Archived Information

Reauthorization of the Higher Education Act


Part D -- Direct Loans

TECHNICAL AMENDMENTS
SEC. 451. (a) Section 451(b) of the Act is amended to read as follows:
"(b) PROGRAM DESIGNATION.--The program established under this part shall be referred to as the 'William D. Ford Federal Direct Loan Program'.".
(b) Section 455 of the Act is amended--
(1) in subsection (a)(2)--
(A) in subparagraph (A), by striking out "'Federal Direct Stafford Loans'" and inserting in lieu thereof "'Federal Direct Stafford/Ford Loans'";
(B) in subparagraph (C), by striking out "'Federal Direct Unsubsidized Stafford Loans'" and inserting in lieu thereof "'Federal Direct Unsubsidized Loans'";
(2) in subsection (b)--
(A) in paragraph (1), in the matter preceding subparagraph (A), by striking out "Direct Stafford" and "Unsubsidized Stafford" and inserting in lieu thereof "Direct Stafford/Ford" and "Unsubsidized", respectively;
(B) in paragraph (2)(A), in the matter preceding clause (i), by striking out "Direct Stafford" and "Unsubsidized Stafford" and inserting in lieu thereof "Direct Stafford/Ford" and "Unsubsidized", respectively; and
(C) in paragraph (3), in the matter preceding subparagraph (A), by striking out "Direct Stafford" and "Unsubsidized Stafford" and inserting in lieu thereof "Direct Stafford/Ford" and "Unsubsidized", respectively; and
(3) in subsection (f)(1), by striking out "Direct Stafford" each place it appears and inserting in lieu thereof "Direct Stafford/Ford".
ELIMINATION OF VOLUME GOALS
SEC. 452. Section 453 of the Act is amended--
(1) in subsection (a)--
(A) in paragraph (1)--
(i) by striking out the third sentence therein; and
(ii) by striking out the paragraph designation "(1)"; and
(B) by striking out paragraphs (2), (3) and (4); and
(2) by amending subsection (c) to read as follows:
"(c) SELECTION CRITERIA FOR ORIGINATION.--The Secretary and an institution (or consortium of institutions) that has an agreement under section 454(a) may include in that agreement provisions regarding the origination of loans if the institution (or consortium)--
"(1) desires to originate loans under this part; and
"(2) meets the criteria established by the Secretary in regulation.".
INTEREST RATES
SEC. 452A. Section 455(b) of the Act is further amended--
(1) in paragraph (2)--
(A) in subparagraph (A), in the matter preceding clause (i), by striking out "but subject to paragraph (3),"; and
(2) in subparagraph (B), by amending clause (ii) to read as follows:
"(ii)(I) 2.5 percent, in the case of a loan for which the first disbursement is made on or after July 1, 1995 and before July 1, 1998; or
"(II) 1.7 percent, in the case of a loan for which the first disbursement is made on or after July 1, 1998;";
(2) in paragraph (3)--
(A) in the matter preceding subparagraph (A), by striking out "paragraphs (1) and (2)," and inserting in lieu thereof "paragraph (1),"; and
(B) by amending subparagraphs (A) and (B) to read as follows:
"(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;"; and
(3) in paragraph (4)(B), by amending clauses (i) and (ii) to read as follows:
"(i) the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1; plus
"(ii) 3.2 percent;".
INTEREST CAPITALIZATION;
REPAYMENT INCENTIVES
SEC. 453. Section 455(b) of the Act is further amended by adding at the end thereof the following new paragraphs:
"(6) CAPITALIZATION OF INTEREST.--The Secretary may add unpaid accrued interest to the borrower's unpaid principal balance--
"(A) when the borrower enters repayment--
"(i) after the expiration of a grace period, in the case of a Federal Direct Unsubsidized Loan or a Federal Direct Consolidation Loan that qualifies for a grace period; or
"(ii) in the case of a Federal Direct PLUS Loan;
"(B) upon the expiration of a period of deferment, in the case of a Federal Direct Unsubsidized Loan, a Federal Direct PLUS Loan, or a Federal Direct Consolidation Loan;
"(C) upon the expiration of a period of forbearance;
"(D) annually, in the case of a borrower paying under an alternative or income contingent repayment plan, in accordance with subsection (d)(4) or (e), as the case may be, if the borrower's scheduled payments do not cover the interest that has accrued on the loan; and
"(E) when a borrower defaults on the loan.
"(7) REPAYMENT INCENTIVES.--Notwithstanding any other provision of this part, the Secretary is authorized to prescribe in regulation such reductions in the interest rate paid by a borrower of a loan made under this part as the Secretary determines appropriate to encourage on-time repayment. Such reductions may be offered only if the Secretary determines they are cost neutral, to the extent appropriate, and in the best financial interest of the Federal Government.".
