ESTABLISHMENT OF FEDERAL DIRECT LOAN PROGRAM.

SEC. 451. ESTABLISHMENT OF FEDERAL DIRECT LOAN PROGRAM. Part D of title IV of the Act (20 U.S.C. 1087a et seq.) is amended to read as follows: “PART D— FEDERAL DIRECT LOAN DEMONSTRATION PROGRAM “SEC. 451. PROGRAM AND PAYMENT AUTHORITY. “(a) Program Authority.— The Secretary shall, in accordance with the provisions of this part, carry out a loan demonstration program for qualified students and parents at selected institutions of higher education to enable the students to pursue their courses of study at such institutions during the period beginning on July 1, 1994 and ending on June 30, 1998. “(b) Payment Authority.— “(1) General authority.— The Secretary shall make payments under this part for any fiscal year to institutions of higher education having an agreement under section 454, on the basis of the estimated needs of students at each institution and parents for student or parent loans, taking into consideration the demand and eligibility of such students and parents for loans under this part. “(2) Entitlement provision.— An institution of higher education which has an agreement with the Secretary under section 454 shall be deemed to have a contractual right against the United States to receive payments according to that agreement. “SEC. 452. PAYMENT RULES. “(a) In General.— The Secretary shall make payments required by section 451 in such installments as the Secretary determines— “(1) reflect accurately the disbursement of funds for student and parent loans by the institution of higher education, and “(2) will best carry out the objectives of this part. “(b) Initial Payments.— The initial payments for any academic year required by section 451 shall be made available to each institution of higher education not later than 10 days prior to the beginning of the academic year at such institution. “SEC. 453. SELECTION BY THE SECRETARY. “(a) Entry Requirement.— The Secretary shall enter into agreements with institutions of higher education, at which the total loan volume under the Federal Stafford Loan program, the Federal Supplemental Loans for Students program, and the Federal PLUS loan program was $500,000,000 in the most recent year for which data is available, to participate in the loan demonstration program to make loans for the period beginning with the academic year beginning on July 1, 1994, and ending with loans made before June 30, 1998. Such agreements shall be concluded not later than January 1, 1994. 106 STAT. 570 “(b) Selection Criteria.— The Secretary shall enter into agreements with institutions of higher education which represent a cross-section of all institutions of higher education participating in part B of this title in terms of control of the institution, length of academic program, highest degree offered, size of student enrollment, percentage of students borrowing under part B, geographic location, annual loan volume, default experience and composition of the student body. “(c) Preference for Applying Institutions.— In constituting the cross-section of institutions of higher education required by the previous subsection, the Secretary shall first enter into agreements, to the maximum extent possible consistent with the requirements of constituting the cross-section, with institutions of higher education which apply to participate in the loan demonstration program. Institutions of higher education desiring to participate m the demonstration shall submit an application containing such information as the Secretary may by regulation prescribe. “(d) Designation of Additional institutions.— If an insufficient number of institutions of higher education apply and satisfy the conditions provided in subsections (a) and (b) of this section, the Secretary shall designate additional institutions of higher education from among those eligible to participate in part B to participate in the loan demonstration program in order to satisfy the conditions provided in subsections (a) and (b) of this section. An institution of higher education designated by the Secretary pursuant to this subsection may decline to participate in the loan demonstration program for good cause pursuant to regulations established by the Secretary. “(e) Limitation.— The Secretary shall ensure that the annual loan volume under the Federal Stafford Loan program, the Federal Supplemental Loans for Students program, and the Federal Plus loan program at the institutions of higher education with which the Secretary enters into agreements under this part, in the most recent fiscal year for which data are available, represents not more than 15 percent of the loan guarantees of any guaranty agency under such programs and the Secretary shall determine that such guaranty agency will remain financially sound. “(f) Selection of Subgroup to Test Income Contingent Repayment.— “(1) Selection.— Within the institutions of higher education selected or designated to participate in the loan demonstration program under this part, the Secretary shall select 35 percent of such institutions to offer income contingent repayment methods in accordance with section 454(6). “(2) Finding Required.— The Secretary shall not select institutions to offer such repayment methods unless the Secretary publishes a finding that— “(A) the Secretary has established a collection mechanism that will provide a high degree of certainty that collections will be made in accordance with the repayment option; and “(B) the use of such repayment option and collection mechanism will result in an increase in the net amount the Government will collect. “(g) Consortia.— Institutions of higher education may apply to participate in the program pursuant to subsection (c) as consortia. The Secretary shall consider the members of the consortia as 106 STAT. 571individual institutions for the purposes of subsection (b). Institutions of higher education selected by the Secretary to participate in the program may also enter into consortia for the purpose of carrying out the agreement required by section 454. “SEC. 464. AGREEMENT REQUIRED. “An agreement with any institution of higher education for participation in the loan demonstration program shall— “(1) provide for the establishment and maintenance of a loan demonstration program at the institution of higher education under which— “(A) the institution of higher education will identify eligible students who seek student financial assistance at such institution, in accordance with section 484; “(B) the institution of higher education will estimate the need of each such student as required by part F; “(C) the institution of higher education will originate loans to such eligible students and eligible parents in accordance