause, as determined by the Secretary in the case of an institution of higher education that pro- vides a 2- or 4-year program of instruction (or both) for which the institution awards an associate or baccalaureate degree, respectively; (C) has a student enrollment in which more than 25 percent of the students are incarcerated, except that the Secretary may waive the limitation contained in this sub- paragraph for a nonprofit institution that provides a 2- or 4-year program of instruction (or both) for which the insti- Sec. 102 HIGHER EDUCATION ACT OF 1965 4 tution awards a bachelor's degree, or an associate's degree or a postsecondary diploma, respectively; or (D) has a student enrollment in which more than 50 percent of the students do not have a secondary school di- ploma or its recognized equivalent, and does not provide a 2- or 4-year program of instruction (or both) for which the institution awards a bachelor's degree or an associate's de- gree, respectively, except that the Secretary may waive the limitation contained in this subparagraph if a nonprofit in- stitution demonstrates to the satisfaction of the Secretary that the institution exceeds such limitation because the in- stitution serves, through contracts with Federal, State, or local government agencies, significant numbers of students who do not have a secondary school diploma or its recog- nized equivalent. (4) LIMITATIONS BASED ON MANAGEMENT.An institution shall not be considered to meet the definition of an institution of higher education in paragraph (1) if (A) the institution, or an affiliate of the institution that has the power, by contract or ownership interest, to direct or cause the direction of the management or policies of the institution, has filed for bankruptcy, except that this paragraph shall not apply to a nonprofit institution, the primary function of which is to provide health care edu- cational services (or an affiliate of such an institution that has the power, by contract or ownership interest, to direct or cause the direction of the institution's management or policies) that files for bankruptcy under chapter 11 of title 11, United States Code, between July 1, 1998, and Decem- ber 1, 1998; or (B) the institution, the institution's owner, or the insti- tution's chief executive officer has been convicted of, or has pled nolo contendere or guilty to, a crime involving the ac- quisition, use, or expenditure of funds under title IV, or has been judicially determined to have committed fraud in- volving funds under title IV. (5) CERTIFICATION.The Secretary shall certify an institu- tion's qualification as an institution of higher education in ac- cordance with the requirements of subpart 3 of part H of title IV. (6) LOSS OF ELIGIBILITY.An institution of higher edu- cation shall not be considered to meet the definition of an insti- tution of higher education in paragraph (1) if such institution is removed from eligibility for funds under title IV as a result of an action pursuant to part H of title IV. (b) PROPRIETARY INSTITUTION OF HIGHER EDUCATION. (1) PRINCIPAL CRITERIA.For the purpose of this section, the term "proprietary institution of higher education" means a school that (A) provides an eligible program of training to prepare students for gainful employment in a recognized occupa- tion; (B) meets the requirements of paragraphs (1) and (2) of section 101(a); 5 HIGHER EDUCATION ACT OF 1965 Sec. 103 (C) does not meet the requirement of paragraph (4) of section 101(a); (D) is accredited by a nationally recognized accrediting agency or association recognized by the Secretary pursuant to part H of title IV; (E) has been in existence for at least 2 years; and (F) has at least 10 percent of the school's revenues from sources that are not derived from funds provided under title IV, as determined in accordance with regula- tions prescribed by the Secretary. (2) ADDITIONAL INSTITUTIONS.The term "proprietary in- stitution of higher education" also includes a proprietary edu- cational institution in any State that, in lieu of the require- ment in paragraph (1) of section 101(a), admits as regular stu- dents persons who are beyond the age of compulsory school at- tendance in the State in which the institution is located. (c) POSTSECONDARY VOCATIONAL INSTITUTION. (1) PRINCIPAL CRITERIA.For the purpose of this section, the term "postsecondary vocational institution" means a school that (A) provides an eligible program of training to prepare students for gainful employment in a recognized occupa- tion; (B) meets the requirements of paragraphs (1), (2), (4), and (5) of section 101(a); and (C) has been in existence for at least 2 years. (2) ADDITIONAL INSTITUTIONS.The term "postsecondary vocational institution" also includes an educational institution in any State that, in lieu of the requirement in paragraph (1) of section 101(a), admits as regular students persons who are beyond the age of compulsory school attendance in the State in which the institution is located. SEC. 103. [20 U.S.C. 1003] ADDITIONAL DEFINITIONS. In this Act: (1) COMBINATION OF INSTITUTIONS OF HIGHER EDU- CATION.The term "combination of institutions of higher edu- cation" means a group of institutions of higher education that have entered into a cooperative arrangement for the purpose of carrying out a common objective, or a public or private non- profit agency, organization, or institution designated or created by a group of institutions of higher education for the purpose of carrying out a common objective on the group's behalf. (2) DEPARTMENT.The term "Department" means the De- partment of Education. (3) DISABILITY.The term "disability" has the same mean- ing given that term under section 3(2) of the Americans With Disabilities Act of 1990. (4) ELEMENTARY SCHOOL.The term "elementary school" has the same meaning given that term under section 14101 of the Elementary and Secondary Education Act of 1965. (5) GIFTED AND TALENTED.The term "gifted and talented" has the same meaning given that term under section 14101 of the Elementary and Secondary Education Act of 1965. Sec. 103 HIGHER EDUCATION ACT OF 1965 6 (6) LOCAL EDUCATIONAL AGENCY.The term "local edu- cational agency" has the same meaning given that term under section 14101 of the Elementary and Secondary Education Act of 1965. (7) NEW BORROWER.The term "new borrower" when used with respect to any date means an individual who on that date has no outstanding balance of principal or interest owing on any loan made, insured, or guaranteed under title IV. (8) NONPROFIT.The term "nonprofit" as applied to a school, agency, organization, or institution means a school, agency, organization, or institution owned and operated by one or more nonprofit corporations or associations, no part of the net earnings of which inures, or may lawfully inure, to the benefit of any private shareholder or individual. (9) SCHOOL OR DEPARTMENT OF DIVINITY.The term "school or department of divinity" means an institution, or a department or a branch of an institution, the program of in- struction of which is designed for the education of students (A) to prepare the students to become ministers of reli- gion or to enter upon some other religious vocation (or to provide continuing training for any such vocation); or (B) to prepare the students to teach theological sub- jects. (10) SECONDARY SCHOOL.The term "secondary school" has the same meaning given that term under section 14101 of the Elementary and Secondary Education Act of 1965. (11) SECRETARY.The term "Secretary" means the Sec- retary of Education. (12) SERVICE -LEARNING.The term "service-learning" has the same meaning given that term under section 101(23) of the National and Community Service Act of 1990. (13) SPECIAL EDUCATION TEACHER.The term "special edu- cation teacher" means teachers who teach children with dis- abilities as defined in section 602 of the Individuals with Dis- abilities Education Act. (14) STATE EDUCATIONAL AGENCY.The term "State edu- cational agency" has the same meaning given that term under section 14101 of the Elementary and Secondary Education Act of 1965. (15) STATE HIGHER EDUCATION AGENCY.The term "State higher education agency" means the officer or agency primarily responsible for the State supervision of higher education. (16) STATE; FREELY ASSOCIATED STATES. (A) STATE.The term "State" includes, in addition to the several States of the United States, the Common- wealth of Puerto Rico, the District of Columbia, Guam, American Samoa, the United States Virgin Islands, the Commonwealth of the Northern Mariana Islands, and the Freely Associated States. (B) FREELY ASSOCIATED STATES.The term "Freely As- sociated States" means the Republic of the Marshall Is- lands, the Federated States of Micronesia, and the Repub- lic of Palau. 1 HIGHER EDUCATION ACT OF 1965 Sec. 112 PART B-ADDITIONAL GENERAL PROVISIONS SEC. 111. [20 U.S.C. 1011] ANTIDISCRIMINATION. (a) IN GENERAL.Institutions of higher education receiving Federal financial assistance may not use such financial assistance, directly or indirectly, to undertake any study or project or fulfill the terms of any contract containing an express or implied provi- sion that any person or persons of a particular race, religion, sex, or national origin be barred from performing such study, project, or contract, except that nothing in this subsection shall be con- strued to prohibit an institution from conducting objective studies or projects concerning the nature, effects, or prevention of discrimi- nation, or to have the institution's curriculum restricted on the subject of discrimination. (b) LIMITATIONS ON STATUTORY CONSTRUCTION.Nothing in this Act shall be construed to limit the rights or responsibilities of any individual under the Americans With Disabilities Act of 1990, the Rehabilitation Act of 1973, or any other law. SEC. 112. [20 U.S.C. 1011a] PROTECTION OF STUDENT SPEECH AND AS- SOCIATION RIGHTS. (a) PROTECTION OF RIGHTS.It is the sense of Congress that no student attending an institution of higher education on a full- or part-time basis should, on the basis of participation in protected speech or protected association, be excluded from participation in, be denied the benefits of, or be subjected to discrimination or offi- cial sanction under any education program, activity, or division of the institution directly or indirectly receiving financial assistance under this Act, whether or not such program, activity, or division is sponsored or officially sanctioned by the institution. (b) CONSTRUCTION.Nothing in this section shall be construed (1) to discourage the imposition of an official sanction on a student that has willfully participated in the disruption or attempted disruption of a lecture, class, speech, presentation, or performance made or scheduled to be made under the aus- pices of the institution of higher education; or (2) to prevent an institution of higher education from tak- ing appropriate and effective action to prevent violations of State liquor laws, to discourage binge drinking and other alco- hol abuse, to protect students from sexual harassment includ- ing assault and date rape, to prevent hazing, or to regulate un- sanitary or unsafe conditions in any student residence. (c) DEFINITIONS.For the purposes of this section: (1) OFFICIAL SANCTION.The term "official sanction " (A) means expulsion, suspension, probation, censure, condemnation, reprimand, or any other disciplinary, coer- cive, or adverse action taken by an institution of higher education or administrative unit of the institution; and (B) includes an oral or written warning made by an of- ficial of an institution of higher education acting in the of- ficial capacity of the official.. (2) PROTECTED ASSOCIATION.The term "protected associa- tion" means the joining, assembling, and residing with others 15 Sec. 113 HIGHER EDUCATION ACT OF 1965 8 that is protected under the first and 14th amendments to the Constitution, or would be protected if the institution of higher education involved were subject to those amendments. (3) PROTECTED SPEECH.The term "protected speech" means speech that is protected under the first and 14th amendments to the Constitution, or would be protected if the institution of higher education involved were subject to those amendments. SEC. 113. [20 U.S.C. 1011b] TREATMENT OF TERRITORIES AND TERRI- TORIAL STUDENT ASSISTANCE. (a) WAIVER AUTHORITY.The Secretary is required to waive the eligibility criteria of any postsecondary education program ad- ministered by the Department where such criteria do not take into account the unique circumstances in Guam, the United States Vir- gin Islands, American Samoa, the Commonwealth of the Northern Mariana Islands, and the Freely Associated States. (b) ELIGIBILITY.Notwithstanding any other provision of law, an institution of higher education that is located in any of the Free- ly Associated States, rather than in another State, shall be eligible, if otherwise qualified, for assistance under chapter 1 of subpart 2 of part A of title N. This subsection shall cease to be effective on September 30, 2004. SEC. 114. [20 U.S.C. 1011c] NATIONAL ADVISORY COMMITTEE ON INSTI- TUTIONAL QUALITY AND INTEGRITY. (a) ESTABLISHMENT.There is established in the Department a National Advisory Committee on Institutional Quality and Integ- rity (hereafter in this section referred to as the "Committee"), which shall be composed of 15 members appointed by the Secretary from among individuals who are representatives of, or knowledge- able concerning, education and training beyond secondary edu- cation, including representatives of all sectors and types of institu- tions of higher education (as defined in section 102), to assess the process of eligibility and certification of such institutions under title N and the provision of financial aid under title N. (b) TERMS OF MEMBERS.Terms of office of each member of the Committee shall be 3 years, except that any member appointed to fill a vacancy occurring prior to the expiration of the term for which the member's predecessor was appointed shall be appointed for the remainder of such term. (c) PUBLIC NOTICE.The Secretary shall (1) annually publish in the Federal Register a list contain- ing the name of each member of the Committee and the date of the expiration of the term of office of the member; and (2) publicly solicit nominations for each vacant position or expiring term of office on the Committee. (d) FUNCTIONS.The Committee shall (1) advise the Secretary with respect to establishment and enforcement of the standards of accrediting agencies or associa- tions under subpart 2 of part H of title N; (2) advise the Secretary with respect to the recognition of a specific accrediting agency or association; HIGHER EDUCATION ACT OF 1965 Sec. 116 (3) advise the Secretary with respect to the preparation and publication of the list of nationally recognized accrediting agencies and associations; (4) develop and recommend to the Secretary standards and criteria for specific categories of vocational training institutions and institutions of higher education for which there are no rec- ognized accrediting agencies, associations, or State agencies, in order to establish the eligibility of such institutions on an in- terim basis for participation in federally funded programs; (5) advise the Secretary with respect to the eligibility and certification process for institutions of higher education under title IV, together with recommendations for improvements in such process; (6) advise the Secretary with respect to the relationship between (A) accreditation of institutions of higher education and the certification and eligibility of such institutions; and (B) State licensing responsibilities with respect to such institutions; and (7) carry out such other advisory functions relating to ac- creditation and institutional eligibility as the Secretary may prescribe. (e) MEETING PROCEDURES.The Committee shall meet not less than twice each year at the call of the Chairperson. The date of, and agenda for, each meeting of the Committee shall be submitted in advance to the Secretary for approval. A representative of the Secretary shall be present at all meetings of the Committee. (f) REPORT.Not later than November 30 of each year, the Committee shall make an annual report through the Secretary to Congress. The annual report shall contain (1) a list of the members of the Committee and their ad- dresses; (2) a list of the functions of the Committee; (3) a list of dates and places of each meeting during the preceding fiscal year; and (4) a summary of the activities, findings and recommenda- tions made by the Committee during the preceding fiscal year. (g) TERMINATION.The Committee shall cease to exist on Sep- tember 30, 2004. SEC. 115. [20 U.S.C. 1011(1] STUDENT REPRESENTATION. The Secretary shall, in appointing individuals to any commis- sion, committee, board, panel, or other body in connection with the administration of this Act, include individuals who are, at the time of appointment, attending an institution of higher education. SEC. 110. [20 U.S.C. 10110 FINANCIAL RESPONSIBILITY OF FOREIGN STUDENTS. Nothing in this Act or any other Federal law shall be con- strued to prohibit any institution of higher education from requir- ing a student who is a foreign national (and not admitted to perma- nent residence in the United States) to guarantee the future pay- ment of tuition and fees to such institution by (1) making advance payment of such tuition and fees; Sec. 117 NIGHER EDUCATION ACT OF 1965 10 (2) making deposits in an escrow account administered by such institution for such payments; or (3) obtaining a bond or other insurance that such pay- ments will be made. SEC. 117. [20 U.S.C. 1011f] DISCLOSURES OF FOREIGN GIFTS. (a) DISCLOSURE REPORT.Whenever any institution is owned or controlled by a foreign source or receives a gift from or enters into a contract with a foreign source, the value of which is $250,000 or more, considered alone or in combination with all other gifts from or contracts with that foreign source within a calendar year, the institution shall file a disclosure report with the Secretary on January 31 or July 31, whichever is sooner. (b) CONTENTS OF REPORT.Each report to the Secretary re- quired by this section shall contain the following: (1) For gifts received from or contracts entered into with a foreign source other than a foreign government, the aggre- gate dollar amount of such gifts and contracts attributable to a particular country. The country to which a gift is attributable is the country of citizenship, or if unknown, the principal resi- dence for a foreign source who is a natural person, and the country of incorporation, or if unknown, the principal place of business, for a foreign source which is a legal entity. (2) For gifts received from or contracts entered into with a foreign government, the aggregate amount of such gifts and contracts received from each foreign government. (3) In the case of an institution which is owned or con- trolled by a foreign source, the identity of the foreign source, the date on which the foreign source assumed ownership or control, and any changes in program or structure resulting from the change in ownership or control. (C) ADDITIONAL DISCLOSURES FOR RESTRICTED AND CONDI- TIONAL Givrs.Notwithstanding the provisions of subsection (b), whenever any institution receives a restricted or conditional gift or contract from a foreign source, the institution shall disclose the fol- lowing: (1) For such gifts received from or contracts entered into with a foreign source other than a foreign government, the amount, the date, and a description of such conditions or re- strictions. The report shall also disclose the country of citizen- ship, or if unknown, the principal residence for a foreign source which is a natural person, and the country of incorporation, or if unknown, the principal place of business for a foreign source which is a legal entity. (2) For gifts received from or contracts entered into with a foreign government, the amount, the date, a description of such conditions or restrictions, and the name of the foreign government. (d) RELATION TO OTHER REPORTING REQUIREMENTS. (1) STATE REQUIREMENTS.If an institution described under subsection (a) is within a State which has enacted re- quirements for public disclosure of gifts from or contracts with a foreign source that are substantially similar to the require- ments of this section, a copy of the disclosure report filed with 18. 11 HIGHER EDUCATION ACT OF 1965 Sec. 117 the State may be filed with the Secretary in lieu of a report required under subsection (a). The State in which the institu- tion is located shall provide to the Secretary such assurances as the Secretary may require to establish that the institution has met the requirements for public disclosure under State law if the State report is filed. (2) USE OF OTHER FEDERAL REPORTS.If an institution re- ceives a gift from, or enters into a contract with, a foreign source, where any other department, agency, or bureau of the executive branch requires a report containing requirements substantially similar to those required under this section, a copy of the report may be filed with the Secretary in lieu of a report required under subsection (a). (e) PUBLIC INSPECTION.All disclosure reports required by this section shall be public records open to inspection and copying dur- ing business hours. (f) ENFORCEMENT. (1) COURT ORDERS.Whenever it appears that an institu- tion has failed to comply with the requirements of this section, including any rule or regulation promulgated under this sec- tion, a civil action may be brought by the Attorney General, at the request of the Secretary, in an appropriate district court of the United States, or the appropriate United States court of any territory or other place subject to the jurisdiction of the United States, to request such court to compel compliance with the requirements of this section. (2) COSTS.For knowing or willful failure to comply with the requirements of this section, including any rule or regula- tion promulgated thereunder, an institution shall pay to the Treasury of the United States the full costs to the United States of obtaining compliance, including all associated costs of investigation and enforcement. (g) REGULATIONS.The Secretary may promulgate regulations to carry out this section. (h) DEFINITIONS.For the purpose of this section (1) the term "contract" means any agreement for the acqui- sition by purchase, lease, or barter of property or services by the foreign source, for the direct benefit or use of either of the parties; (2) the term "foreign source" means (A) a foreign government, including an agency of a for- eign government; (B) a legal entity, governmental or otherwise, created solely under the laws of a foreign state or states; (C) an individual who is not a citizen or a national of the United States or a trust territory or protectorate there- of; and (D) an agent, including a subsidiary or affiliate of a foreign legal entity, acting on behalf of a foreign source; (3) the term "gift" means any gift of money or property; (4) the term "institution" means any institution, public or private, or, if a multicampus institution, any single campus of such institution, in any State, that Sec. 118 HIGHER EDUCATION ACT OF 1965 12 (A) is legally authorized within such State to provide a program of education beyond secondary school; (B) provides a program for which the institution awards a bachelor's degree (or provides not less than a 2- year program which is acceptable for full credit toward such a degree) or more advanced degrees; and (C) is accredited by a nationally recognized accrediting agency or association and to which institution Federal fi- nancial assistance is extended (directly or indirectly through another entity or person), or which institution re- ceives support from the extension of Federal financial as- sistance to any of the institution's subunits; and (5) the term "restricted or conditional gift or contract" means any endowment, gift, grant, contract, award, present, or property of any kind which includes provisions regarding (A) the employment, assignment, or termination of fac- ulty;(B) the establishment of departments, centers, re- search or lecture programs, or new faculty positions; (C) the selection or admission of students; or (D) the award of grants, loans, scholarships, fellow- ships, or other forms of financial aid restricted to students of a specified country, religion, sex, ethnic origin, or politi- cal opinion. SEC. 118. [20 U.S.C. 10110 APPLICATION OF PEER REVIEW PROCESS. All applications submitted under the provisions of this Act which require peer review shall be read by a panel of readers com- posed of individuals selected by the Secretary, which shall include outside readers who are not employees of the Federal Government. The Secretary shall ensure that no individual assigned under this section to review any application has any conflict of interest with regard to that application which might impair the impartiality with which that individual conducts the review under this section. SEC. 119. [20 U.S.C. 101111] BINGE DRINKING ON COLLEGE CAMPUSES. (a) SHORT TITLE.This section may be cited as the "Collegiate Initiative To Reduce Binge Drinking and Illegal Alcohol Consump- tion". (b) SENSE OF CONGRESS.It is the sense of Congress that, in an effort to change the culture of alcohol consumption on college campuses, all institutions of higher education should carry out the following: (1) The president of the institution should appoint a task force consisting of school administrators, faculty, students, Greek system representatives, and others to conduct a full ex- amination of student and academic life at the institution. The task force should make recommendations for a. broad range of policy and program changes that would serve to reduce alcohol and other drug-related problems. The institution should pro- vide resources to assist the task force in promoting the campus policies and proposed environmental changes that have been identified. (2) The institution should provide maximum opportunities for students to live in an alcohol-free environment and to en- 13 NIGHER EDUCATION ACT OF 1965 Sec. 120 gage in stimulating, alcohol-free recreational and leisure activi- ties. (3) The institution should enforce a "zero tolerance" policy on the illegal consumption of alcohol by students at the institu- tion. (4) The institution should vigorously enforce the institu- tion's code of disciplinary sanctions for those who violate cam- pus alcohol policies. Students with alcohol or other drug-relat- ed problems should be referred for assistance, including on- campus counseling programs if appropriate. (5) The institution should adopt a policy to discourage alco- holic beverage-related sponsorship of on-campus activities. It should adopt policies limiting the advertisement and promotion of alcoholic beverages on campus. (6) The institution should work with the local community, including local businesses, in a "Town/Gown" affiance to en- courage responsible policies toward alcohol consumption and to address illegal alcohol use by students. SEC. 120. [20 U.S.C. 1011i] DRUG AND ALCOHOL ABUSE PREVENTION. (a) RESTRICTION ON ELIGIBILITY.Notwithstanding any other provision of law, no institution of higher education shall be eligible to receive funds or any other form offinancial assistance under any Federal program, including participation in any federally funded or guaranteed student loan program, unless the institution certifies to the Secretary that the institution has adopted and has imple- mented a program to prevent the use of illicit drugs and the abuse of alcohol by students and employees that, at a minimum, includes (1) the annual distribution to each student and employee of (A) standards of conduct that clearly prohibit, at a minimum, the unlawful possession, use, or distribution of illicit drugs and alcohol by students and employees on the institution's property or as part of any of the institution's activities; (B) a description of the applicable legal sanctions under local, State, or Federal law for the unlawful posses- sion or distribution of illicit drugs and alcohol; (C) a description of the health-risks associated with the use of illicit drugs and the abuse of alcohol; (D) a description of any drug or alcohol counseling, treatment, or rehabilitation or re-entry programs that are available to employees or students; and (E) a clear statement that the institution will impose sanctions on students and employees (consistent with local, State, and Federal law), and a description of those sanctions, up to and including expulsion or termination of employment and referral for prosecution, for violations of the standards of conduct required by subparagraph (A); and (2) a biennial review by the institution of the institution's program to Sec. 120 HIGHER EDUCATION ACT OF 1965 14 (A) determine the program's effectiveness and imple ment changes to the program if the changes are needed; and (B) ensure that the sanctions required by paragraph (1)(E) are consistently enforced. (b) INFORMATION AVAILABILITY.Each institution of higher education that provides the certification required by subsection (a) shall, upon request, make available to the Secretary and to the public a copy of each item required by subsection (a)(1) as well as the results of the biennial review required by subsection (a)(2). (C) REGULATIONS. (1) IN GENERALThe Secretary shall publish regulations to implement and enforce the provisions of this section, includ- ing regulations that provide for (A) the periodic review of a representative sample of programs required by subsection (a); and (B) a range of responses and sanctions for institutions of higher education that fail to implement their programs or to consistently enforce their sanctions, including infor- mation and technical assistance, the development of a compliance agreement, and the termination of any form of Federal financial assistance. (2) REHABILITATION PROGRAM.The sanctions required by subsection (a)(1)(E) may include the completion of an appro- priate rehabilitation program. (d) APPEALS.Upon determination by the Secretary to termi- nate financial assistance to any institution of higher education under this section, the institution may file an appeal with an ad- ministrative law judge before the expiration of the 30-day period beginning on the date such institution is notified of the decision to terminate financial assistance under this section. Such judge shall hold a hearing with respect to such termination of assistance before the expiration of the 45-day period beginning on the date that such appeal is filed. Such judge may extend such 45-day period upon a motion by the institution concerned. The decision of the judge with respect to such termination shall be considered to be a final agency action. (e) ALCOHOL AND DRUG ABUSE PREVENTION GRANTS. (1) PROGRAM AUTHORITY.The Secretary may make grants to institutions of higher education or consortia of such institu- tions, and enter into contracts with such institutions, consor- tia, and other organizations, to develop, implement, operate, improve, and disseminate programs of prevention, and edu- cation (including treatment-referral) to reduce and eliminate the illegal use of drugs and alcohol and the violence associated with such use. Such grants or contracts may also be used for the support of a higher education center for alcohol and drug abuse prevention that will provide training, technical assist- ance, evaluation, dissemination, and associated services and assistance to the higher education community as determined by the Secretary and institutions of higher education. (2) AWARDS.Grants and contracts shall be awarded under paragraph (1) on a competitive basis. 15 HIGHER EDUCATION ACT OF 1965 Sec. 120 (3) APPLICATIONS.An institution of higher education, a consortium of such institutions, or another organization that desires to receive a grant or contract under paragraph (1) shall submit an application to the Secretary at such time, in such manner, and containing or accompanied by such information as the Secretary may reasonably require by regulation. (4) ADDITIONAL REQUIREMENTS. (A) PARTICIPATION.In awarding grants and contracts under this subsection the Secretary shall make every effort to ensure (i) the equitable participation of private and public institutions of higher education (including community and junior colleges); and (ii) the equitable geographic participation of such institutions. (B) CONSIDERATION.In awarding grants and con- tracts under this subsection the Secretary shall give appro- priate consideration to institutions of higher education with limited enrollment. (5) AUTHORIZATION OF APPROPRIATIONS.There are author- ized to be appropriated to carry out this subsection $5,000,000 for fiscal year 1999 and such sums as may be necessary for each of the 4 succeeding fiscal years. (f) NATIONAL RECOGNITION AWARDS. (1) PURPOSE.It is the purpose of this subsection to pro- vide models of innovative and effective alcohol and drug abuse prevention programs in higher education and to focus national attention on exemplary alcohol and drug abuse prevention ef- forts. (2) AWARDS. (A) IN GENERAL.The Secretary shall make 5 National Recognition Awards for outstanding alcohol prevention programs and 5 National Recognition Awards for outstand- ing drug abuse prevention programs, on an annual basis, to institutions of higher education that (i) have developed and implemented innovative and effective alcohol prevention programs or drug abuse prevention programs; and (ii) with respect to an application for an alcohol prevention program award, demonstrate in the appli- cation submitted under paragraph (3) that the institu- tion has undertaken efforts designed to change the culture of college drinking consistent with the review criteria described in paragraph (3)(C)(iii). (B) CEREMONY.The awards shall be made at a cere- mony in Washington, D.C. (C) DocumErrr.The Secretary shall publish a docu- ment describing the alcohol and drug abuse prevention programs of institutions of higher education that receive the awards under this subsection and disseminate the doc- ument nationally to all public and private secondary school guidance counselors for use by secondary school juniors and seniors preparing to enter an institution of higher Sec. 120 HIGHER EDUCATION ACT OF 1965 16 education. The document shall be disseminated not later than January 1 of each academic year. (D) AMOUNT AND USE.Each institution of higher edu- cation selected to receive an award under this subsection shall receive an award in the amount of $50,000. Such award shall be used for the maintenance and improvement of the institution's outstanding prevention program for the academic year following the academic year for which the award is made. (3) APPLICATION. (A) IN GENERALEach institution of higher education desiring an award under this subsection shall submit an application to the Secretary at such time, in such manner, and accompanied by such information as the Secretary may require. Each such application shall contain (i) a clear description of the goals and objectives of the prevention program of the institution; (ii) a description of program activities that focus on alcohol or drug policy issues, policy development, modification, or refinement, policy dissemination and implementation, and policy enforcement; (iii) a description of activities that encourage stu- dent and employee participation and involvement in activity development and implementation; (iv) the objective criteria used to determine the ef- fectiveness of the methods used in such programs and the means used to evaluate and improve the programs' efforts; (v) a description of special initiatives used to re- duce high-risk behavior or increase low-risk behavior; and (vi) a description of coordination and networking efforts that exist in the community in which the insti- tution is located for purposes of such programs. (B) APPLICATION REVIEW.The Secretary shall appoint a committee to review applications submitted under this paragraph. The committee may include representatives of Federal departments or agencies the programs of which in- clude alcohol abuse prevention and education efforts and drug abuse prevention and education efforts, directors or heads (or their representatives) of professional associations that focus on alcohol and drug abuse prevention efforts, and non-Federal scientists who have backgrounds in social science evaluation and research methodology and in edu- cation. Decisions of the committee shall be made directly to the Secretary without review by any other entity in the Department. (C) REVIEW CRITERIA.The committee described in subparagraph (B) shall develop specific review criteria for reviewing and evaluating applications submitted under this paragraph. The review criteria shall include (i) measures of the effectiveness of the program of the institution, that includes changes in the campus alcohol or other drug environment or the climate and 11 HIGHER EDUCATION ACT OF 1965 Sec. 121 changes in alcohol or other drug use before and after the initiation of the program; (ii) measures of program institutionalization, including (I) an assessment of needs of the institution; (II) the institution's alcohol and drug policies, staff and faculty development activities, drug pre- vention criteria, student, faculty, and campus community involvement; and (III) whether the program will be continued after the cessation of Federal funding; and (iii) with respect to an application for an alcohol prevention program award, criteria for determining whether the institution has policies in effectthat (I) prohibit alcoholic beverage sponsorship of athletic events, and prohibit alcoholic beverage advertising inside athletic facilities; (II) prohibit alcoholic beverage marketing on campus, which may include efforts to ban alcohol advertising in institutional publications or efforts to prohibit alcohol-related advertisements at cam- pus events; (III) establish or expand upon alcohol-free liv- ing arrangements for all college students; (IV) establish partnerships with community members and organizations to further alcohol pre- vention efforts on campus and the areas surround- ing campus; and (V) establish innovative communications pro- grams involving students and faculty in an effort to educate students about alcohol-related risks. (4) ELIGIBILITY.In order to be eligible to receive a Na- tional Recognition Award an institution of higher education shall (A) offer an associate or baccalaureate degree; (B) have established an alcohol abuse prevention and education program or a drug abuse prevention and edu- cation program; (C) nominate itself or be nominated by others, such as professional associations or student organizations, to re- ceive the award; and (D) not have received an award under this subsection during the 5 academic years preceding the academic year for which the determination is made. (5) AUTHORIZATION OF APPROPRIATIONS. (A) IN GENERALThere is authorized to be appro- priated to carry out this subsection $750,000 for fiscal year 1999. (B) AVAILABILITY.Funds appropriated under sub- paragraph (A) shall remain available until expended. SEC. 121. [20 U.S.C. 10111] PRIOR RIGHTS AND OBLIGATIONS. (a) AUTHORIZATION OF APPROPRIATIONS. Sec. 122 HIGHER EDUCATION ACT OF 1965 18 (1) PRE-1987 PARTS C AND D OF TITLE VII.There are au- thorized to be appropriated such sums as may be necessary for fiscal year 1999 and for each of the 4 succeeding fiscal years to pay obligations incurred prior to 1987 under parts C and D of title VII, as such parts were in effect before the effective date of the Higher Education Amendments of 1992. (2) POST-1992 AND PRE-1998 PART C OF TITLE VII.There are authorized to be appropriated such sums as may be necessary for fiscal year 1999 and for each of the 4 succeeding fiscal years to pay obligations incurred prior to the date of enactment of the Higher Education Amendments of 1998 under part C of title VII, as such part was in effect during the period (A) after the effective date of the Higher Education Amendments of 1992; and (B) prior to the date of enactment of the Higher Edu- cation Amendments of 1998. (b) LEGAL RESPONSIBILITIES. (1) PRE-1987 TITLE VII. All entities with continuing obliga- tions incurred under parts A, B, C, and D of title VII, as such parts were in effect before the effective date of the Higher Edu- cation Amendments of 1992, shall be subject to the require- ments of such part as in effect before the effective date of the Higher Education Amendments of 1992. (2) POST-1992 AND PRE-1998 PART C OF TITLE VII.All enti- ties with continuing obligations incurred under part C of title VII, as such part was in effect during the period (A) after the effective date of the Higher Education Amendments of 1992; and (B) prior to the date of enactment of the Higher Edu- cation Amendments of 1998, shall be subject to the requirements of such part as such part was in effect during such period. SEC. 122. [20 U.S.C. 1011k] RECOVERY OF PAYMENTS. (a) PUBLIC BENEFIT.Congress declares that, if a facility con- structed with the aid of a grant under part A of title VII as such part A was in effect prior to the date of enactment of the Higher Education Amendments of 1998, or part B of such title as part B was in effect prior to the date of enactment of the Higher Edu- cation Amendments of 1992, is used as an academic facility for 20 years following completion of such construction, the public benefit accruing to the United States will equal in value the amount of the grant. The period of 20 years after completion of such construction shall therefore be deemed to be the period of Federal interest in such facility for the purposes of such title as so in effect. (b) RECOVERY UPON CESSATION OF PUBLIC BENEFIT.If, within 20 years after completion of construction of an academic facility which has been constructed, _in part with a grant under part 'A of title VII as such part A was in effect prior to the date of enactment of the Higher Education Amendments of 1998, or part B of title VII as such part. B .was in effect prior to the date- of enactment of the Higher Education Amendments of 1992 19 HIGHER EDUCATION ACT OF 1965 Sec. 131 (1) the applicant under such parts as so in effect (or the applicant's successor in title or possession) ceases or fails to be a public or nonprofit institution; or (2) the facility ceases to be used as an academic facility, or the facility is used as a facility excluded from the term "aca- demic facility" (as such term was defined under title VII, as so in effect), unless the Secretary determines that there is good cause for releasing the institution from its obligation, the United States shall be entitled to recover from such applicant (or successor) an amount which bears to the value of the facility at that time (or so much thereof as constituted an approved project or projects) the same ratio as the amount of Federal grant bore to the cost of the facility financed with the aid of such grant. The value shall be determined by agreement of the parties or by action brought in the United States district court for the district in which such facility is situated. (c) PROHIBITION ON USE FOR RELIGION.Notwithstanding the provisions of subsections (a) and (b), no project assisted with funds under title VII (as in effect prior to the date of enactment of the Higher Education Amendments of 1998) shall ever be used for reli- gious worship or a sectarian activity or for a school or department of divinity. PART C-COST OF HIGHER EDUCATION SEC. 131. [20 U.S.C. 10151 IMPROVEMENTS IN MARKET INFORMATION AND PUBLIC ACCOUNTABILITY IN HIGHER EDUCATION. (a) IMPROVED DATA COLLECTION. (1) DEVELOPMENT OF UNIFORM METHODOLOGY.The Sec- retary shall direct the Commissioner of Education Statistics to convene a series of forums to develop nationally consistent methodologies for reporting costs incurred by postsecondary in- stitutions in providing postsecondary education. (2) REDESIGN OF DATA SYSTEMS.On the basis of the meth- odologies developed pursuant to paragraph (1), the Secretary shall redesign relevant parts of the postsecondary education data systems to improve the usefulness and timeliness of the data collected by such systems. (3) INFORMATION TO INSTITUTIONS.The Commissioner of Education Statistics shall (A) develop a standard definition for the following data elements: (i) tuition and fees for a full-time undergraduate student; (ii) cost of attendance for a full-time undergradu- ate student, consistent with the provisions of section 472; (iii) average amount of financial assistance re- ceived by an undergraduate student who attends an institution of higher education, including (I) each type of assistance or benefit described in section 428(a)(2)(C)(i); (II) fellowships; and (III) institutional and other assistance; and Sec. 131 HIGHER EDUCATION ACT OF 1965 20 (iv) number of students receiving financial assist- ance described in each of subclauses (I), (II), and (III) of clause (iii); (B) not later than 90 days after the date of enactment of the Higher Education Amendments of 1998, report the definitions to each institution of higher education and within a reasonable period of time thereafter inform the Committee on Labor and Human Resources of the Senate and the Committee on Education and the Workforce of the House of Representatives of those definitions; and (C) collect information regarding the data elements de- scribed in subparagraph (A) with respect to at least all in- stitutions of higher education participating in programs information under title IV, beginning with the formation from aca- demic year. 2000-2001 and annually thereafter. (b) DATA DISSEMINATION.The Secretary shall make available the data collected pursuant to subsection (a). Such data shall be available in a form that permits the review and comparison of the data submissions of individual institutions of higher education. Such data shall be presented in a form that is easily understand- able and allows parents and students to make informed decisions based on the costs for typical full-time undergraduate students. (c) STUDY. (1) IN GENERAL.The Commissioner of Education Statis- tics shall conduct a national study of expenditures at institu- tions of higher education. Such study shall include information with respect to (A) the change in tuition and fees compared with the consumer price index and other appropriate measures of inflation; (B) faculty salaries and benefits; (C) administrative salaries, benefits and expenses; (D) academic support services; (E) research; (F) operations and maintenance; and (G) institutional expenditures for construction and technology and the potential cost of replacing instructional buildings and equipment. (2) EVALUATION.The study shall include an evaluation of (A) changes over time in the expenditures identified in paragraph (1); (B) the relationship of the expenditures identified in paragraph (1) to college costs; and (C) the extent to which increases in institutional fi- nancial aid and tuition discounting practices affect tuition increases, including the demographics of students receiv- ing such discounts, the extent to which financial aid is pro- vided to students with limited need in order to attract a student to a particular institution, and the extent to which Federal financial aid, including loan aid, has been used to offset the costs of such practices. (3) FINAL REPORT.The Commissioner of Education Statis- tics shall submit a report regarding the findings of the study 28 21 HIGHER EDUCATION ACT OF 1965 Sec. 141 required by paragraph (1) to the appropriate committees of Congress not later than September 30, 2002. (4) HIGHER EDUCATION MARKET BASKET.--The Bureau of Labor Statistics, in consultation with the Commissioner of Education Statistics, shall develop a higher education market basket that identifies the items that comprise the costs of high- er education. The Bureau of Labor Statistics shall provide a re- port on the market basket to the Committee on Labor and Human Resources of the Senate and the Committee on Edu- cation and the Workforce of the House of Representatives not later than September 30, 2002. (5) FINES.In addition to actions authorized in section 487(c), the Secretary may impose a fine in an amount not to exceed $25,000 on an institution of higher education for failing to provide the information described in paragraph (1) in a timely and accurate manner, or for failing to otherwise cooper- ate with the National Center for Education Statistics regarding efforts to obtain data on the cost of higher education under this section and pursuant to the program participation agreement entered into under section 487. (d) STUDENT Am RECIPIENT SURVEY.(1) The Secretary shall survey student aid recipients on a regular cycle, but not less than once every 3 years (A) to identify the population of students receiving Federal student aid; (B) to determine the income distribution and other socio- economic characteristics of federally aided students; (C) to describe the combinations of aid from State, Federal, and private sources received by students from all income groups; (D) to describe the debt burden of loan recipients and their capacity to repay their education debts; and (E) to disseminate such information in both published and machine readable form. (2) The survey shall be representative of full-time and part- time, undergraduate, graduate, and professional and current and former students in all types of institutions, and should be designed and administered in consultation with the Congress and the post- secondary education community. PART D-- ADMINISTRATIVE PROVISIONS FOR DELIVERY OF STUDENT FINANCIAL ASSIST- ANCE SEC. 141. [20 U.S.C. 1018] PERFORMANCE-BASED ORGANIZATION FOR THE DELIVERY OF FEDERAL STUDENT FINANCIAL ASSIST- ANCE. (a) ESTABLISHMENT AND PURPOSE. (1) ESTABLISHMENT.There is established in the Depart- ment a Performance-Based Organization (hereafter referred to as the "PBO") which shall be a discrete management unit re- sponsible for managing the operational functions supporting the programs authorized under title N of this Act, as specified in subsection (b). 29 Sec. 141 HIGHER EDUCATION ACT OF 1965 22 (2) PURPOSES.The purposes of the PBO are (A) to improve service to students and other partici- pants in the student financial assistance programs author- ized under title IV, including making those programs more understandable to students and their parents; (B) to reduce the costs of administering those pro- grams; (C) to increase the accountability of the officials re- sponsible for administering the operational aspects of these programs; (D) to provide greater flexibility in the management of the operational functions of the Federal student financial assistance programs; (E) to integrate the information systems supporting the Federal student financial assistance programs; (F) to implement an open, common, integrated system for the delivery of student financial assistance under title IV; and (G) to develop and maintain a student financial assist- ance system that contains complete, accurate, and timely data to ensure program integrity. (b) GENERAL AUTHORITY. (1) AUTHORITY OF SECRETARY.Notwithstanding any other provision of this part, the. Secretary shall maintain responsibil- ity for the development and promulgation of policy and regula- tions relating to the programs of student financial assistance under title IV. In the exercise of its functions, the PBO shall be subject to the direction of the Secretary. The Secretary shall (A) request the advice of, and work in cooperation with, the Chief Operating Officer in developing regula- tions, policies, administrative guidance, or procedures af- fecting the information systems administered by the PBO, and other functions performed by the PBO; (B) request cost estimates from the Chief Operating Officer for system changes required by specific policies pro- posed by the Secretary; and (C) assist the Chief Operating Officer in identifying goals for the administration and modernization of the de- livery system for student financial assistance under title W. (2) PBO FUNCTIONS.Subject to paragraph (1), the PBO shall be responsible for administration of the information and financial systems that support student financial assistance pro- grams authorized under this title, excluding the development of policy relating to such programs but including the following: (A) The administrative, accounting, and financial man- agement functions of the delivery system for Federal stu- dent assistance, including (i) the collection, processing and transmission of applicant data to students, institutions and authorized third parties, as provided for in section 483; 23 HIGHER EDUCATION ACT OF 1965 Sec. 141 (ii) design and technical specifications for software development and systems supporting the delivery of student financial assistance under title N; (iii) all software and hardware acquisitions and all information technology contracts related to the deliv -, ery and management of student financial assistance under title IV; (iv) all aspects of contracting for the information and financial systems supporting student financial as- sistance programs under this title; and (v) providing all customer service, training, and user support related to systems that support those programs. (B) Annual development of a budget for the operations and services of the PBO, in consultation with the Sec- retary, and for consideration and inclusion in the Depart- ment's annual budget submission. (3) ADDITIONAL FUNCTIONS.The Secretary may allocate to the PBO such additional functions as the Secretary and the Chief Operating Officer determine are necessary or appropriate to achieve the purposes of the PBO. (4) INDEPENDENCE.Subject to paragraph (1), in carrying out its functions, the PBO shall exercise independent control of its budget allocations and expenditures, personnel decisions and processes, procurements, and other administrative and management functions. (5) AUDITS AND REVIEW.The PBO shall be subject to the usual and customary Federal audit procedures and to review by the Inspector General of the Department. (6) CHANGES. (A) IN GENERAL.The Secretary and the Chief Operat- ing Officer shall consult concerning the effects of policy, market, or other changes on the ability of the PBO to achieve the goals and objectives established in the per- formance plan described in subsection (c). (B) REVISIONS TO AGREEMENT.The Secretary and the Chief Operating Officer may revise the annual perform- ance agreement described in subsection (d)(4) in light of policy, market, or other changes that occur after the Sec- retary and the Chief Operating Officer enter into the agreement. (c) PERFORMANCE PLAN AND REPORT. (1) PERFORMANCE PLAN. (A) IN GENERALEach year, the Secretary and Chief Operating Officer shall agree on, and make available to the public, a performance plan for the PBO for the suc- ceeding 5 years that establishes measurable goals and ob- jectives for the organization. (B) CONSULTATION.In developing the 5-year performL ance plan and any revision to the plan, the Secretary and the Chief Operating Officer shall consult with students, in- stitutions of higher education, Congress, lenders, the Advi- sory Committee on Student Financial Assistance, and Sec. 141 HIGHER EDUCATION ACT OF 1965 24 other interested parties not less than 30 days prior to the implementation of the performance: plan or revision. (C) AREAS.The plan shall include a concise state- ment of the goals for a modernized system for the delivery of student financial assistance under title IV and identify action steps necessary to achieve such goals. The plan shall address the PRO's responsibilities in the following areas: (i) IMPROVING SERVICE.Improving service to stu- dents and other participants in student financial aid programs authorized under this title, including mak- ing those programs more understandable to students and their parents. (ii) REDUCING COSTS.Reducing the costs of ad- ministering those programs. (iii) IMPROVEMENT AND INTEGRATION OF SUPPORT SYSTEMS.Improving and integrating the information and delivery systems that support those programs. (iv) DELIVERY AND INFORMATION SYSTEM. Developing an open, common, and integrated delivery and information- system for programs authorized under this title. (v) OTHER AREAS.Any other areas identified by the Secretary. (2) ANNUAL REPORT.Each year, the Chief Operating Officer shall prepare and submit to Congress, through the Sec- retary, an annual report on the performance of the PBO, in- cluding an evaluation of the extent to which the PBO met the goals and objectives contained in the 5-year performance plan described in paragraph (1) for the preceding year. The annual report shall include the following: (A) An independent financial audit of the expenditures of both the PBO and programs administered by the PBO. (B) Financial and performance requirements applica- ble to the PBO under the Chief Financial Officer Act of 1990 and the Government Performance and Results Act of 1993.(C) The results achieved by the PBO during the year relative to the goals established in the organization's per- formance plan. (D) The evaluation rating of the performance of the Chief Operating Officer and senior managers under sub- sections (d)(4) and (e)(2), including the amounts of bonus compensation awarded to these individuals. (E) Recommendations for legislative and regulatory changes to improve service to students and their families, and to improve program efficiency and integrity. (F) Other such information as the Director of the Of- fice of Management and Budget shall prescribe for per- formance based organizations. (3) CONSULTATION WITH STAKEHOLDERS.The Chief Oper- ating Officer, in preparing the report described in paragraph (2), shall establish appropriate means to consult with borrow- ers, institutions, lenders, guaranty agencies, secondary mar- 25 HIGHER EDUCATION ACT OF 1965 Sec. 141 kets, and others involved in the delivery system of student aid under this title (A) regarding the degree of satisfaction with the delivery system; and (B) to seek suggestions on means to improve the delivery system. (d) CHIEF OPERATING OFFICER. (1) APPOINTMENT.The management of the PBO shall be vested in a Chief Operating Officer who shall be appointed by the Secretary to a term of not less than 3 and not more than 5 years, and compensated without regard to chapters 33, 51, and 53 of title 5, United States Code. The Secretary shall ap- point the Chief Operating Officer within 6 months after the date of enactment of the Higher Education Amendments of 1998. The appointment shall be made on the basis of dem- onstrated management ability and expertise in information technology, including experience with financial systems, and without regard to political affiliation or activity. (2) REAPPOINTMENT.The Secretary may reappoint the Chief Operating Officer to subsequent terms of not less than 3 and not more than 5 years, so long as the performance of the Chief Operating Officer, as set forth in the performance agree- ment described in paragraph (4), is -satisfactory. (3) REMOVAL.The Chief Operating Officer may be re- moved by (A) the President; or (B) the Secretary, for misconduct or failure to meet performance goals set forth in the performance agreement in paragraph (4). The President or Secretary shall communicate the reasons for any such removal to the appropriate committees of Congress. (4) PERFORMANCE AGREEMENT. (A) IN GENERAL.Each year, the Secretary and the Chief Operating Officer shall enter into an annual per- formance agreement, that shall set forth measurable orga- nization and individual goals for the Chief Operating Offi- cer. (B) TRANsmnvrAL.The final agreement, and any revi- sion to the final agreement, shall be transmitted to the Committee on Education and the Workforce of the House of Representatives and the Committee on Labor and Human Resources of the Senate, and made publicly avail- able. (5) COMPENSATION. (A) IN GENERALThe Chief Operating Officer is au- thorized to be paid at an annual rate of basic pay not to exceed the maximum rate of basic pay for the Senior Exec- utive Service under section 5382 of title 5, United States Code, including any applicable locality-based comparability payment that may be authorized under section 5304(h)(2)(B) of such title. The compensation of the Chief Operating Officer shall be considered for purposes of sec- tion 207(c)(2)(A) of title 18, United States Code, to be the Sec. 141 HIGHER EDUCATION ACT OF 1965 26 equivalent of that described under clause (ii) of section 207(c)(2)(A) of such title. (B) BONUS.In addition, the Chief Operating Officer may receive a bonus in an amount that does not exceed 50 percent of such annual rate of basic pay, based upon the Secretary's evaluation of the Chief Operating Officer's per- formance in relation to the goals set forth in the perform- ance agreement described in paragraph (2). (C) PAYMENT.Payment of a bonus under this sub- paragraph (B) may be made to the Chief Operating Officer only to the extent that such payment does not cause the Chief Operating Officer's total aggregate compensation in a calendar year to equal or exceed the amount of the Presi- dent's salary under section 102 of title 3, United States Code. (e) SENIOR MANAGEMENT. (1) APPOINTMENT. (A) IN GENERALThe Chief Operating Officer may ap- point such senior managers as that officer determines nec- essary without regard to the provisions of title 5, United States Code, governing appointments in the competitive service. (B) COMPENSATION.The senior managers described in subparagraph (A) may be paid without regard to the provisions of chapter 51 and subchapter III of chapter 53 of such title relating to classification and General Schedule pay rates. (2) PERFORMANCE AGREEMENT.Each year, the Chief Op- erating Officer and each senior manager appointed under this subsection shall enter into an annual performance agreement that sets forth measurable organization and individual goals. The agreement shall be subject to review and renegotiation at the end of each term. (3) COMPENSATION. (A) IN GENERALA senior manager appointed under this subsection may be paid at an annual rate of basic pay of not more than the maximum rate of basic pay for the Senior Executive Service under section 5382 of title 5, United States Code, including any applicable locality-based comparability payment that may be authorized under sec- tion 5304(h)(2)(C) of such title. The compensation of a sen- ior manager shall be considered for purposes of section 207(c)(2)(A) of title 18, United States Code, to be the equivalent of that described under clause (ii) of section 207(c)(2)(A) of such title. (B) BONUS.In addition, a senior manager may re- ceive a bonus in an amount such that the manager's total annual compensation does not exceed 125 percent of the maximum rate of basic pay for the Senior Executive Serv- ice, including any applicable locality-based comparability payment, based upon the Chief Operating Officer's evalua- tion of the manager's performance in relation to the goals set forth in the performance agreement described in para- graph (2). 27 HIGHER EDUCATION ACT OF 1965 Sec. 141 (4) REMOVAL.A senior manager shall be removable by the Chief Operating Officer, or by the Secretary if the position of Chief Operating Officer is vacant. (f) STUDENT LOAN OMBUDSMAN. (1) APPOINTMENT.The Chief Operating Officer, in con- sultation with the Secretary, shall appoint a Student Loan Ombudsman to provide timely assistance to borrowers of loans made, insured, or guaranteed under title N by performing the functions described in paragraph (3). (2) PUBLIC INFORMATION.The Chief Operating Officer shall disseminate information about the availability and func- tions of the Ombudsman to borrowers and potential borrowers, as well as institutions of higher education, lenders, guaranty agencies, loan servicers, and other participants in those stu- dent loan programs. (3) FUNCTIONS OF OMBUDSMAN.The Ombudsman shall (A) in accordance with regulations of the Secretary, re- ceive, review, and attempt to resolve informally complaints from borrowers of loans described in paragraph (1), includ- ing, as appropriate, attempts to resolve such complaints within the Department of Education and with institutions of higher education, lenders, guaranty agencies, loan servicers, and other participants in the loan programs de- scribed in paragraph (1)(A); and (B) compile and analyze data on borrower complaints and make appropriate recommendations. (4) REPORT.Each year, the Ombudsman shall submit a report to the Chief Operating Officer, for inclusion in the an- nual report under subsection (c)(2), that describes the activi- ties, and evaluates the effectiveness of the Ombudsman during the preceding year. (g) PERSONNEL FLEXIBILITY. (1) PERSONNEL CEILINGS.The PBO shall not be subject to any ceiling relating to the number or grade of employees. (2) ADMINISTRATIVE FLEXIBILITY.The Chief Operating Of- ficer shall work with the Office of Personnel Management to develop and implement personnel flexibilities in staffing, clas- sification, and pay that meet the needs of the PBO, subject to compliance with title 5, United States Code. (3) EXCEPTED SERVICE.The Chief Operating Officer may appoint, without regard to the provisions of title 5, United States Code, governing appointments in the competitive serv- ice, not more than 25 technical and professional employees to administer the functions of the PBO. These employees may be paid without regard to the provisions of chapter 51 and sub- chapter III of chapter 53 of such title relating to classification and General Schedule pay rates. (h) ESTABLISHMENT OF A FAIR AND EQUITABLE SYSTEM FOR MEASURING STAFF PERFORMANCE.The PBO shall establish an an- nual performance management system, subject to compliance with title 5, United States Code and consistent with applicable provi- sions of law and regulations, which strengthens the organizational effectiveness of the PBO by providing for establishing goals or ob- jectives for individual, group, or organizational performance (or any Sec. 142 HIGHER EDUCATION ACT OF 1965 28 combination thereof), consistent with the performance plan of the PBO and its performance planning procedures, including those es- tablished under the Government Performance and Results Act of 1993, and communicating such goals or objectives to employees. (i) REPORT.The Secretary and the Chief Operating Officer, not later than 180 days after the date of enactment of the Higher Education Amendments of 1998, shall report to Congress on the proposed budget and sources of funding for the operation of the PBO. ( j) AUTHORIZATION OF APPROPRIATIONS.The Secretary shall allocate from funds made available under section 458 such funds as are appropriate to the functions assumed by the PBO. In addi- tion, there are authorized to be appropriated such sums as may be necessary to carry out the purposes of this part, including transi- tion costs. SEC. 142. [20 U.S.C. 1018a] PROCUREMENT FLEXIBILITY. (a) PROCUREMENT AUTHORITY.Subject to the authority of the Secretary, the Chief Operating Officer of a PBO may exercise the authority of the Secretary to procure property and services in the performance of functions managed by the PBO. For the purposes of this section, the term "PBO" includes the Chief Operating Officer of the PBO and any employee of the PBO exercising procurement authority under the preceding sentence. (b) IN GENERAL.Except as provided in this section, the PBO shall abide by all applicable Federal procurement laws and regula- tions when procuring property and services. The PBO shall (1) enter into contracts for information systems supporting the programs authorized under title IV to carry out the func- tions set forth in section 141(b)(2); and (2) obtain the services of experts and consultants without regard to section 3109 of title 5, United States Code and set pay in accordance with such section. (C) SERVICE CONTRACTS. (1) PERFORMANCE-BASED SERVICING CONTRACTS.The Chief Operating Officer_ shall, to the extent practicable, maxi- mize the use of performance-based servicing contracts, consist- ent with guidelines for such contracts published by the Office of Federal Procurement Policy, to achieve cost savings and im- prove service. (2) FEE FOR SERVICE ARRANGEMENTS.The Chief Operat- ing Officer shall, when appropriate and consistent with the purposes of the PBO, acquire services related to the title N de- livery system from any entity that has the capability and ca- pacity to meet the requirements for the system. The Chief Op- erating Officer is authorized to pay fees that are equivalent to those paid by other entities to an organization that provides an information system or service that meets the requirements of the PBO, as determined by the Chief Operating Officer. (d) TWO-PHASE SOURCE-SELECTION PROCEDURES. (1) IN GENERAL.The PBO may use a two-phase process for selecting a source for a procurement of property or services. (2) FIRST PHASE.The procedures for the first phase of the process for a procurement are as follows: 29 HIGHER EDUCATION ACT OF 1965 Sec. 142 (A) PUBLICATION OF NOTICE.The contracting officer for the procurement shall publish a notice of the procure- ment in accordance with section 18 of the Office of Federal Procurement Policy Act (41 U.S.C. 416) and subsections (e), (f), and (g) of section 8 of the Small Business Act (15 U.S.C. 637), except that the notice shall include only the following: (i) A general description of the scope or purpose of the procurement that provides sufficient information on the scope or purpose for sources to make informed business decisions regarding whether to participate in the procurement. (ii) A description of the basis on which potential sources are to be selected to submit offers in the sec- ond phase. (iii) A description of the information that is to be required under subparagraph (B). (iv) Any additional information that the contract- ing officer determines appropriate. (B) INFORMATION SUBMITTED BY OFFERORS.Each of- feror for the procurement shall submit basic information, such as information on the offeror's qualifications, the pro- posed conceptual approach, costs likely to be associated with the proposed conceptual approach, and past perform- ance of the offeror on Federal Government contracts, to- gether with any additional information that is requested by the contracting officer. (C) SELECTION FOR SECOND PHASE.The contracting officer shall select the offerors that are to be eligible to participate in the second phase of the process. The con- tracting officer shall limit the number of the selected offerors to the number of sources that the contracting offi- cer determines is appropriate and in the best interests of the Federal Government. (3) SECOND PHASE. (A) IN GENERAL.The contracting officer shall conduct the second phase of the source selection process in accord- ance with sections 303A and 303B of the Federal Property and Administrative Services Act of 1949 (41 U.S.C. 253a and 253b). (B) ELIGIBLE PARTICIPANTS.Only the sources selected in the first phase of the process shall be eligible to partici- pate in the second phase. (C) SINGLE OR MULTIPLE PROCUREMENTS.The second phase may include a single procurement or multiple pro- curements within the scope, or for the purpose, described in the notice pursuant to paragraph (2)(A). (4) PROCEDURES CONSIDERED COMPETITIVE.The proce- dures used for selecting a source for a procurement under this subsection shall be considered competitive procedures for all purposes. (e) USE OF SIMPLIFIED PROCEDURES FOR COMMERCIAL ITEMS. Whenever the PBO anticipates that commercial items will be of- fered for a procurement, the PBO may use (consistent with the 3 7 Sec. 142 HIGHER EDUCATION ACT OF 1965 30 special rules for commercial items) the special simplified proce- dures for the procurement without regard to (1) any dollar limitation otherwise applicable to the use of those procedures; and (2) the expiration of the authority to use special simplified procedures under section 4202(e) of the Clinger-Cohen Act of 1996 (110 Stat. 654; 10 U.S.C. 2304 note). (f) FLEXIBLE WAIT PERIODS AND DEADLINES FOR SUBMISSION OF OFFERS OF NONCOMMERCIAL ITEMS. (1) AUTHORITY. In carrying out a procurement, the PBO may (A) apply a shorter waiting period for the issuance of a solicitation after the publication of a notice under section 18 of the Office of Federal Procurement Policy Act (41 U.S.C. 416) than is required under subsection (a)(3)(A) of such section; and (B) notwithstanding subsection (a)(3) of such section, establish any deadline for the submission of bids or pro- posals that affords potential offerors a reasonable oppor- tunity to respond to the solicitation. (2) INAPPLICABILITY TO COMMERCIAL ITEMS.Paragraph (1) does not apply to a procurement of a commercial item. (3) CONSISTENCY WITH APPLICABLE INTERNATIONAL AGREE- MENTS.If an international agreement is applicable to the pro- curement, any exercise of authority under paragraph (1) shall be consistent with the international agreement. (g) MODULAR CONTRACTING. (1) IN GENERALThe PBO may satisfy the requirements of the PBO for a system incrementally by carrying out succes- sive procurements of modules of the system. In doing so, the PBO may use procedures authorized under this subsection to procure any such module after the first module. (2) UTILITY REQUIREMENT.A module may not be procured for a system under this subsection unless the module is useful independently of the other modules or useful in combination with another module previously procured for the system. (3) CONDITIONS FOR USE OF AUTHORITY.The PBO may use procedures authorized under paragraph (4) for the procure- ment of an additional module for a system if (A) competitive procedures were used for awarding the contract for the procurement of the first module for the system; and (B) the solicitation for the first module included (i) a general description of the entire system that was sufficient to provide potential offerors with rea- sonable notice of the general scope of future modules; (ii) other information sufficient for potential offerors to make informed business judgments regard- ing whether to submit offers for the contract for the first module; and (iii) a statement that procedures authorized under this subsection could be used for awarding subsequent contracts for the procurement of additional modules for the system. 3 31 HIGHER EDUCATION ACT OF 1965 Sec. 142 (4) PROCEDURES.If the procurement of the first module for a system meets the requirements set forth in paragraph (3), the PBO may award a contract for the procurement of an addi- tional module for the system using any of the following proce- dures: (A) SOLE SOURCE. Award of the contract on a sole- source basis to a contractor who was awarded a contract for a module previously procured for the system under competitive procedures or procedures authorized under subparagraph (B). (B) ADEQUATE COMPETITION.Award of the contract on the basis of offers made by (i) a contractor who was awarded a contract for a module previously procured for the system after hav- ing been selected for award of the contract under this subparagraph or other competitive procedures; and (ii) at least one other offeror that submitted an offer for a module previously procured for the system and is expected, on the basis of the offer for the pre- viously procured module, to submit a competitive offer for the additional module. (C) OTHER.Award of the contract under any other procedure authorized by law. (5) NOTICE REQUIREMENT. (A) PUBLICATION.Not less than 30 days before issuing a solicitation for offers for a contract for a module for a system under procedures authorized under subpara- graph (A) or (B) of paragraph (4), the PBO shall publish in the Commerce Business Daily a notice of the intent to use such procedures to enter into the contract. (B) ExcEpTioN.Publication of a notice is not required under this paragraph with respect to a use of procedures authorized under paragraph (4) if the contractor referred to in that subparagraph (who is to be solicited to submit an offer) has previously provided a module for the system under a contract that contained cost, schedule, and per- formance goals and the contractor met those goals. (C) CONTENT OF NOTICE.A notice published under subparagraph (A) with respect to a use of procedures de- scribed in paragraph (4) shall contain the information re- quired under section 18(b) of the Office of Federal Procure- ment Policy Act (41 U.S.C. 416(b)), other than paragraph (4) of such section, and shall invite the submission of any assertion that the use of the procedures for the procure- ment involved is not in the best interest of the Federal Government together with information supporting the assertion. (6) DOCUMENTATION.The basis for an award of a contract under this subsection shall be documented. However, a jus- tification pursuant to section 303(f) of the Federal Property and Administrative Services Act of 1949 (41 U.S.C. 253(f)) or- section 8(h) of the Small Business Act (15 U.S.C. 637(h)) is not required. Sec. 142 HIGHER EDUCATION ACT OF 1965 32 (7) SIMPLIFIED SOURCE-SELECTION PROCEDURES.The PBO may award a contract under any other simplified procedures prescribed by the PBO for the selection of sources for the pro- curement of modules for a system, after the first module, that are not to be procured under a contract awarded on a sole- source basis. (h) USE OF SIMPLIFIED PROCEDURES FOR SMALL BUSINESS SET- ASIDES FOR SERVICES OTHER THAN COMMERCIAL ITEMS. (1) AUTHORITY.The PBO may use special simplified pro- cedures for a procurement of services that are not commercial items if (A) the procurement is in an amount not greater than $1,000,000; (B) the procurement is conducted as a small business set-aside pursuant to section 15(a) of the Small Business Act (15 U.S.C. 644(a)); and (C) the price charged for supplies associated with the services procured are items of supply expected to be less than 20 percent of the total contract price. (2) INAPPLICABILITY TO CERTAIN PROCUREMENTS.The au- thority set forth in paragraph (1) may not be used for (A) an award of a contract on a sole-source basis; or (B) a contract for construction. (i) GUIDANCE FOR USE OF AUTHORITY. (1) ISSUANCE BY PB0.The Chief Operating Officer of the PBO, in consultation with the Administrator for Federal Pro- curement Policy, shall issue guidance for the use by PBO per- sonnel of the authority provided in this section. (2) GUIDANCE FROM OFPP.As part of the consultation re- quired under paragraph (1), the Administrator for Federal Pro- curement Policy shall provide the PBO with guidance that is designed to ensure, to the maximum extent practicable, that the authority under this section is exercised by the PBO in a manner that is consistent with the exercise of the authority by the heads of the other performance-based organizations. (3) COMPLIANCE WITH OFPP GUIDANCE.The head of the PBO shall ensure that the procurements of the PBO under this section are carried out in a manner that is consistent with the guidance provided for the PBO under paragraph (2). ( j) LIMITATION ON MULTIAGENCY CONTRACTING.No depart- ment or agency of the Federal Government may purchase property or services under contracts entered into or administered by a PBO under this section unless the purchase is approved in advance by the senior procurement official of that department or agency who is responsible for purchasing by the department or agency. (k) LAWS NOT AFFECTED.Nothing in this section shall be con- strued to waive laws for the enforcement of civil rights or for the establishment and enforcement of labor standards that are applica- ble to contracts of the Federal Government. (1) DEFINITIONS.In this section: (1) COMMERCIAL ITEM.The term "commercial item" has the meaning given the term in section 4(12) of the Office of Federal Procurement Policy Act (41 U.S.C. 403(12)). 33 HIGHER EDUCATION ACT OF 1965 Sec. 143 (2) COMPETITIVE PROCEDURES.The term "competitive pro- cedures" has the meaning given the term in section 309(b) of the Federal Property and Administrative Services Act of 1949 (41 U.S.C. 259(b)). (3) SOLE-SOURCE BASIS.The term "sole-source basis", with respect to an award of a contract, means that the contract is awarded to a source after soliciting an offer or offers from, and negotiating with, only that source. (4) SPECIAL RULES FOR COMMERCIAL ITEMS.The term "special rules for commercial items" means the regulations set forth in the Federal Acquisition Regulation pursuant to section 303(g)(1) of the Federal Property and Administrative Services Act of 1949 (41 U.S.C. 253(g)(1)) and section 31 of the Office of Federal Procurement Policy Act (41 U.S.C. 427). (5) SPECIAL SIMPLIFIED PROCEDURES.The term "special simplified procedures" means the procedures applicable to pur- chases of property and services for amounts not greater than the simplified acquisition threshold that are set forth in the Federal Acquisition Regulation pursuant to section 303(g)(1)(B) of the Federal Property and Administrative Services Act of 1949 (41 U.S.C. 253(g)(1)(A)) and section 31(a)(1) of the Office of Federal Procurement Policy Act (41 U.S.C. 427(a)(1)). SEC. 143. [20 U.S.C. 101813] ADMINISTRATIVE SIMPLIFICATION OF STU- DENT AID DELIVERY. (a) IN GENERAL.In order to improve the efficiency and effec- tiveness of the student aid delivery system, the Secretary and the Chief Operating Officer shall encourage and participate in the es- tablishment of voluntary consensus standards and requirements for the electronic transmission of information necessary for the admin- istration of programs under title IV. (b) PARTICIPATION IN STANDARD SETTING ORGANIZATIONS. (1) The Chief Operating Officer shall participate in the ac- tivities of standard setting organizations in carrying out the provisions of this section. (2) The Chief Operating Officer shall encourage higher education groups seeking to develop common forms, standards, and procedures in support of the delivery of Federal student fi- nancial assistance to conduct these activities within a standard setting organization. (3) The Chief Operating Officer may pay necessary dues and fees associated with participating in standard setting orga- nizations pursuant to this subsection. (c) ADOPTION OF VOLUNTARY CONSENSUS STANDARDS.Except with respect to the common financial reporting form under section 483(a), the Secretary shall consider adopting voluntary consensus standards agreed to by the organization described in subsection (b) for transactions required under title IV, and common data elements for such transactions, to enable information to be exchanged elec- tronically between systems administered by the Department and among participants in the Federal student .aid delivery system. (d) USE OF CLEARINGHOUSES.Nothing in this section shall re- strict the ability of participating institutions and lenders from using a clearinghouse or servicer to comply with the standards for the exchange of information established under this section. 41 Sec. 201 HIGHER EDUCATION ACT OF 1965 34 (e) DATA SECURITY.Any entity that maintains or transmits information under" a transaction covered by this section shall main- tain reasonable and appropriate administrative, technical, and physical safeguards (1) to ensure the integrity and confidentiality of the infor- mation; and (2) to protect against any reasonably anticipated security threats, or unauthorized uses or disclosures of the information. (f) DEFINITIONS. (1) CLEARINGHOUSE.The term "clearinghouse" means a public or private entity that processes or facilitates the proc- essing of nonstandard data elements into data elements con- forming to standards adopted under this section. (2) STANDARD SETTING ORGANIZATION.The term "stand- ard setting organization" means an organization that (A) is accredited by the American National Standards Institute; (B) develops standards for information transactions, data elements, or any other standard that is necessary to, or will facilitate, the implementation of this section; and (C) is open to the participation of the various entities engaged in the delivery of Federal student financial assist- ance. (3) VOLUNTARY CONSENSUS STANDARD.The term "vol- untary consensus standard" means a standard developed or used by a standard setting organization described in paragraph (2). TITLE II TEACHER QUALITY ENHANCE- MENT GRANTS FOR STATES AND PARTNERSHIPS SEC. 201. [20 U.S.C. 1021] PURPOSES; DEFINITIONS. (a) PURPOSES.The purposes of this title are to (1) improve student achievement; (2) improve the quality of the current and future teaching force by improving the preparation of prospective teachers and enhancing professional development activities; (3) hold institutions of higher education accountable for preparing teachers who have the necessary teaching skills and are highly competent in the academic content areas in which the teachers plan to teach, such as mathematics, science, English, foreign languages, history, economics, art, civics, Gov- ernment, and geography, including training in the effective uses of technology in the classroom; and (4) recruit highly qualified individuals, including individ- uals from other occupations, into the teaching force. (b) DEFINITIONS.In this title: (1) ARTS AND SCIENCES.The term "arts and sciences" means (A) when referring to an organizational unit of an in- stitution of higher education, any academic unit that offers 35 HIGHER EDUCATION ACT OF 1965 Sec. 202 1 or more academic majors in disciplines or content areas corresponding to the academic subject matter areas in which teachers provide instruction; and (B) when referring to a specific academic subject mat- ter area, the disciplines or content areas in which aca- demic majors are offered by the arts and science organiza- tional unit. (2) HIGH NEED LOCAL EDUCATIONAL AGENCY.The term "high need local educational agency" means a local educational agency that serves an elementary school or secondary school lo- cated in an area in which thereis (A) a high percentage of individuals from families with incomes below the poverty line; (B) a high percentage of secondary school teachers not teaching in the content area in which the teachers were trained to teach; or (C) a high teacher turnover rate. (3) POVERTY LINE.The term "poverty line" means the poverty line (as defined by the Office of Management and Budget, and revised annually in accordance with section 673(2) of the Community Services Block Grant Act (42 U.S.C. 9902(2))) applicable to a family of the size involved. SEC. 202. [20 U.S.C. 1022] STATE GRANTS. (a) IN GENERAL. From amounts made available under section 210(1) for a fiscal year, the Secretary is authorized to award grants under this section, on a competitive basis, to eligible States to en- able the eligible States to carry out the activities described in sub- section (d). (b) ELIGIBLE STATE. (1) DEFINMON.In this title, the term "eligible State" means (A) the Governor of a State; or (B) in the case of a State for which the constitution or law of such State designates another individual, entity, or agency in the State to be responsible for teacher certifi- cation and preparation activity, such individual, entity, or agency. (2) CONSULTATION.The Governor and the individual, en- tity, or agency designated under paragraph (1) shall consult with the Governor, State board of education, State educational agency, or State agency for higher education, as appropriate, with respect to the activities assisted under this section. (3) CONSTRUCTION.Nothing in this subsection shall be construed to negate or supersede the legal authority under State law of any State agency, State entity, or State public offi- cial over programs that are under the jurisdiction of the agen- cy, entity, or official. (c) APPLICATION.To be eligible to receive a grant under this section, an eligible State shall, at the time of the initial grant ap- plication, submit an application to the Secretary that (1) meets the requirement of this section; (2) includes a description of how the eligible State intends to use funds provided under this section; and 43 Sec. 202 HIGHER EDUCATION ACT OF 1965 36 (3) contains such other information and assurances as the Secretary may require. (d) USES OF FUNDS.An eligible State that receives a grant under this section shall use the grant funds to reform teacher prep- aration requirements, and to ensure that current and future teach- ers possess the necessary teaching skills and academic content knowledge in the subject areas in which the teachers are assigned to teach, by carrying out 1 or more of the following activities: (1) REFORMS.Implementing reforms that hold institu- tions of higher education with teacher preparation programs accountable for preparing teachers who are highly competent in the academic content areas in which the teachers plan to teach, and possess strong teaching skills, which may include the use of rigorous subject matter competency tests and the re- quirement that a teacher have an academic major in the sub- ject area, or related discipline, in which the teacher plans to teach. (2) CERTIFICATION OR LICENSURE REQUIREMENTS.Reform- ing teacher certification or licensure requirements to ensure that teachers have the necessary teaching skills and academic content knowledge in the subject areas in which teachers are assigned to teach. (3) ALTERNATIVES TO TRADITIONAL PREPARATION FOR TEACHING.Providing prospective teachers with alternatives to traditional preparation for teaching through programs at col- leges of arts and sciences or at nonprofit educational organiza- tions. (4) ALTERNATIVE ROUTES TO STATE CERTIFICATION. Carrying out programs that (A) include support during the initial teaching experience; and (B) establish, expand, or improve alternative routes to State certification of teachers for highly qualified individ- uals, including mid-career professionals from other occupa- tions, paraprofessionals, former military personnel and re- cent college graduates with reed-cis of academic distinction. (5) RECRUITMENT; PAY; REMOVAL.Developing and imple- menting effective mechanisms to ensure that local educational agencies and schools are able to effectively recruit highly quali- fied teachers, to financially reward those teachers and prin- cipals whose students have made significant progress toward high academic performance, such as through performance- based compensation systems and access to ongoing professional development opportunities for teachers and administrators, and to expeditiously remove incompetent or unqualified teach- ers consistent with procedures to ensure due process for the teachers. (6) SOCIAL PROMOTION.Development and implementation of efforts to address the problem of social promotion and to pre- pare teachers to effectively address the issues raised by ending the practice of social promotion. (7) RECRUITMENT.Activities described in section 204(d). 4 31 HIGHER EDUCATION ACT OF 1965 Sec. 203 SEC. 203. [20 U.S.C. 1023] PARTNERSHIP GRANTS. (a) GRANTS.From amounts made available under section 210(2) for a fiscal year, the Secretary is authorized to award grants under this section, on a competitive basis, to eligible partnerships to enable the eligible partnerships to carry out the activities de- scribed in subsections (d) and (e). (b) DEFINITIONS. (1) ELIGIBLE PARTNERSHIPS.In this title, the term "eligi- ble partnerships" means an entity that (A) shall include (i) a partner institution; (ii) a school of arts and sciences; and (iii) a high need local educational agency; and (B) may include a Governor, State educational agency, the State board of education, the State agency for higher education, an institution of higher education not described in subparagraph (A), a public charter school, a public or private elementary school or secondary school, a public or private nonprofit educational organization, a business, a teacher organization, or a prekindergarten program. (2) PARTNER INSTITUTION.In this section, the term "part- ner institution" means a private independent or State-sup- ported public institution of higher education, the teacher train- ing program of which demonstrates that (A) graduates from the teacher training program ex- hibit strong performance on State-determined qualifying assessments for new teachers through (i) demonstrating that 80 percent or more of the graduates of the program who intend to enter the field of teaching have passed all of the applicable State qualification assessments for new teachers, which shall include an assessment of each prospective teach- er's subject matter knowledge in the content area or areas in which the teacher intends to teach; or (ii) being ranked among the highest-performing teacher preparation programs in the State as deter- mined by the State (I) using criteria consistent with the require- ments for the State report card under section 207(b); and (II) using the State report card on teacher preparation required under section 207(b), after the first publication of such report card and for every year thereafter; or (B) the teacher training program requires all the stu- dents of the program to participate in intensive clinical ex- perience, to meet high academic standards, and (i) in the case of secondary school candidates, to successfully complete an academic major in the subject area in which the candidate intends to teach or to demonstrate competence through a high level of per- formance in relevant content areas; and (ii) in the case of elementary school candidates, to successfully complete an academic major in the arts 4 5 Sec. 203 HIGHER EDUCATION ACT OF 1965 38 and sciences or to demonstrate competence through a high level of performance in core academic subject areas. (c) APPLICATION.Each eligible partnership desiring a grant under this section shall submit an application to the Secretary at such time, in such manner, and accompanied by such information as the Secretary may require. Each such application shall (1) contain a needs assessment of all the partners with re- spect to teaching and learning and a description of how the partnership will coordinate with other teacher training or pro- fessional development programs, and how the activities of the partnership will be consistent with State, local, and other edu- cation reform activities that promote student achievement; (2) contain a resource assessment that describes the re- sources available to the partnership, the intended use of the grant funds, including a description of how the grant funds will be fairly distributed in accordance with subsection (f ), and the commitment of the resources of the partnership to the activi- ties assisted under this title, including financial support, fac- ulty participation, time commitments, and continuation of the activities when the grant ends; and (3) contain a description of (A) how the partnership will meet the purposes of this title;(B) how the partnership will carry out the activities required under subsection (d) and any permissible activi- ties under subsection (e); and (C) the partnership's evaluation plan pursuant to sec- tion 206(b). (d) REQUIRED USES OF FUNDS.An eligible partnership that receives a grant under this section shall use the grant funds to carry out the following activities: (1) REFORMS.Implementing reforms within teacher prep- aration programs to hold the programs accountable for prepar- ing teachers who are highly competent in the academic content areas in which the teachers plan to teach, and for promoting strong teaching skills, including working with a school of arts and sciences and integrating reliable research-based teaching methods into the curriculum, which curriculum shall include programs designed to successfully integrate technology into teaching and learning. (2) CLINICAL EXPERIENCE AND INTERACTION.Providing sustained and high quality preservice clinical experience in- cluding the mentoring of prospective teachers by veteran teach- ers, and substantially increasing interaction between faculty at institutions of higher education and new and experienced teachers, principals, and other administrators at elementary schools or secondary schools, and providing support, including preparation time, for such interaction. (3) PROFESSIONAL DEVELOPMENT.Creating opportunities for enhanced and ongoing professional development that im- proves the academic content knowledge of teachers in the sub- ject areas in which the teachers are certified to teach or in 39 HIGHER EDUCATION ACT OF 1965 Sec. 204 which the teachers are working toward certification to teach, and that promotes strong teaching skills. (e) ALLOWABLE USES OF FuNDs.An eligible partnership that receives a grant under this section may use such funds to carry out the following activities: (1) TEACHER PREPARATION AND PARENT INVOLVEMENT. Preparing teachers to work with diverse student populations, including individuals with disabilities and limited English pro- ficient individuals, and involving parents in the teacher prepa- ration program reform process. (2) DISSEMINATION AND COORDINATION.Broadly dissemi- nating information on effective practices used by the partner- ship, and coordinating with the activities of the Governor, State board of education, State higher education agency, and State educational agency, as appropriate. (3) MANAGERIAL AND LEADERSHIP SKILLS.Developing and implementing proven mechanisms to provide principals and su- perintendents with effective managerial and leadership skills that result in increased student achievement. (4) TEACHER RECRUITMENT.Activities described in section 204(d). (f) SPECIAL RULE.No individual member of an eligible part- nership shall retain more than 50 percent of the funds made avail- able to the partnership under this section. (g) CONSTRUCTION.Nothing in this section shall be construed to prohibit an eligible partnership from using grant funds to coordi- nate with the activities of more than one Governor, State board of education, State educational agency, local educational agency, or State agency for higher education. SEC. 204. 120 U.S.C. 10241 TEACHER RECRUITMENT GRANTS. (a) PROGRAM AUTHORIZED.From amounts made available under section 210(3) for a fiscal year, the Secretary is authorized to award grants, on a competitive basis, to eligible applicants to en- able the eligible applicants to carry out activities described in sub- section (d). (b) ELIGIBLE APPLICANT DEFINED.In this title, the term "eli- gible applicant" means-- (1) an eligible State described in section 202(b); or (2) an eligible partnership described in section 203(b). (c) APPLICATION.Any eligible applicant desiring to receive a grant under this section shall submit an application to the Sec- retary at such time, in such form, and containing such information as the Secretary may require, including (1) a description of the assessment that the eligible appli- cant, and the other entities with whom the eligible applicant will carry out the grant activities, have undertaken to deter- mine the most critical needs of the participating high-need local educational agencies; (2) a description of the activities the eligible applicant will carry out with the grant; and (3) a description of the eligible applicant's plan- for continu- ing the activities carried out with the grant, once Federal fund- ing ceases. 4 Sec. 205 HIGHER EDUCATION ACT OF 1965 40 (d) USES OF FUNDS.Each eligible applicant receiving a grant under this section shall use the grant funds (1)(A) to award scholarships to help students pay the costs of tuition, room, board, and other expenses of completing a teacher preparation program; (B) to provide support services, if needed to enable scholar- ship recipients to complete postsecondary education programs; and (C) for followup services provided to former scholarship re- cipients during the recipients first 3 years of teaching; or (2) to develop and implement effective mechanisms to en- sure that high need local educational agencies and schools are able to effectively recruit highly qualified teachers. (e) SERVICE REQUIREMENTS.The Secretary shall establish such requirements as the Secretary finds necessary to ensure that recipients of scholarships under this section who complete teacher education programs subsequently teach in a high-need local edu- cational agency, for a period of time equivalent to the period for which the recipients receive scholarship assistance, or repay the amount of the scholarship. The Secretary shall use any such repay- ments to carry out additional activities under this section. SEC. 205. [20 U.S.C. 1025] ADMINISTRATIVE PROVISIONS. (a) DURATION; ONE-TIME AWARDS; PAYMENTS. (1) DURATION. (A) ELIGIBLE STATES AND ELIGIBLE APPLICANTS. Grants awarded to eligible States and eligible applicants under this title shall be awarded for a period not to exceed 3 years. (B) ELIGIBLE PARTNERSHIPS.Grants awarded to eligi- ble partnerships under this title shall be awarded for a period of 5 years. (2) ONE-TIME AWARD.An eligible State and an eligible partnership may receive a grant under each of sections 202, 203, and 204 only once. (3) PAYMENTS.The Secretary shall make annual pay- ments of grant funds awarded under this part. (b) PEER REVIEW. (1) PANEL.The Secretary shall provide the applications submitted under this title to a peer review panel for evalua- tion. With respect to each application, the peer review panel shall initially recommend the application for funding or for dis- approval. (2) PRIORITY.In recommending applications to the Secretary for funding under this title, the panel shall (A) with respect to grants under section 202, give priority to eligible States serving States that (i) have initiatives to reform State teacher certifi- cation requirements that are designed to ensure that current and future teachers possess the necessary teaching skills and academic content knowledge in the subject areas in which the teachers are certified or licensed to teach; 41 HIGHER EDUCATION ACT OF 1965 Sec. 206 (ii) include innovative reforms to hold institutions of higher education with teacher preparation programs accountable for preparing teachers who are highly competent in the academic content area in which the teachers plan to teach and have strong teaching skills; or (iii) involve the development of innovative efforts aimed at reducing the shortage of highly qualified teachers in high poverty urban and rural areas; (B) with respect to grants under section 203 (i) give priority to applications from eligible part- nerships that involve businesses; and (ii) take into consideration (I) providing an equitable geographic distribu- tion of the grants throughout the United States; and (II) the potential of the proposed activities for creating improvement and positive change. (3) SECRETARIAL SELECTION.The Secretary shall deter- mine, based on the peer review process, which application shall receive funding and the amounts of the grants. In determining grant amounts, the Secretary shall take into account the total amount of funds available for all grants under this title and the types of activities proposed to be carried out. (c) MATCHING REQUIREMENTS. (1) STATE GRANTS.Each eligible State receiving a grant under section 202 or 204 shall provide, from non-Federal sources, an amount equal to 50 percent of the amount of the grant (in cash or in kind) to carry out the activities supported by the grant. (2) PARTNERSHIP GRANTS.Each eligible partnership re- ceiving a grant under section 203 or 204 shall provide, from non-Federal sources (in cash or in kind), an amount equal to 25 percent of the grant for the first year of the grant, 35 per- cent of the grant for the second year of the grant, and 50 per- cent of the grant for each succeeding year of the grant. (d) LIMITATION ON ADMINISTRATIVE EXPENSES.An eligible State or eligible partnership that receives a grant under this title may not use more than 2 percent of the grant funds for purposes of administering the grant. (e) TEACHER QUALIFICATIONS PROVIDED TO PARENTS UPON RE- QUEST.Any local educational agency or school that benefits from the activities assisted under this title shall make available, upon request and in an understandable and uniform format, to any par- ent of a student attending any school served by the local edu- cational agency, information regarding the qualification of the stu- dent's classroom teacher with regard to the subject matter in which the teacher provides instruction. The local educational agency shall inform parents that the parents are entitled to receive the informa- tion upon request. SEC. 206. [20 U.S.C. 1026] ACCOUNTABILITY AND EVALUATION. (a) STATE GRANT ACCOUNTABILITY REPORT.An eligible State that receives a grant under section 202 shall submit an annual Sec. 206 HIGHER EDUCATION ACT OF 1965 42 accountability report to the Secretary, the Committee on Labor and Human Resources of the Senate, and the Committee on Education and the Workforce of the House of Representatives. Such report shall include a description of the degree to which the eligible State, in using funds provided under such section, has made substantial progress in meeting the following goals: (1) STUDENT ACHIEVEMENT.Increasing student achieve- ment for all students as defined by the eligible State. (2) RAISING STANDARDS.Raising the State academic standards required to enter the teaching profession, including, where appropriate, through the use of incentives to incorporate the requirement of an academic major in the subject, or related discipline, in which the teacher plans to teach. (3) INITIAL CERTIFICATION OR LICENSURE.Increasing suc- cess in the pass rate for initial State teacher certification or li- censure, or increasing the numbers of highly qualified individ- uals being certified or licensed as teachers through alternative programs. (4) CORE ACADEMIC SUBJECTS. (A) SECONDARY SCHOOL CLASSES.Increasing the per- centage of secondary school classes taught in core aca- demic subject areas by teachers (i) with academic majors in those areas or in a re- lated field; (ii) who can demonstrate a high level of com- petence through rigorous academic subject area tests; or (iii) who can demonstrate competence through a high level of performance in relevant content areas. (B) ELEMENTARY SCHOOL CLASSES.Increasing the percentage of elementary school classes taught by teachers (i) with academic majors in the arts and sciences; (ii) who can demonstrate competence through a high level of performance in core academic subjects. (5) DECREASING TEACHER SHORTAGES.Decreasing short- ages of qualified teachers in poor urban and rural areas. (6) INCREASING OPPORTUNITIES FOR PROFESSIONAL DEVEL- OPMENT.Increasing opportunities for enhanced and ongoing professional development that improves the academic content knowledge of teachers in the subject areas in which the teach- ers are certified or licensed to teach or in which the teachers are working toward certification or licensure to teach, and that promotes strong teaching skills. (7) TECHNOLOGY INTEGRATION.Increasing the number of teachers prepared to integrate technology in the classroom. (b) ELIGIBLE PARTNERSHIP EVALUATION.Each eligible part- nership receiving a grant under section 203 shall establish and in- clude in the application submitted under section 203(c), an evalua- tion plan that includes strong performance objectives. The plan shall include objectives and measures for (1) increased student achievement for all students as measured by the partnership; or 43 HIGHER EDUCATION ACT OF 1965 Sec. 207 (2) increased teacher retention in the first 3 years of a teacher's career; (3) increased success in the pass rate for initial State cer- tification or licensure of teachers; and (4) increased percentage of secondary school classes taught in core academic subject areas by teachers (A) with academic majors in the areas or in a related field; and (B) who can demonstrate a high level of competence through rigorous academic subject area tests or who can demonstrate competence through a high level of perform- ance in relevant content areas; (5) increasing the percentage of elementary school classes taught by teachers with academic majors in the arts and sciences or who demonstrate competence through a high level of performance in core academic subject areas; and (6) increasing the number of teachers trained in tech- nology. (c) REVOCATION OF GRANT. (1) REPORT.Each eligible State or eligible partnership re- ceiving a grant under this title shall report annually on the progress of the eligible State or eligible partnership toward meeting the purposes of this title and the goals, objectives, and measures described in subsections (a) and (b). (2) REVOCATION. (A) ELIGIBLE STATES AND ELIGIBLE APPLICANTS.If the Secretary determines that an eligible State or eligible ap- plicant is not making substantial progress in meeting the purposes, goals, objectives, and measures, as appropriate, by the end of the second year of a grant under this title, then the grant payment shall not be made for the third year of the grant. (B) ELIGIBLE PARTNERSHIPS.If the Secretary deter- mines that an eligible partnership is not making substan- tial progress in meeting the purposes, goals, objectives, and measures, as appropriate, by the end of the third year of a grant under this title, then the grant payments shall not be made for any succeeding year of the grant. (d) EVALUATION AND DISSEMINATION.The Secretary shall evaluate the activities funded under this title and report the Sec- retary's findings regarding the activities to the Committee on Labor and Human Resources of the Senate and the Committee on Education and the Workforce of the House of Representatives. The Secretary shall broadly disseminate successful practices developed by eligible States and eligible partnerships under this title, and shall broadly disseminate information regarding such practices that were found to be ineffective. SEC. 207. [20 U.S.C. 1027] ACCOUNTABILITY FOR PROGRAMS THAT PREPARE TEACHERS. (a) DEVELOPMENT OF DEFINITIONS AND REPORTING METHODS. Within 9 months of the date ofenactment of the Higher Education Amendments of 1998, the Commissioner of the National Center for Education Statistics, in consultation with States and institutions of higher education, shall develop key definitions for terms, and uni- 51 Sec. 201 HIGHER EDUCATION ACT OF 1965 44 form reporting methods (including the key definitions for the con- sistent reporting of pass rates), related to the performance of ele- mentary school and secondary school teacher preparation pro- grams. (b) STATE REPORT CARD ON THE QUALITY OF TEACHER PREPA- RATION.Each State that receives funds under this Act shall pro- vide to the Secretary, within 2 years of the date of enactment of the Higher Education Amendments of 1998, and annually there- after, in a uniform and comprehensible manner that conforms with the definitions and methods established in subsection (a), a State report card on the quality of teacher preparation in the State, which shall include at least the following: (1) A description of the teacher certification and licensure assessments, and any other certification and licensure require- ments, used by the State. (2) The standards and criteria that prospective teachers must meet in order to attain initial teacher certification or li- censure and to be certified or licensed to teach particular sub- jects or in particular grades within the State. (3) A description of the extent to which the assessments and requirements described in paragraph (1) are aligned with the State's standards and assessments for students. (4) The percentage of teaching candidates who passed each of the assessments used by the State for teacher certification and licensure, and the passing score on each assessment that determines whether a candidate has passed that assessment. (5) The percentage of teaching candidates who passed each of the assessments used by the State for teacher certification and licensure, disaggregated and ranked, by the teacher prepa- ration program in that State from which the teacher candidate received the candidate's most recent degree, which shall be made available widely and publicly. (6) Information on the extent to which teachers in the State are given waivers of State certification or licensure re- quirements, including the proportion of such teachers distrib- uted across high- and low-poverty school districts and across subject areas. (7) A description of each State's alternative routes to teacher certification, if any, and the percentage of teachers cer- tified through alternative certification routes who pass State teacher certification or licensure assessments. (8) For each State, a description of proposed criteria for as- sessing the performance of teacher preparation programs with- in institutions of higher education in the State, including indi- cators of teacher candidate knowledge and skills. (9) Information on the extent to which teachers or prospec- tive teachers in each State are required to take examinations or other assessments of their subject matter knowledge in the area or areas in which the teachers provide instruction, the standards established for passing any such assessments, and the extent to which teachers or prospective teachers are re- quired to receive a passing score on such assessments in order to teach in specific subject areas or grade levels. (C) INITIAL REPORT. 45 HIGHER EDUCATION ACT OF 1965 Sec. 207 (1) IN GENERAL.Each State that receives funds under this Act, not later than 6 months of the date of enactment of the Higher Education Amendments of 1998 and in a uniform and comprehensible manner, shall submit to the Secretary the information described in paragraphs (1), (5), and (6) of sub- section (b). Such information shall be compiled by the Sec- retary and submitted to the Committee on Labor and Human Resources of the Senate and the Committee on Education and the Workforce of the House of Representatives not later than 9 months after the date of enactment of the Higher Education Amendments of 1998. (2) CONS'TRUCTION.Nothing in this subsection shall be construed to require a State to gather information that is not in the possession of the State or the teacher preparation pro- grams in the State, or readily available to the State or teacher preparation programs. (d) REPORT OF THE SECRETARY ON THE QUALITY OF TEACHER PREPARATION. (1) REPORT CARD.The Secretary shall provide to Con- gress, and publish and make widely available, a report card on teacher qualifications and preparation in the United States, in- cluding all the information reported in paragraphs (1) through (9) of subsection (b). Such report shall identify States for which eligible States and eligible partnerships received a grant under this title. Such report shall be so provided, published and made available not later than 2 years 6 months after the date of en- actment of the Higher Education Amendments of 1998 and an- nually thereafter. (2) REPORT TO CONGRESS.The Secretary shall report to Congress (A) a comparison of States' efforts to improve teaching quality; and (B) regarding the national mean and median scores on any standardized test that is used in more than 1 State for teacher certification or licensure. (3) SPECIAL RULE.In the case of teacher preparation pro- grams with fewer than 10 graduates taking any single initial teacher certification or licensure assessment during an aca- demic year, the Secretary shall collect and publish information with respect to an average pass rate on State certification or licensure assessments taken over a 3-year period. (e) COORDINATION.The Secretary, to the extent practicable, shall coordinate the information collected and published under this title among States for individuals who took State teacher certifi- cation or licensure assessments in a State other than the State in which the individual received the individual's most recent degree. (f) INSTITUTIONAL REPORT CARDS ON THE QUALITY OF TEACHER PREPARATION. (1) REPORT CARD.Each institution of higher education that conducts a teacher preparation program that enrolls stu- dents receiving Federal assistance under this Act, not later than 18 months after the date of enactment of the Higher Edu- cation Amendments of 1998 and annually thereafter, shall re- port to the State and the general public, in a uniform and corn- 53 Sec. 208 HIGHER EDUCATION ACT OF 1965 46 prehensible manner that conforms with the definitions and methods established under subsection (a), the following infor- mation: (A) PASS RATE.