UNSUBSIDIZED LOANS; PERFORMANCE AGREEMENTS; LOAN FORGIVENESS.

SEC. 422. UNSUBSIDIZED LOANS; PERFORMANCE AGREEMENTS; LOAN FORGIVENESS. Part B of title IV of the Act is amended by inserting after section 428G the following new sections: “unsubsidized stafford loans for middle-income borrowers “Sec. 428H. (a) In General.— It is the purpose of this section to authorize insured loans under this part for borrowers who do not qualify for Federal interest subsidy payments under section 428 of this Act. Except as provided in this section, all terms and conditions for Federal Stafford loans established under section 428 shall apply to loans made pursuant to this section. “(b) Eligible Borrowers.— Any student meeting the requirements for student eligibility under section 484 shall be entitled to borrow an unsubsidized Stafford loan. Such student shall provide to the lender a statement from the eligible institution at which the student has been accepted for enrollment, or at which the student is in attendance, which— “(1) sets forth such student’s estimated cost of attendance (as determined under section 472); “(2) sets forth such student’s estimated financial assistance, including a loan which qualifies for subsidy payments under section 428; and “(3) certifies the eligibility of the student to receive a loan under this section and the amount of the loan for which such student is eligible, in accordance with subsection (c). “(c) Determination of Amount of Loan.— The determination of the amount of a loan by an eligible institution under subsection (b) shall be calculated by subtracting from the estimated cost of attendance at the eligible institution any estimated financial assistance reasonably available to such student. An eligible institution may not, in carrying out the provisions of subsection (b) of this section, provide a statement which certifies the eligibility of any student to receive any loan under this section in excess of the amount calculated under the preceding sentence. “(d) Loan Limits.— The annual and aggregate limits for loans under this section shall be the same as those established under section 428(b)(l), less any amount received by such student pursuant to the subsidized loan program established under section 428. “(e) Payment of Principal and Interest.— “(1) Commencement of repayment.— Repayment of principal on loans made under this section shall commence 6 months after the month in which the student ceases to carry at least one-half the normal full-time workload as determined by the institution. “(2) Capitalization of interest.— Interest on loans made under this section for which payments of principal are not required during the in-school and grace periods or for which payments are deferred under sections 427(a)(2)(C) and 106 STAT. 536428(b)(1)(M) shall, if agreed upon by the borrower and the lender (A) be paid monthly or quarterly, or (B) be added to the principal amount of the loan not more frequently than quarterly by the lender. Such capitalization of interest shall not be deemed to exceed the annual insurable limit on account of the student. “(3) Subsidies prohibited.— No payments to reduce interest costs shall be paid pursuant to section 428(a) of this part on loans made pursuant to this section. “(4) Applicable rates of interest.— Interest on loans made pursuant to this section shall be at the applicable rate of interest provided in section 427A(e). “(f) Insurance Premium.— “(1) Amount of origination fee/insurance premium.— The lender shall charge the borrower a combined origination fee and insurance premium in the amount of 6.5 percent of the principal amount of the loan, to be deducted proportionately from each installment payment of the proceeds of the loan prior to payment to the borrower. A guaranty agency may not charge an insurance premium on any loan made under this section. “(2) Relation to applicable interest.— Such combined fee and premium shall not be taken into account for purposes of determining compliance with section 427A. “(3) Disclosure required.— The lender shall disclose to the borrower the amount and method of calculating the combined origination fee and insurance premium. “(4) Use of insurance premium to offset default costs.— Each lender making loans under this section shall transmit all combined origination fee and insurance premiums authorized to be collected from borrowers to the Secretary, who shall use such fees and premiums to pay the Federal costs of default claims paid for loans under this section and to reduce the cost of special allowances paid thereon, if any, under section 438(b). “(5) Review of insurance premium.— In fiscal year 1995, the Secretary is directed to analyze the risk rates of borrowers who have participated in this program in the 2 previous fiscal years. If the Secretary finds, that as a result of this review, the projected defaults and special allowance costs of the unsubsidized program do not exceed the 6.5 percent insurance premium, the Secretary is directed to lower the insurance premium accordingly. “(g) Single Application Form and Loan Repayment Schedule.— A guaranty agency shall use a single application form and a single repayment schedule for subsidized Federal Stafford loans made pursuant to section 428 and for unsubsidized Federal Stafford loans made pursuant to this section. “special insurance and reinsurance rules “Sec. 428I. (a) Designation of Lenders, Servicers, and Guaranty Agencies.— “(1) Authority.— Whenever the Secretary determines that an eligible lender, servicer, or guaranty agency has a compliance performance rating that equals or exceeds 97 percent, the Secretary shall designate the eligible lender, servicer, or guaranty agency, as the case may be, for exceptional perform-106 STAT. 537ance. The Secretary shall notify each appropriate guaranty agency of the eligible lenders and servicers designated under this section. “(2) Compliance performance rating.