with this part, and will not charge any administrative fees to such students or parents for such origination activities; “(D) the institution of higher education will provide timely information concerning the status of student and parent borrowers to the contractor or contractors responsible for loan collection pursuant to section 457; and “(E) the institution of higher education will participate in the loan demonstration program for its duration, subject to procedures for withdrawal established by section 455; “(2) provide assurances that the institution of higher education will comply with the provisions of section 463A, relating to student loan information, with respect to loans made under this part; “(3) provide that the note or evidence of obligation on the loan shall be the property of the Secretary and that the institution of higher education will act as the agent of the Secretary for the purpose of making loans under the loan demonstration program; “(4) provide that the institution of higher education will accept responsibility and liability stemming from its failure to perform its functions pursuant to the agreement; “(5) provide that students at the institution of higher education and their parents (with respect to such students) will not be eligible to participate in the Federal Stafford Loan program, the Federal Supplemental Loans to Students program, or the Federal Plus loan program for the period during which such institution participates in the loan demonstration program; “(6) in the case of the institutions selected by the Secretary pursuant to section 453(f), include such terms and conditions as the Secretary may require by regulation for testing income contingent repayment methods, which shall include— “(A) requiring such institutions to offer the option of income contingent repayment, based on an annual review of the borrowers Federal income tax return, to any student who applies for a loan under this part; “(B) the additional or different terms and conditions to be included in the notes or other agreements entered into 106 STAT. 572by the borrower, as required by such regulations, including provisions with respect to the disclosure by the borrower of subsequent income; “(C) providing for the discharge of loans after not more than 25 years of income contingent repayment; and “(D) such data and reporting requirements and such other provisions as the Secretary considers necessary to carry out the purposes of section 458(d)(2) and to the protection of the Federal fiscal interest; and “(7) include such other provisions as may be necessary to protect the financial interest of the United States and to promote the purposes of this part. “SEC. 455. WITHDRAWAL AND TERMINATION PROCEDURES. “The Secretary shall establish by regulation procedures which enable institutions of higher education who have made agreements with the Secretary pursuant to section 454 to withdraw or to be terminated from the loan demonstration program. “SEC. 456. TERMS AND CONDITIONS. “Unless otherwise specified in this part, the loans made under this part shall have the same terms, conditions, and benefits as loans made under sections 428, 428A, and 428B of this title. Any loan made under this part shall be eligible for consolidation under section 428C of part B of this title. “SEC. 457. LOAN COLLECTION FUNCTIONS UNDER COMPETITIVE PROCUREMENT CONTRACTS. “(a) In General.— The Secretary shall provide, through contracts awarded on a competitive basis, for— “(1) the collection of principal and interest on loans made under this part by not less than 5 contracts, at least one of which shall be for servicing loans that are subject to income contingent repayment; “(2) the collection of defaulted loans made under this part; “(3) the establishment and operation of a central data system for the maintenance of records on all loans made under this part; “(4) programs for default prevention; and “(5) such other programs as the Secretary determines are necessary to ensure the success of the loan demonstration program. “(b) Servicing for Income Contingent Loans.— The Secretary shall, through contract, ensure the availability of servicing of loans made pursuant to section 454(6) at a cost comparable to that available for loans under part B of this title (that are not subject to income contingent repayment). “(c) Information on Income Contingent Loans.— The Secretary shall acquire such information as is necessary regarding the adjusted gross income of borrowers (under this part and under part B) of loans that are subject to income contingent repayment for the purpose of determining the annual repayment obligations of such borrowers. The Secretary, not less often than once per year, shall provide to the servicer, lender, or holder of a loan under this part the Secretary’s determination of the borrower’s repayment obligation on that loan for such year. 106 STAT. 573 “SEC. 458. REPORTS. “(a) Annual Reports.— The Secretary shall submit to the Congress not later than July 1, 1993, and each July 1 for the 5 succeeding years an annual report describing the progress and status of the loan demonstration program. “(b) Interim Final Report.— The Comptroller General shall submit to the Congress not later than January 1, 1997, an interim final report evaluating the experience of the Department of Education, the participating institutions of higher education, students, and parents with respect to the loan demonstration program. The report shall include— “(1) the administrative costs, including costs per loan, incurred by participating institutions of higher education in administering the loan demonstration program; “(2) the administrative costs, including costs per loan, incurred by the Department of Education and its contractors in carrying out its responsibilities, including the costs of origination, data systems, servicing, and collection; “(3) an evaluation of the effectiveness of the loan demonstration program in providing services to students and parents, including loan application, loan origination, student financial aid packaging, tracking of student status, responsiveness to student inquiries and processing of deferments, forbearances, and repayments; “(4) the frequency and cost of borrower delinquency and default under the loan demonstration program and losses incurred by institutions of higher education and servicers, including losses caused by improper origination or servicing of loans; “(5) the timeliness of capital availability to institutions of higher education and of loans to students and parents and the cost of loan capital; “(6) an evaluation of the effectiveness of the income contingent repayment option; “(7) a comparison of the experience of institutions