(i) For the most recent year for which the information is available, the pass rate of the institu- tion's graduates on the teacher certification or licensure assessments of the State in which the institution is lo- cated, but only for those students who took those assess- ments within 3 years of completing the program. (ii) A comparison of the program's pass rate with the average pass rate for programs in the State. (iii) In the case of teacher preparation programs with fewer than 10 graduates taking any single initial teacher certification or licensure assessment during an academic year, the institution shall collect and publish information with respect to an average pass rate on State certification or licensure assessments taken over a 3-year period. (B) PROGRAM INFORMATION.The number of students in the program, the average number of hours of supervised practice teaching required for those in the program, and the faculty-student ratio in supervised practice teaching. (C) STATEMENT.In States that approve or accredit teacher education programs, a statement of whether the institution's program is so approved or accredited. (D) DESIGNATION AS LOW-PERFORMING.Whether the program has been designated as low-performing by the State under section 208(a). (2) REQUIREMENT.The information described in para- graph (1) shall be reported through publications such as school catalogs and promotional materials sent to potential appli- cants, secondary school guidance counselors, and prospective employers of the institution's program graduates. (3) FINES.In addition to the actions authorized in section 487(c), the Secretary may impose a fine not to exceed $25,000 on an institution of higher education for failure to provide the information described in this subsection in a timely or accurate manner. SEC. 208. [20 U.S.C. 1028] STATE FUNCTIONS. (a) STATE ASSESSMENT.In order to receive funds under this Act, a State, not later than 2 years after the date of enactment of the Higher Education Amendments of 1998, shall have in place a procedure to identify, and assist, through the provision of technical assistance, low-performing programs of teacher preparation within institutions of higher education. Such State shall provide the Sec- retary an annual list of such low-performing institutions that in- cludes an identification of those institutions at-risk of being placed on such list. Such levels of performance shall be determined solely by the State and may include criteria based upon information col- lected pursuant to this title. Such assessment shall be described in the report under section 207(b). (b) TERMINATION OF ELIGIBILITY.Any institution of higher education that offers a program of teacher preparation in which the State has withdrawn the State's approval or terminated the State's 47 HIGHER EDUCATION ACT OF 1965 Sec. 210 financial support due to the low performance of the institution's teacher preparation program based upon the State assessment de- scribed in subsection (a) (1) shall be ineligible for any funding for professional de- velopment activities awarded by the Department of Education; and (2) shall not be permitted to accept or enroll any student that receives aid under title IV of this Act in the institution's teacher preparation program. (c) NEGOTIATED RULEMAKING.If the Secretary develops any regulations implementing subsection (b)(2), the Secretary shall sub- mit such proposed regulations to a negotiated rulemaking process, which shall include representatives of States, institutions of higher education, and educational and student organizations. SEC. 209. [20 U.S.C. 1029] GENERAL PROVISIONS. (a) METHODS.In complying with sections 207 and 208, the Secretary shall ensure that States and institutions of higher edu- cation use fair and equitable methods in reporting and that the re- porting methods protect the privacy of individuals. (b) SPECIAL RULE.For each State in which there are no State certification or licensure assessments, or for States that do not set minimum performance levels on those assessments (1) the Secretary shall, to the extent practicable, collect data comparable to the data required under this title from States, local educational agencies, institutions of higher edu- cation, or other entities that administer such assessments to teachers or prospective teachers; and (2) notwithstanding any other provision of this title, the Secretary shall use such data to carry out requirements of this title related to assessments or pass rates. (C) LIMITATIONS. (1) FEDERAL CONTROL PROHIBITED.Nothing in this title shall be construed to permit, allow, encourage, or authorize any Federal control over any aspect of any private, religious, or home school, whether or not a home school is treated as a private school or home school under State law. This section shall not be construed to prohibit private, religious, or home schools from participation in programs or services under this title. (2) No CHANGE IN STATE CONTROL ENCOURAGED OR RE- QUIRED.Nothing in this title shall be construed to encourage or require any change in a State's treatment of any private, re- ligious, or home school, whether or not a home school is treat- ed as a private school or home school under State law. (3) NATIONAL SYSTEM OF TEACHER CERTIFICATION PROHIB- ITED.Nothing in this title shall be construed to permit, allow, encourage, or authorize the Secretary to establish or support any national system of teacher certification. SEC. 210. [20 U.S.C. 1030] AUTHORIZATION OF APPROPRIATIONS. There are authorized to be appropriated to carry out this title $300,000,000 for fiscal year 1999 and such sums as may be nec- essary for each of the 4 succeeding fiscal years, of which- 55 Sec. 301 HIGHER EDUCATION ACT OF 1965 48 (1) 45 percent shall be available for each fiscal year to award grants under section 202; (2) 45 percent shall be available for each fiscal year to award grants under section 203; and (3) 10 percent shall be available for each fiscal year to award grants under section 204. TITLE IIIINSTITUTIONAL AID SEC. 301. [20 U.S.C. 1051] FINDINGS AND PURPOSES. (a) FINDINGS.The Congress finds that (1) there are a significant number of institutions of higher education serving high percentages of minority students and students from low-income backgrounds, that face problems that threaten their ability to survive; (2) the problems relate to the management and fiscal oper- ations of certain institutions of higher education, as well as to an inability to engage in long-range planning and development activities, including endowment building; (3) in order to be competitive and provide a high-quality education for all, institutions of higher education should im- prove their technological capacity and make effective use of technology; (4) the title III program prior to 1985 did not always meet the specific development needs of historically Black colleges and universities and other institutions with large concentra- tions of minority, low-income students; (5) the solution of the problems of these institutions would enable them to become viable, fiscally stable and independent, thriving institutions of higher education; (6) providing assistance to eligible institutions will en- hance the role of such institutions in providing access and quality education to low-income and minority students; (7) these institutions play an important role in the Amer- ican system of higher education, and there is a strong national interest in assisting them in solving their problems and in sta- bilizing their management and fiscal operations, and in becom- ing financially independent; and (8) there is a particular national interest in aiding those institutions of higher education that have historically served students who have been denied access to postsecondary edu- cation because of race or national origin and whose participa- tion in the American system of higher education is in the Na- tion's interest so that equality of access and quality of post- secondary education opportunities may be enhanced for all stu- dents. (b) PURPOSE.It is the purpose of this title to assist such insti -. tutions in equalizing educational opportunity through a program of Federal assistance. PART ASTRENGTHENING INSTITUTIONS SEC. 311. [20 U.S.C. 1057] PROGRAM PURPOSE. (a) GENERAL AUTHORIZATION.The Secretary shall carry out a program, in accordance with this part, to improve the academic 49 HIGHER EDUCATION ACT OF 1965 Sec. 311 quality, institutional management, and fiscal stability of eligible in- stitutions, in order to increase their self-sufficiency and strengthen their capacity to make a substantial contribution to the higher edu- cation resources of the Nation. (b) GRANTS AWARDED; SPECIAL CONSIDERATION.(1) From the sums available for this part under section 399(a)(1), the Secretary may award grants to any eligible institution with an application approved under section 351 in order to assist such an institution to plan, develop, or implement activities that promise to strengthen the institution. (2) Special consideration shall be given to any eligible institution (A) which has endowment funds (other than any endow- ment fund built under section 332 of this Act as in effect on September 30, 1986, and under part B) the market value of which, per full-time equivalent student, is less than the aver- age current market value of the endowment funds, per full- time equivalent student (other than any endowment fund built under section 332 of this Act as in effect on September 30, 1986, and under part B) at similar institutions; or (B) which has expenditures per full-time equivalent stu- dent for library materials which is less than the average of the expenditures for library materials per full-time equivalent stu- dent by other similarly situated institutions. (3) Special consideration shall be given to applications which propose, pursuant to the institution's plan, to engage in (A) faculty development; (B) funds and administrative management; (C) development and improvement of academic programs; (D) acquisition of equipment for use in strengthening funds management and academic programs; (E) joint use of facilities such as libraries and laboratories; and (F) student services. (c) AUTHORIZED ACTIVITIES.Grants awarded under this sec- tion shall be used for 1 or more of the following activities: (1) Purchase, rental, or lease of scientific or laboratory equipment for educational purposes, including instructional and research purposes. (2) Construction, maintenance, renovation, and improve- ment in classrooms, libraries, laboratories, and other instruc- tional facilities, including the integration of computer tech- nology into institutional facilities to create smart buildings. (3) Support of faculty exchanges, faculty development, and faculty fellowships to assist in attaining advanced degrees in the field of instruction of the faculty. (4) Development and improvement of academic programs. (5) Purchase of library books, periodicals, and other edu- cational materials, including telecommunications program ma- terial. (6) Tutoring, counseling, and student service programs de- signed to improve academic success. 57 Sec. 312 HIGHER EDUCATION ACT OF 1965 50 (7) Funds management, administrative management, and acquisition of equipment for use in strengthening funds man- agement. (8) Joint use of facilities, such as laboratories and libraries. (9) Establishing or improving a development office to strengthen or improve contributions from alumni and the pri- vate sector. (10) Establishing or improving an endowment fund. (11) Creating or improving facilities for Internet or other distance learning academic instruction capabilities, including purchase or rental of telecommunications technology equip- ment or services. (12) Other activities proposed in the application submitted pursuant to subsection (c) that (A) contribute to carrying out the purposes of the pro- gram assisted under this part; and (B) are approved by the Secretary as part of the re- view and acceptance of such application. (d) ENDOWMENT FUND. (1) IN GENERAL.An eligible institution may use not more than 20 percent of the grant funds provided under this part to establish or increase an endowment fund at such institution. (2) MATCHING REQUIREMENT.In order to be eligible to use grant funds in accordance with paragraph (1), the eligible in- stitution shall provide matching funds from non-Federal sources, in an amount equal to or greater than the Federal funds used in accordance with paragraph (1), for the establish- ment or increase of the endowment fund. (3) COMPARABILITY.The provisions of part C, regarding the establishment or increase of an endowment fund, that the Secretary determines are not inconsistent with this subsection, shall apply to funds used under paragraph (1). SEC. 312. [20 U.S.C. 1058] DEFINITIONS; ELIGIBILITY. (a) EDUCATIONAL AND GENERAL EXPENDITURES.For the pur- pose of this part, the term "educational and general expenditures" means the total amount expended by an institution of higher edu- cation for instruction, research, public service, academic support (including library expenditures), student services, institutional sup- port, scholarships and fellowships, operation and maintenance ex- penditures for the physical plant, and any mandatory transfers which the institution is required to pay by law. (b) ELIGIBLE INSTITUTION.For the purpose of this part, the term "eligible institution" means (1) an institution of higher education (A) which has an enrollment of needy students as re- quired by subsection (c) of this section; (B) except as provided in. section 392(b), the average educational and general expenditures of which are low, per full-time equivalent undergraduate student, in comparison with the average educational and general expenditures per full-time equivalent undergraduate student of institutions that offer similar instruction ;. (C) which is 51 HIGHER EDUCATION ACT OF 1965 Sec. 312 (i) legally authorized to provide, and provides within the State, an educational program for which such institution awards a bachelor's degree; (ii) a junior or community college; or (iii) the College of the Marshall Islands, the Col- lege of Micronesia/Federated States of Micronesia, and Palau Community College; (D) which is accredited by a nationally recognized ac- crediting agency or association determined by the Sec- retary to be reliable authority as to the quality of training offered or which is, according to such an agency or associa- tion, making reasonable progress toward accreditation; (E) which meets such other requirements as the Sec- retary may prescribe; and (F) located in a State; and (2) any branch of any institution of higher education de- scribed under paragraph (1) which by itself satisfies the re- quirements contained in subparagraphs (A) and (B) of such paragraph. For purposes of the determination of whether an institution is an eligible institution under this paragraph, the factor described under paragraph (1)(A) shall be given twice the weight of the factor described under paragraph (1)(B). (c) ENDOWMENT FUND.For the purpose of this part, the term "endowment fund" means a fund that (1) is established by State law, by an institution of higher education, or by a foundation that is exempt from Federal in- come taxation; (2) is maintained for the purpose of generating income for the support of the institution; and (3) does not include real estate. (d) ENROLLMENT OF NEEDY STUDENTS.For the purpose of this part, the term "enrollment of needy students" means an enrollment at an institution of higher education or a junior or community col- lege which includes (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 interest subsidy is paid pursuant to section 428), or (2) a substantial percentage of students receiving Pell Grants in the second fiscal year preceding the fiscal year for which determination is being made, in comparison with the percentage of students receiving Pell Grants at all such institu- tions in the second fiscal year preceding the fiscal year for which the determination is made, unless the requirement of this subdivision is waived under section 392(a). (e) FULL-TIME EQUIVALENT STUDENTS.For the purpose of this part, the term "full-time equivalent students" means the sum of the number of students enrolled full time at an institution, plus the full-time equivalent of the number of students enrolled part time (determined on the basis of the quotient of the sum of the credit hours of all part-time students divided by 12) at such institution. 59 Sec. 313 HIGHER EDUCATION ACT OF 1965 52 a) JUNIOR OR COMMUNITY COLLEGE.For the purpose of this part, the term "junior or community college" means an institution of higher education (1) that admits as regular students persons who are be- yond the age of compulsory school attendance in the State in which the institution is located and who have the ability to benefit from the training offered by the institution; (2) that does not provide an educational program for which it awards a bachelor's degree (or an equivalent degree); and (3) that (A) provides an educational program of not less than 2 years that is acceptable for full credit toward such a de- gree, or (B) offers a 2-year program in engineering, mathe- matics, or the physical or biological sciences, designed to prepare a student to work as a technician or at the semiprofessional level in engineering, scientific, or other technological fields requiring the understanding and appli- cation of basic engineering, scientific, or mathematical principles of knowledge. (g) HISTORICALLY BLACK COLLEGE OR UNIVERSITY.For the purposes of this section, no historically black college or university which is eligible for and receives funds under part B of this title is eligible for or may receive funds under this part. SEC. 313. [20 U.S.C. 10591 DURATION OF GRANT. (a) AWARD PERIOD.The Secretary may award a grant to an eligible institution under this part for 5 years. (b) LIMITATIONS.In awarding grants under this part the Sec- retary shall give priority to applicants who are not already receiv- ing a grant under this part, except that for the purpose of this sub- section a grant under subsection (c) and a grant under section 394(a)(1) shall not be considered a grant under this part. (c) PLANNING GRANTS. Notwithstanding subsection (a), the Secretary may award a grant to an eligible institution under this part for a period of one year for the purpose of preparation of plans and applications for a grant under this part. (d) WAIT-OUT-PERIOD.Each eligible institution that received a grant under this part for a 5-year period shall not be eligible to receive an additional grant under this part until 2 years after the date on which the 5-year grant period terminates. SEC. 314. 120 U.S.C. 1059a1 APPLICATIONS. Each eligible institution desiring to receive assistance under this part shall submit an application in accordance with the re- quirements of section 391. SEC. 315. [20 U.S.C. 1059b1 GOALS FOR FINANCIAL MANAGEMENT AND ACADEMIC PROGRAM. (a) GOALS.Any application for a grant under this part shall describe measurable goals for the institution's financial manage- ment and academic programs, and include a plan of how the appli- cant intends to achieve those goals. (b) CONTINUATION REQUIREMENTS.Any continuation applica- tion shall demonstrate the progress made toward achievement of the goals described pursuant to subsection (a). 53 HIGHER EDUCATION ACT OF 1965 Sec. 316 SEC. 316. [20 U.S.C. 1059c] AMERICAN INDIAN TRIBALLY CONTROLLED COLLEGES AND UNIVERSITIES. (a) PROGRAM AUTHORIZED.The Secretary shall provide grants and related assistance to Indian Tribal Colleges and Universities to enable such institutions to improve and expand their capacity to serve Indian students. (b) DEFINITIONS.In this section: (1) INDIAN.The term "Indian" has the meaning given the term in section 2 of the Tribally Controlled College or Univer- sity Assistance Act of 1978. (2) INDIAN TRIBE.The term "Indian tribe" has the mean- ing given the term in section 2 of the Tribally Controlled Col- lege or University Assistance Act of 1978. (3) TRIBAL COLLEGE OR UNIVERSITY.The term "Tribal Col- lege or University" has the meaning give the term "tribally controlled college or university" in section 2 of the Tribally Controlled College or University Assistance Act of 1978, and includes an institution listed in the Equity in Educational Land Grant Status Act of 1994. (4) INSTITUTION OF HIGHER EDUCATION.The term "institu- tion of higher education" means an institution of higher edu- cation as defined in section 101(a), except that paragraph (2) of such section shall not apply. (c) AUTHORIZED ACTIVITIES. (1) IN GENERAL.Grants awarded under this section shall be used by Tribal Colleges or Universities to assist such insti- tutions to plan, develop, undertake, and carry out activities to improve and expand such institutions' capacity to serve Indian students. (2) EXAMPLES OF AUTHORIZED ACTIVITIES.The activities described in paragraph (1) may include (A) purchase, rental, or lease of scientific or laboratory equipment for educational purposes, including instruc- tional and research purposes; (B) construction, maintenance, renovation, and im- provement in classrooms, libraries, laboratories, and other instructional facilities, including purchase or rental of tele- communications technology equipment or services; (C) support of faculty exchanges, faculty development, and faculty fellowships to assist in attaining advanced de- grees in the faculty's field of instruction; (D) academic instruction in disciplines in which Indi- ans are underrepresented; (E) purchase of library books, periodicals, and other educational materials, including telecommunications pro- gram material; (F) tutoring, counseling, and student service programs designed to improve academic success; (G) funds management, administrative management, and acquisition of equipment for use in strengthening funds management; (H) joint use of facilities, such as laboratories and libraries; Sec. 316 HIGHER EDUCATION ACT OF 1965 54 (I) establishing or improving a development office to strengthen or improve contributions from alumni and the private sector; (J) establishing or enhancing a program of teacher education designed to qualify students to teach in elemen- tary schools or secondary schools, with a particular empha- sis on teaching Indian children and youth, that shall in- clude, as part of such program, preparation for teacher cer- tification; (K) establishing community outreach programs that encourage Indian elementary school and secondary school students to develop the academic skills and the interest to pursue postsecondary education; and (L) other activities proposed in the application submit- ted pursuant to subsection (d) that (i) contribute to carrying out the activities de- scribed in subparagraphs (A) through (K); and (ii) are approved by the Secretary as part of the review and acceptance of such application. (3) ENDowrvimsrr FUND. (A) IN GENERAL.A Tribal College or University may use not more than 20 percent of the grant funds provided under this section to establish or increase an endowment fund at the institution. (B) MATCHING REQUIREMENT.In order to be eligible to use grant funds in accordance with subparagraph (A), the Tribal College or University shall provide matching funds, in an amount equal to the Federal funds used in ac- cordance with subparagraph (A), for the establishment or increase of the endowment fund. (C) COMPARABILITY.The provisions of part C regard- ing the establishment or increase of an endowment fund, that the Secretary determines are not inconsistent with this paragraph, shall apply to funds used under subpara- graph (A). (d) APPLICATION PROCESS. (1) INSTITUTIONAL ELIGIBILITY.To be eligible to receive assistance under this section, a Tribal College or University shall be an eligible institution under section 312(b). (2) APPLICATION.Any Tribal College or University desir- ing to receive assistance under this section shall submit an ap- plication to the Secretary at such time, and in such manner, as the Secretary may by regulation reasonably require. Each such application shall include (A) a 5-year plan for improving the assistance pro- vided by the Tribal College or University to Indian stu- dents, increasing the rates at which Indian secondary school students enroll in higher education, and increasing overall postsecondary retention rates for Indian students; and (B) such enrollment data and other information and assurances as the Secretary may require to demonstrate compliance with paragraph (1). 62 55 HIGHER EDUCATION ACT OF 1965 Sec. 317 (3) SPECIAL RULE. For the purposes of this part, no Tribal College or University that is eligible for and receives funds under this section may concurrently receive other funds under this part or part B. SEC. 317. [20 U.S.C. 1059d1 ALASKA NATIVE AND NATIVE HAWAIIAN- SERVING INSTITUTIONS. (a) PROGRAM AUTHORIZED.The Secretary shall provide grants and related assistance to Alaska Native-serving institutions and Native Hawaiian-serving institutions to enable such institutions to improve and expand their capacity to serve Alaska Natives and Na- tive Hawaiians. (b) DEFINITIONS.For the purpose of this section (1) the term "Alaska Native" has the meaning given the term in section 9308 of the Elementary and Secondary Edu- cation Act of 1965; (2) the term "Alaska Native-serving institution" means an institution of higher education that (A) is an eligible institution under section 312(b); and (B) at the time of application, has an enrollment of un- dergraduate students that is at least 20 percent Alaska Native students; (3) the term "Native Hawaiian" has the meaning given the term in section 9212 of the Elementary and Secondary Edu- cation Act of 1965; and (4) the term "Native Hawaiian-serving institution" means an institution of higher education which (A) is an eligible institution under section 312(b); and (B) at the time of application, has an enrollment of un- dergraduate students that is at least 10 percent Native Hawaiian students. (c) AUTHORIZED ACTIVITIES. (1) TYPES OF ACTIVITIES AUTHORIZED.Grants awarded under this section shall be used by Alaska Native-serving insti- tutions and Native Hawaiian-serving institutions to assist such institutions to plan, develop, undertake, and carry out activi- ties to improve and expand such institutions' capacity to serve Alaska Natives or Native Hawaiians. (2) EXAMPLES OF AUTHORIZED ACTIVITIES.Such programs may include (A) purchase, rental, or lease of scientific or laboratory equipment for educational purposes, including instruc- tional and research purposes; (B) renovation and improvement in classroom, library, laboratory, and other instructional facilities; (C) support of faculty exchanges, and faculty develop- ment and faculty fellowships to assist in attaining ad- vanced degrees in the faculty's field of instruction; (D) curriculum development and academic instruction; (E) purchase of library books, periodicals, microfilm, and other educational materials; (F) funds and administrative management, and acqui- sition of equipment for use in strengthening funds man- agement; - i3 Sec. 321 HIGHER EDUCATION ACT OF. 1965 56 (G) joint use of facilities such as laboratories and li- braries; and (H) academic tutoring and counseling programs and student support services. (d) APPLICATION PROCESS. ( 1) INSTITUTIONAL ELIGIBILITY.Each Alaska Native-serv- ing institution and Native Hawaiian-serving institution desir- ing to receive assistance under this section shall submit to the Secretary such enrollment data as may be necessary to dem- onstrate that the institution is an Alaska Native-serving insti- tution or a Native Hawaiian-serving institution as defined in subsection (b), along with such other information and data as the Secretary may by regulation require. (2) APPLICATIONS.Any institution which is determined by the Secretary to be an Alaska Native-serving institution or a Native Hawaiian-serving institution may submit an application for assistance under this section to the Secretary. Such appli- cation shall include (A) a 5-year plan for improving the assistance pro- vided by the Alaska Native-serving institution or the Na- tive Hawaiian-serving institution to Alaska Native or. Na- tive Hawaiian students; and (B) such other information and assurance as the Sec- retary may require. (e) SPECIAL RULE.For the purposes of this section, no Alaska Native-serving institution or Native Hawaiian-serving institution which is eligible for and receives funds under this section may con- currently receive other funds under this part or part B. PART BSTRENGTHENING HISTORICALLY BLACK COLLEGES AND UNIVERSITIES SEC. 321. [20 U.S.C. 1060] FINDINGS AND PURPOSES. The Congress finds that (1) the historically Black colleges and universities have contributed significantly to the effort to attain equal oppor- tunity through postsecondary education for Black, low-income, and educationally disadvantaged Americans; (2) States and the Federal Government have discriminated in the allocation of land and financial resources to support Black public institutions under the Morrill Act of 1862 and its progeny, and against public and private Black colleges and uni- versities in the award of Federal grants and contracts, and the distribution of Federal resources under this Act and other Fed- eral programs which benefit institutions of higher education; (3) the current state of Black colleges and universities is partly attributable to the discriminatory action of the States and the Federal Government and this discriminatory action re- quires the remedy of enhancement of Black postsecondary in- stitutions to ensure their continuation and participation in ful- filling the Federal mission of equality of educational oppor- tunity; and (4) financial assistance to establish or strengthen the phys- ical plants, financial management, academic resources, and en- 57 HIGHER EDUCATION ACT OF 1965 Sec. 323 dowments of the historically Black colleges and universities are appropriate methods to enhance these institutions and facili- tate a decrease in reliance on governmental financial support and to encourage reliance on endowments and private sources. SEC. 322. [20 U.S.C. 10611 DEFINITIONS. For the purpose of this part: (1) The term "graduate" means an individual who has at- tended an institution for at least three semesters and fulfilled academic requirements for undergraduate studies in not more than 5 consecutive school years. (2) The term "part B institution" means any historically Black college or university that was established prior to 1964, whose principal mission was, and is, the education of Black Americans, and that is accredited by a nationally recognized accrediting agency or association determined by the Secretary to be a reliable authority as to the quality of training offered or is, according to such an agency or association, making rea- sonable progress toward accreditation, except that any branch campus of a southern institution of higher education that prior to September 30, 1986, received a grant as an institution with special needs under section 321 of this title and was formally recognized by the National Center for Education Statistics as a Historically Black College or University but was determined not to be a part B institution on or after October 17, 1986, shall, from the date of enactment of this exception, be consid- ered a part B institution. (3) The term "Pell Grant recipient" means a recipient of fi- nancial aid under subpart 1 of part A of title IV of this Act. (4) The term "professional and academic areas in which Blacks are underrepresented" shall be determined by the Sec- retary and the Commissioner of the Bureau of Labor Statistics, on the basis of the most recent available satisfactory data, as professional and academic areas in which the percentage of Black Americans who have been educated, trained, and em- ployed is less than the percentage of Blacks in the general pop- ulation. (5) The term "school year" means the period of 12 months beginning July 1 of any calendar year and ending June 30 of the following calendar year. SEC. 323. [20 U.S.C. 10621 GRANTS TO INSTITUTIONS. (a) GENERAL AUTHORIZATION; USES OF FUNDS.From amounts available under section 360(a)(2) in any fiscal year the Secretary shall make grants (under section 324) to institutions which have applications approved by the Secretary (under section 325) for any of the following uses: (1) Purchase, rental, or lease of scientific or laboratory equipment for educational purposes, including instructional and research purposes. (2) Construction, maintenance, renovation, and improve- ment in classroom, library, laboratory, and other instructional facilities, including purchase or rental of telecommunications technology equipment or services. 65 54-653 99 - 3 Sec. 323 HIGHER EDUCATION ACT OF 1965 58 (3) Support of faculty exchanges, and faculty development and faculty fellowships to assist in attaining advanced degrees in their field of instruction. (4) Academic instruction in disciplines in which Black Americans are underrepresented. (5) Purchase of library books, periodicals, microfilm, and other educational materials, including telecommunications pro- gram materials. (6) Tutoring, counseling, and student service programs de- signed to improve academic success. (7) Funds and administrative management, and acquisi- tion of equipment for use in strengthening funds management. (8) Joint use of facilities, such as laboratories and libraries. (9) Establishing or improving a development office to strengthen or improve contributions from alumni and the pri- vate sector. (10) Establishing or enhancing a program of teacher edu- cation designed to qualify students to teach in a public elemen- tary or secondary school in the State that shall include, as part of such program, preparation for teacher certification. (11) Establishing community outreach programs which will encourage elementary and secondary students to develop the academic skills and the interest to pursue postsecondary edu- cation. (12) Other activities proposed in the application submitted pursuant to section 325 that (A) contribute to carrying out the purposes of this part; and (B) are approved by the Secretary as part of the re- view and acceptance of such application. (b) ENDOWMENT FUND. (1) IN GENERAL.An institution may use not more than 20 percent of the grant funds provided under this part to establish or increase an endowment fund at the institution. (2) MATCHING REQUIREMENT.In order to be eligible to use grant funds in accordance with paragraph (1), the eligible in- stitution shall provide matching funds from non-Federal sources, in an amount equal to or greater than the Federal funds used in accordance with paragraph (1), for the establish- ment or increase of the endowment fund. (3) COMPARABILITY.The provisions of part C regarding the establishment or increase of an endowment fund, that the Secretary determines are not inconsistent with this subsection, shall apply to funds used under paragraph (1). (c) LIMITATIONS.(1) No grant may be made under this Act for any educational program, activity, or service related to sectarian instruction or religious worship, or provided by a school or depart- ment of divinity. For the purpose of this subsection, the term "school or department of divinity" means an institution whose pro- gram is specifically for the education of students to prepare them to become ministers of religion or to enter upon some other reli- gious vocation, or to prepare them to teach theological subjects. 59 HIGHER EDUCATION ACT OF 1965 Sec. 324 (2) Not more than 50 percent of the allotment of any institu- tion may be available for the purpose of constructing or maintain- ing a classroom, library, laboratory, or other instructional facility. SEC. 324. [20 U.S.C. 1063] ALLOTMENTS TO INSTITUTIONS. (a) ALLOTMENT; PELL GRANT BASIS.From the amounts appro- priated to carry out this part for any fiscal year, the Secretary shall allot to each part B institution a sum which bears the same ratio to one-half that amount as the number of Pell Grant recipients in attendance at such institution at the end of the school year preced- ing the beginning of that fiscal year bears to the total number of Pell Grant recipients at all part B institutions. (b) ALLOTMENT; GRADUATES BASIS.From the amounts appro- priated to carry out this part for any fiscal year, the Secretary shall allot to each part B institution a sum which bears the same ratio to one-fourth that amount as the number of graduates for such school year at such institution bears to the total number of grad- uates for such school year at all part B institutions. (C) ALLOTMENT; GRADUATE AND PROFESSIONAL STUDENT BASIS.From the amounts appropriated to carry out this part for any fiscal year, the Secretary shall allot to each part B institution a sum which bears the same ratio to one-fourth of that amount as the percentage of graduates per institution, who are admitted to and in attendance at, within 5 years of graduation with a bacca- laureate degree, a graduate or professional school in a degree pro- gram in disciplines in which Blacks are underrepresented, bears to the percentage of such graduates per institution for all part B insti- tutions. (d) MINIMUM ALLOTMENT.(1) Notwithstanding subsections (a), (b), and (c), the amount allotted to each part B institution under this section shall not be less than $500,000. (2) If the amount appropriated pursuant to section 360(a)(2)(A) for any fiscal year is not sufficient to pay the minimum allotment required by paragraph (1) of this subsection to all part B institu- tions, the amount of such minimum allotments shall be ratably re- duced. If additional sums become available for such fiscal year, such reduced allocation shall be increased on the same basis as they were reduced (until the amount allotted equals the minimum allotment required by paragraph (1)). (e) REALLOTMENT.The amount of any part B institution's al- lotment under subsection (a), (b), (c), or (d) for any fiscal year which the Secretary determines will not be required for such insti- tution for the period such allotment is available shall be available for reallotment from time to time on such date during such period as the Secretary may determine to other part B institutions in pro- portion to the original allotment to such other institutions under this section for such fiscal year. (f) SPECIAL MERGER RULE.(1) The Secretary shall permit any eligible institution for a grant under part B in any fiscal year prior to the fiscal year 1986 to apply for a grant under this part if the eligible institution has merged with another institution of higher education which is not so eligible or has merged with an eligible institution. 6 7 Sec. 325 HIGHER EDUCATION ACT OF 1965 60 (2) The Secretary may establish such regulations as may be necessary to carry out the requirement of paragraph (1) of this sub- section. (g) SPECIAL RULE FOR CERTAIN DISTRICT OF COLUMBIA ELIGI- BLE INSTITUTIONS.In any fiscal year that the Secretary deter- mines that Howard University or the University of the District of Columbia will receive an allotment under subsections (b) and (c) of this section which is not in excess of amounts received by Howard University under the Act of March 2, 1867 (14 Stat. 438; 20 U.S.C. 123), relating to annual authorization of appropriations for Howard University, or by the University of the District of Columbia under the District of Columbia Self-Government and Governmental Reor- ganization Act (87 Stat. 774) for such fiscal year, then Howard Uni- versity and the University of the District of Columbia, as the case may be, shall be ineligible to receive an allotment under this sec- tion. SEC. 325. [20 U.S.C. 1063a] APPLICATIONS. (a) CONTENTS.No part B institution shall be entitled to its al- lotment of Federal funds for any grant under section 324 for any period unless that institution meets the requirements of subpara- graphs (C), (D), and (E) of section 312(b)(1) and submits an applica- tion to the Secretary at such time, in such manner, and containing or accompanied by such information, as the Secretary may reason- ably require. Each such application shall (1) provide that the payments under this Act will be used for the purposes set forth in section 323; and (2) provide for making an annual report to the Secretary and provide for (A) conducting, except as provided in subparagraph (B), a financial and compliance audit of an eligible institu- tion, with regard to any funds obtained by it under this title at least once every 2 years and covering the period since the most recent audit, conducted by a qualified, inde- pendent organization or person in accordance with stand- ards established by the Comptroller General for the audit of governmental organizations, programs, and functions, and as prescribed in regulations of the Secretary, the re- sults of which shall be submitted to the Secretary; or (B) with regard to an eligible institution which is au- dited under chapter 75 of title 31, United States Code, deeming such audit to satisfy the requirements of subpara- graph (A) for the period covered by such audit. (b) APPROVAL.The Secretary shall approve any application which meets the requirements of subsection (a) and shall not dis- approve any application submitted under this part, or any modi- fication thereof, without first affording such institution reasonable notice and opportunity for a hearing. (c) GOALS FOR FINANCIAL MANAGEMENT AND ACADEMIC PRO- GRAMS.Any application for a grant under this part shall describe measurable goals for the institution's financial management and academic programs and include a plan of how the applicant intends to achieve those goals. 61 HIGHER EDUCATION ACT OF 1965 Sec. 326 SEC. 326. [20 U.S.C. 1063b1 PROFESSIONAL OR GRADUATE INSTITU- TIONS. (a) GENERAL AUTHORIZATION.(1) Subject to the availability of funds appropriated to carry out this section, the Secretary shall award program grants to each of the postgraduate institutions list- ed in subsection (e) that is determined by the Secretary to be mak- ing a substantial contribution to the legal, medical, dental, veteri- nary, or other graduate education opportunities in mathematics, engineering, or the physical or natural sciences for Black Ameri- cans. (2) No grant in excess of $1,000,000 may be made under this section unless the postgraduate institution provides assurances that 50 percent of the cost of the purposes for which the grant is made will be paid from non-Federal sources, except that no institu- tion shall be required to match any portion of the first $1,000,000 of the institution's award from the Secretary. After funds are made available to each eligible institution under the funding rules de- scribed in subsection (f), the Secretary shall distribute, on a pro rata basis, any amounts which were not so made available (by rea- son of the failure of an institution to comply with the matching re- quirements of this paragraph) among the institutions that have complied with such matching requirement. (b) DURATION.Grants shall be made for a period not to exceed 5 years. (c) USES OF FUNDS.A grant under this section may be used for (1) purchase, rental or lease of scientific or laboratory equipment for educational purposes, including instructional and research purposes; (2) construction, maintenance, renovation, and improve- ment in classroom, library, laboratory, and other instructional facilities, including purchase or rental of telecommunications technology equipment or services; (3) purchase of library books, periodicals, technical and other scientific journals, microfilm, microfiche, and other edu- cational materials, including telecommunications program ma- terials; (4) scholarships, fellowships, and other financial assistance for needy graduate and professional students to permit the en- rollment of the students in and completion of the doctoral de- gree in medicine, dentistry, pharmacy, veterinary medicine, law, and the doctorate degree in the physical or natural sciences, engineering, mathematics, or other scientific dis- ciplines in which African Americans are underrepresented; (5) establish or improve a development office to strengthen and increase contributions from alumni and the private sector; (6) assist in the establishment or maintenance of an insti- tutional endowment to facilitate financial independence pursu- ant to section 331; and (7) funds and administrative management, and the acqui- sition of equipment, including software, for use in strengthen- ing funds management and management information systems. (d) APPLICATION.Any institution eligible for a grant under this section shall submit an application which- 6 9 Sec. 326 HIGHER EDUCATION ACT OF 1965 62 (1) demonstrates how the grant funds will be used to im- prove graduate educational opportunities for Black and low-in- come students, and lead to greater financial independence; and (2) provides, in the case of applications for grants in excess of $1,000,000, the assurances required by subsection (a)(2) and specifies the manner in which the eligible institution is going to pay the non-Federal share of the cost of the application. (e) ELIGIBILITY. (1) IN GENERAL.Independent professional or graduate in- stitutions and programs eligible for grants under subsection (a) are the following (A) Morehouse School of Medicine; (B) Meharry Medical School; (C) Charles R. Drew Postgraduate Medical School; (D) Clark-Atlanta University; (E) Tuskegee University School of Veterinary Medicine and other qualified graduate programs; (F) Xavier University School of Pharmacy and other qualified graduate programs; (G) Southern University School of Law and other qualified graduate programs; (H) Texas Southern University School of Law and School of Pharmacy and other qualified graduate pro- grams; (I) Florida A&M University School of Pharmaceutical Sciences and other qualified graduate programs; (J) North Carolina Central University School of Law and other qualified graduate programs; (K) Morgan State University qualified graduate pro- gram; (L) Hampton University qualified graduate program; (M) Alabama A&M qualified graduate program; (N) North Carolina A&T State University qualified graduate program; (0) University of Maryland Eastern Shore qualified graduate program; (P) Jackson State University qualified graduate pro- gram;(Q) Norfolk State University qualified graduate pro- grams; and (R) Tennessee State University qualified graduate pro- grams. (2) QUALIFIED GRADUATE PROGRAM.(A) For the purposes of this section, the term "qualified graduate program" means a graduate or professional program that provides a program of instruction in the physical or natural sciences, engineering, mathematics, or other scientific discipline in which African Americans are underrepresented and has students enrolled in such program at the time of application for a grant under this section. (B) Notwithstanding the enrollment requirement contained in subparagraph (A), an institution may use an amount equal 'So in original. Probably should include a colon. 63 HIGHER EDUCATION ACT OF 1965 Sec. 326 to not more than 10 percent of the institution's grant under this section for the development of a new qualified graduate program. (3) SPECIAL RULE.Institutions that were awarded grants under this section prior to October 1, 1998, shall continue to receive such grants, subject to the availability of appropriated funds, regardless of the eligibility of the institutions described in subparagraphs (Q) and (R) of paragraph (1). (4) ONE GRANT PER INSTITUTION.The Secretary shall not award more than 1 grant under this section in any fiscal year to any institution of higher education or university system. (5) INSTITUTIONAL CHOICE.The president or chancellor of the institution may decide which graduate or professional school or qualified graduate program will receive funds under the grant in any 1 fiscal year, if the allocation of funds among the schools or programs is delineated in the application for funds submitted to the Secretary under this section. (f) FUNDING RULE.Subject to subsection (g), of the amount appropriated to carry out this section for any fiscal year (1) the first $26,600,000 (or any lesser amount appro- priated) shall be available only for the purposes of making grants to institutions or programs described in subparagraphs (A) through (P) of subsection (e)(1); (2) any amount in excess of $26,600,000, but not in excess of $28,600,000, shall be available for the purpose of making grants to institutions or programs described in subparagraphs (Q) and (R) of subsection (e)(1); and (3) any amount in excess of $28,600,000, shall be made available to each of the institutions or programs identified in subparagraphs (A) through (R) pursuant to a formula devel- oped by the Secretary that uses the following elements: (A) The ability of the institution to match Federal funds with non-Federal funds. (B) The number of students enrolled in the programs for which the eligible institution received funding under this section in the previous year. (C) The average cost of education per student, for all full-time graduate or professional students (or the equiva- lent) enrolled in the eligible professional or graduate school, or for doctoral students enrolled in the qualified graduate programs. (D) The number of students in the previous year who received their first professional or doctoral degree from the programs for which the eligible institution received fund- ing under this section in the previous year. (E) The contribution, on a percent basis, of the pro- grams for which the institution is eligible to receive funds under this section to the total number of African Ameri- cans receiving graduate or professional degrees in the pro- fessions or disciplines related to the programs for the pre- vious year: (g) HOLD. HARMLESS RULE.Notwithstanding paragraphs (2) and (3) of subsection (f), no institution or qualified program identi- fied in subsection (e)(1) that received a grant for fiscal year 1998 Sec. 321 HIGHER EDUCATION ACT OF 1965 64 and that is eligible to receive a grant in a subsequent fiscal year shall receive a grant amount in any such subsequent fiscal year that is less than the grant amount received for fiscal year 1998, un- less the amount appropriated is not sufficient to provide such grant amounts to all such institutions and programs, or the institution 'cannot provide sufficient matching funds to meet the requirements of this section. SEC. 327. [20 U.S.C. 10630 REPORTING AND AUDIT REQUIREMENTS. (a) RECORDKEEPING,Each recipient of a grant under this part shall keep such records as the Secretary shall prescribe, including records which fully disclose (1) the amount and disposition by such recipient of the proceeds of such assistance; (2) the cost of the project or undertaking in connection with which such assistance is given or used; (3) the amount of that portion of the cost of the project or undertaking supplied by other sources; and (4) such other records as will facilitate an effective audit. (b) REPAYMENT OF UNEXPENDED FUNDS.Any funds paid to an institution and not expended or used for the purposes for which the funds were paid within 10 years following the date of the initial grant awarded to an institution under part B of this title shall be repaid to the Treasury of the United States. PART CENDOWMENT CHALLENGE GRANTS FOR INSTITUTIONS ELIGIBLE FOR ASSISTANCE UNDER PART A OR PART B SEC. 331. [20 U.S.C. 1065] ENDOWMENT CHALLENGE GRANTS. (a) PURPOSE; DEFINITIONS.(1) The purpose of this section is to establish a program to provide matching grants to eligible insti- tutions in order to establish or increase endowment funds at such institutions, to provide additional incentives to promote fund rais- ing activities by such institutions, and to foster increased independ- ence and self-sufficiency at such institutions. (2) For the purpose of this section: (A) The term "endowment fund" means a fund established by State law, by an institution of higher education, or by a foundation which is exempt from taxation and is maintained for the purpose of generating income for the support of the in- stitution, but which shall not include real estate. (B) The term "endowment fund corpus" means an amount equal to the grant or grants awarded under this section plus an amount equal to such grant or grants provided by the insti- tution. (C) The term "endowment fund income" means an amount equal to the total value of the endowment fund established under this section minus the endowment fund corpus. (D)(i) The term "eligible institution" means an institution that is an (I) eligible institution under part A or would be consid- ered to be such an institution if section' 312(b)(1)(C) re- ferred to a postgraduate degree rather than a bachelor's degree; 65 HIGHER EDUCATION ACT OF 1965 Sec. 331 (II) institution eligible for assistance under part B or would be considered to be such an institution if section 324 referred to a postgraduate degree rather than a. bacca- laureate degree; or (III) institution of higher education that makes a sub- stantial contribution to postgraduate medical educational opportunities for minorities and the economically dis- advantaged. (ii) The Secretary may waive the requirements of sub- clauses (I) and (II) of clause (i) with respect to a postgraduate degree in the case of any institution otherwise eligible under clause (i) for an endowment challenge grant upon determining that the institution makes a substantial contribution to medi- cal education opportunities for minorities and the economically disadvantaged. (b) GRANTS AUTHORIZED.-(1) From sums available for this sec- tion under section 399, the Secretary is authorized to award en- dowment challenge grants to eligible institutions to establish or in- crease an endowment fund at such institution. Such grants shall be made only to eligible institutions described in paragraph (4) whose applications have been approved pursuant to subsection (g). (2)(A) Except as provided in subparagraph (B), no institution shall receive a grant under this section, unless such institution has deposited in its endowment fund established under this section an amount equal to the amount of such grant. The source of funds for this institutional match shall not include Federal funds or funds from an existing endowment fund. (B) The Secretary may make a grant under this part to an eli- gible institution in any fiscal year if the institution (i) applies for a grant in an amount not exceeding $500,000; and (ii) has deposited in the eligible institution's endowment fund established under this section an amount which is equal to Y2 of the amount of such grant. (C) An eligible institution of higher education that is awarded a grant under subparagraph (B) shall not be eligible to receive an additional grant under subparagraph (B) until 10 years after the date on which the grant period terminates. (3) The period of a grant under this section shall be not more than 10 years. During the grant period, an institution may not withdraw or expend any of the endowment fund corpus. After the termination of the grant period, an institution may use the endow- ment fund corpus plus any endowment fund income for any edu- cational purpose. (4)(A) An institution of higher education is eligible to receive a grant under this section if it is an eligible institution as described in subsection (a)(2)(D) of this section. (B) No institution shall be ineligible for an endowment chal- lenge grant under this section for a fiscal year by reason of the pre- vious receipt of such a grant but no institution shall be eligible to receive such a grant for more than 2 fiscal years out of any period of 5 consecutive fiscal years. 73 Sec. 331 HIGHER EDUCATION ACT OF 1965 66 (5) An endowment challenge grant awarded under this section to an eligible institution shall be in an amount which is not less than $50,000 in any fiscal year. (6)(A) An eligible institution may designate a foundation, which was established for the purpose of raising money for the in- stitution, as the recipient of the grant awarded under this section. (B) The Secretary shall not award a grant to a foundation on behalf of an institution unless (i) the institution assures the Secretary that the founda- tion is legally authorized to receive the endowment fund corpus and is legally authorized to administer the fund in accordance with this section and any implementing regulation; (ii) the foundation agrees to administer the fund in accord- ance with the requirements of this section and any implement- ing regulation; and (iii) the institution agrees to be liable for any violation by the foundation of the provisions of this section and any imple- menting regulation, including any monetary liability that may arise as a result of such violation. (c) GRANT AGREEMENT; ENDOWMENT FUND PROVISIONS.(1) An institution awarded a grant under this section shall enter into an agreement with the Secretary containing satisfactory assur- ances that it will (A) immediately comply with the matching re- quirements of subsection (b)(2), (B) establish an endowment fund independent of any other such fund of the institution, (C) invest the endowment fund corpus, and (D) meet the other requirements of this section. (2)(A) An institution shall invest the endowment fund corpus and endowment fund income in low-risk securities in which a regu- lated insurance company may invest under the law of the State in which the institution is located such as a federally insured bank savings account or comparable interest-bearing account, certificate of deposit, money market fund, mutual fund, or obligations of the United States. (B) The institution, in investing the endowment fund estab- lished under this section, shall exercise the judgment and care, under the circumstances then prevailing, which a person of pru- dence, discretion, and intelligence would exercise in the manage- ment of such person's own affairs. (3)(A) An institution may withdraw and expend the endow- ment fund income to defray any expenses necessary to the oper- ation of such college, including expenses of operations and mainte- nance, administration, academic and support personnel, construc- tion and renovation, community and student services programs, and technical assistance. (B)(i) Except as provided in clause (ii), an institution may not spend more than 50 percent of the total aggregate endowment fund income earned prior to the time of expenditure. (ii) The Secretary may permit an institution to spend more than 50 percent of the endowment fund income notwithstanding clause (i) if the institution demonstrates such an expenditure is necessary because of (I) a financial emergency, such as a pending insolvency or temporary liquidity problem; (II) a life-threatening 7 4 67 HIGHER EDUCATION ACT OF 1965 Sec. 331 situation occasioned by a natural disaster or arson; or (III) any other unusual occurrence or exigent circumstance. (d) REPAYMENT PROVISIONS.(1) If at any time an institution withdraws part of the endowment fund corpus, the institution shall repay to the Secretary an amount equal to 50 percent of the with- drawn amount, which represents the Federal share, plus income earned thereon. The Secretary may use such repaid funds to make additional challenge grants, or to increase existing endowment grants, to other eligible institutions. (2) If an institution expends more of the endowment fund in- come than is permitted under subsection (c), the institution shall repay the Secretary an amount equal to 50 percent of the amount improperly expended (representing the Federal share thereof). The Secretary may use such repaid fund to make additional challenge grants, or to increase existing challenge grants, to other eligible in- stitutions. (e) AUDIT INFORMATION.An institution receiving a grant under this section shall provide to the Secretary (or a designee thereof) such information (or access thereto) as may be necessary to audit or examine expenditures made from the endowment fund corpus or income in order to determine compliance with this sec- tion. (f) SELECTION CRITERIA.In selecting eligible institutions for grants under this section for any fiscal year, the Secretary shall (1) give priority to an applicant that is receiving assistance under part A or part B or has received a grant under part A or part B of this title within the 5 fiscal years preceding the fiscal year in which the applicant is applying for a grant under this section; (2) give priority to an applicant with a greater need for such a grant, based on the current market value of the appli- cant's existing endowment in relation to the number of full- time equivalent students enrolled at such institution; and (3) consider (A) the effort made by the applicant to build or main- tain its existing endowment fund; and (B) the degree to which an applicant proposes to match the grant with nongovernmental funds. (g) APPLICATION.Any institution which is eligible for assist- ance under this section may submit to the Secretary a grant appli- cation at such time, in such form, and containing such information as the Secretary may prescribe, including a description of the long- and short-term plans for raising and using the funds under this part. Subject to the availability of appropriations to carry out this section and consistent with the requirement of subsection (f), the Secretary may approve an application for a grant if an institution, in its application, provides adequate assurances that it will comply with the requirements of this section. (h) TERMINATION AND RECOVERY PROVISIONS.(1) After notice and an opportunity for a hearing, the Secretary may terminate and recover a grant awarded under this section if the grantee institution- 75 Sec. 341 HIGHER EDUCATION ACT OF 1965 68 (A) expends portions of the endowment fund corpus or ex- pends more than the permissible amount of the endowment funds income as prescribed in subsection (c)(3); (B) fails to invest the endowment fund in accordance with the investment standards set forth in subsection (c)(2); or (C) fails to properly account to the Secretary concerning the investment and expenditures of the endowment funds. (2) If the Secretary terminates a grant under paragraph (1), the grantee shall return to the Secretary an amount equal to the sum of each original grant under this section plus income earned thereon. The Secretary may use such repaid funds to make addi- tional endowment grants, or to increase existing challenge grants, to other eligible institutions under this part. PART D-HISTORICALLY BLACK COLLEGE AND UNIVERSITY CAPITAL FINANCING SEC. 341. [20 U.S.C. 1066] FINDINGS. The Congress finds that (1) a significant part of the Federal mission in education has been to attain equal opportunity in higher education for low-income, educationally disadvantaged Americans and Afri- can Americans; (2) the Nation's historically Black colleges and universities have played a prominent role in American history and have an unparalleled record of fostering the development of African Arnerican youth by recognizing their potential, enhancing their academic and technical skills, and honing their social and po- litical skills through higher education; (3) the academic and residential facilities on the campuses of all historically Black colleges and universities have suffered from neglect, deferred maintenance and are in need of capital improvements in order to provide appropriate settings for learning and social development through higher education; (4) due to their small enrollments, limited endowments and other financial factors normally considered by lenders in construction financing, historically Black colleges and univer- sities often lack access to the sources of funding necessary to undertake the necessary capital improvements through borrow- ing and bond financing; (5) despite their track record of long-standing and remark- able institutional longevity and viability, historically Black col- leges and universities often lack the financial resources nec- essary to gain access to traditional sources of capital financing such as bank loans and bond financing; and (6) Federal assistance to facilitate low-cost capital basis for historically Black colleges and universities will enable such col- leges and universities to continue and expand their educational mission and enhance their significant role in American higher education. SEC. 342. [20 U.S.C. 1066a] DEFINITIONS. For the purposes of this part: 7 6 69 HIGHER EDUCATION ACT OF 1965 Sec. 342 (1) The term "eligible institution" means a "part B institu- tion" as that term is defined .in section 322(2) of the Higher Education Act of 1965 (20 U.S.C. 1061(2)). (2) The term "loan" means a loan made to an eligible insti- tution under the provisions of this part and pursuant to an agreement with the Secretary. (3) The term "qualified bond" means any obligation issued by the designated bonding authority at the direction of the Sec- retary, the net proceeds of which are loaned to an eligible insti- tution for the purposes described in section 343(b). (4) The term "funding" means any payment under this part from the Secretary to the eligible institution or its as- signee in fulfillment of the insurance obligations of the Sec- retary pursuant to an agreement under section 343. (5) The term "capital project" means, subject to section 344(b) the repair, renovation, or, in exceptional circumstances, the construction or acquisition, of (A) any classroom facility, library, laboratory facility, dormitory (including dining facilities) or other facility cus- tomarily used by colleges and universities for instructional or research purposes or for housing students, faculty, and staff; (B) a facility for the administration of an educational program, or a student center or student union, except that not more than 5 percent of the loan proceeds provided under this part may be used for the facility, center or union if the facility, center or union is owned, leased, man- aged, or operated by a private business, that, in return for such use, makes a payment to the eligible institution; (C) instructional equipment technology 1 research in- strumentation, and any capital equipment or fixture relat- ed to facilities described in subparagraph (A); (D) a maintenance, storage, or utility facility that is essential to the operation of a facility, a library, a dor- mitory, equipment, instrumentation, a fixture, real prop- erty or an interest therein, described in this paragraph; (E) a facility designed to provide primarily outpatient health care for students or faculty; (F) physical infrastructure essential to support the projects authorized under this paragraph, including roads, sewer and drainage systems, and water, power, lighting, telecommunications, and other utilities; (G) any other facility, equipment or fixture which is essential to the maintaining of accreditation of the mem- ber institution by a nationally recognized accrediting agen- cy or association; and (H) any real property or interest therein underlying facilities described in subparagraph (A) or (G). (6) The term "interest" includes accredited value or any other payment constituting interest on an obligation. (7) The term "outstanding", when used with respect to bonds, shall not include bonds the payment of which shall have lSo in original. 77 Sec. 343 HIGHER EDUCATION ACT OF 1965 70 been provided for by the irrevocable deposit in trust of obliga- tions maturing as to principal and interest in such amounts and at such times as will ensure the availability of sufficient moneys to make payments on such bonds. (8) The term "designated bonding authority" means the private, for-profit corporation selected by the Secretary pursu- ant to section 345(1) for the purpose of issuing taxable con- struction bonds in furtherance of the purposes of this part. (9) The term "Advisory Board" means the Advisory Board established by section 347 of this part. SEC. 343. [20 U.S.C. 106613] FEDERAL INSURANCE FOR BONDS. (a) GENERAL RULE.Subject to the limitations in section 344, the Secretary is authorized to enter into insurance agreements to provide financial insurance to guarantee the full payment of prin- cipal and interest on qualified bonds upon the conditions set forth in subsections (b), (c) and (d). (b) RESPONSIBILITIES OF THE DESIGNATED BONDING AUTHOR- ITY.The Secretary may not enter into an insurance agreement de- scribed in subsection (a) unless the Secretary designates a qualified bonding authority in accordance with sections 345(1) and 346 and the designated bonding authority agrees in such agreement to (1) use the proceeds of the qualified bonds, less costs of issuance not to exceed 2 percent of the principal amount there- of, to make loans to eligible institutions or for deposit into an escrow account for repayment of the bonds; (2) provide in each loan agreement with respect to a loan that not less than 95 percent of the proceeds of the loan will be used(A) to finance the repair, renovation, and, in excep- tional cases, construction or acquisition, of a capital project; or (B) to refinance an obligation the proceeds of which were used to finance the repair, renovation, and, in excep- tional cases, construction or acquisition, of a capital project; (3)(A) charge such interest on loans, and provide for such a schedule of repayments of loans, as will, upon the timely re- payment of the loans, provide adequate and timely funds for the payment of principal and interest on the bonds; and (B) require that any payment on a loan expected to be nec- essary to make a payment of principal and interest on the bonds be due not less than 60 days prior to the date of the pay- ment on the bonds for which such loan payment is expected to be needed; (4) prior to the making of any loan, provide for a credit re- view of the institution receiving the loan and assure the Sec- retary that, on the basis of such credit review, it is reasonable to anticipate that the institution receiving the loan will be able to repay the loan in a timely manner pursuant to the terms thereof; (5) provide in each loan agreement with respect to a loan that, if a delinquency on such loan results in a funding under the insurance agreement, the institution obligated on such loan 71 HIGHER EDUCATION ACT OF 1965 Sec. 343 shall repay the Secretary, upon terms to be determined by the Secretary, for such funding; (6) assign any loans to the Secretary, upon the demand of the Secretary, if a delinquency on such loan has required a funding under the insurance agreement; (7) in the event of a delinquency on a loan, engage in such collection efforts as the Secretary shall require for a period of not less than 45 days prior to requesting a funding under the insurance agreement; (8) establish an escrow account (A) into which each eligible institution shall deposit 5 percent of the proceeds of any loan made under this part, with each eligible institution required to maintain in the escrow account an amount equal to 5 percent of the out- standing principal of all loans made to such institution under this part; and (B) the balance of which (i) shall be available to the Secretary to pay prin- cipal and interest on the bonds in the event of delin- quency in loan repayment; and (ii) shall be used to return to an eligible institu- tion an amount equal to any remaining portion of such institution's 10 percent deposit of loan proceeds follow- ing scheduled repayment of such institution's loan; (9) provide in each loan agreement with respect to a loan that, if a delinquency on such loan results in amounts being withdrawn from the escrow account to pay principal and inter- est on bonds, subsequent payments on such loan shall be avail- able to replenish such escrow account; (10) comply with the limitations set forth in section 344 of this part; and (11) make loans only to eligible institutions under this part in accordance with conditions prescribed by the Secretary to ensure that loans are fairly allocated among as many eligible institutions as possible, consistent with making loans of amounts that will permit capital projects of sufficient size and scope to significantly contribute to the educational program of the eligible institutions. (c) ADDITIONAL AGREEMENT PROVISIONS.Any insurance agreement described in subsection (a) of this section shall provide as follows: (1) The payment of principal and interest on bonds shall be insured by the Secretary until such time as such bonds have been retired or canceled. (2) The Federal liability for delinquencies and default for bonds guaranteed under this part shall only become effective upon the exhaustion of all the funds held in the escrow account described in subsection (b)(8). (3) The Secretary shall create a letter of credit authorizing the Department of the Treasury to disburse funds to the des- ignated bonding authority or its assignee. (4) The letter of credit shall be drawn upon in the amount determined by paragraph (5) of this subsection upon the certifi-. cation of the designated bonding authority to the Secretary or 79 Sec. 344 HIGHER EDUCATION ACT OF 1965 12 the Secretary's designee that there is a delinquency on 1 or more loans and there are insufficient funds available from loan repayments and the escrow account to make a scheduled pay- ment of principal and interest on the bonds. (5) Upon receipt by the Secretary or the Secretary's des- ignee of the certification described in paragraph (4) of this sub- section, the designated bonding authority may draw a funding under the letter of credit in an amount equal to (A) the amount required to make the next scheduled payment of principal and interest on the bonds, less (B) the amount available to the designated bonding authority from loan repayments and the escrow account. (6) All funds provided under the letter of credit shall be paid to the designated bonding authority within 2 business days following receipt of the certification described in para- graph (4). (d) FULL FAITH AND CREDIT PROVISIONS.Subject to section 343(c)(1) the full faith and credit of the United States is pledged to the payment of all funds which may be required to be paid under the provisions of this section. (e)1 Notwithstanding any other provision of law, a qualified bond guaranteed under this part may be sold to any party that of- fers terms that the Secretary determines are in the best interest of the eligible institution. SEC. 344. [20 U.S.C. 1066c] LIMITATIONS ON FEDERAL INSURANCE FOR BONDS ISSUED BY THE DESIGNATED BONDING AUTHOR- ITY. (a) LIMIT ON AMOUNT. At no time shall the aggregate prin- cipal amount of outstanding bonds insured under this part together with any accrued unpaid interest thereon exceed $375,000,000, of which (1) not more than $250,000,000 shall be used for loans to eligible institutions that are private historically Black colleges and universities; and (2) not more than $125,000,000 shall be used for loans to eligible institutions which are historically Black public colleges and universities. For purposes of paragraphs (1) and (2), Lincoln University of Penn- sylvania is an historically Black public institution. No institution of higher education that has received assistance under section 8 of the Act of March 2, 1867 (20 U.S.C. 123) shall be eligible to receive assistance under this part. (b) LIMITATION ON CREDIT AUTHORITY.The authority of the Secretary to issue letters of credit and insurance under this part is effective only to the extent provided in advance by appropria- tions Acts. (c) RELIGIOUS ACTIVITY PROHIBITION.No loan may be made under this part for any educational program, activity or service re- lated to sectarian instruction or religious worship or provided by a school or department of divinity or to an institution in which a sub- stantial portion of its functions is subsumed in a religious mission. I So in original (112 Stat. 1647). This subsection was added without a subsection heading. 80 73 HIGHER EDUCATION ACT OF 1965 Sec. 345 (d) DISCRIMINATION PROHIBITION.No loan may be made to an institution under this part if the institution discriminates on ac- count of race, color, religion, national origin, sex (to the extent pro- vided in title IX of the Education Amendments of 1972), or dis- abling condition; except that the prohibition with respect to religion shall not apply to an institution which is controlled by or which is closely identified with the tenets of a particular religious organiza- tion if the application of this section would not be consistent with the religious tenets of such organization. SEC. 345. [20 U.S.C. 1066d1 AUTHORITY OF THE SECRETARY. In the performance of, and with respect to, the functions vested in the Secretary by this part, the Secretary (1) shall, within 120 days of enactment of the Higher Edu- cation Amendments of 1992, publish in the Federal Register a notice and request for proposals for any private for-profit orga- nization or entity wishing to serve as the designated bonding authority under this part, which notice shall (A) specify the time and manner for submission of pro- posals; and (B) specify any information, qualifications, criteria, or standards the Secretary determines to be necessary to evaluate the financial capacity and administrative capabil- ity of any applicant to carry out the responsibilities of the designated bonding authority under this part; (2) shall require that the first loans for capital projects au- thorized under section 343 be made no later than March 31, 1994; (3) may sue and be sued in any court of record of a State having general jurisdiction or in any district court of the United States, and such district courts shall have jurisdiction of civil actions arising under this part without regard to the amount in controversy, and any action instituted under this part without regard to the amount in controversy, and any ac- tion instituted under this section by or against the Secretary shall survive notwithstanding any change in the person occu- pying the office of the Secretary or any vacancy in such office; (4)(A) may foreclose on any property and bid for and pur- chase at any foreclosure, or any other sale, any property in connection with which the Secretary has been assigned a loan pursuant to this part; and (B) in the event of such an acquisition, notwithstanding any other provisions of law relating to the acquisition, han- dling, or disposal of real property by the United States, com- plete, administer, remodel and convert, dispose of, lease, and otherwise deal with, such property, except that (i) such action shall not preclude any other action by the Secretary to recover any deficiency in the amount of a loan assigned to the Secretary; and (ii) any such acquisition of real property shall not de- prive any State or political subdivision thereof of its civil or criminal jurisdiction in and over such property or im- pair the civil rights under the State or local laws of the in- habitants on such property; 8,1 Sec. 341 HIGHER EDUCATION ACT OF 1965 14 (5) may sell, exchange, or lease real or personal property and securities or obligations; (6) may include in any contract such other covenants, con- ditions, or provisions necessary to ensure that the purposes of this part will be achieved; and (7) may, directly or by grant or contract, provide technical assistance to eligible institutions to prepare the institutions to qualify, apply for, and maintain a capital improvement loan, including a loan under this part. [Section 346 repealed by section 306(d) of P.L. 105-2441 SEC. 347. [20 U.S.C. 1066f] HI3CU CAPITAL FINANCING ADVISORY BOARD. (a) ESTABLISHMENT AND PURPOSE.There is established within the Department of Education, the Historically Black College and Universities Capital Financing Advisory Board (hereinafter in this part referred to as the "Advisory Board") which shall provide ad- vice and counsel to the Secretary and the designated bonding au- thority as to the most effective and efficient means of implementing construction financing on African American college campuses, and advise the Congress of the United States regarding the progress made in implementing this part. The Advisory Board shall meet with the Secretary at least twice each year to advise him as to the capital needs of historically Black colleges and universities, how those needs can be met through the program authorized by this part, and what additional steps might be taken to improve the op- eration and implementation of the construction financing program. (b) BOARD MEMBERSHIP. (1) COMPOSITION.The Advisory Board shall be appointed by the Secretary and shall be composed of 9 members as fol- lows: (A) The Secretary or the Secretary's designee. (B) Three members who are presidents of private his- torically Black colleges or universities. (C) Two members who are presidents of public histori- cally Black colleges or universities. (D) The president of the United Negro College Fund, Inc., or the president's designee. (E) The president of the National Association for Equal Opportunity in Higher Education, or the designee of the Association. (F) The executive director of the White House Initia- tive on historically Black colleges and universities. (2) TERMS.The term of office of each member appointed under paragraphs (1)(B) and (1)(C) shall be 3 years, except that (A) of the members first appointed pursuant to para- graphs (1)(B) and (1)(C), 2 shall be appointed for terms of 1 year, and 3 shall be appointed for terms of 2 years; (B) members appointed to fill a vacancy occurring be- fore the expiration of a term of a member shall be ap- pointed to serve the remainder of that term; and (C) a member may continue to serve after the expira- tion of a term until a successor is appointed. 15 HIGHER EDUCATION ACT OF 1965 Sec. 351 SEC. 348. [20 U.S.C. 1066g] MINORITY BUSINESS ENTERPRISE UTILIZA- TION. In the performance of and with respect to the Secretary's effec- tuation of his responsibilities under section 345(1) and to the maxi- mum extent feasible in the implementation of the purposes of this part, minority business persons, including bond underwriters and credit enhancers, bond counsel, marketers, accountants, advisors, construction contractors, and managers should be utilized. PART E-MINORITY SCIENCE AND ENGINEERING IMPROVEMENT PROGRAM SUBPART 1MINORITY SCIENCE AND ENGINEERING IMPROVEMENT PROGRAM SEC. 350. 120 U.S.C. 1067] FINDINGS. Congress makes the following findings: (1) It is incumbent on the Federal Government to support the technological and economic competitiveness of the United States by improving and expanding the scientific and techno- logical capacity of the United States. More and better prepared scientists, engineers, and technical experts are needed to im- prove and expand such capacity. (2) As the Nation's population becomes more diverse, it is important that the educational and training needs of all Amer- icans are met. Underrepresentation of minorities in science and technological fields diminishes our Nation's competitive- ness by impairing the quantity of well prepared scientists, en- gineers, and technical experts in these fields. (3) Despite significant limitations in resources, minority institutions provide an important educational opportunity for minority students, particularly in science and engineering fields. Aid to minority institutions is a good way to address the underrepresentation of minorities in science and technological fields. (4) There is a strong Federal interest in improving science and engineering programs at minority institutions as such pro- grams lag behind in program offerings and in student enroll- ment compared to such programs at other institutions of high- er education. SEC. 351. [20 U.S.C. 1067a] PURPOSE; AUTHORITY. (a) It is the purpose of this subpart to continue the authority of the Department to operate the Minority Institutions Science Im- provement Program created under section 3(a)(1) of the National Science Foundation Act of 1950 and transferred to the Department by section 304(a)(1) of the Department of Education Organization Act of 1979. (b) The Secretary shall, in accordance with the provisions of this subpart, carry out a program of making grants to institutions of higher education that are designed to effect long-range improve- ment in science and engineering education at predominantly minor- ity institutions and to increase the participation of underrep- resented ethnic minorities, particularly minority women, in scientific and technological careers. 83 Sec. 352 HIGHER EDUCATION ACT OF 1965 76 SEC. 352. [20 U.S.C. 1067b] GRANT RECIPIENT SELECTION. (a) ESTABLISHMENT OF CRITERIA.Grants under this subpart shall be awarded on the basis of criteria established by the Sec- retary by regulations. (b) PRIORITIES TO BE GIVEN IN CRITERIA.In establishing cri- teria under subsection (a), the Secretary shall give priority to appli- cants which have not previously received funding from the Minor- ity Institutions Science Improvement Program and to previous grantees with a proven record of success, as well as to applications that contribute to achieving balance among projects with respect to geographic region, academic discipline, and project type. (c) REQUIRED CRITERIA.In establishing criteria under sub- section (a), the Secretary may consider the following selection cri- teria in making grants: (1) plan of operation; (2) quality of key personnel; (3) budget and cost effectiveness; (4) evaluation plan; (5) adequacy of resources; (6) identification of need for the project; (7) potential institutional impact of the project; (8) institutional commitment to the project; (9) expected outcomes; and (10) scientific and educational value of the proposed project. SEC. 353. [20 U.S.C. 1067c] USE OF FUNDS. (a) TYPES OF GRANTS.Funds appropriated to carry out this subpart may be made available as (1) institutional grants (as defined in section 365(6)); (2) cooperative grants (as defined in section 365(7)); (3) design projects (as defined in section 365(8)); or (4) special projects (as defined in section 365(9)). (b) AUTHORIZED USES FOR EACH TYPE OF GRANT.(1) The au- thorized uses of funds made available as institutional grants in- clude (but are not limited to) (A) faculty development programs; or (B) development of curriculum materials. (2) The authorized uses of funds made available as cooperative grants include (but are not limited to) (A) assisting institutions in sharing facilities and person- nel; (B) disseminating information about established programs in science and engineering; (C) supporting cooperative efforts to strengthen the insti- tutions' science and engineering programs; or (D) carrying out a combination of any of the activities in subparagraphs (A) through (C). (3) The authorized uses of funds made available as design projects include (but are not limited to) (A) developing planning, management, and evaluation sys- tems; or (B) developing plans for initiating scientific research and for improving institutions' capabilities for such activities. 8 4 77 HIGHER EDUCATION ACT OF 1965 Sec. 361 Funds used for design project grants may not be used to pay more than 50 percent of the salaries during any academic year of faculty members involved in the project. (4) The authorized uses of funds made available as special projects include (but are not limitedto) (A) advanced science seminars; (B) science faculty workshops and conferences; (C) faculty training to develop specific science research or education skills; (D) research in science education; (E) programs for visiting scientists; (F) preparation of films or audio-visual materials in science; (G) development of learning experiences in science beyond those normally available to minority undergraduate students; (H) development of pre-college enrichment activities in science; or (I) any other activities designed to address specific barriers to the entry of minorities into science. SEC. 1024.1 [20 U.S.C. 1135b-3] MULTIAGENCY STUDY OF MINORITY SCIENCE PROGRAMS. The Secretary, in cooperation with the heads of other depart- ments and agencies that operate programs similar in purposes to the Minority Science Improvement Program which seek to increase minority participation and representation in scientific fields, shall submit a report to the President and Congress summarizing and evaluating such programs by January 1, 1996. SUBPART 2ADMINISTRATIVE AND GENERAL PROVISIONS SEC. 361. [20 U.S.C. 10670 ELIGIBILITY FOR GRANTS. Eligibility to receive grants under this part is limited to (1) public and private nonprofit institutions of higher edu- cation that (A) award baccalaureate degrees; and (B) are minority institutions; (2) public or private nonprofit institutions of higher edu- cation that (A) award associate degrees; and (B) are minority institutions that (i) have a curriculum that includes science or engi- neering subjects; and (ii) enter into a partnership with public or private nonprofit institutions of higher education that award baccalaureate degrees in science and engineering; (3) 2 nonprofit science-oriented organizations, professional scientific societies, and institutions of higher education that award baccalaureate degrees, that- 1 Section 1024 was transferred by section 301(a)(5) of the Higher Education Amendments of 1998 (P.L. 105-244; 112 Stat. 1636), but was not redesignated by section 301(a)(7) of that Act. Section 1024 may have been intended to have been repealed by section 702 of that Act. 2This paragraph does not reflect amendments made by section 301(b) or 301(0(9) of the Higher Education Amendments of 1998 (P.L. 105-244; 112 Stat. 1636) as those amendments were superseded by the amendment made by section 307(b) of that Act (112 Stat. 1636). BEST COPY AVAILABLE Sec. 362 HIGHER EDUCATION ACT OF 1965 18 (A) provide a needed service to a group of minority in- stitutions; or (B) provide in-service training for project directors, sci- entists, and engineers from minority institutions; or (4) consortia of organizations, that provide needed services to one or more minority institutions, the membership of which may include (A) institutions of higher education which have a cur- riculum in science or engineering; (B) institutions of higher education that have a grad- uate or professional program in science or engineering; (C) research laboratories of, or under contract with, the Department of Energy; (D) private organizations that have science or engi- neering facilities; or (E) quasi-governmental entities that have a significant scientific or engineering mission. SEC. 362. [20 U.S.C. 1067h] GRANT APPLICATION. (a) SUBMISSION AND CONTENTS OF APPLICATIONS.An eligible applicant (as determined under section 361) that desires to receive a grant under this part shall submit to the Secretary an applica- tion therefor at such time or times, in such manner, and containing such information as the Secretary may prescribe by regulation. Such application shall set forth (1) a program of activities for carrying out one or more of the purposes described in section 351(b) in such detail as will enable the Secretary to determine the degree to which such program will accomplish such purpose or purposes; and (2) such other policies, procedures, and assurances as the Secretary may require by regulation. (b) APPROVAL BASED ON LIKELIHOOD OF PROGRESS.The Sec- retary shall approve an application only if the Secretary deter- mines that the application sets forth a program of activities which are likely to make substantial progress toward achieving the pur- poses of this part. SEC. 363. [20 U.S.C. 10671] CROSS PROGRAM AND CROSS AGENCY CO- OPERATION. The Minority Science and Engineering Improvement Programs shall cooperate and consult with other programs within the Depart- ment and within Federal, State, and private agencies which carry out programs to improve the quality of science, mathematics, and engineering education. SEC. 364. [20 U.S.C. 1067j] ADMINISTRATIVE PROVISIONS. (a) TECHNICAL STAFF.The Secretary shall appoint, without regard to the provisions of title 5 of the United States Code govern- ing appointments in the competitive service, not less than 2 tech- nical employees with appropriate scientific and educational back- ground to administer the programs under this part who may be paid without regard to the provisions of chapter 51 and subchapter III of chapter 53 of such title relating to classification and General Schedule pay rates. (b) PROCEDURES FOR GRANT REVIEW.The Secretary shall es- tablish procedures for reviewing and evaluating grants and con- 79 HIGHER EDUCATION ACT OF 1965 Sec. 365 tracts made or entered into under such programs. Procedures for reviewing grant applications, based on the peer review system, or contracts for financial assistance under this title may not be sub- ject to any review outside of officials responsible for the adminis- tration of the Minority Science and Engineering Improvement Pro- grams. SEC. 365. [20 U.S.C. 1067k1 DEFINITIONS. For the purpose of this part (1) The term "accredited" means currently certified by a nationally recognized accrediting agency or making satisfactory progress toward achieving accreditation. (2) The term "minority" means American Indian, Alaskan Native, Black (not of Hispanic origin), Hispanic (including per- sons of Mexican, Puerto Rican, Cuban, and Central or South American origin), Pacific Islander or other ethnic group under- represented in science and engineering. (3) The term "minority institution" means an institution of higher education whose enrollment of a single minority or a combination of minorities (as defined in paragraph (2)) exceeds 50 percent of the total enrollment. The Secretary shall verify this information from the data on enrollments in the higher education general information surveys (HEGIS) furnished by the institution to the Office for Civil Rights, Department of Education. (4) The term "science" means, for the purpose of this pro- gram, the biological, engineering, mathematical, physical, be- havioral, and social sciences, and history and philosophy of science; also included are interdisciplinary fields which are comprised of overlapping areas among two or more sciences. (5) The term "underrepresented in science and engineer- ing" means a minority group whose number of scientists and engineers per 10,000 population of that group is substantially below the comparable figure for scientists and engineers who are white and not of Hispanic origin. (6) The term "institutional grant" means a grant that sup- ports the implementation of a comprehensive science improve- ment plan, which may include any combination of activities for improving the preparation of minority students for careers in science. (7) The term "cooperative grant" means a grant that as- sists groups of nonprofit accredited colleges and universities to work together to conduct a science improvement program. (8) The term "design projects" means projects that assist minority institutions that do not have their own appropriate resources or personnel to plan and develop long-range science improvement programs. (9) The term "special projects" means (A) a special project grant to a minority institution which support activities that (i) improve the quality of training in science and engineering at minority institutions; or (ii) enhance the minority institutions' general sci- entific research capabilities; or 1.0 P7 Sec. 391 HIGHER EDUCATION ACT OF 1965 80 (B) a special project grant to any eligible applicant which supports activities that (i) provide a needed service to a group of eligible minority institutions; or (ii) provide in-service training for project directors, scientists, and engineers from eligible minority institu- tions. PART FGENERAL PROVISIONS. SEC. 391. [20 U.S.C. 1068] APPLICATIONS FOR ASSISTANCE. (a) APPLICATIONS. (1) APPLICATIONS REQUIRED.Any institution which is eli- gible for assistance under this title shall submit to the Sec- retary an application for assistance at such time, in such form, and containing such information, as may be necessary to en- able the Secretary to evaluate the institution's need for the as- sistance. Subject to the availability of appropriations to carry out this title, the Secretary may approve an application for as- sistance under this title only if the Secretary determines that (A) the application meets the requirements of sub- section (b); (B) the applicant: is eligible for assistance in accord- ance with the part of this title under which the assistance is sought; and (C) the applicant's performance goals are sufficiently rigorous as to meet the purposes of this title and the per- formance objectives and indicators for this title established by the Secretary pursuant to the Government Performance and Results Act of 1993 and the amendments made by such Act. (2) PRELIMINARY APPLICATIONS.In carrying out para- graph (1), the Secretary may develop a preliminary application for use by eligible institutions applying under part A prior to the submission of the principal application. (b) CONTENTS.An institution, in its application for a grant, shall (1) set forth, or describe how the institution (other than an institution applying under part C, D or E) will develop, a com- prehensive development plan to strengthen the institution's academic quality and institutional management, and otherwise provide for institutional self-sufficiency and growth (including measurable objectives for the institution and the Secretary to use in monitoring the effectiveness of activities under this title); (2) set forth policies and procedures to ensure that Federal funds made available under this title for any fiscal year will be used to supplement and, to the extent practical, increase the funds that would otherwise be made available for the purposes of section 311(b) or 323, and in no case supplant those funds; (3) set forth policies and procedures for evaluating the ef- fectiveness in accomplishing the purpose of the activities for which a grant is sought under this title; 88 81 HIGHER EDUCATION ACT OF 1965 Sec. 391 (4) provide for such fiscal control and fund accounting pro- cedures as may be necessary to ensure proper disbursement of and accounting for funds made available to the applicant under this title; (5) provide (A) for making such reports, in such form and containing such information, as the Secretary may require to carry out the functions under this title, including not less than one report annually setting forth the institution's progress to- ward achieving the objectives for which the funds were award- ed, and (B) for keeping such records and affording such access thereto, as the Secretary may find necessary to assure the cor- rectness and verification of such reports; (6) provide that the institution will comply with the limita- tions set forth in section 357, except that for purposes of sec- tion 316, paragraphs (2) and (3) of section 396 shall not apply; (7) describe in a comprehensive manner any proposed project for which funds are sought under the application and include (A) a description of the various components of the pro- posed project, including the estimated time required to complete each such component; (B) in the case of any development project which con- sists of several components (as described by the applicant pursuant to subparagraph (A)), a statement identifying those components which, if separately funded, would be sound investments of Federal funds and those components which would be sound investments of Federal funds only if funded under this title in conjunction with other parts of the development project (as specified by the applicant); (C) an evaluation by the applicant of the priority given any proposed project for which funds are sought in relation to any other projects for which funds are sought by the ap- plicant under this title, and a similar evaluation regarding priorities among the components of any single proposed project (as described by the applicant pursuant to subpara- graph (A)); (D) a detailed budget showing the manner in which funds for any proposed project would be spent by the appli- cant; and (E) a detailed description of any activity which in- volves the expenditure of more than $25,000, as identified in the budget referred to in subparagraph (E); and (8) include such other information as the Secretary may prescribe. (c) PRIORITY CRITERIA PUBLICATION REQUIRED.The Secretary shall publish in the Federal Register, pursuant to chapter 5 of title 5, United States Code, all policies and procedures required to exer- cise the authority set forth in subsection (a). No other criteria, poli- cies, or procedures shall apply. (d) ELIGIBILITY DATA.The Secretary shall use the most recent and relevant data concerning the number and percentage of stu- dents receiving need-based assistance under title IV of this Act in making eligibility determinations under section 312 and shall ad- vance the base-year forward following each annual grant cycle. 89 Sec. 392 HIGHER EDUCATION ACT OF 1965 82 SEC. 392. [20 U.S.C. 1068a] WAIVER AUTHORITY AND REPORTING RE- QUIREMENT. (a) WAIVER REQUIREMENTS; NEED-BASED ASSISTANCE STU- DENTS.The Secretary may waive the requirements set forth in section 312(b)(1)(A) in the case of an institution (1) which is extensively subsidized by the State in which it is located and charges low or no tuition; (2) which serves a substantial number of low-income stu- dents as a percentage of its total student population; (3) which is contributing substantially to increasing higher education opportunities for educationally disadvantaged, underrepresented, or minority students, who are low-income individuals; (4) which is substantially increasing higher educational op- portunities for individuals in rural or other isolated areas which are unnerved by postsecondary institutions; (5) located on or near an Indian reservation or a substan- tial population of Indians, if the Secretary determines that the waiver will substantially increase higher education opportuni- ties appropriate to the needs of American Indians; (6) that is a tribally controlled college or university as de- fined in section 2 of the Tribally Controlled College or Univer- sity Assistance Act of 1978; or (7) wherever located, if the Secretary determines that the waiver will substantially increase higher education opportuni- ties appropriate to the needs of Black Americans, Hispanic Americans, Native Americans, Asian Americans, or Pacific Is- landers, including Native Hawaiians (b) WAIVER DETERMINATIONS; EXPENDITURES.(1) The Sec- retary may waive the requirements set forth in section 312(b)(1)(B) if the Secretary determines, based on persuasive evidence submit- ted by the institution, that the institution's failure to meet that cri- terion is due to factors which, when used in the determination of compliance with such criterion, distort such determination, and that the institution's designation as an eligible institution under part A is otherwise consistent with the purposes of such parts. (2) The Secretary shall submit to the Congress every other year a report concerning the institutions which, although not satis- fying the criterion contained in section 312(b)(1)(B), have been de- termined to be eligible institutions under part A institutions which enroll significant numbers of Black American, Hispanic, Native American, Asian American, or Native Hawaiian students under part A, as the case may be. Such report shall (A) identify the factors referred to in paragraph (1) which were considered by the Secretary as factors that distorted the determination of compliance with subparagraphs (A) and (B) of section 312(b)(1); and (B) contain a list of each institution determined to be an eligible institution under part A including a statement of the reasons for each such determination. (3) The Secretary may waive the requirement set forth in sec- tion 312(b)(1)(E) in the case of an institution located on or near an Indian reservation or a substantial population of Indians, if the Secretary determines that the waiver will substantially increase 0 83 HIGHER EDUCATION ACT OF 1965 Sec. 394 higher education opportunities appropriate to the needs of Amer- ican Indians. SEC. 393. [20 U.S.C. 1068b1 APPLICATION REVIEW PROCESS. (a) REVIEW PANEL.(1) All applications submitted under this title by institutions of higher education shall be read by a panel of readers composed of individuals selected by the Secretary. The Sec- retary shall assure that no individual assigned under this section to review any application has any conflict of interest with regard to the application which might impair the impartiality with which the individual conducts the review under this section. (2) The Secretary shall take care to assure that representatives of historically and predominantly Black colleges, Hispanic institu- tions, Tribal Colleges and Universities, and institutions with sub- stantial numbers of Hispanics, Native Americans, Asian Ameri- cans, and Native American Pacific Islanders (including Native Ha- waiians) are included as readers. (3) All readers selected by the Secretary shall receive thorough instruction from the Secretary regarding the evaluation process for applications submitted under this title and consistent with the pro- visions of this title, including (A) explanations and examples of the types of activities re- ferred to in section 311(b) that should receive special consider- ation for grants awarded under part A and of the types of ac- tivities referred to in section 323 that should receive special consideration for grants awarded under part B; (B) an enumeration of the factors to be used to determine the quality of applications submitted under this title; and (C) an enumeration of the factors to be used to determine whether a grant should be awarded for a project under this title, the amount of any such grant, and the duration of any such grant. (b) RECOMMENDATIONS OF PANEL.In awarding grants under this title, the Secretary shall take into consideration the rec- ommendations of the panel made under subsection (a). (c) NOTIFICATION.Not later than June 30 of each year, the Secretary shall notify each institution of higher education making an application under this title of (1) the scores given the applicant by the panel pursuant to this section; (2) the recommendations of the panel with respect to such application; and (3) the reasons for the decision of the Secretary in award- ing or refusing to award a grant under this title, and any modifications, if any, in the recommendations of the panel made by the Secretary. (d) EXCLUSION.The provisions of this section shall not apply to applications submitted under part D. SEC. 394. [20 U.S.C. 1068c] COOPERATIVE ARRANGEMENTS. (a) GENERAL AUTHORITY.The Secretary may make grants to encourage cooperative arrangements (1) with funds available to carry out part A, between insti- tutions eligible for assistance under part A and between such 91 Sec. 395 HIGHER EDUCATION ACT OF 1965 84 institutions and institutions not receiving assistance under this title; or (2) with funds available to carry out part B, between insti- tutions eligible for assistance under part B and institutions not receiving assistance under this title; for the activities described in section 311(b) or section 323, as the case may be, so that the resources of the cooperating institutions might be combined and shared to achieve the purposes of such parts and avoid costly duplicative efforts and to enhance the devel- opment of part A and part B eligible institutions. (b) PRIORITY.The Secretary shall give priority to grants for the purposes described under subsection (a) whenever the Sec- retary determines that the cooperative arrangement is geographi- cally and economically sound or will benefit the applicant institu- tion. (c) DURATION.Grants to institutions having a cooperative ar- rangement may be made under this section for a period as deter- mined under section 313 or section 323. SEC. 395. [20 U.S.C. 1068d1 ASSISTANCE TO INSTITUTIONS UNDER OTHER PROGRAMS. (a) ASSISTANCE ELIGIBILITY.Each institution which the Sec- retary determines to be an institution eligible under part A or an institution eligible under part B may be eligible for waivers in ac- cordance with subsection (b). (b) WAIVER APPLICABILITY.(1) Subject to, and in accordance with, regulations promulgated for the purpose of this section, in the case of any application by an institution referred to in subsection (a) for assistance under any programs specified in paragraph (2), the Secretary is authorized, if such application is otherwise approv- able, to waive any requirement for a non-Federal share of the cost of the program or project, or, to the extent not inconsistent with other law, to give, or require to be given, priority consideration of the application in relation to applications from other institutions. (2) The provisions of this section shall apply to any program authorized by part D or title IV of this Act. (c) LIMITATION.The Secretary shall not waive, under sub- section (b), the non-Federal share requirement for any program for applications which, if approved, would require the expenditure of more than 10 percent of the appropriations for the program for any fiscal year. SEC. 396. [20 U.S.C. 1068e1 LIMITATIONS. The funds appropriated under section 360 may not be used (1) for a school or department of divinity or any religious worship or sectarian activity; (2) for an activity that is inconsistent with a State plan for desegregation of higher education applicable to such institu- tion; (3) for an activity that is inconsistent with a State plan of higher education applicable to such institution; or (4) for purposes other than the purposes set forth in the approved application under which the funds were made avail- able to the institution. 85 HIGHER EDUCATION ACT OF 1965 Sec. 399 SEC. 397. [20 U.S.C. 1068f] PENALTIES. Whoever, being an officer, director, agent, or employee of, or connected in any capacity with, any recipient of Federal financial assistance or grant pursuant to this title embezzles, willfully misapplies, steals, or obtains by fraud any of the funds which are the subject of such grant or assistance, shall be fined not more than $10,000 or imprisoned for not more than 2 years, or both. SEC. 398. [20 U.S.C. 1068g] CONTINUATION AWARDS. The Secretary shall make continuation awards under this title for the second and succeeding years of a grant only after determin- ing that the recipient is making satisfactory progress in carrying out the grant. SEC. 399. [20 U.S.C. 1068h] AUTHORIZATIONS OF APPROPRIATIONS. (a) AUTHORIZATIONS. (1) PART A.(A) There are authorized to be appropriated to carry out part A, $135,000,000 (other than section 316) for fiscal year 1999, and such sums as may be necessary for each of the 4 succeeding fiscal years. (B) There are authorized to be appropriated to carry out section 316, $10,000,000 for fiscal year 1999 and such sums as may be necessary for each of the 4 succeeding fiscal years. (C) There are authorized to be appropriated to carry out section 317, $5,000,000 for fiscal year 1999 and such sums as may be necessary for each of the 4 succeeding fiscal years. (2) PART B.(A) There are authorized to be appropriated to carry out part B (other than section 326), $135,000,000 for fiscal year 1999, and such sums as may be necessary for each of the 4 succeeding fiscal years. (B) There are authorized to be appropriated to carry out section 326, $35,000,000 for fiscal year 1999, and such sums as may be necessary for each of the 4 succeeding fiscal years. (3) PART c. There are authorized to be appropriated to carry out part C, $10,000,000 for fiscal year 1999, and such sums as may be necessary for each of the 4 succeeding fiscal years. (4) PART D.(A) There are authorized to be appropriated to carry out part D (other than section 345(7), but including section 347), $110,000 for fiscal year 1999, and such sums as may be necessary for each of the 4 succeeding fiscal years. (B) There are authorized to be appropriated to carry out section 345(7), such sums as may be necessary for fiscal year 1999 and each of the 4 succeeding fiscal years. (5) PART E.There are authorized to be appropriated to carry out part E, $10,000,000 for fiscal year 1999, and such sums as may be necessary for each of the 4 succeeding fiscal years. (b) USE OF MULTIPLE YEAR AWARDS.In the event of a mul- tiple year award to any institution under this title, the Secretary shall make funds available for such award from funds appropriated for this title for the fiscal year in which such funds are to be used by the recipient. Sec. 400 HIGHER EDUCATION ACT OF 1965 86 TITLE IVSTUDENT ASSISTANCE PART AGRANTS TO STUDENTS IN ATTENDANCE AT INSTITUTIONS OF HIGHER EDUCATION SEC. 400. [20 U.S.C. 1070] STATEMENT OF PURPOSE; PROGRAM AU- THORIZATION. (a) PURPOSE.It is the purpose of this part, to assist in mak- ing available the benefits of postsecondary education to eligible stu- dents (defined in accordance with section 484) in institutions of higher education by (1) providing Federal Pell Grants to all eligible students; (2) providing supplemental educational opportunity grants to those students who demonstrate fmancial need; (3) providing for payments to the States to assist them in making financial aid available to such students; (4) providing for special programs and projects designed (A) to identify and encourage qualified youths with financial or cultural need with a potential for postsecondary education, (B) to prepare students from low-income families for postsecondary education, and (C) to provide remedial (including remedial lan- guage study) and other services to students; and (5) providing assistance to institutions of higher education. (b) SECRETARY REQUIRED TO CARRY OUT PURPOSES.The Sec- retary shall, in accordance with subparts 1 through 8, carry out programs to achieve the purposes of this part. Subpart 1Federal Pell Grants SEC. 401. [20 U.S.C. 1070a] FEDERAL PELL GRANTS: AMOUNT AND DE- TERMINATIONS; APPLICATION& (a) PROGRAM AUTHORITY AND METHOD OF DISTRIBUTION.(1) For each fiscal year through fiscal year 2004, the Secretary shall pay to each eligible institution such sums as may be necessary to pay to each eligible student (defined in accordance with section 484) for each academic year during which that student is in attend- ance at an institution of higher education, as an undergraduate, a Federal Pell Grant in the amount for which that student is eligible, as determined pursuant to subsection (b). Not less than 85 percent of such sums shall be advanced to eligible institutions prior to the start of each payment period and shall be based upon an amount requested by the institution as needed to pay eligible students until such time as the Secretary determines and publishes in the Federal Register with an opportunity for comment, an alternative payment system that provides payments to institutions in an accurate and timely manner 1 except that this sentence shall not be construed to limit the authority of the Secretary to place an institution on a reimbursement system of payment. (2) Nothing in this section shall be interpreted to prohibit the Secretary from paying directly to students, in advance of the begin- ning of the academic term, an amount for which they are eligible, 1So in law. Section 401(aX2) of P.L. 105-244 (112 Stat. 1650) added text in the second sen- tence after "pay eligible students". The inserted material should have been added after the comma in "pay eligible students,". 87 HIGHER EDUCATION ACT OF 1965 Sec. 401 in cases where the eligible institution elects not to participate in the disbursement system required by paragraph (1). (3) Grants made under this subpart shall be known as "Federal Pell Grants". (b) PURPOSE AND AMOUNT OF GRANTS.-(1) The purpose of this subpart is to provide a Federal Pell Grant that in combination with reasonable family and student contribution and supplemented by the programs authorized under subparts 3 and 4 of this part, will meet at least 75 percent of a student's cost of attendance (as de- fined in section 472), unless the institution determines that a greater amount of assistance would better serve the purposes of section 401. (2)(A) The amount of the Federal Pell Grant for a student eligi- ble under this part shall be (i) $4,500 for academic year 1999-2000; (ii) $4,800 for academic year 2000-2001; (iii) $5,100 for academic year 2001-2002; (iv) $5,400 for academic year 2002-2003; and (v) $5,800 for academic year 2003-2004, less an amount equal to the amount determined to be the expected family contribution with respect to that student for that year. (B) In any case where a student attends an institution of high- er education on less than a full-time basis (including a student who attends an institution of higher education on less than a half-time basis) during any academic year, the amount of the Federal Pell Grant to which that student is entitled shall be reduced in propor- tion to the degree to which that student is not so attending on a full-time basis, in accordance with a schedule of reductions estab- lished by the Secretary for the purposes of this division, computed in accordance with this subpart. Such schedule of reductions shall be established by regulation and published in the Federal Register in accordance with section 482 of this Act. (3)(A) For any academic year for which an appropriation Act provides a maximum basic grant in an amount in excess of $2,700, the amount of a student's basic grant shall equal $2,700 plus (i) one-half of the amount by which such maximum basic grant exceeds $2,700; plus (ii) the lesser of (I) the remaining one-half of such excess; or (II) the sum of the student's tuition and, if the student has dependent care expenses (as described in section 472(8)) or disability-related expenses (as described in sec- tion 472(9)), an allowance determined by the institution for such expenses. (B) An institution that charged only fees in lieu of tuition as of October 1, 1998, may include in the institution's determination of tuition charged, fees that would normally constitute tuition. (4) No Federal Pell Grant under this subpart shall exceed the difference between the expected family contribution for a student and the cost of attendance (as defined in section 472) at the institu- tion at which that student is in attendance. If, with respect to any student, it is determined that the amount of a Federal Pell Grant plus the amount of the expected family contribution for that stu- dent exceeds the cost of attendance for that year, the amount of the Sec. 401 HIGHER EDUCATION ACT OF 1965 88 Federal Pell Grant shall be reduced until the combination of ex- pected family contribution and the amount of the Federal Pell Grant does not exceed the cost of attendance at such institution. (5) No Federal Pell Grant shall be awarded to a student under this subpart if the amount of that grant for that student as deter- mined under this subsection for any academic year is less than $400, except that a student who is eligible for a Federal Pell Grant that is equal to or greater than $200 but less than $400 shall be awarded a Federal Pell Grant of $400. (6)(A) The Secretary may allow, on a case-by-case basis, a stu- dent to receive 2 Pell grants during a single award year, if (i) the student is enrolled full-time in an associate or bac- calaureate degree program of study that is 2 years or longer at an eligible institution that is computed in credit hours; and (ii) the student completes course work toward completion of an associate or baccalaureate degree that exceeds the re- quirements for a full academic year as defined by the institu- tion. (B) The Secretary shall promulgate regulations implementing this paragraph. (7) Notwithstanding any other provision of this subpart, the Secretary shall allow the amount of the Federal Pell Grant to be exceeded for students participating in a program of study abroad approved for credit by the institution at which the student is en- rolled when the reasonable costs of such program are greater than the cost of attendance at the student's home institution, except that the amount of such Federal Pell Grant in any fiscal year shall not exceed the grant level specified in the appropriate Appropriation Act for this subpart for such year. If the preceding sentence ap- plies, the financial aid administrator at the home institution may use the cost of the study abroad program, rather than the home in- stitution's cost, to determine the cost of attendance of the student. (8) No Federal Pell Grant shall be awarded under this subpart to any individual who is incarcerated in any Federal or State penal institution. (c) PERIOD OF ELIGIBILITY FOR GRANTS.-(1) The period during which a student may receive Federal Pell Grants shall be the pe- riod required for the completion of the first undergraduate bacca- laureate course of study being pursued by that student at the insti- tution at which the student is in attendance except that any period during which the student is enrolled in a noncredit or remedial course of study as defined in paragraph (2) shall not be counted for the purpose of this paragraph. (2) Nothing in this section shall exclude from eligibility courses of study which are noncredit or remedial in nature (including courses in English language instruction) which are determined by the institution to be necessary to help the student be prepared for the pursuit of a first undergraduate baccalaureate degree or certifi- cate or, in the case of courses in English language instruction, to be necessary to enable the student to utilize already existing knowledge, training, or skills. Nothing in this section shall exclude from eligibility programs of study abroad that are approved for credit by the home institution at which the student is enrolled. 89 HIGHER EDUCATION ACT OF 1965 Sec. 401 (3) No student is entitled to receive Pell Grant payments con- currently from more than one institution or from the Secretary and an institution. (4) Notwithstanding. paragraph (1), the Secretary may allow, on a case-by-case basis, a student to receive a basic grant if the student (A) is carrying at least one-half the normal full-time work load for the course of study the student is pursuing, as deter- mined by the institution of higher education; and (B) is enrolled or accepted for enrollment in a postbaccalaureate program that does not lead to a graduate de- gree, and in courses required by a State in order for the stu- dent to receive a professional certification or licensing creden- tial that is required for employment as a teacher in an elemen- tary school or secondary school in that State; except that this paragraph shall not apply to a student who is en- rolled in an institution of higher education that offers a bacca- laureate degree in education. (d) APPLICATIONS FOR GRANTS.(1) The Secretary shall from time to time set dates by which students shall file applications for Federal Pell Grants under this subpart. (2) Each student desiring a Federal Pell Grant for any year shall file an application therefor containing such information and assurances as the Secretary may deem necessary to enable the Sec- retary to carry out the functions and responsibilities of this sub- part. (e) DISTRIBUTION OF GRANTS TO STUDENTS.Payments under this section shall be made in accordance with regulations promul- gated by the Secretary for such purpose, in such manner as will best accomplish the purpose of this section. Any disbursement al- lowed to be made by crediting the student's account shall be lim- ited to tuition and fees and, in the case of institutionally owned housing, room and board. The student may elect to have the insti- tution provide other such goods and services by crediting the stu- dent's account. (f) CALCULATION OF ELIGIBILITY.