S 1262 - Student Loan Accountability and Disclosure Reform Act

This Act may be cited as the ``Student Loan Accountability and Disclosure Reform Act''.

Paragraph (3) of section 428(b) of the Higher Education Act of 1965 (20 U.S.C. 1078(b)(3)) is amended to read as follows:

``(3) RESTRICTIONS ON INDUCEMENTS, PAYMENTS, MAILINGS, AND ADVERTISING.--A guaranty agency shall not--

``(A) offer, directly or indirectly, premiums, payments, stock or other securities, prizes, travel, entertainment expenses, tuition repayment, or other inducements to--

``(i) any institution of higher education or the employees of an institution of higher education in order to secure applicants for loans made under this part; or

``(ii) any lender, or any agent, employee, or independent contractor of any lender or guaranty agency, in order to administer or market loans made under this part (other than a loan made under section 428H or a loan made as part of the guaranty agency's lender-of-last-resort program pursuant to section 439(q)) for the purpose of securing the designation of the guaranty agency as the insurer of such loans;

``(B) conduct unsolicited mailings, by postal or electronic means, of student loan application forms to students enrolled in secondary school or postsecondary educational institutions, or to the parents of such students, except that applications may be mailed, by postal or electronic means, to students or borrowers who have previously received loans guaranteed under this part by the guaranty agency;

``(C) perform, for an institution of higher education participating in a program under this title and without appropriate compensation by such institution, any function that the institution is required to perform under part B, D, or G (except for the exit counseling described in section 485(b));

``(D) pay, on behalf of the institution of higher education, another person to perform any function that the institution of higher education is required to perform under part B, D, or G (except for the exit counseling described in section 485(b)); or

``(E) conduct fraudulent or misleading advertising concerning loan availability, terms, or conditions.

It shall not be a violation of this paragraph for a guaranty agency to provide assistance to institutions of higher education comparable to the kinds of assistance provided to institutions of higher education by the Department.''.

Title I of the Higher Education Act of 1965 (20 U.S.C. 1001 et seq.) is amended by adding at the end the following:

``(1) COST OF ATTENDANCE.--The term `cost of attendance' has the meaning given the term in section 472.

``(2) INSTITUTION OF HIGHER EDUCATION.--The term `institution of higher education'--

``(B) includes an employee or agent of the institution of higher education or any organization or entity directly or indirectly controlled by such institution.

``(A) any lender of a loan made, insured, or guaranteed under title IV, including a consolidation loan under section 428C;

``(B) any lender that is a financial institution, as such term is defined in section 509 of the Gramm-Leach-Bliley Act (15 U.S.C. 6809); and

``(C) for any loan issued or provided to a student under part D of title IV, the Secretary.

``(4) PRIVATE EDUCATIONAL LOAN.--The term `private educational loan' means a private loan that--

``(B) is offered to a borrower by an institution of higher education through an award letter or other notification.

``(1) DISCLOSURES BY LENDERS.--Before a lender issues or otherwise provides a loan under title IV or a private educational loan to a student, the lender shall provide the student, in writing, with the disclosures described in paragraph (2).

``(2) DISCLOSURES.--The disclosures required by this paragraph shall include a clear and prominent statement--

 ``(A) that the borrower may qualify for Federal financial assistance through a program under title IV, in lieu of or in addition to a loan from a non-Federal source;

``(B) of the interest rates available with respect to such Federal financial assistance;

``(D) that describes, with respect to each loan being provided to the student by the lender--

``(i) how the applicable interest rate is determined, including whether the rate is based on the credit score of the borrower;

``(iii) whether, and under what conditions, early repayment may be made without penalty;

``(vi) all available repayment benefits, and the percentage of all borrowers who qualify for such benefits;

``(ix) whether the amount of all loans issued by the lender to the borrower exceeds the student's cost of attendance; and

Section 495 of the Higher Education Act of 1965 (20 U.S.C. 1099a) is amended by adding at the end the following:

``(c) Review of Private Education Loan Markets.--The Secretary and the Secretary of the Treasury shall conduct an evaluation of markets for educational loans to--

``(1) evaluate any variations in availability, terms, and conditions of educational loans provided to students who qualify for a simplified needs test under section 479 or any income-contingent simplified version of the Free Application for Federal Student Aid;

``(2) identify possible discriminatory lending patterns affecting students described in paragraph (1); and

``(3) report, not later than 1 year after the date of enactment of the Student Loan Accountability and Disclosure Reform Act to the Committee on Health, Education, Labor, and Pensions and the Committee on Banking, Housing, and Urban Affairs of the Senate, and the Committee on Education and Labor and the Committee on Financial Services of the House of Representatives, on findings and recommendations for the need to afford protections from predatory lending practices to such students.''.

Section 435(d)(5) of the Higher Education Act of 1965 (20 U.S.C. 1085(d)(5)) is amended--

(1) by redesignating subparagraphs (C) and (D) as subparagraphs (H) and (I), respectively; and

``(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 repayment, 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 school or postsecondary institutions, or to parents 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, without compensation from the institution, any function that the institution of higher education is required to carry out under part B, D, or G (except for general debt counseling, such as the exit counseling described in section 485(b));

``(F) paid, on behalf of an institution of higher education, another person to perform any function that the institution of higher education is required to perform under part B, D, or G (except for general debt counseling, such as the exit counseling described in 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--

``(6) The institution will not provide any student with any statement or certification to a lender that qualifies the student for a loan or loans in excess of the amount that student is eligible to borrow in accordance with sections 425(a), 428(a)(2), and subparagraphs (A) and (B) of section 428(b)(1) unless--

``(A) the loan in question is a private educational loan as defined under section 151(a); and

``(B) the student does not qualify for the simplified needs test under section 479 or any income-contingent simplified version of the Free Application for Federal Student Aid.'';

(B) by redesignating paragraphs (21), (22), and (23) as (22), (23), and (24), respectively; and

``(21)(A) The institution will establish, follow, and enforce a code of conduct regarding student loans that includes not less than the following:

``(i) REVENUE SHARING PROHIBITION.--The institution is prohibited from receiving anything of value from any lender in exchange for any advantage sought by the lender.