— For purposes of paragraph (1), a compliance performance rating is determined with respect to compliance with due diligence in the collection of loans under this part for each year for which the determination is made. Such rating is equal to the percent of all due diligence requirements applicable to each loan, on average, as established by the Secretary by regulation, with respect to— “(A) loans serviced during the period by the eligible lender or servicer; or “(B) loans on which loan collection was attempted by the guaranty agency. “(b) Payment to Lenders and Servicers.— “(1) 100 percent payment rule.— Each guaranty agency shall pay each eligible lender or servicer (as agent for an eligible lender) designated under subsection (a) 100 percent of the unpaid principal and interest of all loans for which claims are submitted for payment by that eligible lender or servicer for the one-year period following the receipt by the guaranty agency of the notification of designation under this section or until the guaranty agency receives notice from the Secretary that the designation of the lender or servicer under subsection (a) has been revoked. “(2) Revocation authority.— The Secretary shall revoke the designation of a lender or servicer under subsection (a) if any quarterly audit required under subsection (c)(5) is not received by the Secretary by the date established by the Secretary or if the audit indicates the lender or servicer failed to maintain 97 percent or higher compliance with program regulations, as reflected in the performance of not less than 97 percent of all due diligence requirements applicable to each loan, on average, as established by the Secretary for the purpose of this section, for 2 consecutive months or 90 percent for 1 month. “(3) Documentation.— Nothing in this section shall restrict or limit the authority of guaranty agencies to require the submission of claims documentation evidencing servicing performed on loans, except that the guaranty agency may not require greater documentation than that required for lenders and servicers not designated under subsection (a). “(4) Payments to guaranty agencies.— The Secretary shall pay to each guaranty agency designated under subsection (a) the appropriate percentage under this subsection for the 1-year period following the receipt by the guaranty agency of the notification of designation under subsection (a). “(c) Supervision of Designated Lenders and Servicers.— “(1) Audits for lenders and servicers.—Each eligible lender or servicer desiring a designation under subsection (a) shall have a financial and compliance audit of the loan portfolio of such eligible lender or servicer conducted annually by a qualified independent organization from a list of qualified organizations promulgated by the Secretary in accordance with standards established by the Comptroller General and the Secretary. The standards shall measure the lender’s or servicer’s 106 STAT. 538compliance with the due diligence standards and shall include a defined statistical sampling technique designed to measure the performance rating of the eligible lender or servicer for the purpose of this section. Each eligible lender or servicer shall submit the audit required by this section to the Secretary and to each appropriate guaranty agency. “(2) Additional information on lenders and servicers.— Each appropriate guaranty agency shall provide the Secretary with such other information in its possession regarding an eligible lender or servicer desiring designation as may relate to the Secretary’s determination under subsection (a), including but not limited to any information suggesting that the application of a lender or servicer for designation under subsection (a) should not be approved. “(3) Secretary’s determinations.— The Secretary shall make the determination under subsection (a) based upon the audits submitted under this section, such other information as provided by any guaranty agency under paragraph (2), and any information in the possession of the Secretary or submitted by any other agency or office of the Federal Government. If the results of the audit are not persuasively rebutted by such other information, the Secretary shall inform the eligible lender or servicer and the appropriate guaranty agency that its application for designation as an exceptional lender or servicer has been approved. “(4) Cost of audit.— Each eligible lender or servicer shall pay for all the costs of the audits required under this section. “(5) Compliance audit.— In order to maintain its status as an exceptional eligible lender or servicer, the lender or servicer shall undergo a quarterly compliance audit at the end of each quarter (other than the quarter in which status as an exceptional lender or servicer is established through a financial and compliance audit, as described in subsection (c)(1)), and submit the results of such audit to the Secretary and such appropriate guaranty agency. The compliance audit will review compliance with due diligence requirements for the period since the last audit. “(6) Loss of designation.— If the audit performed pursuant to paragraph (5) fails to meet the standards for designation as an exceptional lender or servicer under subsection (a)(1), the lender or servicer shall lose its designation as an exceptional lender or servicer. A lender or servicer receiving a compliance audit not meeting the standard for designation as an exceptional lender or servicer may reapply for designation under subsection (a) at any time. “(7) Due diligence standards.— Due diligence standards used for determining compliance under paragraph (5) shall be promulgated by the Secretary after consultation with lenders, guaranty agencies and servicers and shall consist of a list of specific elements for the Federal regulations selected to provide an indication of systems degradation. “(8) Additional revocation authority.