Laws & Guidance HIGHER EDUCATION
1998 Amendments to the Higher Education Act of 1965
P.L. 105-244

TITLE IV--STUDENT ASSISTANCE

Part B--Federal Family Education Loan Program

SEC. 417. FEDERAL PAYMENTS TO REDUCE STUDENT INTEREST COSTS

(a) FEDERAL INTEREST SUBSIDIES-

(1) REQUIREMENTS TO RECEIVE SUBSIDY- Section 428(a)(2) (20 U.S.C. 1078(a)(2)) is amended--

(A) in subparagraph (A)(i), by striking subclauses (I), (II), and (III) and inserting the following:

`(I) sets forth the loan amount for which the student 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'; and

(B) by amending subparagraph (B) to read as follows:

`(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 financial assistance, and, for the purpose of an interest payment pursuant to this section, expected family contribution (as determined under part F), subject to the provisions of subparagraph (D).';

(C) by amending subparagraph (C) to read as follows:

`(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 receive under subpart 1 of part A (as determined in accordance 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.'; and

(D) by striking subparagraph (F).

(2) DURATION OF AUTHORITY- Section 428(a)(5) is amended--

(A) by striking `September 30, 2002' and inserting `September 30, 2004'; and

(B) by striking `September 30, 2006' and inserting `September 30, 2008'.

(b) INSURANCE PROGRAM AGREEMENTS-

(1) ANNUAL LOAN LIMITS- Section 428(b)(1)(A) is amended--

(A) in the matter preceding clause (i), by inserting `, as defined in section 481(a)(2),' after `academic year';

(B) in clause (i)--

(i) in subclause (I), by striking `length (as determined under section 481);' and inserting `length; and'; and

(ii) by striking subclauses (II) and (III) and inserting the following:

`(II) if such student is enrolled in a program of undergraduate education which is less than 1 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 the length of such program measured in semester, trimester, quarter, or clock hours bears to 1 academic year;';

(C) in clause (iv), by striking `and' after the semicolon;

(D) in clause (v), by inserting `and' after the semicolon; and

(E) by inserting before the matter following clause (v) the following:

`(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 enrollment in an undergraduate degree or certificate program, and, in the case of a student who has obtained 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 necessary for a professional credential or certification from a State required for employment as a teacher in an elementary school or secondary school;'.

(2) SELECTION OF REPAYMENT PLANS- Clause (ii) of section 428(b)(1)(D) is amended to read as follows: `(ii) the student borrower may annually change the selection of a repayment plan under this part, and'.

(3) REPAYMENT PLANS- Subparagraph (E) of section 428(b)(1) is amended to read as follows:

`(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 option of repaying the loan in accordance with a standard, graduated, income-sensitive, or extended repayment schedule (as described in paragraph (9)) established 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);';

(4) COINSURANCE- Section 428(b)(1)(G) is amended by striking `not less than'.

(5) PAYMENT AMOUNTS- Section 428(b)(1)(L)(i) is amended--

(A) by inserting `except as otherwise provided by a repayment plan selected by the borrower under clause (ii) or (iii) of paragraph (9)(A),' before `during any'; and

(B) by inserting `, notwithstanding any payment plan under paragraph (9)(A)' after `due and payable'.

(6) DEFERMENTS- Section 428(b)(1)(M) is amended--

(A) in clause (i)(I), by inserting before the semicolon the following: `, except that no borrower, notwithstanding the provisions of the promissory note, shall be required to borrow an additional loan under this title in order to be eligible to receive a deferment under this clause'; and

(B) in clause (ii), by inserting before the semicolon the following: `, except that no borrower who provides evidence of eligibility for unemployment benefits shall be required to provide additional paperwork for a deferment under this clause'.

(7) LIMITATION, SUSPENSION, AND TERMINATION- Section 428(b)(1)(U) is amended--

(A) by striking `emergency action,,' each place the term appears and inserting `emergency action,'; and

(B) in clause (iii)(I), by inserting `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 annually submit the results of an audit required by this clause),' before `at least once a year'.

(8) ADDITIONAL INSURANCE PROGRAM REQUIREMENTS- Section 428(b)(1) is further amended--

(A) by striking `and' at the end of subparagraph (W);

(B) in subparagraph (X)--

(i) by striking `428(c)(10)' and inserting `428(c)(9)'; and

(ii) by striking the period at the end and inserting `; and';

(C) by adding at the end the following new sub-paragraph:

`(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

`(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.'.

