Archived Information

Reauthorization of the Higher Education Act


Part E: Federal Perkins Loan Program

EXTENSION OF PROGRAM
SEC. 461. Section 461(b) of the Act is amended--
(1) in paragraph (1), by striking out "$250,000,000 for fiscal year 1993" and inserting in lieu thereof "$60,000,000 for fiscal year 1999"; and
(2) in paragraph (2)--
(A) by striking out "fiscal year 1997" and inserting in lieu thereof "fiscal year 2002"; and
(B) by striking out "October 1, 1997," and inserting in lieu thereof "October 1, 2002,".
ALLOCATION OF FUNDS
SEC. 462. Section 462 of the Act is amended--
(1) in subsection (a)--
(A) in paragraph (1)(A)--
(i) by striking out "100 percent" and inserting in lieu thereof "95 percent"; and
(ii) by striking out "1985" and inserting in lieu thereof "the previous fiscal year";
(B) in paragraph (2)--
(i) in subparagraph (A)--
(I) in the matter preceding clause (i), by striking out "1985" and inserting in lieu thereof "1997"; and
(II) in clause (ii), by striking out "100 percent" and inserting in lieu thereof "95 percent";
(ii) in subparagraph (B) --
(I) in the matter preceding clause (i), by striking out "1985" and inserting in lieu thereof "1997"; and
(II) by striking out "90 percent" each place it appears and inserting in lieu thereof "95 percent" in each such place; and
(iii) in subparagraph (C) --
(I) in clause (i), by striking out "1986" and inserting in lieu thereof "1998"; and
(II) in the flush language at the end thereof, by striking out "90 percent" and inserting in lieu thereof "95 percent"; and
(C) in paragraph (3)--
(i) in subparagraph (A)--
(I) by striking out the subparagraph designation "(A)"; and
(II) by striking out "paragraph (1) of";
(ii) by striking out subparagraphs (B) and (C);
(2) by striking out subsection (b) and inserting in lieu thereof the following new subsection:
"(b) ALLOCATION FORMULA TRANSITION.--Notwithstanding subsection (a), '100 percent' shall be substituted for '95 percent' each place it appears in paragraphs (1) and (2) of such subsection for purposes of determining an institution's allocation under this part for the first fiscal year for which the amendments made by [insert name of Act] of 1998 are effective.";
(3) in subsection (c)(1)--
(A) by striking out "three quarters of"; and
(B) by striking "each eligible institution which" and inserting in lieu thereof "each eligible institution that provides at least a 2-year, or 4-year program of instruction, for which the institution awards an associate, or baccalaureate degree, and that";
(4) in subsection (d)(4), by inserting at the end thereof the following new subparagraph:
"(E) Notwithstanding paragraphs (2) and (3), the Secretary may use the actual expected family contribution (computed in accordance with part F) for an institution's eligible undergraduate students, and eligible graduate and professional students, in lieu of the calculations in paragraphs (2) and (3), respectively.";
(5) in subsection (f)--
(A) by striking out paragraph (1);
(B) in paragraph (2), by striking out "For" and inserting in lieu thereof "Except as provided in paragraph (2), for";
(C) by redesignating paragraph (2) as paragraph (1); and
(D) by adding at the end thereof the following new paragraph:
"(2)(A) For fiscal year 1998 and any succeeding fiscal year, any institution with a cohort default rate (as defined under subsection (h)) that equals or exceeds 25 percent for each of the three most recent fiscal 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 for the two 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 Secretary. The Secretary shall issue a decision on any such appeal within 45 days after its submission. 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 Secretary's calculation of its cohort default rate is not accurate, and that recalculation would reduce its cohort default rate for any of the three fiscal years below twenty-five percent; or
"(ii) there are, in the judgment of the Secretary, exceptional mitigating circumstances, as defined by the Secretary in regulation, that would make the application of this paragraph inequitable.