— Notwithstanding any other provision of this section, designation under subsection (a) may be revoked at any time by the Secretary if the Secretary determines that the eligible lender or servicer has failed to maintain an overall level of regulatory compliance consistent with the audit submitted by the eligible lender or servicer 106 STAT. 539under this section or if the Secretary believes the lender or servicer may have engaged in fraud in securing designation under subsection (a) or is failing to service loans in accordance with program regulations. “(d) Supervision of Designated Guaranty Agencies.— “(1) Audit of guaranty agencies.— Each guaranty agency desiring a designation under subsection (a) shall have a financial and compliance audit of the defaulted loan portfolio of such guaranty agency conducted annually by a qualified independent organization or person from a list of qualified organizations or persons promulgated by the Secretary in accordance with standards established by the Comptroller General and the Secretary. The standards shall include defined statistical sampling techniques designed to measure the performance rating of the guaranty agency for the purpose of this section. Each guaranty agency shall submit the audit required by this paragraph to the Secretary. “(2) Quarterly sample audits.— The Secretary may require quarterly sample audits as a means of determining continued qualification of the guaranty agency for designation as an exceptional guaranty agency. “(3) Secretary’s determinations.— The Secretary shall make the determination under subsection (a) based upon the audits submitted under this section and other information in his possession. If the results of the audit are not persuasively rebutted by such other information, the Secretary shall inform the guaranty agency that its application for designation as an exceptional guaranty agency has been approved. “(4) Costs of audits.— Each guaranty agency shall pay for all of the costs of the audits regulated by this section. “(5) Revocation for fraud.— The Secretary may revoke the designation of a guaranty agency under subsection (a) at any time if the Secretary has reason to believe the guaranty agency secured its designation under subsection (a) through fraud or fails to comply with applicable regulations. “(6) Revocation based on performance.— Designation as an exceptional guaranty agency may be revoked at any time by the Secretary upon 30 days notice and an opportunity for a hearing before the Secretary upon a finding by the Secretary that the guaranty agency has failed to maintain an acceptable overall level of regulatory compliance. “(e) Special Rule.— Reimbursements made by the Secretary on loans submitted for claim by an eligible lender or loan servicer designated for exceptional performance under this section shall not be subject to additional review by the Secretary or repurchase by the guaranty agency for any reason other than a determination by the Secretary that the eligible lender, loan servicer, or guaranty agency engaged in fraud or other purposeful misconduct in obtaining designation for exceptional performance. “(f) Limitation.— Nothing in this section shall be construed to affect the processing of claims on student loans of eligible lenders not subject to this paragraph. “(g) Claims.— A lender, servicer, or guaranty agency designated under subsection (a) failing to service loans or otherwise comply with applicable program regulations shall be considered in violation of the Federal False Claims Act. 106 STAT. 540 “(h) Evaluation.— Not later than 3 years after the date of enactment of this Act, the Comptroller General shall submit to the Chairman of the Senate Labor and Human Resources Committee and the House Committee on Education and Labor, an evaluation of the provisions of this section including, but not limited to, the following: “(1) The effectiveness of due diligence performed by lenders and servicers receiving designation as exceptional lenders or servicers from the perspective of securing maximum collections from borrowers. “(2) A quantification of the dollar volume of claims that were paid to exceptional lenders and servicers that would not have been paid under applicable program provisions prior to the enactment of this section. “(3) An assessment of the impact of this section on the financial condition of guaranty agencies. “(4) An assessment of the savings to lenders, servicers, and guaranty agencies resulting from designation as exceptional performance. “(5) An identification of specific administration steps that lenders, servicers, and guaranty agencies do not have to perform as a result of designation as exceptional lenders, servicers, or guaranty agencies. “(6) A recommendation for program modifications applicable to all program participants based on the findings of the evaluation. “(7) A recommendation for modifications to this section and whether the program should be continued. “(i) Termination.— After receipt of the study authorized in subsection (h), the Secretary may terminate such program if he determines such termination to be in the fiscal interest of the United States. “(j) Definitions.— For the purpose of this section— “(1) the term ‘due diligence requirements’ means the activities required to be performed by lenders on delinquent loans pursuant to regulations issued by the Secretary; “(2) the term ‘eligible loan’ means a loan made, insured or guaranteed under part B of title IV; “(3) the term ‘servicer’ means an entity servicing and collecting student loans which— “(A) has substantial experience in servicing and collecting consumer loans or student loans; “(B) has an independent financial audit annually which is furnished to the Secretary and any other parties designated by the Secretary; “(C) has business systems which are capable of meeting the requirements of part B of title IV; “(D) has adequate personnel who are knowledgeable about the student loan programs authorized by part B of title IV; and “(E) does not have any owner, majority shareholder, director, or officer of the entity who has been convicted of a felony. 106 STAT. 541 “loan forgiveness for teachers, individuals performing national community service and nurses “Sec. 428J. (a) Statement of Purpose.