 
      CHAPTER 28--HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE
 
                    SUBCHAPTER III--INSTITUTIONAL AID
 
   Part D--Historically Black College and University Capital Financing
 
Sec. 1066b. Federal insurance for bonds


(a) General rule

    Subject to the limitations in section 1066c of this title, the 
Secretary is authorized to enter into insurance agreements to provide 
financial insurance to guarantee the full payment of principal and 
interest on qualified bonds upon the conditions set forth in subsections 
(b), (c) and (d) of this section.

(b) Responsibilities of designated bonding authority

    The Secretary may not enter into an insurance agreement described in 
subsection (a) of this section unless the Secretary designates a 
qualified bonding authority in accordance with sections 1066d(1) and 
1066e \1\ of this title and the designated bonding authority agrees in 
such agreement to--
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    \1\ See References in Text note below.
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        (1) use the proceeds of the qualified bonds, less costs of 
    issuance not to exceed 2 percent of the principal amount thereof, to 
    make loans to eligible institutions or for deposit into an escrow 
    account for repayment of the bonds;
        (2) provide in each loan agreement with respect to a loan that 
    not less than 95 percent of the proceeds of the loan will be used--
            (A) to finance the repair, renovation, and, in exceptional 
        cases, construction or acquisition, of a capital project; or
            (B) to refinance an obligation the proceeds of which were 
        used to finance the repair, renovation, and, in exceptional 
        cases, construction or acquisition, of a capital project;

        (3)(A) charge such interest on loans, and provide for such a 
    schedule of repayments of loans, as will, upon the timely repayment 
    of the loans, provide adequate and timely funds for the payment of 
    principal and interest on the bonds; and
        (B) require that any payment on a loan expected to be necessary 
    to make a payment of principal and interest on the bonds be due not 
    less than 60 days prior to the date of the payment on the bonds for 
    which such loan payment is expected to be needed;
        (4) prior to the making of any loan, provide for a credit review 
    of the institution receiving the loan and assure the Secretary that, 
    on the basis of such credit review, it is reasonable to anticipate 
    that the institution receiving the loan will be able to repay the 
    loan in a timely manner pursuant to the terms thereof;
        (5) provide in each loan agreement with respect to a loan that, 
    if a delinquency on such loan results in a funding under the 
    insurance agreement, the institution obligated on such loan shall 
    repay the Secretary, upon terms to be determined by the Secretary, 
    for such funding;
        (6) assign any loans to the Secretary, upon the demand of the 
    Secretary, if a delinquency on such loan has required a funding 
    under the insurance agreement;
        (7) in the event of a delinquency on a loan, engage in such 
    collection efforts as the Secretary shall require for a period of 
    not less than 45 days prior to requesting a funding under the 
    insurance agreement;
        (8) establish an escrow account--
            (A) into which each eligible institution shall deposit 5 
        percent of the proceeds of any loan made under this part, with 
        each eligible institution required to maintain in the escrow 
        account an amount equal to 5 percent of the outstanding 
        principal of all loans made to such institution under this part; 
        and
            (B) the balance of which--
                (i) shall be available to the Secretary to pay principal 
            and interest on the bonds in the event of delinquency in 
            loan repayment; and
                (ii) shall be used to return to an eligible institution 
            an amount equal to any remaining portion of such 
            institution's 5 percent deposit of loan proceeds following 
            scheduled repayment of such institution's loan;

        (9) provide in each loan agreement with respect to a loan that, 
    if a delinquency on such loan results in amounts being withdrawn 
    from the escrow account to pay principal and interest on bonds, 
    subsequent payments on such loan shall be available to replenish 
    such escrow account;
        (10) comply with the limitations set forth in section 1066c of 
    this title; and
        (11) make loans only to eligible institutions under this part in 
    accordance with conditions prescribed by the Secretary to ensure 
    that loans are fairly allocated among as many eligible institutions 
    as possible, consistent with making loans of amounts that will 
    permit capital projects of sufficient size and scope to 
    significantly contribute to the educational program of the eligible 
    institutions.