(1) Each contractor process- ing applications for awards under this subpart (including a central processor, if any, designated by the Secretary) shall, in a timely manner, furnish to the student financial aid administrator (at each institution of higher education which a student awarded a Federal Pell Grant under this subpart is attending), as a part of its regular output document, the expected family contribution for each such student. Each such student financial aid administrator shall (A) examine and assess the data used to calculate the ex- pected family contribution of the student furnished pursuant to this subsection; (B) recalculate the expected family contribution of the stu- dent if there has been a change in circumstances of the student or in the data submitted; (C) make the award to the student in the correct amount; and (D) after making such award report the corrected data to such contractor and to a central processor (if any) designated by the Secretary for a confirmation of the correct computation 9 7 54-653 99 - 4 Sec. 401 HIGHER EDUCATION ACT OF 1965 90 of amount of the expected family contribution for each such student. (2) Whenever a student receives an award under this subpart that, due to recalculation errors by the institution of higher edu- cation, is in excess of the amount which the student is entitled to receive under this subpart, such institution of higher education shall pay to the Secretary the amount of such excess unless such excess can be resolved in a subsequent disbursement to the institu- tion. (3) Each contractor processing applications for awards under this subpart shall for each academic year after academic year 1986-1987 prepare and submit a report to the Secretary on the cor- rectness of the computations of amount of the expected family con- tribution, and on the accuracy of the questions on the application form under this subpart for the previous academic year for which the contractor is responsible. The Secretary shall transmit the re- port, together with the comments and recommendations of the Sec- retary, to the Committee on Appropriations and the Committee on Labor and Human Resources of the Senate and the Committee on Appropriations and the Committee on Education and the Workforce of the House of Representatives. (g) INSUFFICIENT APPROPRIATIONS.If, for any fiscal year, the funds appropriated for payments under this subpart are insuffi- cient to satisfy fully all entitlements, as calculated under sub- section (b) (but at the maximum grant level specified in such ap- propriation), the Secretary shall promptly transmit a notice of such insufficiency to each House of the Congress, and identify in such notice the additional amount that would be required to be appro- priated to satisfy fully all entitlements (as so calculated at such maximum grant level). (h) USE OF EXCESS FUNDS.(1) If, at the end of a fiscal year, the funds available for making payments under this subpart exceed the amount necessary to make the payments required under this subpart to eligible students by 15 percent or less, then all of the excess funds shall remain available for making payments under this subpart during the next succeeding fiscal year. (2) If, at the end of a fiscal year, the funds available for mak- ing payments under this subpart exceed the amount necessary to make the payments required under this subpart to eligible stu- dents by more than 15 percent, then all of such funds shall remain available for making such payments but payments may be made under this paragraph only with respect to entitlements for that fiscal year. (i) TREATMENT OF INSTITUTIONS AND STUDENTS UNDER OTHER LAWS.--Any institution of higher education which enters into an agreement with the Secretary to disburse to students attending that institution the amounts those students are eligible to receive under this subpart shall not be deemed, by virtue of such agree- ment, a contractor maintaining a system of records to accomplish a function of the Secretary. Recipients of Pell Grants shall not be considered to be individual grantees for purposes of subtitle D of title V of Public Law 100-690. (j) INSTITUTIONAL INELIGIBILITY BASED ON DEFAULT RATES. 91 HIGHER EDUCATION ACT OF 1965 Sec. MA (1) IN GENERAL.No institution of higher education shall be an eligible institution for purposes of this subpart if such institution of higher education is ineligible to participate in a loan program under part B or D as a result of a final default rate determination made by the Secretary under part B or D after the final publication of cohort default rates for fiscal year 1996 or a succeeding fiscal year. (2) SANCTIONS SUBJECT TO APPEAL OPPORTUNITY.No in- stitution may be subject to the terms of this subsection unless the institution has had the opportunity to appeal the institu- tion's default rate determination under regulations issued by the Secretary for the loan program authorized under part B or D, as applicable. This subsection shall not apply to an institu- tion that was not participating in the loan program authorized under part B or D on the date of enactment of the Higher Edu- cation Amendments of 1998, unless the institution subse- quently participates in the loan programs. Subpart 2 Federal Early Outreach and Student Services Programs CHAPTER 1 FEDERAL TRIO PROGRAMS SEC. 402A. [20 U.S.C. 1070a-11] PROGRAM AUTHORITY; AUTHORIZA- TION OF APPROPRIATIONS. (a) GRANTS AND CONTRACTS AUTHORIZED.The Secretary shall, in accordance with the provisions of this chapter, carry out a program of making grants and contracts designed to identify qualified individuals from disadvantaged backgrounds, to prepare them for a program of postsecondary education, to provide support services for such students who are pursuing programs of post- secondary education, to motivate and prepare students for doctoral programs, and to train individuals serving or preparing for service in programs and projects so designed. (b) RECIPIENTS, DURATION, AND SIZE. (1) RECIPIENTS.For the purposes described in subsection (a), the Secretary is authorized, without regard to section 3709 of the Revised Statutes (41 U.S.C. 5), to make grants to, and contracts with, institutions of higher education, public and pri- vate agencies and organizations, combinations of such institu- tions, agencies and organizations, and in exceptional cir- cumstances, secondary schools, for planning, developing, or carrying out one or more of the services assisted under this chapter. (2) DURATION.Grants or contracts made under this chap- ter shall be awarded for a period of 4 years, except that (A) the Secretary shall award such grants or contracts for 5 years to applicants whose peer review scores were in the highest 10 percent of scores of all applicants receiving grants or contracts in each program competition for the same award year; (B) grants made under section 402G shall be awarded for a period of 2 years; and Sec. 402A HIGHER EDUCATION ACT OF 1965 92 (C) grants under section 402H shall be awarded for a period determined by the Secretary. (3) MINIMUM GRANTS.Unless the institution or agency re- quests a smaller amount, individual grants under this chapter shall be no less than (A) $170,000 for programs authorized by sections 402D and 402G; (B) $180,000 for programs authorized by sections 402B and 402F; and (C) $190,000 for programs authorized by sections 402C and 402E. (c) PROCEDURES FOR AWARDING GRANTS AND CONTRACTS. (1) APPLICATION REQUIREMENTS.An eligible entity that desires to receive a grant or contract under this chapter shall submit an application to the Secretary in such manner and form, and containing such information and assurances, as the Secretary may reasonably require. (2) PRIOR EXPERIENCE.In making grants under this chap- ter, the Secretary shall consider each applicant's prior experi- ence of service delivery under the particular program for which funds are sought. The level of consideration given the factor of prior experience shall not vary from the level of consideration given such factor during fiscal years 1994 through 1997, except that grants made under section 402H shall not be given prior experience consideration. (3) ORDER OF AWARDS; PROGRAM FRAUD.(A) Except with respect to grants made under sections 402G and 402H and as provided in subparagraph (B), the Secretary shall award grants and contracts under this chapter in the order of the scores received by the application for such grant or contract in the peer review process required under paragraph (4) and ad- justed for prior experience in accordance with paragraph (2) of this subsection. (B) The Secretary is not required to provide assistance to a program otherwise eligible for assistance under this chapter, if the Secretary has determined that such program has in- volved the fraudulent use of funds under this chapter. (4) PEER REVIEW PROCESS.(A) The Secretary shall ensure that, to the extent practicable, members of groups underrep- resented in higher education, including African Americans, Hispanics, Native Americans, Alaska Natives, Asian Ameri- cans, and Native American Pacific Islanders (including Native Hawaiians), are represented as readers of applications submit- ted under this chapter. The Secretary shall also ensure that persons from urban and rural backgrounds are represented as readers. (B) The Secretary shall ensure that each application sub- mitted under this chapter is read by at least three readers who are not employees of the Federal Government (other than as readers of applications). (5) NUMBER OF APPLICATIONS FOR GRANTS AND CON- TRACTS.The Secretary shall not limit the number of applica- tions submitted by an entity under any program authorized 93 HIGHER EDUCATION ACT OF 1965 Sec. 402A under this chapter if the additional applications describe pro- grams serving different populations or campuses. (6) COORDINATION WITH OTHER PROGRAMS FOR DISADVAN- TAGED STUDENTS.The Secretary shall encourage coordination of programs assisted under this chapter with other programs for disadvantaged students operated by the sponsoring institu- tion or agency, regardless of the funding source of such pro- grams. The Secretary shall not limit an entity's eligibility to receive funds under this chapter because such entity sponsors a program similar to the program to be assisted under this chapter, regardless of the funding source of such program. The Secretary shall permit the Director of a program receiving funds under this chapter to administer one or more additional programs for disadvantaged students operated by the sponsor- ing institution or agency, regardless of the funding sources of such programs. (7) APPLICATION STATUS.The Secretary shall inform each entity operating programs under this chapter regarding the status of their application for continued funding at least 8 months prior to the expiration of the grant or contract. The Secretary, in the case of an entity that is continuing to operate a successful program under this chapter, shall ensure that the start-up date for a new grant or contract for such program im- mediately follows the termination of the preceding grant or contract so that no interruption of funding occurs for such suc- cessful reapplicants. The Secretary shall inform each entity re- questing assistance under this chapter for a new program re- garding the status of their application at least 8 months prior to the proposed startup date of such program. (d) OUTREACH. (1) IN GENERALThe Secretary shall conduct outreach ac- tivities to ensure that entities eligible for assistance under this chapter submit applications proposing programs that serve ge- ographic areas and eligible populations which have been un- derserved by the programs assisted under this chapter. (2) NOTICE.In carrying out the provisions of paragraph (1), the Secretary shall notify the entities described in sub- section (b) of the availability of assistance under this sub- section not less than 120 days prior to the deadline for submis- sion of applications under this chapter and shall consult na- tional, State, and regional organizations about candidates for notification. (3) TECHNICAL ASSISTANCE.The Secretary shall provide technical training to applicants for projects and programs authorized under this chapter. The Secretary shall give prior- ity to serving programs and projects that serve geographic areas and eligible populations which have been underserved by the programs assisted under this chapter. Technical training activities shall include the provision of information on author- izing legislation, goals and objectives of the program, required activities, eligibility requirements, the application process and application deadlines, and assistance in the- development of program proposals and the completion of program applications. Such training shall be furnished at conferences, seminars, and Sec. 402A HIGHER EDUCATION ACT OF 1965 94 workshops to be conducted at not less than 10 sites throughout the United States to ensure that all areas of the United States with large concentrations of eligible participants are served. (4) SPECIAL RULE.The Secretary may contract with eligi- ble entities to conduct the outreach activities described in this subsection. (e) DOCUMENTATION OF STATUS AS A LOW-INCOME INDIVID- UAL.(1) Except in the case of an independent student, as defined in section 480(d), documentation of an individual's status pursuant to subsection (g)(2) shall be made by providing the Secretary with (A) a signed statement from the individual's parent or legal guardian; (B) verification from another governmental source; (C) a signed financial aid application; or (D) a signed United States or Puerto Rico income tax return. (2) In the case of an independent student, as defined in section 480(d), documentation of an individual's status pursuant to sub- section (g)(2) shall be made by providing the Secretary with (A) a signed statement from the individual; (B) verification from another governmental source; (C) a signed financial aid application; or (D) a signed United States or Puerto Rico income tax re- turn. (0 AUTHORIZATION OF APPROPRIATIONS.For the purpose of making grants and contracts under this chapter, there are author- ized to be appropriated $700,000,000 for fiscal year 1999, and such sums as may be necessary for each of the 4 succeeding fiscal years. Of the amount appropriated under this chapter, the Secretary may use no more than Y2 of 1 percent of such amount to obtain addi- tional qualified readers and additional staff to review applications, to increase the level of oversight monitoring, to support impact studies, program assessments and reviews, and to provide technical assistance to potential applicants and current grantees. In expend- ing these funds, the Secretary shall give priority to the additional administrative requirements provided in the Higher Education Amendments of 1992, to outreach activities, and to obtaining addi- tional readers. The Secretary shall report to Congress by October 1, 1994, on the use of these funds. (g) DEFINITIONS.For the purpose of this chapter: (1) FIRST GENERATION COLLEGE STUDENT.The term "first generation college student" means (A) an individual both of whose parents did not com- plete a baccalaureate degree; or (B) in the case of any individual who regularly resided with and received support from only one parent, an indi- vidual whose only such parent did not complete a bacca- laureate degree. (2) LOW-INCOME INDIVIDUAL.The term "low-income indi- vidual" means an individual from a family whose taxable in- come for the preceding year did not exceed 150 percent of an amount equal to the poverty level determined by using criteria of poverty established by the Bureau of the Census. 95 HIGHER EDUCATION ACT OF 1965 Sec. 402B (3) VETERAN ELIGIBILITY.No veteran shall be deemed in- eligible to participate in any program under this chapter by reason of such individual's age who (A) served on active duty for a period of more than 180 days, any part of which occurred after January 31, 1955, and was discharged or released therefrom under conditions other than dishonorable; or (B) served on active duty after January 31, 1955, and was discharged or released therefrom because of a service connected disability. (4) WAIVER.The Secretary may waive the service require- ments in subparagraph (A) or (B) of paragraph (3) if the Sec- retary determines the application of the service requirements to a veteran will defeat the purpose of a program under this chapter. SEC. 402B. [20 U.S.C. 1070a-121 TALENT SEARCH. (a) PROGRAM AUTHORITY. The Secretary shall carry out a pro- gram to be known as talent search which shall be designed (1) to identify qualified youths with potential for education at the postsecondary level and to encourage such youths to complete secondary school and to undertake a program of post- secondary education; (2) to publicize the availability of student financial assist- ance available to persons who pursue a program of postsecond- ary education; and (3) to encourage persons who have not completed programs of education at the secondary or postsecondary level, but who have the ability to complete such programs, to reenter such programs. (b) PERMISSIBLE SERVICES.Any talent search project assisted under this chapter may provide services such as (1) academic advice and assistance in secondary school and college course selection; (2) assistance in completing college admission and finan- cial aid applications; (3) assistance in preparing for college entrance examina- tions; (4) guidance on and assistance in secondary school reentry, entry to general educational development (GED) programs, other alternative education programs for secondary school dropouts, or postsecondary education; (5) personal and career counseling, or activities designed to acquaint individuals from disadvantaged backgrounds with ca- reers in which the individuals are particularly underrep- resented; (6) tutorial services; (7) exposure to college campuses as well as cultural events, academic programs and other sites or activities not usually available to disadvantaged youth; (8) workshops and counseling for families of students served; (9) mentoring programs involving elementary or secondary school teachers or counselors, faculty members at institutions 103 Sec. 402C HIGHER EDUCATION ACT OF 1965 96 of higher education, students, or any combination of such per- sons; and (10) programs and activities as described in paragraphs (1) through (9) which are specially designed for students of limited English proficiency. (c) REQUIREMENTS FOR APPROVAL OF APPLICATIONS.In ap- proving applications for talent search projects under this chapter for any fiscal year the Secretary shall (1) require an assurance that not less than two-thirds of the individuals participating in the project proposed to be car- ried out under any application be low-income individuals who are first generation college students; (2) require that such participants be persons who either have completed 5 years of elementary education or are at least 11 years of age but not more than 27 years of age, unless the imposition of any such limitation with respect to any person would defeat the purposes of this section or the purposes of section 402F; (3) require an assurance that individuals participating in the project proposed in the application do not have access to services from another project funded under this section or under section 402F; and (4) require an assurance that the project will be located in a setting accessible to the persons proposed to be served by the project. SEC. 402C. [20 U.S.C. 1070a-13] UPWARD BOUND. (a) PROGRAM AUTHORITY.The Secretary shall carry out a pro- gram to be known as upward bound which shall be designed to generate skills and motivation necessary for success in education beyond secondary school. (b) PERMISSIBLE SERVICES.Any upward bound project as- sisted under this chapter may provide services such as (1) instruction in reading, writing, study skills, mathe- matics, and other subjects necessary for success beyond second- ary school; (2) counseling and workshops; (3) academic advice and assistance in secondary school course selection; (4) tutorial services; (5) exposure to cultural events, academic programs, and other activities not usually available to disadvantaged youth; (6) activities designed to acquaint youths participating in the project with the range of career options available to them; (7) instruction designed to prepare youths participating in the project for careers in which persons from disadvantaged backgrounds are particularly underrepresented; (8) on-campus residential programs; (9) mentoring programs involving elementary or secondary school teachers or counselors, faculty members at institutions of higher education, students, or any combination of such per- sons; 97 HIGHER EDUCATION ACT OF 1965 Sec. 402D (10) work-study positions where youth participating in the project are exposed to careers requiring a postsecondary de- gree; (11) special services to enable veterans to make the transi- tion to postsecondary education; and (12) programs and activities as described in paragraphs (1) through (11) which are specially designed for students of lim- ited English proficiency. (c) REQUIRED SERVICES.Any upward bound project assisted under this chapter which has received funding for two or more years shall include, as part of the core curriculum in the next and succeeding years, instruction in mathematics through precalculus, laboratory science, foreign language, composition, and literature. (d) REQUIREMENTS FOR APPROVAL OF APPLICATIONS.In ap- proving applications for upward bound projects under this chapter for any fiscal year, the Secretary shall (1) require an assurance that not less than two-thirds of the youths participating in the project proposed to be carried out under any application be low-income individuals who are first generation college students; (2) require an assurance that the remaining youths partici- pating in the project proposed to be carried out under any ap- plication be either low-income individuals or first generation college students; (3) require that there be a determination by the institu- tion, with respect to each participant in such project that the participant has a need for academic support in order to pursue successfully a program of education beyond secondary school; and (4) require that such participants be persons who have completed 8 years of elementary education and are at least 13 years of age but not more than 19 years of age, unless the im- position of any such limitation would defeat the purposes of this section. (e) MAXIMUM STIPENDS.Youths participating in a project pro- posed to be carried out under any application may be paid stipends not in excess of $60 per month during June, July, and August, ex- cept that youth participating in a work-study position under sub- section (b)(10) may be paid a stipend of $300 per month during June, July, and August. Youths participating in a project proposed to be carried out under any application may be paid stipends not in excess of $40 per month during the remaining period of the year. SEC. 402D. [20 U.S.C. 1070a-14] STUDENT SUPPORT SERVICES. (a) PROGRAM AUTHORITY. The Secretary shall carry out a pro- gram to be known as student support services which shall be designed (1) to increase college retention and graduation rates for eligible students; (2) to increase the transfer rates of eligible students from 2-year to 4-year institutions; and (3) to foster an institutional climate supportive of the suc- cess of low-income and first generation college students and in- dividuals with disabilities. 1 0 5 Sec. 402D HIGHER EDUCATION ACT OF 1965 98 (b) PERMISSIBLE SERVICES.A student support services project assisted under this chapter may provide services such as (1) instruction in reading, writing, study skills, mathe- matics, and other subjects necessary for success beyond second- ary school; (2) personal counseling; (3) academic advice and assistance in course selection; (4) tutorial services and counseling and peer counseling; (5) exposure to cultural events and academic programs not usually available to disadvantaged students; (6) activities designed to acquaint students participating in the project with the range of career options available to them; (7) activities designed to assist students participating in the project in securing admission and financial assistance for enrollment in graduate and professional programs; (8) activities designed to assist students currently enrolled in 2-year institutions in securing admission and financial as- sistance for enrollment in a four-year program of postsecondary education; (9) mentoring programs involving faculty or upper class students, or a combination thereof; and (10) programs and activities as described in paragraphs (1) through (9) which are specially designed for students of limited English proficiency. (c) REQUIREMENTS FOR APPROVAL OF APPLICATIONS.In ap- proving applications for student support services projects under this chapter for any fiscal year, the Secretary shall (1) require an assurance that not less than two-thirds of the persons participating in the project proposed to be carried out under any application (A) be individuals with disabilities; or (B) be low-income individuals who are first generation college students; (2) require an assurance that the remaining students par- ticipating in the project proposed to be carried out under any application be low-income individuals, first generation college students, or individuals with disabilities; (3) require an assurance that not less than one-third of the individuals with disabilities participating in the project be low- income individuals; (4) require that there be a determination by the institu- tion, with respect to each participant in such project, that the participant has a need for academic support in order to pursue successfully a program of education beyond secondary school; (5) require that such participants be enrolled or accepted for enrollment at the institution which is the recipient of the grant or contract; and (6) consider, in addition to such other criteria as the Sec- retary may prescribe, the institution's effort, and where appli- cable past history, in (A) providing sufficient financial assistance to meet the full financial need of each student in the project; and (B) maintaining the loan burden of each such student at a manageable level. 1o( 99 HIGHER EDUCATION ACT OF 1965 Sec. 402E SEC. 402E. [20 U.S.C. 1070a-15] POSTBACCALAUREATE ACHIEVEMENT PROGRAM AUTHORITY. (a) PROGRAM AUTHORITY.The Secretary shall carry out a pro- gram to be known as the "Ronald E. McNair Postbaccalaureate Achievement Program" that shall be designed to provide disadvan- taged college students with effective preparation for doctoral study. (b) SERVICES. A postbaccalaureate achievement project as- sisted under this section may provide services such as (1) opportunities for research or other scholarly activities at the institution or at graduate centers designed to provide students with effective preparation for doctoral study; (2) summer internships; (3) seminars and other educational activities designed to prepare students for doctoral study; (4) tutoring; (5) academic counseling; (6) activities designed to assist students participating in the project in securing admission to and financial assistance for enrollment in graduate programs; (7) mentoring programs involving faculty members at in- stitutions of higher education, students, or any combination of such persons; and (8) exposure to cultural events and academic programs not usually available to disadvantaged students. (c) REQUIREMENTS.In approving applications for postbaccalaureate achievement projects assisted under this section for any fiscal year, the Secretary shall require (1) an assurance that not less than two-thirds of the indi- viduals participating in the project proposed to be carried out under any application be low-income individuals who are first generation college students; (2) an assurance that the remaining persons participating in the project proposed to be carried out be from a group that is underrepresented in graduate education; (3) an assurance that participants be enrolled in a degree program at an eligible institution having an agreement with the Secretary in accordance with the provisions of section 487; and (4) an assurance that participants in summer research in- ternships have completed their sophomore year in postsecond- ary education. (d) AWARD CONSIDERATIONS.In addition to such other selec- tion criteria as may be prescribed by regulations, the Secretary shall consider in making awards to institutions under this section (1) the quality of research and other scholarly activities in which students will be involved; (2) the level of faculty involvement in the project and the description of the research in which students will be involved; and (3) the institution's plan for identifying and recruiting par- ticipants including students enrolled in projects authorized under this section. 107 Sec. 402F HIGHER EDUCATION ACT OF 1965 100 (e) MAXIMUM STIPENDS.Students participating in research under a postbaccalaureate achievement project may receive an award that (1) shall include a stipend not to exceed $2,800 per annum; and (2) may include, in addition, the costs of summer tuition, summer room and board, and transportation to summer pro- grams. (f) FUNDING.From amounts appropriated pursuant to the au- thority of section 402A(f), the Secretary shall, to the extent prac- ticable, allocate funds for projects authorized by this section in an amount which is not less than $11,000,000 for each of the fiscal years 1993 through 1997. SEC. 402F. [20 U.S.C. 1070a-161 EDUCATIONAL OPPORTUNITY CENTERS. (a) PROGRAM AUTHORITY; SERVICES PROVIDED.The Secretary shall carry out a program to be known as educational opportunity centers which shall be designed (1) to provide information with respect to financial and academic assistance available for individuals desiring to pur- sue a program of postsecondary education; and (2) to provide assistance to such persons in applying for admission to institutions at which a program of postsecondary education is offered, including preparing necessary applications for use by admissions and financial aid officers. (b) PERMISSIBLE SERVICES.An educational opportunity center assisted under this section may provide services such as (1) public information, campaigns designed to inform the community regarding opportunities for postsecondary edu- cation and training; (2) academic advice and assistance in course selection; (3) assistance in completing college admission and finan- cial aid applications; (4) assistance in preparing for college entrance examina- tions; (5) guidance on secondary school reentry or entry to a gen- eral educational development (GED) program or other alter- native education programs for secondary school dropouts; (6) personal counseling; (7) tutorial services; (8) career workshops and counseling; (9) mentoring programs involving elementary or secondary school teachers, faculty members at institutions of higher edu- cation, students, or any combination of such persons; and (10) programs and activities as described in paragraphs (1) through (9) which are specially designed for students of limited English proficiency. (c) REQUIREMENTS FOR APPROVAL OF APPLICATIONS.In ap- proving applications for educational opportunity centers under this section for any fiscal year the Secretary shall (1) require an assurance that not less than two-thirds of the persons participating in the project proposed to be carried out under any application be low-income individuals who are first generation college students; 108 101 HIGHER EDUCATION ACT OF 1965 Sec. 402G (2) require that such participants be persons who are at least nineteen years of age, unless the imposition of such limi- tation with respect to any person would defeat the purposes of this section or the purposes of section 402B; and (3) require an assurance that individuals participating in the project proposed in the application do not have access to services from another project funded under this section or under section 402B. SEC. 402G. [20 U.S.C. 1070a -171 STAFF DEVELOPMENT ACTIVITIES. (a) SECRETARY'S AUTHORITY. For the purpose of improving the operation of the programs and projects authorized by this chapter, the Secretary is authorized to make grants to institutions of higher education and other public and private nonprofit institutions and organizations to provide training for staff and leadership personnel employed in, participating in, or preparing for employment in, such programs and projects. (b) CONTENTS OF TRAINING PROGRAMS.Such training shall in- clude conferences, internships, seminars, workshops, and the publi- cation of manuals designed to improve the operation of such pro- grams and projects and shall be carried out in the various regions of the Nation in order to ensure that the training opportunities are appropriate to meet the needs in the local areas being served by such programs and projects. Such training shall be offered annu- ally for new directors of projects funded under this chapter as well as annually on the following topics and other topics chosen by the Secretary: (1) Legislative and regulatory requirements for the oper- ation of programs funded under this chapter. (2) Assisting students in receiving adequate financial aid from programs assisted under this title and other programs. (3) The design and operation of model programs for projects funded under this chapter. (4) The use of appropriate educational technology in the operation of projects assisted under this chapter. (c) CONSULTATION.Grants for the purposes of this section shall be made only after consultation with regional and State pro- fessional associations of persons having special knowledge with re- spect to the needs and problems of such programs and projects: SEC. 40211. [20 U.S.C. 1070a-181 EVALUATIONS AND GRANTS FOR PROJECT IMPROVEMENT AND DISSEMINATION PARTNER- SHIP PROJECTS. (a) EVALUATIONS. (1) IN GENERAL.For the purpose of improving the effec- tiveness of the programs and projects assisted under this chap- ter, the Secretary may make grants to or enter into contracts with institutions of higher education and other public and pri- vate institutions and organizations to evaluate the effective- ness of the programs and projects assisted under this chapter. (2) PRACTICES.The evaluations described in paragraph (1) shall identify institutional, community, and program or project practices that are particularly effective in enhancing the access of low-income individuals and first-generation col- lege students to postsecondary education, the preparation of 109 Sec. 402H HIGHER EDUCATION ACT OF 1965 102 the individuals and students for postsecondary education, and the success of the individuals and students in postsecondary education. Such evaluations shall also investigate the effective- ness of alternative and innovative methods within Federal TRIO programs of increasing access to, and retention of, stu- dents in postsecondary education. (b) GRANTS.The Secretary may award grants to institutions of higher education or other private and public institutions and or- ganizations, that are carrying out a program or project assisted under this chapter prior to the date of enactment of the Higher Education Amendments of 1998, to enable the institutions and or- ganizations to expand and leverage the success of such programs or projects by working in partnership with other institutions, com- munity-based organizations, or combinations of such institutions and organizations, that are not receiving assistance under this chapter and are serving low-income students and first generation college students, in order to (1) disseminate and replicate best practices of programs or projects assisted under this chapter; and (2) provide technical assistance regarding programs and projects assisted under this chapter. (c) RESULTS.In order to improve overall program or project effectiveness, the results of evaluations and grants described in this section shall be disseminated by the Secretary to similar pro- grams or projects assisted under this subpart, as well as other indi- viduals concerned with postsecondary access for and retention of low-income individuals and first-generation college students. CHAPTER 2-GAINING EARLY AWARENESS AND READINESS FOR UNDERGRADUATE PROGRAMS SEC. 404A. [20 U.S.C. 1070a-21] EARLY INTERVENTION AND COLLEGE AWARENESS PROGRAM AUTHORIZED. (a) PROGRAM AUTHORIZED.The Secretary is authorized, in ac- cordance with the requirements of this chapter, to establish a pro- gram that (1) encourages eligible entities to provide or maintain a guarantee to eligible low-income students who obtain a second- ary school diploma (or its recognized equivalent), of the finan- cial assistance necessary to permit the students to attend an institution of higher education; and (2) supports eligible entities in providing (A) additional counseling, mentoring, academic sup- port, outreach, and supportive services to elementary school, middle school, and secondary school students who are at risk of dropping out of school; and (B) information to students and their parents about the advantages of obtaining a postsecondary education and the college financing options for the students and their parents. (b) AWARDS. 103 HIGHER EDUCATION ACT OF 1965 Sec. 404B (1) IN GENERAL. From funds appropriated under section 404H for each fiscal year, the Secretary shall make awards to eligible entities described in paragraphs (1) and (2) of sub- section (c) to enable the entities to carry out the program au- thorized under subsection (a). (2) PRIORITY.In making awards to eligible entities de- scribed in paragraph (c)(1), the Secretary shall (A) give priority to eligible entities that (i) on the day before the date of enactment of the Higher Education Amendments of 1998, carried out successful educational opportunity programs under this chapter (as this chapter was in effect on such day); and (ii) have a prior, demonstrated commitment to early intervention leading to college access through collaboration and replication of successful strategies; (B) ensure that students served under this chapter on the day before the date of enactment of the Higher Edu- cation Amendments of 1998 continue to receive assistance through the completion of secondary school. (c) DEFINITION OF ELIGIBLE ENTITY.For the purposes of this chapter, the term "eligible entity" means (1) a State; or (2) a partnership consisting of (A) one or more local educational agencies acting on behalf of (i) one or more elementary schools or secondary schools; and (ii) the secondary schools that students from the schools described in clause (i) would normally attend; (B) one or more degree granting institutions of higher education; and (C) at least two community organizations or entities, such as businesses, professional associations, community= based organizations, philanthropic organizations, State agencies, institutions or agencies sponsoring programs au- thorized under subpart 4, or other public or private agen- cies or organizations. SEC. 404B. [20 U.S.C. 1070a-221 REQUIREMENTS. (a) FUNDING RULES. (1) CONTINUATION AWARDS.From the amount appro- priated under section 404H for a fiscal year, the Secretary shall continue to award grants to States under this chapter (as this chapter was in effect on the day before the date of enact- ment of the Higher Education Amendments of 1998) in accord- ance with the terms and conditions of such grants. (2) DISTRIBUTION.From the amount appropriated under section 404H that remains after making continuation awards under paragraph (1) for a fiscal year, the Secretary shall (A) make available-- (i) not less than. 33 percent of the amount to eligi- ble entities described in section 404A(c)(1); and 111 Sec. 404B HIGHER EDUCATION ACT OF 1965 104 (ii) not less than 33 percent of the amount to eligi- ble entities described in section 404A(c)(2); and (B) award the remainder of the amount to eligible en- tities described in paragraph (1) or (2) of section 404A(c). (3) SPECIAL RULE.The Secretary shall annually reevalu- ate the distribution of funds described in paragraph (2)(B) based on number, quality, and promise of the applications and adjust the distribution accordingly. (b) LIMITATION.Each eligible entity described in section 404A(c)(1), and each eligible entity described in section 404A(c)(2) that conducts a scholarship component under section 404E, shall use not less than 25 percent and not more than 50 percent of grant funds received under this chapter for the early intervention compo- nent of an eligible entity's program under this chapter, except that the Secretary may waive the 50 percent limitation if the eligible entity demonstrates that the eligible entity has another means of providing the students with financial assistance that is described in the plan submitted under section 404C. (c) COORDINATION.Each eligible entity shall ensure that the activities assisted under this chapter are, to the extent practicable, coordinated with, and complement and enhance (1) services under this chapter provided by other eligible entities serving the same school district or State; and (2) related services under other Federal or non-Federal programs. (d) DESIGNATION OF FISCAL AGENT. An eligible entity de- scribed in section 404A(c)(2) shall designate an institution of higher education or a local educational agency as the fiscal agent for the eligible entity. (e) COORDINATORS.An eligible entity described in section 404A(c)(2) shall have a full-time program coordinator or a part- time program coordinator, whose primary responsibility is a project under section 404C. (f) DISPLACEMENT.An eligible entity described in 404A(c)(2) shall ensure that the activities assisted under this chapter will not displace an employee or eliminate a position at a school assisted under this chapter, including a partial displacement such as a re- duction in hours, wages or employment benefits. (g) COHORT APPROACH. (1) IN GENERAL.The Secretary shall require that eligible entities described in section 404A(c)(2) (A) provide services under this chapter to at least one grade level of students, beginning not later than 7th grade, in a participating school that has a 7th grade and in which at least 50 percent of the students enrolled are eligible for free or reduced-price lunch under the National School Lunch Act (or, if an eligible entity determines that it would promote the effectiveness of a program, an entire grade level of students, beginning not later than the 7th grade, who reside in public housing as defined in section 3(b)(1) of the United States Housing Act of 1937); and (B) ensure that the services are provided through the 12th grade to students in the participating grade level. 105 HIGHER EDUCATION ACT OF 1965 Sec. 404C (2) COORDINATION REQUIREMENT.In order for the Sec- retary to require the cohort approach described in paragraph (1), the Secretary shall, where applicable, ensure that the co- hort approach is done in coordination and collaboration with existing early intervention programs and does not duplicate the services already provided to a school or community. SEC. 404C. [20 U.S.C. 1070a-231 ELIGIBLE ENTITY PLANS. (a) PLAN REQUIRED FOR ELIGIBILITY. (1) IN GENERAL.In order for an eligible entity to qualify for a grant under this chapter, the eligible entity shall submit to the Secretary a plan for carrying out the program under this chapter. Such plan shall provide for the conduct of a scholar- ship component if required or undertaken pursuant to section 404E and an early intervention component required pursuant to section 404D. (2) CONTENTS.Each plan submitted pursuant to para- graph (1) shall be in such form, contain or be accompanied by such information or assurances, and be submitted at such time as the Secretary may require by regulation. Each such plan shall (A) describe the activities for which assistance under this chapter is sought; and (B) provide such additional assurances as the Sec- retary determines necessary to ensure compliance with the requirements of this chapter. (b) MATCHING REQUIREMENT. (1) IN GENERAL.The Secretary shall not approve a plan submitted under subsection (a) unless such plan (A) provides that the eligible entity will provide, from State, local, institutional, or private funds, not less than 50 percent of the cost of the program, which matching funds may be provided in cash or in kind; (B) specifies the methods by which matching funds will be paid; and (C) includes provisions designed to ensure that funds provided under this chapter shall supplement and not sup- plant funds expended for existing programs. (2) SPECIAL RULE.Notwithstanding the matching require- ment described in paragraph (1)(A), the Secretary may by reg- ulation modify the percentage requirement described in para- graph (1)(A) for eligible entities described in section 404A(c)(2). (C) METHODS FOR COMPLYING WITH MATCHING REQUIRE- MENT.An eligible entity may count toward the matching require- ment described in subsection (b)(1)(A) (1) the amount of the financial assistance paid to students from State, local, institutional, or private funds under this chapter; (2) the amount of tuition, fees, room or board waived or re- duced for recipients of financial assistance under this chapter; and (3) the amount expended on documented, targeted, long- term mentoring and counseling provided by volunteers or paid staff of nonschool organizations, including businesses, religious 113 Sec. 404D HIGHER EDUCATION ACT OF 1965 106 organizations, community groups, postsecondary educational institutions, nonprofit and philanthropic organizations, and other organizations. (d) PEER REVIEW PANELS.The Secretary shall convene peer review panels to assist in making determinations regarding the awarding of grants under this chapter. SEC. 404D. [20 U.S.C. 1070a-24] EARLY INTERVENTION. (a) SERVICES. (1) IN GENERAL.In order to receive a grant under this chapter, an eligible entity shall demonstrate to the satisfaction of the Secretary, in the plan submitted under section 404C, that the eligible entity will provide comprehensive mentoring, counseling, outreach, and supportive services to students par- ticipating in programs under this chapter. Such counseling shall include (A) financial aid counseling and information regarding the opportunities for financial assistance under this title; and (B) activities or information regarding (i) fostering and improving parent involvement in promoting the advantages of a college education, aca- demic admission requirements, and the need to take college preparation courses; (ii) college admissions and achievement tests; and (iii) college application procedures. (2) METHODS.The eligible entity shall demonstrate in such plan, pursuant to regulations of the Secretary, the methods by which the eligible entity will target services on priority students described in subsection (c), if applicable. (b) USES OF FUNDS. (1) IN GENERAL.The Secretary shall, by regulation, estab- lish criteria for determining whether comprehensive mentor- ing, counseling, outreach, and supportive services programs may be used to meet the requirements of subsection (a). (2) PERMISSIBLE ACTIVITIES.Examples of activities that meet the requirements of subsection (a) include the following: (A) Providing eligible students in preschool through grade 12 with a continuing system of mentoring and advis- ing that (1) is coordinated with the Federal and State com- munity service initiatives; and (ii) may include such support services as after school and summer tutoring, assistance in obtaining summer jobs, career mentoring, and academic counsel- ing. (B) Requiring each student to enter into an agreement under which the student agrees to achieve certain aca- demic milestones, such as completing a prescribed set of courses and maintaining satisfactory progress described in section 484(c), in exchange for receiving tuition assistance for a period of time to be established by each eligible en- tity. 101 HIGHER EDUCATION ACT OF 1965 Sec. 4040 (C) Activities designed to ensure secondary school com- pletion and college enrollment of at-risk children, such as identification of at-risk children, after school and summer tutoring, assistance in obtaining summer jobs, academic counseling, volunteer and parent involvement, providing former or current scholarship recipients as mentor or peer counselors, skills assessment, providing access to rigorous core courses that reflect challenging academic standards, personal counseling, family counseling and home visits, staff development, and programs and activities described in this subparagraph that are specially designed for stu- dents of limited English proficiency. (D) Summer programs for individuals who are in their sophomore or junior years of secondary school or are plan- ning to attend an institution of higher education in the succeeding academic year that (i) are carried out at an institution of higher edu- cation that has programs of academic year supportive services for disadvantaged students through projects authorized under section 402D or through comparable projects funded by the State or other sources; (ii) provide for the participation of the individuals who are eligible for assistance under section 402D or who are eligible for comparable programs funded by the State; (iii)(I) provide summer instruction in remedial, de- velopmental or supportive courses; (II) provide such summer services as counseling, tutoring, or orientation; and (III) provide financial assistance to the individuals to cover the individuals' summer costs for books, sup- plies, living costs, and personal expenses; and (iv) provide the individuals with financial assist- ance during each academic year the individuals are enrolled at the participating institution after the sum- mer program. (E) Requiring eligible students to meet other stand- ards or requirements as the State determines necessary to meet the purposes of this section. (c) PRIORITY STUDENTS.For eligible entities not using a co- hort approach, the eligible entity shall treat as priority students any student in preschool through grade 12 who is eligible (1) to be counted under section 1124(c) of the Elementary and Secondary Education Act of 1965; (2) for free or reduced price meals under the National School Lunch Act; or (3) for assistance pursuant to part A of title IV of the So- cial Security Act. (d) ALLOWABLE PROVIDERS.In the case of eligible entities de- scribed in section 404A(c)(1), the activities required by this section may be provided by service providers such as community-based or- ganizations, schools, institutions of higher education, public and private agencies, nonprofit and philanthropic organizations, busi- nesses, institutions and agencies sponsoring programs authorized 115 Sec. 404E HIGHER EDUCATION ACT OF 1965 108 under subpart 4, and other organizations the State deems appro- priate. SEC. 404E. 120 U.S.C. 1070a-25) SCHOLARSHIP COMPONENT. (a) IN GENERAL. (1) STATES.In order to receive a grant under this chap- ter, an eligible entity described in section 404A(c)(1) shall es- tablish or maintain a financial assistance program that awards scholarships to students in accordance with the requirements of this section. The Secretary shall encourage the eligible en- tity to ensure that a scholarship provided pursuant to this sec- tion is available to an eligible student for use at any institution of higher education. (2) PARTNERSHIPS.An eligible entity described in section 404A(c)(2) may award scholarships to eligible students in ac- cordance with the requirements of this section. (b) GRANT AMOUNTS.The maximum amount of a scholarship that an eligible student shall be eligible to receive under this sec- tion shall be established by the eligible entity. The minimum amount of the scholarship for each fiscal year shall not be less than the lesser of (1) 75 percent of the average cost of attendance for an in- State student, in a 4-year program of instruction, at public in- stitutions of higher education in such State, as determined in accordance with regulations prescribed by the Secretary; or (2) the maximum Federal Pell Grant funded under section 401 for such fiscal year. (c) RELATION TO OTHER ASSISTANCE.Scholarships provided under this section shall not be considered for the purpose of award- ing Federal grant assistance under this title, except that in no case shall the total amount of student financial assistance awarded to a student under this title exceed such student's total cost of attend- an.ce. (d) ELIGIBLE STUDENTS.A student eligible for assistance under this section is a student who (1) is less than 22 years old at time of first scholarship award under this section; (2) receives a secondary school diploma or its recognized equivalent on or after January 1, 1993; (3) is enrolled or accepted for enrollment in a program of undergraduate instruction at an institution of higher education that is located within the State's boundaries, except that, at the State's option, an eligible entity may offer scholarship pro- gram portability for recipients who attend institutions of high- er education outside such State; and (4) who participated in the early intervention component required under section 404D. (e) PRIORITY.The Secretary shall ensure that each eligible en- tity places a priority on awarding scholarships to students who will receive a Federal Pell Grant for the academic year for which the scholarship is awarded under this section. (f) SPECIAL RULE. An eligible entity may consider students who have successfully participated in programs funded under chap- ter 1 to have met the requirements of subsection (d)(4). 109 HIGHER EDUCATION ACT OF 1965 Sec. 406A SEC. 404F. [20 U.S.C. 1070a-26] 21ST CENTURY SCHOLAR CERTIFI- CATES. (a) AUTHORITY.The Secretary, using funds appropriated under section 404H that do not exceed $200,000 for a fiscal year (1) shall ensure that certificates, to be known as 21st Cen- tury Scholar Certificates, are provided to all students partici- pating in programs under this chapter; and (2) may, as practicable, ensure that such certificates are provided to all students in grades 6 through 12 who attend schools at which at least 50 percent of the students enrolled are eligible for a free or reduced price lunch under the Na- tional School Lunch Act. (b) INFORMATION REQUIRED.A 21st Century Scholar Certifi- cate shall be personalized for each student and indicate the amount of Federal financial aid for college which a student may be eligible to receive. SEC. 404G. [20 U.S.C. 1070a-271 EVALUATIONAND REPORT. (a) EVALUATION.Each eligible entity receiving a grant under this chapter shall biennially evaluate the activities assisted under this chapter in accordance with the standards described in sub- section (b) and shall submit to the Secretary a copy of such evalua- tion. The evaluation shall permit service providers to track eligible student progress during the period such students are participating in the activities and shall be consistent with the standards devel- oped by the Secretary pursuant to subsection (b). (b) EVALUATION STANDARDS.The Secretary shall prescribe standards for the evaluation described in subsection (a). Such standards shall (1) provide for input from eligible entities and service pro- viders; and (2) ensure that data protocols and procedures are consist- ent and uniform. (c) FEDERAL EVALUATION.In order to evaluate and improve the impact of the activities assisted under this chapter, the Sec- retary shall, from not more than 0.75 percent of the funds appro- priated under section 404H for a fiscal year, award one or more grants, contracts, or cooperative agreements to or with public and private institutions and organizations, to enable the institutions and organizations to evaluate the effectiveness of the program and, as appropriate, disseminate the results of the evaluation. (d) REPORT.The Secretary shall biennially report to Congress regarding the activities assisted under this chapter and the evalua- tions conducted pursuant to this section. SEC. 404H. [20 U.S.C. 1070a-28] AUTHORIZATION OF APPROPRIATIONS. There are authorized to be appropriated to carry out this chap- ter $200,000,000 for fiscal year 1999 and such sums as may be nec- essary for each of the 4 succeeding fiscal years. CHAPTER 3ACADEMIC ACHIEVEMENT INCENTIVE SCHOLARSHIPS SEC. 406A. [20 U.S.C. 10'70a-31] SCHOLARSHIPS AUTHORIZED. The Secretary is authorized to award scholarships to students who graduate from secondary school after May 1, 2000, to enable Sec. 406B HIGHER EDUCATION ACT OF 1965 110 the students to pay the cost of attendance at an institution of high- er education during the students first 2 academic years of under- graduate education, if the students (1) are eligible to receive Federal Pell Grants for the year in which the scholarships are awarded; and (2) demonstrate academic achievement by graduating in the top 10 percent of their secondary school graduating class. SEC. 406B. [20 U.S.C. 1070a-32] SCHOLARSHIP PROGRAM REQUIRE- MENTS. (a) AMOUNT OF AWARD. (1) IN GENERAL.Except as provided in paragraph (2), the amount of a scholarship awarded under this chapter for any academic year shall be equal to 100 percent of the amount of the Federal Pell Grant for which the recipient is eligible for the academic year. (2) ADJUSTMENT FOR INSUFFICIENT APPROPRIATIONS.If, after the Secretary determines the total number of eligible ap- plicants for an academic year in accordance with section 406C, funds available to carry out this chapter for the academic year are insufficient to fully fund all awards under this chapter for the academic year, the amount of the scholarship paid to each student under this chapter shall be reduced proportionately. (b) ASSISTANCE NOT To EXCEED COST OF ATTENDANCE.A scholarship awarded under this chapter to any student, in com- bination with the Federal Pell Grant assistance and other student financial assistance available to such student, may not exceed the student's cost of attendance. SEC. 406C. [20 U.S.C. 1070a-33] ELIGIBILITY OF SCHOLARS. (a) PROCEDURES ESTABLISHED BY REGULATION.The Secretary shall establish by regulation procedures for the determination of eligibility of students for the scholarships awarded under this chap- ter. Such procedures shall include measures to prevent any second- ary school from certifying more than 10 percent of the school's students for eligibility under this section. (b) COORDINATION.In prescribing procedures under sub- section (a), the Secretary shall ensure that the determination of eli- gibility and the amount of the scholarship is determined in a time- ly and accurate manner consistent with the requirements of section 482 and the submission of the financial aid form required by section 483. For such purposes, the Secretary may provide that, for the first academic year of a student's 2 academic years of eligibility under this chapter, class rank may be determined prior to gradua- tion from secondary school, at such time and in such manner as the Secretary may specify in regulations prescribed under this chapter. SEC. 406D. [20 U.S.C. 1070*-34] STUDENT REQUIREMENTS. (a) IN GENERAL.Each eligible student desiring a scholarship under this chapter shall submit an application to the Secretary at such time, in such manner, and containing such information as the Secretary may reasonably require. (b) CONTINUING ELIGIBILITY.In order for a student to con- tinue to be eligible to receive a scholarship under this chapter for the second year of undergraduate education, the eligible student shall maintain eligibility to receive a Federal Pell Grant for that 111 HIGHER EDUCATION ACT OF 1965 Sec. 4136 year, including fulfilling the requirements for satisfactory progress described in section 484(c). SEC. 407E.1 [20 U.S.C. 1070a-35] AUTHORIZATION OF APPROPRIATIONS. There are authorized to be appropriated to carry out this chap- ter $200,000,000 for fiscal year 1999 and such sums as may be nec- essary for each of the 4 succeeding fiscal years. [Chapters 4 through 8 repealed by section 405 of P.L. 105-2441 SUBPART 3FEDERAL SUPPLEMENTAL EDUCATIONAL OPPORTUNITY GRANTS SEC. 413A. [20 U.S.C. 1070b1 PURPOSE; APPROPRIATIONS AUTHORIZED. (a) PURPOSE OF SUBPART.It is the purpose of this subpart to provide, through institutions of higher education, supplemental grants to assist in making available the benefits of postsecondary education to qualified students who demonstrate financial need in accordance with the provisions of part F of this title. (b) AUTHORIZATION OF APPROPRIATIONS.(1) For the purpose of enabling the Secretary to make payments to institutions of higher education which have made agreements with the Secretary in ac- cordance with section 413C(a), for use by such institutions for pay- ments to undergraduate students of supplemental grants awarded to them under this subpart, there are authorized to be appro- priated $675,000,000 for fiscal year 1999 and such sums as may be necessary for the 4 succeeding fiscal years. (2) Sums appropriated pursuant to this subsection for any fis- cal year shall be available for payments to institutions until the end of the second fiscal year succeeding the fiscal year for which such sums were appropriated. SEC. 413B. [20 U.S.C. 10701)-1] AMOUNT AND DURATION OF GRANTS. (a) AMOUNT OF GRANT.(1) Except as provided in paragraph (3), from the funds received by it for such purpose under this sub- part, an institution which awards a supplemental grant to a stu- dent for an academic year under this subpart shall, for each year, pay to that student an amount not to exceed the lesser of (A) the amount determined by the institution, in accordance with the pro- visions of part F of this title, to be needed by that student to enable the student to pursue a course of study at the institution or in a program of study abroad that is approved for credit by the institu- tion at which the student is enrolled, or (B) $4,000. (2) If the amount determined under paragraph (1) with respect to a student for any academic year is less than $100, no payment shall be made to that student for that year. For a student enrolled for less than a full academic year, the minimum payment required shall be reduced proportionately. (3) For students participating in study abroad programs, the institution shall consider all reasonable costs associated with such study abroad when determining student eligibility. The amount of grant to be awarded in such cases may exceed the maximum amount of $4,000 by as much as $400 if reasonable study abroad costs exceed the cost of attendance at the home institution. 'So in original (112 Stat. 1664). Probablyshould be redesignated as section "406E". 119 Sec. 413C HIGHER EDUCATION ACT OF 1965 112 (b) PERIOD FOR RECEIPT OF GRANTS; CONTINUING ELIGI- BILITY.(1) The period during which a student may receive supple- mental grants shall be the period required for the completion of the first undergraduate baccalaureate course of study being pursued by that student. (2) A supplemental grant awarded under this subpart shall en- title the student (to whom it is awarded) to payments pursuant to such grant only if the student meets the requirements of section 484, except as provided in section 413C(c). (c) DISTRIBUTION OF GRANT DURING ACADEMIC YEAR.Nothing in this section shall be construed to prohibit an institution from making payments of varying amounts from a supplemental grant to a student during an academic year to cover costs for a period which are not applicable to other periods of such academic year. SEC. 413C. [20 U.S.C. 1070b-2] AGREEMENTS WITH INSTITUTIONS; SE- LECTION OF RECIPIENTS. (a) INSTITUTIONAL ELIGIBILITY.Assistance may be made available under this subpart only to an institution which (1) has, in accordance with section 487, an agreement with the Secretary applicable to this subpart; (2) agrees that the Federal share of awards under this sub- part will not exceed 75 percent of such awards, except that the Federal share may be exceeded if the Secretary determines, pursuant to regulations establishing objective criteria for such determinations, that a larger Federal share is required to fur- ther the purpose of this subpart; and except that the Federal share may be exceeded if the Secretary determines, pursuant to regulations establishing objective cri- teria for such determinations, that a larger Federal share is re- quired to further the purpose of this subpart; and (3) agrees that the non-Federal share of awards made under this subpart shall be made from the institution's own re- sources, including (A) institutional grants and scholarships; (B) tuition or fee waivers; (C) State scholarships; and (D) foundation or other charitable organization funds. (b) ELIGIBILITY FOR SELECTION.Awards may be made under this subpart only to a student who (1) is an eligible student under section 484; and (2) makes application at a time and in a manner consistent with the requirements of the Secretary and that institution. (c) SELECTION OF INDIVIDUALS AND DETERMINATION OF AMOUNT OF AWARDS.(1) From among individuals who are eligible for supplemental grants for each fiscal year, the institution shall, in accordance with the agreement under section 487, and within the amount allocated to the institution for that purpose for that year under section 413D, select individuals who are to be awarded such grants and determine, in accordance with section 413B, the amounts to be paid to them. (2)(A) In carrying out paragraph (1) of this subsection, each in- stitution of higher education shall, in the agreement made under section 487, assure that the selection procedures 113 HIGHER EDUCATION ACT OF 1965 Sec. 413D (i) will be designed to award supplemental grants under this subpart, first, to students with exceptional need, and (ii) will give a priority for supplemental grants under this subpart to students who receive Pell Grants and meet the re- quirements of section 484. (B) For the purpose of subparagraph (A), the term "students with exceptional need" means students with the lowest expected family contributions at the institution. (d) USE OF FUNDS FOR LESS-THAN-FULL-TIME STUDENTS.If the institution's allocation under this subpart is directly or indi- rectly based in part on the financial need demonstrated by students who are independent students or attending the institution on less than a full-time basis, then a reasonable proportion of the alloca- tion shall be made available to such students. (e) USE AND TRANSFER OF FUNDS FOR ADMINISTRATIVE Ex- PENSES.An agreement entered into pursuant to this section shall provide that funds granted to an institution of higher education may be used only to make payments to students participating in a grant program authorized under this subpart, except that an in- stitution may use a portion of the sums allocated to it under this subpart to meet administrative expenses in accordance with section 489 of this title. SEC. 413D. [20 U.S.C. 10701)-3] ALLOCATION OF FUNDS. (a) ALLOCATION BASED ON PREVIOUS ALLOCATION 1.(1) From the amount appropriated pursuant to section 413A(b) for each fis- cal year, the Secretary shall first allocate to each eligible institu- tion an amount equal to 100 percent of the amount such institution received under subsections (a) and (b) of this section for fiscal year 1999 (as such subsections were in effect with respect to allocations for such fiscal year). 2 (2)(A) From the amount so appropriated, the Secretary shall next allocate to each eligible institution that began participation in the program under this subpart after fiscal year 1999 but is not a first or second time participant, an amount equal to the greater of (i) $5,000; or (ii) 90 percent of the amount received and used under this subpart for the first year it participated in the program. (B) From the amount so appropriated, the Secretary shall next allocate to each eligible institution that began participation in the program under this subpart after fiscal year 1999 and is a first or second time participant, an amount equal to the greatest of (i) $5,000; (ii) an amount equal to (I) 90 percent of the amount re- ceived and used under this subpart in the second preceding fis- The allocation provisions of section 413D of the Higher Education Act of 1965 were amended by section 406(c) of the Higher Education Amendments of 1998 (P.L. 105-244; 112 Stat. 1665). Paragraph (3) of that section 406(c) contained the following effective date provision: (3) EFFECTIVE DATE.The amendments made by this subsection shall apply with respect to allocations of amounts appropriated pursuant to section 413A(b) of the Higher Education Act of 1965 for fiscal year 2000 or any succeeding fiscal year. 2 Section 406(cX1XA) of the Higher Education Amendments of 1998 (P.L. 105-244; 112 Stat. 1665) amended subsection (aX1) by striking "received and used under this part for fiscal year 1985" and inserting "received under" through "such fiscal year)". The amendment, executed to reflect the probable intent of Congress, probably should have been to strike "subpart" not "part". BEST COPY AVAILABLE 121 Sec. 413D HIGHER EDUCATION ACT OF 1965 114 cal year by eligible institutions offering comparable programs of instruction, divided by (II) the number of students enrolled at such comparable institutions in such fiscal year, multiplied by (III) the number of students enrolled at the applicant insti- tution in such fiscal year; or (iii) 90 percent of the institution's allocation under this part for the preceding fiscal year. (C) Notwithstanding subparagraphs (A) and (B) of this para- graph, the Secretary shall allocate to each eligible institution which (i) was a first-time participant in the program in fiscal year 2000 or any subsequent fiscal year, and (ii) received a larger amount under this subsection in the second year of participation, an amount equal to 90 percent of the amount it received under this subsection in its second year of participation. (3)(A) If the amount appropriated for any fiscal year is less than the amount required to be allocated to all institutions under paragraph (1) of this subsection, then the amount of the allocation to each such institution shall be ratably reduced. (B) If the amount appropriated for any fiscal year is more than the amount required to be allocated to all institutions under para- graph (1) but less than the amount required to be allocated to all institutions under paragraph (2), then (i) the Secretary shall allot the amount required to be allo- cated to all institutions under paragraph (1),: and (ii) the amount of the allocation to each institution under paragraph (2) shall be ratably reduced. (C) If additional amounts are appropriated for any such fiscal year, such reduced amounts shall be increased on the same basis as they were reduced (until the amount allocated equals the amount required to be allocated under paragraphs (1) and (2) of this subsection). (4XA) Notwithstanding any other provision of this section, the Secretary may allocate an amount equal to not more than 10 per- cent of the amount by which the amount appropriated in any fiscal year to carry out this part exceeds $700,000,000 among eligible in- stitutions described in subparagraph (B). (B) In order to receive an allocation pursuant to subparagraph (A) an institution shall be an eligible institution from which 50 per- cent or more of the Pell Grant recipients attending such eligible in- stitution graduate from or transfer to a 4-year institution of higher education. (b) ALLOCATION OF EXCESS BASED ON FAIR SHARE.-(1) From the remainder of the amount appropriated pursuant to section 413A(b) for each year (after making the allocations required by subsection (a)), the Secretary shall allocate to each eligible institu- tion which has an excess eligible amount an amount which bears the same ratio to such remainder as such excess eligible amount bears to the sum of the excess eligible amounts of all such eligible institutions (having such excess eligible amounts). (2) For any eligible institution, the excess eligible amount is the amount, if any, by which (A)(i) the amount of that institution's need (as determined under subsection (c)), divided by (ii) the sum of the need of all 115 HIGHER EDUCATION ACT OF 1965 Sec. 413D institutions (as so determined), multiplied by (iii) the amount appropriated pursuant to section 413A(b) of the fiscal year; ex- ceeds (B) the amount required to be allocated to that institution under subsection (a). (c) DETERMINATION OF INSTITUTION'S NEED.(1) The amount of an institution's need is equal to (A) the sum of the need of the institution's eligible under- graduate students; minus. (B) the sum of grant aid received by students under sub- parts 1 and 3 of this part. (2) To determine the need of an institution's eligible under- graduate students, the Secretary shall (A) establish various income categories for dependent and independent undergraduate students; (B) establish an expected family contribution for each in- come category of dependent and independent undergraduate students, determined on the basis of the average expected fam- ily contribution (computed in accordance with part F of this title) of a representative sample within each income category for the second preceding fiscal year; (C) compute 75 percent of the average cost of attendance for all undergraduate students; (D) multiply the number of eligible dependent students in each income category by 75 percent of the average cost of at- tendance for all undergraduate students determined under. subparagraph (C), minus the expected family contribution de- termined under subparagraph (B) for that income category, ex- cept that the amount computed by such subtraction shall not be less than zero; (E) add the amounts determined under subparagraph (D) for each income category of dependent students; (F) multiply the number of eligible independent students in each income category by 75 percent of the average cost of attendance for all undergraduate students determined under subparagraph (C), minus the expected family contribution de- termined under subparagraph (B) for that income category, ex- cept that the amount computed by such subtraction shall not be less than zero; (G) add the amounts determined under subparagraph (F) for each income category of independent students; and (H) add the amounts determined under subparagraphs (E) and (G). (3)(A) For purposes of paragraph (2), the term "average cost of attendance" means the average of the attendance costs for under- graduate students which shall include (i) tuition and fees deter- mined in accordance with subparagraph (B), (ii) standard living ex- penses determined in accordance with subparagraph (C), and (iii) books and supplies determined in accordance with subparagraph (D). (B) The average undergraduate tuition and fees described in subparagraph (A)(i) shall be computed on the basis of information reported by the institution to the Secretary, which shall include (i) total revenue received by the institution from undergraduate tui- 123 SOC. 413E HIGHER EDUCATION ACT OF 1965 116 tion and fees for the second year preceding the year for which it is applying for an allocation, and (ii) the institution's enrollment for such second preceding year. (C) The standard living expense described in subparagraph (A)(ii) is equal to 150 percent of the difference between the income protection allowance for a family of five with one in college and the income protection allowance for a family of six with one in college for a single independent student. (D) The allowance for books and supplies described in subpara- graph (A)(iii) is equal to $450. (d) REALLOCATION OF EXCESS ALLOCATIONS.(1) If an institu- tion returns to the Secretary any portion of the sums allocated to such institution under this section for any fiscal year the Secretary shall, in accordance with regulations, reallocate such excess to other institutions. (2) If under paragraph (1) of this subsection an institution re- turns more than 10 percent of its allocation, the institution's alloca- tion for the next fiscal year shall be reduced by the amount re- turned. The Secretary may waive this paragraph for a specific in- stitution if the Secretary finds that enforcing this paragraph would be contrary to the interest of the program. (e) FILING DEADLINES.The Secretary shall, from time to time, set dates before which institutions must file applications for alloca- tions under this part. SEC. 413E. [20 U.S.C. 1070b-4] CARRYOVER AND CARRYBACK AUTHOR- ITY. (a) CARRYOVER AUTHORITY.Of the sums made available to an eligible institution under this subpart for a fiscal year, not more than 10 percent may, at the discretion of the institution, remain available for expenditure during the succeeding fiscal year to carry out the program under this subpart. (b) CARRYBACK AUTHORITY. (1) IN GENERAL.Of the sums made available to an eligi- ble institution under this subpart for a fiscal year, not more than 10 percent may, at the discretion of the institution, be used by the institution for expenditure for the fiscal year pre- ceding the fiscal year for which the sums were appropriated. (2) USE OF CARRIED-BACK FUNDS.An eligible institution may make grants to students after the end of the academic year, but prior to the beginning of the succeeding fiscal year, from such succeeding fiscal year's appropriations. SUBPART 4LEVERAGING EDUCATIONAL ASSISTANCE PARTNERSHIP PROGRAM SEC. 415A. [20 U.S.C. 1070c] PURPOSE; APPROPRIATIONS AUTHORIZED. (a) PURPOSE OF SUBPART.It is the purpose of this subpart to make incentive grants available to States to assist States in (1) providing grants to (A) eligible students attending institutions of higher education or participating in programs of study abroad that are approved for credit by institutions of higher edu- cation at which such students are enrolled; and 111 HIGHER EDUCATION ACT OF 1965 Sec. 415B (B) eligible students for campus-based community service work-study; and (2) carrying out the activities described in section 415F. (b) AUTHORIZATION OF APPROPRIATIONS; AVAILABILITY. (1) IN GENERAL.-----There are authorized to be appropriated $105,000,000 for fiscal year 1999, and such sums as may be necessary for each of the 4 succeeding fiscal years. (2) RESERVATION.For any fiscal year for which the amount appropriated under paragraph (1) exceeds $30,000,000, the excess shall be available to carry out section 415E. (3) AVAILABILITY.SUMS appropriated pursuant to the au- thority of paragraph (1) for any fiscal year shall remain avail- able for payments to States under this subpart until the end of the fiscal year succeeding the fiscal year for which such sums were appropriated. SEC. 415B. [20 U.S.C. 1070c-1] ALLOTMENT AMONG STATES. (a) ALLOTMENT BASED ON NUMBER OF ELIGIBLE STUDENTS IN ATTENDANCE.(1) From the sums appropriated pursuant to section 415A(b)(1) and not reserved under section 415A(b)(2) for any fiscal year, the Secretary shall allot to each State an amount which bears the same ratio to such sums as the number of students who are deemed eligible in such State for participation in the grant pro- gram authorized by this subpart bears to the total number of such students in all the States, except that no State shall receive less than the State received for fiscal year 1979. (2) For the purpose of this subsection, the number of students who are deemed eligible in a State for participation in the grant program authorized by this subpart, and the number of such stu- dents in all the States, shall be determined for the most recent year for which satisfactory data are available. (b) REALLOTMENT.The amount of any State's allotment under subsection (a) for any fiscal year which the Secretary determines will not be required for such fiscal year for the leveraging edu- cational assistance partnership program of that State shall be available for reallotment from time to time, on such dates during such year as the Secretary may fix, to other States in proportion to the original allotments to such States under such part for such year, but with such proportionate amount for any of such States being reduced to the extent it exceeds the sum the Secretary esti- mates such State needs and will be able to use for such year for carrying out the State plan. The total of such reductions shall be similarly reallotted among the States whose proportionate amounts were not so reduced. Any amount reallotted to a State under this part during a year from funds appropriated pursuant to section 415A(b)(1) shall be deemed part of its allotment under subsection (a) for such year. (c) ALLOTMENTS SUBJECT TO CONTINUING COMPLIANCE.The Secretary shall make payments for continuing incentive grants only to States which continue to meet the requirements of section 415C(b). Sec. 415C NIGHER EDUCATION ACT OF 1965 118 SEC. 415C. [20 U.S.C. 1070c-2] APPLICATIONS FOR LEVERAGING EDU- CATIONAL ASSISTANCE PARTNERSHIP PROGRAMS. (a) SUBMISSION AND CONTENTS OF APPLICATIONS.A State which desires to obtain a payment under this subpart for any fiscal year shall submit annually an application therefor through the State agency administering its program under this subpart as of July 1, 1985, unless the Governor of that State so designates, in writing, a different agency to administer the program. The applica- tion shall contain such information as may be required by, or pur- suant to, regulation for the purpose of enabling the Secretary to make the determinations required under this subpart. (b) PAYMENT OF FEDERAL SHARE OF GRANTS MADE BY QUALI- FIED PROGRAM.From a State's allotment under this subpart for any fiscal year the Secretary is authorized to make payments to such State for paying up to 50 percent of the amount of student grants pursuant to a State program which (1) is administered by a single State agency; (2) provides that such grants will be in amounts not in ex- cess of $5,000 per academic year (A) for attendance on a full- time basis at an institution of higher education, and (B) for campus-based community service work learning study jobs; (3) provides that (A) not more than 20 percent of the allotment to the State for each fiscal year may be used for the purpose de- scribed in paragraph (2)(B); (B) grants for the campus-based community work learning study jobs may be made only to students who are otherwise eligible for assistance under this subpart; and (C) grants for such jobs be made in accordance with the provisions of section 443(b)(1); (4) provides for the selection of recipients of such grants or of such State work-study jobs on the basis of substantial finan- cial need determined annually on the basis of criteria estab- lished by the State and approved by the Secretary, except that for the purpose of collecting data to make such determination of financial need, no student or parent shall be charged a fee that is payable to an entity other than such State; (5) provides that, effective with respect to any academic year beginning on or after October 1, 1978, all nonprofit insti- tutions of higher education in the State are eligible to partici- pate in the State program, except in any State in which par- ticipation of nonprofit institutions of higher education is in vio- lation of the constitution of the State or in any State in which participation of nonprofit institutions of higher education is in violation of a statute of the State which was enacted prior to October 1, 1978; (6) provides for the payment of the non-Federal portion of such grants or of such work-study jobs from funds supplied by such State which represent an additional expenditure for such year by such State for grants or work-study jobs for students attending institutions of higher education over the amount ex- pended by such State for such grants or work-study jobs, if any, during the second fiscal year preceding the fiscal year in which such State initially received funds under this subpart; 126 119 HIGHER EDUCATION ACT OF 1965 Sec. 4150 (7) provides that if the State's allocation under this sub- part is based in part on the financial need demonstrated by students who are independent students or attending the insti- tution less than full time, a reasonable proportion of the State's allocation shall be made available to such students; (8) provides for State expenditures under such program of an amount not less than the average annual aggregate expend- itures for the preceding three fiscal years or the average an- nual expenditure per full-time equivalent student for such years; (9) provides (A) for such fiscal control and fund accounting procedures as may be necessary to assure proper disbursement of and accounting for Federal funds paid to the State agency under this subpart, and (B) for the making of such reports, in such form and containing such information, as may be reason- ably necessary to enable the Secretary to perform his functions under this subpart; and (10) for any academic year beginning after June 30, 1987, provides the non-Federal share of the amount of student grants or work-study jobs under this subpart through a direct appropriation of State funds for the program under this sub- part. (c) RESERVATION AND DISBURSEMENT OF ALLOTMENTS AND RE- ALLOTMENTS.Upon his approval of any application for a payment under this subpart, the Secretary shall reserve from the applicable allotment (including any applicable reallotment) available therefor, the amount of such payment, which (subject to the limits of such allotment or reallotment) shall be equal to the Federal share of the cost of the students' incentive grants or work-study jobs covered by such application. The Secretary shall pay such reserved amount, in advance or by way of reimbursement, and in such installments as the Secretary may determine. The Secretary may amend the res- ervation of any amount under this section, either upon approval of an amendment of the application or upon revision of the estimated cost of the student grants or work-study jobs with respect to which such reservation was made. If the Secretary approves an upward revision of such estimated cost, the Secretary may reserve the Fed- eral share of the added cost only from the applicable allotment (or reallotment) available at the time of such approval. SEC. 415D. [20 U.S.C. 1070c-31 ADMINISTRATION OF STATE PROGRAMS; JUDICIAL REVIEW. (a) DISAPPROVAL OF APPLICATIONS; SUSPENSION OF ELIGI- BILITY.(1) The Secretary shall not finally disapprove any applica- tion for a State program submitted under section 415C, or any modification thereof, without first affording the State agency sub- mitting the program reasonable notice and opportunity for a hear- ing. (2) Whenever the Secretary, after reasonable notice and oppor- tunity for hearing to the State agency administering a State pro- gram approved under this subpart, finds (A) that the State program has been so changed that it no longer complies with the provisions of this subpart, or 12 7 Sec. 415E HIGHER EDUCATION ACT OF 1965 120 (B) that in the administration of the program there is a failure to comply substantially with any such provisions, the Secretary shall notify such State agency that the State will not be regarded as eligible to participate in the program under this subpart until he is satisfied that there is no longer any such failure to comply. (b) REVIEW OF DECISIONS.(1) If any State is dissatisfied with the Secretary's final action with respect to the approval of its State program submitted under this subpart or with his final action under subsection (a), such State may appeal to the United States court of appeals for the circuit in which such State is located. The summons and notice of appeal may be served at any place in the United States. The Commissioner shall forthwith certify and file in the court the transcript of the proceedings and the record on which he based his action. (2) The findings of fact by the Secretary, if supported by sub- stantial evidence, shall be conclusive; but the court, for good cause shown, may remand the case to the Secretary to take further evi- dence, and the Secretary may thereupon make new or modified findings of fact and may modify his previous action, and shall cer- tify to the court the transcript and record of further proceedings. Such new or modified findings of fact shall likewise be conclusive if supported by substantial evidence. (3) The court shall have jurisdiction to affirm the action of the Secretary or to set it aside, in-whole or in part. The judgment of the court shall be subject to review by the Supreme Court of the United States upon certiorari or certification as provided in title 28, United States Code, section 1254. SEC. 415E. [20 U.S.C. 1070o -3a] SPECIAL LEVERAGING EDUCATIONAL ASSISTANCE PARTNERSHIP PROGRAM. (a) IN GENERAL.From amounts reserved under section 415A(b)(2) for each fiscal year, the Secretary shall (1) make allotments among States in the same manner as the Secretary makes allotments among States under section 415B; and (2) award grants to States, from allotments under para- graph (1), to enable the States to pay the Federal share of the cost of the authorized activities described in subsection (c). (b) APPLICABILITY RULE.The provisions of this subpart which are not inconsistent with this section shall apply to the program authorized by this section. (c) AUTHORIZED ACTIVITIES.Each State receiving a grant under this section may use the grant funds for (1) increasing the dollar amount of grants awarded under section 415B to eligible students who demonstrate financial need; (2) carrying out transition programs from secondary school to postsecondary education for eligible students who dem- onstrate financial need; (3) carrying out a financial aid program for eligible stu- dents who demonstrate financial need and wish to enter ca- reers in information technology, or other fields of study deter- mined by the State to be critical to the State's workforce needs; 128 121 HIGHER EDUCATION ACT OF 1965 Sec. 415F (4) making funds available for community service work- study activities for eligible students who demonstrate financial need; (5) creating a postsecondary scholarship program for eligi- ble students who demonstrate financial need and wish to enter teaching; (6) creating a scholarship program for eligible students who demonstrate financial need and wish to enter a program of study leading to a degree in mathematics, computer science, or engineering; (7) carrying out early intervention programs, mentoring programs, and career education programs for eligible students who demonstrate financial need; and (8) awarding merit or academic scholarships to eligible stu- dents who demonstrate financial need. (d) MAINTENANCE OF EFFORT REQUIREMENT.Each State re- ceiving a grant under this section for a fiscal year shall provide the Secretary an assurance that the aggregate amount expended per student or the aggregate expenditures by the State, from funds de- rived from non-Federal sources, for the authorized activities de- scribed in subsection (c) for the preceding fiscal year were not less than the amount expended per student or the aggregate expendi- tures by the State for the activities for the second preceding fiscal year. (e) FEDERAL SHARE.The Federal share of the cost of the au- thorized activities described in subsection (c) for any fiscal year shall be not more than 33% percent. SEC. 415F. [20 U.S.C. 107043-4] DEFINITION. For the purpose of this subpart, the term "community service" means services, including direct service, planning, and applied re- search which are identified by an institution of higher education, through formal or informal consultation with local nonprofit, gov- ernmental, and community-based organizations, and which (1) are designed to improve the quality of life for commu- nity residents, particularly low-income individuals, or to solve particular problems related to the needs of such residents, in- cluding but not limited to, such fields as health care, child care, education, literacy training, welfare, social services, pub- lic safety, crime prevention and control, transportation, recre- ation, housing and neighborhood improvement, rural develop- ment, and community improvement; and (2) provide participating students with work-learning op- portunities related to their educational or vocational programs or goals. SUBPART 5SPECIAL PROGRAMS FOR STUDENTS WHOSE FAMILIES ARE ENGAGED IN MIGRANT AND SEASONAL FARMWORK SEC. 418A. [20 U.S.C. 1070d-2] MAINTENANCE AND EXPANSION OF EX- ISTING PROGRAMS. (a) PROGRAM AUTHORITY.The Secretary shall maintain and expand existing secondary and postsecondary high school equiva- lency program and college assistance migrant program projects lo- cated at institutions of higher education or at private nonprofit or- 54-653 99 - 5 r.123 Sec. 418A HIGHER EDUCATION ACT OF 1965 122 ganizations working in cooperation with institutions of higher edu- cation. (b) SERVICES PROVIDED BY HIGH SCHOOL EQUIVALENCY PRO- GRAM.The services authorized by this subpart for the high school equivalency program include (1) recruitment services to reach persons (A)(i) who are 16 years of age and over; or (ii) who are beyond the age of compulsory school at- tendance in the State in which such persons reside and are not enrolled in school; (B)(i) who themselves, or whose parents, have spent a minimum of 75 days during the past 24 months in migrant and seasonal farmwork; or (ii) who are eligible to participate, or have participated within the preceding 2 years, in programs under part C of title I of the Elementary and Secondary Education Act of 1965 or section 402 of the Job Training Partnership Act 1 or section 167 of the Workforce Investment Act of 1998; and (C) who lack a high school diploma or its equivalent; (2) educational services which provide instruction designed to help students obtain a general education diploma which meets the guidelines established by the State in which the project is located for high school equivalency; (3) supportive services which include the following: (A) personal, vocational, and academic counseling; (B) placement services designed to place students in a university, college, or junior college program, or in military service or career positions; and (C) health services; (4) information concerning, and assistance in obtaining, available student financial aid; (5) weekly stipends for high school equivalency program participants; (6) housing for those enrolled in residential programs; (7) exposure to cultural events, academic programs, and other educational and cultural activities usually not available to migrant youth; and (8) other essential supportive services, as needed to ensure the success of eligible students. (C) SERVICES PROVIDED BY COLLEGE ASSISTANCE MIGRANT PRO- GRAM.(1) Services authorized by this subpart for the college as- sistance migrant program include (A) outreach and recruitment services to reach persons who themselves or whose parents have spent a minimum of 75 days during the past 24 months in migrant and seasonal farm- work or who have participated or are eligible to participate, in programs under part C of title I of the Elementary and Sec- ondary Education Act of 1965 (or such part's predecessor au- 'Effective July 1, 2000, section 405(0(12)(A) of the Omnibus Consolidated and Emergency Supplemental Appropriation Act, 1999 (P.L. 105-277; 112 Stat. 2681-421) amends subsections (b)(1)(B)(ii) and (c)(1)(A) of section 418A by striking "section 402 of the Job Training Partnership Act or". 130 123 HIGHER EDUCATION ACT OF 1965 Sec. 418A thority) or section 402 of the Job Training Partnership Act 1 or section 167 of the Workforce Investment Act of 1998, and who meet the minimum qualifications for attendance at a college or university; (B) supportive and instructional services which include: (i) personal, academic, and career counseling as an on- going part of the program; (ii) tutoring and academic skill building instruction and assistance; (iii) assistance with special admissions; (iv) health services; and (v) other services as necessary to assist students in completing program requirements; (C) assistance in obtaining student financial aid which in- cludes, but is not limited to: (i) stipends; (ii) scholarships; (iii) student travel; (iv) career oriented work study; (v) books and supplies; (vi) tuition and fees; (vii) room and board; and (viii) other assistance necessary to assist students in completing their first year of college; (D) housing support for students living in institutional fa- cilities and commuting students; (E) exposure to cultural events, academic programs, and other activities not usually available to migrant youth; and (F) other support services as necessary to ensure the suc- cess of eligible students. (2) A recipient of a grant to operate a college assistance mi- grant program under this subpart shall provide followup services for migrant students after such students have completed their first year of college, and shall not use more than 10 percent of such grant for such followup services. Such followup services may include (A) monitoring and reporting the academic progress of stu- dents who participated in the project during such student's first year of college and during such student's subsequent years in college; and (B) referring such students to on- or off-campus providers of counseling services, academic assistance, or financial aid. (d) MANAGEMENT PLAN REQUIRED.Each project application shall include a management plan which contains assurances that the grant recipient will coordinate the project, to the extent fea- sible, with other local, State, and Federal programs to maximize the resources available for migrant students, and that staff shall have a demonstrated knowledge and be sensitive to the unique characteristics and needs of the migrant and seasonal farmworker population, and provisions for: 'Effective July 1, 2000, section 405(0(12)(A) of the Omnibus Consolidated and Emergency Supplemental Appropriation Act, 1999 (P.L. 105-277; 112 Stat. 2681-421) amends subsections (b)(1)(B)(ii) and (c)(1)(A) of section 418A by striking "section 402 of the Job Training Partnership Act or". BEST COPY AVAILABLE 131 Sec. 419A HIGHER EDUCATION ACT OF 1965 124 (1) staff in-service training; (2) training and technical assistance; (3) staff travel; (4) student travel; (5) interagency coordination; and (6) an evaluation plan. (e) FIVE-YEAR GRANT PERIOD; CONSIDERATION OF PRIOR EXPE- RIENCE.Except under extraordinary circumstances, the Secretary shall award grants for a 5-year period. For the purpose of making grants under this subpart, the Secretary shall consider the prior experience of service delivery under the particular project for which funds are sought by each applicant. Such prior experience shall be awarded the same level of consideration given this factor for appli- cants for programs in accordance with section 402A(c)(1). (f) MINIMUM ALLOCATIONS.The Secretary shall not allocateA an amount less than (1) $150,000 for each project under the high school equiva- lency program, and (2) $150,000 for each project under the college assistance migrant program. (g) DATA COLLECTION.The National Center for Education Statistics shall collect postsecondary education data on migrant students. (h) AUTHORIZATION OF APPROPRIATIONS.(1) There are author- ized to be appropriated for the high school equivalency program $15,000,000 for fiscal year 1999 and such sums as may be nec- essary for each of the 4 succeeding fiscal years. (2) There are authorized to be appropriated for the college as- sistance migrant program $5,000,000 for fiscal year 1999 and such sums as may be necessary for each of the 4 succeeding fiscal years. SUBPART 6ROBERT C. BYRD HONORS SCHOLARSHIP PROGRAM SEC. 419A. [20 U.S.C. 10'70d-31] STATEMENT OF PURPOSE. It is the purpose of this subpart to establish a Robert C. Byrd Honors Scholarship Program to promote student excellence and achievement and to recognize exceptionally able students who show promise of continued excellence. [Section 419B was repealed by P.L. 102-325, sec. 406(a), 106 Stat. 508.] SEC. 419C. [20 U.S.C. 1070d-33] SCHOLARSHIPS AUTHORIZED. (a) PROGRAM AUTHORITY. The Secretary is authorized, in ac- cordance with the provisions of this subpart, to make grants to States to enable the States to award scholarships to individuals who have demonstrated outstanding academic achievement and who show promise of continued academic achievement. (b) PERIOD OF AWARD.Scholarships under this section shall be awarded for a period of not less than 1 or more than 4 years during the first 4 years of study at any institution of higher edu- cation eligible to participate in any programs assisted under this title. The State educational agency administering the program in a State shall have discretion to determine the period of the award 132 it 125 HIGHER EDUCATION ACT OF 1965 Sec. 419D (within the limits specified in the preceding sentence), except that (1) if the amount appropriated for this subpart for any fis- cal year exceeds the amount appropriated for this subpart for fiscal year 1993, the Secretary shall identify to each State edu- cational agency the number of scholarships available to that State under section 419D(b) that are attributable to such ex- cess; 1 (2) the State educational agency shall award not less than that number of scholarships for a period of 4 years. (c) USE AT ANY INSTITUTION PERMITTED.A student awarded a scholarship under this subpart may attend any institution of higher education. (d) BYRD SCHOLARS.Individuals awarded scholarships under this subpart shall be known as "Byrd Scholars". SEC. 419D. [20 U.S.C. 1070d-34] ALLOCATION AMONG STATES. (a) ALLOCATION FORMULA.From the sums appropriated pur- suant to the authority of section 419K for any fiscal year, the Sec- retary shall allocate to each State that has an agreement under section 419E an amount equal to $1,500 multiplied by the number of scholarships determined by the Secretary to be available to such State in accordance with subsection (b). (b) NUMBER OF SCHOLARSHIPS AVAILABLE.The number of scholarships to be made available in a State for any fiscal year shall bear the same ratio to the number of scholarships made avail- able to all States as the State's population ages 5 through 17 bears to the population ages 5 through 17 in all the States, except that not less than 10 scholarships shall be made available to any State. (c) USE OF CENSUS DATA.For the purpose of this section, the population ages 5 through 17 in a State and in all the States shall be determined by the most recently available data, satisfactory to the Secretary, from the Bureau of the Census. (d) CONSOLIDATION BY INSULAR AREAS PROHIBITED.Notwith- standing section 501 of Public Law 95-11342 (48 U.S.C. 1469a), funds allocated under this part to an Insular Area described in that section shall be deemed to be direct payments to classes of individ- uals, and the Insular Area may not consolidate such funds with other funds received by the Insular Area from any department or agency of the United States Government. (e) FAS ELIGIBILITY. (1) FISCAL YEARS 2000 THROUGH 2004.Notwithstanding any other provision of this subpart, in the case of students from the Freely Associated States who may be selected to re- ceive a scholarship under this subpart for the first time for any of the fiscal years 2000 through 2004 (A) there shall be 10 scholarships in the aggregate awarded to such students for each of the fiscal years 2000 through 2004; and 1So in law (107 Stat. 2460). Probably should end with "and". 2 So in original (107 Stat. 2460). Probably should be "section 501 of Public Law 95-134". 13J Sec. 419E HIGHER EDUCATION ACT OF 1965 126 (B) the Pacific Regional Educational Laboratory shall administer the program under this subpart in the case of scholarships for students in the Freely Associated States. (2) TERMINATION OF ELIGIBILITY.A student from the Freely Associated States shall not be eligible to receive a schol- arship under this subpart after September 30, 2004. SEC. 419E. [20 U.S.C. 1070d-35] AGREEMENTS. The Secretary shall enter into an agreement with each State desiring to participate in the scholarship program authorized by this subpart. Each such agreement shall include provisions de- signed to assure that (1) the State educational agency will administer the schol- arship program authorized by this subpart in the State; (2) the State educational agency will comply with the eligi- bility and selection provisions of this subpart; (3) the State educational agency will conduct outreach ac- tivities to publicize the availability of scholarships under this subpart to all eligible students in the State, with particular emphasis on activities designed to assure that students from low-income and moderate-income families have access to the information on the opportunity for full participation in the scholarship program authorized by this subpart; and (4) the State educational agency will pay to each individ- ual in the State who is awarded a scholarship under this sub- part $1,500. SEC. 419F. [20 U.S.C. 1070d -36] ELIGIBILITY OF SCHOLARS. (a) HIGH SCHOOL GRADUATION OR EQUIVALENT AND ADMISSION TO INSTITUTION REQUIRED.Each student awarded a scholarship under this subpart shall be a graduate of a public or private sec- ondary school or have the equivalent of a certificate of graduation as recognized by the State in which the student resides and must have been admitted for enrollment at an institution of higher edu- cation. (b) SELECTION BASED ON PROMISE OF ACADEMIC ACHIEVE- MENT.Each student awarded a scholarship under this subpart must demonstrate outstanding academic achievement and show promise of continued academic achievement. SEC. 419G. [20 U.S.C. 1070d -37] SELECTION OF SCHOLARS. (a) ESTABLISHMENT OF CRITERIA.The State educational agen- cy is authorized to establish the criteria for the selection of scholars under this subpart. (b) ADOPTION OF PROCEDURES.The State educational agency shall adopt selection procedures designed to ensure an equitable geographic distribution of awards within the State (and in the case of the Federated States of Micronesia, the Republic of the Marshall Islands, the Virgin Islands, American Samoa, the Commonwealth of the Northern Mariana Islands, Guam, or Palau (until such time as the Compact of Free Association is ratified), not to exceed 10 in- dividuals will be selected from such entities). (c) CONSULTATION REQUIREMENT.In carrying out its respon- sibilities under subsections (a) and (b), the State educational agen- 121 HIGHER EDUCATION ACT OF 1965 Sec. 419N cy shall consult with school administrators, school boards, teachers, counselors, and parents. (d) TIMING OF SELECTION.The selection process shall be com- pleted, and the awards made, prior to the end of each secondary school academic year. SEC. 41911. [20 U.S.C. 1070d-38] STIPENDS AND SCHOLARSHIP CONDI- TIONS. (a) AMOUNT OF AWARD.Each student awarded a scholarship under this subpart shall receive a stipend of $1,500 for the aca- demic year of study for which the scholarship is awarded, except that in no case shall the total amount of financial aid awarded to such student exceed such student's total cost-of-attendance. (b) USE OF AWARD.The State educational agency shall estab- lish procedures to assure that a scholar awarded a scholarship under this subpart pursues a course of study at an institution of higher education. SEC. 419J. [20 U.S.C. 1070d -40]' CONSTRUCTION OF NEEDS PROW- SIONS. Except as provided in section 471, nothing in this subpart, or any other Act, shall be construed to permit the receipt of a scholar- ship under this subpart to be counted for any needs test in connec- tion with the awarding of any grant or the making of any loan under this Act or any other provision of Federal law relating to educational assistance. SEC. 419K. [20 U.S.C. 1070d-411 AUTHORIZATION OF APPROPRIATIONS. There are authorized to be appropriated for this subpart $45,000,000 for fiscal year 1999 and such sums as may be nec- essary for each of the 4 succeeding fiscal years. Subpart 7Child Care Access Means Parents in School SEC. 419N. [20 U.S.C. 10'70e] CHILD CARE ACCESS MEANS PARENTS IN SCHOOL. (a) PURPOSE.The purpose of this section is to support the participation of low-income parents in postsecondary education through the provision of campus-based child care services. (b) PROGRAM AUTHORIZED. (1) AUTHORITY.The Secretary 'may award grants to insti- tutions of higher education to assist the institutions in provid- ing campus-based child care services to low-income students. (2) AMOUNT OF GRANTS. (A) IN GENERAL.The amount of a grant awarded to an institution of higher education under this section for a fiscal year shall not exceed 1 percent of the total amount of all Federal Pell Grant funds awarded to students en- rolled at the institution of higher education for the preced- ing fiscal year. (B) MINIMUM.A grant under, this section shall be awarded in an amount that isnot less than $10;000. 'Section 4191 was repealed by P.L. 102-325, sec. 406(g)(1), 106 Stat. 509. Sec. 419N HIGHER EDUCATION ACT OF 1965 128 (3) DURATION; RENEWAL; AND PAYMENTS. (A) DURATION.The Secretary shall award a grant under this section for a period of 4 years. (B) PAYMENTS.Subject to subsection (e)(2), the Sec- retary shall make annual grant payments under this sec- tion. (4) ELIGIBLE INSTITUTIONS.An institution of higher edu- cation shall be eligible to receive a grant under this section for a fiscal year if the total amount of all Federal Pell Grant funds awarded to students enrolled at the institution of higher edu- cation for the preceding fiscal year equals or exceeds $350,000. (5) USE OF FUNDS.Grant funds under this section shall be used by an institution of higher education to support or es- tablish a campus-based child care program primarily serving the needs of low-income students enrolled at the institution of higher education. Grant funds under this section may be used to provide before and after school services to the extent nec- essary to enable low-income students enrolled at the institu- tion of higher education to pursue postsecondary education. (6) CONSTRUCTION.Nothing in this section shall be con- strued to prohibit an institution of higher education that re- ceives grant funds under this section from serving the child care needs of the community served by the institution. (7) DEFINITION OF LOW-INCOME STUDENT.For the purpose of this section, the term "low- income student" means a student who is eligible to receive a Federal Pell Grant for the fiscal year for which the determination is made. (c) APPLICATIONS.An institution of higher education desiring a grant under this section shall submit an application to the Sec- retary at such time, in such manner, and accompanied by such in- formation as the Secretary may require. Each application shall (1) demonstrate that the institution is an eligible institu- tion described in subsection (b)(4); (2) specify the amount of funds requested; (3) demonstrate the need of low-income students at the in- stitution for campus-based child care services by including in the application (A) information regarding student demographics; (B) an assessment of child care capacity on or near campus; (C) information regarding the existence of waiting lists for existing child care; (D) information regarding additional needs created by concentrations of poverty or by geographic isolation; and (E) other relevant data; (4) contain a description of the activities to be assisted, in- cluding whether the grant funds will support an existing child care program or a new child care program; (5) identify the resources, including technical expertise and financial support, the institution will draw upon to support the child care program and the participation of low-income stu- dents in the program, such as accessing social services funding, using student activity fees to help pay the costs of child care, using resources obtained by meeting the needs of parents who 129 HIGHER EDUCATION ACT OF 1965 Sec. 419N are not low-income students, and accessing foundation, cor- porate or other institutional support, and demonstrate that the use of the resources will not result in increases in student tui- tion; (6) contain an assurance that the institution will meet the child care needs of low-income students through the provision of services, or through a contract for the provision of services; (7) describe the extent to which the child care program will coordinate with the institution's early childhood education cur- riculum, to the extent the curriculum is available, to meet the needs of the students in the early childhood education program at the institution, and the needs of the parents and children participating in the child care program assisted under this sec- tion; (8) in the case of an institution seeking assistance for a new child care program (A) provide a timeline, covering the period from receipt of the grant through the provision of the child care serv- ices, delineating the specific steps the institution will take to achieve the goal of providing low-income students with child care services; (B) specify any measures the institution will take to assist low-income students with child care during the pe- riod before the institution provides child care services; and (C) include a plan for identifying resources needed for the child care services, including space in which to provide child care services, and technical assistance ifnecessary; (9) contain an assurance that any child care facility as- sisted under this section will meet the applicable State or local government licensing, certification, approval, or registration requirements; and (10) contain a plan for any child care facility assisted under this section to become accredited within 3 years of the date the institution first receives assistance under this section. (d) PRIORITY.The Secretary shall give priority in awarding grants under this section to institutions of higher education that submit applications describing programs that (1) leverage significant local or institutional resources, in- cluding in-kind contributions, to support the activities assisted under this section; and (2) utilize a sliding fee scale for child care services pro- vided under this section in order to support a high number of low-income parents pursuing postsecondary education at the institution. (e) REPORTING REQUIREMENTS; CONTINUING ELIGIBILITY. (1) REPORTING REQUIREMENTS. (A) REPORTS.Each institution of higher education re- ceiving a grant under this section shall report to the Sec- retary 18 months, and 36 months, after receiving the first grant payment under this section. (B) CONTENTS.The report shall include (i) data on the population served under this section; 137 Sec. 420D HIGHER EDUCATION ACT OF 1965 130 (ii) information on campus and community re- sources and funding used to help low-income students access child care services; (iii) information on progress made toward accredi- tation of any child care facility; and (iv) information on the impact of the grant on the quality, availability, and affordability of campus-based child care services. (2) CONTINUING ELIGIBILITY.The Secretary shall make the third annual grant payment under this section to an insti- tution of higher education only if the Secretary determines, on the basis of the 18-month report submitted under paragraph (1), that the institution is making a good faith effort to ensure that low-income students at the institution have access to af- fordable, quality child care services. (f) CONSTRUCTION.No funds provided under this section shall be used for construction, except for minor renovation or repair to meet applicable State or local health or safety requirements. (g) AUTHORIZATION OF APPROPRIATIONS.There are authorized to be appropriated to carry out this section $45,000,000 for fiscal year 1999 and such sums as may be necessary for each of the 4 succeeding fiscal years. Subpart 8Learning Anytime Anywhere Partnerships SEC. 420D. [20 U.S.C. 1070f1 FINDINGS. Congress makes the following findings: (1) The nature of postsecondary education delivery is changing, and new technology and other related innovations can provide promising education opportunities for individuals who are currently not being served, particularly for individuals without easy access to traditional campus-based postsecondary education or for whom traditional courses are a poor match with education or training needs. (2) Individuals, including individuals seeking basic or tech- nical skills or their first postsecondary experience, individuals with disabilities, dislocated workers, individuals making the transition from welfare-to-work, and individuals who are lim- ited by time and place constraints can benefit from nontradi- tional, noncampus-based postsecondary education opportunities and appropriate support services. (3) The need for high-quality, nontraditional, technology- based education opportunities is great, as is the need for skill competency credentials and other measures of educational progress and attainment that are valid and widely accepted, but neither need is likely to be adequately addressed by the uncoordinated efforts of agencies and institutions acting inde- pendently and without assistance. (4) Partnerships, consisting of institutions of higher edu- cation, community organizations, or other public or private agencies or organizations, can coordinate and combine institu- tional resources 131 HIGHER EDUCATION ACT OF 1965 Sec. 420G (A) to provide the needed variety of education options to students; and (B) to develop new means of ensuring accountability and quality for innovative education methods. SEC. 420E. [20 U.S.C. 1070f-1] PURPOSE; PROGRAM AUTHORIZED. (a) PURPOSE.It is the purpose of this subpart to enhance the delivery, quality, and accountability of postsecondary education and career-oriented lifelong learning through technology and related in- novations. (b) PROGRAM AUTHORIZED. (1) GRANTS. (A) IN GENERAL.The Secretary may, from funds ap- propriated under section 420J make grants to, or enter into contracts or cooperative agreements with, eligible partnerships to carry out the authorized activities de- scribed in section 420G. (B) DURATION.Grants under this subpart shall be awarded for periods that do not exceed 5 years. (2) DEFINITION OF ELIGIBLE PARTNERSHIP.For purposes of this subpart, the term "eligible partnership" means a partner- ship consisting of 2 or more independent agencies, organiza- tions, or institutions. The agencies, organizations, or institu- tions may include institutions of higher education, community organizations, and other public and private institutions, agen- cies, and organizations. SEC. 420F. [20 U.S.C. 1070f-2] APPLICATION. (a) REQUIREMENT.An eligible partnership desiring to receive a grant under this subpart shall submit an application to the Sec- retary, in such form and containing such information, as the Sec- retary may require. (b) CONTENTS.Each application shall include (1) the name of each partner and a description of the re- sponsibilities of the partner, including the designation of a nonprofit organization as the fiscal agent for the partnership; (2) a description of the need for the project, including a de- scription of how the project will build on any existing services and activities; (3) a listing of human, financial (other than funds provided under this subpart), and other resources that each member of the partnership will contribute to the partnership, and a de- scription of the efforts each member of the partnership will make in seeking additional resources; and (4) a description of how the project will operate, including how funds awarded under this subpart will be used to meet the purpose of this subpart. SEC. 420G. [20 U.S.C. 1070f-3] AUTHORIZED ACTIVITIES. Funds awarded to an eligible partnership under this subpart shall be used to (1) develop and assess model distance learning programs or innovative educational software; (2) develop methodologies for the identification and meas- urement of skill competencies; 139 Sec. 420H HIGHER EDUCATION ACT OF 1965 132 (3) develop and assess innovative student support services; or (4) support other activities that are consistent with the purpose of this subpart. SEC. 420H. [20 U.S.C. 1070f-4] MATCHING REQUIREMENT. Federal funds shall provide not more than 50 percent of the cost of a project under this subpart. The non-Federal share of project costs may be in cash or in kind, fairly evaluated, including services, supplies, or equipment. SEC. 4201. 