``(ii) GIFT AND TRIP PROHIBITION.--Any employee who is employed in the financial aid office of the institution, or who otherwise has responsibilities with respect to student loans or other financial aid of the institution, is prohibited from taking from any lender any gift or trip worth more than nominal value, except for reasonable expenses for professional development that will improve the efficiency and effectiveness of programs under this title and for domestic travel to such professional development.

``(iii) CONTRACTING ARRANGEMENTS.--Any employee who is employed in the financial aid office of the institution, or who otherwise has responsibilities with respect to student loans or other financial aid of the institution, shall be prohibited from entering into any type of consulting arrangement or other contract to provide services to a lender.

``(iv) ADVISORY BOARD COMPENSATION.--Any employee who is employed in the financial aid office of the institution, or who otherwise has responsibilities with respect to student loans or other financial aid of the institution, and who serves on an advisory board, commission, or group established by a lender or group of lenders shall be prohibited from receiving anything of value as compensation from the lender or group of lenders for serving on such advisory board, commission, or group, except that the employee may be reimbursed for reasonable expenses incurred in providing such service.

``(I) will not designate any lender as a preferred lender for loans under this title or private educational loans;

``(II) may invite a lender of such loans to submit to the institution a standard electronic template that specifies the rates, services, discounts, and terms and conditions of the loans, and the lender's contact information;

``(III) upon request of a lender interested in offering loans under this title or private educational loans to students at the institution, will provide the lender with the ability to submit the standard electronic template described in subclause (II) to the institution;

``(IV) will make all submitted standard electronic templates available to current and prospective students of the institution, and the parents of such students;

``(V) if such student, or a parent of such student, requests information on the lenders that have submitted standard electronic templates to the institution, will provide the student or parent with a guide that--

``(aa) enables students and parents to do their own evaluation of the loan products, benefits, and services offered by such lenders; and

``(vi) DISCLOSURES.--An institution required to make the disclosures under this clause will--

``(I) disclose the criteria and process used to develop the guide described in clause (v)(V) regarding the products offered by each lender that submitted a standard electronic template, as described in clause (v)(II);

``(II) disclose which lenders listed in the guide have an agreement in place to sell the loans of the lender to another lender; and

``(III) provide a notice to the student that the student has the right to select a lender of the student's choosing, regardless of any information regarding the lender in the institution's guide under clause (v) or whether the lender submitted a standard electronic template to the institution.

``(I) Any agent, employee, or independent contractor of a lender who is performing any service for the institution shall disclose the individual's relationship with the lender to any students and parents for whom the individual provides such service.

``(II) Any agreement for the performance of a service by a lender for the institution shall comply with all applicable State and institution ethics laws and codes of ethics.

``(I) for any first-time borrower, assign, through award packaging or other methods, the borrower's loan to a particular lender; and

``(II) refuse to certify, or, delay certification of, any loan in accordance with paragraph (6) based on the borrower's selection of a particular lender or guaranty agency.

``(B) The institution will designate an individual who shall be responsible for signing an annual attestation on behalf of the institution that the institution agrees to, and is in compliance with, the requirements of the code of conduct described in this paragraph. Such individual shall be the chief executive officer, chief operating officer, chief financial officer, or comparable official, of the institution, and shall annually submit the signed attestation to the Secretary.

``(C) The institution will make the code of conduct widely available to the institution's faculty members, students, and parents through a variety of means, including the institution's website.'';

(2) by redesignating subsections (d) and (e) as subsections (e) and (f), respectively; and

``(1) IN GENERAL.--Upon a finding by the Secretary, after reasonable notice and an opportunity for a hearing, that an institution of higher education that has entered into a program participation agreement with the Secretary under subsection (a) willfully contravened the institution's attestation of compliance with the provisions of subsection (a)(21), the Secretary may impose a penalty described in paragraph (2).

``(2) PENALTIES.--A violation of paragraph (1) shall result in the limitation, suspension, or termination of the eligibility of the institution for the loan programs under this title.''.

Section 435(d) of the Higher Education Act of 1965 (20 U.S.C. 1085(d)) (as amended by section 5) is further amended--

(1) in paragraph (1)(E), by inserting ``subject to paragraph (8),'' before ``an eligible institution''; and

``(A) SUNSET.--The authority provided under subsection (d)(1)(E) for an institution to serve as an eligible lender, and under paragraph (7) for an eligible lender to serve as a trustee for an institution of higher education or an organization affiliated with an institution of higher education, shall expire on June 30, 2008.

``(B) APPLICATION TO EXISTING INSTITUTIONAL LENDERS.--An institution that was an eligible lender under this subsection, or an eligible lender that served as a trustee for an institution of higher education or an organization affiliated with an institution of higher education under paragraph (7), before June 30, 2008, shall--

``(i) not issue any new loans in such a capacity under part B after June 30, 2008; and

``(ii) shall continue to carry out the institution's responsibilities for any loans issued by the institution under part B on or before June 30, 2008, except that, beginning on June 30, 2010, the eligible institution or trustee may, notwithstanding any other provision of this Act, sell or otherwise dispose of such loans if all profits from the divestiture are used for need-based grant programs at the institution.''.