(c) Additional agreement provisions

    Any insurance agreement described in subsection (a) of this section 
shall provide as follows:
        (1) The payment of principal and interest on bonds shall be 
    insured by the Secretary until such time as such bonds have been 
    retired or canceled.
        (2) The Federal liability for delinquencies and default for 
    bonds guaranteed under this part shall only become effective upon 
    the exhaustion of all the funds held in the escrow account described 
    in subsection (b)(8) of this section.
        (3) The Secretary shall create a letter of credit authorizing 
    the Department of the Treasury to disburse funds to the designated 
    bonding authority or its assignee.
        (4) The letter of credit shall be drawn upon in the amount 
    determined by paragraph (5) of this subsection upon the 
    certification of the designated bonding authority to the Secretary 
    or the Secretary's designee that there is a delinquency on 1 or more 
    loans and there are insufficient funds available from loan 
    repayments and the escrow account to make a scheduled payment of 
    principal and interest on the bonds.
        (5) Upon receipt by the Secretary or the Secretary's designee of 
    the certification described in paragraph (4) of this subsection, the 
    designated bonding authority may draw a funding under the letter of 
    credit in an amount equal to--
            (A) the amount required to make the next scheduled payment 
        of principal and interest on the bonds, less
            (B) the amount available to the designated bonding authority 
        from loan repayments and the escrow account.

        (6) All funds provided under the letter of credit shall be paid 
    to the designated bonding authority within 2 business days following 
    receipt of the certification described in paragraph (4).

(d) Full faith and credit provisions

    Subject to subsection (c)(1) of this section the full faith and 
credit of the United States is pledged to the payment of all funds which 
may be required to be paid under the provisions of this section.

(e) Sale of bonds

    Notwithstanding any other provision of law, a qualified bond 
guaranteed under this part may be sold to any party that offers terms 
that the Secretary determines are in the best interest of the eligible 
institution.

(Pub. L. 89-329, title III, Sec. 343, formerly title VII, Sec. 723, as 
added Pub. L. 102-325, title VII, Sec. 704, July 23, 1992, 106 Stat. 
743; amended Pub. L. 103-382, title III, Sec. 360C, Oct. 20, 1994, 108 
Stat. 3972; renumbered title III, Sec. 343, and amended Pub. L. 105-244, 
title III, Secs. 301(a)(3), (4), (c)(5), 306(b), Oct. 7, 1998, 112 Stat. 
1636, 1637, 1646.)

                       References in Text

    Section 1066e of this title, referred to in subsec. (b), was 
repealed by Pub. L. 105-244, title III, Sec. 306(d), Oct. 7, 1998, 112 
Stat. 1647.

                          Codification

    Section was formerly classified to section 1132c-2 of this title 
prior to renumbering by Pub. L. 105-244.


                            Prior Provisions

    A prior section 343 of Pub. L. 89-329 was classified to section 1068 
of this title prior to the general amendment of this subchapter by Pub. 
L. 99-498.


                               Amendments

    1998--Subsec. (a). Pub. L. 105-244, Sec. 301(c)(5)(A), substituted 
``section 1066c'' for ``section 1132c-3''.
    Subsec. (b). Pub. L. 105-244, Sec. 301(c)(5)(B)(i), substituted 
``sections 1066d(1) and 1066e'' for ``sections 1132c-4(1) and 1132c-5'' 
in introductory provisions.
    Subsec. (b)(8). Pub. L. 105-244, Sec. 306(b)(1), substituted ``5 
percent'' for ``10 percent'' wherever appearing.
    Subsec. (b)(10). Pub. L. 105-244, Sec. 301(c)(5)(B)(ii), substituted 
``section 1066c'' for ``section 1132c-3''.
    Subsec. (d). Pub. L. 105-244, Sec. 301(c)(5)(B)(iii), made technical 
amendment to reference in original act which appears in text as 
reference to subsection (c)(1) of this section.
    Subsec. (e). Pub. L. 105-244, Sec. 306(b)(2), added subsec. (e).
    1994--Subsec. (b)(8)(A). Pub. L. 103-382, Sec. 360C(1)(A), inserted 
before semicolon ``, with each eligible institution required to maintain 
in the escrow account an amount equal to 10 percent of the outstanding 
principal of all loans made to such institution under this part''.
    Subsec. (b)(8)(B)(ii). Pub. L. 103-382, Sec. 360C(1)(B), amended cl. 
(ii) generally. Prior to amendment, cl. (ii) read as follows: ``when all 
bonds under this part are retired or canceled, shall be divided among 
the eligible institutions making deposits into such account on the basis 
of the amount of each such institution's deposit;''.
    Subsec. (b)(11). Pub. L. 103-382, Sec. 360C(2), substituted 
``conditions'' for ``regulations''.


                    Effective Date of 1998 Amendment

    Amendment by Pub. L. 105-244 effective Oct. 1, 1998, except as 
otherwise provided in Pub. L. 105-244, see section 3 of Pub. L. 105-244, 
set out as a note under section 1001 of this title.

                  Section Referred to in Other Sections

    This section is referred to in sections 1066a, 1066d of this title.
