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

TITLE IV--STUDENT ASSISTANCE

PART E--FEDERAL PERKINS LOANS

SEC. 462. ALLOCATION OF FUNDS

(a) CHANGES IN ALLOCATION FORMULA-

(1) UPDATING THE BASE PERIOD- Section 462(a) (20 U.S.C. 1087bb(a)) is amended--

(A) in paragraph (1)(A), 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 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)';

(B) in paragraph (2)--

(i) in subparagraphs (A) and (B), by striking `1985' each place the term appears and inserting `1999'; and

(ii) in subparagraph (C)(i), by striking `1986' and inserting `2000'.

(2) ELIMINATION OF PRO RATA SHARE- Section 462 is further amended--

(A) in subsection (a)--

(i) in paragraph (1)(B), by striking `subsection (f)' and inserting `subsection (e)';

(ii) in the matter following paragraph (1)(B), by striking `subsection (g)' and inserting `subsection (f)';

(iii) in paragraph (2)(D)(ii), by striking `subsection (f)' and inserting `subsection (e)'; and

(iv) in the matter following paragraph (2)(D)(ii), by striking `subsection (g)' and inserting `subsection (f)';

(B) by striking subsection (b);

(C) in subsection (c)(1), by striking `three-quarters of the remainder' and inserting `the remainder';

(D) in the matter following subsection (c)(2)(B), by striking `subsection (g)' and inserting `subsection (f)';

(E) in subsection (c)(3)--

(i) in subparagraph (A), by striking `subsection (d)' and inserting `subsection (c)';

(ii) in subparagraph (C), by striking `subsection (f)' and inserting `subsection (e)'; and

(iii) in the matter following subparagraph (C), by striking `subsection (g)' and inserting `subsection (f)';

(F) in subsection (j)(1)(B)(i), by striking `1985' and inserting `1999';

(G) in subsection (j)(2)--

(i) in subparagraph (A), by striking `paragraph (3) of subsection (c)' and inserting `subsection (b)(3)'; and

(ii) in subparagraph (B), by striking `subsection (c) of section 462' and inserting `subsection (b)'; and

(H) by redesignating subsections (c) through (j) as subsections (b) through (i), respectively.

(3) EFFECTIVE DATE- The amendments made by this subsection shall apply with respect to allocations of amounts appropriated pursuant to section 461(b) for fiscal year 2000 or any succeeding fiscal year.

(b) SELF-HELP NEED- The matter preceding subparagraph (A) of section 462(c)(3) (as redesignated by subsection (a)(2)(G)) is amended by striking `the Secretary, for' and all that follows through `years,'.

(c) DEFAULT PENALTIES- Subsections (e) and (f) of section 462 (as redesignated by subsection (a)(2)(G)) are amended to read as follows:

`(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 default 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;

`(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 cohort 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 succeeding 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 Secretary. 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 institution's cohort default rate is not accurate, and that recalculation would reduce the institution's cohort default rate for any of the 3 fiscal years below 50 percent; 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 inequitable.

`(B) CONTINUED PARTICIPATION- During an appeal under subparagraph (A), the Secretary may permit the institution 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 established under this part by the institution that is the subject 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 Federal capital contributions to such fund by the Secretary under this part bears to the sum of such Federal 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.

`(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 maximum cohort default rate is 25 percent.'.

(d) COHORT DEFAULT RATE DEFINITION- Section 462(g) (as redesignated by subsection (a)(2)(G)) is amended--

(1) by striking the subsection heading and paragraphs (1) and (2) and inserting the following:

`(g) DEFINITION OF COHORT DEFAULT RATE- ';

(2) by striking `(3)(A) For award year 1994 and any succeeding award year, the term' and inserting the following:

`(1)(A) The term';

(3) in paragraph (1) (as redesignated by paragraph (2))--

(A) by striking subparagraphs (B) and (E); and

(B) by redesignating subparagraphs (C), (D), (F), and (G) as subparagraphs (B), (C), (D), and (F), respectively;

(C) by inserting after subparagraph (D) (as redesignated by subparagraph (B)) the following:

`(E) In determining the number of students who default before 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 specified in paragraph (2), been rehabilitated or canceled; and

`(iii) any other loan that the Secretary determines should be excluded from such determination.'; and

(4) by striking paragraph (4) and inserting the following:

`(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 quarterly),

after the borrower fails to make an installment payment when due or to comply with other terms of the promissory note.'.

(e) CONFORMING AMENDMENTS- Section 462 (20 U.S.C. 1087bb) is amended--

(1) in the matter following paragraphs (1)(B) and (2)(D)(ii) of subsection (a), by inserting `cohort' before `default' each place the term appears;

(2) in the matter following paragraphs (2)(B) and (3)(C) of subsection (b) (as redesignated by subsection (a)(2)(G)), by inserting `cohort' before `default' each place the term appears;

(3) in subsection (d)(2) (as redesignated by subsection (a)(2)(G)), by inserting `cohort' before `default'; and

(4) in subsection (g)(1)(F) (as redesignated by subsections (a)(2)(G) and (d)(3)(B)), by inserting `cohort' before `default'.

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Last Modified: 09/24/2003