20 U.S.C. § 1099d — Competitive loan auction pilot program

Page 745 TITLE 20—EDUCATION § 1099d this chapter affecting institution of higher edu- cation (other than institutions described in sec- tion 1002(a)(1)(C) of this title), that have re- ceived in each of the two most recent award years prior to October 7, 1998, less than $200,000 in funds through this subchapter, may be im- proved, streamlined, or eliminated. (c) Consultation In carrying out subsections (a) and (b), the Secretary shall consult with relevant represent- atives of institutions participating in the pro- grams authorized by this subchapter. (Pub. L. 89–329, title IV, § 498B, as added Pub. L. 105–244, title IV, § 495, Oct. 7, 1998, 112 Stat. 1764; amended Pub. L. 110–315, title IV, § 498, Aug. 14, 2008, 122 Stat. 3328.) Editorial Notes AMENDMENTS 2008—Subsec. (d). Pub. L. 110–315 struck out subsec. (d) which required the Secretary to submit reports to Congress. Statutory Notes and Related Subsidiaries EFFECTIVE DATE Section effective Oct. 1, 1998, except as otherwise pro- vided in Pub. L. 105–244, see section 3 of Pub. L. 105–244, set out as an Effective Date of 1998 Amendment note under section 1001 of this title. PART I—COMPETITIVE LOAN AUCTION PILOT PROGRAM Editorial Notes CODIFICATION Part I of title IV of the Higher Education Act of 1965, Pub. L. 89–329, which comprises this part, was formerly classified to part H of this subchapter. See Codification note preceding section 1087a of this title. PRIOR PROVISIONS A prior part I (§ 1099e), consisting of part J of title IV of Pub. L. 89–329, which related to investment in his- torically Black colleges and universities and other mi- nority-serving institutions, was redesignated part F of title III of Pub. L. 89–329 and transferred to part F (§ 1067q) of subchapter III of this chapter. § 1099d. Competitive loan auction pilot program (a) Definitions In this section: (1) Eligible Federal PLUS Loan The term ‘‘eligible Federal PLUS Loan’’ means a loan described in section 1078–2 of this title made to a parent of a dependent student who is a new borrower on or after July 1, 2009. (2) Eligible lender The term ‘‘eligible lender’’ has the meaning given the term in section 1085 of this title. (b) Pilot program The Secretary shall carry out a pilot program under which the Secretary establishes a mecha- nism for an auction of eligible Federal PLUS Loans in accordance with this subsection. The pilot program shall meet the following require- ments: (1) Planning and implementation During the period beginning on September 27, 2007, and ending on June 30, 2009, the Sec- retary shall plan and implement the pilot pro- gram under this subsection. During the plan- ning and implementation, the Secretary shall consult with other Federal agencies with knowledge of, and experience with, auction programs, including the Federal Communica- tion Commission and the Department of the Treasury. (2) Origination and disbursement; applicability of section 1078–2 Beginning on July 1, 2009, the Secretary shall arrange for the origination and disburse- ment of all eligible Federal PLUS Loans in ac- cordance with the provisions of this sub- section and the provisions of section 1078–2 of this title that are not inconsistent with this subsection. (3) Loan origination mechanism The Secretary shall establish a loan origina- tion auction mechanism that meets the fol- lowing requirements: (A) Auction for each State The Secretary administers an auction under this paragraph for each State, under which eligible lenders compete to originate eligible Federal PLUS Loans under this paragraph at all institutions of higher edu- cation within such State. (B) Prequalification process The Secretary establishes a prequalification process for eligible lenders desiring to participate in an auction under this paragraph that contains, at a min- imum— (i) a set of borrower benefits and serv- icing requirements each eligible lender shall meet in order to participate in such an auction; (ii) an assessment of each such eligible lender’s capacity, including capital capac- ity, to participate effectively; and (iii) a commitment from such eligible lender that, if the lender