"(B) During an appeal under subparagraph (A), the Secretary may permit the institution to continue to participate in a program under this part.";
(6) in subsection (g)--
(A) by striking out paragraph (1); and
(B) in paragraph (2)--
(i) by inserting "for purposes of subsection (f)(1)" immediately after "cohort default rate"; and
(ii) by stirking out the paragraph designation "(2)";
(7) in subsection (h)--
(A) by amending the heading to read as follows: "DEFINITIONS OF DEFAULT RATE, COHORT DEFAULT RATE, AND LOSS OF ELIGIBILITY.--";
(B) by striking out paragraphs (1) and (2);
(C) in paragraph (3)--
(i) by striking out subparagraph (B); and
(ii) by redesignating subparagraphs (C), (D), (E), (F), and (G) as subparagraphs (B), (C), (D), (E), and (F), respectively;
(D) in paragraph (4), by amending the matter preceding subparagraph (A) to read as follows:
"(4) For purposes of calculating the default rate and the cohort default rate under this subsection, a loan shall be considered to be in default--";
(E) by redesignating paragraphs (3) and (4) as (1) and (2), respectively; and
(F) by inserting at the end thereof the following new paragraph:
"(3) For the purposes of subsection (f)(2), 'loss of eligibility' shall be defined as the mandatory liquidation of an institution's revolving fund, and assignment of the institution's outstanding loan portfolio to the Secretary."; and
(8) by amending subsection (j) to read as follows:
"(j) REALLOCATION OF EXCESS ALLOCATIONS.--(1) If an institution returns to the Secretary any portion of the sums allocated to such institution under this section for any fiscal year, the Secretary shall reallocate such excess in accordance with section 442(e)(1).
"(2) If, under paragraph (1), 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 waive this paragraph for a specific institution if the Secretary finds that enforcing it is contrary to the interest of the program.".
AGREEMENTS WITH INSTITUTIONS OF HIGHER EDUCATION
SEC. 463. Section 463 of the Act is amended--
(1) by amending subsection (a)(2)(B) to read as follows:
"(B) a capital contribution by the institution--
"(i) in fiscal year 1998, in an amount not less than three-seventeenths of such Federal capital contributions for that fiscal year; and
"(ii) in each of the succeeding fiscal years, one-third of such Federal capital contribution.";
(2) by amending subsection (c) to read as follows:
"(c) AGREEMENTS WITH CREDIT BUREAU ORGANIZATIONS.--(1) For the purpose of promoting responsible repayment of loans made pursuant to this part, the Secretary and each participating institution shall enter into agreements with credit bureau organizations regarding loans held by the Secretary or by an institution.
"(2) Each 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 the institution, as the case may be, to such organizations, with respect to any loan held by the Secretary or the institution, respectively, of--
"(A) the date of disbursement and the amount of any such loan, and the amount of loans made to any borrower under this part at the time of the disbursement of the loan;
"(B) information concerning the repayment and collection of any such loan, including information concerning the current status of the loan; and
"(C) the date of cancellation of the note upon completion of repayment by the borrower of any such loan, or upon cancellation or discharge of the borrower's obligation on the loan for any reason, as the case may be.
"(3) Notwithstanding paragraphs (4) and (6) of section 605(a) of the Fair Credit Reporting Act (15 U.S.C. 1681c (a)(4), (6)), a consumer reporting agency shall make a report containing information received from the Secretary or an institution, as the case may be, regarding the status of a borrower's account on a loan made under this part until the loan is paid in full.
"(4) Except as provided under such criteria as the Secretary may establish, under which the institution may cease reporting such information before a loan is paid in full, each institution of higher education, after consultation with the Secretary and pursuant to the agreements entered into under paragraph (1), shall disclose to any credit bureau organization with which the Secretary has such an agreement the information set forth in paragraph (2), and disclose promptly to such credit bureau organization any changes to information previously disclosed.".
TERMS OF LOANS
SEC. 464. Section 464 of the Act is amended--
(1) in subsection (a)(2), by amending subparagraphs (A) and (B) to read as follows:
"(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 institution 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
"(ii) $6,000, in the case of a graduate or professional student (as defined in regulations issued by the Secretary).