120 U.S.C. 1070f-5] PEER REVIEW. The Secretary shall use a peer review process to review appli- cations under this subpart and to make recommendations for fund- ing under this subpart to the Secretary. SEC. 420J. [20 U.S.C. 1070f-6] AUTHORIZATION OF APPROPRIATIONS. There are authorized to be appropriated to carry out this sub- part $10,000,000 for fiscal year 1999 and such sums as may be nec- essary for each of the 4 succeeding fiscal years. PART BFEDERAL FAMILY EDUCATION LOAN PROGRAM SEC. 421. [20 U.S.C. 1071] STATEMENT OF PURPOSE; NONDISCRIMINA- TION; AND APPROPRIATIONS AUTHORIZED. (a) PURPOSE; DISCRIMINATION PROHIBITED. (1) PURPOSE.The purpose of this part is to enable the Secretary (A) to encourage States and nonprofit private institu- tions and organizations to establish adequate loan insur- ance programs for students in eligible institutions (as de- fined in section 435), (B) to provide a Federal program of student loan in- surance for students or lenders who do not have reason- able access to a State or private nonprofit program of stu- dent loan insurance covered by an agreement under sec- tion 428(b), (C) to pay a portion of the interest on loans to quali- fied students which are insured under this part, and (D) to guarantee a portion of each loan insured under a program of a State or of a nonprofit private insti- tution or organization which meets the requirements of section 428(a)(1)(B). (2) DISCRIMINATION BY CREDITORS PROHIBITED.No agen- cy, organization, institution, bank, credit union, corporation, or other lender who regularly extends, renews, or continues credit or provides insurance under this part shall exclude from re- ceipt or deny the benefits of, or discriminate against any bor- rower or applicant in obtaining, such credit or insurance on the basis of race, national origin, religion, sex, marital status, age, or handicapped status. (b) AUTHORIZATION OF APPROPRIATIONS.For the purpose of carrying out this part (1) there are authorized to be appropriated to the student loan insurance fund (established by section 431) (A) the sum of $1,000,000, and (B) such further sums, if any, as may be- 140 133 HIGHER EDUCATION ACT OF 1965 Sec. 422 come necessary for the adequacy of the student loan insurance fund, (2) there are authorized to be appropriated, for payments under section 428 with respect to interest on student loans and for payments under section 437, such sums for the fiscal year ending June 30, 1966, and succeeding fiscal years, as may be required therefor, (3) there is authorized to be appropriated the sum of $17,500,000 for making advances pursuant to section 422 for the reserve funds of State and nonprofit private student loan insurance programs, (4) there are authorized to be appropriated (A) the sum of $12,500,000 for making advances after June 30, 1968, pursu- ant to sections 422 (a) and (b), and (B) such sums as may be necessary for making advances pursuant to section 422(c), for the reserve funds of State and nonprofit private student loan insurance programs, and (5) there are authorized to be appropriated such sums as may be necessary for the purpose of paying an administrative cost allowance in accordance with section 428(f) to guaranty agencies. Sums appropriated under paragraphs (1), (2), (4), and (5) of this subsection shall remain available until expended. No additional sums are authorized to be appropriated under paragraph (3) or (4) of this subsection by reason of the reenactment of such paragraphs by the Higher Education Amendments of 1986. (c) DESIGNATION.The program established under this part shall be referred to as the "Robert T. Stafford Federal Student Loan Program". Loans made pursuant to sections 427 and 428 shall be known as "Federal Stafford Loans". SEC. 422. [20 U.S.C. 1072] ADVANCES FOR RESERVE FUNDS OF STATE AND NONPROFIT PRIVATE LOAN INSURANCE PROGRAMS. (a) PURPOSE OF AND AUTHORITY FOR ADVANCES TO RESERVE FUNDS. (1) PURPOSE; ELIGIBLE RECIPIENTS.From sums appro- priated pursuant to paragraphs (3) and (4)(A) of section 421(b), the Secretary is authorized to make advances to any State with which the Secretary has made an agreement pursuant to section 428(b) for the purpose of helping to establish or strengthen the reserve fund of the student loan insurance pro- gram covered by that agreement. If for any fiscal year a State does not have a student loan insurance program covered by an agreement made pursuant to section 428(b), and the Secretary determines after consultation with the chief executive officer of that State that there is no reasonable likelihood that the State will have such a student loan insurance program for such year, the Secretary may make advances for such year for the same purpose to one or more nonprofit private institutions or organi- zations with which the Secretary has made an agreement pur- suant to section 428(b) in order to enable students in the State to participate in a program of student loan insurance covered by such an agreement. The Secretary may make advances under this subsection both to a State program (with which he has such an agreement) and to one or more nonprofit private I41 Sec. 422 HIGHER EDUCATION ACT OF 1965 134 institutions or organizations (with which he has such an agree- ment) in that State if he determines that such advances are necessary in order that students in each eligible institution have access through such institution to a student loan insur- ance program which meets the requirements of section 428(b)( 1). (2) MATCHING REQUIREMENT.No advance shall be made after June 30, 1968, unless matched by an equal amount from non-Federal sources. Such equal amount may include the unencumbered non-Federal portion of a reserve fund. As used in the preceding sentence, the term "unencumbered non-Fed- eral portion" means the amount (determined as of the time im- mediately preceding the making of the advance) of the reserve fund less the greater of (A) the sum of (i) advances made under this section prior to July 1, 1968; (ii) an amount equal to twice the amount of ad- vances made under this section after June 30, 1968, and before the advance for purposes of which the de- termination is made; and (iii) the proceeds of earnings on advances made under this section; or (B) any amount which is required to be maintained in such fund pursuant to State law or regulation, or by agree- ment with lenders, as a reserve against the insurance of outstanding loans. Except as provided in section 428(c)(9)(E) or (F), such unencumbered non-Federal portion shall not be subject to recall, repayment, or recovery by the Secretary. (3) TERMS AND CONDITIONS; REPAYMENT.Advances pursu- ant to this subsection shall be upon such terms and conditions (including conditions relating to the time or times of payment) consistent with the requirements of section 428(b) as the Sec- retary determines will best carry out the purpose of this sec- tion. Advances made by the Secretary under this subsection shall be repaid within such period as the Secretary may deem to be appropriate in each case in the light of the maturity and solvency of the reserve fund for which the advance was made. (b) LIMITATIONS ON TOTAL ADVANCES. (1) IN GENERAL.The total of the advances from the sums appropriated pursuant to paragraph (4)(A) of section 421(b) to nonprofit private institutions and organizations for the benefit of students in any State and to such State may not exceed an amount which bears the same ratio to such sums as the popu- lation of such State aged 18 to 22, inclusive, bears to the popu- lation of all the States aged 18 to 22 inclusive, but such ad- vances may otherwise be in such amounts as the Secretary de- termines will best achieve the purposes for which they are made. The amount available for advances to any State shall not be less than $25,000 and any additional funds needed to meet this requirement shall be derived by proportionately re- ducing (but not below $25,000) the amount available for ad- vances to each of the remaining States. 142 135 HIGHER EDUCATION ACT OF 1965 Sec. 422 (2) CALCULATION OF POPULATION.For the purpose of this subsection, the population aged 18 to 22, inclusive, of each State and of all the States shall be determined by the Sec- retary on the basis of the most recent satisfactory data avail- able to him. (C) ADVANCES FOR INSURANCE OBLIGATIONS. (1) USE FOR PAYMENT OF INSURANCE OBLIGATIONS.From sums appropriated pursuant to section 421(b)(4)(B), the Sec- retary shall advance to each State which has an agreement with the Secretary under section 428(c) with respect to a stu- dent loan insurance program, an amount determined in accord- ance with paragraph (2) of this subsection to be used for the purpose of making payments under the State's insurance obli- gations under such program. (2) AMOUNT OF ADVANCES.(A) Except as provided in sub- paragraph (B), the amount to be advanced to each such State shall be equal to 10 percent of the principal amount of loans made by lenders and insured by such agency on those loans on which the first payment of principal became due during the fis- cal year immediately preceding the fiscal year in which the ad- vance is made. (B) The amount of any advance determined according to subparagraph (A) of this paragraph shall be reduced by (i) the amount of any advance or advances made to such State pursuant to this subsection at an earlier date; and (ii) the amount of the unspent balance of the advances made to a State pursuant to subsection (a). Notwithstanding subparagraph (A) and the preceding sentence of this subparagraph, but subject to subparagraph (D) of this paragraph, the amount of any advance to a State described in paragraph (5)(A) for the first year of its eligibility under such paragraph, and the amount of any advance to any State de- scribed in paragraph (5)(B) for each year of its eligibility under such paragraph; shall not be less than $50,000. (C) For the purpose of subparagraph (B), the unspent bal- ance of the advances made, to a State pursuant to subsection (a) shall be that portion of the balance of the State's reserve fund (remaining at the time of the State's first request for an advance pursuant to this subsection) which bears the same ratio to such balance as the Federal advances made and .not re- turned by such State, pursuant to subsection (a), bears to the total of all past contributions to such reserve funds from all sources (other than interest on investment of any portion of the reserve fund) contributed since the date such State executed an agreement pursuant to section 428(b). (D) If the sums appropriated for any fiscal year for paying the amounts determined under subparagraphs (A) and (B) are not sufficient to pay such amounts in full, then such amounts shall be reduced (i) by ratably reducing that portion of the amount allo- cated to each State which exceeds $50,000; and (ii) if further reduction is required, by equally reduc- ing the $50,000 minimum allocation of each State. Sec. 422 HIGHER EDUCATION ACT OF 1965 136 If additional sums become available for paying such amounts for any fiscal year during which the preceding sentence has been applied, such reduced amounts shall be increased on the same basis as they were reduced. (3) USE OF EARNINGS FOR INSURANCE OBLIGATIONS.The earnings, if any, on any investments of advances received pur- suant to this subsection must be used for making payments under the State's insurance obligations. (4) REPAYMENT OF ADVANCES.Advances made by the Sec- retary under this subsection shall, subject to subsection (d), be repaid within such period as the Secretary may deem to be ap- propriate and shall be deposited in the fund established by section 431. (5) LIMITATION ON NUMBER OF ADVANCES.Except as pro- vided in paragraph (7), advances pursuant to this subsection shall be made to a State (A) in the case of a State which is actively carrying on a program under an agreement pursuant to section 428(b) which was entered into before October 12, 1976, upon such date as such State may request, but not before October 1, 1977, and on the same day of each of the 2 succeeding calendar years after the date so requested; and (B) in the case of a State which enters into an agree- ment pursuant to section 428(b) on or after October 12, 1976, or which is not actively carrying on a program under an agreement pursuant to such section on such date, upon such date as such State may request, but not before Octo- ber 1, 1977, and on the same day of each of the 4 succeed- ing calendar years after the date so requested of the advance. (6) PAYMENT OF ADVANCES WHERE NO STATE PROGRAM. (A) If for any fiscal year a State does not have a student loan insurance program covered by an agreement made pursuant to section 428(b), and the Secretary determines after consultation with the chief executive officer of that State that there is no reasonable likelihood that the State will have such a student loan insurance program for such year, the Secretary may make advances pursuant to this subsection for such year for the same purpose to one or more nonprofit private institutions or organizations with which he has made an agreement pursuant to subsection (c), as well as subsection (b), of section 428 and subparagraph (B) of this paragraph in order to enable students in that State to participate in a program of student loan insur- ance covered by such agreements. (B) The Secretary may enter into an agreement with a pri- vate nonprofit institution or organization for the purpose of this paragraph under which such institution or organization (i) agrees to establish within such State at least one office with sufficient staff to handle written, electronic, and telephone inquiries from students, eligible lenders, and other persons in the State, to encourage maximum com- mercial lender participation within the State, and to con- duct periodic visits to at least the major eligible lenders within the State; 144 131 HIGHER EDUCATION ACT OF 1965 Sec. 422 (ii) agrees that its insurance will not be denied any student because of his or her choice of eligible institutions; and (iii) certifies that it is neither an eligible institution, nor has any substantial affiliation with an eligible institu- tion. (7) EMERGENCY ADVANCES.The Secretary is authorized to make advances, on terms and conditions satisfactory to the Secretary; to a guaranty agency (A) in accordance with section 428(j), in order to en- sure that the guaranty agency shall make loans as the lender-of-last-resort; or (B) if the Secretary is seeking to terminate the guar- anty agency's agreement, or assuming the guaranty agen- cy's functions, in accordance with section 428(c)(9)(F)(v), in order to assist the agency in meeting its immediate cash needs, ensure the uninterrupted payment of claims, or en- sure that the guaranty agency shall make loans as de- scribed in subparagraph (A). (d) RECOVERY OF ADVANCES DURING FISCAL YEARS 1988 AND 1989. (1) AMOUNT AND USE OF RECOVERED FUNDS.Notwith- standing any other provision of this section, advances made by the Secretary under this section shall be repaid in accordance with this subsection and shall be deposited in the fund estab- lished by section 431. The Secretary shall, in accordance with the requirements of paragraph (2), recover (and so deposit) an amount equal to $75,000,000 during fiscal year 1988 and an amount equal to $35,000,000 for fiscal year 1989. (2) DETERMINATION OF GUARANTY AGENCY OBLIGATIONS. In determining the amount of advances which shall be repaid by a guaranty agency under paragraph (1), the Secretary (A) shall consider the solvency and maturity of the re- serve and insurance funds of the guaranty agency assisted by such advances, as determined by the Comptroller Gen- eral taking into account the requirements of State law as in effect on the date of enactment of the Higher Education Amendments of 1986; (B) shall not seek repayment of such advances from any State described in subsection (c)(5)(B) during any year of its eligibility under such subsection; and (C) shall not seek repayment of such advances from any State if such repayment encumbers the reserve fund requirement of State law as in effect on such date of enact- ment. (e) CORRECTION FOR ERRORS UNDER REDUCTION OF EXCESS CASH RESERVES. ( 1) IN GENERAL.The Secretary shall pay any guaranty agency the amount of reimbursement of claims under section 428(c)(1), filed between September 1, 1988, and December 31, 1989, which were previously withheld or canceled in order to be applied to satisfy such agency's obligation to eliminate ex- cess cash reserves held by such agency, based on the maximum cash reserve (as described in subsection (e) of this section as 145 Sec. 422 HIGHER EDUCATION ACT OF 1965 138 in effect on September 1, 1988) permitted at the end of 1986, if such maximum cash reserve was miscalculated because of er- roneous financial information provided by such agency to the Secretary and if (A) such erroneous information is verified by an audited financial statement of the reserve fund, signed by a certified public accountant, and (B) such audited financial statement is provided to the Secretary prior to January 1, 1993. (2) AMOUNT.The amount of reimbursement for claims shall be equal to the amount of reimbursement for claims with- held or canceled in order to be applied to such agency's obliga- tion to eliminate excess cash reserves which exceeds the amount of that which would have been withheld or canceled if the maximum excess cash reserves had been accurately cal- culated. (f) REFUND OF CASH RESERVE PAYMENTS.The Secretary shall, within 30 days after the date of enactment of the Higher Education Amendments of 1992, pay the full amount of payments withheld or canceled under paragraph (3) of this subsection to any guaranty agency which (1) was required to eliminate excess cash reserves, based on the maximum cash reserve (as described in subsection (e) of this section as in effect on September 1, 1988) permitted at the end of 1986; (2) appealed the Secretary's demand that such agency should eliminate such excess cash reserves and received a waiver of a portion of the amount of such excess cash reserves to be eliminated; (3) had payments under section 428(c)(1) or section 428(f) previously withheld or canceled in order to be applied to satisfy such agency's obligation to eliminate excess cash reserves held by such agency, based on the maximum cash reserve (as de- scribed in subsection (e) of this section as in effect on Septem-. ber 1, 1988) permitted at the end of 1986; and (4) according to a Department of Education review that was completed and forwarded to such guaranty agency prior to January 1, 1992, is expected to become insolvent during or be- fore 1996 and the payments withheld or canceled under para- graph (3) of this subsection are a factor in such agency's im- pending insolvency. (g) PRESERVATION AND RECOVERY OF GUARANTY AGENCY RE- SERVES. (1) AUTHORITY TO RECOVER FUNDS.Notwithstanding any other provision of law, the reserve funds of the guaranty agen- cies, and any assets purchased with such reserve funds, re- gardless of who holds or controls the reserves or assets, shall be considered to be the property of the United States to be used in the operation of the program authorized by this part. However, the Secretary may not require the return of all re- serve funds of a guaranty agency to the Secretary unless the Secretary determines that such return is in the best interest of the operation of the program authorized by this part, or to ensure the proper maintenance,of such agency's funds or assets or the orderly termination of the guaranty agency's operations 139 HIGHER EDUCATION ACT OF 1965 Sec. 422 and the liquidation of its assets. The reserves shall be main- tained by each guaranty agency to pay program expenses and contingent liabilities, as authorized by the Secretary, except that (A) the Secretary may direct a guaranty agency to re- turn to the Secretary a portion of its reserve fund which the Secretary determines is unnecessary to pay the pro- gram expenses and contingent liabilities of the guaranty agency; () the Secretary may direct the guaranty agency to require the return, to the guaranty agency or to the Sec- retary, of any reserve funds or assets held by, or under the control of, any other entity, which the Secretary deter- mines are necessary to pay the program expenses and con- tingent liabilities of the guaranty agency, or which are re- quired for the orderly termination of the guaranty agency's operations and the liquidation of its assets; (C) the Secretary may direct a guaranty agency, or such agency's officers or directors, to cease any activities involving expenditure, use or transfer of the guaranty agency's reserve funds or assets which the Secretary deter- mines is a misapplication, misuse, or improper expenditure of such funds or assets; and (D) any such determination under subparagraph (A) or (B) shall be based on standards prescribed by regulations that are developed through negotiated rulemaking and that include procedures for administrative due process. (2) TERMINATION PROVISIONS IN CONTRACTS.(A) To en- sure that the funds and assets of the guaranty agency are pre- served, any contract with respect to the administration of a guaranty agency's reserve funds, or the administration of any assets purchased or acquired with the reserve funds of the guaranty agency, that is entered into or extended by the guar- anty agency, or any other party on behalf of or with the con- currence of the guaranty agency, after the date of enactment of this subsection shall provide that the contract is terminable by the Secretary upon 30 days notice to the contracting parties if the Secretary determines that such contract includes an im- permissible transfer of the reserve funds or assets, or is other- wise inconsistent with the terms or purposes of this section. (B) The Secretary may direct a guaranty agency to sus- pend or cease activities under any contract entered into by or on behalf of such agency after January 1, 1993, if the Secretary determines that the misuse or improper expenditure of such guaranty agency's funds or assets or such contract provides un- necessary or improper benefits to such agency's officers or di- rectors. (3) PENALTIES.Violation of any direction issued by the Secretary under this subsection may be subject to the penalties described in section 490 of this Act. (4) AVAILABILITY OF FUNDS.Any funds that are returned or otherwise recovered by the Secretary pursuant to this sub- section shall be available for expenditure for expenses pursu- ant to section 458 of this Act. 14 / Sec. 422 HIGHER EDUCATION ACT OF 1965 140 (h) RECALL OF RESERVES; LIMITATIONS ON USE OF RESERVE FUNDS AND ASSETS. (1) IN GENERAL.Notwithstanding any other provision of law, the Secretary shall, except as otherwise provided in this subsection, recall $1,000,000,000 from the reserve funds held by guaranty agencies on September 1, 2002. (2) DEPOSIT.Funds recalled by the Secretary under this subsection shall be deposited in the Treasury. (3) REQUIRED SHARE.The Secretary shall require each guaranty agency to return reserve funds under paragraph (1) based on the agency's required share of recalled reserve funds held by guaranty agencies as of September 30, 1996. For pur- poses of this paragraph, a guaranty agency's required share of recalled reserve funds shall be determined as follows: (A) The Secretary shall compute each guaranty agen- cy's reserve ratio by dividing (i) the amount held in the agency's reserve funds as of September 30, 1996 (but re- flecting later accounting or auditing adjustments approved by the Secretary), by (ii) the original principal amount of all loans for which the agency has an outstanding insur- ance obligation as of such date, including amounts of out- standing loans transferred to the agency from another guaranty agency. (B) If the reserve ratio of any guaranty agency as com- puted under subparagraph (A) exceeds 2.0 percent, the agency's required share shall include so much of the amounts held in the agency's reserve funds as exceed a re- serve ratio of 2.0 percent. (C) If any additional amount is required to be recalled under paragraph (1) (after deducting the total of the re- quired shares calculated under subparagraph (B)), such additional amount shall be obtained by imposing on each guaranty agency an equal percentage reduction in the amount of the agency's reserve funds remaining after de- duction of the amount recalled under subparagraph (B), except that such percentage reduction under this subpara- graph shall not result in the agency's reserve ratio being reduced below 0.58 percent. The equal percentage reduc- tion shall be the percentage obtained by dividing (i) the additional amount required to be recalled (after deducting the total of the required shares cal- culated under subparagraph (B)), by (ii) the total amount of all such agencies' reserve funds remaining (after deduction of the required shares calculated under such subparagraph). (D) If any additional amount is required to be recalled under paragraph (1) (after deducting the total of the re- quired shares calculated under subparagraphs (B) and (C)), such additional amount shall be obtained by imposing on each guaranty agency with a reserve ratio (after de- ducting the required shares calculated under such sub- paragraphs) in excess of 0.58 percent an equal percentage reduction in the amount of the agency's reserve funds re- maining (after such deduction) that exceed a reserve ratio 148 141 HIGHER EDUCATION ACT OF 1965 Sec. 422 of 0.58 percent. The equal percentage reduction shall be the percentage obtained by dividing (i) the additional amount to be recalled under paragraph (1) (after deducting the amount recalled under subparagraphs (B) and (C)), by (ii) the total amount of all such agencies' reserve funds remaining (after deduction of the required shares calculated under such subparagraphs) that ex- ceed a reserve ratio of 0.58 percent. (4) RESTRICTED ACCOUNTS REQUIRED. (A) IN GENERAL.Within 90 days after the beginning of each of the fiscal years 1998 through 2002, each guar- anty agency shall transfer a portion of the agency's re- quired share determined under paragraph (3) to a re- stricted account established by the agency that is of a type selected by the agency with the approval of the Secretary. Funds transferred to such restricted accounts shall be in- vested in obligations issued or guaranteed by the United States or in other similarly low-risk securities. (B) REQUIREMENT.A guaranty agency shall not use the funds in such a restricted account for any purpose without the express written permission of the Secretary, except that a guaranty agency may use the earnings from such restricted account for default reduction activities. (C) INSTALLMENTS.In each of fiscal years 1998 through 2002, each guaranty agency shall transfer the agency's required share to such restricted account in 5 equal annual installments, except that (i) a guaranty agency that has a reserve ratio (as computed under subparagraph (3)(A)) equal to or less than 1.10 percent may transfer the agency's required share to such account in 4 equal installments begin- ning in fiscal year 1999; and (ii) a guaranty agency may transfer such required share to such account in accordance with such other payment schedules as are approved by the Secretary. (5) SHORTAGE.If, on September 1, 2002, the total amount in the restricted accounts described in paragraph (4) is less than the amount the Secretary is required to recall under paragraph (1), the Secretary shall require the return of the amount of the shortage from other reserve funds held by guar- anty agencies under procedures established by the Secretary. The Secretary shall first attempt to obtain the amount of such shortage from each guaranty agency that failed to transfer the agency's required share to the agency's restricted account in accordance with paragraph (4). (6) ENFORCEMENT. (A) IN GENERALThe Secretary may take such rea- sonable measures, and require such information, as may be necessary to ensure that guaranty agencies comply with the requirements of this subsection. (B) PROHIBITION.If the Secretary determines that a guaranty agency has failed to transfer to a restricted ac- count any portion of the agency's required share under this 149 Sec. 422 HIGHER EDUCATION ACT OF 1965 142 subsection, the agency may not receive any other funds under this part until the Secretary determines that the agency has so transferred the agency's required share. (C) WAIVER.The Secretary may waive the require- ments of subparagraph (B) for a guaranty agency de- scribed in such subparagraph if the Secretary determines that there are extenuating circumstances beyond the con- trol of the agency that justify such waiver. (7) LIMITATION. (A) RESTRICTION ON OTHER AUTHORITY.The Secretary shall not have any authority to direct a guaranty agency to return reserve funds under subsection (g)(1)(A) during the period from the date of enactment of the Balanced Budget Act of 1997 through September 30, 2002. (B) USE OF TERMINATION COLLECTIONS.Any reserve funds directed by the Secretary to be returned to the Sec- retary under subsection (g)(1)(B) during such period that do not exceed a guaranty agency's required share of re- called reserve funds under paragraph (3) (i) shall be used to satisfy the agency's required share of recalled reserve funds; and (ii) shall be deposited in the restricted account es- tablished by the agency under paragraph (4), without regard to whether such funds exceed the next install- ment required under such paragraph. (C) USE OF SANCTIONS COLLECTIONS.Any reserve funds directed by the Secretary to be returned to the Sec- retary under subsection (g)(1)(C) during such period that do not exceed a guaranty agency's next installment under paragraph (4) (i) shall be used to satisfy the agency's next in- stallment; and (ii) shall be deposited in the restricted account es- tablished by the agency under paragraph (4). (D) BALANCE AVAILABLE TO SECRETARY.Any reserve funds directed by the Secretary to be returned to the Sec- retary under subparagraph (B) or (C) of subsection (g)(1) that remain after satisfaction of the requirements of sub- paragraphs (B) and (C) of this paragraph shall be depos- ited in the Treasury. (8) DEFINITIONS.For the purposes of this subsection: (A) DEFAULT REDUCTION ACTIVITIES.The term "de- fault reduction activities" means activities to reduce stu- dent loan defaults that improve, strengthen, and expand default prevention activities, such as (i) establishing a program of partial loan cancella- tion to reward disadvantaged borrowers for good re- payment histories with their lenders; (ii) establishing a financial and debt management counseling program for high-risk borrowers that pro- vides long-term training (beginning prior to the first disbursement of the borrower's first student loan and continuing through the completion of the borrower's program of education or training) in budgeting and 143 HIGHER EDUCATION ACT OF 1965 Sec. 422 other aspects of financial management, including debt management; (iii) establishing a program of placement counsel- ing to assist high-risk borrowers in identifying employ- ment or additional training opportunities; and (iv) developing public service announcements that would detail consequences of student loan default and provide information regarding a toll-free telephone number established by the guaranty agency for use by borrowers seeking assistance in avoiding default. (B) RESERVE FUNDS.The term "reserve funds" when used with respect to a guaranty agency (i) includes any reserve funds in cash or liquid as- sets held by the guaranty agency, or held by, or under the control of, any other entity; and (ii) does not include buildings, equipment, or other nonliquid assets. (i) ADDITIONAL RECALL OF RESERVES. (1) IN GENERAL.Notwithstanding any other provision of law and subject to paragraph (4), the Secretary shall recall, from reserve funds held in the Federal Student Loan Reserve Funds established under section 422A by guaranty agencies (A) $85,000,000 in fiscal year 2002; (B) $82,500,000 in fiscal year 2006; and (C) $82,500,000 in fiscal year 2007. (2) DEPOSIT.Funds recalled by the Secretary under this subsection shall be deposited in the Treasury. (3) REQUIRED SHARE.The Secretary shall require each guaranty agency to return reserve funds under paragraph (1) on the basis of the agency's required share. For purposes of this paragraph, a guaranty agency's required share shall be de- termined as follows: (A) EQUAL PERCENTAGE.The Secretary shall require each guaranty agency to return an amount representing an equal percentage reduction in the amount of reserve funds held by the agency on September 30, 1996. (B) CALCULATION.The equal percentage reduction shall be the percentage obtained by dividing (i) $250,000,000, by (ii) the total amount of all guaranty agencies' re- serve funds held on September 30, 1996, less any amounts subject to recall under subsection (h). (C) SPECIAL RULE.Notwithstanding subparagraphs (A) and (B), the percentage reduction under subparagraph (B) shall not result in the depletion of the reserve funds of any agency which charges the 1.0 percent insurance pre- mium pursuant to section 428(b)(1)(H) below an amount equal to the amount of lender claim payments paid during the 90 days prior to the date of the return under this sub- section. If any additional amount is required to be re- turned after deducting the total of the required shares under subparagraph (B) and as a result of the preceding sentence, such additional amount shall be obtained by im- posing on each guaranty agency to which the preceding 151 Sec. 422A HIGHER EDUCATION ACT. OF. 1965 144 sentence does not apply, an equal percentage reduction in the amount of the agency's remaining reserve funds. (4) OFFSET OF REQUIRED SHARES.If any guaranty agency returns to the Secretary any reserve funds in excess of the amount required under this subsection or subsection (h), the total amount required to be returned under paragraph (1) shall be reduced by the amount of such excess reserve funds re- turned. (5)1 DEFINITION OF RESERVE FUNDS. The term "reserve funds" when used with respect to a guaranty agency (A) includes any reserve funds in cash or liquid assets held by the guaranty agency, or held by, or under the con- trol of, any other entity; and (B) does not include buildings, equipment, or other nonliquid assets. SEC. 422A. [20 U.S.C. 1072a) FEDERAL STUDENT LOAN RESERVE FUND. (a) ESTABLISHMENT.Each guaranty agency shall, not later than 60 days after the date of enactment of this section, deposit all funds, securities, and other liquid assets contained in the reserve fund established pursuant to section 422 into a Federal Student Loan Reserve Fund (in this section and section 422B referred to as the "Federal Fund"), which shall be an account of a type selected by the agency, with the approval of the Secretary. (b) INVESTMENT OF FUNDS.Funds transferred to the Federal Fund shall be invested in obligations issued or guaranteed by the United States or a State, or in other similarly low-risk securities selected by the guaranty agency, with the approval of the Sec- retary. Earnings from the Federal Fund shall be the sole property of the Federal Government. (c) ADDITIONAL DEPOSITS.After the establishment of the Fed- eral Fund, a guaranty agency shall deposit into the Federal Fund (1) all amounts received from the Secretary as payment of reinsurance on loans pursuant to section 428(c)(1); (2) from amounts collected on behalf of the obligation of a defaulted borrower, a percentage amount equal to the com- plement of the reinsurance percentage in effect when payment under the guaranty agreement was made (A) with respect to the defaulted loan pursuant to sec- tions 428(c)(6)(A) and 428F(a)(1)(B); and (B) with respect to a loan that the Secretary has re- paid or discharged under section 437; (3) insurance premiums collected from borrowers pursuant to sections 428(b)(1)(H) and 428H(h); (4) all amounts received from the Secretary as payment for supplemental preclaims activity performed prior to the date of enactment of this section; (5) 70 percent of amounts received after such date of enact- ment from the Secretary as payment for administrative cost al- lowances for loans upon which insurance was issued prior to such date of enactment; and Identical definition of reserve funds appears in section 422(h)(8XB). 152 145 HIGHER EDUCATION ACT OF 1965 Sec. 422A (6) other receipts as specified in regulations of the Sec- retary. (d) USES OF FUNDS.Subject to subsection (f), the Federal Fund may only be used by a guaranty agency (1) to pay lender claims pursuant to sections 428(b)(1)(G), 428( j), 437, and 439(q); and (2) to pay into the Agency Operating Fund established pur- suant to section 422B (in this section and section 422B referred to as the "Operating Fund") a default aversion fee in accord- ance with section 428(1). (e) OWNERSHIP OF FEDERAL FUND.The Federal Fund, and any nonliquid asset (such as a building or equipment) developed or purchased by the guaranty agency in whole or in part with Federal reserve funds, regardless of who holds or controls the Federal re- serve funds or such asset, shall be considered to be the property of the United States, prorated based on the percentage of such asset developed or purchased with Federal reserve funds, which property shall be used in the operation of the program authorized by this part, as provided in subsection (d). The Secretary may re- strict or regulate the use of such asset only to the extent necessary to reasonably protect the Secretary's prorated share of the value of such asset. The Secretary may direct a guaranty agency, or such agency's officers or directors, to cease any activity involving ex- penditures, use, or transfer of the Federal Fund administered by the guaranty agency that the Secretary determines is a misapplication, misuse, or improper expenditure of the Federal Fund or the Secretary's share of such asset. (f) TRANSITION. (1) IN GENERAL.In order to establish the Operating Fund, each guaranty agency may transfer not more than 180 days' cash expenses for normal operating expenses (not including claim payments) as a working capital reserve as defined in Of- fice of Management and Budget Circular A-87 (Cost Account- ing Standards) from the Federal Fund for deposit into the Op- erating Fund for use in the performance of the guaranty agen- cy's duties under this part. Such transfers may occur during the first 3 years following the establishment of the Operating Fund. However, no agency may transfer in excess of 45 percent of the balance, as of September 30, 1998, of the agency's Fed- eral Fund to the agency's Operating Fund during such 3-year period. In determining the amount that may be transferred, the agency shall ensure that sufficient funds remain in the Federal Fund to pay lender claims within the required time pe- riods and to meet the reserve recall requirements of this sec- tion and subsections (h) and (i) of section 422. (2) SPECIAL RULE.A limited number of guaranty agencies may transfer interest earned on the Federal Fund to the Oper- ating Fund during the first 3 years after the date of enactment of this section if the guaranty agency demonstrates to the Sec- retary that (A) the cash flow in the Operating Fund will be nega- tive without the transfer of such interest; and (B) the transfer of such interest will substantially im- prove the financial circumstances of the guaranty agency. 15 3 Sec. 422A HIGHER EDUCATION ACT OF 1965 146 (3) REPAYMENT PROVISIONS.Each guaranty agency shall begin repayment of sums transferred pursuant to this sub- section not later than the start of the fourth year after the es- tablishment of the Operating Fund, and shall repay all amounts transferred not later than 5 years from the date of the establishment of the Operating Fund. With respect to amounts transferred from the Federal Fund, the guaranty agency shall not be required to repay any interest on the funds transferred and subsequently repaid. The guaranty agency shall provide to the Secretary a reasonable schedule for repay- ment of the sums transferred and an annual financial analysis demonstrating the agency's ability to comply with the schedule and repay all outstanding sums transferred. (4) PROHIBITION.If a guaranty agency transfers funds from the Federal Fund in accordance with this section, and fails to make scheduled repayments to the Federal Fund, the agency may not receive any other funds under this part until the Secretary determines that the agency has made such re- payments. The Secretary shall pay to the guaranty agency any funds withheld in accordance with this paragraph immediately upon making the determination that the guaranty agency has made all such repayments. (5) WAIVER.The Secretary may (A) waive the requirements of paragraph (3), but only with respect to repayment of interest that was transferred in accordance with paragraph (2); and (B) waive paragraph (4); for a guaranty agency, if the Secretary determines that there are extenuating circumstances (such as State constitutional prohibitions) beyond the control of the agency that justify such a waiver. (6) EXTENSION OF REPAYMENT PERIOD FOR INTEREST. (A) EXTENSION PERMITTED.The Secretary shall ex- tend the period for repayment of interest that was trans- ferred in accordance with paragraph (2) from 2 years to 5 years if the Secretary determines that (i) the cash flow of the Operating Fund will be negative as a result of repayment as required by para- graph (3); (ii) the repayment of the interest transferred will substantially diminish the financial circumstances of the guaranty agency; and (iii) the guaranty agency has demonstrated (I) that the agency is able to repay all trans- ferred funds by the end of the 8th year following the date of establishment of the Operating' Fund; and (II) that the agency will be financially sound on the completion of repayment. (B) REPAYMENT OF INCOME ON TRANSFERRED FUNDS. All repayments made to the Federal Fund during the 6th, 7th, and 8th years following the establishment of the Op- erating Fund of interest that was transferred. shall include 154 141 NIGHER EDUCATION ACT OF 1965 Sec. 4228 the sums transferred plus any income earned from the in- vestment of the sums transferred after the 5th year. (7) INVESTMENT OF FEDERAL FUNDS.Funds transferred from the Federal Fund to the Operating Fund for operating ex- penses shall be invested in obligations issued or guaranteed by the United States or a State, or in other similarly low-risk se- curities selected by the guaranty agency, with the approval of the Secretary. (8) SPECIAL RULE.In calculating the minimum reserve level required by section 428(c)(9)(A), the Secretary shall in- clude all amounts owed to the Federal Fund by the guaranty agency in the calculation. SEC. 422B. [20 U.S.C. 1072b1 AGENCY OPERATING FUND. (a) ESTABLISHMENT.Each guaranty agency shall, not later than 60 days after the date of enactment of this section, establish a fund designated as the Operating Fund. (b) INVESTMENT OF FUNDS.Funds deposited into the Operat- ing Fund shall be invested at the discretion of the guaranty agency in accordance with prudent investor standards. (c) ADDITIONAL DEPOSITS.After the establishment of the Op- erating Fund, the guaranty agency shall deposit into the Operating Fund (1) the loan processing and issuance fee paid by the Secretary pursuant to section 428(f); (2) 30 percent of amounts received after the date of enact- ment of this section from the Secretary as payment for admin- istrative cost allowances for loans upon which insurance was issued prior to such date of enactment; (3) the account maintenance fee paid by the Secretary in accordance with section 458; (4) the default aversion fee paid in accordance with section 428(1); (5) amounts remaining pursuant to section 428(c)(6)(B) from collection on defaulted loans held by the agency, after payment of the Secretary's equitable share, excluding amounts deposited in the Federal Fund pursuant to section 422A(c)(2); and (6) other receipts as specified in regulations of the Secretary. (d) USES OF FUNDS. ( 1) IN GENERAL. Funds in the Operating Fund shall be used for application processing, loan disbursement, enrollment and repayment status management, default aversion activities (including those described in section 422(h)(8)), default collec- tion activities, school and lender training, financial aid aware- ness and related outreach activities, compliance monitoring, and other student financial aid related activities, as selected by the guaranty agency. (2) SPECIAL RULE.The guaranty agency may, in the agen- cy's discretion, transfer funds from the Operating Fund to the Federal Fund for use pursuant to section 422A. Such transfer shall be irrevocable, and any funds so transferred shall become the sole property of the United States. X55 Sec. 423 HIGHER EDUCATION ACT OF 1965. 148 (3) DEFINITIONS.For purposes of this subsection: (A) DEFAULT COLLECTION ACTIVITIES.The term "de- fault collection activities" means activities of a guaranty agency that are directly related to the collection of the loan on which a default claim has been paid to the participating lender, including the due diligence activities required pur- suant to regulations of the Secretary. (B) DEFAULT AVERSION ACTIVITIES.The term "default aversion activities" means activities of a guaranty agency that are directly related to providing collection assistance to the lender on a delinquent loan, prior to the loan's being legally in a default status, including due diligence activi- ties required pursuant to regulations of the Secretary. (C) ENROLLMENT AND REPAYMENT STATUS MANAGE- MENT.The term "enrollment and repayment status man- agement" means activities of a guaranty agency that are directly related to ascertaining the student's enrollment status, including prompt notification to the lender of such status, an audit of the note or written agreement to deter- mine if the provisions of that note or agreement are con- sistent with the records of the guaranty agency as to the principal amount of the loan guaranteed, and an examina- tion of the note or agreement to assure that the repayment provisions are consistent with the provisions of this part. (e) OWNERSHIP AND REGULATION OF OPERATING FUND. (1) OWNERSHIP.The Operating Fund, with the exception of funds transferred from the Federal Fund in accordance with section 422A(f ), shall be considered to be the property of the guaranty agency. (2) REGULATION.Except as provided in paragraph (3), the Secretary may not regulate the uses or expenditure of moneys in the Operating Fund, but the Secretary may require such necessary reports and audits as provided in section 428(b)(2). (3) EXCEPTION.Notwithstanding paragraphs (1) and (2), during any period in which funds are owed to the Federal Fund as a result of transfer under section 422A(f )-- (A) moneys in the Operating Fund may only be used for expenses related to the student loan programs author- ized under this part; and (B) the Secretary may regulate the uses or expendi- ture of moneys in the Operating Fund. SEC. 423. [20 U.S.C. 1073] EFFECTS OF ADEQUATE NON-FEDERAL PRO- GRAMS.. (a) FEDERAL INSURANCE BARRED TO LENDERS WITH ACCESS TO STATE OR PRIVATE INSURANCE.Except as provided in subsection (b), the Secretary shall not issue certificates of insurance under section 429 to lenders in a State if the Secretary determines that every eligible institution has reasonable access in that State to a State or private nonprofit student loan insurance program which is covered by an agreement under section 428(b). (b) EXCEPTIONS.The Secretary may issue certificates of insur- ance under section 429 to a lender in a State (1) for insurance of a loan made to a student borrower who does not, by rearof the borrower's residence, have access to 149 HIGHER EDUCATION ACT OF 1965 Sec. 425 loan insurance under the loan insurance program of such State (or under any private nonprofit loan insurance program which has received an advance under section 422 for the benefit of students in such State); (2) for insurance of all the loans made to student borrow- ers by a lender who satisfies the Secretary that, by reason of the residence of such borrowers, such lender will not have ac- cess to any single State or nonprofit private loan insurance program which will insure substantially all of the loans such lender intends to make to such student borrowers; or (3) under such circumstances as may be approved by the guaranty agency in such State, for the insurance of a loan to a borrower for whom such lender previously was issued such a certificate if the loan covered by such certificate is not yet re- paid. SEC. 424. [20 U.S.C. 1074] SCOPE AND DURATION OF FEDERAL LOAN IN- SURANCE PROGRAM. (a) LIMITATIONS ON AMOUNTS OF LOANS COVERED BY FEDERAL INSURANCE.The total principal amount of new loans made and in- stallments paid pursuant to lines of credit (as defined in section 435) to students covered by Federal loan insurance under this part shall not exceed $2,000,000,000 for the period from July 1, 1976, to September 30, 1976, and for each of the succeeding fiscal years ending prior to October 1, 2004. Thereafter, Federal loan insurance pursuant to this part may be granted only for loans made (or for loan installments paid pursuant to lines of credit) to enable stu- dents, who have obtained prior loans insured under this part, to continue or complete their educational program; but no insurance may be granted for any loan made or installment paid after Sep- tember 30, 2008. (b) APPORTIONMENT OF AMOUNTS.The Secretary may, if he or she finds it necessary to do so in order to assure an equitable dis- tribution of the benefits of this part, assign, within the maximum amounts specified in subsection (a), Federal loan insurance quotas applicable to eligible lenders, or to States or areas, and may from time to time reassign unused portions of these quotas. SEC. 425. [20 U.S.C. 1075] LIMITATIONS ON INDIVIDUAL FEDERALLY IN- SURED LOANS AND ON FEDERAL LOAN INSURANCE. (a) ANNUAL AND AGGREGATE LIMITS. (1) ANNUAL LIMITS.(A) The total of loans made to a stu- dent in any academic year or its equivalent (as determined by the Secretary) which may be covered by Federal loan insurance under this part may not exceed (i) in the case of a student at an eligible institution who has not successfully completed the first year of a pro- gram of undergraduate education (I) $2,625, if such student is enrolled in a program whose length is at least one academic year in length (as determined under section 481); and (II) if such student is enrolled in a program of un- dergraduate education which is less than one aca- demic year, the maximum annual loan amount that such student may receive may not exceed the amount Sec. 425 HIGHER EDUCATION ACT OF 1965 150 that bears the same ratio to the amount specified in subclause (I) as the length of such program measured in semester, trimester, quarter, or clock hours bears to one academic year; (ii) in the case of a student at an eligible institution who has successfully completed such first year but has not successfully completed the remainder of a program of un- dergraduate education (I) $3,500; or (II) if such student is enrolled in a program ofun- dergraduate education, the remainder of which is less than one academic year, the maximum annual loan amount that such student may receive may not exceed the amount that bears the same ratio to the amount specified in subclause (I) as such remainder measured in semester, trimester, quarter, or clock hours bears to one academic year; (iii) in the case of a student at an eligible institution who has successfully completed the first and second years of a program of undergraduate education but has not suc- cessfully completed the remainder of such program (I) $5,500; or (II) if such student is enrolled in a program of un- dergraduate education, the remainder of which is less than one academic year, the maximum annual loan amount that such student may receive may not exceed the amount that bears the same ratio to the amount specified in subclause (I) as such remainder measured in semester, trimester, quarter, or clock hours bears to one academic year; and (iv) in the case of a graduate or professional student (as defined in regulations of the Secretary) at an eligible institution, $8,500. (B) The annual insurable limits contained in subparagraph (A) shall not apply in cases where the Secretary determines, pursuant to regulations, that a higher amount is warranted in order to carry out the purpose of this part with respect to stu- dents engaged in specialized training requiring exceptionally high costs of education. The annual insurable limit per student shall not be deemed to be exceeded by a line of credit under which actual payments by the lender to the borrower will not be made in any year in excess of the annual limit. (C) For the purpose of subparagraph (A), the number of years that a student has completed in a program of under- graduate education shall include any prior enrollment in an el- igible program of undergraduate education for which the stu- dent was awarded an associate or baccalaureate degree, if such degree is required by the institution for admission to the pro- gram in which the student is enrolled. (2) AGGREGATE LIMITS.-(A) The aggregate insured unpaid principal amount for all such insured loans made to any stu- dent shall not at any time exceed 151 HIGHER EDUCATION ACT OF 1965 Sec. 425 (i) $23,000, in the case of any student who has not success- fully completed a program of undergraduate education, exclud- ing loans made under section 428A or 428B; and (ii) $65,500, in the case of any graduate or professional student (as defined by regulations of the Secretary) and (I) in- cluding any loans which are insured by the Secretary under this section, or by a guaranty agency, made to such student be- fore the student became a graduate or professional student), but (II) excluding loans made under section 428A or 428B, except that the Secretary may increase the limit applicable to stu- dents who are pursuing programs which the Secretary determines are exceptionally expensive. (B) The Secretary may increase the aggregate insurable limit applicable to students who are pursuing programs which the Secretary determines are exceptionally expensive. (b) LEVEL OF INSURANCE COVERAGE BASED ON DEFAULT RATE. - (1) REDUCTION FOR DEFAULTS IN EXCESS OF 5 OR 9 PER- CENT.-(A) Except as provided in subparagraph (B), the insur- ance liability on any loan insured by the Secretary under this part shall be 100 percent of the unpaid balance of the principal amount of the loan plus interest, except that (i) if, for any fiscal year, the total amount of payments under section 430 by the Secretary to any eligible lender as described in section 435(d)(1)(D) exceeds 5 percent of the sum of the loans made by such lender which are in- sured by the Secretary and which were in repayment at the end of the preceding fiscal year, the insurance liability under this subsection for that portion of such excess which represents loans insured after the applicable date with re- spect to such loans, as determined under subparagraph (C), shall be equal to 90 percent of the amount of such por- tion; or (ii) if, for any fiscal year, the total amount of such pay- ments to such a lender exceeds 9 percent of such sum, the insurance liability under this subsection for that portion of such excess which represents loans insured after the appli- cable date with respect to such loans, as determined under subparagraph (C), shall be equal to 80 percent of the amount of such portion. (B) Notwithstanding subparagraph (A), the provisions of clauses (i) and (ii) of such subparagraph shall not apply to an eligible lender as described in section 435(d)(1)(D) for the fiscal year in which such lender begins to carry on a loan program insured by the Secretary, or for any of the 4 succeeding fiscal years. (C) The applicable date with respect to a loan made by an eligible lender as described in section 435(d)(1)(D) shall be (i) the 90th day after the adjournment of the next reg- ular session of the appropriate State legislature which con- venes after the date of enactment of the Education Amend- ments of 1976, or (ii) if the primary source of lending capital for such lender is derived from the sale of bonds, and the constitu- 159 Sec. 426 HIGHER EDUCATION ACT OF 1965 152 tion of the appropriate State prohibits a pledge of such State's credit as security against such bonds, the day which is one year after such 90th day. (2) COMPUTATION OF AMOUNTS IN REPAYMENT.For the purpose of this subsection, the sum of the loans made by a lender which are insured by the Secretary and which are in re- payment shall be the original principal amount of loans made by such lender which are insured by the Secretary reduced by (A) the amount the Secretary has been required to pay to discharge his or her insurance obligations under this part; (B) the original principal amount of loans insured by the Secretary which have been fully repaid; (C) the original principal amount insured on those loans for which payment of first installment of principal has not become due pursuant to section 427(a)(2)(B) or such first installment need not be paid pursuant to section 427(a)(2)(C); and (D) the original principal amount of loans repaid by the Secretary under section 437. (3) PAYMENTS TO ASSIGNEES.For the purpose of this sub- section, payments by the Secretary under section 430 to an as- signee of the lender with respect to a loan shall be deemed payments made to such lender. (4) PLEDGE OF FULL FAITH AND CREDIT.The full faith and credit of the United States is pledged to the payment of all amounts which may be required to be paid under the provi- sions of section 430 or 437 of this part. SEC. 426. [20 U.S.C. 1076] SOURCES OF FUNDS. Loans made by eligible lenders in accordance with this part shall be insurable by the Secretary whether made from funds fully owned by the lender or from funds held by the lender in a trust or similar capacity and available for such loans. SEC. 427. [20 U.S.C. 1077] ELIGIBILITY OF STUDENT BORROWERS AND TERMS OF FEDERALLY INSURED STUDENT LOANS.. (a) LIST OF REQUIREMENTS.Except as provided in section 428C, a loan by an eligible lender shall be insurable by the Sec- retary under the provisions of this part only if (1) made to a student who (A) is an eligible student under section 484, (B) has agreed to notify promptly the holder of the loan concerning any change of address, and (C) is carrying at least one-half the normal full-time academic workload for the course of study the student is pursuing (as determined by the institution); and (2) evidenced by a note or other written agreement which (A) is made without security and without endorse- ment; (B) provides for repayment (except as provided in sub- section (c)) of the principal amount of the loan in install- ments over a period of not less than 5 years (unless sooner 153 HIGHER EDUCATION ACT OF 1965 Sec. 427 repaid or unless the student, during the 6 months preced- ing the start of the repayment period, specifically requests that repayment be made over a shorter period) nor more than 10 years beginning 6 months after the month in which the student ceases to carry at an eligible institution at least one-half the normal full-time academic workload as determined by the institution, except (i) as provided in subparagraph (C); (ii) that the note or other written instrument may contain such reasonable provisions relating to repay- ment in the event of default in the payment of interest or in the payment of the cost of insurance premiums, or other default by the borrower, as may be authorized by regulations of the Secretary in effect at the time the loan is made; and (iii) that the lender and the student, after the stu- dent ceases to carry at an eligible institution at least one-half the normal full-time academic workload as determined by the institution, may agree to a repay- ment schedule which begins earlier, or is of shorter duration, than required by this subparagraph, but in the event a borrower has requested and obtained a re- payment period of less than 5 years, the borrower may at any time prior to the total repayment of the loan, have the repayment period extended so that the total repayment period is not less than 5 years; (C) provides that periodic installments of principal need not be paid, but interest shall accrue and be paid, during any period (i) during which the borrower (I) is pursuing at least a half-time course of study as determined by an eligible institution; or (II) is pursuing a course of study pursuant to a graduate fellowship program approved by the Secretary, or pursuant to a rehabilitation training program for individuals with disabilities approved by the Secretary, except that no borrower shall be eligible for a deferment under this clause, or a loan made under this part (other than a loan made under section 428B or 428C), while serving in a medical internship or resi- dency program; (ii) not in excess of 3 years during which the bor- rower is seeking and unable to find full-time employ- ment; or (iii) not in excess of 3 years for any reason which the lender determines, in accordance with regulations prescribed by the Secretary under section 435(o), has caused or will cause the borrower to have an economic hardship; and provides that any such period shall not be included in determining the 10-year period described in subparagraph (B); 161 54-653 99 - 6 Sec. 427 HIGHER EDUCATION ACT OF 1965 154 (D) provides for interest on the unpaid principal bal- ance of the loan at a yearly rate, not exceeding the applica- ble maximum rate prescribed in section 427A, which inter- est shall be payable in installments over the period of the loan except that, if provided in the note or other written agreement, any interest payable by the student may be de- ferred until not later than the date upon which repayment of the first installment of principal falls due, in which case interest accrued during that period may be added on that date to the principal; (E) provides that the lender will not collect or attempt to collect from the borrower any portion of the interest on the note which is payable by the Secretary under this part, and that the lender will enter into such agreements with the Secretary as may be necessary for the purpose of sec- tion 437; (F) entitles the student borrower to accelerate without penalty repayment of the whole or any part of the loan; (G)(i) contains a notice of the system, of disclosure of information concerning such loan to credit bureau organi- zations under section 430A, and (ii) provides that the lend- er on request of the borrower will provide information on the repayment status of the note to such organizations; (H) provides that, no more than 6 months prior to the date on which the borrower's first payment on a loan is due, the lender shall offer the borrower the option of re- paying the loan in accordance with a graduated or income- sensitive repayment schedule established by the lender and in accordance with the regulations of the Secretary; and (I) contains such other terms and conditions, consist- ent with the provisions of this part and with the regula- tions issued by the Secretary pursuant to this part, as may be agreed upon by the parties to such loan, including, if agreed upon, a provision requiring the borrower to pay the lender, in addition to principal and interest, amounts equal to the insurance premiums payable by the lender to the Secretary with respect to such loan; (3) the funds borrowed by a student are disbursed to the institution by check or other means that is payable to and re- quires the endorsement or other certification by such student, except (A) that nothing in this title shall be interpreted (i) to allow the Secretary to require checks to be made copayable to the institution and the borrower; or (ii) to prohibit the disbursement of loan proceeds by means other than by check; and (B) in the case of any student who is studying outside the United States in a program of study abroad that is ap- proved for credit by the home institution at which such student is enrolled, the funds shall, at the request of the borrower, be delivered directly to the student and the checks may be endorsed, and fund transfers authorized, pursuant to an authorized power-of-attorney; and 162 155 HIGHER EDUCATION ACT OF 1965 Sec. 427A (4) the funds borrowed by a student are disbursed in ac- cordance with section 428G. (b) SPECIAL RULES FOR MULTIPLE DISBURSEMENT.For the purpose of subsection (a)(4) (1) all loans issued for the same period of enrollment shall be considered as a single loan; and (2) the requirements of such subsection shall not apply in the case of a loan made under section 428B or 428C, or made to a student to cover the cost of attendance at an eligible insti- tution outside the United States. (c) SPECIAL REPAYMENT RULES.Except as provided in sub- section (a)(2)(H), the total of the payments by a borrower during any year of any repayment period with respect to the aggregate amount of all loans to that borrower which are insured under this part shall not, unless the borrower and the lender otherwise agree, be less than $600 or the balance of all such loans (together with interest thereon), whichever amount is less (but in no instance less than the amount of interest due and payable). SEC. 427A. [20 U.S.C. 1077a1 APPLICABLE INTEREST RATES. (a) RATES To BE CONSISTENT FOR BORROWER'S ENTIRE DEBT. With respect to any loan to cover the cost of instruction for any pe- riod of instruction beginning on or after January 1, 1981, the rate of interest applicable to any borrower shall (1) not exceed 7 percent per year on the unpaid principal balance of the loan in the case of any borrower who, on the date of entering into the note or other written evidence of that loan, has an outstanding balance of principal or interest on any loan made, insured, or guaranteed under this part, for which the interest rate does not exceed 7 percent; (2) except as provided in paragraph (3), be 9 percent per year on the unpaid principal balance of the loan in the case of any borrower who, on the date of entering into the note or other written evidence of that loan, has no outstanding balance of principal or interest on any loan described in paragraph (1) or any loan for which the interest rate is determined under paragraph (1); or (3) be 8 percent per year on the unpaid principal balance of the loan for a loan to cover the cost of education for any pe- riod of enrollment beginning on or after a date which is 3 months after a determination made under subsection (b) in the case of any borrower who, on the date of entering into the note or other written evidence of the loan, has no outstanding bal- ance of principal or interest on any loan for which the interest rate is determined under paragraph (1) or (2) of this sub- section. (b) REDUCTION FOR NEW BORROWERS AFTER DECLINE IN TREASURY BILL RATES.If for any 12-month period beginning on or after January 1, 1981, the Secretary, after consultation with the Secretary of the Treasury, determines that the average of the bond equivalent rates of 91-day Treasury bills auctioned for such 12- month period is equal to or less than 9 percent, the interest rate for loans under this part shall be the rate prescribed in subsection (a)(3) for borrowers described in such subsection. 16 Sec. 421A HIGHER EDUCATION ACT OF 1965 156 (C) RATES FOR SUPPLEMENTAL LOANS FOR STUDENTS AND LOANS FOR PARENTS. (1) IN GENERAL.Except as otherwise provided in this sub- section, the applicable rate of interest on loans made pursuant to section 428A or 428B on or after October 1, 1981, shall be 14 percent per year on the unpaid principal balance of the loan. (2) REDUCTION OF RATE AFTER DECLINE IN TREASURY BILL RATES.If for any 12-month period beginning on or after Octo- ber 1, 1981, the Secretary, after consultation with the Sec- retary of the Treasury, determines that the average of the bond equivalent rates of 91-day Treasury bills auctioned for such 12-month period is equal to or less than 14 percent, the applicable rate of interest for loans made pursuant to section 428A or 428B on and after the first day of the first month be- ginning after the date of publication of such determination shall be 12 percent per year on the unpaid principal balance of the loan. (3) INCREASE OF RATE AFTER INCREASE IN TREASURY BILL RATES.If for any 12-month period beginning on or after the date of publication of a determination under paragraph (2), the Secretary, after consultation with the Secretary of the Treas- ury, determines that the average of the bond equivalent rates of 91-day Treasury bills auctioned for such 12-month period ex- ceeds 14 percent, the applicable rate of interest for loans made pursuant to section 428A or 428B on and after the first day of the first month beginning after the date of publication of that determination under this paragraph shall be 14 percent per year on the unpaid principal balance of the loan. (4) AVAILABILITY OF VARIABLE RATES.(A) For any loan made pursuant to section 428A or 428B and disbursed on or after July 1, 1987, or any loan made pursuant to such section prior to such date that is refinanced pursuant to section 428A(d) or 428B(d), the applicable rate of interest during any 12-month period beginning on July 1 and ending on June 30 shall be determined under subparagraph (B), except that such rate shall not exceed 12 percent. (B) For any 12-month period beginning on July 1 and end- ing on June 30, the rate determined under this subparagraph is determined on the preceding June 1 and is equal to (i) the bond equivalent rate of 52-week Treasury bills auctioned at the final auction held prior to such June 1; plus (ii) 3.25 percent. (C) The Secretary shall determine the applicable rate of in- terest under subparagraph (B) after consultation with the Sec- retary of the Treasury and shall publish such rate in the Fed- eral Register as soon as practicable after the date of deter- mination. (D) Notwithstanding subparagraph (A) (i) for any loan made pursuant to section 428A for which the first disbursement is made on or after October 1, 1992 1 4 151 HIGHER EDUCATION ACT OF 1965 Sec. 421A (I) subparagraph (B) shall be applied by substitut- ing "3.1" for "3.25"; and (II) the interest rate shall not exceed 11 percent; and (ii) for any loan made pursuant to section 428B for which the first disbursement is made on or after October 1, 1992 (I) subparagraph (B) shall be applied by substitut- ing "3.1" for "3.25"; and (II) the interest rate shall not exceed 10 percent. (E) Notwithstanding subparagraphs (A) and (D) for any loan made pursuant to section 428B for which the first dis- bursement is made on or after July 1, 1994 (i) subparagraph (B) shall be applied by substituting "3.1" for "3.25"; and (ii) the interest rate shall not exceed 9 percent. (d) INTEREST RATES FOR NEW BORROWERS AFTER JULY 1, 1988.Notwithstanding subsections (a) and (b) of this section, with respect to any loan (other than a loan made pursuant to sections 428A, 428B, and 428C) to cover the cost of instruction for any pe- riod of enrollment beginning on or after July 1, 1988, to any bor- rower who, on the date of entering into the note or other written evidence of the loan, has no outstanding balance of principal or in- terest on any loan made, insured, or guaranteed under this part, the applicable rate of interest shallbe (1) 8 percent per year on the unpaid principal balance of the loan during the period beginning on the date of the dis- bursement of the loan and ending 4 years after the commence- ment of repayment; and (2) 10 percent per year on the unpaid principal balance of the loan during the remainder of the repayment period. (e) INTEREST RATES FOR NEW BORROWERS AFTER OCTOBER 1,. 1992. (1) IN GENERALNotwithstanding subsections (a), (b), and (d) of this section, with respect to any loan (other than a loan made pursuant to sections 428A, 428B and 428C) for which the first disbursement is made on or after October 1, 1992, to any borrower who, on the date of entering into the note or other written evidence of the loan, has no outstanding balance of principal or interest on any loan made, insured, or guaranteed under section 427, 428, or 428H of this part, the applicable 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 (B) 3.10 percent, except that such rate shall not exceed 9 percent. (2) CONSULTATION.The Secretary shall determine the ap- plicable rate of interest under paragraph (1) 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 determination. Sec. 421A HIGHER EDUCATION ACT OF 1965 158 (f) INTEREST RATES FOR NEW LOANS AFTER JULY 1, 1994. (1) IN GENERAL.Notwithstanding subsections (a), (b), (d), and (e) of this section, with respect to any loan made, insured, or guaranteed under this part (other than a loan made pursu- ant to section 428B or 428C) for which the first disbursement is made on or after July 1, 1994, the applicable 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 (B) 3.10 percent, except that such rate shall not exceed 8.25 percent. (2) CONSULTATION.The Secretary shall determine the ap- plicable rate of interest under paragraph (1) 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 determination. (g) IN SCHOOL AND GRACE PERIOD RULES. (1) GENERAL RULE.Notwithstanding the provisions of subsection (f), but subject to subsection (h), with respect to any loan under section 428 or 428H of this part for which the first disbursement is made on or after July 1, 1995, the applicable rate of interest for interest which accrues (A) prior to the beginning of the repayment 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 rea- son of a provision described in section 428(b)(1)(M) or 427(a)(2)(C), shall not exceed the rate determined under paragraph (2). (2) RATE DETERMINATION.For purposes of paragraph (1), the rate determined under this paragraph 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 prior to such June 1; plus (B) 2.5 percent, except that such rate shall not exceed 8.25 percent. (3) CONSULTATION.The Secretary shall determine the ap- plicable rate of interest under this subsection after consulta- tion with the Secretary of the Treasury and shall publish such rate in the Federal Register as soon as practicable after the date of determination. (h) INTEREST RATES FOR NEW LOANS AFTER JULY 1, 1998. (1) IN GENERAL.Notwithstanding subsections (a), (b), (d), (e), (f), and (g) of this section, with respect to any loan made, insured, or guaranteed under this part (other than a loan made pursuant to sections 428B and 428C) for which the first dis- bursement is made on or after July 1, 1998, the applicable 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 159 HIGHER EDUCATION ACT OF 1965 Sec. 427A (A) the bond equivalent rate of the securities with a comparable maturity as established by the Secretary; plus (B) 1.0 percent, except that such rate shall not exceed 8.25 percent. (2) INTEREST RATES FOR NEW PLUS LOANS AFTER JULY 1, 1998.Notwithstanding subsections (a), (b), (d), (e), (f), and (g), with respect to any loan made under section 428B for which the first disbursement is made on or after July 1, 1998, para- graph (1) shall be applied (A) by substituting "2.1 percent" for "1.0 percent" in subparagraph (B); and (B) by substituting "9.0 percent" for "8.25 percent" in the matter following such subparagraph. (3) CONSULTATION.The Secretary shall determine the ap- plicable rate of interest under this subsection after consulta- tion with the Secretary of the Treasury and shall publish such rate in the Federal Register as soon as practicable after the date of determination. (i) TREATMENT OF EXCESS INTEREST PAYMENTS ON NEW BOR- ROWER ACCOUNTS RESULTING FROM DECLINE IN TREASURY BILL RATES. (1) EXCESS INTEREST ON 10 PERCENT LOANS.If, with re- spect to a loan for which the applicable interest rate is 10 per- cent under subsection (d) of this section at the close of any cal- endar quarter, the sum of the average of the bond equivalent rates of 91-day Treasury bills auctioned for that quarter and 3.25 percent is less than 10 percent, then an adjustment shall be made to a borrower's account (A) by calculating excess interest in the amount com- puted under paragraph (2) of this subsection; and (B)(i) during any period in which a student is eligible to have interest payments paid on his or her behalf by the Government pursuant to section 428(a), by crediting the excess interest to the Government; or (ii) during any other period, by crediting such excess interest to the reduction of principal to the extent provided in paragraph (5) of this subsection. (2) AMOUNT OF ADJUSTMENT FOR 10 PERCENT LOANS.The amount of any adjustment of interest on a loan to be made under this subsection for any quarter shall be equal to (A) 10 percent minus the sum of (i) the average of the bond equivalent rates of 91-day Treasury bills auctioned for such calendar quarter, and (ii) 3.25 percent; multiplied by (B) the average daily principal balance of the loan (not including unearned interest added to principal) during such calendar quarter; divided by (C) four. (3) EXCESS INTEREST ON LOANS AFTER 1992 AMENDMENTS, TO BORROWERS WITH OUTSTANDING BALANCES If, with respect to a loan made on or after the date of enactment of the Higher Education Amendments of 1992 to a borrower, who on the date of entering into the note or other written evidence of the loan, has an outstanding balance of principal or interest on any 167 Sec. 427A HIGHER EDUCATION ACT OF 1965 160 other loan made, insured, or guaranteed under this part, the sum of the average of the bond equivalent rates of 91-day Treasury bills auctioned for that quarter and 3.1 percent is less than the applicable interest rate, then an adjustment shall be made (A) by calculating excess interest in the amount com- puted under paragraph (4) of this subsection; and (B)(i) during any period in which a student is eligible to have interest payments paid on his or her behalf by the Government pursuant to section 428(a), by crediting the excess interest to the Government; or (ii) during any other period, by crediting such excess interest to the reduction of principal to the extent provided in paragraph (5) of this subsection. (4) AMOUNT OF ADJUSTMENT.The amount of any adjust- ment of interest on a loan to be made under this subsection for any quarter shall be equal to (A) the applicable interest rate minus the sum of (i) the average of the bond equivalent rates of 91-day Treas- ury bills auctioned for such calendar quarter, and (ii) 3.1 percent; multiplied by (B) the average daily principal balance of the loan (not including unearned interest added to principal) during such calendar quarter; divided by (C) four. (5) ANNUAL ADJUSTMENT OF INTEREST AND BORROWER ELI- GIBILITY FOR CREDIT.Any adjustment amount computed pur- suant to paragraphs (2) and (4) of this subsection for any quar- ter shall be credited, by the holder of the loan on the last day of the calendar year in which such quarter falls, to the loan ac- count of the borrower so as to reduce the principal balance of such account. No such credit shall be made to the loan account of a borrower who on the last day of the calendar year is delin- quent for more than 30 days in making a required payment on the loan, but the excess interest shall be calculated and cred- ited to the Secretary. Any credit which is to be made to a bor- rower's account pursuant to this subsection shall be made ef- fective commencing no later than 30 days following the last day of the calendar year in which the quarter falls for which the credit is being made. Nothing in this subsection shall be construed to require refunding any repayment of a loan. At the option of the lender, the amount of such adjustment may be distributed to the borrower either by reduction in the amount of the periodic payment on the loan, by reducing the number of payments that shall be made with respect to the loan, or by reducing the amount of the final payment of the loan. Nothing in this paragraph shall be construed to require the lender to make additional disclosures pursuant to section 433(b). (6) PUBLICATION OF TREASURY BILL RATE. For the purpose of enabling holders of loans to make the determinations and adjustments provided for in this subsection, the Secretary shall for each calendar quarter commencing with the quarter begin- ning on July 1, 1987, publish a notice of the average of the bond equivalent rates of 91-day Treasury bills auctioned for 168 161 HIGHER EDUCATION ACT OF 1965 Sec. 427A such quarter. Such notice shall be published not later than 7 days after the end of the quarter to which the notice relates. (7) CONVERSION TO VARIABLE RATE.(A) Subject to sub- paragraphs (C) and (D), a lender or holder shall convert the in- terest rate on a loan that is made pursuant to this part and is subject to the provisions of this subsection to a variable rate. Such conversion shall occur not later than January 1, 1995, and, commencing on the date of conversion, the applicable in- terest rate for each 12-month period beginning on July 1 and ending on June 30 shall be determined by the Secretary on the June 1 preceding each such 12-month period and be equal to the sum of (i) the bond equivalent rate of the 91-day Treasury bills auctioned at the final auction prior to such June 1; and (ii) 3.25 percent in the case of loans described in paragraph (1), or 3.10 percent in the case of loans described in paragraph (3). (B) In connection with the conversion specified in subpara- graph (A) for any period prior to such conversion, and subject to paragraphs (C) and (D), a lender or holder shall convert the interest rate to a variable rate on a loan that is made pursuant to this part and is subject to the provisions of this subsection to a variable rate. The interest rates for such period shall be reset on a quarterly basis and the applicable interest rate for any quarter or portion thereof shall equal the sum of (i) the av- erage of the bond equivalent rates of 91-Treasury bills auc- tioned for the preceding 3-month period, and (ii) 3.25 percent in the case of loans described in paragraph (1) or 3.10 percent in the case of loans described in paragraph (3). The rebate of excess interest derived through this conversion shall be pro- vided to the borrower as specified in paragraph (5) for loans described in paragraph (1) or to the Government and borrower as specified in paragraph (3). (C) A lender or holder of a loan being converted pursuant to this paragraph shall complete such conversion on or before January 1, 1995. The lender or holder shall notify the borrower that the loan shall be converted to a variable interest rate and provide a description of the rate to the borrower not later than 30 days prior to the conversion. The notice shall advise the borrower that such rate shall be calculated in accordance with the procedures set forth in this paragraph and shall provide the borrower with a substantially equivalent benefit as the ad- justment otherwise provided for under this subsection. Such notice may be incorporated into the disclosure required under section 433(b) if such disclosure has not been previously made. (D) The interest rate on a loan converted to a variable rate pursuant to this paragraph shall not exceed the maximum in- terest rate applicable to the loan prior to such conversion. (E) Loans on which the interest rate is converted in ac- cordance with subparagraph (A) or (B) shall not be subject to any other provisions of this subsection. (j) INTEREST RATES FOR NEW LOANS BETWEEN JULY 1, 1998 AND OCTOBER 1, 1998. (1) IN GENERAL.Notwithstanding subsection (h), but sub- ject to paragraph (2), with respect to any loan made, insured, or guaranteed under this part (other than a loan made pursu- 169 Sec. 421A HIGHER EDUCATION ACT OF 1965 162 ant to section 428B or 428C) for which the first disbursement is made on or after July 1, 1998, and' before October 1, 1998, the applicable rate of interest shall, during any 12-month pe- riod beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to (A) the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1; plus (B) 2.3 percent, except that such rate shall not exceed 8.25 percent. (2) IN SCHOOL AND GRACE PERIOD RULES.Notwithstand- ing subsection (h), with respect to any loan under this part (other than a loan made pursuant to section 428B or 428C) for which the first disbursement is made on or after July 1, 1998, and before October 1, 1998, the applicable rate of interest for interest which accrues (A) prior to the beginning of the repayment 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 rea- son of a provision described in section 428(b)(1)(M) or 427(a)(2)(C), shall be determined under paragraph (1) by substituting "1.7 percent" for "2.3 percent". (3) PLUS LOANS.Notwithstanding subsection (h), with re- spect to any loan under section 428B for which the first dis- bursement is made on or after July 1, 1998, and before October 1, 1998, the applicable 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 the lesser of (A)(i) the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1; plus (ii) 3.1 percent; or (B) 9.0 percent. (4) CONSULTATION.The Secretary shall determine the ap- plicable rate of interest under this subsection after consulta- tion with the Secretary of the Treasury and shall publish such rate in the Federal Register as soon as practicable after the date of determination. (k) INTEREST RATES FOR NEW LOANS ON OR AFTER OCTOBER 1, 1998, AND BEFORE JULY 1, 2003. (1) IN GENERAL.Notwithstanding subsection (h) and sub- ject to paragraph (2) of this subsection, with respect to any loan made, insured, or guaranteed under this part (other than a loan made pursuant to section 428B or 428C) for which the first disbursement is made on or after October 1, 1998, and be- fore July 1, 2003, the applicable 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 1 '1 0 163 HIGHER EDUCATION ACT OF 1965 Sec. 427A (B) 2.3 percent, except that such rate shall not exceed 8.25 percent. (2) IN SCHOOL AND GRACE PERIOD RULES.Notwithstand- ing subsection (h), with respect to any loan under this part (other than a loan made pursuant to section 428B or 428C) for which the first disbursement is made on or after October 1, 1998, and before July 1, 2003, the applicable rate of interest for interest which accrues (A) prior to the beginning of the repayment 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 rea- son of a provision described in section 427(a)(2)(C) or 428(b)(1)(M), shall be determined under paragraph (1) by substituting "1.7 percent" for "2.3 percent". (3) PLUS LOANS.Notwithstanding subsection (h), with re- spect to any loan under section 428B for which the first dis- bursement is made on or after October 1, 1998, and before July 1, 2003, the applicable rate of interest shall be determined under paragraph (1) (A) by substituting "3.1 percent" for "2.3 percent"; and (B) by substituting "9.0 percent" for "8.25 percent". (4) CONSOLIDATION LOANS.With respect to any consolida- tion loan under section 428C for which the application is re- ceived by an eligible lender on or after October 1, 1998, and before July 1, 2003, the applicable rate of interest shall be at an annual rate on the unpaid principal balance of the loan that is equal to the lesser of (A) the weighted average of the interest rates on the loans consolidated, rounded to the nearest higher one- eighth of 1 percent; or (B) 8.25 percent. (5) CONSULTATION.The Secretary shall determine the ap- plicable rate of interest under this subsection after consulta- tion with the Secretary of the Treasury and shall publish such rate in the Federal Register as soon as practicable after the date of determination. (1) LESSER RATES PERMITTED.Nothing in this section or sec- tion 428C shall be construed to prohibit a lender from charging a borrower interest at a rate less than the rate which is applicable under this part. (m) DEFINITIONS.For the purpose of subsections (a) and (d) of this section (1) the term "period of instruction" shall, at the discretion of the lender, be any academic year, semester, trimester, quar- ter, or other academic period; or shall be the period for which the loan is made as determined by the institution of higher education; and (2) the term "period of enrollment" shall be the period for which the loan is made as determined by the institution of higher education and shall coincide with academic terms such as academic year, semester, trimester, quarter, or other aca- demic period as defined by such institution. 171 Sec. 428 HIGHER EDUCATION ACT OF 1965 164 SEC. 428. [20 U.S.C. 1078] FEDERAL PAYMENTS TO REDUCE STUDENT INTEREST COSTS. (a) FEDERAL INTEREST SUBSIDIES. (1) TYPES OF LOANS THAT QUALIFY.Each student who has received a loan for study at an eligible institution (A) which is insured by the Secretary under this part; (B) which is insured under a program of a State or of a nonprofit private institution or organization which was contracted for, and paid to the student, within the period specified in paragraph (5), and which (i) in the case of a loan insured prior to July 1, 1967, was made by an eligible lender and is insured under a program which meets the requirements of subparagraph (E) of subsection (b)(1) and provides that repayment of such loan shall be in installments beginning not earlier than 60 days after the student ceases to pursue a course of study (as described in subparagraph (D) of subsection (b)(1)) at an eligible in- stitution, or (ii) in the case of a loan insured after June 30, 1967, was made by an eligible lender and is insured under a program covered by an agreement made pur- suant to subsection (b), shall be entitled to have paid on his or her behalf and for his or her account to the holder of the loan a portion of the inter- est on such loan under circumstances described in paragraph (2). or (2) ADDITIONAL REQUIREMENTS TO RECEIVE SUBSIDY.(A) Each student qualifying for a portion of an interest payment under paragraph (1) shall (i) have provided to the lender a statement from the eligible institution, at which the student has been accepted for enrollment, or at which the student is in attendance, which (I) sets forth the loan amount for which the stu- dent shows financial need; and (II) sets forth a schedule for disbursement of the proceeds of the loan in installments, consistent with the requirements of section 428G; and (ii) meet the requirements of subparagraph (B); and (iii) 2 have provided to the lender at the time of ap- plication for a loan made, insured, or guaranteed under this part, the student's driver's number, if any. (B) For the purpose of clause (ii) of subparagraph (A), a student shall qualify for a portion of an interest payment under paragraph (1) if the eligible institution has determined and documented the student's amount of need for a loan based on the student's estimated cost of attendance, estimated finan- cial assistance, and, for the purpose of an interest payment pursuant to this section, expected family contribution (as de- 1So in law (112 Stat. 1682); "and" should probably not appear. 2 Margin so in law. Margin should be 2 ems to the left. 165 HIGHER EDUCATION ACT OF 1965 Sec. 428 termined under part F), subject to the provisions of subpara- graph (D). (C) For the purpose of subparagraph (B) and this paragraph (i) a student's cost of attendance shall be determined under section 472; (ii) a student's estimated financial assistance means, for the period for which the loan is sought (I) the amount of assistance such student will re- ceive under subpart 1 of part A (as determined in ac- cordance with section 484(b)), subpart 3 of part A, and parts C and E; (II) any veterans' education benefits paid because of enrollment in a postsecondary education institution, including veterans' education benefits (as defined in section 480(c), but excluding benefits described in paragraph (2)(E) of such section); plus (III) other scholarship, grant, or loan assistance, but excluding any national service education award or post-service benefit under title I of the National and Community Service Act of 1990; and (iii) the determination of need and of the amount of a loan by an eligible institution under subparagraph (B) with respect to a student shall be calculated in accordance with part F. (D) An eligible institution may not, in carrying out the pro- visions of subparagraphs (A) and (B) of this paragraph, provide a statement which certifies the eligibility of any student to re- ceive any loan under this part in excess of the maximum amount applicable to such loan. (E) For the purpose of subparagraphs (B) and (C) of this paragraph, any loan obtained by a student under section 428A or 428H or a parent under section 428B of this Act or under any State-sponsored or private loan program for an academic year for which the determination is made may be used to offset the expected family contribution of the student for that year. (3) AMOUNT OF INTEREST SUBSIDY.-(A)(i) Subject to sec- tion 438(c), the portion of the interest on a loan which a stu- dent is entitled to have paid, on behalf of and for the account of the student, to the holder of the loan pursuant to paragraph (1) of this subsection shall be equal to the total amount of the interest on the unpaid principal amount of the loan (I) which accrues prior to the beginning of the repay- ment period of the loan, or (II) which accrues during a period in which principal need not be paid (whether or not such principal is in fact paid) by reason of a provision described in subsection (b)(1)(M) of this section or in section 427(a)(2)(C). (ii) Such portion of the interest on a loan shall not exceed, for any period, the amount of the interest on that loan which is payable by the student after taking into consideration the amount of any interest on that loan which the student is enti- tled to have paid on his or her behalf for that period under any State or private loan insurance program. Sec. 428 HIGHER EDUCATION ACT OF 1965 166 (iii) The holder of a loan with respect to which payments are required to be made under this section shall be deemed to have a contractual right, as against the United States, to re- ceive from the Secretary the portion of interest which has been so determined without administrative delay after the receipt by the Secretary of an accurate and complete request for pay- ment pursuant to paragraph (4). (iv) The Secretary shall pay this portion of the interest to the holder of the loan on behalf of and for the account of the borrower at such times as may be specified in regulations in force when the applicable agreement entered into pursuant to subsection (b) was made, or, if the loan was made by a State or is insured under a program which is not covered by such an agreement, at such times as may be specified in regulations in force at the time the loan was paid to the student. (v) A lender may not receive interest on a loan for any pe- riod that precedes the date that is (I) in the case of a loan disbursed by check, 10 days before the first disbursement of the loan; or (II) in the case of a loan disbursed by electronic funds transfer, 3 days before the first disbursement of the loan. (B) If (i) a State student loan insurance program is covered by an agreement under subsection (b), (ii) a statute of such State limits the interest rate on loans insured by such program to a rate which is less than the applicable interest rate under this part, and (iii) the Secretary determines that subsection (d) does not make such statutory limitation inapplicable and that such statutory limitation threatens to impede the carrying out of the purpose of this part, then the Secretary may pay an administrative cost allowance to the holder of each loan which is insured under such program and which is made during the period beginning on the 60th day after the date of enactment of the Higher Education Amendments of 1968 and ending 120 days after the adjourn- ment of such State's first regular legislative session which ad- journs after January 1, 1969. Such administrative cost allow- ance shall be paid over the term of the loan in an amount per year (determined by the Secretary) which shall not exceed 1 percent of the unpaid principal balance of the loan. (4) SUBMISSION OF STATEMENTS BY HOLDERS ON AMOUNT OF PAYMENT.Each holder of a loan with respect to which pay- ments of interest are required to be made by the Secretary shall submit to the Secretary, at such time or times and in such manner as the Secretary may prescribe, statements con- taining such information as may be required by or pursuant to regulation for the purpose of enabling the Secretary to deter- mine the amount of the payment which he must make with re- spect to that loan. (5) DURATION OF AUTHORITY TO MAKE INTEREST SUBSIDIZED LOANS.The period referred to in subparagraph (B) of para- graph (1) of this subsection shall begin on the date of enact- ment of this Act and end at the close of September 30, 2004, 161 HIGHER EDUCATION ACT OF 1965 Sec. 428 except that, in the case of a loan made or insured under a stu- dent loan or loan insurance program to enable a student who has obtained a prior loan made or insured under such program to continue his or her education program, such period shall end at the close of September 30, 2008. (6) ASSESSMENT OF BORROWER'S FINANCIAL CONDITION NOT PROHIBITED OR REQUIRED.Nothing in this or any other Act shall be construed to prohibit or require, unless otherwise spe- cifically provided by law, a lender to evaluate the total finan- cial situation of a student making application for a loan under this part, or to counsel a student with respect to any such loan, or to make a decision based on such evaluation and counseling with respect to the dollar amount of any such loan. (7) LOANS THAT HAVE NOT BEEN CONSUMMATED.Lenders may not charge interest or receive interest subsidies or special allowance payments for loans for which the disbursement checks have not been cashed or for which electronic funds transfers have not been completed. (b) INSURANCE PROGRAM AGREEMENTS To QUALIFY LOANS FOR INTEREST SUBSIDIES. (1) REQUIREMENTS OF INSURANCE PROGRAM.Any State or any nonprofit private institution or organization may enter into an agreement with the Secretary for the purpose of enti- tling students who receive loans which are insured under a student loan insurance program of that State, institution, or organization to have made on their behalf the payments .pro- vided for in subsection (a) if the Secretary determines that the student loan insurance program (A) authorizes the insurance in any academic year, as defined in section 481(a)(2), or its equivalent (as deter- mined under regulations of the Secretary) for any student who is carrying at an eligible institution or in a program of study abroad approved for credit by the eligible home in- stitution at which such student is enrolled at least one-half the normal full-time academic workload (as determined by the institution) in any amount up to a maximum of (i) in the case of a student at an eligible institu- tion who has not successfully completed the first year of a program of undergraduate education (I) $2,625, if such student is enrolled in a pro- gram whose- length is at least one academic year in length; and (II) if such student is enrolled in a program of undergraduate education which is less than 1 aca- demic year, the maximum annual loan amount that such student may receive may not exceed the amount that bears the same ratio to the amount specified in subclause (I) as the length of such pro- gram measured in semester, trimester, quarter, or clock hours bears to 1 academic year; (ii) in the case of a student. at an eligible institu- tion who has successfully completed such first year but has not successfully completed the remainder of a program of undergraduate education- 1'7 Sec. 428 HIGHER EDUCATION ACT OF 1965 168 (I) $3,500; or (II) if such student is enrolled in a program of undergraduate education, the remainder of which is less than one academic year, the maximum an- nual loan amount that such student may receive may not exceed the amount that bears the same ratio to the amount specified in subclause (I) as such remainder measured in semester, trimester, quarter, or clock hours bears to one academic year; (iii) in the case of a student at an eligible institu- tion who has successfully completed the first and sec- ond years of a program of undergraduate education but has not successfully completed the remainder of such program (I) $5,500; or (II) if such student is enrolled in a program of undergraduate education, the remainder of which is less than one academic year, the maximum an- nual loan amount that such student may receive may not exceed the amount that bears the same ratio to the amount specified in subclause (I) as such remainder measured in semester, trimester, quarter, or clock hours bears to one academic year; (iv) in the case of a student who has received an associate or baccalaureate degree and is enrolled in an eligible program for which the institution requires such degree for admission, the number of years that a student has completed in a program of undergraduate education shall, for the purposes of clauses (ii) and (iii), include any prior enrollment in the eligible pro- gram of undergraduate education for which the stu- dent was awarded such degree; (v) in the case of a graduate or professional stu- dent (as defined in regulations of the Secretary) at an eligible institution, $8,500; and (vi) in the case of a student enrolled in coursework specified in sections 484(b)(3)(B) and 484(b)(4)(B)-- (I) $2,625 for coursework necessary for enroll- ment in an undergraduate degree or certificate program, and, in the case of a student who has ob- tained a baccalaureate degree, $5,500 for coursework necessary for enrollment in a graduate or professional degree or certification program; and (II) in the case of a student who has obtained a baccalaureate degree, $5,500 for coursework nec- essary for a professional credential or certification from a State required for employment as a teacher in an elementary school or secondary school; except in cases where the Secretary determines, pursuant to regulations, that a higher amount is warranted in order to carry out the purpose of this part with respect to stu- 169 HIGHER EDUCATION ACT OF 1965 Sec. 428 dents engaged in specialized training requiring exception- ally high costs of education, but the annual insurable limit per student shall not be deemed to be exceeded by a line of credit under which actual payments by the lender to the borrower will not be made in any years in excess of the an- nual limit; (B) provides that the aggregate insured unpaid prin- cipal amount for all such insured loans made to any stu- dent shall be any amount up to a maximum of (i) $23,000, in the case of any student who has not successfully completed a program of undergraduate education, excluding loans made under section 428A or 428B; and (ii) $65,500, in the case of any graduate or profes- sional student (as defined by regulations of the Sec- retary), and (I) including any loans which are insured by the Secretary under this section, or by a guaranty agency, made to such student before the student be- came a graduate or professional student, but (II) ex- cluding loans made under section 428A or 428B, except that the Secretary may increase the limit applicable to students who are pursuing programs which the Sec- retary determines are exceptionally expensive; (C) authorizes the insurance of loans to any individual student for at least 6 academic years of study or their equivalent (as determined under regulations of the Sec- retary); (D) provides that (i) the student borrower shall be en- titled to accelerate without penalty the whole or any part of an insured loan, (ii) the student borrower may annually change the selection of a repayment plan under this part, and (iii) the note, or other written evidence of any loan, may contain such reasonable provisions relating to repay- ment in the event of default by the borrower as may be au- thorized by regulations of the Secretary in effect at the time such note or written evidence was executed, and shall contain a notice that repayment may, following a default by the borrower, be subject to income contingent repay- ment in accordance with subsection (m); (E) subject to subparagraphs (D) and (L), and except as provided by subparagraph (M), provides that (i) not more than 6 months prior to the date on which the borrower's first payment is due, the lender shall offer the borrower of a loan made, insured, or guaranteed under this section or section 428H, the op- tion of repaying the loan in accordance with a stand- ard, graduated, income-sensitive, or extended repay- ment schedule (as described in paragraph (9)) estab- lished by the lender in accordance with regulations of the Secretary; and (ii) repayment of loans shall be in installments in accordance with the repayment plan selected under paragraph (9) and commencing at the beginning of the repayment period determined under paragraph (7); 177 Sec. 428 HIGHER EDUCATION ACT OF 1965 170 (F) authorizes interest on the unpaid balance of the loan at a yearly rate not in excess (exclusive of any pre- mium for insurance which may be passed on to the bor- rower) of the rate required by section 427A; (G) insures 98 percent of the unpaid principal of loans insured under the program, except that such program shall insure 100 percent of the unpaid principal of loans made with funds advanced pursuant to section 428(j) or 439(q); (H) provides for collection of a single insurance pre- mium equal to not more than 1.0 percent of the principal amount of the loan, by deduction proportionately from each installment payment of the proceeds of the loan to the borrower, and insures that the proceeds of the pre- mium will not be used for incentive payments to lenders; (I) provides that the benefits of the loan insurance pro- gram will not be denied any student who is eligible for in- terest benefits under subsection (a) (1) and (2); (J) provides that a student may obtain insurance under the program for a loan for any year of study at an eligible institution; (K) in the case of a State program, provides that such State program is administered by a single State agency, or by one or more nonprofit private institutions or organiza- tions under supervision of a single State agency; (L) provides that the total of the payments by a borrower (i) except as otherwise provided by a repayment plan selected by the borrower under clause (ii) or (iii) of paragraph (9XA), during any year of any repayment period with respect to the aggregate amount of all loans to that borrower which are insured under this part shall not, unless the borrower and the lender oth- erwise agree, be less than $600 or the balance of all such loans (together with interest thereon), whichever amount is less (but in no instance less than the amount of interest due and payable, notwithstanding any payment plan under paragraph (9)(A)); and (ii) for a monthly or other similar payment period with respect to the aggregate of all loans held by the lender may, when the amount of a monthly or other similar payment is not a multiple of $5, be rounded to the next highest whole dollar amount that is a mul- tiple of $5; (M) provides that periodic installments of principal need not be paid, but interest shall accrue and be paid by the Secretary, during any period (i) during which the borrower (I) is pursuing at least a half-time course of study as determined by an eligible institution, ex- cept that no borrower, notwithstanding the provi- sions of the promissory note, shall be required to borrow an additional loan under this title in order 171 HIGHER EDUCATION ACT OF 1965 Sec. 428 to be eligible to receive a deferment under this clause; or (II) is pursuing a course of study pursuant to a graduate fellowship program approved by the Secretary, or pursuant to a rehabilitation training program for disabled individuals approved by the Secretary, except that no borrower shall be eligible for a deferment under this clause, or loan made under this part (other than a loan made under 428B or 428C), while serving in a medical internship or residency pro- gram; (ii) not in excess of 3 years during which the bor- rower is seeking and unable to find full-time employ- ment, except that no borrower who provides evidence of eligibility for unemployment benefits shall be re- quired to provide additional paperwork for a deferment under this clause; or (iii) not in excess of 3 years for any reason which the lender determines, in accordance with regulations prescribed by the Secretary under section 435(o), has caused or will cause the borrower to have an economic hardship; (N) provides that funds borrowed by a student (i) are disbursed to the institution by check or other means that is payable to, and requires the en- dorsement or other certification by, such student; or (ii) in the case of a student who is studying out- side the United States in a program of study abroad that is approved for credit by the home institution at which such student is enrolled or at an eligible foreign institution, are, at the request of the student, dis- bursed directly to the student by the means described in clause (i), unless such student requests that the check be endorsed, or the funds transfer authorized, pursuant to an authorized power-of-attorney; (0) provides that the proceeds of the loans will be dis- bursed in accordance with the requirements of section 428G; (P) requires the borrower to notify the institution con- cerning any change in local address during enrollment and requires the borrower and the institution at which the bor- rower is in attendance promptly to notify the holder of the loan, directly or through the guaranty agency, concerning (i) any change of permanent address, (ii) when the student ceases to be enrolled on at least a half-time basis, and (iii) any other change in status, when such change in status af- fects the student's eligibility for the loan; (Q) provides for the guarantee of loans made to stu- dents and parents under sections 428A and 428B; (R) with respect to lenders which are eligible institu- tions, provides for the insurance of loans by only such in- stitutions as are located within the geographic area served by such guaranty agency; 179 Sec. 428 HIGHER EDUCATION ACT OF 1965 112 (S) provides no restrictions with respect to the insur- ance of loans for students who are otherwise eligible for loans under such program if such a student is accepted for enrollment in or is attending an eligible institution within the State, or if such a student is a legal resident of the State and is accepted for enrollment in or is attending an eligible institution outside that State; (T) authorizes (i) the limitation of the total number of loans or volume of loans, made under this part to students attending a particular eligible institution during any aca- demic year; and (ii) the emergency action, limitation, sus- pension, or termination of the eligibility of an eligible insti- tution if (I) such institution is ineligible for the emergency action, limitation, suspension, or termination of eligi- ble institutions under regulations issued by the Sec- retary or is ineligible pursuant to criteria, rules, or regulations issued under the student loan insurance program which are substantially the same as regula- tions with respect to emergency action, limitation, sus- pension, or termination of such eligibility issued by the Secretary; (II) there is a State constitutional prohibition af- fecting the eligibility of such an institution; (III) such institution fails to make timely refunds to students as required by regulations issued by the Secretary or has not satisfied within 30 days of issuance a final judgment obtained by a student seek- ing such a refund; (IV) such institution or an owner, director, or offi- cer of such institution is found guilty in any criminal, civil, or administrative proceeding, or such institution or an owner, director, or officer of such institution is found liable in any civil or administrative proceeding, regarding the obtaining, maintenance, or disburse- ment of State or Federal grant, loan, or work assist- ance funds; or (V) such institution or an owner, director, or offi- cer of such institution has unpaid financial liabilities involving the improper acquisition, expenditure, or re- fund of State or Federal financial assistance funds; except that, if a guaranty agency limits, suspends, or ter- minates the participation of an eligible institution, the Sec- retary shall apply that limitation, suspension, or termi- nation to all locations of such institution, unless the Sec- retary finds, within 30 days of notification of the action by the guaranty agency, that the guaranty agency's action did not comply with the requirements of this section; (U) provides (i) for the eligibility of all lenders de- scribed in section 435(d)(1) under reasonable criteria, un- less (I) that lender is eliminated as a lender under regula- tions for the emergency action, limitation, suspension, or termination of a lender under the Federal student loan in- surance program or is eliminated as a lender pursuant to 1 80 173 HIGHER EDUCATION ACT OF 1965 Sec. 428 criteria issued under the student loan insurance program which are substantially the same as regulations with re- spect to such eligibility as a lender issued under the Fed- eral student loan insurance program, or (II) there is a State constitutional prohibition affecting the eligibility of a lender, (ii) assurances that the guaranty agency will report to the Secretary concerning changes in such criteria, in- cluding any procedures in effect under such program to take emergency action, limit, suspend, or terminate lend- ers, and (iii) for (I) a compliance audit of each lender that originates or holds more than $5,000,000 in loans made under this title for any lender fiscal year (except that each lender described in section 435(d)(1)(A)(ii)(III) shall annu- ally submit the results of an audit required by this clause), at least once a year and covering the period since the most recent audit, conducted by a qualified, independent organi- zation or person in accordance with standards established by the Comptroller General for the audit of governmental organizations, programs, and functions, and as prescribed in regulations of the Secretary, the results of which shall be submitted to the Secretary, or (II) with regard to a lender that is audited under chapter 75 of title 31, United States Code, such audit shall be deemed to satisfy the re- quirements of subclause (I) for the period covered by such audit, except that the Secretary may waive the require- ments of this clause (iii) if the lender submits to the Sec- retary the results of an audit conducted for other purposes that the Secretary determines provides the same informa- tion as the audits required by this clause; (V) provides authority for the guaranty agency to re- quire a participation agreement between the guaranty agency and each eligible institution within the State in which it is designated, as a condition for guaranteeing loans made on behalf of students attending the institution; (W) provides assurances that the agency will imple- ment all requirements of the Secretary for uniform claims and procedures pursuant to section 432(1); (X) provides information to the Secretary in accord- ance with section 428(c)(9) and maintains reserve funds determined by the Secretary to be sufficient in relation to such agency's guarantee obligations; and (Y) provides that (i) the lender shall determine the eligibility of a borrower for a deferment described in subparagraph (M)(i) based on receipt of (I) a request for deferment from the borrower and documentation of the borrower's eligibility for the deferment; (II) a newly completed loan application that documents the borrower's eligibility for a deferment; or (III) student status information received by the lender that the borrower is enrolled on at least a half-time basis; and I.8 Sec. 428 HIGHER EDUCATION ACT OF 1965 174 (ii) the lender will notify the borrower of the granting of any deferment under clause (i)(II) or (III) of this subparagraph and of the option to continue paying on the loan. (2) CONTENTS OF INSURANCE PROGRAM AGREEMENT.Such an agreement shall (A) provide that the holder of any such loan will be re- quired to submit to the Secretary, at such time or times and in such manner as the Secretary may prescribe, state- ments containing such information as may be required by or pursuant to regulation for the purpose of enabling the Secretary to determine the amount of the payment which must be made with respect to that loan; (B) include such other provisions as may be necessary to protect the United States from the risk of unreasonable loss and promote the purpose of this part, including such provisions as may be necessary for the purpose of section 437, and as are agreed to by the Secretary and the guar- anty agency, as the case may be; (C) provide for making such reports, in such form and containing such information, including financial informa- tion, as the Secretary may reasonably require to carry out the Secretary's functions under this part and protect the fi- nancial interest of the United States, and for keeping such records and for affording such access thereto as the Sec- retary may find necessary to assure the correctness and verification of such reports; (D) provide for (i) conducting, except as provided in clause (ii), fi- nancial and compliance audits of the guaranty agency on at least an annual basis and covering the period since the most recent audit, conducted by a qualified, independent organization or person in accordance with standards established by the Comptroller General for the audit of governmental organizations, programs, and functions, and as prescribed in regulations of the Secretary, the results of which shall be submitted to the Secretary; or (ii) with regard to a guaranty program of a State which is audited under chapter 75 of title 31, United States Code, deeming such audit to satisfy the require- ments of clause (i) for the period of time covered by such audit; (E)(i) provide that any guaranty agency may transfer loans which are insured under this part to any other guar- anty agency with the approval of the holder of the loan and such other guaranty agency; and (ii) provide that the lender (or the holder of the loan) shall, not later than 120 days after the borrower has left the eligible institution, notify the borrower of the date on which the repayment period begins; and (F) provide that, if the sale, other transfer, or assign- ment of a loan made under this part to another holder will result in a change in the identity of the party to whom the 115 HIGHER EDUCATION ACT OF 1965 Sec. 428 borrower must send subsequent payments or direct any communications concerning the loans, then (i) the transferor and the transferee will be re- quired, not later than 45 days from the date the trans- feree acquires a legally enforceable right to receive payment from the borrower on such loan, either jointly or separately to provide a notice to the borrower of (I) the sale or other transfer; (II) the identity of the transferee; (III) the name and address of the party to whom subsequent payments or communications must be sent; and (IV) the telephone numbers of both the trans- feror and the transferee; and (ii) the transferee will be required to notify the guaranty agency, and, upon the request of an institu- tion of higher education, the guaranty agency shall no- tify the last such institution the student attended prior to the beginning of the repayment period of any loan made under this part, of (I) any sale or other transfer of the loan; and (II) the address and telephone number by which contact may be made with the new holder concerning repayment of the loan, except that this subparagraph (F) shall only apply if the borrower is in the grace period described in section 427(a)(2)(B) or 428(b)(7) or is in repayment status. (3) RESTRICTIONS ON INDUCEMENTS, MAILINGS, AND ADVER- TISING.