has a winning bid under subparagraph (F), the lender will enter into the agreement required under subparagraph (G). (C) Timing and origination Each State auction takes place every 2 years, and the eligible lenders with the win- ning bids for the State are the only eligible lenders permitted to originate eligible Fed- eral PLUS Loans made under this paragraph for the cohort of students at the institutions of higher education within the State until the students graduate from or leave the in- stitutions of higher education. (D) Bids Each eligible lender’s bid consists of the amount of the special allowance payment (after the application of section 1087–1(b)(2)(I)(v) of this title) the eligible lender proposes to accept from the Secretary with respect to the eligible Federal PLUS Loans made under this paragraph in lieu of Page 746 TITLE 20—EDUCATION § 1099d the amount determined under section 1087–1(b)(2)(I) of this title. (E) Maximum bid The maximum bid allowable under this paragraph shall not exceed the amount of the special allowance payable on eligible Federal PLUS Loans made under this para- graph computed under section 1087–1(b)(2)(I) of this title (other than clauses (ii), (iii), (iv), and (vi) of such section), except that for purposes of the computation under this sub- paragraph, section 1087–1(b)(2)(I)(i)(III) of this title shall be applied by substituting ‘‘1.79 percent’’ for ‘‘2.34 percent’’. (F) Winning bids The winning bids for each State auction shall be the 2 bids containing the lowest and the second lowest proposed special allowance payments, subject to subparagraph (E). (G) Agreement with Secretary; compliance (i) Agreement Each eligible lender having a winning bid under subparagraph (F) shall enter into an agreement with the Secretary under which the eligible lender— (I) agrees to originate eligible Federal PLUS Loans under this paragraph to each borrower who— (aa) seeks an eligible Federal PLUS Loan under this paragraph to enable a dependent student to attend an insti- tution of higher education within the State; (bb) is eligible for an eligible Federal PLUS Loan; and (cc) elects to borrow from the eligi- ble lender; and (II) agrees to accept a special allow- ance payment (after the application of section 1087–1(b)(2)(I)(v) of this title) from the Secretary with respect to the eligible Federal PLUS Loans originated under subclause (I) in the amount pro- posed in the second lowest winning bid described in subparagraph (F) for the ap- plicable State auction. (ii) Compliance If an eligible lender with a winning bid under subparagraph (F) fails to enter into the agreement required under clause (i), or fails to comply with the terms of such agreement, the Secretary may sanction such eligible lender through one or more of the following: (I) The assessment of a penalty on such eligible lender for any eligible Federal PLUS Loans that such eligible lender fails to originate under this paragraph in accordance with the agreement required under clause (i), in the amount of the ad- ditional costs (including the amounts of any increase in special allowance pay- ments) incurred by the Secretary in ob- taining another eligible lender to origi- nate such eligible Federal PLUS Loans. The Secretary shall collect such penalty by— (aa) reducing the amount of any pay- ments otherwise due to such eligible lender from the Secretary by the amount of the penalty; or (bb) requesting any other Federal agency to reduce the amount of any payments due to such eligible lender from such agency by the amount of the penalty, in accordance with section 3716 of title 31. (II) A prohibition of bidding by such lender in other auctions under this sec- tion. (III) The limitation, suspension, or ter- mination of such eligible lender’s par- ticipation in the loan program under part B. (IV) Any other enforcement action the Secretary is authorized to take under part B. (H) Sealed bids; confidentiality All bids are sealed and the Secretary keeps the bids confidential, including following the announcement of the winning bids. (I) Eligible lender of last resort (i) In general In the event that there is no winning bid under subparagraph (F), the students at