"(B) Except as provided in paragraph (4), the aggregate of the loans for all years made to a student by institutions of higher education from loan funds established pursuant to agreements under this part may not exceed--
"(i) $20,000, in the case of any student who has not successfully completed a program of undergraduate education; or
"(ii) $40,000, in the case of any graduate or professional student (as defined by regulations issued by the Secretary), and including any loans from such funds made to such student before the student became a graduate or professional student.";
(2) in subsection (b)--
(A) by striking out the paragraph designation "(1)"; and
(B) by striking out paragraph (2);
(3) in subsection (c)(1)­­
(A) by redesignating subparagraphs (H) and (I) as subparagraphs (I) and (J), respectively; and
(B) by inserting immediately after subparagraph (G) the following new subparagraph:
"(H) shall provide that, in the case of a loan made on or after July 1, 1999, the loan shall be considered to be in default (except as otherwise provided in section 462(h)) if the borrower of a loan made under this part fails to make an installment payment when due, or to meet any other term of the promissory note or written repayment agreement, and such failure persists for­­
"(i) 180 days in the case of a loan that is repayable in monthly installments; or
"(ii) 240 days in the case of a loan which is repayable in less frequent installments;";
(4) by amending subsection (e) to read as follows:
"(e) FORBEARANCE.--(1) The Secretary shall ensure that--
"(A) upon written request, an institution of higher education shall grant a borrower forbearance, renewable at 12 month intervals, on terms agreed to in writing by the parties to the loan and that are otherwise consistent 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 internship 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 subsection (c)(2), 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 Community Service Act of 1990;
"(B) the length of the forbearance granted by the institution--
"(i) under subparagraph (A)(i) shall equal the length of time remaining in the borrower's medical or dental internship or residency program, if the borrower is not eligible to receive a deferment described in such subparagraph, or such length of time remaining in the program after the borrower has exhausted the borrower's eligibility for such deferment;
"(ii) under subparagraph (A)(ii) shall not exceed 3 years; or
"(iii) under subparagraph (A)(iii) shall not exceed the period for which the borrower is serving in a position described in such clause; and
"(C) no administrative or other fee may be charged in connection with the granting of a forbearance under subparagraph (A), and no adverse information regarding a borrower may be reported to a credit bureau organization solely because of the granting of such forbearance.
"(2) To the extent provided in regulations of the Secretary, the borrower and the institution may otherwise agree to forbearance for the benefit of the student borrower.
"(3) The form of forbearance granted by the institution for purposes of this subsection 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 payments than were previously scheduled.
"(4) The Secretary shall permit institutions to exercise administrative forbearances that do not require the agreement of the borrower, under conditions authorized by the Secretary. Such forbearances shall include forbearances for borrowers who are delinquent at the time of the granting of an authorized period of deferment under subsection (c)(2)."; and
(5) by adding at the end thereof the following new subsections:
"(g) DISCHARGE--(1) IN GENERAL.--If a student borrower who received a loan made under this part on or after January 1, 1986, is unable 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 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 section 121(c).
"(2) ASSIGNMENT.--A borrower whose loan has been discharged 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.
"(3) ELIGIBILITY FOR ADDITIONAL ASSISTANCE.--The period of a student's assistance 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 calculating the student's period of eligibility for additional assistance under this title.
"(4) SPECIAL RULE.--A borrower whose loan has been discharged pursuant to this subsection shall not be precluded, because 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 discharged loan). The amount discharged under this subsection shall be treated the same as loans under section 465(a)(5).
"(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)(A) 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, the loan shall be considered rehabilitated, and the institution that made the loan (or the Secretary, in the case of a loan held by the Secretary) shall instruct any credit reporting organization to which the default was reported to remove the default from the borrower's credit history.
"(B) As long as the borrower 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 qualify for the same benefits and privileges, as other loans made under this part.
"(C) The borrower of a rehabilitated loan shall not be precluded by section 484 from receiving additional grant, loan, or work assistance under this title (for which he or she is otherwise eligible) on the basis of defaulting on the loan prior to such rehabilitation.
"(D) A borrower may obtain the benefit of this paragraph with respect to rehabilitating the loan only once.
"(2) If the borrower of 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 assistance under this title shall be restored. A borrower may obtain the benefit of this paragraph with respect to restored eligibility only once.".
DISTRIBUTION OF ASSETS
SEC. 465. Section 466 of the Act is amended--
(1) in subsection (a)--
(A) in the matter preceding paragraph (1), by striking out "After September 30, 1996," and everything through "March 31, 1997," and inserting in lieu thereof "Upon the expiration of the authorization for the program under this part,"; and
(B) in paragraph (1), by striking out "at the close of September 30, 1996," and inserting in lieu thereof "upon the expiration of the authorization for the program under this part,";
(2) in subsection (b)--
(A) by striking out "After March 31, 2005," and inserting in lieu thereof "Upon the expiration of the authorization for the program under this part,"; and
(B) by striking out "September 30, 1996," and inserting in lieu thereof "the expiration of such program authorization,"; and
(3) in subsection (c), by striking out "prior to October 1, 1997,".
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Last updated: April 4, 2002 by [pss]

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