— It is the purpose of this section to encourage individuals to— “(1) enter the teaching and nursing profession; and “(2) perform national and community service. “(b) Demonstration Program.— “(1) In general.— The Secretary, in consultation with the Secretary of Health and Human Services, is authorized to carry out a demonstration program of assuming the obligation to repay a loan made, insured or guaranteed under this part (excluding loans made under sections 428A, 428B, or 428C) for any new borrower after October 1, 1992, who— “(A) is employed as a full-time teacher— “(i) in a school which qualifies under section 465(a)(2)(A) for loan cancellation for Perkins loan recipients who teach in such schools; and “(ii) of mathematics, science, foreign languages, special education, bilingual education, or any other field of expertise where the State educational agency determines there is a shortage of qualified teachers; “(B) agrees in writing to volunteer for service under the Peace Corps Act or under the Domestic Volunteer Service Act of 1973, or to perform comparable service as a full-time employee of an organization which is exempt from taxation under section 501(c)(3) of the Internal Revenue Code of 1986, if the borrower does not receive compensation which exceeds the greater of— “(i) the minimum wage rate described in section 6 of the Fair Labor Standards Act of 1938; or “(ii) an amount equal to 100 percent of the poverty line for a family of two (as defined in section 673(2) of the Community Services Block Grant Act); or “(C) is employed full-time as a nurse in a public hospital, a rural health clinic, a migrant health center, an Indian Health Service, an Indian health center, a Native Hawaiian health center or in an acute care or long-term care facility. “(2) Regulations.— The Secretary is authorized to issue such regulations as may be necessary to carry out the provisions of this section. “(c) Loan Repayment.— “(1) In general.— The Secretary shall assume the obligation to repay— “(A) 15 percent of the total amount of Stafford loans incurred by the student borrower during such borrower’s last 2 years of undergraduate education for the first or second academic year in which such borrower meets the requirements described in subsection (a); “(B) 20 percent of such total amount for such third or fourth academic year; and “(C) 30 percent of such total amount for such fifth academic year. “(2) Construction.— Nothing in this subsection shall be construed to authorize the refunding of any repayment of a Stafford loan. 106 STAT. 542 “(3) Interest.— If a portion of a loan is repaid by the Secretary under this section for any year, the proportionate amount of interest on such loan which accrues for such year shall be repaid by the Secretary. “(4) Special rule.— In the case where a student borrower who is not participating in loan repayment pursuant to this section returns to an institution of higher education after graduation from an institution of higher education for the purpose of obtaining a teaching certificate, the Secretary is authorized to assume the obligation to repay the total amount of Stafford loans incurred for a maximum of 2 academic years in returning to an institution of higher education for the purpose of obtaining a teaching certificate or additional certification. Such Stafford loans shall only be repaid for borrowers who qualify for loan repayment pursuant to the provisions of this section, and shall be repaid in accordance with the provisions of paragraph (1). “(d) Repayment of Eligibility Lenders.— The Secretary shall pay to each eligible lender or holder for each fiscal year an amount equal to the aggregate amount of Stafford loans which are subject to repayment pursuant to this section for such year. “(e) Application for Repayment.— Each eligible individual desiring loan repayment under this section shall submit an application to the Secretary at such time, in such manner, and containing such information as the Secretary may reasonably require. “(f) Definitions.— For the purpose of this section the term ‘eligible lender’ has the same meaning given such term in section 435(d). “(g) Evaluation.— “(1) In general.— The Secretary shall conduct, by grant or contract, an independent national evaluation of the impact of the program assisted under this part on the fields of teaching, nursing, and community service. “(2) Competitive basis.— The grant or contract described in paragraph (1) shall be awarded on a competitive basis. “(3) Contents.— The evaluation described in this section shall— “(A) assess whether the program assisted under this section has brought into teaching, nursing, and community service a significant number of highly capable individuals who otherwise would not have entered such fields; “(B) assess whether a significant number of students perform the service described in subsection (b) or opt to repay the loans instead of remaining in the career for which such student received loan repayment under this section; “(C) identify the barriers to the effectiveness of the program assisted under this section; “(D) assess the cost-effectiveness of such program in improving teacher, nursing, and community service worker quality and quantity and the ways to improve the cost-effectiveness of such program; “(E) identify the reasons for which participants in the program have chosen to take part in such program; and “(F) identify other areas of community service or employment which may serve as appropriate methods of loan repayment. 106 STAT. 543 “(4) Interim evaluation reports.— The Secretary shall prepare and submit to the President and the Congress such interim reports on the evaluation described in this section as the Secretary deems appropriate, and shall submit such a final report by January 1, 1997. “(5) Authorization of Appropriations.— There are authorized to be appropriated to carry out this section $10,000,000 for fiscal year 1993 and such sums as may be necessary for each of the 4 succeeding fiscal years.”.