DEFINITIONS OF ELIGIBLE INSTITUTION AND ELIGIBLE LENDER.

SEC. 436. DEFINITIONS OF ELIGIBLE INSTITUTION AND ELIGIBLE LENDER.(a) Participation Rate Index.—(1) Amendments.—Section 435(a) (20 U.S.C. 1085(a)) is amended—(A) in paragraph (2)—(i) in subparagraph (A)(ii), by striking “paragraph (4)” and inserting “paragraph (5)”; and(ii) in subparagraph (B)—(I) by striking “and” at the end of clause (ii); and(II) by striking clause (iii) and inserting the following:“(iii) 25 percent for fiscal year 1994 through fiscal year 2011; and“(iv) 30 percent for fiscal year 2012 and any succeeding fiscal year.”;(B) by redesignating paragraph (6) as paragraph (8), and redesignating paragraphs (3) through (5) as paragraphs (4) through (6), respectively;(C) by inserting after paragraph (2) the following new paragraph:“(3) Appeals for regulatory relief.—An institution whose cohort default rate, calculated in accordance with subsection (m), is equal to or greater than the threshold percentage specified in paragraph (2)(B)(iv) for any two consecutive fiscal years may, not later than 30 days after the date the institution receives notification from the Secretary, file an appeal demonstrating exceptional mitigating circumstances, as defined in paragraph (5). The Secretary shall issue a decision on any such appeal not later than 45 days after the date of submission of the appeal. If the Secretary determines that the institution demonstrates exceptional mitigating circumstances, the Secretary may not subject the institution to provisional certification based solely on the institution’s cohort default rate.”;(D) in paragraph (5)(A) (as redesignated by subparagraph (B)), by striking “For purposes of paragraph (2)(A)(ii)” and all that follows through “following criteria:” and inserting “For purposes of this subsection, an institution of higher education shall be treated as having exceptional mitigating circumstances that make application of paragraph (2) inequitable, and that provide for regulatory relief under paragraph (3), if such institution, in the opinion of an independent auditor, meets the following criteria:”;(E) by inserting after paragraph (6) (as redesignated by subparagraph (B)) the following:“(7) Default prevention and assessment of eligibility based on high default rates.—“(A) First year.—122 STAT. 3254“(i) In general.—An institution whose cohort default rate is equal to or greater than the threshold percentage specified in paragraph (2)(B)(iv) in any fiscal year shall establish a default prevention task force to prepare a plan to—“(I) identify the factors causing the institution’s cohort default rate to exceed such threshold;“(II) establish measurable objectives and the steps to be taken to improve the institution’s cohort default rate; and“(III) specify actions that the institution can take to improve student loan repayment, including appropriate counseling regarding loan repayment options.“(ii) Technical assistance.—Each institution subject to this subparagraph shall submit the plan under clause (i) to the Secretary, who shall review the plan and offer technical assistance to the institution to promote improved student loan repayment.“(B) Second consecutive year.—“(i) In general.—An institution whose cohort default rate is equal to or greater than the threshold percentage specified in paragraph (2)(B)(iv) for two consecutive fiscal years, shall require the institution’s default prevention task force established under subparagraph (A) to review and revise the plan required under such subparagraph, and shall submit such revised plan to the Secretary.“(ii) Review by the secretary.—The Secretary shall review each revised plan submitted in accordance with this subparagraph, and may direct that such plan be amended to include actions, with measurable objectives, that the Secretary determines, based on available data and analyses of student loan defaults, will promote student loan repayment.”; and(F) in paragraph (8)(A) (as redesignated by subparagraph (B)) by striking “0.0375” and inserting “0.0625”.(2) Effective date.—The amendment made by paragraph (1)(F) shall take effect for fiscal years beginning on or after October 1, 2011.(b) Types of Lenders.—Section 435(d)(1)(A)(ii) (20 U.S.C. 1085(d)(1)(A)(ii)) is amended—(1) by striking “part, or (III)” and inserting “part, (III)”; and(2) by inserting before the semicolon at the end the following: “, or (IV) it is a National or State chartered bank, or a credit union, with assets of less than $1,000,000,000”.(c) Disqualification.—Paragraph (5) of section 435(d) (20 U.S.C. 1085(d)(5)) is amended to read as follows:“(5) Disqualification for use of certain incentives.—The term ‘eligible lender’ does not include any lender that the Secretary determines, after notice and opportunity for a hearing, has—“(A) offered, directly or indirectly, points, premiums, payments (including payments for referrals and for processing or finder fees), prizes, stock or other securities, travel, entertainment expenses, tuition payment or 122 STAT. 3255 reimbursement, the provision of information technology equipment at below-market value, additional financial aid funds, or other inducements, to any institution of higher education or any employee of an institution of higher education in order to secure applicants for loans under this part;“(B) conducted unsolicited mailings, by postal or electronic means, of student loan application forms to students enrolled in secondary schools or postsecondary institutions, or to family members of such students, except that applications may be mailed, by postal or electronic means, to students or borrowers who have previously received loans under this part from such lender;“(C) entered into any type of consulting arrangement, or other contract to provide services to a lender, with an employee who is employed in the financial aid office of an institution of higher education, or who otherwise has responsibilities with respect to student loans or other financial aid of the institution;“(D) compensated an employee who is employed