-A guaranty agency shall not (A) offer, directly or indirectly, premiums, payments, or other inducements to any educational institution or its employees in order to secure applicants for loans under this part; (B) offer, directly or indirectly, any premium, incentive payment, or other inducement to any lender, or any agent, employee, or independent contractor of any lender or guar- anty agency, in order to administer or market loans made under this part (other than a loan made under section 428H or a loan made as part of a guaranty agency's lend- er-of-last-resort program) for the purpose of securing the designation of that guaranty agency as the insurer of such loans; (C) conduct unsolicited mailings of student loan appli- cation forms to students enrolled in secondary school or a postsecondary institution, or to parents of such students, except that applications may be mailed to borrowers who have previously received loans guaranteed under this part by the guaranty agency; or (D) conduct fraudulent or misleading advertising con- cerning loan availability. It shall not be a violation of this paragraph for a guaranty agency to provide assistance to institutions of higher education comparable to the kinds of assistance provided to institutions of higher education by the Department ofEducation. 183 Sec. 428 HIGHER EDUCATION ACT OF 1965 116 (4) SPECIAL RULE.For the purpose of paragraph (1)(M)(iXIII) of this subsection, the Secretary shall approve any course of study at a foreign university that is accepted for the completion of a recognized international fellowship program by the administrator of such a program. Requests for deferment of repayment of loans under this part by students engaged in graduate or postgraduate fellowship-supported study (such as pursuant to a Fulbright grant) outside the United States shall be approved until completion of the period of the fellowship. (5) GUARANTY AGENCY INFORMATION TRANSFERS.(A) Until such time as the Secretary has implemented section 485B and is able to provide to guaranty agencies the information re- quired by such section, any guaranty agency may request infor- mation regarding loans made after January 1, 1987, to stu- dents who are residents of the State for which the agency is the designated guarantor, from any other guaranty agency in- suring loans to such students. (B) Upon a request pursuant to subparagraph (A), a guar- anty agency shall provide (i) the name and the social security number of the bor- rower; and (ii) the amount borrowed and the cumulative amount borrowed. (C) Any costs associated with fulfilling the request of a guaranty agency for information on students shall be paid by the guaranty agency requesting the information. (6) STATE GUARANTY AGENCY INFORMATION REQUEST OF STATE LICENSING BOARDS.Each guaranty agency is authorized to enter into agreements with each appropriate State licensing board under which the State licensing board, upon request, will furnish the guaranty agency with the address of a student borrower in any case in which the location of the student bor- rower is unknown or unavailable to the guaranty agency. (7) REPAYMENT PERIOD.(A) In the case of a loan made under section 427 or 428, the repayment period shall exclude any period of authorized deferment or forbearance and shall begin (i) the day after 6 months after the date the student ceases to carry at least one-half the normal full-time aca- demic workload (as determined by the institution); or (ii) on an earlier date if the borrower requests and is granted a repayment schedule that provides for repayment to commence at an earlier date. (B) In the case of a loan made under section 428H, the re- payment period shall exclude any period of authorized deferment or forbearance, and shall begin as described in clause (i) or (ii) of subparagraph (A), but interest shall begin to accrue or be paid by the borrower on the day the loan is dis- bursed. (C) In the case of a loan made under section 428A, 428B, or 428C, the repayment period shall begin on the day the loan is disbursed, or, if the loan is disbursed in multiple install- ments, on the day of the last such disbursement, and shall ex- clude any period of authorized deferment or forbearance. 177 HOER EDUCATION ACT OF 1965 Sec. 428 (D) There shall be excluded from the 6-month period that begins on the date on which a student ceases to carry at least one-half the normal full-time academic workload as described in subparagraph (A)(i) any period not to exceed 3 years during which a borrower who is a member of a reserve component of the Armed Forces named in section 10101 of title 10, United States Code, is called or ordered to active duty for a period of more than 30 days - (as defined in section 101(d)(2) of such title). Such period of exclusion shall include the period nec- essary to resume enrollment at the borrower's next available regular enrollment period. (8) MEANS OF DISBURSEMENT OF LOAN PROCEEDS.Nothing in this title shall be interpreted to prohibit the disbursement of loan proceeds by means other than by check or to allow the Secretary to require checks to be made co-payable to the insti- tution and the borrower. (9) REPAYMENT PLANS. (A) DESIGN AND SELECTION.In accordance with regu- lations promulgated by the Secretary, the lender shall offer a borrower of a loan made under this part the plans described in this subparagraph for repayment of such loan, including principal and interest thereon. No plan may re- quire a borrower to repay a loan in less than 5 years un- less the borrower, during the 6 months immediately pre- ceding the start of the repayment period, specifically re- quests that repayment be made over of a shorter period. The borrower may choose from (i) a standard repayment plan, with a fixed an- nual repayment amount paid over a fixed period of time, not to exceed 10 years; (ii) a graduated repayment plan paid over a fixed period of time, not to exceed 10 years; (iii) an income-sensitive repayment plan, with in- come-sensitive repayment amounts paid over a fixed period of time, not to exceed 10 years, except that the borrower's scheduled payments shall not be less than the amount of interest due; and (iv) for new borrowers on or after the date of en- actment of the Higher Education Amendments of 1998 who accumulate (after such date) outstanding loans under this part totaling more than $30,000, an ex- tended repayment plan, with a fixed annual or grad- uated repayment amount paid over an extended period of time, not to exceed 25 years, except that the bor- rower shall repay annually a minimum amount deter- mined in accordance with paragraph (1)(L)(i). (B) LENDER SELECTION OF OPTION IF BORROWER DOES NOT SELECT.If a borrower of a loan made under this part does not select a repayment plan described in subpara- graph (A), the lender shall provide the borrower with a re- payment plan described in subparagraph (A)(i). (c) GUARANTY AGREEMENTS FOR REIMBURSING LOSSES. (1) AUTHORITY TO ENTER INTO AGREEMENTS.(A) The Sec- retary may enter into a guaranty agreement with any guar- 185 Sec. 428 HIGHER EDUCATION ACT OF 1965 118 anty agency, whereby the Secretary shall undertake to reim- burse it, under such terms and conditions as the Secretary may establish, with respect to losses (resulting from the de- fault of the student borrower) on the unpaid balance of the principal and accrued interest of any insured loan. The guar- anty agency shall, be deemed to have a contractual right against the United States, during the life of such loan, to re- ceive reimbursement according to the provisions of this sub- section. Upon receipt of an accurate and complete request by a guaranty agency for reimbursement with respect to such losses, the Secretary shall pay promptly and without adminis- trative delay. Except as provided in subparagraph (B) of this paragraph and in paragraph (7), the amount to be paid a guar- anty agency as reimbursement under this subsection shall be equal to 95 percent of the amount expended by it in discharge of its insurance obligation incurred under its loan insurance program. A guaranty agency shall file a claim for reimburse- ment with respect to losses under this subsection within 45 days after the guaranty agency discharges its insurance obliga- tion on the loan. (B) Notwithstanding subparagraph (A) (i) if, for any fiscal year, the amount of such reim- bursement payments by the Secretary under this sub- section exceeds 5 percent of the loans which are insured by such guaranty agency under such program and which were in repayment at the end of the preceding fiscal year, the amount to be paid as reimbursement under this subsection for such excess shall be equal to 851 percent of the amount of such excess; and (ii) if, for any fiscal year, the amount of such reim- bursement payments exceeds 9 percent of such loans, the amount to be paid as reimbursement under this subsection for such excess shall be equal to 751 percent of the amount of such excess. (C) For the purpose of this subsection, the amount of loans of a guaranty agency which are in repayment shall be the original principal amount of loans made by a lender which are insured by such a guaranty agency reduced by (i) the amount the insurer has been required to pay to discharge its insurance obligations under this part; (ii) the original principal amount of loans insured by it which have been fully repaid; and (iii) the original principal amount insured on those loans for which payment of the first installment of prin- cipal has not become due pursuant to subsection (b)(1)(E) of this section or such first installment need not be paid pursuant to subsection (b)(1)(M) of this section. (D) Reimbursements of losses made by the Secretary on loans submitted for claim by an eligible lender, servicer, or guaranty agency designated for exceptional performance under section 4281 shall not be subject to additional review by the 'The amendments made by section 417(c)(1) of P.L. 105-244, changing the reimbursement percentages, apply to loans for which the first disbursement is made on or after-October 1,1998. 179 HIGHER EDUCATION ACT OF 1965 Sec. 428 Secretary or repurchase by the guaranty agency for any reason other than a determination by the Secretary that the eligible lender, servicer, or guaranty agency engaged in fraud or other purposeful misconduct in obtaining designation for exceptional performance. (E) Notwithstanding any other provisions of this section, in the case of a loan made pursuant to a lender-of-last-resort pro- gram, the Secretary shall apply the provisions of (i) the fourth sentence of subparagraph (A) by sub- stituting "100 percent" for "95 percent"; (ii) subparagraph (B)(i) by substituting "100 percent" for "85 percent"; and (iii) subparagraph (B)(ii) by substituting "100 percent" for "75 percent". (F)1 Notwithstanding any other provisions of this section, in the case of an outstanding loan transferred to a guaranty agency from another guaranty agency pursuant to a plan ap- proved by the Secretary in response to the insolvency of the latter such guarantee agency, the Secretary shall apply the provision of (i) the fourth sentence of subparagraph (A) by sub- stituting "100 percent" for "95 percent"; (ii) subparagraph (B)(i) by substituting "90 percent" for "85 percent"; and (iii) subparagraph (B)(ii) by substituting "80 percent" for "75 percent". (G) 2 Notwithstanding any other provision of this sec- tion, the Secretary shall exclude a loan made pursuant to a lender-of-last-resort program when making reimburse- ment payment calculations under subparagraphs (B) and (C). (2) CONTENTS OF GUARANTY AGREEMENTS.The guaranty agreement (A) shall set forth such administrative and fiscal pro- cedures as may be necessary to protect the United States from the risk of unreasonable loss thereunder, to ensure proper and efficient administration of the loan insurance program, and to assure that due diligence will be exercised in the collection of loans insured under the program, in- cluding a requirement that each beneficiary of insurance on the loan submit proof that the institution was contacted and other reasonable attempts were made to locate the borrower (when the location of the borrower is unknown) and proof that contact was made with the borrower (when the location is known); (B) shall provide for making such reports, in such form and containing such information, as the Secretary may reasonably require to carry out the Secretary's functions under this subsection, and for keeping such records and for affording such access thereto as the Secretary may find I See footnote on previous page. 2 Margin so in law. 187 Sec. 428 HIGHER EDUCATION ACT OF 1965 180 necessary to assure the correctness and verification of such reports; (C) shall set forth adequate assurances that, with re- spect to so much of any loan insured under the loan insur- ance program as may be guaranteed by the Secretary pur- suant to this subsection, the undertaking of the Secretary under the guaranty agreement is acceptable in full satis- faction of State law or regulation requiring the mainte- nance of a reserve; (D) shall provide that if, after the Secretary has made payment under the guaranty agreement pursuant to para- graph (1) of this subsection with resnect to any loan, any payments are made in discharge of the obligation incurred by the borrower with respect to such loan (including any payments of interest accruing on such loan after such pay- ment by the Secretary), there shall be paid over to the Sec- retary (for deposit in the fund established by section 431) such proportion of the amounts of such payments as is de- termined (in accordance with paragraph (6)) to represent his equitable share thereof, but (i) shall provide for sub- rogation of the United States to the rights of any insur- ance beneficiary only to the extent required for the pur- pose of paragraph (8); and (ii) except as the Secretary may otherwise by or pursuant to regulation provide, amounts so paid by a borrower on such a loan shall be first applied in reduction of principal owing on such loan; (E) shall set forth adequate assurance that an amount equal to each payment made under paragraph (1) will be promptly deposited in or credited to the accounts main- tained for the purpose of section 422(c); (F) set forth adequate assurances that the guaranty agency will not engage in any pattern or practice which re- sults in a denial of a borrower's access to loans under this part because of the borrower's race, sex, color, religion, na- tional origin, age, handicapped status, income, attendance at a particular eligible institution within the area served by the guaranty agency, length of the borrower's edu- cational program, or the borrower's academic year in school; (G) shall prohibit the Secretary from making any re- imbursement under this subsection to a guaranty agency when a default claim is based on an inability to locate the borrower, unless the guaranty agency, at the time of filing for reimbursement, certifies to the Secretary that diligent attempts, including contact with the institution, have been made to locate the borrower through the use of reasonable skip-tracing techniques in accordance with regulations pre- scribed by the Secretary; and (H) set forth assurances that (i) upon the request of an eligible institution, the guaranty agency shall, subject to clauses (ii) and (iii), furnish to the institution information with respect to students (including the names and addresses of such students) who received loans made, insured, or guar- 188 181 HIGHER EDUCATION ACT OF 1965 Sec. 428 anteed under this part for attendance at the eligible institution and for whom preclaims assistance activi- ties have been requested under subsection (1); (ii) the guaranty agency shall not require the pay- ment from the institution of any fee for such informa- tion; and (iii) the guaranty agency will require the institu- tion to use such information only to assist the institu- tion in reminding students of their obligation to repay student loans and shall. prohibit the institution from disseminating the information for any other purpose. (I) may include such other provisions as may be nec- essary to promote the purpose of this part. (3) FORBEARANCE.-A guaranty agreement under this subsection (A) shall contain provisions providing that (i) upon request, a lender shall grant a borrower forbearance, renewable at 12-month intervals, on terms agreed to in writing by the parties to the loan with the approval of the insurer, and otherwise con- sistent with the regulations of the Secretary, if the borrower (I) is serving in a medical or dental internship or residency program, the successful completion of which is required to begin professional practice or service, or is serving in a medical or dental intern- ship or residency program leading to a degree or certificate awarded by an institution of higher education, a hospital, or a health care facility that offers postgraduate training, provided that if the borrower qualifies for a deferment under section 427(a)(2)(C)(vii) or subsection (b)(1)(M)(vii) of this section as in effect prior to the enactment of the Higher Education Amendments of 1992, or section 427(a)(2)(C) or subsection (b)(1)(M) of this section as amended by such amendments, the borrower has exhausted his or her eligibility for such deferment; (II) has a debt burden under this title that equals or exceeds 20 percent of income; or (III) is serving in a national service position for which the borrower receives a national service educational award under the National and Com- munity Service Trust Act of 1993; (ii) the length of the forbearance granted by the lender (I) under clause (i)(I) shall equal the length of time remaining in the borrower's medical or den- tal internship or residency program, if the bor- rower is not eligible to receive a deferment de- scribed in such clause, or such length of time re- maining in the program after the borrower has ex- hausted the borrower's eligibility for such deferment; 189 Sec. 428 HIGHER EDUCATION ACT OF 1965 182 (II) under clause (i)(II) shall not exceed 3 years; or (III) under clause (i)(III) shall not exceed the period for which the borrower is serving in a posi- tion described in such clause; and (iii) no administrative or other fee may be charged in connection with the granting of a forbearance under clause (i), and no adverse information regarding a bor- rower may be reported to a credit bureau organization solely because of the granting of such forbearance; (B) may, to the extent provided in regulations of the Secretary, contain provisions that permit such forbearance for the benefit of the student borrower as may be agreed upon by the parties to an insured loan and approved by the insurer; (C) shall contain provisions that specify that the form of forbearance granted by the lender for purposes of this paragraph shall be the temporary cessation of payments, unless the borrower selects forbearance in the form of an extension of time for making payments, or smaller pay- ments than were previously scheduled; and (D) shall contain provisions that specify that (i) forbearance for a period not to exceed 60 days may be granted if the lender reasonably determines that such a suspension of collection activity is war- ranted following a borrower's request for deferment, forbearance, a change in repayment plan, or a request to consolidate loans, in order to collect or process ap- propriate supporting documentation related to the re- quest, and (ii) during such period interest shall accrue but not be capitalized. Guaranty agencies shall not be precluded from permitting the parties to such a loan from entering into a forbearance agree- ment solely because the loan is in default. The Secretary shall permit lenders to exercise administrative forbearances that do not require the agreement of the borrower, under conditions authorized by the Secretary. Such forbearances shall include (i) forbearances for borrowers who are delinquent at the time of the granting of an authorized period of deferment under sec- tion 428(b)(1)(M) or 427(a)(2)(C), and (ii) if the borrower is less than 60 days delinquent on such loans at the time of sale or transfer, forbearances for borrowers on loans which are sold or transferred. (4) DEFINITIONS.For the purpose of this subsection, the terms "insurance beneficiary" and "default" have the meanings assigned to them by section 435. (5) APPLICABILITY TO EXISTING LOANS.In the case of any guaranty agreement with a guaranty agency, the Secretary may, in accordance with the terms of this subsection, under- take to guarantee loans described in paragraph (1) which are insured by such guaranty agency and are outstanding on the date of execution of the guaranty agreement, but only with re- 183 HIGHER EDUCATION ACT OF 1965 Sec. 428 spect to defaults occurring after the execution of such guaranty agreement or, if later, after its effective date. (6) SECRETARY'S EQUITABLE SHARE.For the purpose of paragraph (2)(D), the Secretary's equitable share of payments made by the borrower shall be that portion of the payments re- maining after the guaranty agency with which the Secretary has an agreement under this subsection has deducted from such payments (A) a percentage amount equal to the complement of the reinsurance percentage in effect when payment under the guaranty agreement was made with respect to the loan; and (B) an amount equal to 24 percent of such payments for use in accordance with section 422B, except that, be- ginning on October 1, 2003, this subparagraph shall be applied by substituting "23 percent" for "24 percent". (7) NEW PROGRAMS ELIGIBLE FOR 100 PERCENT REINSUR- ANCE.(A) Notwithstanding paragraph (1)(C), the amount to be paid a guaranty agency for any fiscal year (i) which begins on or after October 1, 1977 and ends before October 1, 1991; and (ii) which is either the fiscal year in which such guar- anty agency begins to actively carry on a student loan in- surance program which is subject to a guaranty agreement under subsection (b) of this section, or is one of the 4 suc- ceeding fiscal years, shall be 100 percent of the amount expended by such guaranty agency in discharge of its insurance obligation insured under such program. (B) Notwithstanding the provisions of paragraph (1)(C), the Secretary may pay a guaranty agency 100 percent of the amount expended by such agency in discharge of such agency's insurance obligation for any fiscal year which (i) begins on or after October 1, 1991; and (ii) is the fiscal year in which such guaranty agency begins to actively carry on a student loan insurance pro- gram which is subject to a guaranty agreement under sub- section (b) or is one of the 4 succeeding fiscal years. (C) The Secretary shall continuously monitor the oper- ations of those guaranty agencies to which the provisions of subparagraph (A) or (B) are applicable and revoke the applica- tion of such subparagraph to any such guaranty agency which the Secretary determines has not exercised reasonable pru- dence in the administration of such program. (8) ASSIGNMENT TO PROTECT FEDERAL FISCAL INTEREST.If the Secretary determines that the protection of the Federal fis- cal interest so requires, a guaranty agency shall assign to the Secretary any loan of which it is the holder and for which the Secretary has made a payment pursuant to paragraph (1) of this subsection. (9) GUARANTY AGENCY RESERVE LEVEL.(A) Each guaranty agency which has entered into an agreement with the Sec- retary pursuant to this subsection shall maintain in the agen- cy's Federal Student Loan Reserve Fund established under sec- 191. Sec. 428 HIGHER EDUCATION ACT OF 1965 184 tion 422A a current minimum reserve level of at least 0.25 per- cent of the total attributable amount of all outstanding loans guaranteed by such agency. For purposes of this paragraph, such total attributable amount does not include amounts of outstanding loans transferred to the guaranty agency from an- other guaranty agency pursuant to a plan of the Secretary in response to the insolvency of the latter such guaranty agency. (B) The Secretary shall collect, on an annual basis, infor- mation from each guaranty agency having an agreement under this subsection to enable the Secretary to evaluate the finan- cial solvency of each such agency. The information collected shall include the level of such agency's current reserves, cash disbursements and accounts receivable. (C) If (i) any guaranty agency falls below the required min- imum reserve level in any 2 consecutive years, (ii) any guar- anty agency's Federal reimbursement payments are reduced to 85 percent pursuant to paragraph (1)(B)(i), or (iii) the Sec- retary determines that the administrative or financial condi- tion of a guaranty agency jeopardizes such agency's continued ability to perform its responsibilities under its guaranty agree- ment, then the Secretary shall require the guaranty agency to submit and implement a management plan acceptable to the Secretary within 45 working days of any such event. (D)(i) If the Secretary is not seeking to terminate the guar- anty agency's agreement under subparagraph (E), or assuming the guaranty agency's functions under subparagraph (F), a management plan described in subparagraph (C) shall include the means by which the guaranty agency will improve its fi- nancial and administrative condition to the required level within 18 months. (ii) If the Secretary is seeking to terminate the guaranty agency's agreement under subparagraph (E), or assuming the guaranty agency's functions under subparagraph (F), a man- agement plan described in subparagraph (C) shall include the means by which the Secretary and the guaranty agency shall work together to ensure the orderly termination of the oper- ations, and liquidation of the assets, of the guaranty agency: (E) The Secretary may terminate a guaranty agency's agreement in accordance with subparagraph (F) if (i) a guaranty agency required to submit a manage- ment plan under this paragraph fails to submit a plan that is acceptable to the Secretary; (ii) the Secretary determines that a guaranty agency has failed to improve substantially its administrative and financial condition; (iii) the Secretary determines that the guaranty agen- cy is in danger of financial collapse; (iv) the Secretary determines that such action is nec- essary to protect the Federal fiscal interest; or (v) the Secretary determines that such action is nec- essary to ensure the continued availability of loans to stu- dent or parent borrowers. (F) If a guaranty agency's agreement under this subsection is terminated pursuant to subparagraph (E), then the Sec- 192 185 HIGHER EDUCATION ACT OF 1965 Sec. 428 retary shall assume responsibility for all functions of the guar- anty agency under the loan insurance program of such agency. In performing such functions the Secretary is authorized to (i) permit the transfer of guarantees to another guar- anty agency; (ii) revoke the reinsurance agreement of the guaranty agency at a specified date, so as to require the merger, consolidation, or termination of the guaranty agency; (iii) transfer guarantees to the Department of Edu- cation for the purpose of payment of such claims and proc- ess such claims using the claims standards of the guaranty agency, if such standards are determined by the Secretary to be in compliance with this Act; (iv) design and implement a plan to restore the guar- anty agency's viability; (v) provide the guaranty agency with additional ad- vance funds in accordance with section 422(c)(7), with such restrictions on the use of such funds as is determined ap- propriate by the Secretary, in order to (I) meet the immediate cash needs of the guaranty agency; (II) ensure the uninterrupted payment of claims; or (III) ensure that the guaranty agency will make loans as the lender-of-last-resort, in accordance with subsection (j); (vi) use all funds and assets of the guaranty agency to assist in the activities undertaken in accordance with this subparagraph and take appropriate action to require the return, to the guaranty agency or the Secretary, of any funds or assets provided by the guaranty agency, under contract or otherwise, to any person or organization; or (vii) take any other action the Secretary determines necessary to ensure the continued availability of loans made under this part to residents of the State or States in which the guaranty agency did business, the full honoring of all guarantees issued by the guaranty agency prior to the Secretary's assumption of the functions of such agency, and the proper servicing of loans guaranteed by the guar- anty agency prior to the Secretary's assumption of the functions of such agency, and to avoid disruption of the student loan program. (G) Notwithstanding any other provision of Federal or State law, if the Secretary has terminated or is seeking to ter- minate a guaranty agency's agreement under subparagraph (E), or has assumed a guaranty agency's functions under sub- paragraph (F) (i) no State court may issue any order affecting the Secretary's actions with respect to such guaranty agency; (ii) any contract with respect to the administration of a guaranty agency's reserve funds, or the administration of any assets purchased or acquired with the reserve funds of the guaranty agency, that is entered into or extended by the guaranty agency, or any other party on behalf of or 193 54-653 99 - 7 Sec. 428 HIGHER EDUCATION ACT OF 1965 186 with the concurrence of the guaranty agency, after the date of enactment of this subparagraph shall provide that the contract is terminable by the Secretary upon 30 days notice to the contracting parties if the Secretary determines that such contract includes an impermissible transfer of the reserve funds or assets, or is otherwise in- consistent with the terms or purposes of this section; and (iii) no provision of State law shall apply to the actions of the Secretary in terminating the operations of a guar- anty agency. (H) Notwithstanding any other provision of law, the Sec- retary's liability for any outstanding liabilities of a guaranty agency (other than outstanding student loan guarantees under this part), the functions of which the Secretary has assumed, shall not exceed the fair market value of the reserves of the guaranty agency, minus any necessary liquidation or other ad- ministrative costs. (I) The Secretary shall not take any action under subpara- graph (E) or (F) without giving the guaranty agency notice and the opportunity for a hearing that, if commenced after Septem- ber 24, 1998, shall be on the record. (J) Notwithstanding any other provision of law, the infor- mation transmitted to the Secretary pursuant to this para- graph shall be confidential and exempt from disclosure under section 552 of title 5, United States Code, relating to freedom of information, or any other Federal law. (K) The Secretary, within 3 months after the end of each fiscal year, shall submit to the House Committee on Education and the Workforce and the Senate Committee on Labor and Human Resources a report specifying the Secretary's assess- ment of the fiscal soundness of the guaranty agency system. (d) USURY LAWS INAPPLICABLE.No provision of any law of the United States (other than this Act) or of any State (other than a statute applicable principally to such State's student loan insur- ance program) which limits the rate or amount of interest payable on loans shall apply to a loan (1) which bears interest (exclusive of any premium for in- surance) on the unpaid principal balance at a rate not in ex- cess of the rate specified in this part; and (2) which is insured (i) by the United States under this part, or (ii) by a guaranty agency under a program covered by an agreement made pursuant to subsection (b) of this section. (e) NOTICE OF AVAILABILITY OF INCOME-SENSITIVE REPAYMENT OPTION. At the time of offering a borrower a loan under this part, and at the time of offering the borrower the option of repaying a loan in accordance with this section, the lender shall provide the borrower with a notice that informs the borrower, in a form pre- scribed by the Secretary by regulation (1) that all borrowers are eligible for income-sensitive re- payment, including through loan consolidation under section 428C; (2) the procedures by which the borrower may elect in- come-sensitive repayment; and 194 187 HIGHER EDUCATION ACT OF 1965 Sec. 428 (3) where and how the borrower may obtain additional in- formation concerning income-sensitive repayment. (f) PAYMENTS OF CERTAIN COSTS. (1) PAYMENT FOR CERTAIN ACTIVITIES. (A) IN GENERALThe Secretary (i) for loans originated during fiscal years begin- ning on or after October 1, 1998, and before October 1, 2003, and in accordance with the provisions of this paragraph, shall, except as provided in subparagraph (C), pay to each guaranty agency, a loan processing and issuance fee equal to 0.65 percent of the total principal amount of the loans on which insurance was issued under this part during such fiscal year by such agency; and (ii) for loans originated during fiscal years begin- ning on or after October 1, 2003, and in accordance with the provisions of this paragraph, shall, except as provided in subparagraph (C), pay to each guaranty agency, a loan processing and issuance fee equal to 0.40 percent of the total principal amount of the loans on which insurance was issued under this part during such fiscal year by such agency. (B) PAYMENT.The payment required by subpara- graph (A) shall be paid on a quarterly basis. The guaranty agency shall be deemed to have a contractual right against the United States to receive payments according to the provisions of this paragraph. Payments shall be made promptly and without administrative delay to any guar- anty agency submitting an accurate and complete applica- tion under this subparagraph. (C) REQUIREMENT FOR PAYMENT.No payment may be made under this paragraph for loans for which the dis- bursement checks have not been cashed or for which elec- tronic funds transfers have not been completed. (g) ACTION ON INSURANCE PROGRAM AND GUARANTY AGREE- MENTS.If a nonprofit private institution or organization ( 1) applies to enter into an agreement with the Secretary under subsections (b) and (c) with respect to a student loan in- surance program to be carried on in a State with which the Secretary does not have an agreement under subsection (b), and (2) as provided in the application, undertakes to meet the requirements of section 422(c)(6)(B) (i), (ii), and (iii), the Secretary shall consider and act upon such application within 180 days, and shall forthwith notify the Committee on Labor and Human Resources of the Senate and the Committee on Education and the Workforce of the House of Representatives of his actions. (h) LENDING BY GUARANTY AGENCIES. (1) LENDING FROM SALLIE MAE ADVANCES.From sums ad- vanced by the Association pursuant to section 439(p), each guaranty agency or an eligible lender in a State described in section 435(d)(1) (D) or (F) of the Act is authorized to make loans directly to students otherwise unable to obtain loans under this part. ,193 Sec. 428 HIGHER EDUCATION ACT OF 1965 188 (2) AMOUNT OF ADVANCES.(A) Each guaranty agency or an eligible lender in a State described in section 435(d)(1) (D) or (F) which has an application approved under section 439(p)(2) may receive advances under section 439(p) for each fiscal year in an amount necessary to meet the demand for loans under this section. The amount such agency or lender is eligible to receive may not exceed 25 percent of the average of the loans guaranteed by that agency or lender for the 3 years preceding the fiscal year for which the determination is made. Whenever the determination required by the preceding sen- tence cannot be made because the agency or lender does not have 3 years previous experience, the amount such agency or lender is eligible to receive may not exceed 25 percent of the loans guaranteed under a program of a State of comparable size. (B) Each guaranty agency and each eligible lender in a State described in section 435(d)(1) (D) or (F) shall repay ad- vances made under section 439(p) in accordance with agree- ments entered into between the Association and such agency or lender. (3) LOAN TERM, CONDITIONS, AND BENEFITS.Loans made pursuant to this subsection shall have the same terms, condi- tions, and benefits as all other loans made under this part. (i) MULTIPLE DISBURSEMENT OF LOANS. (1) ESCROW ACCOUNTS ADMINISTERED BY ESCROW AGENT. Any guaranty agency or eligible lender (hereafter in this sub- section referred to as the "escrow agent") may enter into an agreement with any other eligible lender that is not an eligible institution or an agency or instrumentality of the State (here- after in this subsection referred to as the "lender") for the pur- pose of authorizing disbursements of the proceeds of a loan to a student. Such agreement shall provide that the lender will pay the proceeds of such loans into an escrow account to be ad- ministered by the escrow agent in accordance with the provi- sions of paragraph (2) of this subsection. Such agreement may allow the lender to make payments into the escrow account in amounts that do not exceed the sum of the amounts required for disbursement of initial or subsequent installments to bor- rowers and to make such payments not more than 21 days prior to the date of the disbursement of such installment to such borrowers. Such agreement shall require the lender to no- tify promptly the eligible institution when funds are escrowed under this subsection for a student at such institution. (2) AUTHORITY OF ESCROW AGENT.Each escrow agent en- tering into an agreement under paragraph (1) of this sub- section is authorized to (A) make the disbursements in accordance with the note evidencing the loan; (B) commingle the proceeds of all loans paid to the es- crow agent pursuant to the escrow agreement entered into under such paragraph (1); (C) invest the proceeds of such loans in obligations of the Federal Government or obligations which are insured or guaranteed by the Federal Government; 189 HIGHER EDUCATION ACT OF 1965 Sec. 428 (D) retain interest or other earnings on such invest- ment; and (E) return to the lender undisbursed funds when the student ceases to carry at an eligible institution at least one-half of the normal full-time academic workload as de- termined by the institution. (j) LENDERS-OF- LAST- RESORT. (1) GENERAL REQUIREMENT.In each State, the guaranty agency or an eligible lender in the. State described in section 435(d)(1)(D) of this Act shall make loans directly, or through an agreement with an eligible lender or lenders, to students el- igible to receive interest benefits paid on their behalf under subsection (a) of this section who are otherwise unable to ob- tain loans under this part. Loans made under this subsection shall not exceed the amount of the need of the borrower, as determined under subsection (a)(2)(B), nor be less than $200. The guaranty agency shall consider the request of any eligible lender, as defined under section 435(d)(1)(A) of this Act, to serve as the lender-of-last-resort pursuant to this subsection. (2) RULES AND OPERATING PROCEDURES.The guaranty agency shall develop rules and operating procedures for the lender-of-last-resort program designed to ensure that (A) the program establishes operating hours and meth- ods of application designed to facilitate application by stu- dents and ensure a response within 60 days after the stu- dent's original complete application is filed under this sub- section; (B) consistent with standards established by the Sec- retary, students applying for loans under this subsection shall not be subject to additional eligibility requirements or requests for additional information beyond what is re- quired under this title in order to receive a loan under this part from an eligible lender, nor be required to receive more than two rejections from eligible lenders in order to obtain a loan under this subsection; (C) information about the availability of loans under the program is made available to institutions of higher education in the State; (D) appropriate steps are taken to ensure that borrow- ers receiving loans under the program are appropriately counseled on their loan obligation; and (E) the guaranty agency notifies the Secretary when the guaranty agency believes or has reason to believe that the Secretary may need to exercise the Secretary's author- ity under section 439(q). (3) ADVANCES TO GUARANTY AGENCIES FOR LENDER-OF- LAST-RESORT SERVICES.(A) In order to ensure the availability of loan capital, the Secretary is authorized to provide a guar- anty agency designated for a State with additional advance funds in accordance with subparagraph (C) and section 422(c)(7), with such restrictions on the use of such funds as are determined appropriate by the Secretary, in order to ensure that the guaranty agency will make loans as the lender-of-last- 197 Sec. 428 HIGHER EDUCATION ACT OF 1965 190 resort. Such agency shall make such loans in accordance with this subsection and the requirements of the Secretary. (B) Notwithstanding any other provision in this part, a guaranty agency serving as a lender-of-last-resort under this paragraph shall be paid a fee, established by the Secretary, for making such loans in lieu of interest and special allowance subsidies, and shall be required to assign such loans to the Secretary on demand. Upon such assignment, the portion of the advance represented by the loans assigned shall be consid- ered repaid by such guaranty agency. (C) The Secretary shall exercise the authority described in subparagraph (A) only if the Secretary determines that eligible borrowers are seeking and are unable to obtain loans under this part, and that the guaranty agency designated for that State has the capability to provide lender-of-last-resort loans in a timely manner, in accordance with the guaranty agency's obligations under paragraph (1), but cannot do so without ad- vances provided by the Secretary under this paragraph. If the Secretary makes the determinations described in the preceding sentence and determines that it would be cost-effective to do so, the Secretary may provide advances under this paragraph to such guaranty agency. If the Secretary determines that such guaranty agency does not have such capability, or will not pro- vide such loans in a timely fashion, the Secretary may provide such advances to enable another guaranty agency, that the Secretary determines to have such capability, to make lender- of-last-resort loans to eligible borrowers in that State who are experiencing loan access problems. (k) INFORMATION ON DEFAULTS. (1) PROVISION OF INFORMATION TO ELIGIBLE INSTITU- TIONS.Notwithstanding any other provision of law, in order to notify eligible institutions of former students who are in de- fault of their continuing obligation to repay student loans, each guaranty agency shall, upon the request of an eligible institu- tion, furnish information with respect to students who were en- rolled at the eligible institution and who are in default on the repayment of any loan made, insured, or guaranteed under this part. The information authorized to be furnished under this subsection shall include the names and addresses of such students. (2) PUBLIC DISSEMINATION NOT AUTHORIZED.Nothing in paragraph (1) of this subsection shall be construed to authorize public dissemination of the information described in paragraph (1). (3) BORROWER LOCATION INFORMATION.Any information provided by the institution relating to borrower location shall be used by the guaranty agency in conducting required skip- tracing activities. (1) DEFAULT AVERSION ASSISTANCE. (1) ASSISTANCE REQUIRED.Upon receipt of a complete re- quest from a lender received not earlier than the 60th day of delinquency, a guaranty agency having an agreement with the Secretary under subsection (c) shall engage in default aversion 191 HIGHER EDUCATION ACT OF 1965 Sec. 428 activities designed to prevent the default by a borrower on a loan covered by such agreement. (2) REIMBURSEMENT. (A) IN GENERALA guaranty agency, in accordance with the provisions of this paragraph, may transfer from the Federal Student Loan Reserve Fund under section 422A to the Agency Operating Fund under section 422B a default aversion fee. Such fee shall be paid for any loan on which a claim for default has not been paid as a result of the loan being brought into current repayment status by the guaranty agency on or before the 300th day after the loan becomes 60 days delinquent. (B) AMOUNT.The default aversion fee shall be equal to 1 percent of the total unpaid principal and accrued in- terest on the loan at the time the request is submitted by the lender. A guaranty agency may transfer such fees earned under this subsection not more frequently than monthly. Such a fee shall not be paid more than once on any loan for which the guaranty agency averts the default unless (i) at least 18 months has elapsed between the date the borrower entered current repayment status and the date the lender filed a subsequent default aversion assistance request; and (ii) during the period between such dates, the bor- rower was not more than 30 days past due on any payment of principal and interest on the loan. (C) DEFINITION.For the purpose of earning the de- fault aversion fee, the term "current repayment status" means that the borrower is not delinquent in the payment of any principal or interest on the loan. (m) INCOME CONTINGENT REPAYMENT. (1) AUTHORITY OF SECRETARY TO REQUIRE.The Secretary may require borrowers who have defaulted on loans made under this part that are assigned to the Secretary under sub- section (c)(8) to repay those loans under an income contingent repayment plan, the terms and conditions of which shall be es- tablished by the Secretary and the same as, or similar to, an income contingent repayment plan established for purposes of part D of this title. (2) LOANS FOR WHICH INCOME CONTINGENT REPAYMENT MAY BE REQUIRED.A loan made under this part may be re- quired to be repaid under this subsection if the note or other evidence of the loan has been assigned to the Secretary pursu- ant to subsection (c)(8). (n) BLANKET CERTIFICATE OF LOAN GUARANTY. (1) IN GENERAL.Subject to paragraph (3), any guaranty agency that has entered into or enters into any insurance pro- gram agreement with the Secretary under this part may (A) offer eligible lenders participating in the agency's guaranty program a blanket certificate of loan guaranty that permits the lender to make loans without -receiving prior approval from the guaranty agency of individual 1,93 Sec. 428A HIGHER EDUCATION ACT OF 1965 192 loans for eligible borrowers enrolled in eligible programs at eligible institutions; and (B) provide eligible lenders with the ability to transmit electronically data to the agency concerning loans the lend- er has elected to make under the agency's insurance pro- gram via standard reporting formats, with such reporting to occur at reasonable and standard intervals. (2) LIMITATIONS ON BLANKET CERTIFICATE OF GUARANTY. (A) An eligible lender may not make a loan to a borrower under this section after such lender receives a notification from the guaranty agency that the borrower is not an eligible bor- rower. (B) A guaranty agency may establish limitations or restric- tions on the number or volume of loans issued by a lender under the blanket certificate of guaranty. (3) PARTICIPATION LEVEL.During fiscal years 1999 and 2000, the Secretary may permit, on a pilot basis, a limited number of guaranty agencies to offer blanket certificates of guaranty under this subsection. Beginning in fiscal year 2001, any guaranty agency that has an insurance program agree- ment with the Secretary may offer blanket certificates ofguar- anty under this subsection. (4) REPORT REQUIRED.The Secretary shall, at the conclu- sion of the pilot program under paragraph (3), provide a report to the Committee on Education and the Workforce of the House of Representatives and the Committee on Labor and Human Resources of the Senate on the impact of the blanket certificates of guaranty on program efficiency and integrity. SEC. 428A. [20 U.S.C. 1078-1] VOLUNTARY FLEXIBLE AGREEMENTS WITH GUARANTY AGENCIES. (a) VOLUNTARY AGREEMENTS. (1) AUTHORITY.Subject to paragraph (2), the Secretary may enter into a voluntary, flexible agreement with a guaranty agency under this section, in lieu of agreements with a guar- anty agency under subsections (b) and (c) of section 428. The Secretary may waive or modify any requirement under such subsections, except that the Secretary may not waive (A) any statutory requirement pertaining to the terms and conditions attached to student loans or default claim payments made to lenders; or (B) the prohibitions on inducements contained in sec- tion 428(b)(3) unless the Secretary determines that such a waiver is consistent with the purposes of this section and is limited to activities of the guaranty agency within the State or States for which the guaranty agency serves as the designated guarantor. (2) SPECIAL RULE.If the Secretary grants a waiver pursu- ant to paragraph (1)(B), any guaranty agency doing business within the affected State or States may request, and the Sec- retary shall grant, an identical waiver to such guaranty agency under the same terms and conditions (including service area limitations) as govern the original waiver. (2 0 0 193 HIGHER EDUCATION ACT OF 1965. Sec. 428A (3) ELIGIBILITY.During fiscal years 1999, 2000, and 2001, the Secretary may enter into a voluntary, flexible agreement with not more than 6 guaranty agencies that had 1 or more agreements with the Secretary under subsections (b) and (c) of section 428 as of the day before the date of enactment of the Higher Education Amendments of 1998. Beginning in fiscal year 2002, any guaranty agency or consortium thereof may enter into a voluntary flexible agreement with the Secretary. (4) REPORT REQUIRED.Not later than September 30, 2001, the Secretary shall report to the Committee on Labor and Human Resources of the Senate and the Committee on Education and the Workforce of the House of Representatives regarding the impact that the voluntary flexible agreements have had upon program integrity, program and cost effi- ciencies, and the availability and delivery of student financial aid. Such report shall include (A) a description of each voluntary flexible agreement and the performance goals established by the Secretary for each agreement; (B) a list of participating guaranty agencies and the specific statutory or regulatory waivers provided to each guaranty agency and any waivers provided to other guar- anty agencies under paragraph (2); (C) a description of the standards by which each agency's performance under the agency's voluntary flexible agreement was assessed and the degree to which each agency achieved-the performance standards; and (D) an analysis of the fees paid by the Secretary, and the costs and efficiencies achieved under each voluntary agreement. (b) TERMS OF AGREEMENT.An agreement between the Sec- retary and a guaranty agency under this section (1) shall be developed by the Secretary, in consultation with the guaranty agency, on a case-by-case basis; (2) may only include provisions (A) specifying the responsibilities of the guaranty agency under the agreement, with respect to (i) administering the issuance of insurance on loans made under this part on behalf of the Secretary; (ii) monitoring insurance commitments made under this part; (iii) default aversion activities; (iv) review of default claims made by lenders; (v) payment of default claims; (vi) collection of defaulted loans; (vii) adoption of internal systems of accounting and auditing that are acceptable to the Secretary, and reporting the result thereof to the Secretary in a time- ly manner, and on an accurate, and auditable basis; (viii) timely and accurate collection and reporting of such other data as the Secretary may require to carry out the purposes of the programs under this title; 201 Sec. 428A HIGHER EDUCATION ACT OF 1965 194 (ix) monitoring of institutions and lenders partici- pating in the program under this part; and (x) informational outreach to schools and students in support of access to higher education; (B) regarding the fees the Secretary shall pay, in lieu of revenues that the guaranty agency may otherwise re- ceive under this part, to the guaranty agency under the agreement, and other funds that the guaranty agency may receive or retain under the agreement, except that in no case may the cost to the Secretary of the agreement, as reasonably projected by the Secretary, exceed the cost to the Secretary, as similarly projected, in the absence of the agreement; (C) regarding the use of net revenues, as described in the agreement under this section, for such other activities in support of postsecondary education as may be agreed to by the Secretary and the guaranty agency; (D) regarding the standards by which the guaranty agency's performance of the agency's responsibilities under the agreement will be assessed, and the consequences for a guaranty agency's failure to achieve a specified level of performance on 1 or more performance standards; (E) regarding the circumstances in which a guaranty agency's agreement under this section may be ended in ad- vance of the agreement's expiration date; (F) regarding such other businesses, previously pur- chased or developed with reserve funds, that relate to the program under this part and in which the Secretary per- mits the guaranty agency to engage; and (G) such other provisions as the Secretary may deter- mine to be necessary to protect the United States from the risk of unreasonable loss and to promote the purposes of this part; (3) shall provide for uniform lender participation with the guaranty agency under the terms of the agreement; and (4) shall not prohibit or restrict borrowers from selecting a lender of the borrower's choosing, subject to the prohibitions and restrictions applicable to the selection under this Act. (c) PUBLIC NOTICE. (1) IN GENERAL.The Secretary shall publish in the Federal Register a notice to all guaranty agencies that sets forth (A) an invitation for the guaranty agencies to enter into agreements under this section; and (B) the criteria that the Secretary will use for selecting the guaranty agencies with which the Secretary will enter into agreements under this section. (2) AGREEMENT NOTICE.The Secretary shall notify the Chairperson and the Ranking Minority Member of the Com- mittee on Labor and Human Resources of the Senate and the Committee on Education and the Workforce of the House of Representatives not later than 30 days prior to concluding an agreement under this section. The notice shall contain 195 HIGHER EDUCATION ACT OF 1965 Sec. 428A (A) a description of the voluntary flexible agreement and the performance goals established by the Secretary for the agreement; (B) a list of participating guaranty agencies and the specific statutory or regulatory waivers provided to each guaranty agency; (C) a description of the standards by which each guar- anty agency's performance under the agreement will be as- sessed; and (D) a description of the fees that will be paid to each participating guaranty agency. (3) WAIVER NOTICE.The Secretary shall notify the Chair- person and the Ranking Minority Member of the Committee on Labor and Human Resources of the Senate and the Committee on Education and the Workforce of the House of Representa- tives not later than 30 days prior to the granting of a waiver pursuant to subsection (a)(2) to a guaranty agency that is not a party to a voluntary flexible agreement. (4) PUBLIC AVAILABILITY.The text of any voluntary flexi- ble agreement, and any subsequent revisions, and any waivers related to section 428(b)(3) that are not part of such an agree- ment, shall be readily available to the public. (5) MODIFICATION NOTICE.The Secretary shall notify the Chairperson and the Ranking Minority Members of the Com- mittee on Labor and Human Resources of the Senate and the Committee on Education and the Workforce of the House of Representatives 30 days prior to any modifications to an agree- ment under this section. (d) TERMINATION.At the expiration or early termination of an agreement under this section, the Secretary shall reinstate the guaranty agency's prior agreements under subsections (b) and (c) of section 428, subject only to such additional requirements as the Secretary determines to be necessary in order to ensure the effi- cient transfer of responsibilities between the agreement under this section and the agreements under subsections (b) and (c) of section 428, and including the guaranty agency's compliance with reserve requirements under sections 422 and 428. SEC. 428B. [20 U.S.C. 1078-21 FEDERAL PLUS LOANS. (a) AUTHORITY To BORROW. (1) AUTHORITY AND ELIGIBILITY.Parents of a dependent student shall be eligible to borrow funds under this section in amounts specified in subsection (b), if (A) the parents do not have an adverse credit history as determined pursuant to regulations promulgated by the Secretary; and (B) the parents meet such other eligibility criteria as the Secretary may establish by regulation, after consulta- tion with guaranty agencies, eligible lenders, and other or- ganizations involved in student financial assistance. (2) TERMS, CONDITIONS, AND BENEFITS.Except as pro- vided in subsections (c), (d), and (e), loans made under this sec- tion shall have the same terms, conditions, and benefits as all other loans made under this part. 203 Sec. 428B HIGHER EDUCATION ACT OF 1965 196 (3) SPECIAL RULE.Whenever necessary to carry out the provisions of this section, the terms 'student' and 'borrower' as used in this part shall include a parent borrower under this section. (b) LIMITATION BASED ON NEED.Any loan under this section may be counted as part of the expected family contribution in the determination of need under this title, but no loan may be made to any parent under this section for any academic year in excess of (A) the student's estimated cost of attendance, minus (B) other financial aid as certified by the eligible institution under section 428(a)(2)(A). The annual insurable limit on account of any student shall not be deemed to be exceeded by a line of credit under which actual payments to the borrower will not be made in any year in excess of the annual limit. (c) PLUS LOAN DISBURSEMENT.All loans made under this section shall be disbursed in accordance with the requirements of section 428G and shall be disbursed by (1) an electronic transfer of funds from the lender to the eligible institution; or (2) a check copayable to the eligible institution and the parent borrower. (d) PAYMENT OF PRINCIPAL AND INTEREST. (1) COMMENCEMENT OF REPAYMENT.Re payrnent of prin- cipal on loans made under this section shall commence not later than 60 days after the date such loan is disbursed by the lender, subject to deferral during any period during which the parent meets the conditions required for a deferral under sec- tion 427(a)(2)(C) or 428(b)(1)(M). (2) CAPITALIZATION OF INTEREST.Interest on loans made under this section for which payments of principal are deferred pursuant to paragraph (1) of this subsection 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 not more frequently than quarterly by the lender. Such capital- ization of interest shall not be deemed to exceed the annual in- surable limit on account of the borrower. (3) SUBSIDIES PROHIBITED.No payments to reduce inter- est costs shall be paid pursuant to section 428(a) of this part on loans made pursuant to this section. (4) APPLICABLE RATES OF INTEREST.Interest on loans made pursuant to this section shall be at the applicable rate of interest provided in section 427A for loans made under this section.' (5) AMORTIZATION.The amount of the periodic payment and the repayment schedule for any loan made pursuant to this section shall be established by assuming an interest rate equal to the applicable rate of interest at the time the repay- ment of the principal amount of the loan commences. At the option of the lender, the note' or other written evidence of the loan may require that 'Section 416(aX2) of the Higher Education Amendments of 1998 (P.L. 105-244; 112 Stat. 1680) contained an amendment that could not be executed and was redundant because of an earlier amendment in section 8301(a)(2) of the Transportation Equity Act for the 21st Century (P.L. 105-178; 112 Stat. 497). 191 HIGHER EDUCATION ACT OF 1965 Sec. 4288 (A) the amount of the periodic payment will be ad- justed annually, or (B) the period of repayment of principal will be length- ened or shortened, in order to reflect adjustments in interest rates occurring as a consequence of section 427A(c)(4). (e) REFINANCING. (1) REFINANCING TO SECURE COMBINED PAYMENT.An eli- gible lender may at any time consolidate loans held by it which are made under this section to a borrower, including loans which were made under section 428B as in effect prior to the enactment of the Higher Education Amendments of 1986, under a single repayment schedule which provides for a single principal payment and a single payment of interest, and shall calculate the repayment period for each included loan from the date of the commencement of repayment of the most recent in- cluded loan. Unless the consolidated loan is obtained by a bor- rower who is electing to obtain variable interest under para- graph (2) or (3), such consolidated loan shall bear interest at the weighted average of the rates of all included loans. The ex- tension of any repayment period of an included loan pursuant to this paragraph shall be reported (if required by them) to the Secretary or guaranty agency insuring the loan, as the case may be, but no additional insurance premiums shall be pay- able with respect to any such extension. The extension of the repayment period of any included loan shall not require the formal extension of the promissory note evidencing the in- cluded loan or the execution of a new promissory note, but shall be treated as an administrative forbearance of the repay- ment terms of the included loan. (2) REFINANCING TO SECURE VARIABLE INTEREST RATE.An eligible lender may reissue a loan which was made under this section before July 1, 1987, or under section 428B as in effect prior to the enactment of the Higher Education Amendments of 1986 in order to permit the borrower to obtain the interest rate provided under section 427A(c)(4). A lender offering to re- issue a loan or loans for such purpose may charge a borrower an amount not to exceed $100 to cover the administrative costs of reissuing such loan or loans, not more than one-half of which shall be paid to the guarantor of the loan being reissued to cover costs of reissuance. Reissuance of a loan under this paragraph shall not affect any insurance applicable with re- spect to the loan, and no additional insurance fee may be charged to the borrower with respect to the loan. (3) REFINANCING BY DISCHARGE OF PREVIOUS LOAN.A bor- rower who has applied to an original lender for reissuance of a loan under paragraph (2) and who is denied such reissuance may obtain a loan from another lender for the purpose of dis- charging the loan from such original lender. A loan made for such purpose (A) shall bear interest at the applicable rate of interest provided under section 427A(c)(4); 205 Sec. 428C HIGHER EDUCATION ACT OF 1965 198 (B) shall not result in the extension of the duration of the note (other than as permitted under subsection (c)(5)(B)); (C) may be subject to an additional insurance fee but shall not be subject to the administrative cost charge per- mitted by paragraph (2) of this subsection; and (D) shall be applied to discharge the borrower from any remaining obligation to the original lender with re- spect to the original loan. (4) CERTIFICATION IN LIEU OF PROMISSORY NOTE PRESEN- TATION.Each new lender may accept certification from the original lender of the borrower's original loan in lieu of presen- tation of the original promissory note. (5) NOTIFICATION TO BORROWERS OF AVAILABILITY OF REFI- NANCING OPTIONS.Each holder of a loan made under this sec- tion or under section 428B as in effect prior to the date of en- actment of this Act shall, not later than October 1, 1987, in the case of loans made before the date of enactment of this Act, no- tify the borrower of such loan (A) of the refinancing options for which the borrower is eligible under this subsection; (B) of those options which will be made available by the holder and of the practical consequences of such op- tions in terms of interest rates and monthly and total pay- ments for a set of loan examples; and (C) that, with respect to any option that the holder will not make available, the holder will, to the extent prac- ticable, refer the borrower to an eligible lender offering such option. (f) VERIFICATION OF IMMIGRATION STATUS AND SOCIAL SECURITY NUMBER.A parent who wishes to borrow funds under this section shall be subject to verification of the parent's (1) immigration status in the same manner as immigration status is verified for students under section 484(g); and (2) social security number in the same manner as social se- curity numbers are verified for students under section 484(p). SEC. 428C. [20 U.S.C. 1078-3] FEDERAL CONSOLIDATION LOANS. (a) AGREEMENTS WITH ELIGIBLE LENDERS. (1) AGREEMENT REQUIRED FOR INSURANCE COVERAGE.For the purpose of providing loans to eligible borrowers for consoli- dation of their obligations with respect to eligible student loans, the Secretary or a guaranty agency shall enter into agreements in accordance with subsection (b) with the follow- ing eligible lenders: (A) the Student Loan Marketing Association or the Holding Company of the Student Loan Marketing Associa- tion, including any subsidiary of the Holding Company, created pursuant to section 440; (B) State agencies described in subparagraphs (D) and (F) of section 435(d)(1); and (C) other eligible lenders described in subparagraphs (A), (B), (C), (E), and (J) of such section. 206 199 NIGHER EDUCATION ACT OF 1965 Sec. 428C (2) INSURANCE COVERAGE OF CONSOLIDATION LOANS.Ex- cept as provided in section 429(e), no contract of insurance under this part shall apply to a consolidation loan unless such loan is made under an agreement pursuant to this section and is covered by a certificate issued in accordance with subsection (b)(2). Loans covered by such a certificate that is issued by a guaranty agency shall be considered to be insured loans for the purposes of reimbursements under section 428(c), but no pay- ment shall be made with respect to such loans under section 428(f) to any such agency. (3) DEFINITION OF ELIGIBLE BORROWER.(A) For the purpose of this section, the term "eligible borrower" means a borrower who (i) is not subject to a judgment secured through litiga- tion with respect to a loan under this title or to an order for wage garnishment under section 488A; and (ii) at the time of application for a consolidation loan (I) is in repayment status; (II) is in a grace period preceding repay- ment; or (III) is a defaulted borrower who has made ar- rangements to repay the obligation on the defaulted loans satisfactory to the holders of the defaulted loans. (B)(i) An individual's status as an eligible borrower under this section terminates upon receipt of a consolidation loan under this section, except that (I) an individual who receives eligible student loans after the date of receipt of the consolidation loan may re- ceive a subsequent consolidation loan; (II) loans received prior to the date of the consolida- tion loan may be added during the 180-day period follow. ing the making of the consolidation loan; (III) loans received following the making of the consoli- dation loan may be added during the 180-day period fol- lowing the making of the consolidation loan; and (IV) loans received prior to the date of the first consoli- dation loan may be added to a subsequent consolidation loan. (C)(i) A married couple, each of whom has eligible student loans, may be treated as if such couple were an individual bor- rowing under subparagraphs (A) and (B) if such couple agrees to be held jointly and severally liable for the repayment of a consolidation loan, without regard to the amounts of the re- spective loan obligations that are to be consolidated, and with- out regard to any subsequent change that may occur in such couple's marital status. (ii) Only one spouse in a married couple applying for a con- solidation loan under this subparagraph need meet any of the requirements of subsection (b) of this section, except that each spouse shall (I) individually make the initial certification that no other application is pending in accordance. with subsection (b)(1)(A); and 207 Sec. 428C NIGHER EDUCATION ACT OF 1965 200 (II) agree to notify the holder concerning any change of address in accordance with subsection (b)(4). (4) DEFINITION OF ELIGIBLE STUDENT LOANS.For the pur- pose of paragraph (1), the term "eligible student loans" means loans (A) made, insured, or guaranteed under this part, in- cluding loans on which the borrower has defaulted (but has made arrangements to repay the obligation on the de- faulted loans satisfactory to the Secretary or guaranty agency; whichever insured the loans); (B) made under part E of this title; (C) made under part D of this title; (D) made under subpart II of part A of title VII of the Public Health Service Act; or (E) made under subpart II of part B of title VIII of the Public Health Service Act. (b) CONTENTS OF AGREEMENTS, CERTIFICATES OF INSURANCE, AND LOAN NOTES. (1) AGREEMENTS WITH LENDERS.Any lender described in subparagraph (A), (B), or (C) of subsection (a)(1) who wishes to make consolidation loans under this section shall enter into an agreement with the Secretary or a guaranty agency which provides (A) that, in the case of all lenders described in sub- section (a)(1), the lender will make a consolidation loan to an eligible borrower (on request of that borrower) only if the borrower certifies that the borrower has no other appli- cation pending for a loan under this section and (i) the lender holds an outstanding loan of that borrower which is selected by the borrower for consolidation under this sec- tion, except that this clause shall not apply in the case of a borrower with multiple holders of loans under this part, or (ii) the borrower certifies that the borrower has sought and has been unable to obtain a consolidation loan with in- come-sensitive repayment terms from the holders of the outstanding loans of that borrower (which are so selected for consolidation); (B) that each consolidation loan made by the lender will bear interest, and be subject to repayment, in accord- ance with subsection (c); (C) that each consolidation loan will be made, notwith- standing any other provision of this part limiting the an- nual or aggregate principal amount for all insured loans made to a borrower, in an amount (i) which is not less than the minimum amount required for eligibility of the borrower under subsection (a)(3), and (ii) which is equal to the sum of the unpaid principal and accrued unpaid inter- est and late charges of all eligible student loans received by the eligible borrower which are selected by the borrower for consolidation; (D) that the proceeds of each consolidation loan will be paid by the lender to the holder or holders of the loans so selected to discharge the liability on such loans; 208 201 HIGHER EDUCATION ACT OF 1965 Sec. 428C (E) that the lender shall offer an income-sensitive re- payment schedule, established by the lender in accordance with the regulations promulgated by the Secretary, to the borrower of any consolidation loan made by the lender on or after July 1, 1994; and (F) such other terms and conditions as the Secretary or the guaranty agency may specifically require of the lender to carry out this section. (2) ISSUANCE OF CERTIFICATE OF COMPREHENSIVE INSUR- ANCE COVERAGE.The Secretary shall issue a certificate of comprehensive insurance coverage under section 429(b) to a lender which has entered into an agreement with the Secretary under paragraph (1) of this subsection. The guaranty agency may issue a certificate of comprehensive insurance coverage to a lender with which it has an agreement under such para- graph. The Secretary shall not issue a certificate to a lender described in subparagraph (B) or (C) of subsection (a)(1) unless the Secretary determines that such lender has first applied to, and has been denied a certificate of insurance by, the guaranty agency which insures the preponderance of its loans (by value). (3) CONTENTS OF CERTIFICATE.A certificate issued under paragraph (2) shall, at a minimum, provide (A) that all consolidation loans made by such lender in conformity with the requirements of this section will be in- sured by the Secretary or the guaranty agency (whichever is applicable) against loss of principal and interest; (B) that a consolidation loan will not be insured unless the lender has determined to its satisfaction, in accordance with reasonable and prudent business practices, for each loan being consolidated (i) that the loan is a legal, valid, and binding obli- gation of the borrower; (ii) that each such loan was made and serviced in compliance with applicable laws and regulations; and (iii) in the case of loans under this part, that the insurance on such loan is in full force and effect; (C) the effective date and expiration date ofthe certifi- cate; (D) the aggregate amount to which the certificate ap- plies; (E) the reporting requirements of the Secretary on the lender and an identification of the office of the Department of Education or of the guaranty agency which will process claims and perform other related administrative functions; (F) the alternative repayment terms which will be of- fered to borrowers by the lender; (G) that, if the lender prior to the expiration of the certificate no longer proposes to make consolidation loans, the lender will so notify the issuer of the certificate in order that the certificate may be terminated (without af- fecting the insurance on any consolidation loan made prior to such termination); and (H) the terms upon which the issuer of the certificate may limit, suspend, or terminate the lender's authority to 209 Sec. 428C HIGHER EDUCATION ACT OF 1965 202 make consolidation loans under the certificate (without af- fecting the insurance on any consolidation loan made prior to such limitation, suspension, or termination). (4) TERMS AND CONDITIONS OF LOANS.-A consolidation loan made pursuant to this section shall be insurable by the Secretary or a guaranty agency pursuant to paragraph (2) only if the loan is made to an eligible borrower who has agreed to notify the holder of the loan promptly concerning any change of address and the loan is evidenced by a note or other written agreement which (A) is made without security and without endorse- ment, except that if the borrower is a minor and such note or other written agreement executed by him or her would not, under applicable law, create a binding obligation, en- dorsement may be required; (B) provides for the payment of interest and the repay- ment of principal in accordance with subsection (c) of this section; (C)(i) provides that periodic installments of principal need not be paid, but interest shall accrue and be paid in accordance with clause (ii), during any period for which the borrower would be eligible for a deferral under section 428(b)(1)(M), and that any such period shall not be in- cluded in determining the repayment schedule pursuant to subsection (c)(2) of this section; and (ii) provides that interest shall accrue and be paid dur- ing any such period (I) by the Secretary, in the case of a consolidation loan for which the application is received by an eligi- ble lender before the date of enactment of the Emer- gency Student Loan Consolidation Act of 1997 that consolidated only Federal Stafford Loans for which the student borrower received an interest subsidy under section 428; (II) by the Secretary, in the case of a consolidation loan for which the application is received by an eligi- ble lender on or after the date of enactment of the Emergency Student Loan Consolidation Act of 1997 except that the Secretary shall pay such interest only on that portion of the loan that repays Federal Staf- ford Loans for which the student borrower received an interest subsidy under section 428 or Federal Direct Stafford Loans for which the borrower received an in- terest subsidy under section 455; or (III) by the borrower, or capitalized, in the case of a consolidation loan other than a loan described in subclause (I) or (II); (D) entitles the borrower to accelerate without penalty repayment of the whole or any part of the loan; and (E)(i) contains a notice of the ,system of disclosure con- cerning such loan to credit bureau organizations under section 430A, and (ii) provides that the lender on request of the borrower will provide information on the repayment status of the note to such organizations. 203 HIGHER EDUCATION ACT OF 1965 Sec. 428C (5) DIRECT LOANS.In the event that a borrower is unable to obtain a consolidation loan from a lender with an agreement under subsection (a)(1), or is unable to obtain a consolidation loan with income-sensitive repayment terms acceptable to the borrower from such a lender, the Secretary shall offer any such borrower who applies for it, a direct consolidation loan. Such direct consolidation loan shall, as requested by the borrower, be repaid either pursuant to income contingent repayment under part D of this title or pursuant to any other repayment provision under this section. The Secretary shall not offer such loans if, in the Secretary's judgment, the Department of Edu- cation does not have the necessary origination and servicing arrangements in place for such loans. (6) NONDISCRIMINATION IN LOAN CONSOLIDATION.An eli- gible lender that makes consolidation loans under this section shall not discriminate against any borrower seeking such a loan (A) based on the number or type of eligible student loans the borrower seeks to consolidate, except that a lend- er is not required to consolidate loans described in sub- paragraph (D) or (E) of subsection (a)(4) or subsection (d)(1)(C)(ii); (B) based on the type or category of institution of high- er education that the borrower attended; (C) based on the interest rate to be charged to the bor- rower with respect to the consolidation loan; or (D) with respect to the types of repayment schedules offered to such borrower. (C) PAYMENT OF PRINCIPAL AND INTEREST. (1) INTEREST RATE.(A) Notwithstanding subparagraphs (B) and (C), with respect to any loan made under this section for which the application is received by an eligible lender on or after October 1, 1998, and before July 1, 2003, the applica- ble interest rate shall be determined under section 427A(k)(4). (B) A consolidation loan made before July 1, 1994, shall bear interest at an annual rate on the unpaid principal balance of the loan that is equal to the greater of (i) the weighted average of the interest rates on the loans consolidated, rounded to the nearest whole percent; or (ii) 9 percent. (C) A consolidation loan made on or after July 1, 1994, shall bear interest at an annual rate on the unpaid principal balance of the loan that is equal to the weighted average of the interest rates on the loans consolidated, rounded upward to the nearest whole percent. (D) A consolidation loan for which the application is re- ceived by an eligible lender on or after the date of enactment of the Emergency Student Loan Consolidation Act of 1997 and before October 1, 1998, shall bear interest at an annual rate on the unpaid principal balance of the loan that is equal to the rate specified in section 427A(f), except that the eligible lender may continue to calculate interest on such a loan at the rate previously in effect and defer, until not later than April 1, 211 Sec. 428C HIGHER EDUCATION ACT OF 1965 204 1998, the recalculation of the interest on such a loan at the rate required by this subparagraph if the recalculation is ap- plied retroactively to the date on which the loan is made. (2) REPAYMENT SCHEDULES.(A) Notwithstanding any other provision of this part, to the extent authorized by its cer- tificate of insurance under subsection (b)(2)(F) and approved by the issuer of such certificate, the lender of a consolidation loan shall establish repayment terms as will promote the objectives of this section, which shall include the establishment of grad- uated or income-sensitive repayment schedules, established by the lender in accordance with the regulations of the Secretary. Except as required by such income-sensitive repayment sched- ules, or by the terms of repayment pursuant to income contin- gent repayment offered by the Secretary under subsection (b)(5), such repayment terms shall require that if the sum of the consolidation loan and the amount outstanding on other student loans to the individual (i) is less than $7,500, then such consolidation loan shall be repaid in not more than 10 years; (ii) is equal to or greater than $7,500 but less than $10,000, then such consolidation loan shall be repaid in not more than 12 years; (iii) is equal to or greater than $10,000 but less than $20,000, then such consolidation loan shall be repaid in not more than 15 years; (iv) is equal to or greater than $20,000 but less than $40,000, then such consolidation loan shall be repaid in not more than 20 years; (v) is equal to or greater than $40,000 but less than $60,000, then such consolidation loan shall be repaid in not more than 25 years; or (vi) is equal to or greater than $60,000, then such con- solidation loan shall be repaid in not more than 30 years. (B) The amount outstanding on other student loans which may be counted for the purpose of subparagraph (A) may not exceed the amount of the consolidation loan. (3) ADDITIONAL REPAYMENT REQUIREMENTS.Notwith- standing paragraph (2) (A) a repayment schedule established with respect to a consolidation loan shall require that the minimum in- stallment payment be an amount equal to not less than the accrued unpaid interest; and (B) except as required by the terms of repayment pur- suant to income contingent repayment offered by the Sec- retary under subsection (b)(5), the lender of a consolidation loan may, with respect to repayment on the loan, when the amount of a monthly or other similar payment on the loan is not a multiple of $5, round the payment to the next highest whole dollar amount that is a multiple of $5. (4) COMMENCEMENT OF REPAYMENT.Repayment of a con- solidation loan shall commence within 60 days after all holders have, pursuant to subsection (b)(1)(D), discharged the liability of the borrower on the loans selected for consolidation. 205 HIGHER EDUCATION ACT OF 1965 Sec. 428C (5) INSURANCE PREMIUMS PROHIBITED.No insurance pre- mium shall be charged to the borrower on any consolidation loan, and no insurance premium shall be payable by the lender to the Secretary with respect to any such loan, but a fee may be payable by the lender to the guaranty agency to cover the costs of increased or extended liability with respect to such loan. (d) SPECIAL PROGRAM AUTHORIZED. (1) GENERAL RULE AND DEFINITION OF ELIGIBLE STUDENT (A) IN GENERAL.Subject to the provisions of this sub- section, the Secretary or a guaranty agency shall enter into agreements with eligible lenders described in subpara- graphs (A), (B), and (C) of subsection (a)(1) for the consoli- dation of eligible student loans. (B) APPLICABILITY RULE.Unless otherwise provided in this subsection, the agreements entered into under sub- paragraph (A) and the loans made under such agreements for the consolidation of eligible student loans under this subsection shall have the same terms, conditions, and ben- efits as all other agreements and loans made under this section. (C) DEFINITION.For the purpose of this subsection, the term "eligible student loans" means loans (i) of the type described in subparagraphs (A), (B), and (C) of subsection (a)(4); and (ii) made under subpart I of part A of title WI of the Public Health Service Act. (2) INTEREST RATE RULE. (A) IN GENERAL.The portion of each consolidated loan that is attributable to an eligible student loan de- scribed in paragraph (1)(C)(ii) shall bear interest at a rate not to exceed the rate determined under subparagraph (B). (B) DETERMINATION OF THE MAXIMUM INTEREST RATE.For the 12-month period beginning after July 1, 1992, and for each 12-month period thereafter, beginning on July 1 and ending on June 30, the interest rate applica- ble under subparagraph (A) shall be equal to the average of the bond equivalent rates of the 91-day Treasury bills auctioned for the quarter prior to July 1, for each 12- month period for which the determination is made, plus 3 percent. (C) PUBLICATION OF MAXIMUM INTEREST RATE.The Secretary shall determine the applicable rate of interest under subparagraph (B) after consultation with the Sec- retary of the Treasury and shall publish such rate in the Federal Register as soon as practicable after the date of such determination. (3) SPECIAL RULES. (A) No SPECIAL ALLOWANCE RULE.No special allow- ance under section 438 shall be paid with respect to the portion of any consolidated loan under this subsection that is attributable to any loan described in paragraph (1)(C)(ii). 213 Sec. 428D HIGHER EDUCATION ACT OF 1965 206 (B) No INTEREST SUBSIDY RULE.No interest subsidy under section 428(a) shall be paid on behalf of any eligible borrower for any portion of a consolidated loan under this subsection that is attributable to any loan described in paragraph (1)(C)(ii). (C) ADDITIONAL RESERVE RULE.Notwithstanding any other provision of this Act, additional reserves shall not be required for any guaranty agency with respect to a loan made under this subsection. (D) INSURANCE RULE.Any insurance premium paid by the borrower under subpart I of part A of title VII of the Public Health Service Act with respect to a loan made under that subpart and consolidated under this subsection shall be retained by the student loan insurance fund estab- lished under section 710 of the Public Health Service Act. (4) REGULATIONS.The Secretary is authorized to promul- gate such regulations as may be necessary to facilitate carrying out the provisions of this subsection. (e) TERMINATION OF AUTHORITY.The authority to make loans under this section expires at the close of September 30, 2004. Noth- ing in this section shall be construed to authorize the Secretary to promulgate rules or regulations governing the terms or conditions of the agreements and certificates under subsection (b). Loans made under this section which are insured by the Secretary shall be considered to be new loans made to students for the purpose of section 424(a). (f) INTEREST PAYMENT REBATE FEE. (1) IN GENERAL.For any month beginning on or after Oc- tober 1, 1993, each holder of a consolidation loan under this section for which the first disbursement was made on or after October 1, 1993, shall pay to the Secretary, on a monthly basis and in such manner as the Secretary shall prescribe, a rebate fee calculated on an annual basis equal to 1.05 percent of the principal plus accrued unpaid interest on such loan. (2) SPECIAL RULE.For consolidation loans based on appli- cations received during the period from October 1, 1998 through January 31, 1999, inclusive, the rebate described in paragraph (1) shall be equal to 0.62 percent of the principal plus accrued unpaid interest on such loan. (3) DEPOSIT.The Secretary shall deposit all fees collected pursuant to subsection (a) into the insurance fund established in section 431. SEC. 428D. [20 U.S.C. 1078-4] COMMINGLING OF FUNDS. Notwithstanding any other provision of this part regarding permissible uses of funds from any source, funds received by a guaranty agency under any provision of this part may be commin- gled with funds received under any other provision of this part and may be used to carry out the purposes of such other provision, ex- cept that (1) the total amount expended for the purposes of such other provision shall not exceed the amount the guaranty agency would otherwise be authorized to expend; and 21. A 207 HIGHER EDUCATION ACT OF 1965 Sec. 428F (2) the authority to commingle such funds shall not relieve such agency of any accounting or auditing obligations under this part. [Section 428E was repealed by section 605(b) of Public Law 102-164; 105 Stat. 1068.] SEC. 42SF. [20 U.S.C. 1078-61 DEFAULT REDUCTION PROGRAM. (a) OTHER REPAYMENT INCENTIVES. (1) SALE OF LOAN. (A) Each guaranty agency shall enter into an agree- ment with the Secretary which shall provide that upon se- curing consecutive payments for 12 months of amounts owed on a loan for which the Secretary has made a pay- ment under paragraph (1) of section 428(c), the guaranty agency (pursuant to an agreement with the Secretary) or the Secretary shall, if practicable, sell the loan to an eligi- ble lender. Such loan shall not be sold to an eligible lender who has been found by the guaranty agency or the Sec- retary to have substantially failed to exercise the due dili- gence required of lenders under this part. Neither the guaranty agency nor the Secretary shall demand from a borrower as monthly payment amounts referred to in this paragraph more than is reasonable and affordable based upon the borrower's total financial circumstances. (B) An agreement between the guaranty agency and the Secretary for purposes of this paragraph shall provide (i) for the repayment by the agency to the Sec- retary of 81.5 percent of the amount of the principal balance outstanding at the time of such sale, multi- plied by the reinsurance percentage in effect when payment under the guaranty agreement was made with respect to the loan; and (ii) for the reinstatement by the Secretary (I) of the obligation to reimburse such agency for the amount expended by it in discharge of its insurance obligation under its loan insurance program, and (II) of the obligation to pay to the holder of such loan a special allowance pursuant to section 438. (C) A loan which does not meet the requirements of subparagraph (A) may also be eligible for sale under this paragraph upon a determination that the loan was in de- fault due to clerical or data processing error and would not, in the absence of such error, be in a delinquent status. (2) USE OF PROCEEDS OF SALES.Amounts received by the Secretary pursuant to the sale of such loans by a guaranty agency under paragraph (1) of this subsection shall be de- ducted from the calculations of the amount of reimbursement for which the agency is eligible under paragraph (1)(B)(ii) of this subsection for the fiscal year in which the amount was re- ceived, notwithstanding the fact that the default occurred in a prior fiscal year. 2 c Sec. 4286 HIGHER EDUCATION ACT OF 1965 208 (3) BORROWER ELIGIBILITY.Any borrower whose loan is sold under paragraph (2) shall not be precluded by section 484 from receiving additional loans or grants under this title (for which he or she is otherwise eligible) on the basis of defaulting on the loan prior to such loan sale. (4) APPLICABILITY OF GENERAL LOAN CONDITIONS.A loan which is sold under paragraph (1) of this subsection shall, so long as the borrower continues to make scheduled repayments thereon, be subject to the same terms and conditions and qual- ify for the same benefits and privileges as other loans made under this part. (b) SATISFACTORY REPAYMENT ARRANGEMENTS To RENEW ELI- GIBILITY.Each guaranty agency shall establish a program which allows a borrower with a defaulted loan or loans to renew eligibility for all title IV student financial assistance (regardless of whether the defaulted loan has been sold to an eligible lender) upon the bor- rower's payment of 6 consecutive monthly payments. The guaranty agency shall not demand from a borrower as a monthly payment amount under this subsection more than is reasonable and afford- able based upon the borrower's total financial .circumstances. A bor- rower may only obtain the benefit of this subsection with respect to renewed eligibility once. SEC. 428G. [20 -U.S.C. 1078-7] REQUIREMENTS FOR DISBURSEMENT OF STUDENT LOANS. (a) MULTIPLE DISBURSEMENT REQUIRED. (1) TWO DISBURSEMENTS REQUIRED.The proceeds of any loan made, insured, or guaranteed under this part that is made for any period of enrollment shall be disbursed in 2 or more installments, none of which exceeds one-half of the loan. (2) MINIMUM INTERVAL REQUIRED.The interval between the first and second such installments shall be not less than one-half of such period of enrollment, except as necessary to permit the second installment to be disbursed at the beginning of the second semester, quarter, or similar division of such pe- riod of enrollment. (3)1 SPECIAL RULE.An institution whose cohort default rate (as determined under section 435(m)) for each of the 3 most recent fiscal years for which data are available is less than 10 percent may disburse any loan made, insured, or guar- anteed under this part in a single installment for any period of enrollment that is not more than 1 semester, 1 trimester, 1 quarter, or 4 months. (b) DISBURSEMENT AND ENDORSEMENT REQUIREMENTS. (1) FIRST YEAR STUDENTS.The first installment of the proceeds of any loan made, insured, or guaranteed under this part that is made to a student borrower who is entering the first year of a program of undergraduate education, and who has not previously obtained a loan under this part, shall not (regardless of the amount of such loan or the duration of the period of enrollment) be presented by the institution to the stu- 'Section 422(a) of Public Law 105-244 added paragraph (3). Section 422(d) of such Act states the amendments made by subsections (a) and (b) of section 422 shall be effective during the period beginning on October 1, 1998, and ending on September 30, 2002. 216 209 HIGHER EDUCATION ACT OF 1965 Sec. 4286 dent for endorsement until 30 days after the borrower begins a course of study, but may be delivered to the eligible institu- tion prior to the end of that 30-day period. An institution whose cohort default rate (as determined under section 435(m)) for each of the three most recent fiscal years for which data are available is less than 10 percent shall be exempt from the re- quirements of this paragraph.' (2) OTHER STUDENTS.The proceeds of any loan made, in- sured, or guaranteed under this part that is made to any stu- dent other than a student described in paragraph (1) shall not be disbursed more than 30 days prior to the beginning of the period of enrollment for which the loan is made. (c) METHOD OF MULTIPLE DISBURSEMENT.Disbursements under subsection (a) (1) shall be made in accordance with a schedule provided by the institution (under section 428(a)(2)(A)(i)(III)) that com- plies with the requirements ofthis section; (2) may be made directly by the lender or, in the case of a loan under sections 428 and 428A, may be disbursed pursu- ant to the escrow provisions of section 428(i); and (3) notwithstanding subsection (a)(2), may, with the per- mission of the borrower, be disbursed by the lender2 on a weekly or monthly basis, provided that the proceeds of the loan are disbursed2 in substantially equal weekly or monthly in- stallments, as the case may be, over the period of enrollment for which the loan is made. (d) WITHHOLDING OF SECOND DISBURSEMENT. (1) WITHDRAWING STUDENTS.A lender or escrow agent that is informed by the borrower or the institution that the borrower has ceased to be enrolled before the disbursement of the second or any succeeding installment shall withhold such disbursement. Any disbursement which is so withheld shall be credited to the borrower's loan and treated as a prepayment thereon. (2) STUDENTS RECEIVING OVER-AWARDS.If the sum of a disbursement for any student and the other financial aid ob- tained by such student exceeds the amount of assistance for which the student is eligible under this title, the institution such student is attending shall withhold and return to the lender or escrow agent the portion (or all) of such installment that exceeds such eligible amount, except that overawards per- mitted pursuant to section 443(b)(4) of the Act shall not be con- strued to be overawards for purposes of this paragraph. Any portion (or all) of a disbursement installment which is so re- turned shall be credited to the borrower's loan and treated as a prepayment thereon. Section 422(b) of Public Law 105-244 added a new sentence at the end. Section 422(d) of such Act states the amendments made by subsections (a) and (b) shall be effective during the period beginning on October 1, 1998, and ending on September 30, 2002. 2Error in amendment made to this paragraph by paragraph (41) of section 2(c) of the Higher Education Technical Amendments of 1993 (P.L. 103-208; 107 Stat. 2466). The amendment strikes "disbursed" and inserts "disbursed by the lender". The amendment does not specify the lace at which the amendment is to be executed (probably should be the first place the term disbursed" appears). 217 BEST COPY AVAILABLE Sec. 42811 HIGHER EDUCATION ACT OF 1965 210 (e) EXCLUSION OF CONSOLIDATION AND FOREIGN STUDY LOANS.The provisions of this section shall not apply in the case of a loan made under section 428C, made to a student to cover the cost of attendance at an eligible institution outside the United States, or made to a student to cover the cost of attendance in a program of study abroad approved by the home eligible institution if the home eligible institution has a cohort default rate (as cal- culated under section 435(m)) of less than 5 percent. (0 BEGINNING OF PERIOD OF ENROLLMENT.For purposes of this section, a period of enrollment begins on the first day that classes begin for the applicable period of enrollment. (g) SALES PRIOR TO DISBURSEMENT PROHIBITED.An eligible lender shall not sell or transfer a promissory note for any loan made, insured, or guaranteed under this part until the final dis- bursement of such loan has been made, except that the prohibition of this subsection shall not apply if (1) the sale of the loan does not result in a change in the identity of the party to whom payments will be made for the loan; and (2) the first disbursement of such loan has been made. SEC. 428H. [20 U.S.C. 1078-8] UNSUBSIDIZED STAFFORD LOANS FOR MIDDLE-INCOME BORROWERS. (a) IN GENERAL.It is the purpose of this section to authorize insured loans under this part for borrowers who do not qualify for Federal interest subsidy payments under section 428 of this Act. Except as provided in this section, all terms and conditions for Fed- eral Stafford loans established under section 428 shall apply to loans made pursuant to this section. (b) ELIGIBLE BORROWERS.Any student meeting the require- ments for student eligibility under section 484 (including graduate and professional students as defined in regulations promulgated by the Secretary) shall be entitled to borrow an unsubsidized Federal Stafford Loan if the eligible institution at which the student has been accepted for enrollment, or at which the student is in attend- ance, has (1) determined and documented the student's need for the loan based on the student's estimated cost of attendance (as determined under section 472) and the student's estimated fi- nancial assistance, including a loan which qualifies for interest. subsidy payments under section 428; and (2) provided the lender a statement (A) certifying the eligibility of the student to receive a loan under this section and the amount of the loan for which such student is eligible, in accordance with sub- section (c); and (B) setting forth a schedule for disbursement of the proceeds of the loan in installments, consistent with the requirements of section 428G. (c) DETERMINATION OF AMOUNT OF LOAN.The determination of the amount of a loan by an eligible institution under subsection (b) shall be calculated by subtracting from the estimated cost of at- tendance at the eligible institution any estimated financial assist- ance reasonably available to such student. An eligible institution 211 HIGHER EDUCATION ACT OF 1965 Sec. 428H may not, in carrying out the provisions of subsection (b) of this sec- tion, provide a statement which certifies the eligibility of any stu- dent to receive any loan under this section in excess of the amount calculated under the preceding sentence. (d) LOAN LIMITS. (1) IN GENERAL.Except as provided in paragraphs (2) and (3), the annual and aggregate limits for loans under this sec- tion shall be the same as those established under section 428(b)(1), less any amount received by such student pursuant to the subsidized loan program established under section 428. (2) ANNUAL LIMITS FOR INDEPENDENT, GRADUATE, AND PRO- FESSIONAL STUDENTS.The maximum annual amount of loans under this section an independent student (or a student whose parents are unable to borrow under section 428B or the Fed- eral Direct PLUS Loan Program) may borrow in any academic year (as defined in section 481(a)(2)) or its equivalent shall be the amount determined under paragraph (1), plus (A) in the case of such a student attending an eligible institution who has not completed such student's first 2 years of undergraduate study (i) $4,000, if such student is enrolled in a program whose length is at least one academic year in length; and (ii) if such student is enrolled in a program of un- dergraduate education which is less than one aca- demic year, the maximum annual loan amount that such student 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, trimester, quarter, or clock hours bears to one academic year; (B) in the case of a student at an eligible institution who has successfully completed such first and second years but has not successfully completed the remainder of a pro- gram of undergraduate education (i) $5,000; or (ii) if such student is enrolled in a program of un- dergraduate education, the remainder of which is less than one academic year, the maximum annual loan amount that such student may receive may not exceed the amount that bears the same ratio to the amount specified in subclause (I) as such remainder measured in semester, trimester, quarter, or clock hours bears to one academic year; (C) in the case of such a student who is a graduate or professional student attending an eligible institution, $10,000; and (D) in the case of a student enrolled in coursework specified in sections 484(b)(3)(B) and 484(b)(4)(B) (i) $4,000 for coursework necessary for enrollment in an undergraduate degree or certificate program, and, in the case of a student who has obtained a bac- calaureate degree, $5,000 for coursework necessary for enrollment in a graduate or professional program; and 219 Sec. 42811 HIGHER EDUCATION ACT OF 1965 212 (ii) in the case of a student who has obtained a baccalaureate degree, $5,000 for coursework necessary for a professional credential or certification from a State required for employment as a teacher in an ele- mentary or secondary school; 'except in cases where the Secretary determines, that a higher amount is warranted in order to carry out the purpose of this part with respect to students engaged in specialized training requiring exceptionally high costs of education, but the annual insurable limit per student shall not be deemed to be exceeded by a line of credit under which actual payments by the lender to the borrower will not be made in any years in excess of the annual limit. (3) AGGREGATE LIMITS FOR INDEPENDENT, GRADUATE, AND PROFESSIONAL STUDENTS.The maximum aggregate amount of loans under this section a student described in paragraph (2) may borrow shall be the amount described in paragraph (1), adjusted to reflect the increased annual limits described in paragraph (2), as prescribed by the Secretary by regulation. In- terest capitalized shall not be deemed to exceed such maximum aggregate amount. (e) PAYMENT OF PRINCIPAL AND INTEREST. (1) COMMENCEMENT OF REPAYMENT. Repayment of prin- cipal on loans made under this section shall begin at the begin- ning of the repayment period described in section 428(b)(7). Not less than 30 days prior to the anticipated commencement of such repayment period, the holder of such loan shall provide notice to the borrower that interest will accrue before repay -. ment begins and of the borrower's option to begin loan repay- ment at an earlier date. (2) CAPITALIZATION OF INTEREST.(A) Interest on loans made under this section for which payments of principal are not required during the in-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 (i) be paid monthly or quarterly; or (ii) 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 period, in the case of a loan that qualifies for a grace period; (III) at the expiration of a period of deferment or forbearance; or (IV) when the borrower defaults. (B) The capitalization of interest described in subpara- graph (A) shall not be deemed to exceed the annual insurable limit on account of the student. (3) SUBSIDIES PROHIBITED.No payments to reduce inter- est costs shall be paid pursuant to section 428(a) of this part on loans made pursuant to this section. Margin so in law, probably should be moved two ems to the right. 213 HIGHER EDUCATION ACT OF 1965 Sec. 428H (4) APPLICABLE RATES OF INTEREST.Interest on loans made pursuant to this section shall be at the applicable rate of interest provided in section 427A. (5) AMORTIZATION.The amount of the periodic payment and the repayment schedule for any loan made pursuant to this section shall be established by assuming an interest rate equal to the applicable rate of interest at the time the repay- ment of the principal amount of the loan commences. At the option of the lender, the note or other written evidence of the loan may require that (A) the amount of the periodic payment will be ad- justed annually; or (B) the period of repayment of principal will be length- ened or shortened, in order to reflect adjustments in interest rates occurring as a consequence of section 427A(c)(4). (6) REPAYMENT PERIOD.For purposes of calculating the repayment period under section 428(b)(9), such period shall commence at the time the first payment of principal is due from the borrower. (7) QUALIFICATION FOR FORBEARANCE.A lender may grant the borrower of a loan under this section a forbearance for a period not to exceed 60 days if the lender reasonably de- termines that such a forbearance from collection activity is warranted following a borrower's request for forbearance, deferment, or a change in repayment plan, or a request to con- solidate loans in order to collect or process appropriate sup- porting documentation related to the request. During any such period, interest on the loan shall accrue but not be capitalized. [(f) Repealed] (g) SINGLE APPLICATION FORM AND LOAN REPAYMENT SCHED- ULE.A guaranty agency shall use a single application form and a single repayment schedule for subsidized Federal Stafford loans made pursuant to section 428 and for unsubsidized Federal Staf- ford loans made pursuant to this section. (h) INSURANCE PREMIUM.Each State or nonprofit private in- stitution or organization having an agreement with the Secretary under section 428(b)(1) may charge a borrower under this section an insurance premium equal to not more than 1.0 percent of the principal amount of the loan, if such premium will not be used for incentive payments to lenders. SEC. 428L [20 U.S.C. 1078-9] SPECIAL INSURANCE AND REINSURANCE RULES. (a) DESIGNATION OF LENDERS, SERVICERS, AND GUARANTY AGENCIES. (1) AUTHORITY.Whenever the Secretary determines that an eligible lender, servicer, or guaranty agency has a compli- ance performance rating that equals or exceeds 97 percent, the Secretary shall designate the eligible lender, servicer, or guar- anty agency, as the case may be, for exceptional performance. The Secretary shall notify each appropriate guaranty agency of the eligible lenders and servicers designated under this section. 221 Sec. 4281 HIGHER EDUCATION ACT OF 1965 214 (2) COMPLIANCE PERFORMANCE RATING.For purposes of paragraph (1), a compliance performance rating is determined with respect to compliance with due diligence in the collection of loans under this part for each year for which the determina- tion is made. Such rating is equal to the percent of all due dili- gence requirements applicable to each loan, on average, as es- tablished by the Secretary by regulation, with respect to (A) loans serviced during the period by the eligible lender or servicer; or (B) loans on which loan collection was attempted by the guaranty agency. (b) PAYMENT TO LENDERS AND SERVICERS. (1) 100 PERCENT PAYMENT RULE.Each guaranty agency shall pay each eligible lender or servicer (as agent for an eligi- ble lender) designated under subsection (a) 100 percent of the unpaid principal and interest of all loans for which claims are submitted for payment by that eligible lender or servicer for the one-year period following the receipt by the guaranty agen- cy of the notification of designation under this section or until the guaranty agency receives notice from the Secretary that the designation of the lender or servicer under subsection (a) has been revoked. (2) REVOCATION AUTHORITY.The Secretary shall revoke the designation of a lender or servicer under subsection (a) if any quarterly audit required under subsection (c)(5) is not re- ceived by the Secretary by the date established by the Sec- retary or if the audit indicates the lender or servicer failed to maintain 97 percent or higher compliance with program regu- lations, as reflected in the performance of not less than 97 per- cent of all due diligence requirements applicable to each loan, on average, as established by the Secretary for the purpose of this section, for 2 consecutive months or 90 percent for 1 month. (3) DOCUMENTATION.Nothing in this section shall restrict or limit the authority of guaranty agencies to require the sub- mission of claims documentation evidencing servicing per- formed on loans, except that the guaranty agency may not re- quire greater documentation than that required for lenders and servicers not designated under subsection (a). (4) PAYMENTS TO GUARANTY AGENCIES.The Secretary shall pay to each guaranty agency designated under subsection (a) the appropriate percentage under this subsection for the 1- year period following the receipt by the guaranty agency of the notification of designation under subsection (a). (C) SUPERVISION OF DESIGNATED LENDERS AND SERVICERS. (1) AUDITS FOR LENDERS AND SERVICERS.Each eligible lender or servicer desiring a designation under subsection (a) shall have a financial and compliance audit of the loan port- folio of such eligible lender or servicer conducted annually by a qualified independent organization from a list of qualified or- ganizations promulgated by the Secretary in accordance with standards established by the Comptroller General and the Sec- retary. The standards shall measure the lender's or servicer's compliance with the due diligence standards and shall include 215 HIGHER EDUCATION ACT OF 1965 Sec. 4281 a defined statistical sampling technique designed to measure the performance rating of the eligible lender or servicer for the purpose of this section. Each eligible lender or servicer shall submit the audit required by this section to the Secretary and to each appropriate guaranty agency. (2) ADDITIONAL INFORMATION ON LENDERS AND SERVICERS.Each appropriate guaranty agency shall provide the Secretary with such other information in its possession re- garding an eligible lender or servicer desiring designation as may relate to the Secretary's determination under subsection (a), including but not limited to any information suggesting that the application of a lender or servicer for designation under subsection (a) should not be approved. (3) SECRETARY'S DETERMINATIONS.The Secretary shall make the determination under subsection (a) based upon the audits submitted under this section, such other information as provided by any guaranty agency under paragraph (2), and any information in the possession of the Secretary or submitted by any other agency or office of the Federal Government. If the results of the audit are not persuasively rebutted by such other information, the Secretary shall inform the eligible lender or servicer and the appropriate guaranty agency that its applica- tion for designation as an exceptional lender or servicer has been approved. (4) COST OF AUDIT.Each eligible lender or servicer shall pay for all the costs of the audits required under this section. (5) COMPLIANCE AUDIT.In order to maintain its status as an exceptional eligible lender or servicer, the lender or servicer shall undergo a quarterly compliance audit at the end of each quarter (other than the quarter in which status as an excep- tional lender or servicer is established through a financial and compliance audit, as described in subsection (c)(1)), and submit the results of such audit to the Secretary and such appropriate guaranty agency. The compliance audit will review compliance with due diligence requirements for the period since the last audit. (6) LOSS OF DESIGNATION.If the audit performed pursu- ant to paragraph (5) fails to meet the standards for designation as an exceptional lender or servicer under subsection (a)(1), the lender or servicer shall lose its designation as an exceptional lender or servicer. A lender or servicer receiving a compliance audit not meeting the standard for designation as an excep- tional lender or servicer may reapply for designation under subsection (a) at any time. (7) DUE DILIGENCE STANDARDS.Due diligence standards used for determining compliance under paragraph (5) shall be promulgated by the Secretary after consultation with lenders, guaranty agencies and servicers and shall consist of a list of specific elements for the Federal regulations selected to provide an indication of systems degradation. (8) ADDITIONAL REVOCATION AUTHORITY.Notwithstanding any other provision of this section, designation under sub- section (a) may be revoked at any time by the Secretary if the Secretary determines that the eligible lender or servicer has 2 2 Sec. 4281 HIGHER EDUCATION ACT OF 1965 216 failed to maintain an overall level of regulatory compliance consistent with the audit submitted by the eligible lender or servicer under this section or if the Secretary believes the lend- er or servicer may have engaged in fraud in securing designa- tion under subsection (a) or is failing to service loans in accord- ance with program regulations. (d) SUPERVISION OF DESIGNATED GUARANTY AGENCIES. (1) AUDIT OF GUARANTY AGENCIES.Each guaranty agency desiring a designation under subsection (a) shall have a finan- cial and compliance audit of the defaulted loan portfolio of such guaranty agency conducted annually by a qualified independ- ent organization or person from a list of qualified organizations or persons promulgated by the Secretary in accordance with standards established by the Comptroller General and the Sec- retary. The standards shall include defined statistical sampling techniques designed to measure the performance rating of the guaranty agency for the purpose of this section. Each guaranty agency shall submit the audit required by this paragraph to the Secretary. (2) QUARTERLY SAMPLE AUDITS.The Secretary may re- quire quarterly sample audits as a means of determining con- tinued qualification of the guaranty agency for designation as an exceptional guaranty agency. (3) SECRETARY'S DETERMINATIONS.The Secretary shall make the determination under subsection (a) based upon the audits submitted under this section and other information in his possession. If the results of the audit are not persuasively rebutted by such other information, the Secretary shall inform the guaranty -agency that its application for designation as an exceptional guaranty agency has been approved. (4) COSTS OF AUDITS.Each guaranty agency shall pay for all of the costs of the audits regulated by this section. (5) REVOCATION FOR FRAUD.The Secretary may revoke the designation of a guaranty agency under subsection (a) at any time if the Secretary has reason to believe the guaranty agency secured its designation under subsection (a) through fraud or fails to comply with applicable regulations. (6) REVOCATION BASED ON PERFORMANCE.Designation as an exceptional guaranty agency may be revoked at any time by the Secretary upon 30 days notice and an opportunity for a hearing before the Secretary upon a finding by the Secretary that the guaranty agency has failed to maintain an acceptable overall level of regulatory compliance. (e) SPECIAL RULE.Reimbursements made by the Secretary on loans submitted for claim by an eligible lender or loan servicer des- ignated for exceptional performance under this section shall not be subject to additional review by the Secretary or repurchase by the guaranty agency for any reason other than a determination by the Secretary that the eligible lender, loan servicer, or guaranty agency engaged in fraud or other purposeful misconduct in obtaining des- ignation for exceptional performance. (0 LIMITATION. Nothing in this section shall be construed to affect the processing of claims on student loans of eligible lenders not subject to this paragraph. 211 HIGHER EDUCATION ACT OF 1965 Sec. 4281 (g) CLAIMS.A lender, servicer, or guaranty agency designated under subsection (a) failing to service loans or otherwise comply with applicable program regulations shall be considered in viola- tion of section 3729 of title 31, United States Code, 1. (h) EVALUATION.Not later than 3 years after the date of en- actment of this Act, the Comptroller General shall submit to the Chairman of the Senate Labor and Human Resources Committee and the House Committee on Education and Labor, an evaluation of the provisions of this section including, but not limited to, the following: (1) The effectiveness of due diligence performed by lenders and servicers receiving designation as exceptional lenders or servicers from the perspective of securing maximum collections from borrowers. (2) A quantification of the dollar volume of claims that were paid to exceptional lenders and servicers that would not have been paid under applicable program provisions prior to the enactment of this section. (3) An assessment of the impact of this section on the fi- nancial condition of guaranty agencies. (4) An assessment of the savings to lenders, servicers, and guaranty agencies resulting from designation as exceptional performance. (5) An identification of specific administration steps that lenders, servicers, and guaranty agencies do not have to per- form as a result of designation as exceptional lenders, servicers, or guaranty agencies. (6) A recommendation for program modifications applicable to all program participants based on the findings of the evalua- tion. (7) A recommendation for modifications to this section and whether the program should be continued. (i) TERMINATION.After receipt of the study authorized in sub- section (h), the Secretary may terminate such program if he deter- mines such termination to be in the fiscal interest of the United States. (j) DEFINITIONS.For the purpose of this section (1) the term "due diligence requirements" means the ac- tivities required to be performed by lenders on delinquent loans pursuant to regulations issued by the Secretary; (2) the term "eligible loan" means a loan made, insured or guaranteed under part B of title IV; (3) the term "servicer" means an entity servicing and col- lecting student loans which (A) has substantial experience in servicing and collect- ing consumer loans or student loans; (B) has an independent financial audit annually which is furnished to the Secretary and any other parties des- ignated by the Secretary; (C) has business systems which are capable of meeting the requirements of part B of title IV; 1So in law. The comma probably should be deleted. Section 2(c)(46) of the Higher Education Technical Amendments of 1993 struck "the Federal False Claims Act" and inserted "section 3729 of title 31, United States Code,". 