(9) RESTRICTIONS ON INDUCEMENTS- Section 428(b)(3) is amended--

(A) by striking subparagraph (C) and inserting the following:

`(C) conduct unsolicited mailings of student loan application 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'; and

(B) by adding at the end the following new sentence:

`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 of Education.'.

(10) DELAY IN COMMENCEMENT OF REPAYMENT PERIOD- Section 428(b)(7) is amended by adding at the end the following:

`(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 necessary to resume enrollment at the borrower's next available regular enrollment period.'.

(11) REPAYMENT PLANS- Section 428(b) is amended by adding at the end the following:

`(9) REPAYMENT PLANS-

`(A) DESIGN AND SELECTION- In accordance with regulations 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 require a borrower to repay a loan in less than 5 years unless the borrower, during the 6 months immediately preceding the start of the repayment period, specifically requests that repayment be made over of a shorter period. The borrower may choose from--

`(i) a standard repayment plan, with a fixed annual 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 income-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 enactment of the Higher Education Amendments of 1998 who accumulate (after such date) outstanding loans under this part totaling more than $30,000, an extended repayment plan, with a fixed annual or graduated repayment amount paid over an extended period of time, not to exceed 25 years, except that the borrower shall repay annually a minimum amount determined 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 subparagraph (A), the lender shall provide the borrower with a repayment plan described in subparagraph (A)(i).'.

(c) GUARANTEE AGREEMENTS-

(1) REINSURANCE PAYMENTS-

(A) AMENDMENTS- Section 428(c)(1) (20 U.S.C. 1078(c)(1)) is amended--

(i) in subparagraph (A), by striking `98 percent' and inserting `95 percent';

(ii) in subparagraph (B)(i), by striking `88 percent' and inserting `85 percent';

(iii) in subparagraph (B)(ii), by striking `78 percent' and inserting `75 percent';

(iv) in subparagraph (E)--

(I) in clause (i), by striking `98 percent' and inserting `95 percent';

(II) in clause (ii), by striking `88 percent' and inserting `85 percent'; and

(III) in clause (iii), by striking `78 percent' and inserting `75 percent'; and

(v) in subparagraph (F)--

(I) in clause (i), by striking `98 percent' and inserting `95 percent';

(II) in clause (ii), by striking `88 percent' and inserting `85 percent'; and

(III) in clause (iii), by striking `78 percent' and inserting `75 percent'.

(B) EFFECTIVE DATE- The amendments made by subparagraph (A) of this paragraph apply to loans for which the first disbursement is made on or after October 1, 1998.

(2) NOTICE TO INSTITUTIONS OF DEFAULTS- Section 428(c)(2) is amended--

(A) in subparagraph (A), by striking `proof that reasonable attempts were made' and inserting `proof that the institution was contacted and other reasonable attempts were made'; and

(B) in subparagraph (G), by striking `certifies to the Secretary that diligent attempts have been made' and inserting `certifies to the Secretary that diligent attempts, including contact with the institution, have been made'.

(3) GUARANTY AGENCY INFORMATION TO ELIGIBLE INSTITUTIONS- Section 428(c)(2)(H)(ii) is amended to read as follows:

`(ii) the guaranty agency shall not require the payment from the institution of any fee for such information; and'.

(4) FORBEARANCE- Section 428(c)(3) is amended--

(A) in subparagraph (A)(i), by striking `written';

(B) in subparagraph (B), by striking `and' after the semicolon;

(C) in subparagraph (C), by striking the period and inserting `; and'; and

(D) by inserting before the matter following subparagraph (C) the following:

`(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 warranted 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 appropriate supporting documentation related to the request, and

`(ii) during such period interest shall accrue but not be capitalized.'.

(5) EQUITABLE SHARE- Paragraph (6) of section 428(c) is amended to read as follows:

`(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 remaining 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, beginning on October 1, 2003, this subparagraph shall be applied by substituting `23 percent' for `24 percent'.'.

(6) ASSIGNMENT- Section 428(c)(8) is amended--

(A) by striking `(A) If' and inserting `If'; and

(B) by striking subparagraph (B).

