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. 429. DEFINITIONS

(a) COHORT DEFAULT RATE- Section 435(a) (20 U.S.C. 1085(a)) is amended--

(1) in paragraph (2)--

(A) in subparagraph (A)--

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

(ii) by striking clause (ii) and inserting the following:

`(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.'; and

(iii) by adding after the matter following clause (iii) (as added by clause (ii)) the following:

`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.'; and

(B) in subparagraph (C), by striking `July 1, 1998,' and inserting `July 1, 1999,';

(2) in the matter following subparagraph (C) of para-graph (3)--

(A) by inserting `for a reasonable period of time, not to exceed 30 days,' after `access'; and

(B) by striking `of the affected guaranty agencies and loan servicers for a reasonable period of time, not to exceed 30 days' and inserting `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'; and

(3) by adding at the end the following new paragraphs:

`(4) DEFINITION OF MITIGATING CIRCUMSTANCES- (A) For purposes of paragraph (2)(A)(ii), an institution of higher education shall be treated as having exceptional mitigating circumstances that make application of that paragraph inequitable if such institution, in the opinion of an independent auditor, 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 professional degree, 70 percent or more of the institution's regular students who were initially enrolled on a full-time basis and were scheduled to complete their programs during 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 completion 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 enrollment, to complete their educational programs during 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 originally enrolled on the date following 12 months after the date of the student's last date of attendance at the institution.

`(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 placements a student or former student for whom the institution 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 educational program on the date when the student will have been enrolled in the program for the amount of time normally required 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 institution's enrollment contract, catalog, or other materials, for completion 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 program if the student remained enrolled at that level of enrollment throughout the program.

`(5) REDUCTION OF DEFAULT RATES AT CERTAIN MINORITY INSTITUTIONS-

`(A) BENEFICIARIES OF EXCEPTION REQUIRED TO ESTABLISH MANAGEMENT PLAN- After July 1, 1999, any institution 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 institution 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, resources, dollars in default, and targets for default reduction, determines is acceptable and provides reasonable 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 implementing such default management plan; and

`(iii) provide to the Secretary, on an annual basis or at such other intervals as the Secretary may require, evidence of cohort default rate improvement and successful implementation of such default management plan.

`(B) DISCRETIONARY ELIGIBILITY CONDITIONED ON IMPROVEMENT- Notwithstanding the expiration of the exception in paragraph (2)(C), the Secretary may, in the Secretary's discretion, continue to treat an institution described in subparagraph (A) of this paragraph as an eligible institution for each of the 1-year periods beginning on July 1 of 1999, 2000, and 2001, only if the institution submits 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 improvement, 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 determined by multiplying the institution's cohort default rate for loans under part B or D, or weighted average cohort 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 participation 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 cohort 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 noncompliance with subparagraph (A).'.

(b) ELIGIBLE LENDER- Section 435(d) (20 U.S.C. 1085(d)) is amended--

(1) in paragraph (1)--

(A) in subparagraph (A)(ii)--

(i) by striking `or' after `1992,'; and

(ii) by inserting before the semicolon the following: `, or (III) it is a bank (as defined in section 3(a)(1) of the Federal Deposit 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 Internal Revenue Code of 1986 and exempt from taxation 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 portfolio of such loans that is not more than $5,000,000';

(B) by striking `and' at the end of subparagraph (I);

(C) by striking the period at the end of subparagraph (J) and inserting `; and'; and

(D) by adding at the end the following new subparagraph:

`(K) a consumer finance company subsidiary of a national bank which, as of the date of enactment of this subparagraph, through one or more subsidiaries: (i) acts as a small business lending company, as determined under regulations of the Small Business Administration under section 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 authorized 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.'; and

(2) in paragraph (5), by adding at the end the following new sentence:

`It shall not be a violation of this paragraph for a lender 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.'.

(c) DEFINITION OF DEFAULT-

(1) AMENDMENT- Section 435(l) is amended--

(A) by striking `180 days' and inserting `270 days'; and

(B) by striking `240 days' and inserting `330 days'.

(2) EFFECTIVE DATE- The amendment made by paragraph (1) shall apply with respect to loans for which the first day of delinquency occurs on or after the date of enactment of this Act.

(d) COHORT DEFAULT RATE- Section 435(m) is amended--

(1) in paragraph (1)(B), by striking `insurance, and, in considering appeals with respect to cohort default rates pursuant to subsection (a)(3), exclude' and inserting `insurance. In considering appeals with respect to cohort default rates pursuant to subsection (a)(3), the Secretary shall exclude, from the calculation of the number of students who entered repayment and from the calculation of the number of students who default,'; and

(2) in paragraph (2)(C), by adding at the end the following: `The Secretary may require guaranty agencies to collect data with respect to defaulted loans in a manner that will permit the identification of any defaulted 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).'; and

(3) in paragraph (4), by adding at the end the following:

`(D) The Secretary shall publish the report described in subparagraph (C) by September 30 of each year.'.

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Last Modified: 09/24/2003