54-653 99 - 8 225 Sec. 428.1 HIGHER EDUCATION ACT OF 1965 218 (D) has adequate personnel who are knowledgeable about the student loan programs authorized by part B of title IV; and (E) does not have any owner, majority shareholder, di- rector, or officer of the entity who has been convicted of a felony. SEC. 428J. [20 U.S.C. 1078-10] LOAN FORGIVENESS FOR TEACHERS. (a) STATEMENT OF PURPOSE.It is the purpose of this section to encourage individuals to enter, and continue in the teaching pro- fession. (b) PROGRAM AUTHORIZED.The Secretary shall carry out a program, through the holder of the loan, of assuming the obligation to repay a qualified loan amount for a loan made under section 428 or 428H, in accordance with subsection (c), for any new borrower on or after October 1, 1998, who (1) has been employed as a full-time teacher for 5 consecu- tive complete school years (A) in a school that qualifies under section 465(a)(2)(A) for loan cancellation for Perkins loan recipients who teach in such schools; (B) if employed as a secondary school teacher, is teach- ing a subject area that is relevant to the borrower's aca- demic major as certified by the chief administrative officer of the public or nonprofit private secondary school in which the borrower is employed; and (C) if employed as an elementary school teacher, has demonstrated, as certified by the chief administrative offi- cer of the public or nonprofit private elementary school in which the borrower is employed, knowledge and teaching skills in reading, writing, mathematics, and other areas of the elementary school curriculum; and (2) is not in default on a loan for which the borrower seeks forgiveness. (C) QUALIFIED LOANS AMOUNT. (1) IN GENERAL.The Secretary shall repay not more than $5,000 in the aggregate of the loan obligation on a loan made under section 428 or 428H that is outstanding after the com- pletion of the fifth complete school year of teaching described in subsection (b)(1). No borrower may receive a reduction of loan obligations under both this section and section 460. (2) TREATMENT OF CONSOLIDATION LOANS.A loan amount for a loan made under section 428C may be a qualified loan amount for the purposes of this subsection only to the extent that such loan amount was used to repay a Federal Direct Stafford Loan, a Federal Direct Unsubsidized Stafford Loan, or a loan made under section 428 or 428H for a borrower who meets the requirements of subsection (b), as determined in ac- cordance with regulations prescribed by the Secretary. (d) REGULATIONS.The Secretary is authorized to issue such regulations as may be necessary to carry out the provisions of this section. (e) CONSTRUCTION.Nothing in this section shall be construed to authorize any refunding of any repayment of a loan. 219 HIGHER EDUCATION ACT OF 1965 Sec. 428K (f) LIST.If the list of schools in which a teacher may perform service pursuant to subsection (b) 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 de- termination. (g) ADDITIONAL ELIGIBILITY PROVISIONS. (1) CONTINUED ELIGIBILITY.Any teacher who performs service in a school that (A) meets the requirements of subsection (b)(1)(A) in any year during such service; and (B) in a subsequent year fails to meet the require- ments of such subsection, may continue to teach in such school and shall be eligible for loan forgiveness pursuant to subsection (b). (2) PREVENTION OF DOUBLE BENEFITS.No borrower may, for the same service, receive a benefit under both this sub- section and subtitle D of title I of the National and Community Service Act of 1990 (42 U.S.C. 12571 et seq.). (h) DEFINITION.For purposes of this section, the term "year", where applied to service as a teacher, means an academic year as defined by the Secretary. SEC. 428K [20 U.S.C. 1078-11) LOAN FORGIVENESS FOR CHILD CARE PROVIDERS. (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 providers in the early child care field for longer periods of time. (b) 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 government licens- ing, 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 through age 5 by an individual who has a degree in early childhood education. (3) DEGREE.The term "degree" means an associate's or bachelor's degree awarded by an institution of higher edu- cation. (4) EARLY CHILDHOOD EDUCATION.The term "early child- hood 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. (5) INSTITUTION OF HIGHER EDUCATION.Notwithstanding section 102, the term "institution of higher education" has the meaning given the term in section 101. (c) DEMONSTRATION PROGRAM. (1) IN GENERAL.The Secretary may carry out a dem- onstration program of assuming the obligation to repay, pursu- ant to subsection (d), a loan made, insured, or guaranteed under this part or part D (excluding loans made under sections 227 Sec. 428K HIGHER EDUCATION ACT OF 1965 220 428B and 428C or comparable loans made under part D) for any new borrower after the date of enactment of the Higher Education Amendments of 1998, who (A) completes a degree in early childhood education; (B) obtains employment in a child care facility; and (C) has worked full time for the 2 consecutive years preceding the year for which the determination is made as a child care provider in a low-income community. (2) LOW-INCOME COMMUNITY.For the purposes of this subsection, the term "low-income community" means a commu- nity in which 70 percent of households within the community earn less than 85 percent of the State median household in- come. (3) AWARD BASIS; PRIORITY. (A) AWARD BASIS.Subject to subparagraph (B), loan repayment under this section shall be on a first-come, first-served basis and subject to the availability of appro- priations. (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. (4) REGULATIONS.The Secretary is authorized to pre- scribe such regulations as may be necessary to carry out the provisions of this section. (d) LOAN REPAYMENT. (1) IN GENERALThe Secretary shall assume the obliga- tion to repay (A) after the second consecutive year of employment described in subparagraphs (B) and (C) of subsection (c)(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 consecutive year of such employ- ment, 20 percent of the total amount of all such loans; and (C) after each of the fourth and fifth consecutive years of such employment, 30 percent of the total amount of all such loans. (2) CONSTRUCTION.Nothing in this section shall be con- strued 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 repaid by the Sec- retary 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 student borrower who is not participating in loan repayment pursuant to this section returns to an institution of higher education after grad- uation from an institution of higher education for the purpose of obtaining a degree in early childhood education, the Sec- retary 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 academic years in returning to an institu- tion of higher education for the purpose of obtaining a degree 228 221 HIGHER EDUCATION ACT OF 1965 Sec. 428K in early childhood education. Such loans shall only be repaid for borrowers who qualify for loan repayment pursuant to the provisions of this section, and shall be repaid in accordance with the provisions of paragraph (1). (5) INELIGIBILITY OF NATIONAL SERVICE AWARD RECIPI- ENTS.No student borrower may, for the same volunteer serv- ice, 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. 12601 et seq.). (e) REPAYMENT TO ELIGIBLE LENDERS.The Secretary 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 repay- ment pursuant to this section for such year. (f) APPLICATION FOR REPAYMENT. (1) IN GENERAL.Each eligible individual desiring loan re- payment under this section shall submit a complete and accu- rate application to the Secretary 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 qualifying employment unless the borrower is in deferment while so engaged. (g) EVALUATION. (1) IN GENERAL.The Secretary shall conduct, by grant or contract, an independent national evaluation of the impact of the demonstration program assisted under this section on the field of early childhood education. (2) COMPETITIVE BASIS.The grant or contract described in subsection (b) shall be awarded on a competitive basis. (3) CoNTENTs.The evaluation described in this sub- section shall (A) determine the number of individuals who were en- couraged by the demonstration program 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 effectiveness of the pro- gram; (D) assess the cost-effectiveness of the program in im- proving the quality of (i) early childhood education; and (ii) child care services; (E) identify the reasons why participants in the pro- gram 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 individuals who received a bachelor's de- gree; and (G) identify the number of years each individual par- ticipates in the program. (4) INTERIM AND FINAL EVALUATION REPORTS.The Sec- retary shall prepare and submit to the President and the Con- Sec. 429 HIGHER EDUCATION ACT OF 1965 222 gress such interim reports regarding the evaluation described in this subsection as the Secretary deems appropriate, and shall prepare and so submit a final report regarding the eval- uation by January 1, 2002. (h) 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. SEC. 429. [20 U.S.C. 1079] CERTIFICATE OF FEDERAL LOAN INSUR- ANCEEFFECTIVE DATE OF INSURANCE. (a) LOAN-BY-LOAN INSURANCE. (1) AUTHORITY TO ISSUE CERTIFICATES ON APPLICATION.If, upon application by an eligible lender, made upon such form, containing such information, and supported by such evidence as the Secretary may require, and otherwise in conformity with this section, the Secretary finds that the applicant has made a loan to an eligible student which is insurable under the pro- visions of this part, he may issue to the applicant a certificate of insurance covering the loan and setting forth the amount and terms of the insurance. (2) EFFECTIVENESS OF CERTIFICATE.Insurance evidenced by a certificate of insurance pursuant to subsection (a)(1) shall become effective upon the date of issuance of the certificate, ex- cept that the Secretary is authorized, in accordance with regu- lations, to issue commitments with respect to proposed loans, or with respect to lines (or proposed lines) of credit, submitted by eligible lenders, and in that event, upon compliance with subsection (a)(1) by the lender, the certificate of insurance may be issued effective as of the date when any loan, or any pay- ment by the lender pursuant to a line of credit, to be covered by such insurance was made. Such insurance shall cease to be effective upon 60 days' default by the lender in the payment of any installment of the premiums payable pursuant to sub- section (c). (3) CONTENTS OF APPLICATIONS.An application submitted pursuant to subsection (a)(1) shall contain (A) an agreement by the applicant to pay, in accordance with regulations, the pre- miums fixed by the Secretary pursuant to subsection (c), and (B) an agreement by the applicant that if the loan is covered by insurance the applicant will submit such supplementary re- ports and statement during the effective period of the loan agreement, upon such forms, at such times, and containing such information as the Secretary may prescribe by or pursu- ant to regulation. (b) COMPREHENSIVE INSURANCE COVERAGE CERTIFICATE. (1) ESTABLISHMENT OF SYSTEM BY REGULATION.In lieu of requiring a separate insurance application and issuing a sepa- rate certificate of insurance for each student loan made by an eligible lender as provided in subsection (a), the Secretary may, in accordance with regulations consistent with section 424, issue to any eligible lender applying therefor a certificate of comprehensive insurance coverage which shall, without further action by the Secretary, insure all insurable loans made by that lender, on or after the date of the certificate and before 223 HIGHER EDUCATION ACT OF 1965 Sec. 429 a specified cutoff date, within the limits of an aggregate maxi- mum amount stated in the certificate. Such regulations may provide for conditioning such insurance, with respect to any loan, upon compliance by the lender with such requirements (to be stated or incorporated by reference in the certificate) as in the Secretary's judgment will best achieve the purpose of this subsection while protecting the United States from the risk of unreasonable loss and promoting the objectives of this part, including (but not limited to) provisions as to the report- ing of such loans and information relevant thereto to the Sec- retary and as to the payment of initial and other premiums and the effect of default therein, and including provision for confirmation by the Secretary from time to time (through en- dorsement of the certificate) of the coverage of specific new loans by such certificate, which confirmation shall be incontest- able by the Secretary in the absence of fraud or misrepresenta- tion of fact or patent error. (2) UNCOVERED LOANS.If the holder of a certificate of comprehensive insurance coverage issued under this subsection grants to a student a line of credit extending beyond the cutoff date specified in that certificate, loans or payments thereon made by the holder after that date pursuant to the line of cred- it shall not be deemed to be included in the coverage of that certificate except as may be specifically provided therein; but, subject to the limitations of section 424, the Secretary may, in accordance with regulations, make commitments to insure such future loans or payments, and such commitments may be hon- ored either as provided in subsection (a) or by inclusion of such insurance on comprehensive coverage under the subsection for the period or periods in which such future loans or payments are made. (c) CHARGES FOR FEDERAL INSURANCE.The Secretary shall, pursuant to regulations, charge for insurance on each loan under this part a premium in an amount not to exceed one-fourth of 1 percent per year of the unpaid principal amount of such loan (ex- cluding interest added to principal), payable in advance, at such times and in such manner as may be prescribed by the Secretary. Such regulations may provide that such premium shall not be pay- able, or if paid shall be refundable, with respect to any period after default in the payment of principal or interest or after the borrower has died or becomes totally and permanently disabled, if (1) notice of such default or other event has been duly given, and (2) requests for payment of the loss insured against has been made or the Sec- retary has made such payment on his own motion pursuant to sec- tion 430(a). (d) ASSIGNABILITY OF INSURANCE.The rights of an eligible lender arising under insurance evidenced by a certificate of insur- ance issued to it under this section may be assigned as security by such lender only to another eligible lender, and subject- to regula- tion by the Secretary. (e) CONSOLIDATION NOT TO AFFECT. INSURANCE.The consoli- dation of the obligations of two or more federally insured loans ob- tained by a student borrower in any fiscal year into a single obliga- tion evidenced by a single instrument of indebtedness shall not af- Sec. 430 HIGHER EDUCATION ACT OF 1965 224 fect the insurance by the United States. If the loans thus consoli- dated are covered by separate certificates of insurance issued under subsection (a), the Secretary may upon surrender of the original certificates issue a new certificate of insurance in accordance with that subsection upon the consolidated obligation; if they are cov- ered by a single comprehensive certificate issued under subsection (b), the Secretary may amend that certificate accordingly. SEC. 430. [20 U.S.C. 1080] DEFAULT OF STUDENT UNDER FEDERAL LOAN INSURANCE PROGRAM. (a) NOTICE TO SECRETARY AND PAYMENT OF Loss.Upon de- fault by the student borrower on any loan covered by Federal loan insurance pursuant to this part, and prior to the commencement of suit or other enforcement proceedings upon security for that loan, the insurance beneficiary shall promptly notify the Secretary, and the Secretary shall if requested (at that time or after further collec- tion efforts) by the beneficiary, or may on the Secretary's own mo- tion, if the insurance is still in effect, pay to the beneficiary the amount of the loss sustained by the insured upon that loan as soon as that amount has been determined. The "amount of the loss" on any loan shall, for the purposes of this subsection and subsection (b), be deemed to be an amount equal to the unpaid balance of the principal amount and accrued interest, including interest accruing from the date of submission of a valid default claim (as determined by the Secretary) to the date on which payment is authorized by the. Secretary, reduced to the extent required by section 425(b). Such beneficiary shall be required to meet the standards of due diligence in the collection of the loan and shall be required to sub- mit proof that the institution was contacted and other reasonable attempts were made to locate the borrower (when the location of the borrower is unknown) and proof that contact was made with the borrower (when the location is known). The Secretary shall make the determination required to carry out the provisions of this section not later than 90 days after the notification by the insur- ance beneficiary and shall make payment in full on the amount of the beneficiary's loss pending completion of the due diligence inves- tigation. (b) EFFECT OF PAYMENT OF Loss. Upon payment of the amount of the loss pursuant to subsection (a), the United States shall be subrogated for all of the rights of the holder of the obliga- tion upon the insured loan and shall be entitled to an assignment of the note or other evidence of the insured loan by the insurance beneficiary. If the net recovery made by the Secretary on a loan after deduction of the cost of that recovery (including reasonable administrative costs and collection costs, to the extent set forth in regulations issued by the Secretary) exceeds the amount of the loss, the excess shall be paid over to the insured. The Secretary may, in attempting to make recovery on such loans, contract with pri- vate business concerns, State student loan insurance agencies, or State guaranty agencies, for payment for services rendered by such concerns or agencies in assisting the Secretary in making such re- covery. Any contract under this subsection entered into by the Sec- retary shall provide that attempts to make recovery on such loans shall be fair and reasonable, and do not involve harassment, in- 225 HIGHER EDUCATION ACT OF 1965 Sec. 430 timidation, false or misleading representations, or unnecessary communications concerning the existence of any such loan to per- sons other than the student borrower. (c) FORBEARANCE NOT PRECLUDED.Nothing in this section or in this part shall be construed to preclude any forbearance for the benefit of the student borrower which may be agreed upon by the parties to the insured loan and approved by the Secretary, or to preclude forbearance by the Secretary in the enforcement of the in- sured obligation after payment on that insurance. Any forbearance which is approved by the Secretary under this subsection with re- spect to the repayment of a loan, including a forbearance during default, shall not be considered as indicating that a holder of a fed- erally insured loan has failed to exercise reasonable care and due diligence in the collection of the loan. (d) CARE AND DILIGENCE REQUIRED OF HOLDERS.Nothing in this section or in this part shall be construed to excuse the holder of a federally insured loan from exercising reasonable care and dili- gence in the making and collection of loans under the provisions of this part. If the Secretary, after a reasonable notice and oppor- tunity for hearing to an eligible lender, finds that it has substan- tially failed to exercise such care and diligence or to make the re- ports and statements required under section 428(a)(4) and section 429(a)(3), or to pay the required Federal loan insurance premiums, the Secretary shall disqualify that lender for-further Federal insur- ance on loans granted pursuant to this part until the Secretary is satisfied that its failure has ceased and finds that there is reason- able assurance that the lender will in the' future exercise necessary care and diligence or comply with such requirements, as the case may be. (e) DEFAULT RATE OF LENDERS, HOLDERS, AND GUARANTY AGENCIES. (1) IN GENERAL.The Secretary shall annually publish a list indicating the cohort default rate (determined in accord- ance with section 435(m)) for each originating lender, subse- quent holder, and guaranty agency participating in the pro- gram assisted under this part and an average cohort default rate for all institutions of higher education within each State. (2) REGULATIONS.The Secretary shall prescribe regula- tions designed to prevent an institution from evading the appli- cation to that institution of a cohort default rate through the use of such measures as branching, consolidation, change of ownership or control, or any similar device. (3) RATE ESTABLISHMENT AND CORRECTION.The Secretary shall establish a cohort default rate for lenders, holders, and guaranty agencies (determined consistent with section 435(m)), except that the rate for lenders, holders, and guaranty agencies shall not reflect any loans issued in accordance with section 428(j).The Secretary shall allow institutions, lenders, holders, and guaranty agencies the opportunity to correct such cohort default rate information. 233 Sec. 430A HIGHER EDUCATION ACT OF 1965 226 SEC. 430A. [20 U.S.C. 1080a] REPORTS TO CREDIT BUREAUS AND INSTI- TUTIONS OF HIGHER EDUCATION. (a) AGREEMENTS TO EXCHANGE INFORMATION.For the pur- pose of promoting responsible repayment of loans covered by Fed- eral loan insurance pursuant to this part or covered by a guaranty agreement pursuant to section 428, the Secretary, each guaranty agency, eligible lender, and subsequent holder shall enter into agreements with credit bureau organizations to exchange informa- tion concerning student borrowers, in accordance with the require- ments of this section. For the purpose of assisting such organiza- tions in complying with the Fair Credit Reporting Act, such agree- ments may provide for timely response by the Secretary (concern- ing loans covered by Federal loan insurance), by a guaranty agen- cy, eligible lender, or subsequent holder (concerning loans covered by a guaranty agreement), or to requests from such organizations for responses to objections raised by borrowers. Subject to the re- quirements of subsection (c), such agreements shall require the Secretary, the guaranty agency, eligible lender, or subsequent hold- er, as appropriate, to disclose to such organizations, with respect to any loan under this part that has not been repaid by the borrower (1) the total amount of loans made to any borrower under this part and the remaining balance of the loans; (2) information concerning the date of any default on the loan and the collection of the loan, including information con- cerning the repayment status of any defaulted loan on which the Secretary has made a payment pursuant to section 430(a) or the guaranty agency has made a payment to the previous holder of the loan; and (3) the date of cancellation of the note upon completion of repayment by the borrower of the loan or payment by the Sec- retary pursuant to section 437. (b) ADDITIONAL INFORMATION.Such agreements may also pro- vide for the disclosure by such organizations to the Secretary or a guaranty agency, whichever insures or guarantees a loan, upon re- ceipt of a notice under subsection (a)(2) that such a loan is in de- fault, of information concerning the borrower's location or other in- formation which may assist the Secretary, the guaranty agency, the eligible lender, or the subsequent holder in collecting the loan. (c) CONTENTS OF AGREEMENTS.Agreements entered into pur- suant to this section shall contain such provisions as may be nec- essary to ensure that (1) no information is disclosed by the Secretary or the guaranty agency, eligible lender, or subsequent holder unless its accuracy and completeness have been verified and the Sec- retary or the guaranty agency has determined that disclosure would accomplish the purpose of this section; (2) as to any information so disclosed, such organizations will be promptly notified of, and will promptly record, any change submitted by the Secretary, the guaranty agency, eligi- ble lender, or subsequent holder with respect to such informa- tion, or any objections by the borrower with respect to any such information, as required by section 611 of the Fair Credit Reporting Act (15 U.S.C. 1681i); 227 HIGHER EDUCATION ACT OF 1965 Sec. 430A (3) no use will be made of any such information which would result in the use of collection practices with respect to such a borrower that are not fair and reasonable or that in- volve harassment, intimidation, false or misleading representa- tions, or unnecessary communication concerning the existence of such loan or concerning any such information; and (4) with regard to notices of default under subsection (a)(2) of this section, except for disclosures made to obtain the bor- rower's location, the Secretary, or the guaranty agency, eligible lender, or subsequent holder whichever is applicable (A) shall not disclose any such information until the borrower has been notified that such information will be disclosed to credit bureau organizations unless the borrower enters into repayment of his or her loan, but (B) shall, if the borrower has not entered into repayment within a reasonable period of time, but not less than 30 days, from the date such notice has been sent to the borrower, disclose the information required by this subsection. (d) CONTRACTOR STATUS OF PARTICIPANTS.A guaranty agen- cy, eligible lender, or subsequent holder or credit bureau organiza- tion which discloses or receives information under this section shall not be considered a Government contractor within the meaning of section 552a of title 5, United States Code. (e) DISCLOSURE TO INSTITUTIONS.The Secretary and each guaranty agency, eligible lender, and subsequent holder of a loan are authorized to disclose information described in subsections (a) and (b) concerning student borrowers to the eligible institutions such borrowers attend or previously attended. To further the pur- pose of this section, an eligible institution may enter into an ar- rangement with any or all of the holders ofdelinquent loans made to borrowers who attend or previously attended such institution for the purpose of providing current information regarding the borrow- er's location or employment or for the purpose of assisting the hold- er in contacting and influencing borrowers to avoid default. (f) DURATION OF AUTHORITY.Notwithstanding paragraphs (4) and (6) of subsection (a) of section 605 of the Fair Credit Reporting Act (15 U.S.C. 1681c (a)(4), (a)(6)), a consumer reporting agency may make a report containing information received from the Sec- retary or a guaranty agency, eligible lender, or subsequent holder regarding the status of a borrower's defaulted account on a loan guaranteed under this part until (1) 7 years from the date on which the Secretary or the agency paid a claim to the holder on the guaranty; (2) 7 years from the date the Secretary, guaranty agency, eligible lender, or subsequent holder first reported the account to the consumer reporting agency; or (3) in the case of a borrower who reenters repayment after defaulting on a loan and subsequently goes into default on such loan, 7 years from the date the loan entered default such subsequent time. SEC. 431. [20 U.S.C. 1081] INSURANCE FUND. (a) ESTABLISHMENT.There is hereby established a student loan insurance fund (hereinafter in this section called the "fund") which shall be available without fiscal year limitation to the Sec- 233 Sec. 431 HIGHER EDUCATION ACT OF 1965 228 retary for making payments in connection with the default of loans insured by the Secretary under this part, or in connection with payments under a guaranty agreement under section 428(c). All amounts received by the Secretary as premium charges for insur- ance and as receipts, earnings, or proceeds derived from any claim or other assets acquired by the Secretary in connection with oper- ations under this part, any excess advances under section 422, and any other moneys, property, or assets derived by the Secretary from operations in connection with this section, shall be deposited in the fund. All payments in connection with the default of loans insured by the Secretary under this part, or in connection with such guaranty agreements shall be paid from the fund. Moneys in the fund not needed for current operations under this section may be invested in bonds or other obligations guaranteed as to principal and interest by the United States. (b) BORROWING AUTHORITY.If at any time the moneys in the fund are insufficient to make payments in connection with the de- fault of any loan insured by the Secretary under this part, or in connection with any guaranty agreement made under section 428(c), the Secretary is authorized, to the extent provided in ad- vance by appropriations Acts, to issue to the Secretary of the Treasury notes or other obligations in such forms and denomina- tions, bearing such maturities, and subject to such terms and con- ditions as may be prescribed by the Secretary with the approval of the Secretary of the Treasury. Such notes or other obligations shall bear interest at a rate determined by the Secretary of the Treas- ury, taking into consideration the current average market yield on outstanding marketable obligations of the United States of com- parable maturities during the month preceding the issuance of the notes or other obligations. The Secretary of the Treasury is author- ized and directed to purchase any notes and other obligations issued hereunder and for that purpose is authorized to use as a public debt transaction the proceeds from the sale of any securities issued under the Second Liberty Bond Act, as amended, and the purposes for which securities may be issued under that Act, as amended, are extended to include any purchase of such notes and obligations. The Secretary of the Treasury may at any time sell any of the notes or other obligations acquired under this subsection. All redemptions, purchases, and sales by the Secretary of the Treasury of such notes or other obligations shall be treated as public debt transactions of the United States. Sums borrowed under the sub- section shall be deposited in the fund and redemption of such notes and obligations shall be made by the Secretary from such fund. SEC. 432. [20 U.S.C. 1082] LEGAL POWERS AND RESPONSIBILITIES. (a) GENERAL POWERS.In the performance of, and with respect to, the functions, powers, and duties, vested in him by this part, the Secretary may (1) prescribe such regulations as may be necessary to carry out the purposes of this part, including regulations applicable to third party servicers (including regulations concerning fi- nancial responsibility standards for, and the assessment of li- abilities for program violations against, such servicers) to es- tablish minimum standards with respect to sound management 229 HIGHER EDUCATION ACT OF 1965 Sec. 432 and accountability of programs under this part, except that in no case shall damages be assessed against the United States for the actions or inactions of such servicers; (2) sue and be sued in any court of record of a State hav- ing general jurisdiction or in any district court of the United States, and such district courts shall have jurisdiction of civil actions arising under this part without regard to the amount in controversy, and action instituted under this subsection by or against the Secretary shall survive notwithstanding any change in the person occupying the office of Secretary or any vacancy in that office; but no attachment, injunction, garnish- ment, or other similar process, mesne or final, shall be issued against the Secretary or property under the Secretary's control and nothing herein shall be construed to except litigation aris- ing out of activities under this part from the application of sec- tions 509, 517, 547, and 2679 of title 28 of the United States Code; (3) include in any contract for Federal loan insurance such terms, conditions, and covenants relating to repayment of prin- cipal and payment of interest, relating to the Secretary's obli- gations and rights to those of eligible lenders, and borrowers in case of default, and relating to such other matters as the Secretary determines to be necessary to assure that the pur- poses of this part will be achieved; and any term, condition, and covenant made pursuant to this paragraph or pursuant to any other provision of this part may be modified by the Sec- retary, after notice and opportunity for a hearing, if the Sec- retary finds that the modification is necessary to protect the United States from the risk of unreasonable loss; (4) subject to the specific limitations in this part, consent to modification, with respect to rate of interest, time of pay- ment of any installment of principal and interest or any por- tion thereof, or any other provision of any note or other instru- ment evidencing a loan which has been insured by the Sec- retary under this part; (5) enforce, pay, or compromise, any claim on, or arising because of, any such insurance or any guaranty agreement under section 428(c); and (6) enforce, pay, compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or any right of redemption. (b) FINANCIAL OPERATIONS RESPONSIBILITIES.The Secretary shall, with respect to the financial operations arising by reason of this part prepare annually and submit a budget program as pro- vided for wholly owned Government corporations by chapter 91 of title 31, United States Code. The transactions of the Secretary, in- cluding the settlement of insurance claims and of claims for pay- ments pursuant to section 1078 of this title, and transactions relat- ed thereto and vouchers approved by the Secretary in connection with such transactions, shall be final and conclusive upon all ac- counting and other officers ofthe Government. (C)-DATA COLLECTION. (1) COLLECTION BY CATEGORY OF LOAN.(A) For loans in- sured after December 31, 1976, or in the case of each insurer 23 7 4 Sec. 432 NIGHER EDUCATION ACT OF 1965 230 after such earlier date where the data required by this sub- section are available, the Secretary and all other insurers under this part shall collect and accumulate all data relating to (i) loan volume insured and (ii) defaults reimbursed or de- fault rates according to the categories of loans listed in sub- paragraph (B) of this paragraph. (B) The data indicated in subparagraph (A) of this para- graph shall be accumulated according to the category of lender making the loan and shall be accumulated separately for lend- ers who are (i) eligible institutions, (ii) State or private, non- profit direct lenders, (iii) commercial financial institutions who are banks, savings and loan associations, or credit unions, and (iv) all other types of institutions or agencies. (C) The Secretary may designate such additional subcat- egories within the categories specified in subparagraph (B) of this paragraph as the Secretary deems appropriate. (D) The category or designation of a loan shall not be changed for any reason, including its purchase or acquisition by a lender of another category. (2) COLLECTION AND REPORTING REQUIREMENTS.(A) The Secretary shall collect data under this subsection from all in- surers under this part and shall publish not less often than once every fiscal year a report showing loan volume guaran- teed and default data for each category specified in subpara- graph (B) of paragraph (1) of this subsection and for the total of all lenders. (B) The reports specified in subparagraph (A) of this para- graph shall include a separate report for each insurer under this part including the Secretary, and where an insurer insures loans for lenders in more than one State, such insurer's report shall list all data separately for each State. (3) INSTITUTIONAL, PUBLIC, OR NONPROFIT LENDERS.For purposes of clarity in communications, the Secretary shall sep- arately identify loans made by the lenders referred to in clause (i) and loans made by the lenders referred to in clause (ii) of paragraph (1)(B) of this subsection. (d) DELEGATION. (1) REGIONAL OFFICES.The functions of the Secretary under this part listed in paragraph (2) of this subsection may be delegated to employees in the regional office of the Depart- ment. (2) DELEGABLE FUNCTIONS.The functions which may be delegated pursuant to this subsection are (A) reviewing applications for loan insurance under section 429 and issuing contracts for Federal loan insur- ance, certificates of insurance, and certificates of com- prehensive insurance coverage to eligible lenders which are financial or credit institutions subject to examination and supervision by an agency of the United States or of any State; (B) receiving claims for payments under section 430(a), examining those claims, and pursuant to regula- tions of the Secretary, approving claims for payment, or re- 231 HIGHER TDUCATION ACT OF 1965 Sec. 432 quiring lenders to take additional collection action as a condition for payment of claims; and (C) certifying to the central office when collection of defaulted loans has been completed, compromising or agreeing to the modification of any Federal claim against a borrower (pursuant to regulations of the Secretary issued under section 432(a)), and recommending litigation with respect to any such claim. (e) USE OF INFORMATION ON BORROWERS.Notwithstanding any other provision of law, the Secretary may provide to eligible lenders, and to any guaranty agency having a guaranty agreement under section 428(c)(1), any information with respect to the names and addresses of borrowers or other relevant information which is available to the Secretary, from whatever source such information may be derived. (f) AUDIT OF FINANCIAL TRANSACTIONS. (1) COMPTROLLER GENERAL AND INSPECTOR GENERAL AU- THORITY.The Comptroller General and the Inspector General of the Department of Education shall each have the authority to conduct an audit of the financial transactions of (A) any guaranty agency operating under an agree- ment with the Secretary pursuant to section 428(b); (B) any eligible lender as defined in section 435(d)(1); and (C) a representative sample of eligible lenders under this part, upon the request of the Committee on Education and the Workforce of the House of Representatives or the Committee on Labor and Human Resources of the Senate, with respect to the payment of the special allowance under section 438 in order to evaluate the program authorized by this part. (2) ACCESS TO RECORDS.For the purpose of carrying out this subsection, the records of any entity described in subpara- graph (A), (B), (C), or (D) of paragraph (1) shall be available to the Comptroller General and the Inspector General of the Department of Education. For the purpose of section 716(c) of title 31, United States Code,: such records- shall be considered to be records to which the Comptroller General has access by law, and for the purpose of section 6(a)(4) of the. Inspector Gen- eral Act of 1978, such records shall be considered to be records necessary in the performance of functions assigned by that Act to the Inspector General. (3) DEFINITION OF RECORDS.For the purpose of this sub- section, the term "record" includes any information, document, report, answer, account, paper, or other data or documentary evidence. (4) AUDIT PROCEDURES.In conducting audits pursuant to this subsection, the Comptroller General and the Inspector General of the Department of shall audit the records to determine the extent to which they, at a minimum;. comply with Federal statutes, and rules and regulations prescribed by the Secretary, in effect at the time that the record was made, and in no case shall the Comptroller General or the Inspector General apply subsequently determined standards, procedures, 239 Ohl vs), Sec. 432 HIGHER EDUCATION ACT, OF 1965 232 or regulations to the records of such agency, lender, or Author- ity. (g) CIVIL PENALTIES. (1) AUTHORITY TO IMPOSE PENALTIES.Upon determina- tion, after reasonable notice and opportunity for a hearing, that a lender or a guaranty agency (A) has violated or failed to carry out any provision of this part or any regulation prescribed under this part, or (B) has engaged in substantial misrepresentation of the nature of its financial charges, the Secretary may impose a civil penalty upon such lender or agency of not to exceed $25,000 for each violation, failure, or misrepresentation. (2) LIMITATIONS.No civil penalty may be imposed under paragraph (1) of this subsection unless the Secretary deter- mines that (A) the violation, failure, or substantial misrepresenta- tion referred to in that paragraph resulted from a viola- tion, failure, or misrepresentation that is material; and (B) the lender or guaranty agency knew- or should have known that its actions violated or failed to carry out the provisions of this part or the regulations thereunder. (3) CORRECTION OF FAILURE.A lender or guaranty agency has no liability under paragraph (1) of this subsection if, prior to the notification by the Secretary under that paragraph, the lender or guaranty agency cures or corrects the violation or failure or notifies the person who received the substantial mis- representation of the actual nature of the financial charges in- volved. (4) CONSIDERATION AS SINGLE VIOLATION.For the purpose of paragraph (1) of this subsection, violations, failures, or sub- stantial misrepresentations arising from a specific practice of a lender or guaranty agency, and occurring prior to notification by the Secretary under that paragraph, shall be deemed to be a single violation, failure, or substantial misrepresentation even if the violation, failure, or substantial misrepresentation affects more than one loan or more than one borrower, or both. The Secretary may only impose a single civil penalty for each such violation, failure, or substantial misrepresentation. (5) ASSIGNEES NOT LIABLE FOR VIOLATIONS BY OTHERS.If a loan affected by a violation, failure, or substantial misrepre- sentation is assigned to another holder, the lender or guaranty agency responsible for the violation, failure, or substantial mis- representation shall remain liable for any civil money penalty provided for under paragraph (1) of this subsection, but the as- signee shall not be liable for any such civil money penalty. (6) COMPROMISE.Until a matter is referred to the Attor- ney General, any civil penalty under paragraph (1) of this sub- section may be compromised by the Secretary. In determining the amount of such penalty, or the amount agreed upon in compromise, the Secretary shall consider the appropriateness of the penalty to the resources of the lender or guaranty agen- cy subject to the determination; the gravity of the violation, failure, or substantial misrepresentation; the frequency and 240 233 HIGHER EDUCATION ACT OF 1965 Sec. 432 persistence of the violation, failure, or substantial misrepresen- tation; and the amount of any losses resulting from the viola- tion, failure, or substantial misrepresentation. The amount of such penalty, when finally determined, or the amount agreed upon in compromise, may be deducted from any sums owing by the United States to the lender or agency charged, unless the lender or agency has, in the case of a final agency determina- tion, commenced proceedings for judicial review within 90 days of the determination, in which case the deduction may not be made during the pendency of the proceeding (h) AUTHORITY OF THE SECRETARY To IMPOSE AND ENFORCE LIMITATIONS, SUSPENSIONS, AND TERMINATIONS. (1) IMPOSITION OF SANCTIONS.-(A) If the Secretary, after a reasonable notice and opportunity for hearing to an eligible lender, finds that the eligible lender (i) has substantially failed (I) to exercise reasonable care and diligence in the making and collecting of loans under the provisions of this part, (II) to make the reports or statements under sec- tion 428(a)(4), or (III) to pay the required loan insurance premiums to any guaranty agency, or (ii) has engaged in (I) fraudulent or misleading advertising or in so- licitations that have resulted in the making of loans insured or guaranteed under this part to borrowers who are ineligible; or (II) the practice of making loans that violate the certification for eligibility provided in section 428, the Secretary shall limit, suspend, or terminate that lender from participation in the insurance programs operated by guar- anty agencies under this part. (B) The Secretary shall not lift any such limitation, sus- pension, or termination until the Secretary is satisfied that the lender's failure under subparagraph (A)(i) of this paragraph or practice under subparagraph (A)(ii) of this paragraph has ceased and finds that there are reasonable assurances that the lender will (i) exercise the necessary care and diligence, (ii) comply with the requirements described in sub- paragraph (A)(i), or (iii) cease to engage in the practices described in sub- paragraph (A)(ii), as the case may be. (2) REVIEW OF SANCTIONS ON LENDERS.-(A) The Secretary shall review each limitation, suspension, or termination im- posed by any guaranty agency pursuant to section 428(b)(1)(U) within 60 days after receipt by the Secretary of a notice from the guaranty agency of the imposition of such limitation, sus- pension, or termination, unless the right to such review is waived in writing by the lender. The Secretary shall uphold the imposition of such limitation, suspension, or termination in the student loan insurance program of each of the guaranty 2 4 I Sec. 432 HIGHER EDUCATION ACT OF 1965 234 agencies under this part, and shall notify such guaranty agen- cies of such sanction (i) if such review is waived; or (ii) if such review is not waived, unless the Secretary determines that the limitation, suspension, or termination was not imposed in accordance with requirements of such section. (B) The Secretary's review under this paragraph of the limitation, suspension, or termination imposed by a guaranty agency pursuant to section 428(b)(1)(U) shall be limited to (i) a review of the written record of the proceedings in which the guaranty agency imposed such sanctions; and (ii) a determination as to whether the guaranty agency complied with section 428(b)(1)(U) and any notice and hearing requirements prescribed in regulations of the Sec- retary under this part. (C) The Secretary shall not lift any such sanction until the Secretary is satisfied that the lender has corrected the failures which led to the limitation, suspension, or termination, and finds that there are reasonable assurances that the lender will, in the future, comply with the requirements of this part. The Secretary shall notify each guaranty agency of the lifting of any such sanction. (3) REVIEW OF SANCTIONS ON ELIGIBLE INSTITUTIONS.-(A) The Secretary shall review each limitation, suspension, or ter- mination imposed by any guaranty agency pursuant to section 428(b)(1)(T) within 60 days after receipt by the Secretary of a notice from the guaranty of the imposition of such limitation, suspension, or termination, unless the right to such review is waived in writing by the institution. The Secretary shall up- hold the imposition of such limitation, suspension, or termi- nation in the student loan insurance program of each of the guaranty agencies under this part, and shall notify such guar- anty agencies of such sanctions (i) if such review is waived; or (ii) if such review is not waived, unless the Secretary determines that the limitation, suspension, or termination was not imposed in accordance with requirements of such section. (B) The Secretary's review under this paragraph of the limitation, suspension, or termination imposed by a guaranty agency pursuant to section 428(b)(1)(T) shall be limited to (i) a review of the written record of the proceedings in which the guaranty agency imposed such sanctions; and (ii) a determination as to whether the guaranty agency complied with section 428(b)(1)(T) and any notice and hearing requirements prescribed in regulations of the Sec- retary under this part. (C) The Secretary shall not lift any such sanction until the Secretary is satisfied that the institution has corrected the fail- ures which led to the limitation, suspension, or termination, and finds that there are reasonable assurances that the insti- tution will, in the future, comply with the requirements of this 2 4 235 HIGHER EDUCATION ACT OF 1965 Sec. 432 part. The Secretary shall notify each guaranty agency of the lifting of any such sanction. (i) AUTHORITY To SELL DEFAULTED LOANS.In the event that all other collection efforts have failed, the Secretary is authorized to sell defaulted student loans assigned to the United States under this part to collection agencies, eligible lenders, guaranty agencies, or other qualified purchaser on such terms as the Secretary deter- mines are in the best financial interests of the United States. A loan may not be sold pursuant to this subsection if such loan is in repayment status. (j) AUTHORITY OF THE SECRETARY To TAKE EMERGENCY AC- TIONS AGAINST LENDERS. (1) IMPOSITION OF SANCTIONS.If the Secretary (A) receives information, determined by the Secretary to be reliable, that a lender is violating any provision of this title, any regulation prescribed under this title, or any applicable special arrangement, agreement, or limitation; (B) determines that immediate action is necessary to prevent misuse of Federal funds; and (C) determines that the likelihood of loss outweighs the importance of following the limitation, suspension, or termination procedures authorized in subsection (h); the Secretary shall, effective on the date on which a notice and statement of the basis of the action is mailed to the lender (by registered mail, return receipt requested), take emergency ac- tion to stop the issuance of guarantee commitments and the payment of interest benefits and special allowance to the lend- er. (2) LENGTH OF EMERGENCY ACTION.An emergency action under this subsection may not exceed 30 days unless a limita- tion, suspension, or termination proceeding is initiated against the lender under subsection (h) before the expiration of that period. (3) OPPORTUNITY TO SHOW CAUSE.The Secretary shall provide the lender, if it so requests, an opportunity to show cause that the emergency action is unwarranted. (k) PROGRAM OF ASSISTANCE FOR BORROWERS. (1) IN GENERAL.The Secretary shall undertake a program to encourage corporations and other private and public employ- ers, including the Federal Government, to assist borrowers in repaying loans received under this title, including providing employers with options for payroll deduction of loan payments and offering loan repayment matching provisions as part of employee benefit packages. (2) PUBLICATION.The Secretary shall publicize models for providing the repayment assistance described in paragraph (1) and each year select entities that deserve recognition, through means devised by the Secretary, for the development of innova- tive plans for providing such assistance to employees. (3) RECOMMENDATION.The Secretary shall recommend to the appropriate committees in the Senate and House of Rep- resentatives changes to statutes that could be made in order to further encourage such efforts. (1) UNIFORM ADMINISTRATIVE AND CLAIMS PROCEDURES. 243 Sec. 432 HIGHER EDUCATION ACT OF 1965 236 (1) IN GENERAL.The Secretary shall, by regulation devel- oped in consultation with guaranty agencies, lenders, institu- tions of higher education, secondary markets, students, third party servicers and other organizations involved in providing loans under this part, prescribe standardized forms and proce- dures regarding (A) origination of loans; (B) electronic funds transfer; (C) guaranty of loans; (D) deferments; (E) forbearance; (F) servicing; (G) claims filing; (H) borrower status change; and (I) cures. (2) SPECIAL RULES.(A) The forms and procedures de- scribed in paragraph (1) shall include all aspects of the loan process as such process involves eligible lenders and guaranty agencies and shall be designed to minimize administrative costs and burdens (other than the costs and burdens involved in the transition to new forms and procedures) involved in ex- changes of data to and from borrowers, schools, lenders, sec- ondary markets, and the Department. (B) Nothing in this paragraph shall be construed to limit the development of electronic forms and procedures. (3) SIMPLIFICATION REQUIREMENTS.Such regulations shall include (A) standardization of computer formats, forms design, and guaranty agency procedures relating to the origina- tion, servicing, and collection of loans made under this part; (B) authorization of alternate means of document re- tention, including the use of microfilm, microfiche, laser disc, compact disc, and other methods allowing the produc- tion of a facsimile of the original documents; (C) authorization of the use of computer or similar electronic methods of maintaining records relating to the performance of servicing, collection, and other regulatory requirements under this Act; and (D) authorization and implementation of electronic data linkages for the exchange of information to and from lenders, guarantors, institutions of higher education, third party servicers, and the Department of Education for stu- dent status confirmation reports, claim filing, interest and special allowance billing, deferment processing, and all other administrative steps relating to loans made pursuant to this part where using electronic data linkage is feasible. (4) ADDITIONAL RECOMMENDATIONS.The Secretary shall review regulations prescribed pursuant to paragraph (1) and seek additional recommendations from guaranty agencies, lenders, institutions of higher education, students, secondary markets, third party servicers and other organizations involved in providing loans under this part, not less frequently than an- 237 HIGHER EDUCATION ACT OF 1965 Sec. 432 nually, for additional methods of simplifying and standardizing the administration of the programs authorized by this part. (m) COMMON FORMS AND FORMATS. (1) COMMON GUARANTEED STUDENT LOAN APPLICATION FORM AND PROMISSORY NOTE. (A) IN GENERAL.The Secretary, in cooperation with representatives of guaranty agencies, eligible lenders, and organizations involved in student financial assistance, shall prescribe common application forms and promissory notes, or master promissory notes, to be used for applying for loans under part B of this title. (B) REQUIREMENTS.The forms prescribed by the Sec- retary shall (i) use clear, concise, and simple language to facili- tate understanding of loan terms and conditions by ap- plicants; (ii) be formatted to require the applicant to clearly indicate a choice of lender; and (C) FREE APPLICATION FORM.For academic year 1999-2000 and succeeding academic years, the Secretary shall prescribe the form developed under section 483 as the application form under this part, other than for loans under sections 428B and 428C. (D) MASTER PROMISSORY NOTE. (i) IN GENERALThe Secretary shall develop and require the use of master promissory note forms for loans made under this part and part D. Such forms shall be available for periods of enrollment beginning not later than July 1, 2000. Each form shall allow eli- gible borrowers to receive, in addition to initial loans, additional loans for the same or subsequent periods of enrollment through a student confirmation process ap- proved by the Secretary. Such forms shall be used for loans made under this part or part D as directed by the Secretary. (ii) CONSULTATION.In developing the master promissory note under this subsection, the Secretary shall consult with representatives of guaranty agen- cies, eligible lenders, institutions of higher education, students, and organizations involved in student finan- cial assistance. (iii) SALE; ASSIGNMENT; ENFORCEABILITY.Not- withstanding any other provision of law, each loan made under a master promissory note under this sub- section may be sold or assigned independently of any other loan made under the same promissory note and each such loan shall be separately enforceable in all Federal and State courts on the basis of an original or copy of the master promissory note in accordance with the terms of the master promissory note. So in law. (112 Stat. 1703) There probably should be an "and" at the end of clause (i). In addition, a period at the end of clause (ii) probably should replace "; and". 2 zi Sec. 432 HIGHER EDUCATION ACT OF 1965 238 (iv) PERFECTION OF SECURITY INTERESTS IN STU- DENT LOANS.Notwithstanding the provisions of any State law to the contrary, including the Uniform Com- mercial Code as in effect in any State, a security inter- est in loans made under this part created on behalf of any eligible lender as defined in section 435(d) may be perfected either through the taking of possession of such loans (which can be through taking possession of an original or copy of the master promissory note) or by the filing of notice of such security interest in such loans in the manner provided by such State law for perfection of security interests in accounts. (2) COMMON DEFERMENT FORM.The Secretary, in coopera- tion with representatives of guaranty agencies, institutions of higher education, and lenders involved in loans made under part B of this title, shall prescribe a common deferment report- ing form to be used for the processing of deferments of loans made under this title. (3) COMMON REPORTING FORMATS.The Secretary shall promulgate standards including necessary rules, regulations (including the definitions of all relevant terms), and procedures so as to require all lenders and guaranty agencies to report in- formation on all aspects of loans made under this part in uni- form formats, so as to permit the direct comparison of data submitted by individual lenders, servicers, or guaranty agen- cies. (4) ELECTRONIC FORMS.Nothing in this section shall be construed to limit the development and use of electronic forms and procedures. (n) DEFAULT REDUCTION MANAGEMENT. (1) AUTHORIZATION.There are authorized to be appro- priated $25,000,000 for fiscal year 1999 and each of the four succeeding fiscal years, for the Secretary to expend for default reduction management activities for the purposes of establish- ing a performance measure that will reduce defaults by 5 per- cent relative to the prior fiscal year. Such funds shall be in ad- dition to, and not in lieu of, other appropriations made for such purposes. (2) ALLOWABLE ACTIVITIES.Allowable activities for which such funds shall be expended by the Secretary shall include the following: (A) program reviews; (B) audits; (C) debt man- agement programs; (D) training activities; and (E) such other management improvement activities approved by the Sec- retary. (3) PLAN FOR USE REQUIRED.The Secretary shall submit a plan, for inclusion in the materials accompanying the Presi- dent's budget each fiscal year, detailing the expenditure of funds authorized by this section to accomplish the 5 percent re- duction in defaults. At the conclusion of the fiscal year, the Secretary shall report the Secretary's findings and activities concerning the expenditure of funds and whether the perform- ance measure was met. If the performance measure was not met, the Secretary shall report the following: 2 4 6 239 HIGHER EDUCATION ACT OF 1965 Sec. 432 (A) why the goal was not met, including an indication of any managerial deficiencies or of any legal obstacles; (B) plans and a schedule for achieving the established performance goal; (C) recommended legislative or regulatory changes necessary to achieve the goal; and (D) if the performance standard or goal is impractical or infeasible, why that is the case and what action is rec- ommended, including whether the goal should be changed or the program altered or eliminated. This report shall be submitted to the Appropriations Commit- tees of the House of Representatives and the Senate and to the Committee on Education and the Workforce of the House of Representatives and the Committee on Labor and Human Re- sources of the Senate. (o) CONSEQUENCES OF GUARANTY AGENCY INSOLVENCY.In the event that the Secretary has determined that a guaranty agency is unable to meet its insurance obligations under this part, the holder of loans insured by the guaranty agency may submit insurance claims directly to the Secretary and the Secretary shall pay to the holder the full insurance obligation of the guaranty agency, in ac- cordance with insurance requirements no more stringent than those of the guaranty agency. Such arrangements shall continue until the Secretary is satisfied that the insurance obligations have been transferred to another guarantor who can meet those obliga- tions or a successor will assume the outstanding insurance obliga- tions. (p) REPORTING REQUIREMENT.All officers and directors, and those employees and paid consultants of eligible institutions, eligi- ble lenders, guaranty agencies, loan servicing agencies, accrediting agencies or associations, State licensing agencies or boards, and en- tities acting as secondary markets (including the Student Loan Marketing Association), who are engaged in making decisions as to the administration of any program or funds under this title or as to the eligibility of any entity or individual to participate under this title, shall report to the Secretary, in such manner and at such time as the Secretary shall require, on any financial interest which such individual may hold in any other entity participating in any program assisted under this title. SEC. 433. [20 U.S.C. 1083] STUDENT LOAN INFORMATION BY ELIGIBLE LENDERS. (a) REQUIRED DISCLOSURE BEFORE DISBURSEMENT.Each eligi- ble lender, at or prior to the time such lender disburses a loan that is insured or guaranteed under this part (other than a loan made under section 428C), shall provide thorough and accurate loan in- formation on such loan to the borrower in simple and understand- able terms. Any disclosure required by this subsection may be made by an eligible lender by written or electronic means, includ- ing as part of the application material provided to the borrower, as part of the promissory note evidencing the loan, or on a separate written form provided to the borrower. Each lender shall provide to each borrower a telephone number, and may provide an elec- 247 Sec. 433 HIGHER EDUCATION ACT OF 1965 240 tronic address, through which additional loan information can be obtained. The disclosure shall include (1) a statement prominently and clearly displayed and in bold print that the borrower is receiving a loan that must be repaid; (2) the name of the eligible lender, and the address to which communications and payments should be sent; (3) the principal amount of the loan; (4) the amount of any charges, such as the origination fee and insurance premium, collected by the lender at or prior to the disbursal of the loan and whether such charges are de, ducted from the proceeds of the loan or paid separately by the borrower; (5) the stated interest rate on the loan; (6) the yearly and cumulative maximum amounts that may be borrowed; (7) an explanation of when repayment of the loan will be required and when the borrower will be obligated to pay inter- est that accrues on the loan; (8) a statement as to the minimum and maximum repay- ment term which the lender may impose, and the minimum annual payment required by law; (9) a statement of the total cumulative balance, including the loan applied for, owed by the student to that lender, and an estimate of the projected monthly payment, given such cu- mulative balance; (10) an explanation of any special options the borrower may have for loan consolidation or other refinancing of the loan; (11) a statement that the borrower has the right to prepay all or part of the loan, at any time, without penalty, a state- ment summarizing circumstances in which repayment of the loan or interest that accrues on the loan may be deferred, and a brief notice of the program for repayment of loans, on the basis of military service, pursuant to section 902 of the Depart- ment of Defense Authorization Act, 1981 (10 U.S.C. 2141, note);(12) a definition of default and the consequences to the borrower if the borrower defaults, including a statement that the default will be reported to a credit bureau or credit report- ing agency; (13) to the extent practicable, the effect of accepting the loan on the eligibility of the borrower for other forms of stu- dent assistance; and (14) an explanation of any cost the borrower may incur in the making or collection of the loan. (b) REQUIRED DISCLOSURE BEFORE REPAYMENT.Each eligible lender shall, at or prior to the start of the repayment period of the student borrower on loans made, insured, or guaranteed under this part, disclose to the borrower by written or electronic means the in- formation required under this subsection in simple and under- standable terms. Each eligible lender shall provide to each bor- rower a telephone number, and may provide an electronic address, through which additional loan information can be obtained. For 241 HIGHER EDUCATION ACT OF 1965 Sec. 433 any loan made, insured, or guaranteed under this part, other than a loan made under section 428B or 428C, such disclosure required by this subsection shall be made not less than 30 days nor more than 240 days before the first payment on the loan is due from the borrower. The disclosure shall include (1) the name of the eligible lender, and the address to which communications and payments should be sent; (2) the scheduled date upon which the repayment period is to begin; (3) the estimated balance owed by the borrower on the loan or loans covered by the disclosure as of the scheduled date on which the repayment period is to begin (including, if appli- cable, the estimated amount of interest to be capitalized); (4) the stated interest rate on the loan or loans, or the combined interest rate of loans with different stated interest rates; (5) the nature of any fees which may accrue or be charged to the borrower during the repayment period; (6) the repayment schedule for all loans covered by the dis- closure including the date the first installment is due, and the number, amount, and frequency of required payments; (7) an explanation of any special options the borrower may have for loan consolidation or other refinancing of the loan and of the availability and terms of such other options, except that such explanation is not required when the loan being made is a consolidation loan under section 428C; (8) except as provided in subsection (e), the projected total of interest charges which the borrower will pay on the loan or loans, assuming that the borrower makes payments exactly in accordance with the repayment schedule; and (9) a statement that the borrower has the right to prepay all or part of the loan or loans covered by the disclosure at any time without penalty. (C) COST OF DISCLOSURE AND CONSEQUENCES OF NONDISCLO- SURE.Such information shall be available without cost to the bor- rower. The failure of an eligible lender to provide information as required by this section shall not (1) relieve a borrower of the obli- gation to repay a loan in accordance with its terms, (2) provide a basis for a claim for civil damages, or (3) be deemed to abrogate the obligation of the Secretary under a contract of insurance or re- insurance, or the obligation of a guaranty agency under a contract of guaranty. Nothing in this section shall be construed as subject- ing the lender to the Truth in Lending Act with regard to loans made under this part. The Secretary may limit, suspend, or termi- nate the continued participation of an eligible lender in making loans under this part for failure by that lender to comply with this section. (d) SEPARATE STATEMENT.Each eligible lender shall, at the time such lender notifies a borrower of approval of a loan which is insured or guaranteed under this part, provide the borrower with a separate paper which summarizes (in plain English) the rights and responsibilities of the borrower with respect to the loan, in- cluding a statement of the consequences of defaulting on the loan and a statement that each borrower who defaults will be reported 243 Sec. 434 HIGHER EDUCATION ACT OF 1965 242 to a credit bureau. The requirement of this subsection shall be in addition to the information required by subsection (a) of this sec- tion. (e) SPECIAL DISCLOSURE RULES ON SLS LOANS AND PLUS LOANS AND UNSUBSIDIZED LOANS.Loans made under sections 428A, 428B, and 428H shall not be subject to the disclosure of pro- jected monthly payment amounts required under subsection (b)(8) if the lender, in lieu of such disclosure, provides the borrower with sample projections of monthly repayment amounts assuming dif- ferent levels of borrowing and interest accruals resulting from cap- italization of interest while the borrower is in school. Such sample projections shall disclose the cost to the student of capitalizing (1) principal and interest; and (2) interest only. SEC. 434. [20 U.S.C. 1084] PARTICIPATION BY FEDERAL CREDIT UNIONS IN FEDERAL, STATE, AND PRIVATE STUDENT LOAN INSURANCE PROGRAMS. Notwithstanding any other provision of law, Federal credit unions shall, pursuant to regulations of the National Credit Union Administration, have power to make insured loans to student mem- bers in accordance with the provisions of this part relating to feder- ally insured loans, or in accordance with the provisions of any State or nonprofit private student loan insurance program which meets the requirements of section 428(aX1)(B). SEC. 435. [20 U.S.C. 1085] DEFINITIONS FOR STUDENT LOAN INSUR- ANCE PROGRAM. As used in this part: (a) ELIGIBLE INSTITUTION. (1) IN GENERALExcept as provided in paragraph (2), the term "eligible institution" means an institution of higher edu- cation, as defined in section 102, except that, for the purposes of sections 427(a)(2XC)(i) and 428(bX1XM)(i), an eligible insti- tution includes any institution that is within this definition without regard to whether such institution is participating in any program under this title and includes any institution ineli- gible for participation in any program under this part pursuant to paragraph (2) of this subsection. (2) INELIGIBILITY BASED ON HIGH DEFAULT RATES.(A) An institution whose cohort default rate is equal to or greater than the threshold percentage specified in subparagraph (B) for each of the three most recent fiscal years for which data are avail- able shall not be eligible to participate in a program under this part for the fiscal year for which the determination is made and for the two succeeding fiscal years, unless, within 30 days of receiving notification from the Secretary of the loss of eligi- bility under this paragraph, the institution appeals the loss of its eligibility to the Secretary. The Secretary shall issue a deci- sion on any such appeal within 45 days after its submission. Such decision may permit the institution to continue to partici-. pate in a program. under -this part if (i) the institution demonstrates to the satisfaction of the Secretary that the Secretary's calculation of its cohort default rate is not accurate, and that recalculation would 243 HIGHER EDUCATION ACT OF 1965 Sec. 435 reduce its cohort default rate for any of the three fiscal years below the threshold percentage specified in subpara- graph (B); (ii) there are exceptional mitigating circumstances within the meaning of paragraph (4); or (iii) there are, in the judgment of the Secretary, other exceptional mitigating circumstances that would make the application of this paragraph inequitable. If an institution continues to participate in a program under this part, and the institution's appeal of the loss of eligibility is unsuccessful, the institution shall be required to pay to the Secretary an amount equal to the amount of interest, special allowance, reinsurance, and any related payments made by the Secretary (or which the Secretary is obligated to make) with respect to loans made under this part to students attending, or planning to attend, that institution during the pendency of such appeal. During such appeal, the Secretary may permit the institution to continue to participate in a program under this part. (B) For purposes of determinations under subparagraph (A), the threshold percentage is (i) 35 percent for fiscal year 1991 and 1992; (ii) 30 percent for fiscal year 1993; and (iii) 25 percent for any succeeding fiscal year. (C) Until July 1, 1999, this paragraph shall not apply to any institution that is (i) a part B institution within the meaning of section 322(2) of this Act; (ii) a tribally controlled community college within the meaning of section 2(a)(4) of the Tribally Controlled Com- munity College Assistance Act of 1978; or (iii) a Navajo Community College under the Navajo Community College Act. (3) APPEALS BASED UPON ALLEGATIONS OF IMPROPER LOAN SERVICING.An institution that (A) is subject to loss of eligibility for the Federal Fam- ily Education Loan Program pursuant to paragraph (2)(A) of this subsection; (B) is subject to loss of eligibility for the Federal Sup- plemental Loans for Students pursuant to section 428A(a)(2); or (C) is an institution whose cohort default rate equals or exceeds 20 percent for the most recent year for which data are available; may include in its appeal of such loss or rate a defense based on improper loan servicing (in addition to other defenses). In any such appeal, the Secretary shall take whatever steps are necessary to ensure that such institution has access for a rea- sonable period of time, not to exceed 30 days, to a representa- tive sample (as determined by the Secretary) of the relevant loan servicing and collection records used by a guaranty agency in determining whether to pay a claim on a defaulted loan or by the Department in determining an institution's default rate in the loan program under part D of this title. The Secretary Sec. 435 HIGHER EDUCATION ACT OF 1965 244 shall reduce the institution's cohort default rate to reflect the percentage of defaulted loans in the representative sample that are required to be excluded pursuant to subsection (m)(1)(B). (4) DEFINITION OF MITIGATING CIRCUMSTANCES.-(A) For purposes of paragraph (2)(A)(ii), an institution of higher edu- cation shall be treated as having exceptional mitigating cir- cumstances that make application of that paragraph inequi- table if such institution, in the opinion of an independent audi- tor, meets the following criteria: (i) For a 12-month period that ended during the 6 months immediately preceding the fiscal year for which the cohort of borrowers used to calculate the institution's cohort default rate is determined, at least two-thirds of the students enrolled on at least a half-time basis at the institution (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 a student would be eligible based on the student's enrollment status; or (II) have an adjusted gross income that when added with the adjusted gross income of the student's parents (unless the student is an independent student), of less than the poverty level, as determined by the Department of Health and Human Services. (ii) In the case of an institution of higher education that offers an associate, baccalaureate, graduate or profes- sional degree, 70 percent or more of the institution's regu- lar students who were initially enrolled on a full-time basis and were scheduled to complete their programs dur- ing the same 12-month period described in clause (i)-- (I) completed the educational programs in which the students were enrolled; (II) transferred from the institution to a higher level educational program; (III) at the end of the 12-month period, remained enrolled and making satisfactory progress toward com- pletion of the student's educational programs; or (IV) entered active duty in the Armed Forces of the United States. (iii)(I) In the case of an institution of higher education that does not award a degree described in clause (ii), had a placement rate of 44 percent or more with respect to the institution's former regular students who (aa) remained in the program beyond the point the students would have received a 100 percent tuition refund from the institution; (bb) were initially enrolled on at least a half-time basis; and (cc) were originally scheduled, at the time of en- rollment, to complete their educational programs dur- ing the same 12-month period described in clause (i). (II) The placement rate shall not include students who are still enrolled and making satisfactory progress in the educational programs in which the students were origi- 245 HIGHER EDUCATION ACT OF 1965 Sec. 435 nally enrolled on the date following 12 months after the date of the student's last date of attendance at the institu- tion. (III) The placement rate is calculated by determining the percentage of all those former regular students who (aa) are employed, in an occupation for which the institution provided training, on the date following 12 months after the date of their last day of attendance at the institution; (bb) were employed, in an occupation for which the institution provided training, for at least 13 weeks before the date following 12 months after the date of their last day of attendance at the institution; or (cc) entered active duty in the Armed Forces of the United States. (IV) The placement rate shall not include as place- ments a student or former student for whom the institu- tion is the employer. (B) For purposes of determining a rate of completion and a placement rate under this paragraph, a student is originally scheduled, at the time of enrollment, to complete the edu- cational program on the date when the student will have been enrolled in the program for the amount of time normally re- quired to complete the program. The amount of time normally required to complete the program for a student who is initially enrolled full-time is the period of time specified in the institu- tion's enrollment contract, catalog, or other materials, for com- pletion of the program by a full-time student. For a student who is initially enrolled less than full-time, the period is the amount of time it would take the student to complete the pro- gram if the student remained enrolled at that level of enroll- ment throughout the program. (5) REDUCTION OF DEFAULT RATES AT CERTAIN MINORITY IN- STITUTIONS. (A) BENEFICIARIES OF EXCEPTION REQUIRED TO ESTAB- LISH MANAGEMENT PLAN.After July 1, 1999, any institu- tion 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 relies on the exception in subparagraph (B) to continue to be an eligible institu- tion shall (i) submit to the Secretary a default management plan which the Secretary, in the Secretary's discretion, after consideration of the institution's history, re- sources, dollars in default, and targets for default re- duction, determines is acceptable and provides reason- able assurance that the institution will, by July 1, 2002, have a cohort default rate that is less than 25 percent; (ii) engage an independent third party (which may be paid with funds received under section 317 or part B of title III) to provide technical assistance in imple- menting such default management plan; and 253 Sec. 435 HIGHER EDUCATION ACT OF 1965 246 (iii) provide to the Secretary, on an annual basis or at such other intervals as the Secretary may re- quire, evidence of cohort default rate improvement and successful implementation of such default manage- ment plan. (B) DISCRETIONARY ELIGIBILITY CONDITIONED ON IM- PROVEMENT.Notwithstanding the expiration of the excep- tion in paragraph (2XC), the Secretary may, in the Sec- retary's discretion, continue to treat an institution de- scribed in subparagraph (A) of this paragraph as an eligi- ble institution for each of the 1-year periods beginning on July 1 of 1999, 2000, and 2001, only if the institution sub- mits by the beginning of such period evidence satisfactory to the Secretary that (i) such institution has complied and is continuing to comply with the requirements of subparagraph (A); and (ii) such institution has made substantial improve- ment, during each of the preceding 1-year periods, in the institution's cohort default rate. (6) PARTICIPATION RATE INDEX. (A) IN GENERAL.An institution that demonstrates to the Secretary that the institution's participation rate index is equal to or less than 0 0375 for any of the 3 most recent fiscal years for which data is available shall not be subject to paragraph (2). The participation rate index shall be de- termined by multiplying the institution's cohort default rate for loans under part B or D, or weighted average co- hort default rate for loans under parts B and D, by the percentage of the institution's regular students, enrolled on at least a half-time basis, who received a loan made under part B or D for a 12-month period ending during the 6 months immediately preceding the fiscal year for which the cohort of borrowers used to calculate the institution's cohort default rate is determined. (B) DATA.An institution shall provide the Secretary with sufficient data to determine the institution's partici- pation rate index within 30 days after receiving an initial notification of the institution's draft cohort default rate. (C) NOTIFICATION.Prior to publication of a final co- hort default rate for an institution that provides the data described in subparagraph (B), the Secretary shall notify the institution of the institution's compliance or non- compliance with subparagraph (A). (d)1 ELIGIBLE LENDER. (1) IN GENERAL.Except as provided in paragraphs (2) through (6), the term "eligible lender"means (A) a National or State chartered bank, a mutual sav- ings bank, a savings and loan association, a stock savings bank, or a credit union which 'Subsections (b) and (c) were repealed by P.L. 102-325, sec. 427(b)(1) and (2), 106 Stat. 549. 241 HIGHER EDUCATION ACT OF 1965 Sec. 435 (i) is subject to examination and supervision by an agency of the United States or of the State in which its principal place of operation is established, and (ii) does not have as its primary consumer credit function the making or holding of loans made to stu- dents under this part unless (I) it is a bank which is wholly owned by a State, or a bank which is subject to examination and supervision by an agency of the United States, makes student loans as a trustee pur- suant to an express trust, operated as a lender under this part prior to January 1, 1975, and which meets the requirements of this provision prior to the enact- ment of the Higher Education Amendments of 1992, (II) it is a single wholly owned subsidiary of a bank holding company which does not have as its primary consumer credit function the making or holding of loans made to students under this part, or (III) it is a bank (as defined in section 3(a)(1) of the Federal De- posit Insurance Act (12 U.S.C. 1813(a)(1)) that is a wholly owned subsidiary of a nonprofit foundation, the foundation is described in section 501(c)(3) of the In- ternal Revenue Code of 1986 and exempt from tax- ation under section 501(1) of such Code, and the bank makes loans under this part only to undergraduate students who are age 22 or younger and has a port- folio of such loans that is not more than $5,000,000; (B) a pension fund as defined in the Employee Retire- ment Income Security Act; (C) an insurance company which is subject to exam- ination and supervision by an agency of the United States or a State; (D) in any State, a single agency of the State or a sin- gle nonprofit private agency designated by the State; (E) an eligible institution which meets the require- ments of paragraphs (2) through (5) of this subsection; (F) for purposes only of purchasing and holding loans made by other lenders under this part, the Student Loan Marketing Association or the Holding Company of the Stu- dent Loan Marketing Association, including any subsidiary of the Holding Company, created pursuant to section 440, or an agency of any State functioning as a secondary mar- ket; (G) for purposes of making loans under sections 428A(d), 428B(d), 428C, and 439(q), the Student Loan Marketing Association or the Holding Company of the Stu- dent Loan Marketing Association, including any subsidiary of the Holding Company, created pursuant to section 440; (H) for purposes of making loans under sections 428(h) and 428(j), a guaranty agency; (I) a Rural Rehabilitation Corporation, or its successor agency, which has received Federal funds under Public Law 499, Eighty-first Congress (64 Stat. 98 (1950)); 253 Sec. 435 HIGHER EDUCATION ACT OF 1965 248 (J) for purpose of making loans under section 428C, any nonprofit private agency functioning in any State as a secondary market; and (K) a consumer finance company subsidiary of a na- tional bank which, as of the date of enactment of this sub- paragraph, through one or more subsidiaries: (i) acts as a small business lending company, as determined under reg- ulations of the Small Business Administration under sec- tion 120.470 of title 13, Code of Federal Regulations (as such section is in effect on the date of enactment of this subparagraph); and (ii) participates in the program author- ized by this part pursuant to subparagraph (C), provided the national bank and all of the bank's direct and indirect subsidiaries taken together as a whole, do not have, as their primary consumer credit function, the making or holding of loans made to students under this part. (2) ADDITIONAL REQUIREMENTS OF ELIGIBLE INSTITU- TIONS.To be an eligible lender under this part, an eligible institution (A) shall employ at least one person whose full-time responsibilities are limited to the administration of pro- grams of financial aid for students attending such institu- tion; (B) shall not be a home study school; (C) shall make loans to not more than 50 percent of the undergraduate students at the institution; (D) shall not make a loan, other than a loan to a grad- uate or professional student, unless the borrower has pre- viously received a loan from the school or has been denied a loan by an eligible lender; (E) shall not have a cohort default rate (as defined in section 435(m)) greater than 15 percent; and (F) shall use the proceeds from special allowance pay- ments and interest payments from borrowers for need- based grant programs, except for reasonable reimburse- ment for direct administrative expenses; except that the requirements of subparagraphs (C) and (D) shall not apply with respect to loans made, and loan commit- ments made, after the date of enactment of the Higher Edu- cation Amendmexfts of 1986 and prior to July. 1, 1987. (3) DISQUALIFICATION FOR HIGH DEFAULT RATES.The term "eligible lender" does not include any eligible institution in any fiscal year immediately after the fiscal year in which the Sec- retary determines, after notice and opportunity for a hearing, that for each of 2 consecutive years, 15 percent or more of the total amount of such loans as are described in section 428(a)(1) made by the institution with respect to students at that insti- tution and repayable in each such year, are in default, as de- fined in section 435(m). (4) WAIVER OF DISQUALIFICATION.Whenever the Sec- retary determines that (A) there is reasonable possibility that an eligible in- stitution may, within 1 year after a determination is made under paragraph (3), improve the collection of loans de- 249 HIGHER EDUCATION ACT OF 1965 Sec. 435 scribed in section 428(a)(1), so that the application of para- graph (3) would be a hardship to that institution, or (B) the termination of the lender's status under para- graph (3) would be a hardship to the present or for pro- spective students of the eligible institution, after consider- ing the management of that institution, the ability of that institution to improve the collection of loans, the opportu- nities that institution offers to economically disadvantaged students, and other related factors, the Secretary shall waive the provisions of paragraph (3) with respect to that institution. Any determination required under this paragraph shall be made by the Secretary prior to the ter- mination of an eligible institution as a lender under the excep- tion of paragraph (3). Whenever the Secretary grants a waiver pursuant to this paragraph, the Secretary shall provide tech- nical assistance to the institution concerned in order to im- prove the collection rate of such loans. (5) DISQUALIFICATION FOR USE OF CERTAIN INCENTIVES. The term "eligible lender" does not include any lender that the Secretary determines, after notice and opportunity for a hear- ing, has after the date of enactment of this paragraph (A) offered, directly or indirectly, points, premiums, payments, or other inducements, to any educational insti- tution or individual in order to secure applicants for loans under this part; (B) conducted unsolicited mailings to students of stu- dent loan application forms, except to students who have previously received loans under this part from such lender; (C) offered, directly or indirectly, loans under this part as an inducement to a prospective borrower to purchase a policy of insurance or other product; or (D) engaged in fraudulent or misleading advertising. It shall not be a violation of this paragraph for a lender to pro- vide assistance to institutions of higher education comparable to the kinds of assistance provided to institutions of higher education by the Department of Education. (6) REBATE FEE REQUIREMENT.To be an eligible lender under this part, an eligible lender shallj?ay rebate fees in ac- cordance with section 428C(f). (e) LINE OF CREDIT.The term "line of credit" means an ar- rangement or agreement between the lender and the borrower whereby a loan is paid out by the lender to the borrower in annual installments, or whereby the lender agrees to make, in addition to the initial loan, additional loans in subsequent years. (f) DUE DILIGENCE.The term "due diligence" requires the uti- lization by a lender, in the servicing and collection of loans insured under this part, of servicing and collection practices at least as ex- tensive and forceful as those generally practiced by financial insti- tutions for the collection of consumer loans. BEST COPY AVAILABLE 25 i Sec. 435 HIGHER EDUCATION ACT OF 1965 250 (i) 1 HOLDER. The term "holder" means an eligible lender who owns a loan. (j) GUARANTY AGENCY.The term "guaranty agency" means any State or nonprofit private institution or organization with which the Secretary has an agreement under section 428(b). (k) INSURANCE BENEFICIARY.The term "insurance bene- ficiary" means the insured or its authorized representative as- signed in accordance with section 429(d). (1) DEFAULT.Except as provided in subsection (m), the term "default" includes only such defaults as have existed for (1) 270 days in the case of a loan which is repayable in monthly install- ments, or (2) 330 days in the case of a loan which is repayable in less frequent installments. 2 (m) COHORT DEFAULT RATE. (1) IN GENERAL.(A) Except as provided in paragraph (2), the term "cohort default rate" means, for any fiscal year in which 30 or more current and former students at the institu- tion enter repayment on loans under section 428, 428A, or 428H, received for attendance at the institution, the percent- age of those current and former students who enter repayment on such loans (or on the portion of a loan made under section 428C that is used to repay any such loans) received for attend- ance at that institution in that fiscal year who default before the end of the following fiscal year. The Secretary shall require that each guaranty agency that has insured loans for current or former students of the institution afford such institution a reasonable opportunity (as specified by the Secretary) to review and correct errors in the information required to be provided to the Secretary by the guaranty agency for the purposes of calculating a cohort default rate for such institution, prior to the calculation of such rate. (B) In determining the number of students who default be- fore the end of such fiscal year, the Secretary shall include only loans for which the Secretary or a guaranty agency has paid claims for insurance. In considering appeals with respect to cohort default rates pursuant to subsection (a)(3), the Sec- retary shall exclude, from the calculation of the number of stu- dents who entered repayment and from the calculation of the number of students who default, any loans which, due to im- proper servicing or collection, would, as demonstrated by the evidence submitted in support of the institution's timely appeal to the Secretary, result in an inaccurate or incomplete calcula- tion of such cohort default rate. (C) For any fiscal year in which fewer than 30 of the insti- tution's current and former students enter repayment, the term "cohort default rate" means the percentage of such cur- rent and former students who entered repayment on such loans (or on the portion of a loan made under section 428C 1Section 427(f) of the Higher Education Amendments of 1992 (P.L. 102-325; 106 Stat. 550) amended section 435 of the Higher Education Act of 1965 by striking subsections (g), (h), and (n), but did not to redesignate remaining subsections. 2Section 429(c)(2) of the Higher Education Amendments of 1998 (P.L. 105-244; 112 Stat. 1708) amended subsection (1) of the Higher Education Act of 1965 by striking "180 days" and "240 days" and inserting "270 days" and "330 days", respectively, with respect to loans for which the first day of delinquency occurred on or after the date of enactment of that Act. 258 251 HIGHER EDUCATION ACT OF 1965 Sec. 435 that is used to repay any such loans) in any of the three most recent fiscal years, who default before the end of the fiscal year immediately following the year in which they entered repay- ment. (2) SPECIAL RULES.(A) In the case of a student who has attended and borrowed at more than one school, the student (and such student's subsequent repayment or default) is attrib- uted to each school for attendance at which the student re- ceived a loan that entered repayment in the fiscal year. (B) A loan on which a payment is made by the school, such school's owner, agent, contractor, employee, or any other entity or individual affiliated with such school, in order to avoid de- fault by the borrower, is considered as in default for purposes of this subsection. (C) Any loan which has been rehabilitated before the end of such following fiscal year is not considered as in default for the purposes of this subsection. The Secretary may require guaranty agencies to collect data with respect to defaulted loans in a manner that will permit the identification of any de- faulted loan for which (i) the borrower is currently making payments and has made not less than 6 consecutive on-time payments by the end of such following fiscal year, and (ii) a guaranty agency has renewed the borrower's title IV eligibility as provided in section 428F(b). (D) For the purposes of this subsection, a loan made in ac- cordance with section 428A (or the portion of a loan made under section 428C that is used to repay a loan made under section 428A) shall not be considered to enter repayment until after the borrower has ceased to be enrolled in a course of study leading to a degree or certificate at an eligible institution on at least a half-time basis (as determined by the institution) and ceased to be in a period of forbearance based on such en- rollment. Each eligible lender of a loan made under section 428A (or a loan made under section 428C a portion of which is used to repay a loan made under section 428A) shall provide the guaranty agency with the information necessary to deter- mine when the loan entered repayment for purposes of this subsection, and the guaranty agency shall provide such infor- mation to the Secretary. (3) REGULATIONS TO PREVENT EVASIONS.The Secretary shall prescribe regulations designed to prevent an institution from evading the application to that institution of a default rate determination under this subsection through the use of such measures as branching, consolidation, change of owner- ship or control, or any similar device. (4) COLLECTION AND REPORTING OF COHORT DEFAULT RATES.(A) The Secretary shall collect data from all insurers under this part and shall publish not less often than once every fiscal year a report showing default data for each cat- egory of institution, including (i) 4-year public institutions, (ii) 4-year private institutions, (iii) 2-year public institutions, (iv) 2-year private institutions, (v) 4-year proprietary institutions, (vi) 2-year proprietary institutions, and (vii) less than 2-year proprietary institutions. 259 Sec. 436 HIGHER EDUCATION ACT OF 1965 252 (B) The Secretary may designate such additional subcat- egories within the categories specified in subparagraph (A) as the Secretary deems appropriate. (C) The Secretary shall publish not less often than once every fiscal year a report showing default data for each institu- tion for which a cohort default rate is calculated under this subsection. (D) The Secretary shall publish the report described in subparagraph (C) by September 30 of each year. (o) 1 ECONOMIC HARDSHIP. (1) IN GENERAL.For purposes of this part and part E, a borrower shall be considered to have an economic hardship if (A) such borrower is working full-time and is earning an amount which does not exceed the greater of (i) the minimum wage rate described in section 6 of the Fair Labor Standards Act of 1938; or (ii) an amount equal to 100 percent of the poverty line for a family of 2 as determined in accordance with section 673(2) of the Community Service Block Grant Act; (B) such borrower is working full-time and has a Fed- eral educational debt burden that equals or exceeds 20 percent of such borrower's adjusted gross income, and the difference between such borrower's adjusted gross income minus such burden is less than 220 percent of the greater of (i) the annual earnings of an individual earning the minimum wage under section 6 of the Fair Labor Standards Act of 1938; or (ii) the income official poverty line (as defined by the Office of Management and Budget, and revised an- nually in accordance with section 673(2) of the Com- munity Services Block Grant Act) applicable to a fam- ily of two; or (C) such borrower meets such other criteria as are es- tablished by the Secretary by regulation in accordance with paragraph (2). (2) CONSIDERATIONS.In establishing criteria for purposes of paragraph (1)(C), the Secretary shall consider the borrower's income and debt-to-income ratio as primary factors. SEC. 436. [20 U.S.C. 1086] DELEGATION OF FUNCTIONS. (a) IN GENERAL.An eligible lender or guaranty agency that contracts with another entity to perform any of the lender's or agency's functions under this title, or otherwise delegates the per- formance of such functions to such other entity (1) shall not be relieved of the lender's or agency's duty to comply with the requirements of this title; and (2) shall monitor the activities of such other entity for com- pliance with such requirements. (b) SPECIAL RULE.A ,lender that holds a loan made under part B in the lender's capacity as a trustee is responsible for com- I Subsection (n) repealed by sec. 427(f) of P.L. 102-325. See footnote 1 on page 250. 253 HIGHER EDUCATION ACT OF 1965 Sec. 437 plying with all statutory and regulatory requirements imposed on any other holder of a loan made under this part. SEC. 437. [20 U.S.C. 1087] REPAYMENT BY THE SECRETARY OF LOANS OF BANKRUPT, DECEASED, OR DISABLED BORROWERS; TREATMENT OF BORROWERS ATTENDING CLOSED SCHOOLS OR FALSELY CERTIFIED AS ELIGIBLE TO BOR- ROW. (a) REPAYMENT IN FULL FOR DEATH AND DISABILITY.If a stu- dent borrower who has received a loan described in subparagraph (A) or (B) of section 428(a)(1) dies or becomes permanently and to- tally disabled (as determined in accordance with regulations of the Secretary), then the Secretary shall discharge the borrower's liabil- ity on the loan by repaying the amount owed on the loan. (b) PAYMENT OF CLAIMS ON LOANS IN BANKRUPTCY.The Sec- retary shall pay to the holder of a loan described in section 428(a)(1) (A) or (B), 428A, 428B, 428C, or 428H, the amount of the unpaid balance of principal and interest owed on such loan (1) when the borrower files for relief under chapter 12 or 13 of title 11, United States Code; (2) when the borrower who has filed for relief under chap- ter 7 or 11 of such title commences an action for a determina- tion of dischargeability under section 523(a)(8)(B) of such title; or (3) for loans described in section 523(a)(8)(A) of such title, when the borrower files for relief under chapter 7 or 11 of such title. (C) DISCHARGE. (1) IN GENERAL.If a borrower who received, on or after January 1, 1986, a loan made, insured, or guaranteed under this part and the student borrower, or the student on whose behalf a parent borrowed, is unable to complete the program in which such student is enrolled due to the closure of the in- stitution or if such student's eligibility to borrow under this part was falsely certified by the eligible institution, or if the in- stitution failed to make a refund of loan proceeds which th e institution owed to such student's lender, then the Secretary shall discharge the borrower's liability on the loan (including interest and collection fees) by repaying the amount owed on the loan and shall subsequently pursue any claim available to such borrower against the institution and its affiliates and principals or settle the loan obligation pursuant to the finan- cial responsibility authority under subpart 3 of part H. 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 Labor and Human Re- sources of the Senate annually as to the dollar amount of loan discharges attributable to failures to make refunds. (2) ASSIGNMENT.A borrower whose loan has been dis- charged pursuant to this subsection shall be deemed to have assigned to the United States the right to a loan refund up to the amount discharged against the institution and its affiliates and principals. 2 b' Sec. 438 HIGHER EDUCATION ACT OF 1965 254 (3) ELIGIBILITY FOR ADDITIONAL ASSISTANCE.The period of a student's attendance at an institution at which the student was unable to complete a course of study due to the closing of the institution shall not be considered for purposes of calculat- ing the student's period of eligibility for additional assistance under this title. (4) SPECIAL RULE.A borrower whose loan has been dis- charged pursuant to this subsection shall not be precluded from receiving additional grants, loans, or work assistance under this title for which the borrower would be otherwise eli- gible (but for the default on such discharged loan). The amount discharged under this subsection shall be treated the same as loans under section 465(a)(5) of this title. (5) REPORTING.The Secretary shall report to credit bu- reaus with respect to loans which have been discharged pursu- ant to this subsection. (d) REPAYMENT OF LOANS TO PARENTS.If a student on whose behalf a parent has received a loan described in section 428B dies, then the Secretary shall discharge the borrower's liability on the loan by repaying the amount owed on the loan. [Section 437A repealed by P.L. 105-244, sec. 432, 112 Stat. 17103 SEC. 438. [20 U.S.C. 1087-1] SPECIAL ALLOWANCES. (a) FINDINGS.In order to assure (1) that the limitation on in- terest payments or other conditions (or both) on loans made or in- sured under this part, do not impede or threaten to impede the car- rying out of the purposes of this part or do not cause the return to holders of loans to be less than equitable, (2) that incentive pay- ments on such loans are paid promptly to eligible lenders, and (3) that appropriate consideration of relative administrative costs and money market conditions is made in setting the quarterly rate of such payments, the Congress finds it necessary to establish an im- proved method for the determination of the quarterly rate of the special allowances on such loans, and to provide for a thorough, ex- peditious, and objective examination of alternative methods for the determination of the quarterly rate of such allowances. (b) COMPUTATION AND PAYMENT. (1) QUARTERLY PAYMENT BASED ON UNPAID BALANCE.A special allowance shall be paid for each of the 3-month periods ending March 31, June 30, September 30, and December 31 of every year and the amount of such allowance paid to any hold- er with respect to any 3-month period shall be a percentage of the average unpaid balance of principal (not including un- earned interest added to principal) of all eligible loans held by such holder during such period. (2) RATE OF SPECIAL ALLOWANCE.(A) Subject to subpara- graphs (B), (C), (D), (E), (F), (G), and (H) and paragraph (4), the special allowance paid pursuant to this subsection on loans shall be computed (i) by determining the average of the bond equivalent rates of 91-day Treasury bills auctioned for such 3- month period, (ii) by subtraCting the applicable interest rate on such loans from such average, (iii) by adding 3.10 percent to the resultant percent, and (iv) by dividing the resultant per- 255 HIGHER EDUCATION ACT OF 1965 Sec. 438 cent by 4. If such computation produces a number less than zero, such loans shall be subject to section 427A(f). (B)(i) The quarterly rate of the special allowance for hold- ers of loans which were made or purchased with funds ob- tained by the holder from the issuance of obligations, the in- come from which is exempt from taxation under the Internal Revenue Code of 1954 shall be one-half the quarterly rate of the special allowance established under subparagraph (A), ex- cept that, in determining the rate for the purpose of this divi- sion, subparagraph (A)(iii) shall be applied by substituting "3.5 percent" for "3.10 percent" . Such rate shall also apply to hold- ers of loans which were made or purchased with funds ob- tained by the holder from collections or default reimburse- ments on, or interests or other income pertaining to, eligible loans made or purchased with funds described in the preceding sentence of this subparagraph or from income on the invest- ment of such funds. This subparagraph shall not apply to loans which were made or insured prior to October 1, 1980. (ii) The quarterly rate of the special allowance set under division (i) of this subparagraph shall not be less than 9.5 per- cent minus the applicable interest rate on such loans, divided by 4. (iii) No special allowance may be paid under this subpara- graph unless the issuer of such obligations complies with sub- section (d) of this section. (iv) Notwithstanding clauses (i) and (ii), the quarterly rate of the special allowance for holders of loans which are financed with funds obtained by the holder from the issuance of obliga- tions originally issued on or after October 1, 1993, the income from which is excluded from gross income under the Internal Revenue Code of 1986, shall be the quarterly rate of the special allowance established under subparagraph (A), (E), (F), (G), or (H) as the case may be. Such rate shall also apply to holders of loans which were made or purchased with funds obtained by the holder from collections or default reimbursements on, or in- terest or other income pertaining to, eligible loans made or purchased with funds described in the preceding sentence of this subparagraph or from income on the investment of such funds. (C)(i) In the case of loans made before October 1, 1992, pursuant to section 428A or 428B for which the interest rate is determined under section 427A(c)(4), a special allowance shall not be paid unless the rate determined for any 12-month period under subparagraph (B) of such section exceeds 12 per- cent. (ii) Subject to subparagraphs (G) and (H), in the case of loans disbursed on or after October 1, 1992, pursuant to sec- tion 428A or 428B for which the interest rate is determined under section 427A(c)(4), a special allowance shall not be paid unless the rate determined for any 12-month period under sec- tion 427A(c)(4)(B) exceeds 'So in law. Should refer to section 427A(i). 263 Sec. 438 HIGHER EDUCATION ACT OF 1965 256 (I) 11 percent in the case of a loan under section 428A; (II) 10 percent in the case of a loan under section 428B. (D)(i) In the case of loans made or purchased directly from funds loaned or advanced pursuant to a qualified State obliga- tion, subparagraph (A)(iii) shall be applied by substituting "3.5 percent" for "3.10 percent". (ii) For the purpose of division (i) of this subparagraph, the term "qualified State obligation" means (I) an obligation of the Maine Educational Loan Mar- keting Corporation to the Student Loan Marketing Asso- ciation pursuant to an agreement entered into on January 31, 1984; or (II) an obligation of the South Carolina Student Loan Corporation to the South Carolina National Bank pursu- ant to an agreement entered into on July 30, 1986. (E) In the case of any loan for which the applicable rate of interest is described in section 427A(g)(2), subparagraph (A)(iii) shall be applied by, substituting "2.5 percent" for "3.10 percent". (F) Subject to paragraph (4), the special allowance paid pursuant to this subsection on loans for which the applicable rate of interest is determined under section 427A(h) shall be computed (i) by determining the applicable bond equivalent rate of the security with a comparable maturity, as established by the Secretary, (ii) by subtracting the applicable interest rates on such loans from such applicable bond equivalent rate, (iii) by adding 1.0 percent to the resultant percent, and (iv) by dividing the resultant percent by 4. If such computation pro- duces a number less than zero, such loans shall be subject to section 427A(f). 1 (G) LOANS DISBURSED BETWEEN JULY 1, 1998, AND OCTOBER 1, 1998. (i) IN GENERAL.Subject to paragraph (4) and clauses (ii), (iii), and (iv) of this subparagraph, and except as pro- vided in subparagraph (B), the special allowance paid pur- suant to this subsection on loans for which the first dis- bursement is made on or after July 1, 1998, and before Oc- tober 1, 1998, shall be computed (I) by determining the average of the bond equiva- lent rates of 91-day Treasury bills auctioned for such 3-month period; (II) by subtracting the applicable interest rates on such loans from such average bond equivalent rate; (III) by adding 2.8 percent to the resultant per- cent; and (IV) by dividing the resultant percent by 4. (ii) IN SCHOOL AND GRACE PERIOD.In the case of any loan for which the first disbursement is made on or after July 1, 1998, and before October 1, 1998, and for which the applicable rate of interest is described in section or 1So in law. Should refer to section 427A(i). 257 HIGHER EDUCATION ACT OF 1965. Sec. 438 427A(j)(2), clause (i)(III) of this subparagraph shall be ap- plied by substituting "2.2 percent" for "2.8 percent". (iii) PLUS LOANS.In the case of any loan for which the first disbursement is made on or after July 1, 1998, and before October 1, 1998, and for which the applicable rate of interest is described in section 427A(j)(3), clause (i)(III) of this subparagraph shall be applied by substitut- ing "3.1 percent" for "2.8 percent", subject to clause (v) of this subparagraph. (iv) CONSOLIDATION LOANS.This subparagraph shall not apply in the case of any consolidation loan. (v) LIMITATION ON SPECIAL ALLOWANCES FOR PLUS LOANS.In the case of PLUS loans made under section 428B and disbursed on or after July 1, 1998, and before October 1, 1998, for which the interest rate is determined under 427A(j)(3), a special allowance shall not be paid for such loan for such unless the rate determined under sub- paragraph (A) of such section (without regard to subpara- graph (B) of such section) exceeds 9.0 percent. (H) 1 LOANS DISBURSED. ON OR AFTER OCTOBER 1, 1998, AND BEFORE JULY 1, 2003. (i) IN GENERAL.Subject to paragraph (4) and clauses (ii), (iii), and (iv) of this subparagraph, and ex- cept as provided in subparagraph (B), the special al- lowance paid pursuant to this subsection on loans for which the first disbursement is made on or after Octo- ber 1, 1998, and before July 1, 2003, shall be computed (I) by determining the average of the bond equivalent rates of 91-day Treasury bills auc- tioned for such 3-month period; (II) by subtracting the applicable interest rates on such loans from such average bond equiv- alent rate; (III) by adding 2.8 percent to the resultant percent; and (IV) by dividing the resultant percent by 4. (ii) IN SCHOOL AND GRACE PERIOD.In the case of any loan for which the first disbursement is made on or after October 1, 1998, and before July 1, 2003, and for which the applicable rate of interest is described in section 427A(k)(2), clause (i)(III) of this subparagraph shall be applied by substituting "2.2 percent" for "2.8 percent". (iii) PLUS LOANS.In the case of any loan for which the first disbursement is made on or after Octo- ber 1, 1998, and before July 1, 2003, and for which the applicable rate of interest is described in section 427A(k)(3), clause (i)(III) of this subparagraph shall be applied by substituting "3.1 percent" for "2.8 percent", subject to clause (v) of this subparagraph. 'Margin so in law. 265 Sec. 438 HIGHER EDUCATION ACT OF 1965 258 (iv) CONSOLIDATION LOANS.In the case of any consolidation loan for which the application is received by an eligible lender on or after October 1, 1998, and before July 1, 2003, and for which the applicable inter- est rate is determined under section 427A(k)(4), clause (i)(III) of this subparagraph shall be applied by sub- stituting "3.1 percent" for "2.8 percent", subject to clause (vi) of this subparagraph. (v) LIMITATION ON SPECIAL ALLOWANCES FOR PLUS LOANS.In the case of PLUS loans made under sec- tion 428B and first disbursed on or after October 1, 1998, and before July 1, 2003, for which the interest rate is determined under section 427A(k)(3), a special allowance shall not be paid for such loan during any 12-month period beginning on July 1 and ending on June 30 unless, on the June 1 preceding such July 1 (I) the bond equivalent rate of 91-day Treas- ury bills auctioned at the final auction held prior to such June 1 (as determined by the Secretary for purposes of such section); plus (II) 3.1 percent, exceeds 9.0 percent. (vi) LIMITATION ON SPECIAL ALLOWANCES FOR CON- SOLIDATION LOANS.In the case of consolidation loans made under section 428C and for which the applica- tion is received on or after October 1, 1998, and before July 1, 2003, for which the interest rate is determined under section 427A(k)(4), a special allowance shall not be paid for such loan during any 3-month period end- ing March 31, June 30, September 30, or December 31 unless (I) the average of the bond equivalent rate of 91-day Treasury bills auctioned for such 3-month period; plus (II) 3.1 percent, exceeds the rate determined under section 427A(k)(4). (3) CONTRACTUAL RIGHT OF HOLDERS TO SPECIAL ALLOW- ANCE.The holder of an eligible loan shall be deemed to have a contractual right against the United States, during the life of such loan, to receive the special allowance according to the provisions of this section. The special allowance determined for any such 3-month period shall be paid promptly after the close of such period, and without administrative delay after receipt of an accurate and complete request for payment, pursuant to procedures established by regulations promulgated under this section. (4) PENALTY FOR LATE PAYMENT.(A) If payments of the special allowances payable under this section or of interest payments under section 428(a) with respect to a loan have not been made within 30 days after the Secretary has received an accurate, timely, and complete request for payment thereof, the special allowance payable to such holder shall be increased by an amount equal to the daily interest accruing on the special allowance and interest benefits payments due the holder. 2 66 259 HIGHER EDUCATION ACT OF 1965 Sec. 438 (B) Such daily interest shall be computed at the daily equivalent rate of the sum of the special allowance rate com- puted pursuant to paragraph (2) and the interest rate applica- ble to the loan and shall be paid for the later of (i) the 31st day after the receipt of such request for payment from the holder, or (ii) the 31st day after the final day of the period or periods covered by such request, and shall be paid for each suc- ceeding day until, and including, the date on which the Sec- retary authorizes payment. (C) For purposes of reporting to the Congress the amounts of special allowances paid under this section, amounts of spe- cial allowances paid pursuant to this paragraph shall be seg- regated and reported separately. (5) DEFINITION OF ELIGIBLE LOAN.As used in this section, the term "eligible loan" means a loan (A)(i) on which a portion of the interest is paid on be- half of the student and for the student's account to the holder of the loan under section 428(a); (ii) which is made under section 428A, 428B, 428C, 428H, or 439(o); or (iii) which was made prior to October 1, 1981; and (B) which is insured under this part, or made under a program covered by an agreement under section 428(b) of this Act. As used in this section, the term "eligible loan" includes all loans subject to section 4281.1 (6) REGULATION OF TIME AND MANNER OF PAYMENT.The Secretary shall pay the holder of an eligible loan, at such time or times as are specified in regulations, a special allowance prescribed pursuant to this subsection subject to the condition that such holder shall submit to the Secretary, at such time or times and in such a manner as the Secretary may deem prop- er, such information as may be required by regulation for the purpose of enabling the Secretary to carry out his functions under this section and to carry out the purposes of this section. (7) USE OF AVERAGE QUARTERLY BALANCE.The Secretary shall permit lenders to calculate interest benefits and special allowance through the use of the average quarterly balance method until July 1, 1988. (c) ORIGINATION FEES FROM STUDENTS. (1) DEDUCTION FROM INTEREST AND SPECIAL ALLOWANCE SUBSIDIES.