DEFAULT REDUCTION PROGRAM.

SEC. 2005. DEFAULT REDUCTION PROGRAM. (a) Amendment.—Section 428F of the Higher Education Act of 1965 (20 U.S.C. 1078–6) is amended to read as follows: “default reduction program “Sec. 428F. (a) Program Requirements.— “(1) Authority to establish a default reduction program.—The Secretary shall, in accordance with the requirements of this section, establish a default reduction program for borrowers who have one or more loans under part B of this title which are in default, as defined in section 435(1), as of the date of enactment of this section. Such program shall be commenced on, March 1, 1990, and shall last for six months. “(2) Eligibility for the benefits of the default reduction program.—In order to be eligible for the benefits of the default reduction program, a borrower who has a loan or loans which are in default shall contact the holder of such loan or loans 103 STAT. 2117during the default reduction program and shall pay in full all remaining principal and interest on such loan or loans. “(3) Benefits of the default reduction program.— For each borrower meeting the requirement of paragraph (2)— “(A) no penalties shall be charged on defaulted loans which are paid in full; “(B) the guaranty agency shall report to the appropriate credit bureau or bureaus that the loan has been paid in full; and “(C) notwithstanding section 484, eligibility to receive additional assistance under this title shall be reestablished. “(4) Secretary’s share of repayments.—The Secretary’s equitable share for purposes of section 428(c)(2)(D) of amounts paid by any borrower under paragraph (2) of this subsection shall be 81.5 percent of the principal amount outstanding on the loan at the time of repayment, multiplied by the reinsurance percentage in effect when the payment under the guaranty agreement was made with respect to such loan. “(b) Other Repayment Incentives.— “(1) Sale of loan.— “(A) Upon securing consecutive payments for 12 months of amounts owed on a loan for which the Secretary has made a payment under paragraph (1) of section 428(c), the guaranty agency (pursuant to an agreement with the Secretary) or the Secretary shall, if practicable, sell the loan to an eligible lender. Such loan shall not be sold to an eligible lender who has been found by the guaranty agency or the Secretary to have substantially failed to exercise the due diligence required of lenders under this part “(B) An agreement between the guaranty agency and the Secretary for purposes of this paragraph shall provide— “(i) for the repayment by the agency to the Secretary of 81.5 percent of the amount of the principal balance outstanding at the time of such sale, multiplied by the reinsurance percentage in effect when payment under the guaranty agreement was made with respect to the loan; and “(ii) for the reinstatement by the Secretary (I) of the obligation to reimburse such agency for the amount expended by it in discharge of its insurance obligation under its loan insurance program, and (II) of the obligation to pay to the holder of such loan a special allowance pursuant to section 438. “(C) A loan which does not meet the requirements of subparagraph (A) may also be eligible for sale under this paragraph upon a determination that the loan was in default due to clerical or data processing error and would not, in the absence of such error, be in a delinquent status. “(2) Use of proceeds or sales.—Amounts received by the Secretary pursuant to the sale of such loans by a guaranty agency under this paragraph shall be deducted from the calculations of the amount of reimbursement for which the agency is eligible under paragraph (I)(B)(ii) of this section for the fiscal year in which the amount was received, notwithstanding the fact that the default occurred in a prior fiscal year. “(3) Borrower eligibility.—Any borrower whose loan is sold under paragraph (1) shall not be precluded by section 484 from 103 STAT. 2118receiving additional loans under this title (for which he or she is otherwise eligible) on the basis of defaulting on the loan prior to such loan sale. “(4) Applicability of general loan conditions.—A loan which is sold under this paragraph shall, so long as the borrower continues to make scheduled repayments thereon, be subject to the same terms and conditions and qualify for the same benefits and privileges as other loans made under this part”. (b) Publicity.—The Secretary of Education shall, from funds available through student loan collections, commencing not less than 30 days before the beginning of the default reduction program required by the amendment made by this section, and continuing throughout the duration of such program, widely publicize (through various communications media) the availability of the default reduction program.