of higher education, students, and parents participating in loan demonstration program with the experience of institutions, students, and parents in the control group described in subsection (d) with respect to the subjects indicated in paragraphs (1) through (6) of this subsection; “(8) an evaluation of the administrative performance of the Department; “(9) an analysis of the reasons institutions selected by the Secretary pursuant to section 453(d) chose not to participate and the reasons institutions withdrew or were terminated pursuant to section 455; “(10) an analysis of the experience of borrowers with loans under both this part and part B and recommendations for the most effective repayment procedures for such borrowers; “(11) a comparison of the cost of loan capital for loans for the loan demonstration program with the cost of loan capital for the comparable programs in part B of this title; “(12) an analysis, where practicable, of the experience of institutions which participate as part of a consortia; and “(13) recommendations for modifications, continuation, expansion, suspension, or termination of the loan demonstration pro-106 STAT. 574gram or replacement of all or some of the programs authorized by part B. “(c) Final Report.— The Comptroller General shall submit to the Congress not later than May 1, 1998, a final report evaluating the experience of the Department of Education, the participating institutions of higher education, and students with respect to the loan demonstration program. The report shall include the same matters provided for in subsection (b) of this section. “(d) Control Group.— “(1) Regular repayment.— To assist the Comptroller General in preparing the reports required by subsections (b)(6) and (c) of this section, the Secretary shall select a control group of institutions of higher education, which represent a cross-section of all institutions of higher education participating in part B of this title and which is comparable to the cross-section of institutions of higher education selected for participation in the loan demonstration program pursuant to section 453. The Secretary shall select the control groups in the same manner, pursuant to section 453, that the institutions of higher education are selected to participate in the demonstration program. “(2) Income contingent repayment.— If the Secretary makes a selection of institutions to test income contingent repayment methods in accordance with section 453(f), the Secretary shall, within the control group selected under paragraph (1), identify a group of institutions to serve as a control group for comparison with the institutions offering income contingent loans under this part pursuant to section 454(6). The institutions selected for the control group under this paragraph shall represent a reasonable cross section of the institutions selected under paragraph (1). The Secretary shall publish a list of the institutions that are so selected. Any eligible lender of a loan to a student for attendance at any such institution shall, in accordance with regulations prescribed by the Secretary, offer such students the option of repaying such loans on an income contingent basis consistent with such regulations. “(3) Income contingent terms and conditions.—The Secretary shall, by regulation, establish the terms and conditions for loans that are subject to paragraph (2) of this subsection. Such terms and conditions shall, to the extent practicable, be the same as the terms and conditions of loans made pursuant to section 454(6). The Secretary is authorized to enter into such agreements (and amendments to agreements) under part B of this title as may be necessary to carry out paragraph (2) and this paragraph. “(e) Treatment of Costs.— In reporting with respect to costs in the reports required by subsections (b) and (c) of this section, the Comptroller General shall report separately the nonrecurrent costs such as start-up costs associated with the loan demonstration program, the administrative costs incurred by institutions of higher education in providing information to enable the Comptroller General to prepare the reports required by subsections (b) and (c) of this section and the normal costs of operating the loan demonstration program. 106 STAT. 575 “SEC. 459. SCHEDULE OF REGULATORY ACTIVITIES BY THE SECRETARY. “(a) Proposed Regulations.— The Secretary shall publish in the Federal Register not later than April 1, 1993, all proposed regulations for carrying out the program established by this part, including regulations with respect to— “(1) payments to institutions of higher education; “(2) the selection of institutions of higher education to participate in the loan demonstration program; “(3) application by institutions of higher education to participate in the loan demonstration program; “(4) agreements between the Secretary and institutions of higher education participating in the loan demonstration program; “(5) procedures with respect to the withdrawal and termination of institutions of higher education from the loan demonstration program; and “(6) procedures by which institutions designated by the Secretary pursuant to section 453(d) may decline to participate in the loan demonstration program. “(b) Final Regulations.— The Secretary shall publish in the Federal Register not later than July 1, 1993, all final regulations for carrying out the program established by this part, including regulations with respect to the same matters provided for in subsection (a) of this section. “(c) Closing Date for Applications From Institutions.— The Secretary shall establish October 1, 1993, as the closing date for receiving applications from institutions of higher education desiring to participate in the loan demonstration program pursuant to section 453(c). “(d) Publication of List of Participating Institutions and Control Group.— Not later than January 1, 1994, the Secretary shall publish in the Federal Register a list of the institutions of higher education selected to participate in the loan demonstration program pursuant to section 453 and a list of the institutions of higher education in the control group required by section 458(d). “(e) Procurement Contracts.— The Secretary shall award contracts pursuant to section 457 not later than February 1, 1994. “SEC. 459A. FUNDS FOR ADMINISTRATIVE EXPENSES. “Each fiscal year, there shall be available to the Secretary of Education from funds not otherwise appropriated, funds to be obligated for administrative costs under this part, not to exceed $10,000,000 in fiscal year 1993, $17,000,000 in fiscal year 1994, $37,000,000 in fiscal year 1995, $54,000,000 in fiscal year 1996, and $65,000,000 in fiscal year 1997.”.