(A) Notwithstanding subsection (b), the Secretary shall collect the amount the lender is authorized to charge as an origination fee in accordance with paragraph (2) of this subsection (i) by reducing the total amount of interest and special allowance payable under section 428(a)(3)(A) and sub- section (b) of this section, respectively, to any holder; or (ii) directly from the holder of the loan, if the lender fails or is not required to bill the Secretary for interest and special allowance or withdraws from the program with un- paid loan origination fees. lIndentation so in law. 267 Sec. 438 HIGHER EDUCATION ACT OF 1965 260 (B) If the Secretary collects the origination fee under this subsection through the reduction of interest and special allow- ance, and the total amount of interest and special allowance payable under section 428(a)(3)(A) and subsection (b) of this section, respectively, is less than the amount the lender was authorized to charge borrowers for origination fees in that quarter, the Secretary shall deduct the excess amount from the subsequent quarters' payments until the total amount has been deducted. (2) AMOUNT OF ORIGINATION FEES.Subject to paragraph (6) of this subsection, with respect to any loan (including loans made under section 428H, but excluding loans made under sec- tions 428C and 439(o)) for which a completed note or other written evidence of the loan was sent or delivered to the bor- rower for signing on or after 10 days after the date of enact- ment of the Postsecondary Student Assistance Amendments of 1981, each eligible lender under this part is authorized to charge the borrower an origination fee in an amount not to ex- ceed 3.0 percent of the principal amount of the loan, to be de- ducted proportionately from each installment payment of the proceeds of the loan prior to payment to the borrower. Except as provided in paragraph (8), a lender that charges an origina- tion fee under this paragraph shall assess the same fee to all student borrowers. (3) RELATION TO APPLICABLE INTEREST.Such origination fee shall not be taken into account for purposes of determining compliance with section 427A. (4) DISCLOSURE REQUIRED.The lender shall disclose to the borrower the amount and method of calculating the origi- nation fee. (5) PROHIBITION ON DEPARTMENT COMPELLING ORIGINATION FEE COLLECTIONS BY LENDERS.Nothing in this subsection shall be construed to permit the Secretary to require any lend- er that is making loans that are insured or guaranteed under this part, but for which no amount will be payable for interest under section 428(a)(3)(A) or for special allowances under sub- section (b) of this section, to collect any origination fee or to submit the sums collected as origination fees to the United States. The Secretary shall, not later than January 1, 1987, re- turn to any such lender any such sums collected before the en- actment of this paragraph, together with interest thereon. (6) SLS AND PLUS LOANS.With respect to any loans made under section 428A or 428B on or after October 1, 1992, each eligible lender under this part shall charge the borrower an origination fee of 3.0 percent of the principal amount of the loan, to be deducted proportionately from each installment pay- ment of the proceeds of the loan prior to payments to the bor- rower. (7) DISTRIBUTION OF ORIGINATION FEES.All origination fees collected pursuant to this section on loans authorized under section 428A or 428B shall be paid to the Secretary by the lender and deposited in the fund authorized under section 431 of this part. 261 HIGHER EDUCATION ACT OF 1965 Sec. 438 (8) EXCEPTION.Notwithstanding paragraph (2), a lender may assess a lesser origination fee for a borrower demonstrat- ing greater financial need as determined by such borrower's adjusted gross family income. (d) LOAN FEES FROM LENDERS. (1) DEDUCTION FROM INTEREST AND SPECIAL ALLOWANCE SUBSIDIES. (A) IN GENERAL.Notwithstanding subsection (b), the Secretary shall collect a loan fee in an amount determined in accordance with paragraph (2) (i) by reducing the total amount of interest and special allowance payable under section 428(a)(3)(A) and subsection (b), respectively, to any holder of a loan; or (ii) directly from the holder of the loan, if the lender (I) fails or is not required to bill the Secretary for interest and special allowance payments; or (II) withdraws from the program with unpaid loan fees. (B) SPECIAL RULE.If the Secretary collects loan fees under this subsection through the reduction of interest and special allowance payments, and the total amount of inter- est and special allowance payable under section 428(a)(3)(A) and subsection (b), respectively, is less than the amount of such loan fees, then the Secretary shall de- duct the amount of the loan fee balance from the amount of interest and special allowance payments that would oth- erwise be payable, in subsequent quarterly increments until the balance has been deducted. (2) AMOUNT OF LOAN FEES.With respect to any loan under this part for which the first disbursement was made on or after October 1, 1993, the amount of the loan fee which shall be deducted under paragraph (1) shall be equal to 0.50 percent of the principal amount of the loan. (3) DISTRIBUTION OF LOAN FEES.The Secretary shall de- posit all fees collected pursuant to paragraph (3) into the in- surance fund established in section 431. (e) NONDISCRIMINATION.In order for the holders of loans which were made or purchased with funds obtained by the holder from an Authority issuing obligations, the income from which is ex- empt from taxation under the Internal Revenue Code of 1986, to be eligible to receive a special allowance under subsection (b)(2) on any such loans, the Authority shall not engage in any pattern or practice which results in a denial of a borrower's access to loans under this part because of the borrower's race, sex, color, religion, national origin, age, disability status, income, attendance at a par- ticular eligible institution within the area served by the Authority, length of the borrower's educational program, or the borrower's academic year in school. f) REGULATIONS To PREVENT DENIAL OF LOANS TO ELIGIBLE STUDENTS.The Secretary shall adopt or amend appropriate regu- lations pertaining to programs carried out under this part to pre- 269 Sec. 439 HIGHER EDUCATION ACT OF 1965 262 vent, where practicable, any practices which the Secretary finds have denied loans to a substantial number of eligible students. SEC. 439. [20 U.S.C. 1087-211 STUDENT LOAN MARKETING ASSOCIA- TION. (a) PURPOSE.The Congress hereby declares that it is the pur- pose of this section (1) to establish a private corporation which will be financed by private capital and which will serve as a secondary market and warehousing facility for student loans, including loans which are insured by the Secretary under this part or by a guar- anty agency, and which will provide liquidity for student loan in- vestments; (2) in order to facilitate secured transactions involving student loans, to provide for perfection of security interests in stu- dent loans either through the taking of possession or by notice fil- ing; and (3) to assure nationwide the establishment of adequate loan insurance programs for students, to provide for an additional program of loan insurance to be covered by agreements with the Secretary. (b) ESTABLISHMENT. (1) IN GENERAL.There is hereby created a body corporate to be known as the Student Loan Marketing Association (here- inafter referred to as the "Association"). The Association shall have succession until dissolved. It shall maintain its principal office in the District of Columbia and shall be deemed, for pur- poses of venue and jurisdiction in civil actions, to be a resident and citizen thereof. Offices may be established by the Associa- tion in such other place or places as it may deem necessary or appropriate for the conduct of its business. (2) EXEMPTION FROM STATE AND LOCAL TAXES.The Asso- ciation, including its franchise, capital, reserves, surplus, mort- gages, or other security holdings, and income shall be exempt from all taxation now or hereafter imposed by any State, terri- tory, possession, Commonwealth, or dependency of the United States, or by the District of Columbia, or by any county, mu- nicipality, or local taxing authority, except that any real prop- erty of the Association shall be subject to State, territorial, county, municipal, or local taxation to the same extent accord- ing to its value as other real property is taxed. (3) APPROPRIATIONS AUTHORIZED FOR ESTABLISHMENT. There is hereby authorized to be appropriated to the Secretary $5,000,000 for making advances for the purpose of helping to establish the Association. Such advances shall be repaid within such period as the Secretary may deem to be appropriate in light of the maturity and solvency of the Association. Such ad- vances shall bear interest at a rate not less than (A) a rate de- termined by the Secretary of the Treasury taking into consider- 1Section 602(d) of Public Law 104-208 (110 Stat. 3009-300) provides for the following repeals: (d) REPEALS. (1) IN GENERAL.Sections 439 of the Higher Education Act of 1965 (20 U.S.C. 1087-2) and 440 of such Act (as added by subsection (a) of this section) are repealed. (2) EFFECTIVE DATE.The repeals made by paragraph (1) shall be effective one year after (A) the date on which all of the obligations of the trust established under section 440(d)(1) of the Higher Education Act of 1965 (as added by subsection (a)) have been extinguished, if a reorganization occurs in accordance with section 440 of such Act; or (B) the date on which all of the obligations of the trust established under subsection 439(sX3)(A) of such Act (as added by subsection (c)) have been extinguished, if a reorga- nization does not occur in accordance with section 440 of such Act. 263 HIGHER EDUCATION ACT OF 1965 Sec. 439 ation the current average market yield on outstanding market- able obligations of the United States with remaining period to maturity comparable to the maturity of such advances, ad- justed to the nearest one-eighth of 1 percent, plus (B) an allow- ance adequate in the judgment of the Secretary to cover ad- ministrative costs and probable losses. Repayments of such ad- vances shall be deposited into miscellaneous receipts of the Treasury. (C) BOARD OF DIRECTORS. (1) COMPOSITION OF BOARD; CHAIRMAN.(A) The Associa- tion shall have a Board of Directors which shall consist of 21 persons, 7 of whom shall be appointed by the President and shall be representative of the general public. The remaining 14 directors shall be elected by the common stockholders of the Association entitled to vote pursuant to subsection (f). Com- mencing with the annual shareholders meeting to be held in 1993 (i) 7 of the elected directors shall be affiliated with an eligible institution; and (ii) 7 of the elected directors shall be affiliated with an eligible lender. (B) The President shall designate 1 of the directors to serve as Chairman. (2) TERMS OF APPOINTED AND ELECTED MEMBERS.The di- rectors appointed by the President shall serve at the pleasure of the President and until their successors have been appointed and have qualified. The remaining directors shall each be elect- ed for a term ending on the date of the next annual meeting of the common stockholders of the Association, and shall serve until their successors have been elected and have qualified. Any appointive seat on the Board which becomes vacant shall be filled by appointment of the President. Any elective seat .on the Board which becomes vacant after the annual election of the directors shall be filled by the Board, but only for the unex- pired portion of the term. (3) AFFILIATED MEMBERS.For the purpose of this sub- section, the references to a director "affiliated with the eligible institution" or a director "affiliated with an eligible lender" means an individual who is, or within 5 years of election to the Board has been, an employee, officer, director, or similar offi- cial of (A) an eligible institution-or an eligible lender; (B) an association whose members consist primarily of eligible institutions or eligible lenders; or (C) a State agency, authority, instrumentality, com- mission, or similar institution, the primary purpose of which relates to educational matters or banking matters. (4) MEETINGS AND FUNCTIONS OF THE BOARD.The Board of Directors shall meet at the call of its Chairman, but at least semiannually. The Board shall determine the general policies which shall govern the operations_ of the Association. The Chairman of the Board shall, with the approval of the Board, select, appoint, and .compensate qualified persons to fill the of- fices as may be provided for in the bylaws, with such functions, 2 7.1.' Sec. 439 HIGHER EDUCATION ACT OF 1965 264 powers, and duties as may be prescribed by the bylaws or by the Board of Directors, and such persons shall be the officers of the Association and shall discharge all such functions, pow- ers, and duties. (d) AUTHORITY OF ASSOCIATION. (1) IN GENERAL. The Association is authorized, subject to the provisions of this section (A) pursuant to commitments or otherwise to make ad- vances on the security of, purchase, or repurchase, service, sell or resell, offer participations, or pooled interests or otherwise deal in, at prices and on terms and conditions determined by the Association, student loans which are in- sured by the Secretary under this part or by a guaranty agency; (B) to buy, sell, hold, underwrite, and otherwise deal in obligations, if such obligations are issued, for the pur- pose of making or purchasing insured loans, by a guaranty agency or by an eligible lender in a State described in sec- tion 435(d)(1) (D) or (F); (C) to buy, sell, hold, insure, underwrite, and other- wise deal in obligations issued for the purpose of financing or refinancing the construction, reconstruction, renovation, improvement, or purchase at institutions of higher edu- cation of any of the following facilities (including the un- derlying property) and materials (including related equip- ment, instrumentation, '-and furnishings) at an eligible in- stitution of higher education: (i) educational and training facilities; (ii) housing for students and faculties, dining halls, student unions, and facilities specifically de- signed to promote fitness and health for students, fac- ulty, and staff or for physical education courses; and (iii) library facilities, including the acquisition of library materials at institutions of higher education; except that not more than 30 percent of the value of trans- actions entered into under this subparagraph shall involve transactions of the types described in clause (ii); (D) to undertake a program of loan insurance pursu- ant to agreements with the Secretary under section 428, and except with respect to loans under subsection (o) of this section or under section 428C, the Secretary may enter into an agreement with the Association for such pur- pose only if the Secretary determines that (i) eligible bor- rowers are seeking and unable to obtain loans under this part, and (ii) no guaranty agency is capable of or willing to provide a program of loan insurance for such borrowers; and (E) to undertake any other activity which the Board of Directors of the Association determines to be in further- ance of the programs of insured student loans authorized under this part or will otherwise support the credit needs of students, except that (i) in carrying out all such activities the purpose shall always be to provide secondary market and other 265 HIGHER EDUCATION ACT OF 1965 Sec. 439 support for lending programs offered by other organi- zations and not to replace or compete with such other programs; (ii) nothing in this subparagraph (E) shall be deemed to authorize the Association to acquire, own, operate, or control any bank, savings and loan associa- tion, savings bank or credit union; and (iii) not later than 30 days prior to the initial im- plementation of a program undertaken pursuant to this subparagraph (E), the Association shall advise the Chairman and the Ranking Member on the Committee on Labor and Human Resources of the Senate and the Chairman and the Ranking Member of the Committee on Education and Labor of the House of Representa- tives in writing of its plans to offer such program and shall provide information relating to the general terms and conditions of such program. The Association is further authorized to undertake any activity with regard to student loans which are not insured or guaran- teed as provided for in this subsection as it may undertake with regard to insured or guaranteed student loans. Any warehousing advance made on the security of such loans shall be subject to the provisions of paragraph (3) of this subsection to the same extent as a warehousing advance made on the se- curity of insured loans. (2) WAREHOUSING ADVANCES.Any warehousing advance made under paragraph (1)(A) of this subsection shall be made on the security of (A) insured loans, (B) marketable obligations and securities issued, guaranteed, or insured by, the United States, or for which the full faith and credit of the United States is pledged for the repayment of principal and interest thereof, or (C) marketable obligations issued, guaranteed, or insured by any agency, instrumentality, or corporation of the United States for which the credit of such agency, instrumen- tality, or corporation is pledged for the repayment of principal and interest thereof, in an amount equal to the amount of such advance. The proceeds of any such advance secured by insured loans shall either be invested in additional insured loans or the lender shall provide assurances to the Association that during the period of the borrowing it will maintain a level of insured loans in its portfolio not less than the aggregate outstanding balance of such loans held at the time of the borrowing. The proceeds from any such advance secured by collateral described in clauses (B) and (C) shall be invested in additional insured student loans. (3) PERFECTION OF SECURITY INTERESTS IN STUDENT LOANS.Notwithstanding the provisions of any State law to the contrary, including the Uniform Commercial Code as in ef- fect in any State, a security interest in insured student loans created on behalf of the Association or any eligible lender as defined in section 435(a) may be perfected either through the taking of possession of such loans or by the filing of notice of such security interest in such loans in the manner provided by such State law for perfection of security interests in accounts. 2 7 3 Sec. 439 HIGHER EDUCATION ACT OF 1965 266 (4) FORM OF SECURITIES.Securities issued pursuant to the offering of participations or pooled interests under para- graph (1) of this subsection may be in the form of debt obliga- tions, or trust certificates of beneficial ownership, or both. Stu- dent loans set aside pursuant to the offering of participations or pooled interests shall at all times be adequate to ensure the timely principal and interest payments on such securities. (5) RESTRICTIONS ON FACILITIES AND HOUSING ACTIVITIES. Not less than 75 percent of the aggregate dollar amount of ob- ligations bought, sold, held, insured, underwritten, and other- wise supported in accordance with the authority contained in paragraph (1)(C) shall be obligations which are listed by a na- tionally recognized statistical rating organization at a rating below the second highest rating of such organization. (e) ADVANCES TO LENDERS THAT Do NOT DISCRIMINATE.The Association, pursuant to such criteria as the Board of Directors may prescribe, shall make advances on security or purchase stu- dent loans pursuant to subsection (d) only after the Association is assured that the lender (1) does not discriminate by pattern or practice against any particular class or category of students by re- quiring that, as a condition to the receipt of a loan, the student or his family maintain a business relationship with the lender, except that this clause shall not apply in the case of a loan made by a credit union, savings and loan association, mutual savings bank, institution of higher education, or any other lender with less than $75,000,000 in deposits, and (2) does not discriminate on the basis of race, sex, color, creed, or national origin. (f) STOCK OF THE ASSOCIATION. (1) VOTING COMMON STOCK.The Association shall have voting common stock having such par value as may be fixed by its Board of Directors from time to time. Each share of voting common stock shall be entitled to one vote with rights of cumu- lative voting at all elections of directors. (2) NUMBER OF SHARES; TRANSFERABILITY.The maximum number of shares of voting common stock that the Association may issue and have outstanding at any one time shall be fixed by the Board of Directors from time to time. Any voting com- mon stock issued shall be fully transferable, except that, as to the Association, it shall be transferred only on the books of the Association. (3) DIVIDENDS. To the extent that net income is earned and realized, subject to subsection (g)(2), dividends may be de- clared on voting common stock by the Board of Directors. Such dividends as may be declared by the Board of Directors shall be paid to the holders of outstanding shares of voting common stock, except that no such dividends shall be payable with re- spect to any share which has been called for redemption past the effective date of such call. (4) SINGLE CLASS OF VOTING COMMON STOCK.As of the ef- fective date of the Higher Education Amendments of 1992, all of the previously authorized shares of voting common stock and nonvoting common stock of the Association shall be converted to shares of. a. single class of voting common stock on a share- for-share basis, without any further action on the part of the 274 267 HIGHER EDUCATION ACT OF 1965. Sec. 439 Association or any holder. Each outstanding certificate for vot- ing or nonvoting common stock shall evidence ownership of the same number of shares of voting stock into which it is con- verted. All preexisting rights and obligations with respect to any class of common stock of the Association shall be deemed to be rights and obligations with respect to such converted shares. (g) PREFERRED STOCK. (1) AUTHORITY OF BOARD.The Association is authorized to issue nonvoting preferred stock having such par value as may be fixed by its Board of Directors from time to time. Any preferred share issued shall be freely transferable, except that, as to the Association, it shall be transferred only on the books of the Association. (2) RIGHTS OF PREFERRED STOCK.The holders of the pre- ferred shares shall be entitled to such rate of cumulative divi- dends and such shares shall be subject to such redemption or other conversion provisions as may be provided for at the time of issuance. No dividends shall be payable on any share of com- mon stock at any time when any dividend is due on any share of preferred stock and has not been paid. (3) PREFERENCE ON TERMINATION OF BUSINESS.In the event of any liquidation, dissolution, or winding up of the Asso- ciation's business, the holders of the preferred shares shall be paid in full at par value thereof, plus all accrued dividends, be- fore the holders of the common shares receive any payment. (h) DEBT OBLIGATIONS. (1) APPROVAL BY SECRETARIES OF EDUCATION AND THE TREASURY.The Association is authorized with the approval of the Secretary of Education and the Secretary of the Treasury to issue and have outstanding obligations having such matu- rities and bearing such rate or rates of interest as may be de- termined by the Association. The authority of the Secretary of Education to approve the issuance of such obligations is lim- ited to obligations issued by the Association and guaranteed by the Secretary pursuant to paragraph (2) of this subsection. Such obligations may be redeemable at the option of the Asso- ciation before maturity in such manner as may be stipulated therein. The Secretary of the Treasury may not direct as a con- dition of his approval that any such issuance of obligations by the Association be made or sold to the Federal Financing Bank. To the extent that the average outstanding amount of the obligations owned by the Association pursuant to the au- thority contained in subsection (d)(1) (B) and (C) of this section and as to which the income is exempt from taxation under the Internal Revenue Code of 1986 does not exceed the average stockholders' equity of the Association, the interest on obliga- tions issued under this paragraph shall not be deemed to be interest on indebtedness incurred or continued to purchase or carry obligations for the purpose of section 265 of the Internal Revenue Code of 1986. (2) GUARANTEE OF DEBT.The Secretary is authorized, prior to October 1, 1984, to guarantee payment when due of principal and interest on obligations issued by the Association Sec. 439 HIGHER EDUCATION ACT OF 1965 268 in an aggregate amount determined by the Secretary in con- sultation with the Secretary of the Treasury. Nothing in this section shall be construed so as to authorize the Secretary of Education or the Secretary of the Treasury to limit, control, or constrain programs of the Association or support of the Guar- anteed Student Loan Program by the Association. (3) BORROWING AUTHORITY TO MEET GUARANTEE OBLIGA- TIONS.To enable the Secretary to discharge his responsibil- ities under guarantees issued by him, he is authorized to issue to the Secretary of the Treasury notes or other obligations in such forms and denominations, bearing such maturities, and subject to such terms and conditions, as may be prescribed by the Secretary with the approval of the Secretary of the Treas- ury. Such notes or other obligations shall bear interest at a rate determined by the Secretary of the Treasury, taking into consideration the current average market yield on outstanding marketable obligations of the United States of comparable ma- turities during the months preceding the issuance of the notes or other obligations. The Secretary of the Treasury is author- ized and directed to purchase any notes and other obligations issued hereunder and for that purpose he is authorized to use as a public debt transaction the proceeds from the sale of any securities issued under the Second Liberty Bond Act, as amended, and the purposes for which securities may be issued under that Act, as amended, are extended to include any pur- chase of such notes and obligations. The Secretary of the Treasury may at any time sell any of the notes or other obliga- tions acquired by him under this subsection. All redemptions, purchases, and sales by the Secretary of the Treasury of such notes or other obligations shall be treated as public debt trans- actions of the United States. There is authorized to be appro- priated to the Secretary such sums as may be necessary to pay the principal and interest on the notes or obligations issued by him to the Secretary of the Treasury. (4) ACTION ON REQUEST FOR GUARANTEES.Upon receipt of a request from the Association under this subsection requiring approvals by the Secretary of Education or the Secretary of the Treasury, the Secretary of Education or the Secretary of the Treasury shall act promptly either to grant approval or to ad- vise the Association of the reasons for withholding approval. In no case shall such an approval be withheld for a period longer than 60 days unless, prior to the end of such period, the Sec- retary of Education and the Secretary of the Treasury submit to the Congress a detailed explanation of reasons for doing so. (5) AUTHORITY OF TREASURY TO PURCHASE DEBT.The Sec- retary of the Treasury is authorized to purchase any obliga- tions issued by the Association pursuant to this subsection as now or hereafter in force, and for such purpose the Secretary of the Treasury is authorized to use as a public debt trans- action the proceeds of the sale of any securities hereafter issued under the Second Liberty Bond Act, as now or hereafter in force, and the purposes for which securities may be issued under the Second Liberty Bond Act, as now or hereafter in force are extended to include such purchases. The Secretary of 276 269 HIGHER EDUCATION ACT OF 1965 Sec. 439 the Treasury shall not at any time purchase any obligations under this subsection if such purchase would increase the ag- gregate principal amount of his then outstanding holdings of such obligations under this subsection to an amount greater than $1,000,000,000. Each purchase of obligations by the Sec- retary of the Treasury under this subsection shall be upon such terms and conditions as to yield a return at a rate deter- mined by the Secretary of the Treasury, taking into consider- ation the current average rate on outstanding marketable obli- gations of the United States of comparable maturities as of the last day of the month preceding the making of such purchase. The Secretary of the Treasury may, at any time, sell, upon such terms and conditions and at such price or prices as he shall determine, any of the obligations acquired by him under this subsection. All redemptions, purchases, and sales by the Secretary of the Treasury of such obligations under this sub- section shall be treated as public debt transactions of the United States. (6) SALE OF DEBT TO FEDERAL FINANCING BANK.Notwith- standing any other provision of law the Association is author- ized to sell or issue obligations on the security of student loans, the payment of interest or principal of which has at any time been guaranteed under section 428 or 429 of this part, to the Federal Financing Bank. (7) OFFSET FEE.(A) The Association shall pay to the Sec- retary, on a monthly basis, an offset fee calculated on an an- nual basis in an amount equal to 0.30 percent of the principal amount of each loan made, insured or guaranteed under this part that the Association holds (except for loans made pursu- ant to sections 428C, 439(o), or 439(q)) and that was acquired on or after the date of enactment of this paragraph. (B) If the Secretary determines that the Association has substantially failed to comply with subsection (q), subpara- graph (A) shall be applied by substituting "1.0 percent" for "0.3 percent". (C) The Secretary shall deposit all fees collected pursuant to this paragraph into the insurance fund established in sec- tion 431. (i) GENERAL CORPORATE POWERS.The Association shall have power (1) to sue and be sued, complain and defend, in its cor- porate name and through its own counsel; (2) to adopt, alter, and use the corporate seal, which shall be judicially noticed; (3) to adopt, amend, and repeal by its Board of Directors, bylaws, rules, and regulations as may be necessary for the con- duct of its business; (4) to conduct its business, carry on its operations, and have officers and exercise the power granted by this section in any State without regard to any qualification or similar statute in any State; (5) to lease, purchase, or otherwise acquire, own, hold, im- prove, use, or otherwise deal in and with any property, real, personal, or mixed, or any interest therein, wherever situated; 277 Sec. 439 HIGHER EDUCATION ACT OF 1965 210 (6) to accept gifts or donations of services, or of property, real, personal, or mixed, tangible or intangible, in aid of any of the purposes of the Association; (7) to sell, convey, mortgage, pledge, lease, exchange, and otherwise dispose of its property and assets; (8) to appoint such officers, attorneys, employees, and agents as may be required, to determine their qualifications, to define their duties, to fix their salaries, require bonds for them, and fix the penalty thereof; and (9) to enter into contracts, to execute instruments, to incur liabilities, and to do all things as are necessary or incidental to the proper management of its affairs and the proper conduct of its business. (j) ACCOUNTING, AUDITING, AND REPORTING.The accounts of the Association shall be audited annually. Such audits shall be con- ducted in accordance with generally accepted auditing standards by independent certified public accountants or by independent licensed public accountants, licensed on or before December 31, 1970, who are certified or licensed by a regulatory authority of a State or other political subdivision of the United States, except that inde- pendent public accountants licensed to practice by such regulatory authority after December 31, 1970, and persons who, although not so certified or licensed, meet, in the opinion of the Secretary, stand- ards of education and experience representative of the highest standards prescribed by the licensing authorities of the several States which provide for the continuing licensing of public account- ants and which are prescribed by the Secretary in appropriate reg- ulations may perform such audits until December 31, 1975. A re- port of each such audit shall be furnished to the Secretary of the Treasury. The audit shall be conducted at the place or places where the accounts are normally kept. The representatives of the Sec- retary shall have access to all books, accounts, financial records, re- ports, files, and all other papers, things, or property belonging to or in use by the Association and necessary to facilitate the audit, and they shall be afforded full facilities for verifying transactions with the balances or securities held by depositaries, fiscal agents, and custodians (k) REPORT ON AUDITS BY TREASURY.A report of each such audit for a fiscal year shall be made by the Secretary of the Treas- ury to the President and to the Congress not later than 6 months following the close of such fiscal year. The report shall set forth the scope of the audit and shall include a statement (showing intercor- porate relations) of assets and liabilities, capital and surplus or def- icit; a statement of surplus or deficit analysis; a statement of in- come and expense; a statement of sources and application of funds; and such comments and information as may be deemed necessary to keep the President and the Congress informed of the operations and financial condition of the Association, together with such rec- ommendations with respect thereto as the Secretary may deem ad- visable, including a report of any impairment of capital or lack of sufficient capital noted in the audit. A copy of each report shall be furnished to the Secretary, and to the Association. (1) LAWFUL INVESTMENT INSTRUMENTS; EFFECT OF AND EXEMP- TIONS FROM OTHER LAWS.All obligations issued by the Associa- 2 7 8 271 HIGHER EDUCATION ACT OF 1965 Sec. 439 tion including those made under subsection (d)(4) shall be lawful investments, and may be accepted as security for all fiduciary, trust, and public funds, the investment or deposit of which shall be under authority or control of the United States or of any officer or officers thereof. All stock and obligations issued by the Association pursuant to this section shall be deemed to be exempt securities within the meaning of laws administered by the Securities and Ex- change Commission, to the same extent as securities which are di- rect obligations of, or obligations guaranteed as to principal or in- terest by, the United States. The Association shall, for the purposes of section 14(b)(2) of the Federal Reserve Act, be deemed to be an agency of the United States. The obligations of the Association shall be deemed to be obligations of the United States for the pur- pose of section 3124 of title 31, United States Code. For the pur- pose of the distribution of its property pursuant to section 726 of title 11, United States Code, the Association shall be deemed a per- son within the meaning of such title. The priority established in favor of the United States by section 3713 of title 31, United States Code, shall not establish a priority over the indebtedness of the As- sociation issued or incurred on or before September 30, 1992. The Federal Reserve Banks are authorized to act as depositaries, custodians, or fiscal agents, or a combination thereof, for the Asso- ciation in the general performance of its powers under this section. (m) PREPARATION OF OBLIGATIONS.In order to furnish obliga- tions for delivery by the Association, the Secretary of the Treasury is authorized to prepare such obligations in such form as the Board of Directors may approve, such obligations when prepared to be held in the Treasury subject to delivery upon order by the Associa- tion. The engraved plates, dies, bed pieces, and so forth, executed in connection therewith shall remain in the custody of the Sec- retary of the Treasury. The Association shall reimburse the Sec- retary of the Treasury for any expenditures made in the prepara- tion, custody, and delivery of such obligations. The Secretary of the Treasury is authorized to promulgate regulations on behalf of the Association so that the Association may utilize the book-entry sys- tem of the Federal Reserve Banks. (n) REPORT ON OPERATIONS AND ACTIVITIES.The Association shall, as soon as practicable after the end of each fiscal year, trans- mit to the President and the Congress a report of the Association's operations and activities, including a report with respect to all fa- cilities transactions, during each year. (0) LOAN CONSOLIDATIONS. (1) IN GENERAL. The Association or its designated agent may, upon request of a borrower, consolidate loans received under this title in accordance with section 428C. (2) USE OF EXISTING AGENCIES AS AGENT.The Association in making loans pursuant to this subsection in any State served by a guaranty agency or an eligible lender in a State described in section 435(d)(1) (D) or (F) may designate as its agent such agency or lender to perform such functions as the Association determines appropriate. Any agreements made pursuant to this subparagraph shall be on such terms and con- ditions as agreed upon by the Association and such agency or lender. 279 Sec. 439 HIGHER EDUCATION ACT OF .1965 212 (p) ADVANCES FOR DIRECT LOANS BY GUARANTY AGENCIES. (1) IN GENERAL.The Association shall make advances in each fiscal year from amounts available to it to each guaranty agency and eligible lender described in subsection 428(h)(1) which has an agreement with the Association which sets forth that advances are necessary to enable such agency or lender to make student loans in accordance with section 428(h) and that such advances will be repaid to the Association in accordance with such terms and conditions as may be set forth in the agreement and agreed to by the Association and such agency or lender. Advances made under this subsection shall not be subject to subsection (d)(2) of this section. (2) LIMITATION.No advance may be made under this sub- section unless the guaranty agency or lender makes an applica- tion to the Association, which shall be accompanied by such in- formation as the Association determines to be reasonably nec- essary. (q) LENDER-OF- LAST - RESORT. (1) ACTION AT REQUEST OF SECRETARY.(A) Whenever the Secretary determines that eligible borrowers are seeking and are unable to obtain loans under this part, the Association or its designated agent shall, not later than 90 days after the date of enactment of the Student Loan Reform Act of 1993, begin making loans to such eligible borrowers in accordance with this subsection at the request of the Secretary. The Secretary may request that the Association make loans to borrowers within a geographic area or for the benefit of students attending institu- tions of higher education that certify, in accordance with stand- ards established by the Secretary, that their students are seek- ing and unable to obtain loans. (B) Loans made pursuant to this subsection shall be insur- able by the Secretary under section 429 with a certificate of comprehensive insurance coverage provided for under section 429(bX1) or by a guaranty agency under paragraph (2)(A) of this subsection. (2) ISSUANCE AND COVERAGE OF LOANS.(A) Whenever the Secretary, after consultation with, and with the agreement of, representatives of the guaranty agency in a State, or an eligi- ble lender in a State described in section 435(d)(1)(D), deter- mines that a substantial portion of eligible borrowers in such State or within an area of such State are seeking and are un- able to obtain loans under this part, the Association or its des- ignated agent shall begin making such loans to borrowers in such State or within an area of such State in accordance with this subsection at the request of the Secretary. (B) Loans made pursuant to this subsection shall be insur- able by the agency identified in subparagraph (A) having an agreement pursuant to section 428(b). For loans insured by such agency, the agency shall provide the Association with a certificate of comprehensive insurance coverage,, if the Associa- tion and the agency have mutually agreed upon a means to de- termine that the agency has not already guaranteed a loan under this part to a student which would cause a subsequent 2 273 HIGHER EDUCATION ACT OF 1965 Sec. 439 loan made by the Association to be in violation of any provision under this part. (3) TERMINATION OF LENDING.The Association or its des- ignated agent shall cease making loans under this subsection at such time as the Secretary determines that the conditions which caused the implementation of this subsection have ceased to exist. (r) SAFETY AND SOUNDNESS OF ASSOCIATION. (1) REPORTS BY THE ASSOCIATION.The Association shall promptly furnish to the Secretary of Education and Secretary of the Treasury copies of all (A) periodic financial reports publicly distributed by the Association; (B) reports concerning the Association that are re- ceived by the Association and prepared by nationally rec- ognized statistical rating organizations; and (C)(i) financial statements of the Association within 45 days of the end of each fiscal quarter; and (ii) reports setting forth the calculation of the capital ratio of the Association within 45 days of the end of each fiscal quarter. (2) AUDIT BY SECRETARY OF THE TREASURY.(A) The Sec- retary of the Treasury may (i) appoint auditors or examiners to conduct audits of the Association from time to time to determine the condi- tion of the Association for the purpose of assessing the As- sociation's financial safety and soundness and to determine whether the requirements of this section and section 440 are being met; and (ii) obtain the services of such experts as the Secretary of the Treasury determines necessary and appropriate, as authorized by section 3109 of title 5, United States Code, to assist in determining the condition of the Association for the purpose of assessing the Association's financial safety and soundness, and to determine whether the require- ments of this section and section 440 are being met. (B) Each auditor appointed under this paragraph shall conduct an audit of the Association to the extent requested by the Secretary of the Treasury and shall prepare and submit a report to the Secretary of the Treasury concerning the results of such audit. A copy of such report shall be furnished to the Association and the Secretary of Education on the date on which it is delivered to the Secretary of the Treasury. (C) The Association shall provide full and prompt access to the Secretary of the Treasury to its books and records and other information requested by the Secretary of the Treasury. (D) ANNUAL ASSESSMENT. (i) IN GENERAL.For each fiscal year beginning on or after October 1, 1996, the Secretary of the Treasury may establish and collect from the Association an assessment (or assessments) in amounts sufficient to provide for rea- sonable costs and expenses of carrying out the duties of the Secretary of the Treasury under this section and sec- tion 440 during such fiscal year. In no event may the total Sec. 439 HIGHER EDUCATION ACT OF 1965 214 amount so assessed exceed, for any fiscal year, $800,000, adjusted for each fiscal year ending after September 30, 1997, by the ratio of the Consumer Price Index for All Urban Consumers (issued by the Bureau of Labor Statis- tics) for the final month of the fiscal year preceding the fis- cal year for which the assessment is made to the Con- sumer Price Index for All Urban Consumers for September 1997. (ii) DEPOSIT. Amounts collected from assessments under this subparagraph shall be deposited in an account within the Treasury of the United States as designated by the Secretary of the Treasury for that purpose. The Sec- retary of the Treasury is authorized and directed to pay out of any funds available in such account the reasonable costs and expenses of carrying out the duties of the Sec- retary of the Treasury under this section and section 440. None of the funds deposited into such account shall be available for any purpose other than making payments for such costs and expenses. (E) OBLIGATION TO OBTAIN, MAINTAIN, AND REPORT INFOR- MATION. (i) IN GENERALThe Association shall obtain such in- formation and make and keep such records as the Sec- retary of the Treasury may from time to time prescribe concerning (I) the financial risk to the Association resulting from the activities of any associated person, to the ex- tent such activities are reasonably likely to have a ma- terial impact on the financial condition of the Associa- tion, including the Association's capital ratio, the Asso- ciation's liquidity, or the Association's ability to con- duct and finance the Association's operations; and (II) the Association's policies, procedures, and sys- tems for monitoring and controlling any such financial risk. (ii) SUMMARY REPORTS.The Secretary of the Treasury may require summary reports of such information to be filed no more frequently than quarterly. If, as a result of adverse market conditions or based on reports provided pursuant to this subparagraph or other available informa- tion, the Secretary of the Treasury has concerns regarding the financial or operational condition of the Association, the Secretary of the Treasury may, notwithstanding the preceding sentence and clause (i), require the Association to make reports concerning the activities of any associated person, whose business activities are reasonably likely to have a material impact on the financial or operational con- dition of the Association. (iii) DEFINITION.For purposes of this subparagraph, the term "associated person" means any person, other than a natural person, directly or indirectly controlling, con- trolled by, or under common control with the Association. (3) MONITORING OF SAFETY AND SOUNDNESS.The Sec- retary of the:. Treasury shall conduct such studies as may be 28, 215 HIGHER EDUCATION ACT OF 1965 Sec. 439 necessary to monitor the financial safety and soundness of the Association. In the event that the Secretary of the Treasury de- termines that the financial safety and soundness of the Asso- ciation is at risk, the Secretary of the Treasury shall inform the Chairman and ranking minority member of the Committee on Labor and Human Resources of the Senate, the Chairman and ranking minority member of the Committee on Education and Labor of the House of Representatives, and the Secretary of Education of such determination and identify any corrective actions that should be taken to ensure the safety and sound- ness of the Association. (4) CAPITAL STANDARD.-If the capital ratio is less than 2 percent and is greater than or equal to 1.75 percent at the end of the Association's most recent calendar quarter the Associa- tion shall, within 60 days of such occurrence, submit to the Secretary of the Treasury a capital restoration plan, in reason- able detail, that the Association believes is adequate to cause the capital ratio to equal or exceed 2 percent within 36 months. (5) CAPITAL RESTORATION PLAN.- (A) SUBMISSION, APPROVAL, AND IMPLEMENTATION.- The Secretary of the Treasury and the Association shall consult with respect to any capital restoration plan sub- mitted pursuant to paragraph (4) and the Secretary of the Treasury shall approve such plan (or a modification there- of accepted by the Association) or disapprove such plan within 30 days after such plan is first submitted to the Secretary of the Treasury by the Association, unless the Association and Secretary of the Treasury mutually agree to a longer consideration period. If the Secretary of the Treasury approves a capital restoration plan (including a modification of a plan accepted by the Association), the As- sociation shall forthwith proceed with diligence to imple- ment such plan to the best of its ability. (B) DISAPPROVAL.-If the Secretary of the Treasury does not approve a capital restoration plan as provided in subparagraph (A), then not later than the earlier of the date the Secretary of the Treasury disapproves of such plan by written notice to the Association or the expiration of the 30-day consideration period referred to in subpara- graph (A) (as such period may have been extended by mu- tual agreement), the Secretary of the Treasury shall sub- mit the Association's capital restoration plan, in the form most recently proposed to the Secretary of the Treasury by the Association, together with a report on the Secretary of the Treasury's reasons for disapproval of such plan and an alternative capital restoration plan, to the Chairman and ranking minority member of the Senate Committee on Labor and Human Resources and to the Chairman and ranking minority member of the House Committee on Edu- cation and Labor. A copy of such submission simulta- neously shall be sent to the Association and the Secretary of Education by the Secretary of the Treasury. (C) ASSOCIATION IMPLEMENTATION AND RESPONSE.- Upon receipt of the submission by the As ti9n, the As- %,) Sec. 439 HIGHER EDUCATION ACT OF 1965 216 sociation shall forthwith proceed with diligence to imple- ment the most recently proposed capital restoration plan of the Association. The Association, within 30 days after re- ceipt from the Secretary of the Treasury of such submis- sion, shall submit to such Chairmen and ranking minority members a written response to such submission, setting out fully the nature and extent of the Association's agree- ment or the disagreement with the Secretary of the Treas- ury with respect to the capital restoration plan submitted to the Secretary of the Treasury and any findings of the Secretary of the Treasury. (6) SUBSTANTIAL CAPITAL RATIO REDUCTION. (A) ADDITIONAL PLAN REQUIRED.-If the capital ratio is less than 1.75 percent and is greater than or equal to 1 percent at the end of the Association's most recent cal- endar quarter, the Association shall submit to the Sec- retary of the Treasury within 60 days after such occur- rence a capital restoration plan (or an appropriate modi- fication of any plan previously submitted or approved under paragraph (4)) to increase promptly its capital ratio to equal or exceed 1.75 percent. The Secretary of the Treasury and the Association shall consult with respect to any plan or modified plan submitted pursuant to this paragraph. The Secretary of the Treasury shall approve such plan or modified plan (or a modification thereof ac- cepted by the Association) or disapprove such plan or modified plan within 30 days after such plan or modified plan is first submitted to the Secretary of the Treasury by the Association, unless the Association and Secretary of the Treasury mutually agree to a longer consideration pe- riod. If the Secretary of the Treasury approves a plan or modified plan (including a modification of a plan accepted by the Association), the Association shall forthwith proceed with diligence to implement such plan or modified plan to the best of the Association's ability. (B) DISAPPROVAL.-If the Secretary of the Treasury disapproves a capital restoration plan or modified plan submitted pursuant to subparagraph (A), then, not later than the earlier of the date the Secretary of the Treasury disapproves of such plan or modified plan (by written no- tice to the Association) or the expiration of the 30-day con- sideration period described in subparagraph (A) (as such period may have been extended by mutual agreement), the Secretary of the Treasury shall prepare and submit an al- ternative capital restoration plan, together with a report on his reasons for disapproval of the Association's plan or modified plan, to the Chairman and ranking minority member of the Committee on Labor and Human Resources of the Senate and to the Chairman and ranking minority member of the Committee on Education and Labor of the House of Representatives. A copy of such submission si- multaneously shall be sent to the Association and the Sec- retary of Education by the Secretary of the Treasury. The Association, within 5 days after receipt from the Secretary 284 271 HIGHER EDUCATION ACT OF 1965 Sec. 439 of the Treasury of such submission, shall submit to the Chairmen and ranking minority members of such Commit- tees, and the Secretary of the Treasury, a written response to such submission, setting out fully the nature and extent of the Association's agreement or disagreement with the Secretary of the Treasury with respect to the disapproved plan and the alternative plan of the Secretary of the Treasury and any findings of the Secretary of the Treas- ury. (C) REVIEW BY CONGRESS; ASSOCIATION IMPLEMENTA- TION.Congress shall have 60 legislative days after the date on which Congress receives the alternative plan under subparagraph (B) from the Secretary of the Treas- ury to review such plan. If Congress does not take statu- tory action with respect to any such plan within such 60- day period, the Association shall immediately proceed with diligence to implement the alternative capital restoration plan of the Secretary of the Treasury under subparagraph (B). If Congress is out of session when any such alter- native plan is received, such 60-day period shall begin on the first day of the next session of Congress. (7) ACTIONS BY SECRETARY OF THE TREASURY.If the cap- ital ratio of the Association does not equal or exceed 1.75 per- cent at the end of the Association's most recent calendar quar- ter, the Secretary of the Treasury may, until the capital ratio equals or exceeds 1.75 percent, take any one or more of the fol- lowing actions: (A) LIMIT INCREASE IN LIABILITIES.Limit any in- crease in, or order the reduction of, any liabilities of the Association, except as necessary to fund student loan pur- chases and warehousing advances. (B) RESTRICT GROWTH.Restrict or eliminate growth of the Association's assets, other than student loans pur- chases and warehousing advances. (C) RESTRICT DISTRIBUTIONS.Restrict the Association from making any capital distribution. (D) REQUIRE ISSUANCE OF NEW CAPITAL.Require the Association to issue new capital in any form and in any amount sufficient to restore at least a 1.75 percent capital ratio. (E) LIMIT EXECUTIVE COMPENSATION.Prohibit the As- sociation from increasing for any executive officer any com- pensation including bonuses at a rate exceeding that offi- cer's average rate of compensation during the previous 12 calendar months and prohibiting the Board from adopting any new employment severance contracts. (8) CRITICAL CAPITAL STANDARD.(A) If the capital ratio is less than 1 percent at the end of the Association's most recent calendar quarter and the Association has already submitted a capital restoration plan to the Secretary of the Treasury pursu- ant to paragraph (4) or (6)(A), the Association shall forthwith proceed with diligence to implement the most recently pro- posed plan with such modifications as the Secretary of the 28 Sec. 439 HIGHER EDUCATION ACT OF 1965 278 Treasury determines are necessary to cause the capital ratio to equal or exceed 2 percent within 60 months. (B) If the capital ratio is less than 1 percent at the end of the Association's most recent calendar quarter and the Associa- tion has not submitted a capital restoration plan to the Sec- retary of the Treasury pursuant to paragraph (4) or (6)(A), the Association shall (i) within 14 days of such occurrence submit a capital restoration plan to the Secretary of the Treasury which the Association believes is adequate to cause the capital ratio to equal or exceed 2 percent within 60 months; and (ii) forthwith proceed with diligence to implement such plan with such modifications as the Secretary of the Treas- ury determines are necessary to cause the capital ratio to equal or exceed 2 percent within 60 months. (C) Immediately upon a determination under subpara- graph (A) or (B) to implement a capital restoration plan, the Secretary of the Treasury shall submit the capital restoration plan to be implemented to the Chairman and ranking minority member of the Committee on Labor and Human Resources of the Senate, the Chairman and ranking minority member of the Committee on Education and Labor of the House of Represent- atives, and the Secretary of Education. (9) ADDITIONAL REPORTS TO COMMITTEES.The Association shall submit a copy of its capital restoration plan, modifica- tions proposed to the Secretary of the Treasury, and proposed modifications received from the Secretary of the Treasury to the Congressional Budget Office and General Accounting Office upon their submission to the Secretary of the Treasury or re- ceipt from the Secretary of the Treasury. Notwithstanding any other provision of law, the Congressional Budget Office and General Accounting Office shall maintain the confidentiality of information received pursuant to the previous sentence. In the event that the Secretary of the Treasury does not approve a capital restoration plan as provided in paragraph (5)(A) or (6)(A), or in the event that a capital restoration plan is modi- fied by the Secretary of the Treasury pursuant to paragraph (6)(B) or (8), the Congressional Budget Office and General Ac- counting Office shall each submit a report within 30 days of the Secretary of the Treasury's submission to the Chairmen and ranking minority members as required in paragraphs (5)(B), (6)(B), and (8)(C) to such Chairmen and ranking members (A) analyzing the financial condition of the Associa- tion;(B) analyzing the capital restoration plan and reasons for disapproval of the plan contained in the Secretary of the Treasury's submission made pursuant to paragraph (5X13), or the capital restoration plan proposed by the As- sociation and the modifications made by the Secretary of the Treasury pursuant to paragraph (6)(B) or (8); (C) analyzing the impact of the capital restoration plan and reasons for disapproval of the plan contained in the Secretary of the Treasury's submission made pursuant 2 86 219 HIGHER EDUCATION ACT OF 1965 Sec. 439 to paragraph (5)(B), or the impact of the capital restoration plan proposed by the Association and the modifications made by the Secretary of the Treasury pursuant to para- graph (6)(B) or (8), and analyzing the impact of the rec- ommendations made pursuant to subparagraph (D) of this paragraph, on (i) the ability of the Association to fulfill its pur- pose and authorized activities as provided in this sec- tion, and (ii) the operation of the student loan programs; and (D) recommending steps which the Association should take to increase its capital ratio without impairing its abil- ity to perform its purpose and authorized activities as pro- vided in this section. (10) REVIEW BY SECRETARY OF EDUCATION.The Secretary of Education shall review the Secretary of the Treasury's sub- mission required pursuant to paragraph (5)(B), (6)(B), or (8) and shall submit a report within 30 days to the Chairman and ranking minority member of the Senate Committee on Labor and Human Resources and to the Chairman and ranking mi- nority member of the House Committee on Education and Labor (A) describing any administrative or legislative provi- sions governing the student loan programs which contrib- uted to the decline in the Association's capital ratio; and (B) recommending administrative and legislative changes in the student loan programs to maintain the or- derly operation of such programs and to enable the Asso- ciation to fulfill its purpose and authorized activities con- sistent with the capital ratio specified in paragraph (4). (11) SAFE HARBOR.The Association shall be deemed in compliance with the capital ratios described in paragraphs (4) and (6)(A) if the Association is rated in 1 of the 2 highest full rating categories (such categories to be determined without re- gard to designations within categories) by 2 nationally recog- nized statistical rating organizations, determined without re- gard to the Association's status as a federally chartered cor- poration. (12) TREATMENT OF CONFIDENTIAL INFORMATION.Not- withstanding any other provision of law, the Secretary of the Treasury, the Secretary of Education, the Congressional Budg- et Office, and the General Accounting Office shall not disclose any information treated as confidential by the Association or the Association's associated persons and obtained pursuant to this subsection. Nothing in this paragraph shall authorize the Secretary of the Treasury, the Secretary of Education, the Con- gressional Budget Office, and the General Accounting Office to withhold information from Congress, or prevent the Secretary of Education, the Congressional Budget Office, and the General Accounting Office from complying with a request for informa- tion from any other Federal department or agency requesting the information for purposes within the scope of its jurisdic- tion, or complying with an order of a court of the United States 287 Sec. 439 HIGHER EDUCATION ACT OF 1965 280 in an action brought by the United States. For purposes of sec- tion 552 of title 5, United States Code, this paragraph shall be considered a statute described in subsection (b)(3) of such sec- tion 552. (13) ENFORCEMENT OF SAFETY AND SOUNDNESS REQUIRE- MENTS.The Secretary of Education or the Secretary of the Treasury, as appropriate, may request that the Attorney Gen- eral bring an action in the United States District Court for the District of Columbia for the enforcement of any provision of this section, or may, under the direction or control of the Attor- ney General, bring such an action. Such court shall have juris- diction and power to order and require compliance with this section. (14) ACTIONS BY SECRETARY. (A) IN GENERAL.For any fiscal quarter ending after January 1, 2000, the Association shall have a capital ratio of at least 2.25 percent. The Secretary of the Treasury may, whenever such capital ratio is not met, take any one or more of the actions described in paragraph (7), except that (i) the capital ratio to be restored pursuant to paragraph (7)(D) shall be 2.25 percent; and (ii) if the relevant capital ratio is in excess of or equal to 2 percent for such quarter, the Secretary of the Treasury shall defer taking any of the actions set forth in paragraph (7) until the next succeeding quar- ter and may then proceed with any such action only if the capital ratio of the. Association remains below 2.25 percent. (B) APPLICABILITY.The provisions of paragraphs (4), (5), (6), (8), (9), (10), and (11) shall be of no further applica- tion to the Association for any period after January 1, 2000. (15) DEFINITIONS. As used in this subsection: (A) The term "nationally recognized statistical rating organization" means any entity recognized as such by the Securities and Exchange Commission. (B) The term "capital ratio" means the ratio of total stockholders' equity, as shown on the Association's most recent quarterly consolidated balance sheet prepared in the ordinary course of its business, to the sum of (i) the total assets of the Association, as shown on the balance sheet prepared in the ordinary course of its business; and (ii) 50 percent of the credit equivalent amount of the following off-balance sheet items of the Association as of the date of such balance sheet (I) all financial standby letters of credit and other irrevocable guarantees of the repayment of financial obligations of others; and (II) all interest rate contracts and exchange rate contracts, including interest exchange agree- ments, floor, cap, and collar agreements and simi- lar arrangements. 288 281 HIGHER EDUCATION ACT OF 1965 Sec. 439 For purposes of this subparagraph, the calculation of the credit equivalent amount of the items set forth in clause (ii) of this subparagraph, the netting of such items and eliminations for the purpose of avoidance of double-count- ing of such items shall be made in accordance with the measures for computing credit conversion factors for off- balance sheet items for capital maintenance purposes es- tablished for commercial banks from time to time by the Federal Reserve Board, but without regard to any risk weighting provisions in such measures. (C) The term "legislative days" means only days on which either House of Congress is in session. (16) DIVIDENDS.The Association may pay dividends in the form of cash or noncash distributions so long as at the time of the declaration of such dividends, after giving effect to the payment of such dividends as of the date of such declaration by the Board of Directors of the Association, the Association's capital would be in compliance with the capital standards set forth in this section. (17) CERTIFICATION PRIOR TO PAYMENT OF DIVIDEND.Prior to the payment of any dividend .under paragraph (16), the As- sociation shall certify to the Secretary of the Treasury that the payment of the dividend will be made in compliance with para- graph (16) and shall provide copies of all calculations needed to make such certification. (S) CHARTER SUNSET. (1) APPLICATION OF PROVISIONS.This subsection applies beginning 18 months and one day after the date of enactment of this subsection if no reorganization of the Association occurs in accordance with the provisions of section 440. (2) SUNSET PLAN. (A) PLAN SUBMISSION BY THE ASSOCIATION.Not later than July 1, 2007, the Association shall submit to the Sec- retary of the Treasury and to the Chairman and Ranking Member of the Committee on Labor and Human Resources of the Senate and the Chairman and Ranking Member of the Committee on Economic and Educational Opportuni- ties of the House of Representatives, a detailed plan for the orderly winding up, by July 1, 2013, of business activi- ties conducted pursuant to the charter set forth in this sec- tion. Such plan shall (i) ensure that the Association will have adequate assets to transfer to a trust, as provided in this sub- section, to ensure full payment of remaining obliga- tions of the Association in accordance with the terms of such obligations; (ii) provide that all assets not used to pay liabil- ities shall be distributed to shareholders as provided in this subsection; and (iii) provide that the operations of the Association shall remain separate and distinct from that of any entity to which the assets of the Association are trans- ferred. Z83 54-653 99 -10 Sec. 439 HIGHER EDUCATION ACT OF 1965 282 (B) AMENDMENT OF THE PLAN BY THE ASSOCIATION. The Association shall from time to time amend such plan to reflect changed circumstances, and submit such amend- ments to the Secretary of the Treasury and to the Chair- man and Ranking Minority Member of the Committee on Labor and Human Resources of the Senate and Chairman and Ranking Minority Member of the Committee on Eco- nomic and Educational Opportunities of the House of Rep- resentatives. In no case may any amendment extend the date for full implementation of the plan beyond the dis- solution date provided in paragraph (3). (C) PLAN MONITORING.The Secretary of the Treasury shall monitor the Association's compliance with the plan and shall continue to review the plan (including any amendments thereto). (D) AMENDMENT OF THE PLAN BY THE SECRETARY OF THE TREASURY.The Secretary of the Treasury may re- quire the Association to amend the plan (including any amendments to the plan), if the Secretary of the Treasury deems such amendments necessary to ensure full payment of all obligations of the Association. (E) IMPLEMENTATION BY THE ASSOCIATION.The Asso- ciation shall promptly implement the plan (including any amendments to the plan, whether such amendments are made by the Association or are required to be made by the Secretary of the Treasury). (3) DISSOLUTION OF THE ASSOCIATION.The Association shall dissolve and the Association's separate existence shall terminate on July 1, 2013, after discharge of all outstanding debt obligations and liquidation pursuant to this subsection. The Association may dissolve pursuant to this subsection prior to such date by notifying the Secretary of Education and the Secretary of the Treasury of the Association's intention to dis- solve, unless within 60 days of receipt of such notice the Sec- retary of Education notifies the Association that the Associa- tion continues to be needed to serve as a lender of last resort pursuant to subsection (q) or continues to be needed to pur- chase loans under an agreement with the Secretary described in paragraph (4)(A). On the dissolution date, the Association shall take the following actions: (A) ESTABLISHMENT OF A TRUST.The Association shall, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Secretary of the Treasury, the Association, and the appointed trustee, ir- revocably transfer all remaining obligations of the Associa- tion to a trust and irrevocably deposit or cause to be depos- ited into such trust, to be held as trust funds solely for the benefit of holders of the remaining obligations, money or direct noncallable obligations of the United States or any agency thereof for which payment the full faith and credit of the United States is pledged, maturing as to principal and interest in such amounts and at such times as are de- termined by the Secretary of the Treasury to be sufficient, without consideration of any significant reinvestment of 23 0 283 HIGHER EDUCATION ACT OF 1965 Sec. 439 such interest, to pay the principal of, and interest on, the remaining obligations in accordance with their terms. (B) USE OF TRUST ASSETS.All money, obligations, or financial assets deposited into the trust pursuant to this subsection shall be applied by the trustee to the payment of the remaining obligations assumed by the trust. Upon the fulfillment of the trustee's duties under the trust, any remaining assets of the trust shall be transferred to the persons who, at the time of the dissolution, were the shareholders of the Association, or to the legal successors or assigns of such persons. (C) OBLIGATIONS NOT TRANSFERRED TO THE TRUST. The Association shall make proper provision for all other obligations of the Association, including the repurchase or redemption, or the making of proper provision for the re- purchase or redemption, of any preferred stock of the Asso- ciation outstanding. (D) TRANSFER OF REMAINING ASSETS.After compli- ance with subparagraphs (A) and (C), the Association shall transfer to the shareholders of the Association any remain- ing assets of the Association. (4) RESTRICTIONS RELATING TO WINDING UP. (A) RESTRICTIONS ON NEW BUSINESS ACTIVITY OR AC- QUISITION OF ASSETS BY THE ASSOCIATION. (i) IN GENERAL.Beginning on July 1, 2009, the Association shall not engage in any new business ac- tivities or acquire any additional program assets (in- cluding acquiring assets pursuant to contractual com- mitments) described in subsection (d) other than in connection with the Association (I) serving as a lender of last resort pursuant to subsection (q); and (II) purchasing loans insured under this part, if the Secretary, with the approval of the Sec- retary of the Treasury, enters into an agreement with the Association for the continuation or re- sumption of the Association's secondary market purchase program because the Secretary deter- mines there is inadequate liquidity for loans made under this part. (ii) AGREEMENT.The Secretary is authorized to enter into an agreement described in subclause (II) of clause (i) with the Association covering such secondary market activities. Any agreement entered into under such subclause shall cover a period of 12 months, but may be renewed if the Secretary determines that li- quidity remains inadequate. The fee provided under subsection (h)(7) shall not apply to loans acquired under any such agreement with the Secretary. (B) ISSUANCE OF DEBT OBLIGATIONS DURING THE WIND UP PERIOD; ATTRIBUTES OF DEBT OBLIGATIONS.The Asso- ciation shall not issue debt obligations which mature later than July 1, 2013, except in connection with serving as a lender of last resort pursuant to subsection (q) or with pur- 29 I Sec. 440 HIGHER EDUCATION ACT OF 1965 284 chasing loans under an agreement with the Secretary as described in subparagraph (A). Nothing in this subsection shall modify the attributes accorded the debt obligations of the Association by this section, regardless of whether such debt obligations are transferred to a trust in accordance with paragraph (3). (C) USE OF ASSOCIATION NAME.The Association may not transfer or permit the use of the name "Student Loan Marketing Association", "Sallie Mae", or any variation thereof, to or by any entity other than a subsidiary of the Association. SEC. 440.1 REORGANIZATION OF THE STUDENT LOAN MARKETING AS- SOCIATION THROUGH THE FORMATION OF A HOLDING COMPANY. (a) ACTIONS BY THE ASSOCIATION'S BOARD OF DIRECTORS.The Board of Directors of the Association shall take or cause to be taken all such action as the Board of Directors deems necessary or appropriate to effect, upon the shareholder approval described in subsection (b), a restructuring of the common stock ownership of the Association, as set forth in a plan of reorganization adopted by the Board of Directors (the terms of which shall be consistent with this section) so that all of the outstanding common shares of the Association shall be directly owned by a Holding Company. Such actions may include, in the Board of Director's discretion, a merger of a wholly owned subsidiary of the Holding Company with and into the Association, which would have the effect provided in the plan of reorganization and the law of the jurisdiction in which such subsidiary is incorporated. As part of the restructuring, the Board of Directors may cause (1) the common shares of the Association to be converted, on the reorganization effective date, to common shares of the Holding Company on a one for one basis, consistent with appli- cable State or District of Columbia law; and (2) Holding Company common shares to be registered with the Securities and Exchange Commission. (b) SHAREHOLDER APPROVALThe plan of reorganization adopted by the Board of Directors pursuant to subsection (a) shall be submitted to common shareholders of the Association for their approval. The reorganization shall occur on the reorganization ef- fective date, provided that the plan of reorganization has been ap- proved by the affirmative votes, cast in person or by proxy, of the holders of a majority of the issued and outstanding shares of the Association common stock. (c) TRANSITION.In the event the shareholders of the Associa- tion approve the plan of reorganization under subsection (b), the following provisions shall apply beginning on the reorganization ef- fective date: (1) IN GENERAL.Except as specifically provided in this section, until the dissolution date the Association shall con- tinue to have all of the rights, privileges and obligations set forth in, and shall be subject to all of the limitations and re- strictions of, section 439, and the Association shall continue to 'See footnote for section 439 above. 29 2 285 HIGHER EDUCATION ACT OF 1965 Sec. 440 carry out the purposes of such section. The Holding Company and any subsidiary of the Holding Company (other than the Association) shall not be entitled to any of the rights, privi- leges, and obligations, and shall not be subject to the limita- tions and restrictions, applicable to the Association under sec- tion 439, except as specifically provided in this section. The Holding Company and any subsidiary of the Holding Company (other than the Association or a subsidiary of the Association) shall not purchase loans insured under this Act until such time as the Association ceases acquiring such loans, except that the Holding Company may purchase such loans if the Association is merely continuing to acquire loans as a lender of last resort pursuant to section 439(q) or under an agreement with the Secretary described in paragraph (6). (2) TRANSFER OF CERTAIN PROPERTY. (A) IN GENERALExcept as provided in this section, on the reorganization effective date or as soon as prac- ticable thereafter, the Association shall use the Associa- tion's best efforts to transfer to the Holding Company or any subsidiary of the Holding Company (or both), as di- rected by the Holding Company, all real and personal property of the Association (both tangible and intangible) other than the remaining property. Subject to the preced- ing sentence, such transferred property shall include all right, title, and interest in (i) direct or indirect subsidiaries of the Association (excluding special purpose funding companies in exist- ence on the date of enactment of this section and any interest in any government-sponsored enterprise); (ii) contracts, leases, and other agreements of the Association; (iii) licenses and other intellectual property of the Association; and (iv) any other property of the Association. (B) CONSTRUCTION.Nothing in this paragraph shall be construed to prohibit the Association from transferring remaining property from time to time to the Holding Com- pany or any subsidiary of the Holding Company, subject to the provisions of paragraph (4). (3) TRANSFER OF PERSONNEL.On the reorganization effec- tive date, employees of the Association shall become employees of the Holding Company (or any subsidiary of the Holding Company), and the Holding Company (or any subsidiary of the Holding Company) shall provide all necessary and appropriate management and operational support (including loan servicing) to the Association, as requested by the Association. The Asso- ciation, however, may obtain such management and oper- ational support from persons or entities not associated with the Holding Company. (4) DIVIDENDS.The Association may pay dividends in the form of cash or noncash distributions so long as at the time of the declaration of such dividends, after giving effect to the pay- ment of such dividends as of the date of such declaration by the Board of Directors of the Association, the Association's cap- 293 Sec. 440 HIGHER EDUCATION ACT OF 1965 286 ital would be in compliance with the capital standards and re- quirements set forth in section 439(r). If, at any time after the reorganization effective date, the Association fails to comply with such capital standards, the Holding Company shall trans- fer with due diligence to the Association additional capital in such amounts as are necessary to ensure that the Association again complies with the capital standards. (5) CERTIFICATION PRIOR TO DIVIDEND.Prior to the pay- ment of any dividend under paragraph (4), the Association shall certify to the Secretary of the Treasury that the payment of the dividend will be made in compliance with paragraph (4) and shall provide copies of all calculations needed to make such certification. (6) RESTRICTIONS ON NEW BUSINESS ACTIVITY OR ACQUISI- TION OF ASSETS BY ASSOCIATION. (A) IN GENERAL.After the reorganization effective date, the Association shall not engage in any new business activities or acquire any additional program assets de- scribed in section 439(d) other than in connection with (i) student loan purchases through September 30, 2007; (ii) contractual commitments for future warehousing advances, or pursuant to letters of credit or standby bond purchase agreements, which are out- standing as of the reorganization effective date; (iii) the Association serving as a lender-of-last-re- sort pursuant to section 439(q); and (iv) the Association's purchase of loans insured under this part, if the Secretary, with the approval of the Secretary of the Treasury, enters into an agree- ment with the Association for the continuation or re- sumption of the Association's secondary market pur- chase program because the Secretary determines there is inadequate liquidity for loans made under this part. (B) AGREEMENT.The Secretary is authorized to enter into an agreement described in clause (iv) of subparagraph (A) with the Association covering such secondary market activities. Any agreement entered into under such clause shall cover a period of 12 months, but may be renewed if the Secretary determines that liquidity remains inad- equate. The fee provided under section 439(h)(7) shall not apply to loans acquired under any such agreement with the Secretary. (7) ISSUANCE OF DEBT OBLIGATIONS DURING THE TRANSI- TION PERIOD; ATTRIBUTES OF DEBT OBLIGATIONS.After the re- organization effective date, the Association shall not issue debt obligations which mature later than September 30, 2008, ex- cept in connection with serving as a lender-of-last-resort pursu- ant to section 439(q) or with purchasing loans under an agree- ment with the Secretary as described in paragraph (6). Noth- ing in this section shall modify the attributes accorded the debt obligations of the Association by section 439, regardless of whether such debt obligations are incurred prior to, or at any 294 281 HIGHER EDUCATION ACT OF 1965 Sec. 440 time following, the reorganization effective date or are trans- ferred to a trust in accordance with subsection (d). (8) MONITORING OF SAFETY AND SOUNDNESS. (A) OBLIGATION TO OBTAIN, MAINTAIN, AND REPORT IN- FORMATION.The Association shall obtain such informa- tion and make and keep such records as the Secretary of the Treasury may from time to time prescribe concerning (i) the financial risk to the Association resulting from the activities of any associated person, to the ex- tent such activities are reasonably likely to have a ma- terial impact on the financial condition of the Associa- tion, including the Association's capital ratio, the Asso- ciation's liquidity, or the Association's ability to con- duct and finance the Association's operations; and (ii) the Association's policies, procedures, and sys- tems for monitoring and controlling any such financial risk. (B) SUMMARY REPORTS.The Secretary of the Treas- ury may require summary reports of the information de- scribed in subparagraph (A) to be filed no more frequently than quarterly. If, as a result of adverse market conditions or based on reports provided pursuant to this subpara- graph or other available information, the Secretary of the Treasury has concerns regarding the financial or oper- ational condition of the Association, the Secretary of the Treasury may, notwithstanding the preceding sentence and subparagraph (A), require the Association to make re- ports concerning the activities of any associated person whose business activities are reasonably likely to have a material impact on the financial or operational condition of the Association. (C) SEPARATE OPERATION OF CORPORATIONS. (i) IN GENERAL.The funds and assets of the As- sociation shall at all times be maintained separately from the funds and assets of the Holding Company or any subsidiary of the Holding Company and may be used by the Association solely to carry out the Associa- tion's purposes and to fulfill the Association's obliga- tions. (ii) BOOKS AND RECORDS.The Association shall maintain books and records that clearly reflect the as- sets and liabilities of the Association, separate from the assets and liabilities of the Holding Company or any subsidiary of the Holding Company. (iii) CORPORATE OFFICE.The Association shall maintain a corporate office that is physically separate from any office of the_ Holding Company or any sub- sidiary of the Holding Company. (iv) DIRECTOR.No director of the Association who is appointed by the President, pursuant to section 439(c)(1)(A) may serve -.as a. director of the Holding Company. 295 Sec. 440 HIGHER EDUCATION ACT OF 1965 288 (v) ONE OFFICER REQUIREMENT.At least one offi- cer of the Association shall be an officer solely of the Association. (vi) TRANSACTIONS.Transactions between the As- sociation and the Holding Company or any subsidiary of the Holding Company, including any loan servicing arrangements, shall be on terms no less favorable to the Association than the Association could obtain from an unrelated third party offering comparable services. (vii) CREDIT PROHIBITION.The Association shall not extend credit to the Holding Company or any sub- sidiary of the Holding Company nor guarantee or pro- vide any credit enhancement to any debt obligations of the Holding Company or any subsidiary of the Holding Company. (viii) AMOUNTS COLLECTED.Any amounts col- lected on behalf of the Association by the Holding Company or any subsidiary of the Holding Company with respect to the assets of the Association, pursuant to a servicing contract or other arrangement between the Association and the Holding Company or any sub- sidiary of the Holding Company, shall be collected solely for the benefit of the Association and shall be immediately deposited by the Holding Company or such subsidiary to an account under the sole control of the Association. _ (D) ENCUMBRANCE OF ASSETS.Notwithstanding any Federal or State law, rule, or regulation, or legal or equi- table principle, doctrine, or theory to the contrary, under no circumstances shall the assets of the Association be available or used to pay claims or debts of or incurred by the Holding Company. Nothing in this subparagraph shall be construed to limit the right of the Association to pay dividends not otherwise prohibited under this subpara- graph or to limit any liability of the Holding Company ex- plicitly provided for in this section. (E) HOLDING COMPANY ACTIVITIES.After the reorga- nization effective date and prior to the dissolution date, all business activities of the Holding Company shall be con- ducted through subsidiaries of the Holding Company. (F) CONFIDENTIALITY.Any information provided by the Association pursuant to this section shall be subject to the same confidentiality obligations contained in section 439(0(12). (G) DEFINITION.For purposes of this paragraph, the term associated person" means any person, other than a natural person, who is directly or indirectly controlling, controlled by, or under common control with, the Associa- tion. (9) ISSUANCE OF STOCK WARRANTS. (A) IN GENERAL.On the reorganization effective date, the Holding Company shall issue to the District of Colum- bia Financial Responsibility and Management Assistance Authority a number of stock warrants that is equal to one 296 289 HIGHER EDUCATION ACT OF 1965 Sec. 440 percent of the outstanding shares of the Association, deter- mined as of the last day of the fiscal quarter preceding the date of enactment of this section, with each stock warrant entitling the holder of the stock warrant to purchase from the Holding Company one share of the registered common stock of the Holding Company or the Holding Company's successors or assigns, at any time on or before September 30, 2008. The exercise price for such warrants shall be an amount equal to the average closing price of the common stock of the Association for the 20 business days prior to the date of enactment of this section on the exchange or market which is then the primary exchange or market for the common stock of the Association. The number of shares of Holding Company common stock subject to each stock warrant and the exercise price of each stock warrant shall be adjusted as necessary to reflect (i) the conversion of Association common stock into Holding Company common stock as part of the plan of reorganization approved by the Association's shareholders; and (ii) any issuance or sale of stock (including issuance or sale of treasury stock), stock split, recapi- talization, reorganization, or other corporate event, if agreed to by the Secretary of the Treasury and the As- sociation. (B) AUTHORITY TO SELL OR EXERCISE STOCK WARRANTS; DEPOSIT OF PROCEEDS.The District of Columbia Financial Responsibility and Management Assistance Authority is authorized to sell or exercise the stock warrants described in subparagraph (A). The District of Columbia Financial Responsibility and Management Assistance Authority shall deposit into the account established under section 3(e) of the Student Loan Marketing Association Reorganization Act of 1996 amounts collected from the sale and proceeds resulting from the exercise of the stock warrants pursuant to this subparagraph. (10) RESTRICTIONS ON TRANSFER OF ASSOCIATION SHARES AND BANKRUPTCY OF ASSOCIATION.After the reorganization ef- fective date, the Holding Company shall not sell, pledge, or otherwise transfer the outstanding shares of the Association, or agree to or cause the liquidation of the Association or cause the Association to file a petition for bankruptcy under title 11, United States Code, without prior approval of the Secretary of the Treasury and the Secretary of Education. (d) TERMINATION OF THE ASSOCIATION.In the event the share- holders of the Association approve a plan of reorganization under subsection (b), the Association shall dissolve, and the Association's separate existence shall terminate on September 30, 2008, after discharge of all outstanding debt obligations and liquidation pursu- ant to this subsection. The Association may dissolve pursuant to this subsection prior to such date by notifying the Secretary of Education and the Secretary of the Treasury of the Association's in- tention to dissolve, unless within 60 days after receipt of such no- tice the Secretary of Education notifies the Association that the As- 297 Sec. 440 HIGHER EDUCATION ACT OF 1965 290 sociation continues to be needed to serve as a lender of last resort pursuant to section 439(q) or continues to be needed to purchase loans under an agreement with the Secretary described in sub- section (c)(6). On the dissolution date, the Association shall take the following actions: (1) ESTABLISHMENT OF A TRUST.The Association shall, under the terms of an irrevocable trust agreement that is in form and substance satisfactory to the Secretary of the Treas- ury, the Association and the appointed trustee, irrevocably transfer all remaining obligations of the Association to the trust and irrevocably deposit or cause to be deposited into such trust, to be held as trust funds solely for the benefit of holders of the remaining obligations, money or direct noncallable obli- gations of the United States or any agency thereof for which payment the full faith and credit of the United States is pledged, maturing as to principal and interest in such amounts and at such times as are determined by the Secretary of the Treasury to be sufficient, without consideration of any signifi- cant reinvestment of such interest, to pay the principal of, and interest on, the remaining obligations in accordance with their terms. To the extent the Association cannot provide money or qualifying obligations in the amount required, the Holding Company shall be required to transfer money or qualifying ob- ligations to the trust in the amount necessary to prevent any deficiency. (2) USE OF TRUST ASSETS.All money, obligations, or fi- nancial assets deposited into the trust pursuant to this sub- section shall be applied by the trustee to the payment of the remaining obligations assumed by the trust. (3) OBLIGATIONS NOT TRANSFERRED TO THE TRUST.The Association shall make proper provision for all other obliga- tions of the Association not transferred to the trust, including the repurchase or redemption, or the making of proper provi- sion for the repurchase or redemption, of any preferred stock of the Association outstanding. Any obligations of the Associa- tion which cannot be fully satisfied shall become liabilities of the Holding Company as of the date of dissolution. (4) TRANSFER OF REMAINING ASSETS.After compliance with paragraphs (1) and (3), any remaining assets of the trust shall be transferred to the Holding Company or any subsidiary of the Holding Company, as directed by the Holding Company. (e) OPERATION OF THE HOLDING COMPANY.In the event the shareholders of the Association approve the plan of reorganization under subsection (b), the following provisions shall apply beginning on the reorganization effective date: (1) HOLDING COMPANY BOARD OF DIRECTORS.The number of members and composition of the Board of Directors of the Holding Company shall be determined as set forth in the Hold- ing Company's charter or like instrument (as amended from time to time) or bylaws (as amended from time to time) and as permitted under the laws of the jurisdiction of the Holding Company's incorporation. 298 291 HIGHER EDUCATION ACT OF 1965 Sec. 440 (2) HOLDING COMPANY NAME. The names of the Holding Company and any subsidiary of the Holding Company (other than the Association) (A) may not contain the name "Student Loan Market- ing Association "; and (B) may contain, to the extent permitted by applicable State or District of Columbia law, "Sallie Mae" or vari- ations thereof, or such other names as the Board of Direc- tors of the Association or the Holding Company deems ap- propriate. (3) USE OF SALLIE MAE NAME.Subject to paragraph (2), the Association may assign to the Holding Company, or any subsidiary of the Holding Company, the "Sallie Mae" name as a trademark or service mark, except that neither the Holding Company nor any subsidiary of the Holding Company (other than the Association or any subsidiary of the Association) may use the "Sallie Mae" name on, or to identify the issuer of, any debt obligation or other security offered or sold by the Holding Company or any subsidiary of the Holding Company (other than a debt obligation or other security issued to and held by the Holding Company or any subsidiary of the Holding Com- pany). The Association shall remit to the account established under section 3(e) of the Student Loan Marketing Association Reorganization Act of 1996, $5,000,000, within 60 days of the reorganization effective date as compensation for the right to assign the "Sallie Mae" name as a trademark or service mark. (4) DISCLOSURE REQUIRED.Until 3 years after the dissolu- tion date, the Holding Company, and any subsidiary of the Holding Company (other than the Association), shall promi- nently display (A) in any document offering the Holding Company's securities, a statement that the obligations of the Holding Company and any subsidiary of the Holding Company are not guaranteed by the full faith and credit of the United States; and (B) in any advertisement or promotional materials which use the "Sallie Mae" name or mark, a statement that neither the Holding Company nor any subsidiary of the Holding Company is a government-sponsored enter- prise or instrumentality of the United States. (f) STRICT CONSTRUCTION.Except as specifically set forth in this section, nothing in this section shall be construed to limit the authority of the Association as a federally chartered corporation, or of the Holding Company as a State or District of Columbia char- tered corporation. (g) RIGHT To ENFORCE.The Secretary of Education or the Secretary of the Treasury, as appropriate, may request that the At- torney General bring an action in the United States District Court for the District of Columbia for the enforcement of any provision of this section, or may, under the direction or control of the Attor- ney General, bring such an action. Such court shall have jurisdic- tion and power to order and require compliance with this section. (h) DEADLINE FOR REORGANIZATION EFFECTIVE DATE.This section shall be of no further force and effect in the event that the 2 93 Sec. 440 HIGHER EDUCATION ACT OF 1965 292 reorganization effective date does not occur on or before 18 months after the date of enactment of this section. (i) DEFINITIONS.For purposes of this section: (1) ASSOCIATION.The term "Association" means the Stu- dent Loan Marketing Association. (2) DissoLunoN DATE.The term "dissolution date" means September 30, 2008, or such earlier date as the Secretary of Education permits the transfer of remaining obligations in ac- cordance with subsection (d). (3) HOLDING COMPANY.The term "Holding Company" means the new business corporation established pursuant to this section by the Association under the laws of any State of the United States or the District of Columbia for the purposes of the reorganization and restructuring described in subsection (a). (4) REMAINING OBLIGATIONS.The term "remaining obliga- tions" means the debt obligations of the Association outstand- ing as of the dissolution date. (5) REMAINING PROPERTY.The term "remaining property" means the following assets and liabilities of the Association which are outstanding as of the reorganization effective date: (A) Debt obligations issued by the Association. (B) Contracts relating to interest rate, currency, or commodity positions or protections. (C) Investment securities owned by the Association. (D) Any instruments, assets, or agreements described in section 439(d) (including, without limitation, all student loans and agreements relating to the purchase and sale of student loans, forward purchase and lending commit- ments, warehousing advances, academic facilities obliga- tions, letters of credit, standby bond purchase agreements, liquidity agreements, and student loan revenue bonds or other loans). (E) Except as specifically prohibited by this section or section 439, any other nonmaterial assets or liabilities of the Association which the Association's Board of Directors determines to be necessary or appropriate to the Associa- tion's operations. (6) REORGANIZATION.The term "reorganization' means the restructuring event or events (including any merger event) giving effect to the Holding Company structure described in subsection (a). (7) REORGANIZATION EFFECTIVE DATE.The term "reorga- nization effective date" means the effective date of the reorga- nization as determined by the Board of Directors of the Asso- ciation, which shall not be earlier than the date that share- holder approval is obtained pursuant to subsection (b) and shall not be later than the date that is 18 months after the date of enactment of this section. (8) SUBSIDIARY.The term "subsidiary" means one or more direct or indirect subsidiaries. 293 HIGHER EDUCATION ACT OF 1965 Sec. 441 SEC. 440A. DISCRIMINATION IN SECONDARY MARKETS PROHIBITED. The Student Loan Marketing Association (and, if the Associa- tion is privatized under section 440, any successor entity function- ing as a secondary market for loans under this part, including the Holding Company described in such section) shall not engage di- rectly or indirectly in any pattern or practice that results in a de- nial of a borrower's access to loans under this part because of the borrower's race, sex, color, religion, national origin, age, disability status, income, attendance at a particular eligible institution, length of the borrower's educational program, or the borrower's academic year at an eligible institution. PART CFEDERAL WORK-STUDY PROGRAMS SEC. 441. [42 U.S.C. 2751] PURPOSE; APPROPRIATIONS AUTHORIZED. (a) PURPOSE.The purpose of this part is to stimulate and pro- mote the part-time employment of students who are enrolled as un- dergraduate, graduate, or professional students and who are in need of earnings from employment to pursue courses of study at el- igible institutions, and to encourage students receiving Federal stu- dent financial assistance to participate in community service activi- ties that will benefit the Nation and engender in the students a sense of social responsibility and commitment to the community. (b) AUTHORIZATION OF APPROPRIATIONS.There are authorized to be appropriated to carry out this part, $1,000,000,000 for fiscal year 1999 and such sums as may be necessary for each of the 4 succeeding fiscal years. (c) COMMUNITY SERVICES.For purposes of this part, the term "community services" means services which are identified by an in- stitution of higher education, through formal or informal consulta- tion with local nonprofit, governmental, and community-based or- ganizations, as designed to improve the quality of life for commu- nity residents, particularly low-income individuals, or to solve par- ticular problems related to their needs, including (1) such fields as health care, child care (including child care services provided on campus that are open and accessible to the community), literacy training, education (including tuto- rial services), welfare, social services, transportation, housing and neighborhood improvement, public safety, crime preven- tion and control, recreation, rural development, and community improvement; (2) work in a project, as defined in section 101(20) of the National and Community Service Act of 1990 (42 U.S.C. 12511(20)); (3) support services to students with disabilities, including students with disabilities who are enrolled at the institution; and (4) activities in which a student serves as a mentor for such purposes as (A) tutoring; (B) supporting educational and recreational activities; and (C) counseling, including career counseling. 301 Sec. 442 HIGHER EDUCATION ACT OF 1965 294 SEC. 442. [42 U.S.C. 2752] ALLOCATION OF FUNDS. (a) ALLOCATION BASED ON PREVIOUS ALLOCATION 1.(1) From the amount appropriated pursuant to section 441(b) for each fiscal year, the Secretary shall first allocate to each eligible institution for each succeeding fiscal year, an amount equal to 100 percent of the amount such institution received under subsections (a) and (b) for fiscal year 1999 (as such subsections were in effect with respect to allocations for such fiscal year). (2)(A) From the amount so appropriated, the Secretary shall next allocate to each eligible institution that began participation in the program under this part after fiscal year 1999 but is not a first or second time participant, an amount equal to the greater of (i) $5,000; or (ii) 90 percent of the amount received and used under this part for the first year it participated in the program. (B) From the amount so appropriated, the Secretary shall next allocate to each eligible institution that began participation in the program under this part after fiscal year 1999 and is a first or sec- ond time participant, an amount equal to the greatest of (i) $5,000; (ii) an amount equal to (I) 90 percent of the amount re- ceived and used under this part in the second preceding fiscal year by eligible institutions offering comparable programs of instruction, divided by (II) the number of students enrolled at such comparable institutions in such fiscal year, multiplied by (III) the number of students enrolled at the applicant institu- tion in such fiscal year; or (iii) 90 percent of the institution's allocation under this part for the preceding fiscal year. (C) Notwithstanding subparagraphs (A) and (B) of this para- graph, the Secretary shall allocate to each eligible institution which (i) was a first-time participant in the program in fiscal year 2000 or any subsequent fiscal year, and (ii) received a larger amount under this subsection in the second year of participation, an amount equal to 90 percent of the amount it received under this subsection in its second year of participation. (3)(A) If the amount appropriated for any fiscal year is less than the amount required to be allocated to all institutions under paragraph (1) of this subsection, then the amount of the allocation to each such institution shall be ratably reduced. (B) If the amount appropriated for any fiscal year is more than the amount required to be allocated to all institutions under para- graph (1) but less than the amount required to be allocated to all institutions under paragraph (2), then (i) the Secretary shall allot the amount required to be allo- cated to all institutions under paragraph (1), and 1The allocation provisions of section 413D of the Higher Education Act of 1965 were amended by section 442 of the Higher Education Amendments of 1998 (P.L. 105-244; 112 Stat. 1712). Subsection (c) of that section 442 contained the following effective date provision: (c) EFFECTIVE DATE.The amendments made by this section shall apply with respect to allo- cations of amounts appropriated pursuant to section 441(b) for fiscal year 2000 or any succeed- ing fiscal year. 295 HIGHER EDUCATION ACT OF 1965 Sec. 442 (ii) the amount of the allocation to each institution under paragraph (2) shall be ratably reduced. (C) If additional amounts are appropriated for any such fiscal year, such reduced amounts shall be increased on the same basis as they were reduced (until the amount allocated equals the amount required to be allocated under paragraphs (1) and (2) of this subsection). (4)(A) Notwithstanding any other provision of this section, the Secretary may allocate an amount equal to not more than 10 per- cent of the amount by which the amount appropriated in any fiscal year to carry out this part exceeds $700,000,000 among eligible in- stitutions described in subparagraph (B). (B) In order to receive an allocation pursuant to subparagraph (A) an institution shall be an eligible institution from which 50 per- cent or more of the Pell Grant recipients attending such eligible in- stitution graduate or transfer to a 4-year institution of higher edu- cation. (b) ALLOCATION OF EXCESS BASED ON SHARE OF EXCESS ELIGI- BLE AMOUNTS.-(1) From the remainder of the amount appro- priated pursuant to section 441(b) after making the allocations re- quired by subsection (a), the Secretary shall allocate to each eligi- ble institution which has an excess eligible amount an amount which bears the same ratio to such remainder as such excess eligi- ble amount bears to the sum of the excess eligible amounts of all such eligible institutions (having such excess eligible amounts). (2) For any eligible institution, the excess eligible amount is the amount, if any, by which (A)(i) the amount of that institution's need (as determined under subsection (c)), divided by (ii) the sum of the need of all institutions (as so determined), multiplied by (iii) the amount appropriated pursuant to section 441(b) for the fiscal year; ex- ceeds (B) the amount required to be allocated to that institution under subsection (a). (c) DETERMINATION OF INSTITUTION'S NEED.-(1) The amount of an institution's need is equal to the sum of the self-help need of the institution's eligible undergraduate students and the self-help need of the institution's eligible graduate and professional stu- dents. (2) To determine the self-help need of an institution's eligible undergraduate students, the Secretary shall (A) establish various income categories for dependent and independent undergraduate students; (B) establish an expected family contribution for each in- come category of dependent and independent undergraduate students, determined on the basis of the average expected fam- ily contribution (computed in accordance with part F of this title) of a representative sample within .each income category for the second preceding fiscal year; (C) compute 25 percent of the average cost of attendance for all undergraduate students; (D) multiply the number of eligible dependent students in each income category by the lesser of 303 Sec. 442 HIGHER EDUCATION ACT OF 1965 296 (i) 25 percent of the average cost of attendance for all undergraduate students determined under subparagraph (C); or (ii) the average cost of attendance for all undergradu- ate students minus the expected family contribution deter- mined under subparagraph (B) for that income category, except that the amount computed by such subtraction shall not be less than zero; (E) add the amounts determined under subparagraph (D) for each income category of dependent students; and (F) multiply the number of eligible independent students in ach income category by the lesser of (i) 25 percent of the average cost of attendance for all undergraduate students determined under subparagraph (C); or(ii) the average cost of attendance for all undergradu- ate students minus the expected family contribution deter- mined under subparagraph (B) for that income category, except that the amount computed by such subtraction for any income category shall not be less than zero; (G) add the amounts determined under subparagraph (F) for each income category of independent students; and (H) add the amounts determined under subparagraphs (E) and (G). (3) To determine the self -help need of an institution's eligible graduate and professional students, the Secretary shall (A) establish various income categories of graduate and professional students; (B) establish an expected family contribution for each in- come category of graduate and professional students, deter- mined on the basis of the average expected family contribution (computed in accordance with part F of this title) of a rep- resentative sample within each income category for the second preceding fiscal year; (C) determine the average cost of attendance for all grad- uate and professional students; (D) subtract from the average cost of attendance for all graduate and professional students (determined under sub- paragraph (C)), the expected family contribution (determined under subparagraph (B)) for each income category, except that the amount computed by such subtraction for any income cat- egory shall not be less than zero; (E) multiply the amounts determined under subparagraph (D) by the number of eligible students in each category; and (F) add the amounts determined under subparagraph (E) of this paragraph for each income category. (4)(A) For purposes of paragraphs (2) and (3), the term "aver- age cost of attendance" means the average of the attendance costs for undergraduate students and for graduate and professional stu- dents, which shall include (i) tuition and fees determined in accord- ance with subparagraph (B), (ii) standard living expenses deter- mined in accordance with subparagraph (C), and (iii) books and supplies determined in accordance with subparagraph (D). 297 HIGHER EDUCATION ACT OF 1965 Sec. 443 (B) The average undergraduate and graduate and professional tuition and fees described in subparagraph (A)(i) shall be computed on the basis of information reported by the institution to the Sec- retary, which shall include (i) total revenue received by the institu- tion from undergraduate and graduate tuition and fees for the sec- ond year preceding the year for which it is applying for an alloca- tion, and (ii) the institution's enrollment for such second preceding year. (C) The standard living expense described in subparagraph (A)(ii) is equal to 150 percent of the difference between the income protection allowance for a family of five with one in college and the income protection allowance for a family of six with one in college for a single independent student. (D) The allowance for books. and supplies described in subpara- graph (A)(iii) is equal to $450. (d) REALLOCATION OF EXCESS ALLOCATIONS.(1) If institutions return to the Secretary any portion of the sums allocated to such institutions under this section for any fiscal year, the Secretary shall reallot such excess to eligible institutions which used at least 5 percent of the total amount of funds granted to such institution under this section to compensate students employed in tutoring in reading and family literacy activities in the preceding fiscal year. Such excess funds shall be reallotted to institutions which qualify under this subsection on the same basis as excess eligible amounts are allocated to institutions pursuant to subsection (b). Funds re- ceived by institutions pursuant to this subsection shall be used to compensate students employed in community service. (2) If, under paragraph (1) of this subsection, an institution re- turns more than 10 percent of its allocation, the institution's alloca- tion for the next fiscal year shall be reduced by the amount re- turned. The Secretary may waive this paragraph for a specific in- stitution if the Secretary finds that enforcing this paragraph would be contrary to the interest of the program. (e) FILING DEADLINES.The Secretary shall, from time to time, set dates before which institutions must file applications for alloca- tions under this part. SEC. 443. [42 U.S.C. 2753) GRANTS FOR FEDERAL. WORK-STUDY PRO- GRAMS. (a) AGREEMENTS REQUIRED.The Secretary is authorized to enter into agreements with institutions of higher education under which the Secretary will make grants to such institutions to assist in the operation of work-study programs as provided in this part. (b) CONTENTS OF AGREEMENTS.An agreement entered into pursuant to this section shall (1) provide for the operation by the institution of a pro- gram for the part-time employment, including internships, practica, or research assistantships as determined by the Sec- retary, of its students in work for the institution itself, work in community service or work in the public interest for a Fed- eral, State, or local public agency or private nonprofit organiza- tion under an arrangement between the institution and such agency or organization, and such work- 305 Sec. 443 HIGHER EDUCATION ACT OF 1965 298 (A) will not result in the displacement of employed workers or impair existing contracts for services; (B) will be governed by such conditions of employment as will be appropriate and reasonable in light of such fac- tors as type of work performed, geographical region, and proficiency of the employee; (C) does not involve the construction, operation, or maintenance of so much of any facility as is used or is to be used for sectarian instruction or as a place for religious worship; and (D) will not pay any wage to students employed under this subpart that is less than the current Federal mini- mum wage as mandated by section 6(a) of the Fair Labor Standards Act of 1938; (2) provide that funds granted an institution of higher edu- cation, pursuant to section 443, may be used only to make pay- ments to students participating in work-study programs, ex- cept that (A) for fiscal year 1999, an institution shall use at least 5 percent of the total amount of funds granted to such institution under this section in any fiscal year to compensate students employed in community service (in- cluding a reasonable amount of time spent in travel or training directly related to such community service), ex- cept that the Secretary may waive this subparagraph if the Secretary determines that enforcing it would cause hardship for students at an institution; (B) for fiscal year 2000 and succeeding fiscal years, an institution shall use at least 7 percent of the total amount of funds granted to such institution under this section for such fiscal year to compensate students employed in com- munity service, and shall ensure that not less than 1 tu- toring or family literacy project (as described in subsection (d)) is included in meeting the requirement of this sub- paragraph, except that the Secretary may waive this sub- paragraph if the Secretary determines that enforcing this subparagraph would cause hardship for students at the in- stitution; and (C) an institution may use a portion of the sums granted to it to meet administrative expenses in accord- ance with section 489 of this Act, may use a portion of the sums granted to it to meet the cost of a job location and development program in accordance with section 446 of this part, and may transfer funds in accordance with the provisions of section 488 of this Act; (3) provide that in the selection of students for employ- ment under such work-study program, only students who dem- onstrate financial need in accordance with part F and meet the requirements of section 484 will be assisted, except that if the institution's grant under this part is directly or indirectly' based in part on the financial need demonstrated by students who are (A) attending the institution on less than a full-time basis, or (B) independent students, a reasonable portion of the grant shall be made available to such students; 3 0 299 HIGHER EDUCATION ACT OF 1965 Sec. 443 (4) provide that for a student employed in a work-study program under this part, at the time income derived from any need-based employment is in excess of the determination of the amount of such student's need by more than $300, continued employment shall not be subsidized with funds appropriated under this part; (5) provide that the Federal share of the compensation of students employed in the work-study program in accordance with the agreement shall not exceed 75 percent, except that (A) the Federal share may exceed 75 percent, but not exceed 90 percent, if, consistent with regulations of the Secretary (i) the student is employed at a nonprofit private organization or a government agency that (I) is not a part of, and is not owned, oper- ated, or controlled by, or under common owner- ship, operation, or control with, the institution; (II) is selected by the institution on an indi- vidual case-by-case basis for such student; and (III) would otherwise be unable to afford the costs of such employment; and (ii) not more than 10 percent of the students com- pensated through the institution's grant under this part during the academic year are employed in posi- tions for which the Federal share exceeds 75 percent; and (B) the Federal share may exceed 75 percent if the Secretary determines, pursuant to regulations promul- gated by the Secretary establishing objective criteria for such determinations, that a Federal share in excess of such amounts is required in furtherance of the purpose of this part; (6) include provisions to make employment under such work-study program reasonably available (to the' extent of available funds) to all eligible students in the institution in need thereof; (7) provide assurances that employment made available from funds under this part will, to the maximum extent prac- ticable, complement and reinforce the educational program or vocational goals of each student receiving assistance under this part; (8) provide assurances, in the case of each proprietary in- stitution, that students attending the proprietary institution receiving assistance under this part who are employed by the institution may be employed in jobs (A) that are only on campus and that (i) to the maximum extent practicable, com- plement and reinforce the education programs or voca- tional goals of such 'students; and (ii) furnish student services that are directly relat- ed to the student's education, as determined by the Secretary pursuant to regulations, except that no stu- dent shall be employed in any position that would in- 307 Sec. 443 HIGHER EDUCATION ACT OF 1965 300 volve the solicitation of other potential students to en- roll in the school; or (B) in community service in accordance with para- graph (2)(A) of this subsection; (9) provide assurances that employment made available from funds under this part may be used to support programs for supportive services to students with disabilities; (10) provide assurances that the institution will inform all eligible students of the opportunity to perform community serv- ice, and will consult with local nonprofit, governmental, and community-based organizations to identify such opportunities; and (11) include such other reasonable provisions as the Sec- retary shall deem necessary or appropriate to carry out the purpose of this part. (c) PRIVATE SECTOR EMPLOYMENT AGREEMENT.As part of its agreement described in subsection (b), an institution of higher edu- cation may, at its option, enter into an additional agreement with the Secretary which shall (1) provide for the operation by the institution of a pro- gram of part-time employment of its students in work for a pri- vate for-profit organization under an arrangement between the institution and such organization that complies with the re- quirements of subparagraphs (A) through (D) of subsection (bX1) and subsection (b)(3); (2) provide that the institution will use not more than 25 percent of the funds made available to such institution under this part for any fiscal year for the operation of the program described in paragraph (1); (3) provide that, notwithstanding subsection (b)(5), the Federal share of the compensation of students employed in such program will not exceed 60 percent for academic years 1987-1988 and 1988-1989, 55 percent for academic year 1989- 1990, and 50 percent for academic year 1990-1991 and suc- ceeding academic years, and that the non-Federal share of such compensation will be provided by the private for-profit or- ganization in which the student is employed; (4) provide that jobs under the work study program will be academically relevant, to the maximum extent practicable; and (5) provide that the for-profit organization will not use funds made available under this part to pay any employee who would otherwise be employed by the organization. (d) TUTORING AND LITERACY ACTIVITIES. (1) USE OF FUNDS.In any academic year to which sub- section (b)(2)(B) applies, an institution shall ensure that funds granted to such institution under this section are used in ac- cordance with such subsection to compensate (including com- pensation for time spent in training and travel directly related to tutoring in reading and family literacy activities) students (A) employed as reading tutors for children who are preschool age or are in elementary school; or (B) employed in family literacy projects. (2) PRIORITY FOR SCHOOLS.To the extent practicable, an institution shall- 308 301 HIGHER EDUCATION ACT OF 1965 Sec. 445 (A) give priority to the employment of students in the provision of tutoring in reading in schools that are partici- pating in a reading reform project that (i) is designed to train teachers how to teach read- ing on the basis of scientifically-based research on reading; and (ii) is funded under the Elementary and Second- ary Education Act of 1965; and (B) ensure that any student compensated with the funds described in paragraph (1) who is employed in a school participating in a reading reform project described in subparagraph (A) receives training from the employing school in the instructional practices used by the school. (3) FEDERAL SHARE.The Federal share of the compensa- tion of work-study students compensated under this subsection may exceed 75 percent. SEC. 444. [20 U.S.C. 2754] SOURCES OF MATCHING FUNDS. Nothing in this part shall be construed as restricting the source (other than this part) from which the institution may pay its share of the compensation of a student employed under a work- study program covered by an agreement under this part, and such share may be paid to such student in the form of services and equipment (including tuition, room, board, and books) furnished by such institution. SEC. 445. [42 U.S.C. 2755] FLEXIBLE USE OF FUNDS. (a) CARRY-OVER AUTHORITY.