the institutions of higher education within the State that was the subject of the auc- tion shall be served by an eligible lender of last resort, as determined by the Sec- retary. (ii) Determination of eligible lender of last resort Prior to the start of any auction under this paragraph, eligible lenders that desire to serve as an eligible lender of last resort shall submit an application to the Sec- retary at such time and in such manner as the Secretary may determine. Such appli- cation shall include an assurance that the eligible lender will meet the prequalification requirements described in subparagraph (B). (iii) Geographic location The Secretary shall identify an eligible lender of last resort for each State. (iv) Notification timing The Secretary shall not identify any eli- gible lender of last resort until after the announcement of all the winning bids for a State auction for any year. (v) Maximum special allowance The Secretary is authorized to set a spe- cial allowance payment that shall be pay- able to a lender of last resort for a State under this subparagraph, which special al- lowance payment shall be kept confiden- tial, including following the announce- ment of winning bids. The Secretary shall set such special allowance payment so that it incurs the lowest possible cost to the Federal Government, taking into con- sideration the lowest bid that was sub- mitted in an auction for such State and the lowest bid submitted in a similar State, as determined by the Secretary. Page 747 TITLE 20—EDUCATION § 1099d (J) Guarantee against losses Each eligible Federal PLUS Loan origi- nated under this paragraph shall be insured by a guaranty agency in accordance with part B, except that, notwithstanding section 1078(b)(1)(G) of this title, such insurance shall be in an amount equal to 99 percent of the unpaid principal and interest due on the loan. (K) Loan fees The Secretary shall not collect a loan fee under section 1087–1(d) of this title with re- spect to an eligible Federal Plus Loan origi- nated under this paragraph. (L) Consolidation (i) In general An eligible lender who is permitted to originate eligible Federal PLUS Loans for a borrower under this paragraph shall have the option to consolidate such loans into 1 loan. (ii) Notification In the event a borrower with eligible Federal PLUS Loans made under this paragraph wishes to consolidate the loans, the borrower shall notify the eligible lend- er who originated the loans under this paragraph. (iii) Limitation on eligible lender option to consolidate The option described in clause (i) shall not apply if— (I) the borrower includes in the notifi- cation in clause (ii) verification of con- solidation terms and conditions offered by an eligible lender other than the eli- gible lender described in clause (i); and (II) not later than 10 days after receiv- ing such notification from the borrower, the eligible lender described in clause (i) does not agree to match such terms and conditions, or provide more favorable terms and conditions to such borrower than the offered terms and conditions described in subclause (I). (iv) Consolidation of additional loans If a borrower has a Federal Direct PLUS Loan or a loan made on behalf of a depend- ent student under section 1078–2 of this title and seeks to consolidate such loan with an eligible Federal PLUS Loan made under this paragraph, then the eligible lender that originated the borrower’s loan under this paragraph may include in the consolidation under this subparagraph a Federal Direct PLUS Loan or a loan made on behalf of a dependent student under sec- tion 1078–2 of this title, but only if— (I) in the case of a Federal Direct PLUS Loan, the eligible lender agrees, not later than 10 days after the borrower requests such consolidation from the lender, to match the consolidation terms and conditions that would otherwise be available to the borrower if the borrower consolidated such loans in the loan pro- gram under part D; or (II) in the case of a loan made on be- half of a dependent student under section 1078–2 of this title, the eligible lender agrees, not later than 10 days after the borrower requests such consolidation from