ALLOCATION OF FUNDS.

SEC. 462. ALLOCATION OF FUNDS. (a) Institutional Allocation.— Section 462(a)(1)(A) of the Act is amended by striking “such institution received” and inserting “allocated to such institution”. (b) Appeals Process.— Section 462(e) (20 U.S.C. 1087bb(e)) is amended— (1) by striking “An” and inserting “(1) An”; and (2) by adding at the end the following new paragraph: “(2) The Secretary shall establish an appeals process by which the anticipated collections required in paragraph (1) may be waived for institutions with low default rates in the program assisted under this part.”. (c) Default Reduction and Default Penalties.— Section 462(f) of the Act is amended to read as follows: “(f) Default Reduction and Default Penalties.— (1) For any fiscal year prior to fiscal year 1994, any institution which has a default rate which equals or exceeds 7.5 percent but does not exceed the maximum default rate applicable to the award year 106 STAT. 577under subsection (g), the institution’s default penalty is a percentage equal to the complement of such default rate. For any institution which has a default rate that does not exceed 7.5 percent, the institution’s default penalty is equal to one. “(2) For fiscal year 1994 and any succeeding fiscal year, any institution with a cohort default rate (as defined under subsection (h)) which— “(A) equals or exceeds 15 percent, shall establish a default reduction plan pursuant to regulations issued by the Secretary; “(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.”. (d) Applicable Maximum Default Rate.— Section 462(g) of the Act is amended to read as follows: “(g) Applicable Maximum Default Rate.— (1) For award years 1992 and 1993, the applicable maximum default rate is 15 percent. “(2) For award year 1994 and subsequent years, the maximum cohort default rate is 30 percent.”. (e) Definitions of Default Rate and Cohort Default Rate.— Section 462(h) of the Act is amended— (1) by striking the title of the subsection and inserting “Definitions of Default Rate and Cohort Default Rate,”; (2) in paragraph (1), by striking “For the purpose of this section,” and inserting “For any award year prior to award year 1994, for the purpose of this section,”; (3) by redesignating paragraph (3) as paragraph (4); (4) by striking “120” in subparagraph (A) of such paragraph and inserting “240”; (5) by amending subparagraph (B) of such paragraph to read as follows: “(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,”; and (6) by inserting after paragraph (2) the following new paragraph: “(3) (A) For award year 1994 and any succeeding year, the term ‘cohort default rate’ means, for any award year in which 30 or more current and former students at the institution enter repayment on loans under this part (received for attendance at the institution), the percentage of those current and former students who enter repayment on such loans (received for attendance at that institution) in that award year who default before the end of the following award year. “(B) In determining the number of students who default before the end of such award year, the Secretary shall, in calculating the cohort default rate, exclude any loans which, due to improper servicing or collection, would result in an inaccurate or incomplete calculation of the cohort default rate. “(C) For any award year in which less than 30 of the institution’s current and former students enter repayment, the term ‘cohort default rate’ means the percentage of such current and former students who entered repayment on such loans in any of the three most recent award years and who default before 106 STAT. 578the end of the award year immediately following the year in which they entered repayment. “(D) A loan on which a payment is made by the institution of higher education, its owner, agency, contractor, employee, or any other entity or individual affiliated with such institution, in order to avoid default by the borrower, is considered as in default for the purposes of this subsection. “(E) Any loan that is in default but on which the borrower has made satisfactory arrangements to resume payment or any loan which has been rehabilitated before the end of such following award year is not considered as in default for purposes of this subsection. “(F) In the case of a student who has attended and borrowed at more than one school, the student (and his or her subsequent repayment or default) is attributed to the school for attendance at which the student received the loan that entered repayment in the award year. “(G) The Secretary shall prescribe regulations designed to prevent an institution from evading the application to that institution of a default rate determination under this subsection through the use of such measures as branching, consolidation, change of ownership or control or other means as determined by the Secretary.”. (f) Reallocation of Excess Allocations.— Section 462(j) of the Act (20 U.S.C. 1087bb(j)) is amended to read as follows: “(j) Reallocation of Excess Allocations.— “(1) In general.— (A) If an institution of higher education returns to the Secretary any portion of the sums allocated to such institution under this section for any fiscal year, the Secretary shall reallocate 80 percent of such returned portions to participating institutions in an amount not to exceed such participating institution’s excess eligible amounts as determined under paragraph (2). “(B) For the purpose of this subsection, the term ‘participating institution’ means an institution of higher education that— “(i) was a participant in the program assisted under this part in fiscal year 1985; and “(ii) did not receive an allocation under subsection (a) in the fiscal year for which the reallocation determination is made. “(2) Excess eligible amount.— For any participating institution, the excess eligible amount is the amount, if any, by which— “(A) (i) that institution’s eligible amount (as determined under paragraph (3) of subsection (c)), divided by (ii) the sum of the eligible amounts of all participating institutions (as determined under paragraph (3)), multiplied by (iii) the amount of funds available for reallocation under this subsection; exceeds “(B) the amount required to be allocated to that institution under subsection (c) of section 462. “(3) Remainder.— The Secretary shall reallocate the remainder of such returned portions in accordance with regulations of the Secretary. “(4) Allocation reductions.— If under paragraph (1) of this subsection an institution returns more than 10 percent of its allocation, the institution’s allocation for the next fiscal year 106 STAT. 579shall be reduced by the amount returned. The Secretary may waive this paragraph for a specific institution if the Secretary finds that enforcing it is contrary to the interest of the program.”.