LOAN FEE
SEC. 454. Section 455(c) of the Act is amended--
(1) by striking out "The Secretary" and inserting in lieu thereof "(1) For loans made under this part before July 1, 1999, the Secretary";
(2) by striking out "of a loan made under this part";
(3) by striking out "amount of loan." and inserting in lieu thereof "amount of the loan."; and
(4) by adding at the end thereof the following new paragraphs:
"(2) For any loan made under this part on or after July 1, 1999, the Secretary shall charge the borrower an origination fee of 3.0 percent of the principal amount of the loan.
"(3) For a Direct Stafford/Ford Loan made under this part--
"(A) on or after July 1, 2001, the Secretary shall charge the borrower an origination fee of 2.0 percent of the principal amount of the loan;
"(B) on or after July 1, 2002, the Secretary shall charge the borrower an origination fee of 1.0 percent of the principal amount of the loan; or
"(C) on or after July 1, 2003, the Secretary shall not charge the borrower an origination fee on such loan.".
REPAYMENT TERMS
SEC. 455. Section 455(d) of the Act is amended--
(1) in paragraph (1)--
(A) in subparagraph (B), by inserting immediately after "an extended period of time," the following: "not to exceed 30 years,"; and
(B) in subparagraph (C), by striking out "a fixed or extended period of time," and inserting in lieu thereof "an extended period of time, not to exceed 30 years,"; and
(2) in paragraph (2), by striking out "subparagraph (A), (B), or (C) of paragraph (1)." and inserting in lieu thereof "paragraph (1)(A).".
NO ACCRUAL OF INTEREST FOR COMMUNITY SERVICE
SEC. 456. Section 455(f) of the Act is further amended--
(1) in paragraph (1)(B), by striking out "Unsubsidized Stafford Loan," and inserting in lieu thereof the following: "Unsubsidized Loan (except as provided in paragraph (5)),"; and
(2) by adding at the end thereof the following new paragraph:
"(5) NO ACCRUAL OF INTEREST FOR COMMUNITY SERVICE.--(A) No interest shall accrue on a loan made under this section while the borrower is receiving a deferment under paragraph (2)(C) for such loan while performing community service.
"(B) A borrower is performing community service for purposes of subparagraph (A) if--
"(i) the borrower is employed by--
"(I) a State or a subdivision thereof;
"(II) a local government;
"(III) an Indian tribe;
"(IV) a public or private nonprofit organization; or
"(V) a Federal agency; and
"(ii) the employment consists of providing services that address human, educational, environmental or public safety needs and primarily benefit the community at large (and not the membership of a particular organization, such as a labor, fraternal, or religious organization)."
CONFORMING AMENDMENTS
SEC. 457. (a) Section 452(c) of the Act is amended by striking out "basic grants" and inserting in lieu thereof "Federal Pell Grants".
(b) Section 455 of the Act is further amended--
(1) in subsection (j)(2), by striking out "basic grants" and inserting in lieu thereof "Federal Pell Grants"; and
(2) in subsection (k)(3), by striking out "basic grants" and inserting in lieu thereof "Federal Pell Grants".
(c) Section 458(a) of the Act is amended to read as follows:
"(a) ADMINISTRATIVE EXPENSES.--Each fiscal year, there shall be available to the Secretary, from funds not otherwise appropriated, funds to be obligated for administrative costs under this part and part B, including the costs of the direct student loan programs under this part, not to exceed $$610,000,000 in fiscal year 1999, $705,000,000 in fiscal year 2000, $750,000,000 in each of the fiscal years 2001, 2002, and 2003. The Secretary may carry over funds available under this section to a subsequent fiscal year.".
REPEAL
SEC. 458. Section 457 of the Act is repealed.
TAX TREATMENT OF CANCELLATION OF CERTAIN STUDENT LOANS
SEC. 459. Section 108(f)(1) of the Internal Revenue Code of 1986 is amended by striking "`any student loan if" and all that follows through the end thereof and inserting in lieu thereof "any student loan if--
"(A) such discharge was pursuant to a provision of such loan under which all or part of the indebtedness of the individual would be discharged if the individual worked for a certain period of time in certain professions for any of a broad class of employers, or
"(B) in the case of a loan made under part D of title IV of the Higher Education Act of 1965 that has a repayment schedule established under section 455(e)(4) of such Act (relating to income contingent repayments), such discharge occurs after the maximum repayment period under such loan (as prescribed under such part).".
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