the lender, to match the consolida- tion terms and conditions offered by an eligible lender other than the eligible lender that originated the borrower’s loans under this paragraph. (v) Special allowance on consolidation loans that include loans made under this paragraph The applicable special allowance pay- ment for loans consolidated under this paragraph shall be equal to the lesser of— (I) the weighted average of the special allowance payment on such loans, except that in calculating such weighted aver- age the Secretary shall exclude any Fed- eral Direct PLUS Loan included in the consolidation; or (II) the result of— (aa) the average of the bond equiva- lent rates of the quotes of the 3-month commercial paper (financial) rates in effect for each of the days in such quarter as reported by the Federal Re- serve in Publication H–15 (or its suc- cessor) for such 3-month period; plus (bb) 1.59 percent. (vi) Interest payment rebate fee Any loan under section 1078–3 of this title consolidated under this paragraph shall not be subject to the interest pay- ment rebate fee under section 1078–3(f) of this title. (c) Required initial evaluation The Secretary and Secretary of the Treasury shall jointly conduct an evaluation, in consulta- tion with the Office of Management and Budget, the Congressional Budget Office, and the Comp- troller General, of the pilot program carried out by the Secretary under this section. The evalua- tion shall determine— (1) the extent of the savings to the Federal Government that are generated through the pilot program, compared to the cost the Fed- eral Government would have incurred in oper- ating the PLUS loan program under section 1078–2 of this title in the absence of the pilot program; (2) the number of lenders that participated in the pilot program, and the extent to which the pilot program generated competition among lenders to participate in the auctions under the pilot program; (3) the number and volume of loans made under the pilot program in each State; (4) the effect of the transition to and oper- ation of the pilot program on the ability of— (A) lenders participating in the pilot pro- gram to originate loans made through the pilot program smoothly and efficiently; (B) institutions of higher education par- ticipating in the pilot program to disburse loans made through the pilot program smoothly and efficiently; and (C) parents to obtain loans made through the pilot program in a timely and efficient manner; Page 748 TITLE 20—EDUCATION § 1101 (5) the differential impact, if any, of the auc- tion among the States, including between rural and non-rural States; and (6) the feasibility of using the mechanism pi- loted to operate the other loan programs under part B of this subchapter. (d) Reports (1) In general The Secretary and the Secretary of the Treasury shall submit to the authorizing com- mittees— (A) not later than September 1, 2010, a pre- liminary report regarding the findings of the evaluation described in subsection (c); (B) not later than September 1, 2012, an in- terim report regarding such findings; and (C) not later than September 1, 2013, a final report regarding such findings. (2) Contents The Secretary shall include, in each report required under subparagraphs (A), (B), and (C) of paragraph (1), any recommendations, that are based on the findings of the evaluation under subsection (c), for— (A) improving the operation and adminis- tration of the auction; and (B) improving the operation and adminis- tration of other loan programs under part B. (Pub. L. 89–329, title IV, § 499, as added Pub. L. 110–84, title VII, § 701, Sept. 27, 2007, 121 Stat. 808; amended Pub. L. 110–315, title IV, § 499, Aug. 14, 2008, 122 Stat. 3328.) Editorial Notes PRIOR PROVISIONS A prior section 1099e, Pub. L. 89–329, title IV, § 499A, as added Pub. L. 110–84, title VIII, § 802, Sept. 27, 2007, 121 Stat. 817, which comprised part J of title IV of Pub. L. 89–329 and related to investment in historically Black colleges and universities and other minority- serving institutions, was transferred to section 1067q of this title. AMENDMENTS 2008—Subsec. (b)(3)(B)(iii). Pub. L. 110–315, § 499(1)(A), added