ADDITIONAL ADMINISTRATIVE PROVISIONS.

SEC. 8014. ADDITIONAL ADMINISTRATIVE PROVISIONS.(a) Insurance Percentage.—(1) Amendment.—Subparagraph (G) of section 428(b)(1) (20 U.S.C. 1078(b)(1)(G)) is amended to read as follows:“(G) insures 98 percent of the unpaid principal of loans insured under the program, except that—“(i) such program shall insure 100 percent of the unpaid principal of loans made with funds advanced pursuant to section 428(j) or 439(q);“(ii) for any loan for which the first disbursement of principal is made on or after July 1, 2006, the preceding provisions of this subparagraph shall be applied by substituting ‘97 percent’ for ‘98 percent’; and“(iii) notwithstanding the preceding provisions of this subparagraph, such program shall insure 100 percent of the unpaid principal amount of exempt claims as defined in subsection (c)(1)(G);”.(2) Effective date of amendment.—The amendment made by this subsection shall apply with respect to loans for which the first disbursement of principal is made on or after July 1, 2006.(b) Federal Default Fees.—(1) In general.—Subparagraph (H) of section 428(b)(1) (20 U.S.C. 1078(b)(1)(H)) is amended to read as follows:“(H) provides—“(i) for loans for which the date of guarantee of principal is before July 1, 2006, for the collection of a single insurance premium equal to not more than 1.0 percent of the principal amount of the loan, by deduction proportionately from each installment payment of the proceeds of the loan to the borrower, and ensures that the proceeds of the premium will not be used for incentive payments to lenders; or“(ii) for loans for which the date of guarantee of principal is on or after July 1, 2006, for the collection, 120 STAT. 169 and the deposit into the Federal Student Loan Reserve Fund under section 422A of a Federal default fee of an amount equal to 1.0 percent of the principal amount of the loan, which fee shall be collected either by deduction from the proceeds of the loan or by payment from other non-Federal sources, and ensures that the proceeds of the Federal default fee will not be used for incentive payments to lenders;”.(2) Unsubsidized loans.—Section 428H(h) (20 U.S.C. 1078–8(h)) is amended by adding at the end the following new sentences: “Effective for loans for which the date of guarantee of principal is on or after July 1, 2006, in lieu of the insurance premium authorized under the preceding sentence, each State or nonprofit private institution or organization having an agreement with the Secretary under section 428(b)(1) shall collect and deposit into the Federal Student Loan Reserve Fund under section 422A, a Federal default fee of an amount equal to 1.0 percent of the principal amount of the loan, which fee shall be collected either by deduction from the proceeds of the loan or by payment from other non-Federal sources. The Federal default fee shall not be used for incentive payments to lenders.”. (3) Voluntary flexible agreements.—Section 428A(a)(1) (20 U.S.C. 1078–1(a)(1)) is amended—(A) by striking “or” at the end of subparagraph (A);(B) by striking the period at the end of subparagraph (B) and inserting “; or”; and(C) by adding at the end the following new subparagraph:“(C) the Federal default fee required by section 428(b)(1)(H) and the second sentence of section 428H(h).”.(c) Treatment of Exempt Claims.—(1) Amendment.—Section 428(c)(1) (20 U.S.C. 1078(c)(1)) is amended—(A) by redesignating subparagraph (G) as subparagraph (H), and moving such subparagraph 2 em spaces to the left; and(B) by inserting after subparagraph (F) the following new subparagraph:“(G)(i) Notwithstanding any other provisions of this section, in the case of exempt claims, the Secretary shall apply the provisions of—“(I) the fourth sentence of subparagraph (A) by substituting ‘100 percent’ for ‘95 percent’;“(II) subparagraph (B)(i) by substituting ‘100 percent’ for ‘85 percent’; and“(III) subparagraph (B)(ii) by substituting ‘100 percent’ for ‘75 percent’.“(ii) For purposes of clause (i) of this subparagraph, the term ‘exempt claims’ means claims with respect to loans for which it is determined that the borrower (or the student on whose behalf a parent has borrowed), without the lender’s or the institution’s knowledge at the time the loan was made, provided false or erroneous information or took actions that caused the borrower or the student to be ineligible for all or a portion of the loan or for interest benefits thereon.”.120 STAT. 170(2) Effective date of amendments.—The amendments made by this subsection shall apply with respect to loans for which the first disbursement of principal is made on or after July 1, 2006.(d) Consolidation of Defaulted Loans.