in the financial aid office of an institution of higher education, or who otherwise has responsibilities with respect to student loans or other financial aid of the institution, and who is serving on an advisory board, commission, or group established by a lender or group of lenders for providing such service, except that the eligible lender may reimburse such employee for reasonable expenses incurred in providing such service;“(E) performed for an institution of higher education any function that such institution of higher education is required to perform under this title, except that a lender shall be permitted to perform functions on behalf of such institution in accordance with section 485(b);“(F) paid, on behalf of an institution of higher education, another person to perform any function that such institution of higher education is required to perform under this title, except that a lender shall be permitted to perform functions on behalf of such institution in accordance with section 485(b);“(G) provided payments or other benefits to a student at an institution of higher education to act as the lender’s representative to secure applications under this title from individual prospective borrowers, unless such student—“(i) is also employed by the lender for other purposes; and“(ii) made all appropriate disclosures regarding such employment;“(H) offered, directly or indirectly, loans under this part as an inducement to a prospective borrower to purchase a policy of insurance or other product; or“(I) engaged in fraudulent or misleading advertising.122 STAT. 3256It shall not be a violation of this paragraph for a lender to provide technical assistance to institutions of higher education comparable to the kinds of technical assistance provided to institutions of higher education by the Department.”.(d) School as Lender Program Audit.—Section 435(d) (20 U.S.C. 1085(d)) is further amended by adding at the end the following:“(8) School as lender program audit.—Each institution serving as an eligible lender under paragraph (1)(E), and each eligible lender serving as a trustee for an institution of higher education or an organization affiliated with an institution of higher education, shall annually complete and submit to the Secretary a compliance audit to determine whether—“(A) the institution or lender is using all proceeds from special allowance payments and interest payments from borrowers, interest subsidies received from the Department, and any proceeds from the sale or other disposition of loans, for need-based grant programs, in accordance with paragraph (2)(A)(viii);“(B) the institution or lender is using not more than a reasonable portion of the proceeds described in paragraph (2)(A)(viii) for direct administrative expenses; and“(C) the institution or lender is ensuring that the proceeds described in paragraph (2)(A)(viii) are being used to supplement, and not to supplant, Federal and non-Federal funds that would otherwise be used for need-based grant programs.”.(e) Cohort Default Rates.—(1) Amendments.—Section 435(m) (20 U.S.C. 1085(m)) is amended—(A) in paragraph (1)—(i) in the first sentence of subparagraph (A), by striking “end of the following fiscal year” and inserting “end of the second fiscal year following the fiscal year in which the students entered repayment”;(ii) in subparagraph (B), by striking “such fiscal year” and inserting “such second fiscal year”;(iii) in subparagraph (C), by striking “end of the fiscal year immediately following the year in which they entered repayment” and inserting “end of the second fiscal year following the year in which they entered repayment”;(B) in paragraph (2)(C)—(i) by striking “end of such following fiscal year is not considered as in default for the purposes of this subsection” and inserting “end of the second fiscal year following the year in which the loan entered repayment is not considered as in default for purposes of this subsection”; and(ii) by striking “such following fiscal year” and inserting “such second fiscal year”; and(C) in paragraph (4)—(i) by amending the paragraph heading to read as follows: “Collection and reporting of cohort default rates and life of cohort default rates.—”; and(ii) by amending subparagraph (A) to read as follows:“(A) The Secretary shall publish not less often than once every fiscal year a report showing cohort default data and life of cohort default rates for each category of institution, 122 STAT. 3257 including: (i) four-year public institutions; (ii) four-year private nonprofit institutions; (iii) two-year public institutions; (iv) two-year private nonprofit institutions; (v) four-year proprietary institutions; (vi) two-year proprietary institutions; and (vii) less than two-year proprietary institutions. For purposes of this subparagraph, for any fiscal year in which one or more current and former students at an institution enter repayment on loans under section 428, 428B, or 428H, received for attendance at the institution, the Secretary shall publish the percentage of those current and former students who enter repayment on such loans (or on the portion of a loan made under section 428C that is used to repay any such loans) received for attendance at the institution in that fiscal year who default before the end of each succeeding fiscal year.”.(2) Effective date and transition.—(A) Effective date.—The amendments made by paragraph (1) shall take effect for purposes of calculating cohort default rates for fiscal year 2009 and succeeding fiscal years.(B) Transition.—Notwithstanding subparagraph (A), the method of calculating cohort default rates under section 435(m) of the Higher Education Act of 1965 as in effect on the day before the date of enactment of this Act shall continue in effect, and the rates so calculated shall be the basis for any sanctions imposed on institutions of higher education because of their cohort default rates, until three consecutive years of cohort default rates calculated in accordance with the amendments made by paragraph (1) are available.