cl. (iii). Subsec. (b)(3)(G). Pub. L. 110–315, § 499(1)(B), added subpar. (G) and struck out former subpar. (G). Text of former subpar. (G) read as follows: ‘‘Each eligible lend- er having a winning bid under subparagraph (F) enters into an agreement with the Secretary under which the eligible lender— ‘‘(i) agrees to originate eligible Federal PLUS Loans under this paragraph to each borrower who— ‘‘(I) seeks an eligible Federal PLUS Loan under this paragraph to enable a dependent student to at- tend an institution of higher education within the State; ‘‘(II) is eligible for an eligible Federal PLUS Loan; and ‘‘(III) elects to borrow from the eligible lender; and ‘‘(ii) agrees to accept a special allowance payment (after the application of section 1087–1(b)(2)(I)(v) of this title) from the Secretary with respect to the eli- gible Federal PLUS Loans originated under clause (i) in the amount proposed in the second lowest winning bid described in subparagraph (F) for the applicable State auction.’’ Subsec. (b)(3)(J). Pub. L. 110–315, § 499(1)(C), added sub- par. (J) and struck out former subpar. (J). Text of former subpar. (J) read as follows: ‘‘The Secretary guarantees the eligible Federal PLUS Loans made under this paragraph against losses resulting from the default of a parent borrower in an amount equal to 99 percent of the unpaid principal and interest due on the loan.’’ Subsecs. (c), (d). Pub. L. 110–315, § 499(2), added sub- secs. (c) and (d). Statutory Notes and Related Subsidiaries EFFECTIVE DATE Section effective Oct. 1, 2007, see section 1(c) of Pub. L. 110–84, set out as an Effective Date of 2007 Amend- ment note under section 1070a of this title. SUBCHAPTER V—DEVELOPING INSTITUTIONS Editorial Notes CODIFICATION Title V of the Higher Education Act of 1965, com- prising this subchapter, was originally enacted by Pub. L. 89–329, Nov. 8, 1965, 79 Stat. 1254; amended Pub. L. 90–35, June 29, 1967, 81 Stat. 81; Pub. L. 90–83, Sept. 11, 1967, 81 Stat. 195; Pub. L. 90–247, Jan. 2, 1968, 81 Stat. 783; Pub. L. 90–575, Oct. 16, 1968, 82 Stat. 1014; Pub. L. 91–230, Apr. 13, 1970, 84 Stat. 121; Pub. L. 92–318, June 23, 1972, 86 Stat. 235; Pub. L. 93–380, Aug. 21, 1974, 88 Stat. 484; Pub. L. 94–482, Oct. 12, 1976, 90 Stat. 2081; Pub. L. 95–43, June 15, 1977, 91 Stat. 213; Pub. L. 95–561, Nov. 1, 1978, 92 Stat. 2143; Pub. L. 96–49, Aug. 13, 1979, 93 Stat. 351; Pub. L. 96–88, Oct. 17, 1979, 93 Stat. 668; Pub. L. 96–374, Oct. 3, 1980, 94 Stat. 1367; Pub. L. 97–35, Aug. 13, 1981, 95 Stat. 357; Pub. L. 97–300, Oct. 13, 1982, 96 Stat. 1322; Pub. L. 98–558, Oct. 30, 1984, 98 Stat. 2878; Pub. L. 99–386, Aug. 22, 1986, 100 Stat. 821; Pub. L. 99–498, Oct. 17, 1986, 100 Stat. 1268; Pub. L. 100–50, June 3, 1987, 101 Stat. 335; Pub. L. 101–226, Dec. 12, 1989, 103 Stat. 1928; Pub. L. 102–325, July 23, 1992, 106 Stat. 448; Pub. L. 103–208, Dec. 20, 1993, 107 Stat. 2457; Pub. L. 103–227, Mar. 31, 1994, 108 Stat. 125; Pub. L. 103–382, Oct. 20, 1994, 108 Stat. 3518. Title V is shown herein, however, as having been added by Pub. L. 105–244, title V, § 501, Oct. 7, 1998, 112 Stat. 1765, without reference to those intervening amendments because of the extensive revision of title V by Pub. L. 105–244. PART A—HISPANIC-SERVING INSTITUTIONS Editorial Notes PRIOR PROVISIONS A prior part A consisted of sections 1102 to 1102j and related to State and local programs for teacher excel- lence prior to the general amendment of this sub- chapter by Pub. L. 105–244. § 1101. Findings; purpose; and program authority (a) Findings Congress makes the following findings: (1) Hispanic Americans are at high risk of not enrolling or graduating from institutions of higher education. (2) Disparities between the enrollment of non-Hispanic white students and Hispanic stu- dents in postsecondary education are increas- ing. Between 1973 and 1994, enrollment of white secondary school graduates in 4-year institu- tions of higher education increased at a rate two times higher than that of Hispanic sec- ondary school graduates. (3) Despite significant limitations in re- sources, Hispanic-serving institutions provide a significant proportion of postsecondary op- portunities for Hispanic students.