(1) Of the sums granted to an el- igible institution under this part for any fiscal year, 10 percent may, at the discretion of the institution, remain available for ex- penditure during the succeeding fiscal year to carry out programs under this part. (2) Any of the sums so granted to an institution for a fiscal year which are not needed by that institution to operate work- study programs during that fiscal year, and which it does not wish to use during the next fiscal year as authorized in the preceding sentence, shall remain available to the Secretary for making grants under section 443 to other institutions in the same State until the close of the second fiscal year next succeeding the fiscal year for which such funds were appropriated. (b) CARRY-BACK AUTHORITY.(1) Up to 10 percent of the sums the Secretary determines an eligible institution may receive from funds which have been appropriated for a fiscal year may be used by the Secretary to make grants under this part to such institution for expenditure during the fiscal year preceding the fiscal year for which the sums were appropriated. (2) An eligible institution may make payments to students of wages earned after the end of the academic year, but prior to the beginning of the succeeding fiscal year, from such succeeding fiscal year's appropriations. (c) FLEXIBLE USE OF FUNDS.An eligible institution may, upon the request 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 in- 309 Sec. 446 HIGHER EDUCATION ACT OF 1965 302 stitution. An eligible institution may only credit the student's ac- count at the institution for (1) tuition and fees, (2) in the case of institutionally owned housing, room and board, and (3) other insti- tutionally provided goods and services. SEC. 446. [42 U.S.C. 2756] JOB LOCATION AND DEVELOPMENT PRO- GRAMS. (a) AGREEMENTS REQUIRED.(1) The Secretary is authorized to enter into agreements with eligible institutions under which such institution may use not more than 10 percent or $50,000 of its al- lotment under section 442, whichever is less, to establish or expand a program under which such institution, separately or in combina- tion with other eligible institutions, locates and develops jobs, in- cluding community service jobs, for currently enrolled students. (2) Jobs located and developed under this section shall be jobs that are suitable to the scheduling and other needs of such stu- dents and that, to the maximum extent practicable, complement and reinforce the educational programs or vocational goals of such students. (b) CONTENTS OF AGREEMENTS.Agreements under subsection (a) shall (1) provide that the Federal share of the cost of any pro- gram under this section will not exceed 80 percent of such cost; (2) provide satisfactory assurance that funds available under this section will not be used to locate or develop jobs at an eligible institution; (3) provide satisfactory assurance that funds available under this section will not be used for the location or develop- ment of jobs for students to obtain upon graduation, but rather for the location and development of jobs available to students during and between periods of attendance at such institution; (4) provide satisfactory assurance that the location or de- velopment of jobs pursuant to programs assisted under this section will not result in the displacement of employed workers or impair existing contracts for services; (5) provide satisfactory assurance that Federal funds used for the purpose of this section can realistically be expected to help generate student wages exceeding, in the aggregate, the amount of such funds, and that if such funds are used to con- tract with another organization, appropriate performance standards are part of such contract; and (6) provide that the institution will submit to the Secretary an annual report on the uses made of funds provided under this section and an evaluation of the effectiveness of such pro- gram in benefiting the students of such institution. SEC. 447. [42 U.S.C. 2756a] ADDITIONAL FUNDS TO CONDUCT COMMU- NITY SERVICE WORK-STUDY PROGRAMS. Each institution participating under this part may use up to 10 percent of the funds made available under section 489(a) and at- tributable to the amount of the institution's expenditures under this part to conduct that institution's program of community serv- ice-learning, including (1) development of mechanisms to assure the academic quality of the student experience, 303 HIGHER EDUCATION ACT OF 1965 Sec. 448 (2) assuring student access to educational resources, exper- tise, and supervision necessary to achieve community service objectives, and (3) collaboration with public and private nonprofit agen- cies, and programs assisted under the National and Commu- nity Service Act of 1990 in the planning, development, and ad- ministration of such programs. SEC. 448. [42 U.S.C. 2756b] WORK COLLEGES. (a) PURPOSE.The purpose of this section is to recognize, en- courage, and promote the use of comprehensive work-learning pro- grams as a valuable educational approach when it is an integral part of the institution's educational program and a part of a finan- cial plan which decreases reliance on grants and loans. (b) SOURCE AND USE FUNDS. (1) SOURCE OF FUNDS.In addition to the sums appro- priated under subsection (f), funds allocated to the institution under part C and part E of this title may be transferred for use under this section to provide flexibility in strengthening the self-help-through-work element in financial aid packaging. (2) ACTIVITIES AUTHORIZED.From the sums appropriated pursuant to subsection (f), and from the funds available under paragraph (1), eligible institutions may, following approval of an application under subsection (c) by the Secretary (A) support the educational costs of qualified students through self-help payments or credits provided under the work-learning program of the institution within the limits of part F of this title; (B) promote the work-learning-service experience as a tool of postsecondary education, financial self-help and community service-learning opportunities; (C) carry out activities described in section 443 or 446; (D) be used for the administration, development and assessment of comprehensive work-learning programs, including (i) community-based work-learning alternatives that expand opportunities for community service and career-related work; and (ii) alternatives that develop sound citizenship, en- courage student persistence, and make optimum use of assistance under this part in education and student development; (E) coordinate and carry out joint projects and activi- ties to promote work service learning; and (F) carry out a comprehensive, longitudinal study of student academic progress and academic and career out- comes, relative to student self-sufficiency in financing their higher education, repayment of student loans, continued community service, kind and quality of service performed, and career choice and community service selected after graduation. (c) APPLICATION.Each eligible institution may submit an ap- plication for funds authorized by subsection (f) to use funds under 311 Sec. 451 HIGHER EDUCATION ACT OF 1965 304 subsection (b)(1) at such time and in such manner as the Secretary, by regulation, may reasonably require. (d) MATCH REQUIRED.Funds made available to work-colleges pursuant to this section shall be matched on a dollar-for-dollar basis from non-Federal sources. (e) DEFINITIONS.For the purpose of this section (1) the term "work-college" means an eligible institution that (A) has been a public or private nonprofit institution with a commitment to community service; (B) has operated a comprehensive work-learning pro- gram for at least 2 years; (C) requires all resident students who reside on cam- pus to participate in a comprehensive work-learning pro- gram and the provision of services as an integral part of the institution's educational program and as part of the in- stitution's educational philosophy; and (D) provides students participating in the comprehen- sive work-learning program with the opportunity to con- tribute to their education and to the welfare of the commu- nity as a whole; and (2) the term "comprehensive student work-learning pro- gram" means a student work/service program that is an inte- gral and stated part of the institution's educational philosophy and program; requires participation of all resident students for enrollment, participation, and graduation; includes learning objectives, evaluation and a record of work performance as part of the student's college record; provides programmatic leader- ship by college personnel at levels comparable to traditional academic programs; recognizes the educational role of work- learning supervisors; and includes consequences for non- performance or failure in the work-learning program similar to the consequences for failure in the regular academic program. (f) AUTHORIZATION OF APPROPRIATIONS.There are authorized to be appropriated to carry out this section $5,000,000 for fiscal year 1999 and such sums as may be necessary for each of the 4 succeeding fiscal years. PART D-WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM SEC. 451. [20 U.S.C. 1087a] PROGRAM AUTHORITY. (a) IN GENERAL.There are hereby made available, in accord- ance with the provisions of this part, such sums as may be nec- essary to make loans to all eligible students (and the eligible par- ents of such students) in attendance at participating institutions of higher education selected by the Secretary, to enable such students to pursue their courses of study at such institutions during the pe- riod beginning July 1, 1994. Such loans shall be made by partici- pating institutions, or consortia thereof, that have agreements with the Secretary to originate loans, or by alternative originators des- ignated by the Secretary to make loans for students in attendance at participating institutions (and their parents). 305 HIGHER EDUCATION ACT OF 1965 Sec. 452 (b) DESIGNATION. (1) PROGRAM.The program established under this part shall be referred to as the "William D. Ford Federal Direct Loan Program". (2) DIRECT LOANS.Notwithstanding any other provision of this part, loans made to borrowers under this part that, ex- cept as otherwise specified in this part, have the same terms, conditions, and benefits as loans made to borrowers under sec- tion 428, shall be known as "Federal Direct Stafford/Ford Loans". SEC. 452. [20 U.S.C. 1087b] FUNDS FOR ORIGINATION OF DIRECT STU- DENT LOANS. (a) IN GENERAL. The Secretary .shall provide, on the basis of the need and the eligibility of students at each participating insti- tution, and parents of such students, for such loans, funds for stu- dent and parent loans under this part (1) directly to an institution of higher education that has an agreement with the Secretary under section 454(a) to par- ticipate in the direct student loan programs under this part and that also has an agreement with the Secretary under sec- tion 454(b) to originate loans under this part; or (2) through an alternative originator designated by the Secretary to students (and parents of students) attending insti- tutions of higher education that have an agreement with the Secretary under section 454(a) but that do not have an agree- ment with the Secretary under section 454(b). (b) No ENTITLEMENT TO PARTICIPATE OR ORIGINATE.No insti- tution of higher education shall have a right to participate in the programs authorized by this part, to originate loans, or to perform any program function under this part. Nothing in this subsection shall be construed so as to limit the entitlement of an eligible stu- dent attending a participating institution (or the eligible parent of such student) to borrow under this part. (c) DELIVERY OF LOAN FUNDS.Loan funds shall be paid and delivered to an institution by the Secretary prior to the beginning of the payment period established by the Secretary in a manner that is consistent with payment and delivery of Federal Pell Grants under subpart 1 of part A of this title. SEC. 453. [20 U.S.C. 1087c] SELECTION OF INSTITUTIONS FOR PARTICI- PATION AND ORIGINATION. (a) GENERAL AUTHORITY.The Secretary shall enter into agreements pursuant to section 454(a) with institutions of higher education to participate in the direct student loan program under this part, and agreements pursuant to section 454(b) with institu- tions of higher education, or consortia thereof, to originate loans in such program, for academic years beginning on or after July 1, 1994. Alternative origination services, through which an entity other than the participating institution at which the student is in attendance originates the loan, shall be provided by the Secretary, through 1 or more contracts under section 456(b) or such other means as the Secretary may provide, for students attending partici- pating institutions that do not originate direct student loans under this part. Such agreements for the academic year 1994-1995 shall, 313 Sec. 452 HIGHER EDUCATION ACT OF 1965 306 to the extent feasible, be entered into not later than January 1, 1994. (b) SELECTION CRITERIA. (1) APPLICATION.Each institution of higher education de- siring to participate in the direct student loan program under this part shall submit an application satisfactory to the Sec- retary containing such information and assurances as the Sec- retary may require. (2) SELECTION PROCEDURE.The Secretary shall select in- stitutions for participation in the direct student loan program under this part, and shall enter into agreements with such in- stitutions under section 454(a), from among those institutions that submit the applications described in paragraph (1), and meet such other eligibility requirements as the Secretary shall prescribe. (c) SELECTION CRITERIA FOR ORIGINATION. (1) IN GENERAL.The Secretary may enter into a supple- mental agreement with an institution (or a consortium of such institutions) that (A) has an agreement under subsection 454(a); (B) desires to originate loans under this part; and (C) meets the criteria described in paragraph (2). (2) SELECTION CRITERIA.The Secretary may approve an institution to originate loans only if such institution (A) is not on the reimbursement system of payment for any of the programs under subpart 1 or 3 of part A, part C, or part E of this title; (B) is not overdue on program or financial reports or audits required under this title; (C) is not subject to an emergency action, or a limita- tion, suspension, or termination under section 428(b)(1)(T), 432(h), or 487(c); (D) in the opinion of the Secretary, has not had severe performance deficiencies for any of the programs under this title, including such deficiencies demonstrated by au- dits or program reviews submitted or conducted during the 5 calendar years immediately preceding the date of appli- cation; (E) provides an assurance that such institution has no delinquent outstanding debts to the Federal Government, unless such debts are being repaid under or in accordance with a repayment arrangement satisfactory to the Federal Government, or the Secretary in the Secretary's discretion determines that the existence or amount of such debts has not been finally determined by the cognizant Federal agen- cy; and (F) meets such other criteria as the Secretary may es- tablish to protect the financial interest of the United States and to promote the purposes of this part. (3) REGULATIONS GOVERNING APPROVAL.The Secretary shall promulgate and publish in the Federal Register regular tions governing the approval of institutions to originate loans under this part in accordance with section- 457(a)(2). 307 HIGHER EDUCATION ACT OF 1965 Sec. 454 (d) ELIGIBLE INSTITUTIONS.The Secretary may not select an institution of higher education for participation under this section unless such institution is an eligible institution under section 435(a). (e) CONSORTIA. Subject to such requirements as the Secretary may prescribe, eligible institutions of higher education (as deter- mined under subsection (d)) with agreements under section 454(a) may apply to the Secretary as consortia to originate loans under this part for students in attendance at such institutions. Each such institution shall be required to meet the requirements of subsection (c) with respect to loan origination. SEC. 454. [20 U.S.C. 1087d] AGREEMENTS WITH INSTITUTIONS. (a) PARTICIPATION AGREEMENTS.An agreement with any in- stitution of higher education for participation in the direct student loan program under this part shall (1) provide for the establishment and maintenance of a di- rect student loan program at the institution under which the institution will (A) identify eligible students who seek student finan- cial assistance at such institution in accordance with sec- tion 484; (B) estimate the need of each such student as required by part F of this title for an academic year, except that, any loan obtained by a student under this part with the same terms as loans made under section 428H (except as otherwise provided in this part), or a loan obtained by a parent under this part with the same terms as loans made under section 428B (except as otherwise provided in this part), or obtained under any State-sponsored or private loan program, may be used to offset the expected family contribution of the student for that year; (C) provide a statement that certifies the eligibility of any student to receive a loan under this part that is not in excess of the annual or aggregate limit applicable to such loan, except that the institution may, in exceptional circumstances identified by the Secretary, refuse to certify a statement that permits a student to receive a loan under this part, or certify a loan amount that is less than the student's determination of need (as determined under part F of this title), if the reason for such action is documented and provided in written form to such student; (D) set forth a schedule for disbursement of the pro- ceeds of the loan in installments, consistent with the re- quirements of section 428G; and (E) provide timely and accurate information (i) concerning the status of student borrowers (and students on whose behalf parents borrow under this part) while such students are in attendance at the in- stitution and concerning any new information of which the institution becomes aware for such students (or their parents) after such borrowers leave the institu- tion, to the Secretary for the servicing and collecting of loans made under this part; and 315 Sec. 454 HIGHER EDUCATION ACT OF 1965 308 (ii) if the institution does not have an agreement with the Secretary under subsection (b), concerning student eligibility and need, as determined under sub- paragraphs (A) and (B), to the Secretary as needed for the alternative origination of loans to eligible students and parents in accordance with this part; (2) provide assurances that the institution will comply with requirements established by the Secretary relating to stu- dent loan information with respect to loans made under this part; (3) provide that the institution accepts responsibility and financial liability stemming from its failure to perform its func- tions pursuant to the agreement; (4) provide that students at the institution and their par- ents (with respect to such students) will be eligible to partici- pate in the programs under part B of this title at the discretion of the Secretary for the period during which such institution participates in the direct student loan program under this part, except that a student or parent may not receive loans under both this part and part B for the same period of enrollment; (5) provide for the implementation of a quality assurance system, as established by the Secretary and developed in con- sultation with institutions of higher education, to ensure that the institution is complying with program requirements and meeting program objectives; (6) provide that the institution will not charge any fees of any kind, however described, to student or parent borrowers for origination activities or the provision of any information necessary for a student or parent to receive a loan under this part, or any benefits associated with such loan; and (7) include such other provisions as the Secretary deter- mines are necessary to protect the interests of the United States and to promote the purposes of this part. (b) ORIGINATION.An agreement with any institution of higher education, or consortia thereof, for the origination of loans under this part shall (1) supplement the agreement entered into in accordance with subsection (a); (2) include provisions established by the Secretary that are similar to the participation agreement provisions described in paragraphs (1)(E)(ii), (2), (3), (4), (5), (6), and (7) of subsection (a), as modified to relate to the origination of loans by the in- stitution or consortium; (3) provide that the institution or consortium will originate loans to eligible students and parents in accordance with this part; and (4) provide that the note or evidence of obligation on the loan shall be the property of the Secretary. (c) WITHDRAWAL AND TERMINATION PROCEDURES. The Sec- retary shall establish procedures by which institutions or consortia may withdraw or be terminated from the program under this part. SEC. 455. [20 U.S.C. 1087e] TERMS AND CONDITIONS OF LOANS. (a) IN GENERAL. 309 HIGHER EDUCATION ACT OF 1965 Sec. 455 (1) PARALLEL TERMS, CONDITIONS, BENEFITS, AND AMOUNTS.Unless otherwise specified in this part, loans made to borrowers under this part shall have the same terms, condi- tions, and benefits, and be available in the same amounts, as loans made to borrowers under sections 428, 428B, and 428H of this title. (2) DESIGNATION OF LOANS.Loans made to borrowers under this part that, except as otherwise specified in this part, have the same terms, conditions, and benefits as loans made to borrowers under (A) section 428 shall be known as "Federal Direct Staf- ford Loans"; (B) section 428B shall be known as "Federal Direct PLUS Loans"; and (C) section 428H shall be known as "Federal Direct Unsubsidized Stafford Loans". (b) INTEREST RATE. (1) RATES FOR FDSL AND FDUSL.For Federal Direct Staf- ford Loans and Federal Direct Unsubsidized Stafford Loans for which the first disbursement is made on or after July 1, 1994, the applicable rate of interest shall, during any 12-month pe- riod beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to (A) the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1; plus (B) 3.1 percent, except that such rate shall not exceed 8.25 percent. (2) IN SCHOOL AND GRACE PERIOD RULES.(A) Notwith- standing the provisions of paragraph (1), but subject to para- graph (3), 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 interest which accrues (i) prior to the beginning of the repayment period of the loan; or (ii) during the period in which principal need not be paid (whether or not such principal is in fact paid) by rea- son of a provision described in section 428(b)(1)(M) or 427(a)(2)(C), shall not exceed the rate determined under subparagraph (B). (B) For the purpose of subparagraph (A), the rate deter- mined under this subparagraph shall, during any 12-month pe- riod beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to (i) the bond equivalent rate of 91-day Treasury bills auctioned at the final auction prior to such June 1; plus (ii) 2.5 percent, except that such rate shall not exceed 8.25 percent. (3) OUT-YEAR RULE.Notwithstanding paragraphs (1) and (2), for Federal Direct Stafford Loans and Federal Direct Un- subsidized Stafford Loans made on or after July 1, 1998, the applicable rate of interest shall, during any 12-month period 317 Sec. 455 HIGHER EDUCATION ACT OF 1965 310 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 the security with a comparable maturity as established by the Secretary; plus (B) 1.0 percent, except that such rate shall not exceed 8.25 percent. (4) RATES FOR FDPLUS.(A) For Federal Direct PLUS Loans for which the first disbursement is made on or after July 1, 1994, the applicable 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 (i) the bond equivalent rate of 52-week Treasury bills auctioned at final auction held prior to such June 1; plus (ii) 3.1 percent, except that such rate shall not exceed 9 percent. (B) For Federal Direct PLUS loans made on or after July 1, 1998, the applicable 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 (i) the bond equivalent rate of the security with a com- parable maturity as established by the Secretary; plus (ii) 2.1 percent, except that such rate shall not exceed 9 percent. (5) TEMPORARY INTEREST RATE PROVISION. (A) RATES FOR FDSL AND FDUSL.Notwithstanding the preceding paragraphs of this subsection, for Federal Direct Stafford Loans and Federal Direct Unsubsidized Stafford Loans for which the first disbursement is made on or after July 1, 1998, and before October 1, 1998, the applicable rate of interest shall, during any 12-month period begin- ning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to (i) the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1; plus (ii) 2.3 percent, except that such rate shall not exceed 8.25 percent. (B) IN SCHOOL AND GRACE PERIOD RULES.Notwith- standing the preceding paragraphs of this subsection, with respect to any Federal Direct Stafford Loan or Federal Di- rect Unsubsidized Stafford Loan for which the first dis- bursement is made on or after July 1, 1998, and before Oc- tober 1, 1998, the applicable rate of interest for interest which accrues (i) prior to the beginning of the repayment period of the loan; or (ii) during the period in which principal need not be paid (whether or not such principal is in fact paid) by reason of a provision described in section 428(b)(1)(M) or 427(a)(2)(C), shall be determined under subparagraph (A) by substitut- ing "1.7 percent" for "2.3 percent". (C) PLUS LOANS.Notwithstanding the preceding paragraphs of this subsection, with respect to Federal Di- 318 311 HIGHER EDUCATION ACT OF. 1965 Sec. 455 rect PLUS Loan for which the first disbursement is made on or after July 1, 1998, and before October 1, 1998, the applicable rate of interest shall be determined under sub- paragraph (A) (i) by substituting "3.1 percent" for "2.3 percent"; and (ii) by substituting "9.0 percent" for "8.25 percent". (6)1 PUBLICATION.The Secretary shall determine the ap- plicable rates of interest under this subsection after consulta- tion with the Secretary of the Treasury and shall publish such rate in the Federal Register as soon as practicable after the date of determination. (6)1 INTEREST RATE PROVISION FOR NEW LOANS ON OR AFTER OCTOBER 1, 1998, AND BEFORE JULY 1, 2003. (A) RATES FOR FDSL AND FDUSL.Notwithstanding the preceding paragraphs of this subsection, for Federal Direct Stafford Loans and Federal Direct Unsubsidized Stafford Loans for which the first disbursement is made on or after October 1, 1998, and before July 1, 2003, the applicable rate of interest shall, during any 12-month period begin- ning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to (i) the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1; plus (ii) 2.3 percent, except that such rate shall not exceed 8.25 percent. (B) IN SCHOOL AND GRACE PERIOD RULES.Notwith- standing the preceding paragraphs of this subsection, with respect to any Federal Direct Stafford Loan or Federal Di- rect Unsubsidized Stafford Loan for which the first dis- bursement is made on or after October 1, 1998, and before July 1, 2003, the applicable rate of interest for interest Which accrues (i) prior to the beginning of the repayment period of the loan; or (ii) during the period in which principal need not be paid (whether or not such principal is in fact paid) by reason of a provision described in section 428(b)(1)(M) or 427(a)(2)(C), shall be determined under subparagraph (A) by substitut- ing "1.7 percent" for "2.3 percent". (C) PLUS LOANS.Notwithstanding the preceding paragraphs of this subsection, with respect to Federal Di- rect PLUS Loan for which the first disbursement is made on or after October 1, 1998, and before July 1, 2003, the applicable rate of interest shall be determined under sub- paragraph (A) (i) by substituting "3.1 percent" for "2.3 percent"; and (ii) by substituting "9.0 percent" for "8.25 percent". 1So in law. The first paragraph (6) probably should be redesignated as paragraph (8) and moved after paragraph (7) (112 Stat. 498 and 112 Stat. 1715-1716). 319 Sec. 455 HIGHER EDUCATION ACT OF 1965 312 (D) CONSOLIDATION LOANS.Notwithstanding the pre- ceding paragraphs of this subsection, any Federal Direct Consolidation loan for which the application is received on or after February 1, 1999, and before July 1, 2003, shall bear interest at an annual rate on the unpaid principal balance 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. (E) TEMPORARY RULES FOR CONSOLIDATION LOANS. Notwithstanding the preceding paragraphs of this sub- section, any Federal Direct Consolidation loan for which the application is received on or after October 1, 1998, and before February 1, 1999, shall bear interest at an annual rate on the unpaid principal balance of the loan that is equal to (i) the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1; plus (ii) 2.3 percent, except that such rate shall not exceed 8.25 percent. (7) REPAYMENT INCENTIVES. (A) IN GENERAL.Notwithstanding any other provision of this part, the Secretary is authorized to prescribe by 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 of the loan. Such reductions may be offered only if the Sec- retary determines the reductions are cost neutral and in the best financial interest of the Federal Government. Any increase in subsidy costs resulting from such reductions shall be completely offset by corresponding savings in funds available for the William D. Ford Federal Direct Loan Program in that fiscal year from section 458 and other administrative accounts. (B) ACCOUNTABILITY.Prior to publishing regulations proposing repayment incentives, the Secretary shall ensure the cost neutrality of such reductions. The Secretary shall not prescribe such regulations in final form unless an offi- cial report from the Director of the Office of Management and Budget to the Secretary and a comparable report from the Director of the Congressional Budget Office to the Con- gress each certify that any such reductions will be com- pletely cost neutral. Such reports shall be transmitted to the Committee on Labor and Human Resources of the Sen- ate and the Committee on Education and the Workforce of the House of Representatives not less than 60 days prior to the publication of regulations proposing such reductions. (c) LOAN FEE.The Secretary shall charge the borrower of a loan made under this part an origination fee of 4.0 percent of the principal amount of loan. (d) REPAYMENT PLANS. 313 HIGHER EDUCATION ACT OF 1965 Sec. 455 (1) DESIGN AND SELECTION.Consistent with criteria es- tablished by the Secretary,. the Secretary shall offer a borrower of a loan made under this part a variety of plans for repayment of such loan, including principal and interest on the loan. The borrower shall be entitled to accelerate, without penalty, re- payment on the borrower's loans under this part. The borrower may choose (A) a standard repayment plan, with a fixed annual repayment amount paid over a fixed period of time, con- sistent with subsection (a)(1) of this section; (B) an extended repayment plan, with a fixed annual repayment amount paid over an extended period of time, except that the borrower shall annually repay a minimum amount determined by the Secretary in accordance with section 428(b)(1)(L); (C) a graduated repayment plan, with annual repay- ment amounts established at 2 or more graduated levels and paid over a fixed or extended period of time, except that the borrower's scheduled payments shall not be less than 50 percent, nor more than 150 percent, of what the amortized payment on the amount owed would be if the loan were repaid under the standard repayment plan; and (D) an income contingent repayment plan, with vary- ing annual repayment amounts based on the income of the borrower, paid over an extended period of time prescribed by the Secretary, not to exceed 25 years, except that the plan described in this subparagraph shall not be available to the borrower of a Federal Direct PLUS loan. (2) SELECTION BY SECRETARY.If a borrower of a loan made under this part does not select a repayment plan de- scribed in paragraph (1), the Secretary may provide the bor- rower with a repayment plan described in subparagraph (A), (B), or (C) of paragraph (1). (3) CHANGES IN SELECTIONS.The borrower of a loan made under this part may change the borrower's selection of a repay- ment plan under paragraph (1), or the Secretary's selection of a plan for the borrower under paragraph (2), as the case may be, under such terms and conditions as may be established by the Secretary. (4) ALTERNATIVE REPAYMENT PLANS.The Secretary may provide, on a case by case basis, an alternative repayment plan to a borrower of a loan made under this part who demonstrates to the satisfaction of the Secretary that the terms and condi- tions of the repayment plans available under paragraph (1) are not adequate to accommodate the borrower's exceptional cir- cumstances. In designing such alternative repayment plans, the Secretary shall ensure that such plans do not exceed the cost to the Federal Government, as determined on the basis of the present value of future payments by such borrowers, of loans made using the plans available under paragraph (1). (5) REPAYMENT AFTER DEFAULT.The Secretary may re- quire any borrower who has defaulted on a loan made under this part to- 321 54-653 99 - 11 Sec. 455 HIGHER EDUCATION ACT OF 1965 314 (A) pay all reasonable collection costs associated with such loan; and (B) repay the loan pursuant to an income contingent repayment plan. (e) INCOME CONTINGENT REPAYMENT. (1) INFORMATION AND PROCEDURES.The Secretary may obtain such information as is reasonably necessary regarding the income of a borrower (and the borrower's spouse, if applica- ble) of a loan made under this part that is, or may be, repaid pursuant to income contingent repayment, for the purpose of determining the annual repayment obligation of the borrower. Returns and return information (as defined in section 6103 of the Internal Revenue Code of 1986) may be obtained under the preceding sentence only to the extent authorized by section 6103(1)(13) of such Code. The Secretary shall establish proce- dures for determining the borrower's repayment obligation on that loan for such year, and such other procedures as are nec- essary to implement effectively income contingent repayment. (2) REPAYMENT BASED ON ADJUSTED GROSS INCOME.A re- payment schedule for a loan made under this part and repaid pursuant to income contingent repayment shall be based on the adjusted gross income (as defined in section 62 of the Inter- nal Revenue Code of 1986) of the borrower or, if the borrower is married and files a Federal income tax return jointly with the borrower's spouse, on the adjusted gross income of the bor- rower and the borrower's spouse. (3) ADDITIONAL DOCUMENTS.A borrower who chooses, or is required, to repay a loan made under this part pursuant to income contingent repayment, and for whom adjusted gross in- come is unavailable or does not reasonably reflect the bor- rower's current income, shall provide to the Secretary other documentation of income satisfactory to the Secretary, which documentation the Secretary may use to determine an appro- priate repayment schedule. (4) REPAYMENT SCHEDULES.Income contingent repayment schedules shall be established by regulations promulgated by the Secretary and shall require payments that vary in relation to the appropriate portion of the annual income of the borrower (and the borrower's spouse, if applicable) as determined by the Secretary. (5) CALCULATION OF BALANCE DUE.The balance due on a loan made under this part that is repaid pursuant to income contingent repayment shall equal the unpaid principal amount of the loan, any accrued interest, and any fees, such as late charges, assessed on such loan. The Secretary may promulgate regulations limiting the amount of interest that may be cap- italized on such loan, and the timing of any such capitalization. (6) NOTIFICATION TO BORROWERS.The Secretary shall es- tablish procedures under which a borrower of a loan made under this part who chooses or is required to repay such loan pursuant to income contingent repayment is notified of the terms and conditions of such plan, including notification of such borrower 315 HIGHER EDUCATION ACT OF 1965 Sec. 455 (A) that the Internal Revenue Service will disclose to the Secretary tax return information as authorized under section 6103(1)(13) of the Internal Revenue Code of 1986; and (B) that if a borrower considers that special cir- cumstances, such as a loss of employment by the borrower or the borrower's spouse, warrant an adjustment in the borrower's loan repayment as determined using the infor- mation described in subparagraph (A), or the alternative documentation described in paragraph (3), the borrower may contact the Secretary, who shall determine whether such adjustment is appropriate, in accordance with criteria established by the Secretary. (f) DEFERMENT. (1) EFFECT ON PRINCIPAL AND INTEREST.-A borrower of a loan made under this part who meets the requirements de- scribed in paragraph (2) shall be eligible for a deferment, dur- ing which periodic installments of principal need not be paid, and interest (A) shall not accrue, in the case ofa (i) Federal Direct Stafford Loan; or (ii) a Federal Direct Consolidation Loan that con- solidated only Federal Direct Stafford Loans, or a com- bination of such loans and Federal Stafford Loans for which the student borrower received an interest sub- sidy under section 428; or (B) shall accrue and be capitalized or paid by the bor- rower, in the case of a Federal Direct PLUS Loan, a Fed- eral Direct Unsubsidized Stafford Loan, or a Federal Di- rect Consolidation Loan not described in subparagraph (A)(ii). (2) ELIGIBILITY.-A borrower of a loan made under this part shall be eligible for a deferment during any period (A) during which the borrower (i) is carrying at least one-half the normal full- time work load for the course of study that the borrower is pursuing, as determined by the eligible in- stitution (as such term is defined in section 435(a)) the borrower is attending; or (ii) is pursuing a course of study pursuant to a graduate fellowship program approved by the Sec- retary, or pursuant to a rehabilitation training pro- gram for individuals with disabilities approved by the Secretary, except that no borrower shall be eligible for a deferment under this subparagraph, or a loan made under this part (other than a Federal Direct PLUS Loan or a Federal Di- rect Consolidation Loan), while serving in a medical in- ternship or residency program; (B) not in excess of 3 years during which the borrower is seeking and unable to find full-time employment; (C) not in excess of 3 years during which the Secretary determines, in accordance with regulations prescribed 3 9 () Sec. 455 HIGHER EDUCATION ACT OF 1965 316 under section 435(o), that the borrower has experienced or will experience an economic hardship. (3) DEFINITION OF BORROWER.For the purpose of this subsection, the term "borrower" means an individual who is a new borrower on the date such individual applies for a loan under this part for which the first disbursement is made on or after July 1, 1993. (4) DEFERMENTS FOR PREVIOUS PART B LOAN BORROWERS. A borrower of a loan made under this part, who at the time such individual applies for such loan, has an outstanding bal- ance of principal or interest owing on any loan made, insured, or guaranteed under part B of title N prior to July 1, 1993, shall be eligible for a deferment under section 427(a)(2)(C) or section 428(b)(1)(M) as such sections were in effect on July 22, 1992. (g) FEDERAL DIRECT CONSOLIDATION LOANS.A borrower of a loan made under this part may consolidate such loan with the loans described in section 428C(a)(4). Loans made under this sub- section shall be known as "Federal Direct Consolidation Loans". (h) BORROWER DEFENSES.Notwithstanding any other provi- sion of State or Federal law, the Secretary shall specify in regula- tions (except as authorized under section 457(a)(1)) which acts or omissions of an institution of higher education a borrower may as- sert as a defense to repayment of a loan made under this part, ex- cept that in no event may a borrower recover from the Secretary, in any action arising from or relating to a loan made under this part, an amount in excess of the amount such borrower has repaid on such loan. (i) LOAN APPLICATION AND PROMISSORY NOTE.The common fi- nancial reporting form required in section 483(a)(1) shall constitute the application for loans made under this part (other than a Fed- eral Direct PLUS loan). The Secretary shall develop, print, and dis- tribute to participating institutions a standard promissory note and loan disclosure form. (j) LOAN DISBURSEMENT. (1) IN GENERAL.Proceeds of loans to students under this part shall be applied to the student's account for tuition and fees, and, in the case of institutionally owned housing, to room and board. Loan proceeds that remain after the application of the previous sentence shall be delivered to the borrower by check or other means that is payable to and requires the en- dorsement or other certification by such borrower. (2) PAYMENT PERIODS.The Secretary shall establish peri- ods for the payments described in paragraph (1) in a manner consistent with payment of Federal Pell Grants under subpart 1 of part A of this title. (k) FISCAL CONTROL AND FUND ACCOUNTABILITY. (1) IN GENERAL.(A) An institution shall maintain finan- cial records in a manner consistent with records maintained for other programs under this title. (B) Except as otherwise required by regulations of the Sec- retary, or in a notice under section 457(a)(1), an institution may maintain loan funds under this part in the same account as other Federal student financial assistance. 317 HIGHER EDUCATION ACT OF 1965 Sec. 456 (2) PAYMENTS AND REFUNDS.Payments and refunds shall be reconciled in a manner consistent with the manner set forth for the submission of a payment summary report required of institutions participating in the program under subpart 1 of part A, except that nothing in this paragraph shall prevent such reconciliations on a monthly basis. (3) TRANSACTION HISTORIES.All transaction histories under this part shall be maintained using the same system designated by the Secretary for the provision of Federal Pell Grants under subpart 1 of part A of this title. SEC. 456. [20 U.S.C. 1087f1 CONTRACTS. (a) CONTRACTS FOR SUPPLIES AND SERVICES. (1) IN GENERAL.The Secretary shall, to the extent prac- ticable, award contracts for origination, servicing, and collec- tion described in subsection (b). In awarding such contracts, the Secretary shall ensure that such services and supplies are provided at competitive prices. (2) ENTITIES.The entities with which the Secretary may enter into contracts shall include only entities which the Sec- retary determines are qualified to provide such services and supplies and will comply with the procedures applicable to the award of such contracts. In the case of awarding contracts for the origination, servicing, and collection of loans under this part, the Secretary shall enter into contracts only with entities that have extensive and relevant experience and demonstrated effectiveness. The entities with which the Secretary may enter into such contracts shall include, where practicable, agencies with agreements with the Secretary under sections 428(b) and (c), if such agencies meet the qualifications as determined by the Secretary under this subsection and if those agencies have such experience and demonstrated effectiveness. In awarding contracts to such State agencies, the Secretary shall, to the ex- tent practicable and consistent with the purposes of this part, give special consideration to State agencies with a history of high quality performance to perform services for institutions of higher education within their State. (3) RULE OF CONSTRUCTION.Nothing in this section shall be construed as a limitation of the authority ofany State agen- cy to enter into an agreement for the purposes of this section as a member of a consortium of State agencies. (b) CONTRACTS FOR ORIGINATION, SERVICING, AND DATA SYS- TEMS.The Secretary may enter into contracts for (1) the alternative origination of loans to students attend- ing institutions of higher education with agreements to partici- pate in the program under this part (or their parents), if such institutions do not have agreements with the Secretary under section 454(b); (2) the servicing and collection of loans made under this part; (3) the establishment and operation of 1 or more data sys- tems for the maintenance of records on all loans made under this part; and 325 Sec. 451 HIGHER EDUCATION ACT OF 1965 318 (4) such other aspects of the direct student loan program as the Secretary determines are necessary to ensure the suc- cessful operation of the program. SEC. 457. [20 U.S.C. 1087g] REGULATORY ACTIVITIES. (a) NOTICE IN LIEU OF REGULATIONS FOR FIRST YEAR OF PRO - GRAM. (1) NOTICE IN LIEU OF REGULATIONS FOR FIRST YEAR OF PROGRAM.The Secretary shall publish in the Federal Register whatever standards, criteria, and procedures, consistent with the provisions of this part, the Secretary, in consultation with members of the higher education community, determines are reasonable and necessary to the successful implementation of the first year of the direct student loan program authorized by this part. Section 431 of the General Education Provisions Act shall not apply to the publication of such standards, criteria, and procedures. (2) NEGOTIATED RULEMAKING.Beginning with academic year 1995-1996, all standards, criteria, procedures, and regula- tions implementing this part as amended by the Student Loan Reform Act of 1993 shall, to the extent practicable, be subject to negotiated rulemaking, including all such standards, cri- teria, procedures, and regulations promulgated from the date of enactment of such Act. (b) CLOSING DATE FOR APPLICATIONS FROM INSTITUTIONS.The Secretary shall establish a date not later than October 1, 1993, as the closing date for receiving applications from institutions of high- er education desiring to participate in the first year of the direct loan program under this part. (C) PUBLICATION OF LIST OF PARTICIPATING INSTITUTIONS.Not later than January 1, 1994, the Secretary shall publish in the Fed- eral Register a list of the institutions of higher education selected to participate in the first year of the direct loan program under this part. SEC. 458. [20 U.S.C. 1087h] FUNDS FOR ADMINISTRATIVE EXPENSES. (a) ADMINISTRATIVE EXPENSES. (1) IN GENERAL.Each fiscal year there shall be available to the Secretary, from funds not otherwise appropriated, funds to be obligated for (A) administrative costs under this part and part B, including the costs of the direct student loan programs under this part; and (B) account maintenance fees payable to guaranty agencies under part B and calculated in accordance with subsections (b) and (c), not to exceed (from such funds not otherwise appropriated) $617,000,000 in fiscal year 1999, $735,000,000 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. (2) ACCOUNT MAINTENANCE FEES.Account maintenance fees under paragraph (1)(B) shall be paid quarterly and depos- ited in the Agency Operating Fund established under section 422B. 319 HIGHER EDUCATION ACT OF 1965 Sec. 459 (3) CARRYOVER. The Secretary may carry over funds made available under this section to a subsequent fiscal year. (b) CALCULATION BASIS.Except as provided in subsection (c), account maintenance fees payable to guaranty agencies under paragraph (1)(B) shall be calculated (1) for fiscal years 1999 and 2000, on the basis of 0.12 per- cent of the original principal amount of outstanding loans on which insurance was issued under part B; and (2) for fiscal years 2001, 2002, and 2003, on the basis of 0.10 percent of the original principal amount of outstanding loans on which insurance was issued under part B. (C) SPECIAL RULES. (1) FEE CAP.The total amount of account maintenance fees payable under this section (A) for fiscal year 1999, shall not exceed $177,000,000; (B) for fiscal year 2000, shall not exceed $180,000,000; (C) for fiscal year 2001, shall not exceed $170,000,000; (D) for fiscal year 2002, shall not exceed $180,000,000; and (E) for fiscal year 2003, shall not exceed $195,000,000. (2) INSUFFICIENT FUNDING. (A) IN GENERAL.If the amounts set forth in para- graph (1) are insufficient to pay the account maintenance fees payable to guaranty agencies pursuant to subsection (b) for a fiscal year, the Secretary shall pay the insuffi- ciency by requiring guaranty agencies to transfer funds from the Federal Student Loan Reserve Funds under sec- tion 422A to the Agency Operating Funds under section 422B. (B) ENTITLEMENT.A guaranty agency shall be deemed to have a contractual right against the United States to receive payments according to the provisions of subparagraph (A). (d) BUDGET JUSTIFICATION.No funds may be expended under this section unless the Secretary includes in the Department of Education's annual budget justification to Congress a detailed de- scription of the specific activities for which the funds made avail- able by this section have been used in the prior and current years (if applicable), the activities and costs planned for the budget year, and the projection of activities and costs for each remaining year for which administrative expenses under this section are made available. SEC. 459. [20 U.S.C. 10871] AUTHORITY TO SELL LOANS. The Secretary, in consultation with the Secretary of the Treas- ury, 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 Government. Notwithstanding any other provision of law, the proceeds 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 determines appropriate to encour- age on-time repayment in accordance with section- 455(b)(7). Such reductions may be offered only if the Secretary determines the re- 3 2 7 Sec. 460 HIGHER EDUCATION ACT OF 1965 320 ductions are in the best financial interests of the Federal Govern- ment. SEC. 460. [20 U.S.C. 1087j] LOAN CANCELLATION FOR TEACHERS. (a) STATEMENT OF PURPOSE.It is the purpose of this section to encourage individuals to enter and continue in the teaching pro- fession. (b) PROGRAM AUTHORIZED. (1) IN GENERAL.The Secretary shall carry out a program of canceling the obligation to repay a qualified loan amount in accordance with subsection (c) for Federal Direct Stafford Loans and Federal Direct Unsubsidized Stafford Loans made under this part for any new borrower on or after October 1, 1998, who (A) has been employed as a full-time teacher for 5 con- secutive complete school years (i) in a school that qualifies under section 465(a)(2)(A) for loan cancellation for Perkins loan re- cipients who teach in such schools; (ii) if employed as a secondary school teacher, is teaching a subject area that is relevant to the borrow- er's academic major as certified by the chief adminis- trative officer of the public or non-profit private sec- ondary school in which the borrower is employed; and (iii) if employed as an elementary school teacher, has demonstrated, as certified by the chief administra- tive officer of the public or nonprofit private elemen- tary school in which the borrower is employed, knowl- edge and teaching skills in reading, writing, mathe- matics and other areas of the elementary school cur- riculum; and (B) is not in default on a loan for which the .borrower seeks forgiveness. (2) SPECIAL RULE.No borrower may obtain a reduction of loan obligations under both this section and section 428J. (C) QUALIFIED LOAN AMOUNTS. (1) IN GENERAL.The Secretary shall cancel not more than $5,000 in the aggregate of the loan obligation on a Federal Di- rect Stafford Loan or a Federal Direct Unsubsidized Stafford Loan that is outstanding after the completion of the fifth com- plete school year of teaching described in subsection (b)(1)(A). (2) TREATMENT OF CONSOLIDATION LOANS.A loan amount for a Federal Direct Consolidation Loan may be a qualified loan amount for the purposes of this subsection only to the ex- tent that such loan amount was used to repay a Federal Direct Stafford Loan, a Federal Direct Unsubsidized Stafford Loan, or a loan made under section 428 or 428H, for a borrower who meets the requirements of subsection (b), as determined in ac- cordance with regulations prescribed by the Secretary. (d) REGULATIONS.The Secretary is authorized to issue such regulations as may be necessary to carry out the provisions of this section. (e) CONSTRUCTION.Nothing in this section shall be construed to authorize any refunding of any canceled loan. 321 HIGHER EDUCATION ACT OF 1965 Sec. 461 (f) LIST.If the list of schools in which a teacher may perform service pursuant to subsection (b) 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 de- termination. (g) ADDITIONAL ELIGIBILITY PROVISIONS. (1) CONTINUED ELIGIBILITY.Any teacher who performs service in a school that (A) meets the requirements of subsection (b)(1)(A) in any year during such service; and (B) in a subsequent year fails to meet the require- ments of such subsection, may continue to teach in such school and shall be eligible for loan cancellation pursuant to subsection' (b).. (2) 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 Com- munity Service Act of 1990 (42 U.S.C. 12571 et seq.). (h) DEFINITION.For the purpose of this section, the term "year" where applied to service as a. teacher means an academic year as defined by the Secretary. PART EFEDERAL PERKINS LOANS SEC. 461. [20 U.S.C. 1087aa] APPROPRIATIONS AUTHORIZED. (a) PROGRAM AUTHORITY.The Secretary shall carry out a pro- gram of stimulating and assisting in the establishment and mainte- nance of funds at institutions of higher education for the making of low-interest loans to students in need thereof to pursue their courses of study in such institutions or while engaged in programs of study abroad approved for credit by such institutions. Loans made under this part shall be known as "Federal Perkins Loans". (b) AUTHORIZATION OF APPROPRIATIONS.(1) For the purpose of enabling the Secretary to make contributions to student loan funds established under this part, there are authorized to be appro- priated $250,000,000 for fiscal year 1999 and such sums as may be necessary for each of the 4 succeeding fiscal years. (2) In addition to the funds authorized under paragraph (1), there are hereby authorized to be appropriated such sums for fiscal year 2003 and each of the 5 succeeding fiscal years as may be nec- essary to enable students who have received loans for academic years ending prior to October 1, 2003, to continue or complete courses of study. (c) USE OF APPROPRIATIONS.Any sums appropriated pursuant to subsection (b) for any fiscal year shall be available for apportion- ment pursuant to section 462 and for payments of Federal capital contributions therefrom to institutions of higher education which have agreements with the Secretary under section 463. Such Fed- eral capital contributions and all contributions from such institu- tions shall be used for the establishment, expansion, and mainte- nance of student loan funds. SEC. 462. [20 U.S.C. 1087bb] ALLOCATION OF FUNDS. (a) ALLOCATION BASED ON PREVIOUS ALLOCATION.(1) From the amount appropriated pursuant to section 461(b) for each fiscal Sec. 462 HIGHER EDUCATION ACT OF 1965 322 year, the Secretary shall first allocate to each eligible institution an amount equal to (A) 100 percent of the amount received under subsections (a) and (b) of this section for fiscal year 1999 (as such sub- sections were in effect with respect to allocations for such fiscal year)', multiplied by (B) the institution's default penalty, as determined under subsection (e), except that if the institution has a cohort default rate in excess of the applicable maximum cohort default rate under subsection (f), the institution may not receive an allocation under this paragraph. (2)(A) From the amount so appropriated, the Secretary shall next allocate to each eligible institution that began participation in the program under this part after fiscal year 1999 but is not a first or second time participant, an amount equal to the greater of (i) $5,000; or (ii) 100 percent of the amount received and expended under this part for the first year it participated in the pro- gram. (B) From the amount so appropriated, the Secretary shall next allocate to each eligible institution that began participation in the program under this part after fiscal year 1999 and is a first or sec- ond time participant, an amount equal to the greatest of (i) $5,000; (ii) an amount equal to (I) 90 percent of the amount re- ceived and used under this part in the second preceding fiscal year by eligible institutions offering comparable programs of instruction, divided by (II) the number of students enrolled at such comparable institutions in such fiscal year, multiplied by (III) the number of students enrolled at the applicant institu- tion in such fiscal year; or (iii) 90 percent of the institution's allocation under this part for the preceding fiscal year. (C) Notwithstanding subparagraphs (A) and (B) of this para- graph, the Secretary shall allocate to each eligible institution which (i) was a first-time participant in the program in fiscal year 2000 or any subsequent fiscal year, and (ii) received a larger amount under this subsection in the second year of participation, an amount equal to 90 percent of the amount it received under this subsection in its second year of participation. (D) For any fiscal year after a fiscal year in which an institu- tion receives an allocation under subparagraph (A), (B), or (C), the Secretary shall allocate to such institution an amount equal to the product of (i) the amount determined under subparagraph (A), (B), or (C), multiplied by 'Section 462(aX1)(A) of P.L. 105-244 (112 Stat. 1720) amended this subparagraph by striking "the amount of the Federal capital contribution allocated to such institution under this part for fiscal year 1985" and inserting "the amount received under" through "fiscal year)'. The amend- ment was executed to reflect the probable intent of Congress even though the italized "the" was not in law. 3 9 323 HIGHER EDUCATION ACT OF 1965 Sec. 462 (ii) the institution's default penalty, as determined under subsection (e), except that if the institution has a cohort default rate in excess of the applicable maximum cohort default rate under subsection (f), the institution may not receive an allocation under this paragraph. (3)(A) If the amount appropriated for any fiscal year is less than the amount required to be allocated to all institutions under paragraph (1) of this subsection, then the amount of the allocation to each such institution shall be ratably reduced. (B) If the amount appropriated for any fiscal year is more than the amount required to be allocated to all institutions under para- graph (1) but less than the amount required to be allocated to all institutions under paragraph (2), then (i) the Secretary shall allot the amount required to be allo- cated to all institutions under paragraph (1), and (ii) the amount of the allocation to each institution under paragraph (2) shall be ratably reduced. (C) If additional amounts are appropriated for any such fiscal year, such reduced amounts shall be increased on the same basis as they were reduced (until the amount allocated equals the amount required to be allocated under paragraphs (1) and (2) of this subsection). (b) ALLOCATION OF EXCESS BASED ON SHARE OF EXCESS ELIGI- BLE AMOUNTS.-(1) From the remainder of the amount appro- priated pursuant to section 461(b) after making the allocations re- quired by subsection (a) of this section, the Secretary shall allocate to each eligible institution which has an excess eligible amount an amount which bears the same ratio to such remainder as such ex- cess eligible amount bears to the sum of the excess eligible amounts of all such eligible institutions (having such excess eligible amounts). (2) For any eligible institution, the excess eligible amount is the amount, if any, by which (A)(i) that institution's eligible amount (as determined under paragraph (3)), divided by (ii) the sum of the eligible amounts of all institutions (as so determined), multiplied by (iii) the amount appropriated pursuant to section 461(b) for the fiscal year; exceeds (B) the amount required to be allocated to that institution under subsection (a), except that an eligible institution which has a cohort default rate in excess of the applicable maximum cohort default rate under sub- section (f) may not receive an allocation under this paragraph. (3) For any eligible institution, the eligible amount of that in- stitution is equal to (A) the amount of the institution's self-help need, as deter- mined under subsection (c); minus (B) the institution's anticipated collections; multiplied by (C) the institution's default penalty, as determined under subsection (e); except that, if the institution has a cohort default rate in excess of the applicable maximum cohort default rate under subsection (0, the eligible amount of that institution is zero. 3 3 1 Sec. 462 HIGHER EDUCATION ACT OF 1965 324 (C) DETERMINATION OF INSTITUTION'S SELF-HELP NEED.-(1) The amount of an institution's self-help need is equal to the sum of the self-help need of the institution's eligible undergraduate stu- dents and the self-help need of the institution's eligible graduate and professional students. (2) To determine the self-help need of an institution's eligible undergraduate students, the Secretary shall (A) establish various income categories for dependent and independent undergraduate students; (B) establish an expected family contribution for each in- come category of dependent and independent undergraduate students, determined on the basis of the average expected fam- ily contribution (computed in accordance with part F of this title) of a representative sample within each income category for the second preceding fiscal year; (C) compute 25 percent of the average cost of attendance for all undergraduate students; (D) multiply the number of eligible dependent students in each income category by the lesser of (i) 25 percent of the average cost of attendance for all undergraduate students determined under subparagraph (C); or (ii) the average cost of attendance for all undergradu- ate students minus the expected family contribution deter- mined under subparagraph (B) for that income category, except that the amount computed by such subtraction shall not be less than zero; (E) add the amounts determined under subparagraph (D) for each income category of dependent students; (F) multiply the number of eligible independent students in each income category by the lesser of (i) 25 percent of the average cost of attendance for all undergraduate students determined under subparagraph (C); or (ii) the average cost of attendance for all undergradu- ate students minus the expected family contribution deter- mined under subparagraph (B) for that income category, except that the amount computed by such subtraction for any income category shall not be less than zero; (G) add the amounts determined under subparagraph (F) for each income category of independent students; and (H) add the amounts determined under subparagraphs (E) and (G). (3) To determine the self-help need of an institution's eligible graduate and professional students, the Secretary shall (A) establish various income categories for graduate and professional students; (B) establish an expected family contribution for each in- come category of graduate and professional students, deter- mined on the basis of the average expected family contribution (computed in accordance with part F of this title) of a rep- resentative sample within each income category for the second preceding fiscal year; 332 325 HIGHER EDUCATION ACT OF 1965 Sec. 462 (C) determine the average cost of attendance for all grad- uate and professional students; (D) subtract from the average cost of attendance for all graduate and professional students (determined under sub- paragraph (C)), the expected family contribution (determined under subparagraph (B)) for each income category, except that the amount computed by such subtraction for any income cat- egory shall not be less than zero; (E) multiply the amounts determined under subparagraph (D) by the number of eligible students in each category; (F) add the amounts determined under subparagraph (E) for each income category. (4)(A) For purposes of paragraphs (2) and (3), the term "aver- age cost of attendance" means the average of the attendance costs for undergraduate students and for graduate and professional stu- dents, which shall include (i) tuition and fees determined in accord- ance with subparagraph (B), (ii) standard living expenses deter- mined in accordance with subparagraph (C), and (iii) books and supplies determined in accordance with subparagraph (D). (B) The average undergraduate and graduate and professional tuition and fees described in subparagraph (A)(i) shall be computed on the basis of information reported by the institution to the Sec- retary, which shall include (i) total revenue received by the institu- tion from undergraduate and graduate tuition and fees for the sec- ond year preceding the year for which it is applying for an alloca- tion, and (ii) the institution's enrollment for such second preceding year. (C) The standard living expense described in subparagraph (A)(ii) is equal to 150 percent of the difference between the income protection allowance for a family of five with one in college and the income protection allowance for a family of six with one in college for a single independent student. (D) The allowance for books and supplies described in subpara- graph (A)(iii) is equal to $450. (d) ANTICIPATED COLLECTIONS.(1) An institution's anticipated collections are equal to the amount which was collected during the second year preceding the beginning of the award period, multi- plied by 1.21. (2) The Secretary shall establish an appeals process by which the anticipated collections required in paragraph (1) may be waived for institutions with low cohort default rates in the program as- sisted under this part. (e) DEFAULT PENALTIES. (1) YEARS PRECEDING FISCAL YEAR 2000.For any fiscal year preceding fiscal year 2000, any institution with a cohort default rate that (A) equals or exceeds 15 percent, shall establish a de- fault reduction plan pursuant to regulations prescribed by the Secretary, except that such plan shall not be required with respect to an institution that has a default rate of less than 20 percent and that has less than 100 students who have loans under this part in such academic year; (B) equals or exceeds 20 percent, but is less than 25 percent, shall have a default penalty of 0.9; 3 Sec. 462 HIGHER EDUCATION ACT OF 1965 326 (C) equals or exceeds 25 percent, but is less than 30 percent, shall have a default penalty of 0.7; and (D) equals or exceeds 30 percent shall have a default penalty of zero. (2) YEARS FOLLOWING FISCAL YEAR 2000.For fiscal year 2000 and any succeeding fiscal year, any institution with a co- hort default rate (as defined under subsection (g)) that equals or exceeds 25 percent shall have a default penalty of zero. (3) INELIGIBILITY. (A) IN GENERAL.For fiscal year 2000 and any suc- ceeding fiscal year, any institution with a cohort default rate (as defined in subsection (g)) that equals or exceeds 50 percent for each of the 3 most recent years for which data are available shall not be eligible to participate in a program under this part for the fiscal year for which the determination is made and the 2 succeeding fiscal years, unless, within 30 days of receiving notification from the Secretary of the loss of eligibility under this paragraph, the institution appeals the loss of eligibility to the Sec- retary. The Secretary shall issue a decision on any such appeal within 45 days after the submission of the appeal. Such decision may permit the institution to continue to participate in a program under this part if (i) the institution demonstrates to the satisfaction of the Secretary that the calculation of the institu- tion's cohort default rate is not accurate, and that re- calculation would reduce the institution's cohort de- fault rate for any of the 3 fiscal years below 50 per- cent; or (ii) there are, in the judgment of the Secretary, such a small number of borrowers entering repayment that the application of this subparagraph would be in- equitable. (B) CONTINUED PARTICIPATION.During an appeal under subparagraph (A), the Secretary may permit the in- stitution to continue to participate in a program under this part. (C) RETURN OF FUNDS.Within 90 days after the date of any termination pursuant to subparagraph (A), or the conclusion of any appeal pursuant to subparagraph (B), whichever is later, the balance of the student loan fund es- tablished under this part by the institution that is the sub- ject of the termination shall be distributed as follows: (i) The Secretary shall first be paid an amount which bears the same ratio to such balance (as of the date of such distribution) as the total amount of Fed- eral capital contributions to such fund by the Sec- retary under this part bears to the sum of such Fed- eral capital contributions and the capital contributions to such fund made by the institution. (ii) The remainder of such student loan fund shall be paid to the institution. 327 HIGHER EDUCATION ACT OF 1965 Sec. 462 (D) USE OF RETURNED FUNDS. Any funds returned to the Secretary under this paragraph shall be reallocated to institutions of higher education pursuant to subsection (i). (E) DEFINITION.For the purposes of subparagraph (A), the term "loss of eligibility" shall be defined as the mandatory liquidation of an institution's student loan fund, and assignment of the institution's outstanding loan portfolio to the Secretary. (f) APPLICABLE MAXIMUM COHORT DEFAULT RATE. (1) AWARD YEARS PRIOR TO 2000.For award years prior to award year 2000, the applicable maximum cohort default rate is 30 percent. (2) AWARD YEAR 2000 AND SUCCEEDING AWARD YEARS.For award year 2000 and subsequent years, the applicable maxi- mum cohort default rate is 25 percent. (g) DEFINITION OF COHORT DEFAULT RATE. (1)(A) The term "cohort default rate" means, for any award year in which 30 or more current and former students at the institution enter repayment on loans under this part (received for attendance at the institution), the percentage of those cur- rent and former students who enter repayment on such loans (received for attendance at that institution) in that award year who default before the end of the following award year. (B) For any award year in which less than 30 of the insti- tution's current and former students enter repayment, the term "cohort default rate" means the percentage of such cur- rent and former students who entered repayment on such loans in any of the three most recent award years and who de- fault before the end of the award year immediately following the year in which they entered repayment. (C) A loan on which a payment is made by the institution of higher education, its owner, agency, contractor, employee, or any other entity or individual affiliated with such institution, in order to avoid default by the borrower, is considered as in default for the purposes of this subsection. (D) In the case of a student who has attended and bor- rowed at more than one school, the student (and his or her subsequent repayment or default) is attributed to the school for attendance at which the student received the loan that entered repayment in the award year. (E) In determining the number of students who default be- fore the end of such award year, the institution, in calculating the cohort default rate, shall exclude (i) any loan on which the borrower has, after the time periods specified in paragraph (2) (I) voluntarily made 6 consecutive payments; (II) voluntarily made all .payments currently due; (III) repaid in full the amount due on the loan; or (IV) received a deferment or forbearance, based on a condition that began prior to such time periods; (ii) any loan which has, after the time periods speci- fied in paragraph (2), been rehabilitated or canceled; and 335 Sec. 462 HIGHER EDUCATION ACT OF 1965 328 (iii) any other loan that the Secretary determines should be excluded from such determination. (F) The Secretary shall prescribe regulations designed to prevent an institution from evading the application to that in- stitution of a cohort default rate determination under this sub- section through the use of such measures as branching, con- solidation, change of ownership or control or other means as determined by the Secretary. (2) For purposes of calculating the cohort default rate under this subsection, a loan shall be considered to be in default (A) 240 days (in the case of a loan repayable monthly), or (B) 270 days (in the case of a loan repayable quar- terly), after the borrower fails to make an installment payment when due or to comply with other terms of the promissory note. (h) FILING DEADLINES.The Secretary shall, from time to time, set dates before which institutions must file applications for alloca- tions under this part. (i) REALLOCATION OF EXCESS ALLOCATIONS. (1) IN GENERAL.(A) If an institution of higher education returns to the Secretary any portion of the sums allocated to such institution under this section for any fiscal year, the Sec- retary shall reallocate 80 percent of such returned portions to participating institutions in an amount not to exceed such par- ticipating institution's excess eligible amounts as determined under paragraph (2). (B) For the purpose of this subsection, the term "partici- pating institution" means an institution of higher education that (i) was a participant in the program assisted under this part in fiscal year 1999; and (ii) did not receive an allocation under subsection (a) in the fiscal year for which the reallocation determination is made. (2) EXCESS ELIGIBLE AMOUNT.For any participating insti- tution, the excess eligible amount is the amount, if any, by which (A)(i) that institution's eligible amount (as determined under subsection (b)(3)), divided by (ii) the sum of the eli- gible amounts of all participating institutions (as deter- mined under paragraph (3)), multiplied by (iii) the amount of funds available for reallocation under this subsection; exceeds (B) the amount required to be allocated to that institu- tion under subsection (b). (3) REMAINDER.The Secretary shall reallocate the re- mainder of such returned portions in accordance with regula- tions of the Secretary. (4) ALLOCATION REDUCTIONS.If under paragraph (1) of this subsection an institution returns more than 10 percent of its allocation, the institution's allocation for the next fiscal year shall be reduced by the amount returned. The Secretary may 329 HIGHER EDUCATION ACT OF 1965 Sec. 463 waive this paragraph for a specific institution if the Secretary finds that enforcing it is contrary to the interest of the pro- gram. SEC. 463. [20 U.S.C. 1087cc] AGREEMENTS WITH INSTITUTIONS OF HIGHER EDUCATION. (a) CONTENTS OF AGREEMENTS.An agreement with any insti- tution of higher education for the payment of Federal capital con- tributions under this part shall (1) provide for the establishment and maintenance of a student loan fund for the purpose of this part; (2) provide for the deposit in such fund of (A) Federal capital contributions from funds appro- priated under section 461; (B) a capital contribution by an institution in an amount equal to one-third of the Federal capital contribu- tions described in subparagraph (A); (C) collections of principal and interest on student loans made from deposited funds; (D) charges collected pursuant to regulations under section 464(c)(1)(H); and (E) any other earnings of the funds; (3) provide that such student loan fund shall be used only for (A) loans to students, in accordance with the provi- sions of this part; (B) administrative expenses, as provided in subsection (b); (C) capital distributions, as provided in section 466; and (D) costs of litigation, and other collection costs agreed to by the Secretary in connection with the collection of a loan from the fund (and interest thereon) or a charge as- sessed pursuant to regulations under section 464(c)(1)(H); (4) provide that where a note or written agreement evi- dencing a loan has been in default despite due diligence on the part of the institution in attempting collection thereon (A) if the institution has knowingly failed to maintain an acceptable collection record with respect to such loan, as determined by the Secretary in accordance with criteria established by regulation, the Secretary may (i) require the institution to assign such note or agreement to the Secretary, without recompense; and (ii) apportion any sums collected on such a loan, less an amount not to exceed 30 percent of any sums collected to cover the Secretary's collection costs, among other institutions in accordance with section 462; or (B) if the institution is not one described in subpara- graph (A), the Secretary may (i) allow such institution to transfer its interest in such loan to the Secretary, for collection, and the Sec- retary may use any collections thereon (less an amount not to exceed 30 percent of any such sums col- _ 337 Sec. 463 HIGHER EDUCATION ACT OF. 1965 330 lected to cover the Secretary's collection costs) to make allocations to institutions of additional capital con- tributions in accordance with section 462; or (ii) allow such institution to refer such note or agreement to the Secretary, without recompense, ex- cept that any sums collected on such a loan (less an amount not to exceed 30 percent of any such sums col- lected to cover the Secretary's collection costs) shall be repaid to such institution no later than 180 days after collection by the Secretary and treated as an addi- tional capital contribution; (5) provide that, if an institution of higher education deter- mines not to service and collect student loans made available from funds under this part, the institution will assign, at the beginning of the repayment period, notes or evidence of obliga- tions of student loans made from such funds to the Secretary and the Secretary shall apportion any sums collected on such notes or obligations (less an amount not to exceed 30 percent of any such sums collected to cover that Secretary's collection costs) among other institutions in accordance with section 462; (6) provide that, notwithstanding any other provision of law, the Secretary will provide to the institution any informa- tion with respect to the names and addresses of borrowers or other relevant information which is available to the Secretary, from whatever source such information may be derived; (7) provide assurances that the institution will comply with the provisions of section 463A; (8) provide that the institution of higher education will make loans first to students with exceptional need; and (9) include such other reasonable provisions as may be nec- essary to protect the United States from unreasonable risk of loss and as are agreed to by the Secretary and the institution. (b) ADMINISTRATIVE EXPENSES.An institution which has en- tered into an agreement under subsection (a) shall be entitled, for each fiscal year during which it makes student loans from a stu- dent loan fund established under such agreement, to a payment in lieu of reimbursement for its expenses in administering its student loan program under this part during such year. Such payment shall be made in accordance with section 489. (C) COOPERATIVE AGREEMENTS WITH CREDIT BUREAU ORGANI- ZATIONS.(1) For the purpose of promoting responsible repayment of loans made pursuant to this part,. the Secretary and each insti- tution of higher education participating in the program under this part shall enter into cooperative agreements with credit bureau or- ganizations to provide for the exchange of information concerning student borrowers concerning whom the Secretary has received a referral pursuant to section 467 and regarding loans held by the Secretary or an institution. (2) Each cooperative agreement made pursuant to paragraph (1) shall be made in accordance with the requirements of section 430A except that such agreement shall provide for the disclosure by the Secretary or an institution, as the case may be, to such or- ganizations, with respect to any loan held by the Secretary or the institution, respectively, of- 338 331 HIGHER EDUCATION ACT OF 1965 Sec. 463 (A)1 the date of disbursement and the amount of such loans made to any borrower under this part at the time of disbursement of the loan; (B) information concerning the repayment and2 collection of any such loan, including information concerning the repay- ment and 2 the status of such loan; and (C) the date of cancellation of the note upon completion of repayment by the borrower of any such loan, or upon cancella- tion or discharge of the borrower's obligation on the loan for any reason. (3) Notwithstanding paragraphs (4) and (6) of subsection (a) of section 605 of the Fair Credit Reporting Act (15 U.S.C. 1681c (a)(4), (a)(6)), a consumer reporting agency may make a report containing information received from the Secretary or an institution regarding the status of a borrower's account on a loan made under this part until the loan is paid in full. (4)(A) Except as provided in subparagraph (B), an institution of higher education, after consultation with the Secretary and pur- suant to the agreements entered into under paragraph (1), shall disclose at least annually to any credit bureau organization with which the Secretary has such an agreement the information set forth in paragraph (2), and shall disclose promptly to such credit bureau organization any changes to the information previously dis- closed. (B) The Secretary may promulgate regulations establishing cri- teria under which an institution of higher education may cease re- porting the information described in paragraph (2) before a loan is paid in full. (5) Each institution of higher education shall notify the appro- priate credit bureau organizations whenever a borrower of a loan that is made and held by the institution and that is in default makes 6 consecutive monthly payments on such loan, for the pur- pose of encouraging such organizations to update the status of in- formation maintained with respect to that borrower. (d) LIMITATION ON USE OF INTEREST BEARING ACCOUNTS.In carrying out the provisions of subsection (a)(9), the Secretary may not require that any collection agency, collection attorney, or loan servicer collecting loans made under this part deposit amounts col- lected on such loans in interest bearing accounts, unless such agen- cy, attorney, or servicer holds such amounts for more than 45 days. (e) SPECIAL DUE DILIGENCE RULE.In carrying out the provi- sions of subsection (a)(5) relating to due diligence, the Secretary shall make every effort to ensure that institutions of higher edu- cation may use Internal Revenue Service skip-tracing collection procedures on loans made under this part. SEC. 463A. [20 U.S.C. 1087cc-1] STUDENT LOAN INFORMATION BY ELIGIBLE INSTITUTIONS. (a) DISCLOSURE REQUIRED PRIOR TO DISBURSEMENT.Each in- stitution of higher education, in order to carry out the provisions Margin so in law. 2 Section 463(b)(2)(C)(i) of the Higher Education Amendments of 1998 (P.L. 105-244) amended this subparagraph by inserting "the repayment and" after "concerning". The amendatory in- structions did not state which occurrence of "concerning" and therefore was executed both places it appears. 333 Sec. 463A HIGHER EDUCATION ACT OF 1965 332 of section 463(a)(8), shall, at or prior to the time such institution makes a loan to a student borrower which is made under this part, provide thorough and adequate loan information on such loan to the student borrower. Any disclosure required by this subsection may be made by an institution of higher education as part of the written application material provided to the borrower, or as part of the promissory note evidencing the loan, or on a separate written form provided to the borrower. The disclosures shall include (1) the name of the institution of higher education, and the address to which communications and payments should be sent; (2) the principal amount of the loan; (3) the amount of any charges collected by the institution at or prior to the disbursal of the loan and whether such charges are deducted from the proceeds of the loan or paid sep- arately by the borrower; (4) the stated interest rate on the loan; (5) the yearly and cumulative maximum amounts that may be borrowed; (6) an explanation of when repayment of the loan will be required and when the borrower will be obligated to pay inter- est that accrues on the loan; (7) a statement as to the minimum and maximum repay- ment term which the institution may impose, and the mini- mum monthly payment required by law and a description of any penalty imposed as a consequence of default, such as li- ability for expenses reasonably incurred in attempts by the Secretary or institutions to collect on a loan; (8) a statement of the total cumulative balance, including the loan applied for, owed by the student to that lender, and an estimate of the projected monthly payment, given such cu- mulative balance; (9) an explanation of any special options the borrower may have for loan consolidation or other refinancing of the loan; (10) a statement that the borrower has the right to prepay all or part of the loan, at any time, without penalty, a state- ment summarizing circumstances in which repayment of the loan or interest that accrues on the loan may be deferred, and a brief notice of the program for repayment of loans, on the basis of military service, pursuant to the Department of De- fense educational loan repayment program (10 U.S.C. 16302); (11) a definition of default and the consequences to the borrower if the borrower defaults, together with a statement that the disbursement of, and the default on, a loan under this part, shall be reported to a credit bureau or credit reporting agency; (12) to the extent practicable, the effect of accepting the loan on the eligibility of the borrower for other forms of stu- dent assistance; and (13) an explanation of any cost the borrower may incur in the making or collection of the loan. (b) DISCLOSURE REQUIRED. PRIOR TO REPAYMENT.Each insti- tution of higher education shall enter into an agreement with the Secretary under which the institution will, prior to the start of the 34 333 HIGHER EDUCATION ACT OF 1965 Sec. 464 repayment period of the student borrower on loans made under this part, disclose to the student borrower the information required under this subsection. Any disclosure required by this subsection may be made by an institution of higher education either in a promissory note evidencing the loan or loans or in a written state- ment provided to the borrower. The disclosures shall include (1) the name of the institution of higher education, and the address to which communications and payments should be sent; (2) the scheduled date upon which the repayment period is to begin; (3) the estimated balance owed by the borrower on the loan or loans covered by the disclosure as of the scheduled date on which the repayment period is to begin (including, if appli- cable, the estimated amount of interest to be capitalized); (4) the stated interest rate on the loan or loans, or the combined interest rate of loans with different stated interest rates; (5) the nature of any fees which may accrue or be charged to the borrower during the repayment period; (6) the repayment schedule for all loans covered by the dis- closure including the date the first installment is due, and the number, amount, and frequency of required payments; (7) an explanation of any special options the borrower may have for loan consolidation or other refinancing of the loan; (8) the projected total of interest charges which the bor- rower will pay on the loan or loans, assuming that the bor- rower makes payments exactly in accordance with the repay- ment schedule; and (9) a statement that the borrower has the right to prepay all or part of the loan or loans covered by the disclosure at any time without penalty. (c) COSTS AND EFFECTS OF DISCLOSURES.Such information shall be available without cost to the borrower. The failure of an eligible institution to provide information as required by this sec- tion shall not (1) relieve a borrower of the obligation to repay a loan in accordance with its terms, (2) provide a basis for a claim for civil damages, or (3) be deemed to abrogate the obligation of the Secretary to make payments with respect to such loan. SEC. 464. [20 U.S.C. 1087dd] TERMS OF LOANS. (a) TERMS AND CONDITIONS.(1) Loans from any student loan fund established pursuant to an agreement under section 463 to any student by any institution shall, subject to such conditions, limitations, and requirements as the Secretary shall prescribe by regulation, be made on such terms and conditions as the institution may determine. (2)(A) Except as provided in paragraph (4), the total of loans made to a student in any academic year or its equivalent by an in- stitution of higher education from a loan fund established pursuant to an agreement under this part shall not exceed (i) $4,000, in the case of a student who has not successfully completed a program of undergraduate education; or 34 J. Sec. 464 HIGHER EDUCATION ACT OF 1965 334 (ii) $6,000, in the case of a graduate or professional stu- dent (as defined in regulations issued by the Secretary). (B) Except as provided in paragraph (4), the aggregate unpaid principal amount for all loans made to a student by institutions of higher education from loan funds established pursuant to agree- ments under this part may not exceed (i) $40,000, in the case of any graduate or professional stu- dent (as defined by regulations issued by the Secretary, and in- cluding any loans from such funds made to such person before such person became a graduate or professional student); (ii) $20,000, in the case of a student who has successfully completed 2 years of a program of education leading to a bach- elor's degree but who has not completed the work necessary for such a degree (determined under regulations issued by the Sec- retary), and including any loans from such funds made to such person before such person became such a student; and (iii) $8,000, in the case of any other student. (3) Regulations of the Secretary under paragraph (1) shall be designed to prevent the impairment of the capital student loan funds to the maximum extent practicable and with a view toward the objective of enabling the student to complete his course of study. (4) In the case of a program of study abroad that is approved for credit by the home institution at which a student is enrolled and that has reasonable costs in excess of the home institution's budget, the annual and aggregate loan limits for the student may exceed the amounts described in paragraphs (2)(A) and (2)(B) by 20 percent. (b) DEMONSTRATION OF NEED AND ELIGIBILITY REQUIRED.-(1) A loan from a student loan fund assisted under this part may be made only to a student who demonstrates financial need in accord- ance with part F of this title, who meets the requirements of sec- tion 484, and who provides the institution with the student's driv- ers license number, if any, at the time of application for the loan. A student who is in default on a loan under this part shall not be eligible for an additional loan under this part unless such loan meets one of the conditions for exclusion under section 462(g)(1)(E). (2) If the institution's capital contribution under section 462 is directly or indirectly based in part on the financial need dem- onstrated by students who are (A) attending the institution less than full time, or (B) independent students, then a reasonable por- tion of the loans made from the institution's student loan fund con- taining the contribution shall be made available to such students. (c) CONTENTS OF LOAN AGREEMENT.-(1) Any agreement be- tween an institution and a student for a loan from a student loan fund assisted under this part (A) shall be evidenced by note or other written instrument which, except as provided in paragraph (2), provides for repay- ment of the principal amount of the loan, together with inter- est thereon, in equal installments (or, if the borrower so re- quests, in graduated periodic installments determined in ac- cordance with such schedules as may be approved by the Sec- retary) payable quarterly, bimonthly, or monthly, at the option of the institution, over a period beginning nine months after 335 HIGHER EDUCATION ACT OF 1965 Sec. 464 the date on which the student ceases to carry, at an institution of higher education or a comparable institution outside the United States approved for this purpose by the Secretary, at least one-half the normal full-time academic workload, and ending 10 years and 9 months after such date except that such period may begin earlier than 9 months after such date upon the request of the borrower; (B) shall include provision for acceleration of repayment of the whole, or any part, of such loan, at the option of the bor- rower; (C)(i) may provide, at the option of the institution, in ac- cordance with regulations of the Secretary, that during the re- payment period of the loan, payments of principal and interest by the borrower with respect to all outstanding loans made to the student from a student loan fund assisted under this part shall be at a rate equal to not less than $40 per month, except that the institution may, subject to such regulations, permit a borrower to pay less than $40 per month for a period of not more than one year where necessary to avoid hardship to the borrower, but without extending the 10-year maximum repay- ment period provided for in subparagraph (A) of this para- graph; and (ii) may provide that the total payments by a borrower for a monthly or similar payment period with respect to the aggre- gate of all loans held by the institution may, when the amount of a monthly or other similar payment is not a multiple of $5, be rounded to the next highest whole dollar amount that is a multiple of $5; (D) shall provide that the loan shall bear interest, on the unpaid balance of the, loan, at the rate of 5 percent per year in the case of any loan made on or after October 1, 1981, ex- cept that no interest shall accrue (I)' prior to the beginning date of repayment determined under paragraph (2)(A)(i), or (II)1 during any period in which repayment is suspended by reason of paragraph (2); (E) shall provide that the loan shall be made without secu- rity and without endorsement; (F) shall provide that the liability to repay the loan shall be canceled upon the death of the borrower, or if he becomes permanently and totally disabled as determined in accordance with regulations of the Secretary; (G) shall provide that no note or evidence of obligation may be assigned by the lender, except upon the transfer of the borrower to another institution participating under this part (or, if not so participating, is eligible to do so and is approved by the Secretary for such purpose), to such institution, and ex- cept as necessary to carry out section 463(a)(6); (H) pursuant to regulations of the Secretary, shall provide for an assessment of a charge with respect to the loan for fail- ure of the borrower to pay all or part of an installment when due, which shall include the expenses reasonably incurred in attempting collection of the loan, to the extent permitted by 150 in law (112 Stat. 1726). Probably should be redesignated as clauses (i) and (ii). 343 Sec. 464 HIGHER EDUCATION ACT OF 1965 336 the Secretary, except that no charge imposed under this sub- paragraph shall exceed 20 percent of the amount of the month- ly payment of the borrower; and (I) shall contain a notice of the system of disclosure of in- formation_ concerning default on such loan to credit bureau or- ganizations under section 463(c). (2)(A) No repayment of principal of, or interest on, any loan from a student loan fund assisted under this part shall be required during any period (i) during which the borrower (I) is pursuing at least a half-time course of study as determined by an eligible institution; or (II) is pursuing a course of study pursuant to a grad- uate fellowship program approved by the Secretary, or pursuant to a rehabilitation training program for disabled individuals approved by the Secretary, except that no borrower shall be eligible for a deferment under this clause, or loan made under this part while serving in a medical internship or residency program; (ii) not in excess of 3 years during which the borrower is seeking and unable to find full-time employment; (iii) not in excess of 3 years for any reason which the lend- er determines, in accordance with regulations prescribed by the Secretary under section 435(o), has caused or will cause the borrower to have an economic hardship; or (iv) during which the borrower is engaged in service de- scribed in section 465(a)(2); and provides that any such period shall not be included in deter- mining the 10-year period described in subparagraph (A) of para- graph (1). (B) No repayment of principal of, or interest on, any loan for any period described in subparagraph (A) shall begin until 6 months after the completion of such period. (C) An individual with an outstanding loan balance who meets the eligibility criteria for a deferment described in subparagraph (A) as in effect on the date of enactment of this subparagraph shall be eligible for deferment under this paragraph notwithstanding any contrary provision of the promissory note under which the loan or loans were made, and notwithstanding any amendment (or effec- tive date provision relating to any amendment) to this section made prior to the date of such deferment. (3)(A) The Secretary is authorized, when good cause is shown, to extend, in accordance with regulations, the 10-year maximum re- payment period provided for in subparagraph (A) of paragraph (1) with respect to individual loans. (B) Pursuant to uniform criteria established by the Secretary, the repayment period for any student borrower who during the re- payment period is a low-income individual may be extended for a period not to exceed 10 years and the repayment schedule may be adjusted to reflect the income of that individual. (4) The repayment period for a loan made under this part shall begin on the day immediately following the expiration of the pe- riod, specified in paragraph (1)(A), after the student ceases to carry the required academic workload, unless the borrower requests and 331 HIGHER EDUCATION ACT OF 1965 Sec. 464 is granted a repayment schedule that provides for repayment to commence at an earlier point in time, and shall exclude any period of authorized deferment, forbearance, or cancellation. (5) The institution may elect (A) to add the amount of any charge imposed under para- graph (1)(H) to the principal amount of the loan as of the first day after the day on which the installment was due and to no- tify the borrower of the assessment of the charge; or (B) to make the amount of the charge payable to the insti- tution not later than the due date of the next installment. (6) Requests for deferment of repayment of loans under this part by students engaged in graduate or post-graduate fellowship- supported study (such as pursuant to a Fulbright grant) outside the United States shall be approved until completion of the period of the fellowship. (7) There shall be excluded from the 9-month period that be- gins on the date on which a student ceases to carry at least one- half the normal full-time academic workload (as described in para- graph (1)(A)) any period not to exceed 3 years during which a bor- rower who is a member of a reserve component of the Armed Forces named in section 10101 of title 10, United States Code, is called or ordered to active duty for a period of more than 30 days (as defined in section 101(d)(2) of such title). Such period of exclu- sion shall include the period necessary to resume enrollment at the borrower's next available regular enrollment period. (d) AVAILABILITY OF LOAN FUND TO ALL ELIGIBLE STUDENTS. An agreement under this part for payment of Federal capital con- tributions shall include provisions designed to make loans from the student loan fund established pursuant to such agreement reason- ably available (to the extent of the available funds in such fund) to all eligible students in such institutions in need thereof. (e) FORBEARANCE.The Secretary shall ensure that, upon writ- ten request, an institution of higher education shall grant a bor- rower forbearance of principal and interest or principal only, re- newable at 12-month intervals for a period not to exceed 3 years, on such terms as are otherwise consistent with the regulations issued by the Secretary and agreed upon in writing by the parties to the loan, if (1) the borrower's debt burden equals or exceeds 20 per- cent of such borrower's gross income; or (2) the institution determines that the borrower should qualify for forbearance for other reasons. (0 SPECIAL REPAYMENT RULE AUTHORITY.(1) Subject to such restrictions as the Secretary may prescribe to protect the interest of the United States, in order to encourage repayment of loans made under this part which are in default, the Secretary may, in the agreement entered into under this part, authorize an institu- tion of higher education to compromise on the repayment of such defaulted loans in accordance with paragraph (2). The Federal share of the compromise repayment shall bear the same relation to the institution's share of such compromise repayment as the Fed- eral capital contribution to the institution's loan fund under this part bears to the institution's capital contribution to such fund. 345 Sec. 464 HIGHER EDUCATION ACT OF 1965 338 (2) No compromise repayment of a defaulted loan as authorized by paragraph (1) may be made unless the student borrower pays (A) 90 percent of the loan under this part; (B) the interest due on such loan; and (C) any collection fees due on such loan; in a lump sum payment. (g) DISCHARGE. (1) IN GENERAL.If a student borrower who received a loan made under this part on or after January 1, 1986, is un- able to complete the program in which such student is enrolled due to the closure of the institution, then the Secretary shall discharge the borrower's liability on the loan (including the in- terest and collection fees) and shall subsequently pursue any claim available to such borrower against the institution and the institution's affiliates and principals, or settle the loan obli- gation pursuant to the financial responsibility standards de- scribed in section 498(c). (2) ASSIGNMENT.A borrower whose loan has been dis- charged pursuant to this subsection shall be deemed to have assigned to the United States the right to a loan refund in an amount that does not exceed the amount discharged against the institution and the institution's affiliates and principals. (3) ELIGIBILITY FOR ADDITIONAL ASSISTANCE.The period during which a student was unable to complete a course of study due to the closing of the institution shall not be consid- ered for purposes of calculating the student's period of eligi- bility for additional assistance under this title. (4) SPECIAL RULE.A borrower whose loan has been dis- charged pursuant to this subsection shall not be precluded, be- cause of that discharge, from receiving additional grant, loan, or work assistance under this title for which the borrower would be otherwise eligible (but for the default on the dis- charged loan). The amount discharged under this subsection shall be treated as an amount canceled under section 465(a). (5) REPORTING.The Secretary or institution, as the case may be, shall report to credit bureaus with respect to loans that have been discharged pursuant to this subsection. (h) REHABILITATION OF LoANs. (1) REHABILITATION. (A) IN GENERAL.If the borrower of a loan made under this part who has defaulted on the loan makes 12 ontime, consecutive, monthly payments of amounts owed on the loan, as determined by the institution, or by the Secretary in the case of a loan held by the Secretary, the loan shall be considered rehabilitated, and the institution that made that loan (or the Secretary, in the ease of a loan held by the Secretary) shall request that any credit bureau organization or credit reporting agency to which the de- fault was reported remove the default from the borrower's credit history. (B) COMPARABLE CONDITIONS.As long as the bor- rower continues to make scheduled repayments on a loan rehabilitated under this paragraph, the rehabilitated loan shall be subject to the same- terms and conditions, and 339 HIGHER EDUCATION ACT OF 1965 Sec. 465 qualify for the same benefits and privileges, as other loans made under this part. (C) ADDITIONAL ASSISTANCE.The borrower of a reha- bilitated loan shall not be precluded by section 484 from receiving additional grant, loan, or work assistance under this title (for which the borrower is otherwise eligible) on the basis of defaulting on the loan prior to such rehabilita- tion. (D) LIMITATIONS.A borrower only once may obtain the benefit of this paragraph with respect to rehabilitating a loan under this part. (2) RESTORATION OF ELIGIBILITY.If the borrower of a loan made under this part who has defaulted on that loan makes 6 ontime, consecutive, monthly payments of amounts owed on such loan, the borrower's eligibility for grant, loan, or work as- sistance under this title shall be restored to the extent that the borrower is otherwise eligible. A borrower only once may ob- tain the benefit of this paragraph with respect to restored eligi- bility. (i) INCENTIVE REPAYMENT PROGRAM. (1) IN GENERAL.Each institution of higher education may establish, with the approval of the Secretary, an incentive re- payment program designed to reduce default and to replenish student loan funds established under this part. Each such in- centive repayment program may (A) offer a reduction of the interest rate on a loan on which the borrower has made 48 consecutive, monthly re- payments, but in no event may the rate be reduced by more than 1 percent; (B) provide for a discount on the balance owed on a loan on which the borrower pays the principal and interest in full prior to the end of the applicable repayment period, but in no event may the discount exceed 5 percent of the unpaid principal balance due on the loan at the time the early repayment is made; and (C) include such other incentive repayment options as the institution determines will carry out the objectives of this subsection. (2) LIMITATION.No incentive repayment option under an incentive repayment program authorized by this subsection may be paid for with Federal funds, including any Federal funds from the student loan fund, or with institutional funds from the student loan fund. SEC. 465. [20 U.S.C. 1087ee] CANCELLATION OF LOANS FOR CERTAIN PUBLIC SERVICE. (a) CANCELLATION OF PERCENTAGE OF DEBT BASED ON YEARS OF QUALIFYING SERVICE.(1) The percent specified in paragraph (3) of this subsection of the total amount of any loan made after June 30, 1972, from a student loan fund assisted under this part shall be canceled for each complete year of service after such date by the borrower under circumstances described in paragraph (2). (2) Loans shall be canceled under paragraph (1) for service (A) as a full-time teacher for service in an academic year in a public or other nonprofit private elementary or secondary 347 Sec. 465 HIGHER EDUCATION. ACT OF 1965 340 school 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 which for the purpose of this paragraph and for that year has been determined by the Secretary (pursuant to regu- lations and after consultation with the State educational agen- cy of the State in which the school is located) to be a school in which the enrollment of children counted under section 111(c) of the Elementary and Secondary Education Act of 1965 exceeds 30 percent of the total enrollment of that school; (B) as a full-time staff member in a preschool program car- ried on under the Head Start Act which is operated for a pe- riod which is comparable to a full school year in the locality if the salary of such staff member is not more than the salary of a comparable employee of the local educational agency; (C) as a full-time special education teacher, including teachers of infants, toddlers, children, or youth with disabil- ities in a public or other nonprofit elementary or secondary school system, or as a full-time qualified professional provider of early intervention services in a public or other nonprofit pro- gram under public supervision by the lead agency as author- ized in section 635(a)(10) of the Individuals With Disabilities Education Act 1 ; (D) as a member of the Armed Forces of the United States, for service that qualifies for special pay under section 310 of title 37, United States Code, as an area of hostilities; (E) as a volunteer under the Peace Corps Act or a volun- teer under the Domestic Volunteer Service Act of 1973; (F) as a full-time law enforcement officer or corrections of- ficer for service to local, State, or Federal law enforcement or corrections agencies; (G) as a full-time teacher of mathematics, science, foreign languages, bilingual education, or any other field of expertise where the State educational agency determines there is a shortage of qualified teachers; (H) as a full-time nurse or medical technician providing health care services; or (I) as a full-time employee of a public or private nonprofit child or family service agency who is providing, or supervising the provision of, services to high-risk children who are from low-income communities and the families of such children. For the purpose of this paragraph, the term "children with disabil- ities" has the meaning set forth in section 602 of the Individuals with Disabilities Education Act. (3XA) The percent of a loan which shall be canceled under paragraph (1) of this subsection is (i) in the case of service described in subparagraph (A), (C), (F), (G), (H), or (I) of paragraph (2), at the rate of 15 per- cent for the first or second year of such service, 20 percent for the third or fourth year of such service, and 30 percent for the fifth year of such service; 1So in law. "With" should be "with". See P.L. 105-17; 111 Stat. 37. 348 341 HIGHER EDUCATION ACT OF 1965 Sec. 465 (ii) in the case of service described in subparagraph (B) of paragraph (2), at the rate of 15 percent for each year of such service; (iii) in the case of service described in subparagraph (D) of paragraph (2), not to exceed a total of 50 percent of such loan at the rate of 12% percent for each year of qualifying service; or (iv) in the case of service described in subparagraph (E) of paragraph (2) at the rate of 15 percent for the first or second year of such service and 20 percent for the third or fourth year of such service. (B) If a portion of a loan is canceled under this subsection for any year, the entire amount of interest on such loan which accrues for such year shall be canceled. (C) Nothing in this subsection shall be construed to authorize refunding of any repayment of a loan. (4) For the purpose of this subsection, the term "year" where applied to service as a teacher means academic year as defined by the Secretary. (5) The amount of a loan, and interest on a loan, which is can- celed under this section shall not be considered income for purposes of the Internal Revenue Code of 1986. (6) No 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. 12571 et seq.). (7) An individual with an outstanding loan obligation under this part who performs service of any type that is described in paragraph (2) as in effect on the date of enactment of this para- graph shall be eligible for cancellation under this section for such service notwithstanding any contrary provision of the promissory note under which the loan or loans were made, and notwithstand- ing any amendment (or effective date provision relating to any amendment) to this section made prior to the date of such service. (b) REIMBURSEMENT FOR CANCELLATION.The Secretary shall pay to each institution for each fiscal year an amount equal to the aggregate of the amounts of loans from its student loan fund which are canceled pursuant to this section for such year, minus an amount equal to the aggregate of the amounts of any such loans so canceled which were made from Federal capital contributions to its student loan fund provided by the Secretary under section 468. None of the funds appropriated pursuant to section 461(b) shall be available for payments pursuant to this subsection. To the extent feasible, the Secretary shall pay the amounts for which any institu- tion qualifies under this subsection not later than 3 months after the institution files an institutional application for campus-based funds. (c) SPECIAL RULES. (1) LIST.If the list of schools in which a teacher may per- form service pursuant to subsection (a)(2)(A) is not available before May 1 of any year, the Secretary may use the list for the year preceding the year for which the determination is made to make such service determination. 343 Sec. 466 HIGHER EDUCATION ACT OF 1965 342 (2) CONTINUING ELIGIBILITY.Any teacher who performs service in a school which (A) meets the requirements of subsection (a)(2)(A) in any year; and (B) in a subsequent year fails to meet the require- ments of such subsection, may continue to teach in such school and shall be eligible for loan cancellation pursuant to subsection (a)(1) such subsequent years. SEC. 466. 120 U.S.C. 1087ff] DISTRIBUTION OF ASSETS FROM STUDENT LOAN FUNDS. (a) IN GENERAL.After September 30, 2003, and not later than March 31, 2004, there shall be a capital distribution of the balance of the student loan fund established under this part by each insti- tution of higher education as follows: (1) The Secretary shall first be paid an amount which bears the same ratio to the balance in such fund at the close of September 30, 2003, as the total amount of the Federal cap- ital contributions to such fund by the Secretary under this part bears to the sum of such Federal contributions and the institu- tion's capital contributions to such fund. (2) The remainder of such balance shall be paid to the in- stitution. (b) DISTRIBUTION OF LATE COLLECTIONS.After March 31, 2012, each institution with which the Secretary has made an agree- ment under this part, shall pay to the Secretary the same propor- tionate share of amounts received by this institution after Septem- ber 30, 2003, in payment of principal and interest on student loans made from the student loan fund established pursuant to such agreement (which amount shall be determined after deduction of any costs of litigation incurred in collection of the principal or in- terest on loans from the fund and not already reimbursed from the fund or from such payments of principal or interest), as was deter- mined for the Secretary under subsection (a). (c) DISTRIBUTION OF EXCESS CAPITAL.(1) Upon a finding by the institution or the Secretary prior to October 1, 2004, that the liquid assets of a student loan fund established pursuant to an agreement under this part exceed the amount required for loans or otherwise in the foreseeable future, and upon notice to such institu- tion or to the Secretary, as the case may be, there shall be, subject to such limitations as may be included in regulations of the Sec- retary or in such agreement, a capital distribution from such fund. Such capital distribution shall be made as follows: (A) The Secretary shall first be paid an amount which bears the same ratio to the total to be distributed as the Fed- eral capital contributions by the Secretary to the student loan fund prior to such distribution bear to the sum of such Federal capital contributions and the capital contributions to the fund made by the institution. (B) The remainder of the capital distribution shall be paid to the institution. (2) No finding that the liquid assets of a student loan fund es- tablished under this part exceed the amount required under para- 343 HIGHER EDUCATION ACT OF 1965 Sec. 468 graph (1) may be made prior to a date which- is 2 years after the date on which the institution of higher education received the funds from such institution's allocation under section 462. SEC. 467. [20 U.S.C. 1087gg] COLLECTION OF DEFAULTED LOANS: PER- KINS LOAN REVOLVING FUND. (a) AUTHORITY OF SECRETARY To COLLECT REFERRED, TRANS- FERRED, OR ASSIGNED LOANS.With respect to any loan (1) which was made under this part, and (2) which is referred, transferred, or assigned to the Sec- retary by an institution with an agreement under section 463(a), the Secretary is authorized to attempt to collect such loan by any means authorized by law for collecting claims of the United States (including referral to the Attorney General for litigation) and under such terms and conditions as the Secretary may prescribe, includ- ing reimbursement for expenses reasonably incurred in attempting such collection. (b) COLLECTION OF REFERRED, TRANSFERRED, OR ASSIGNED LOANS.The Secretary shall continue to attempt to collect any loan referred, transferred, or assigned under paragraph (5)(A), (5)(B)(i), or (6) of section 463(a) until all appropriate collection efforts, as de- termined by the Secretary, have been expended. SEC. 468. [20 U.S.C. 1087hh] GENERAL AUTHORITY OF SECRETARY. In carrying out the provisions of this part, the Secretary is authorized (1) to consent to modification, with respect to rate of inter- est, time of payment of any installment of principal and inter- est or any portion thereof, or any other provision of any note evidencing a loan which has been made under this part; (2) to enforce, pay, compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or any right of redemption; (3) to conduct litigation in accordance with the provisions of section 432(a)(2); and (4) to enter into a contract or other arrangement with State or nonprofit agencies and, on a competitive basis, with collection agencies for servicing and collection of loans under this part. SEC. 469. [20 U.S.C. 1087in DEFINITIONS. (a) Low-INCOME COMMUNITIES.For the purpose of this part, the term "low-income communities" means communities in which there is a high concentration of children eligible to be counted under title I of the Elementary and Secondary Education Act of 1965. (b) HIGH-RISK CHILDREN.For the purposes of this part, the term "high-risk children" means individuals under the age of 21 who are low-income or at risk of abuse or neglect, have been abused or neglected, have serious emotional, mental, or behavioral disturbances, reside in placements outside their homes, or are in- volved in the juvenile justice system. (c) INFANTS, TODDLERS, CHILDREN, AND YOUTH WITH DISABIL- ITIES.For purposes of this part, the term "infants, toddlers, chil- 351 Sec. …