—Section 428(c) (20 U.S.C. 1078(c)) is further amended—(1) in paragraph (2)(A)—(A) by inserting “(i)” after “including”; and(B) by inserting before the semicolon at the end the following: “and (ii) requirements establishing procedures to preclude consolidation lending from being an excessive proportion of guaranty agency recoveries on defaulted loans under this part”; (2) in paragraph (2)(D), by striking “paragraph (6)” and inserting “paragraph (6)(A)”; and(3) in paragraph (6)—(A) by redesignating subparagraphs (A) and (B) as clauses (i) and (ii), respectively;(B) by inserting “(A)” before “For the purpose of paragraph (2)(D),”; and(C) by adding at the end the following new subparagraphs:“(B) A guaranty agency shall—“(i) on or after October 1, 2006—“(I) not charge the borrower collection costs in an amount in excess of 18.5 percent of the outstanding principal and interest of a defaulted loan that is paid off through consolidation by the borrower under this title; and“(II) remit to the Secretary a portion of the collection charge under subclause (I) equal to 8.5 percent of the outstanding principal and interest of such defaulted loan; and“(ii) on and after October 1, 2009, remit to the Secretary the entire amount charged under clause (i)(I) with respect to each defaulted loan that is paid off with excess consolidation proceeds.“(C) For purposes of subparagraph (B), the term ‘excess consolidation proceeds’ means, with respect to any guaranty agency for any Federal fiscal year beginning on or after October 1, 2009, the proceeds of consolidation of defaulted loans under this title that exceed 45 percent of the agency’s total collections on defaulted loans in such Federal fiscal year.”.(e) Documentation of Forbearance Agreements.—Section 428(c) (20 U.S.C. 1078(c)) is further amended—(1) in paragraph (3)(A)(i)—(A) by striking “in writing”; and(B) by inserting “and documented in accordance with paragraph (10)” after “approval of the insurer”; and (2) by adding at the end the following new paragraph:“(10) Documentation of forbearance agreements.—For the purposes of paragraph (3), the terms of forbearance agreed to by the parties shall be documented by confirming the agreement of the borrower by notice to the borrower from the lender, and by recording the terms in the borrower’s file.”.(f) Voluntary Flexible Agreements.—Section 428A(a) (20 U.S.C. 1078–1(a)) is further amended—120 STAT. 171(1) in paragraph (1)(B), by striking “unless the Secretary” and all that follows through “designated guarantor”;(2) by striking paragraph (2);(3) by redesignating paragraph (3) as paragraph (2); and(4) by striking paragraph (4). (g) Fraud; Repayment Required.—Section 428B(a)(1) (20 U.S.C. 1078–2(a)(1)) is further amended—(1) by striking “and” at the end of subparagraph (A);(2) by redesignating subparagraph (B) as subparagraph (C); and(3) by inserting after subparagraph (A) the following new subparagraph:“(B) in the case of a graduate or professional student or parent who has been convicted of, or has pled nolo contendere or guilty to, a crime involving fraud in obtaining funds under this title, such graduate or professional student or parent has completed the repayment of such funds to the Secretary, or to the holder in the case of a loan under this title obtained by fraud; and”.(h) Default Reduction Program.—Section 428F(a)(1) (20 U.S.C. 1078–6(a)(1)) is amended—(1) in subparagraph (A), by striking “consecutive payments for 12 months” and inserting “9 payments made within 20 days of the due date during 10 consecutive months”;(2) by redesignating subparagraph (C) as subparagraph (D); and(3) by inserting after subparagraph (B) the following new subparagraph:“(C) A guaranty agency may charge the borrower and retain collection costs in an amount not to exceed 18.5 percent of the outstanding principal and interest at the time of sale of a loan rehabilitated under subparagraph (A).”.(i) Exceptional Performance Insurance Rate.—Section 428I(b)(1) (20 U.S.C. 1078–9(b)(1)) is amended—(1) in the heading, by striking “100 percent” and inserting “99 percent”; and(2) by striking “100 percent of the unpaid” and inserting “99 percent of the unpaid”. (j) Uniform Administrative and Claims Procedure.—Section 432(l)(1)(H) (20 U.S.C. 1082(l)(1)(H)) is amended by inserting “and anticipated graduation date” after “status change”.(1) Section 428(a)(3)(A)(v) (20 U.S.C. 1078(a)(3)(A)(v)) is amended—(A) by striking “or” at the end of subclause (I);(B) by striking the period at the end of subclause (II) and inserting “; or”; and(C) by adding after subclause (II) the following new subclause:“(III) in the case of a loan disbursed through an escrow agent, 3 days before the first disbursement of the loan.”.(2) Section 428(c)(1)(A) (20 U.S.C. 1078(c)(1)(A)) is amended by striking “45 days” in the last sentence and inserting “30 days”.(3) Section 428(i)(1) (20 U.S.C. 1078(i)(1)) is amended by striking “21 days” in the third sentence and inserting “10 days”. 120 STAT. 172