(7) GUARANTY AGENCY RESERVE LEVEL; AGENCY TERMINATION- Section 428(c)(9) is amended--

(A) in subparagraph (A), by striking `maintain a current minimum reserve level of at least .5 percent' and inserting `maintain in the agency's Federal Student Loan Reserve Fund established under section 422A a current minimum reserve level of at least 0.25 percent';

(B) in subparagraph (C)--

(i) by striking `80 percent pursuant to section 428(c)(1)(B)(ii)' and inserting `85 percent pursuant to paragraph (1)(B)(i)';

(ii) by striking `, as appropriate,'; and

(iii) by striking `30 working days' and inserting `45 working days';

(C) in subparagraph (E)--

(i) by inserting `or' at the end of clause (iv);

(ii) by striking `; or' at the end of clause (v) and inserting a period; and

(iii) by striking clause (vi);

(D) in subparagraph (F)(vii), by striking `to avoid disruption' and everything that follows and inserting `and to avoid disruption of the student loan program.';

(E) in subparagraph (I), by inserting `that, if commenced after September 24, 1998, shall be on the record' after `for a hearing'; and

(F) in subparagraph (K)--

(i) by striking `and Labor' and inserting `and the Workforce'; and

(ii) by striking everything after `guaranty agency system' and inserting a period.

(d) PAYMENT FOR LENDER REFERRAL SERVICES; INCOME-SENSITIVE REPAYMENT- Subsection (e) of section 428 is amended to read as follows:

`(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 prescribed by the Secretary by regulation--

`(1) that all borrowers are eligible for income-sensitive repayment, including through loan consolidation under section 428C;

`(2) the procedures by which the borrower may elect income-sensitive repayment; and

`(3) where and how the borrower may obtain additional information concerning income-sensitive repayment.'.

(e) PAYMENT OF CERTAIN COSTS- Subsection (f) of section 428 is amended to read as follows:

`(f) PAYMENTS OF CERTAIN COSTS-

`(1) PAYMENT FOR CERTAIN ACTIVITIES-

`(A) IN GENERAL- The Secretary--

`(i) for loans originated during fiscal years beginning 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 beginning 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 subparagraph (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 guaranty agency submitting an accurate and complete application under this subparagraph.

`(C) REQUIREMENT FOR PAYMENT- No payment may be made under this paragraph for loans for which the disbursement checks have not been cashed or for which electronic funds transfers have not been completed.'.

(f) ACTION ON AGREEMENTS- Section 428(g) is amended by striking `and Labor' and inserting `and the Workforce'.

(g) LENDERS-OF-LAST-RESORT- Paragraph (3) of section 428(j) is amended--

(1) in the paragraph heading, by striking `DURING TRANSITION TO DIRECT LENDING';

(2) in subparagraph (A)--

(A) by striking `during the transition from the Federal Family Education Loan Program under this part to the Federal Direct Student Loan Program under part D of this title,' and inserting a comma;

(B) by inserting `designated for a State' after `a guaranty agency'; and

(C) by inserting `subparagraph (C) and' before `section 422(c)(7),'; and

(3) by adding at the end thereof the following:

`(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 advances 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 provide 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.'.

(h) DEFAULT AVERSION ASSISTANCE- Subsection (l) of section 428 is amended to read as follows:

`(l) DEFAULT AVERSION ASSISTANCE-

`(1) ASSISTANCE REQUIRED- Upon receipt of a complete request 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 activities designed to prevent the default by a borrower on a loan covered by such agreement.

`(2) REIMBURSEMENT-

`(A) IN GENERAL- A 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 interest 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 borrower 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 default 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.'.

(i) INCOME CONTINGENT REPAYMENT- Section 428(m) is amended by striking `shall require at least 10 percent of the borrowers' and inserting `may require borrowers'.

(j) STATE SHARE OF DEFAULT COSTS- Subsection (n) of section 428 is repealed.

(k) BLANKET CERTIFICATE OF GUARANTY- Section 428 is amended by adding at the end the following:

`(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 program 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 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 lender has elected to make under the agency's insurance program 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 borrower.

`(B) A guaranty agency may establish limitations or restrictions 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 agreement with the Secretary may offer blanket certificates of guaranty under this subsection.

`(4) REPORT REQUIRED- The Secretary shall, at the conclusion 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.'.

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Last Modified: 09/24/2003