FEDERAL PROGRAM OF INSURED LOANS TO GRADUATE STU-DENTS IN HEALTH PROFESSIONS SCHOOLS.

SEC. 602. FEDERAL PROGRAM OF INSURED LOANS TO GRADUATE STU-DENTS IN HEALTH PROFESSIONS SCHOOLS. (a) Establishment of Additional Credit Authority.—Section 728(a) (42 U.S.C. 294a(a)) is amended in the first sentence by striking “and” after “1987;” and by inserting before the period the following: “; $325,000,000 for fiscal year 1989; $375,000,000 for fiscal year 1990; and $400,000,000 for fiscal year 1991”. (b) Extension of Period for Insurance of New Loans.—Section 728(a) (42 U.S.C. 294a(a)) is amended— (1) by inserting before the period at the end of the second sentence the following: “, and if in any fiscal year no ceiling has been established, any difference carried over shall constitute the ceiling for making new loans and paying installments for such fiscal year.”; and (2) in the third sentence by striking “1991,” and inserting “1994,”. (c) Prohibition Against Apportionments of Credit Authority.—Section 728(a) (42 U.S.C. 294a(a)) is amended by adding at the end the following new sentence: “The total principal amount of Federal loan insurance available under this subsection shall be granted by the Secretary without regard to any apportionment for the purpose of chapter 15 of title 31, United States Code, and without regard to any similar limitation.”. (d) Priority in Provision of Insurance.—Section 728(b) (42 U.S.C. 294a(b)) is amended by inserting “(1)” after the subsection designation and by adding at the end the following new paragraph: “(2) In providing certificates of insurance under section 732 through comprehensive contracts, the Secretary shall give priority to eligible lenders that agree— “(A) to make loans to students at interest rates below the rates prevailing, during the period involved, for loans covered by Federal loan insurance pursuant to this subpart; or “(B) to make such loans under terms that are otherwise favorable to the student relative to the terms under which 102 STAT. 3123eligible lenders are generally making such loans during such period.”. (e) Frequency of Compounding of Interest.—Section 731(a)(2)(D)) (42 U.S.C. 294d(a)(2)(D)1 is amended by inserting “not more frequently than” after “compounded”. (f) Determination of Financial Need of Students.—Section 731 (42 U.S.C. 294d) is amended by adding at the end the following new subsection: “(e) With respect to any determination of the financial need of a student for a loan covered by Federal loan insurance under this subpart, this subpart may not be construed to limit the authority of any school to make such allowances for students with special circumstances as the school determines appropriate.”. (g) Authority for Assignment of Loans With Respect to Secondary Market.—Section 732(d) (42 U.S.C. 294e(d)) is amended by striking “eligible lender, or” and inserting the following: “eligible lender (including a public entity in the business of purchasing student loans), or”. (h) Clarification With Respect to Reference to Holders of Federally Insured Loans.—Section 733(d) (42 U.S.C. 294f(d)) is amended in the first sentence by inserting “eligible lender or” before “holder”; (i) Amount of Loss Pursuant to Default.—Section 733(e)(2) (42 U.S.C. 294f(eX2)) is amended by inserting before the semicolon the following: “, less the amount of any judgment collected pursuant to default proceedings commenced by the eligible lender or holder involved”. (j) Clarification With Respect to Effect of Bankruptcy.—Section 733(g) (42 U.S.C. 2941(g)) is amended by inserting “any chapter of before “title 11,”. (k) Provisions With Respect to Actions for Default.— (1) Section 733(a) (42 U.S.C. 294Ra)) is amended by striking “(including, if appropriate, commencement of a suit)” and inserting the following: “(including, subject to subsection (h), commencement and prosecution of an action)”. (2) Section 733 (42 U.S.C. 294f) is amended— (A) in subsection (b), by adding at the end thereof the following new sentence: “The Secretary may sell without recourse to eligible lenders (or other entities that the Secretary determines are capable of dealing in such loans) notes or other evidence of loans received through assignment under the first sentence.”; and (B) by adding at the end the following new subsections: “(h)(1) With respect to the default by a borrower on any loan covered by Federal loan insurance under this subpart, the Secretary shall, under subsection (a), require an eligible lender or holder to commence and prosecute an action for such default unless— “(A) in the determination of the Secretary— “(i) the eligible lender or holder has made reasonable efforts to serve process on the borrower involved and has been unsuccessful with respect to such efforts, or “(ii) prosecution of such an action would be fruitless because of the financial or other circumstances of the borrower; “(B) for such loans made before the date of the enactment of the Health Professions Reauthorization Act of 1988, the loan involved was made in an amount of less than $5,000; or 102 STAT. 3124 “(C) for such loans made after such date, the loan involved was made in an amount of less than $2,500. “(2) With respect to an eligible institution that has commenced an action pursuant to subsection (a), the Secretary shall make the payment required in such subsection, or deny the claim for such payment, not later than 60 days after the date on which the eligible institution notifies the Secretary that judgment has been entered with respect to the action. “(i) The Secretary may establish reasonable limits for default rates for borrowers in each of the health professions identified in section 737(1). If the eligible institutions within any of the health professions, taken as a group, exceed such limits, the Secretary may suspend, terminate, or otherwise restrict the eligibility of such group of schools for borrowing under this section.”. (l) State Designations of Eligible Lenders.—Section 737(2) (42 U.S.C. 294j(2)) is amended— (1) by striking “or” after “State,” the second place such term appears; and (2) by inserting before the period the following: “, or a non-profit private entity designated by the State, regulated by the State, and approved by the Secretary”. (m) Reissuance and Refinancing Agreements Authorized.—Subpart 1 of part C of title VII (42 US C. 294 et seq.) is amended by adding at the end thereof the following new section: “SEC. 739A. REISSUANCE AND REFINANCING OF CERTAIN LOANS. “(a) In General.—Any borrower who received a loan insured under this subpart bearing an interest rate that is fixed at a rate in excess of 12 percent per year may enter into an agreement with the eligible lender that made such loan for the reissuance of such Loan in order to permit the borrower to obtain for such loan the interest rate in effect for loans insurable under this subpart on the date the borrower submits an application to such lender for such reissuance. “(b) Procedures.— “(1) Discharge by obtaining loan.—Any borrower who received a loan under this subpart bearing an interest rate that is fixed at a rate in excess of 12 percent per year may obtain a loan from an eligible lender (other than the original lender) for the purpose of discharging the loan from such original eligible lender. A loan made for such purpose— “(A) shall bear interest at the interest rate in effect for loans insurable under this subpart on the date the borrower submits an application for a loan under this subsection; and “(B) shall be applied to discharge the borrower from any remaining obligation to the original eligible lender with respect to the original loan. “(2) Certification.—Each new eligible lender may accept certification from the original eligible lender to the borrower’s original loan in lieu of presentation of the original promissory note. “(c) Time of Payment.—Any loan reissued under subsection (a) or refinanced under subsection (b) shall be payable during the repayment period applicable to the loan made under this subpart prior to the date of enactment of this section, and such reissuance or re-financing shall not result in the extension of the duration of the loan. 102 STAT. 3125 “(d) Administrative Costs.—An eligible lender reissuing a loan under subsection (a) or refinancing a loan under subsection (b) may charge a borrower an amount not in excess of $100 to cover the administrative costs of such reissuance or refinancing. “(e) Insurance.—The reissuance of a loan under subsection (a) or the refinancing of a loan under subsection (b) shall not affect any insurance applicable to such loan, and no additional insurance premium may be charged with respect to such loan. “(f) Notification.—Each holder of a loan made under this subpart shall, not later than January 1, 1989, in the case of loans made before the date of enactment of this section, notify the borrower of such loan— “(1) of the reissuance or refinancing options for which the borrower is eligible under this section; “(2) of those options which will be made available by the holder; and “(3) that, with respect to any option that the holder will not make available, the holder will, to the extent practicable, refer the borrower to an eligible lender offering such option. “(g) Regulations.—The Secretary shall promulgate regulations to implement this section. “(h) Definition.—For purposes of this section, the term ‘eligible lender’ includes the Student Loan Marketing Association.”.