 
      CHAPTER 28--HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE
 
                    SUBCHAPTER IV--STUDENT ASSISTANCE
 
              Part B--Federal Family Education Loan Program
 
Sec. 1072a. Federal Student Loan Reserve Fund


(a) Establishment

    Each guaranty agency shall, not later than 60 days after October 7, 
1998, deposit all funds, securities, and other liquid assets contained 
in the reserve fund established pursuant to section 1072 of this title 
into a Federal Student Loan Reserve Fund (in this section and section 
1072b of this title referred to as the ``Federal Fund''), which shall be 
an account of a type selected by the agency, with the approval of the 
Secretary.

(b) Investment of funds

    Funds transferred to the Federal Fund shall be invested in 
obligations issued or guaranteed by the United States or a State, or in 
other similarly low-risk securities selected by the guaranty agency, 
with the approval of the Secretary. Earnings from the Federal Fund shall 
be the sole property of the Federal Government.

(c) Additional deposits

    After the establishment of the Federal Fund, a guaranty agency shall 
deposit into the Federal Fund--
        (1) all amounts received from the Secretary as payment of 
    reinsurance on loans pursuant to section 1078(c)(1) of this title;
        (2) from amounts collected on behalf of the obligation of a 
    defaulted borrower, a percentage amount equal to the complement of 
    the reinsurance percentage in effect when payment under the guaranty 
    agreement was made--
            (A) with respect to the defaulted loan pursuant to sections 
        1078(c)(6)(A) and 1078-6(a)(1)(B) of this title; and
            (B) with respect to a loan that the Secretary has repaid or 
        discharged under section 1087 of this title;

        (3) insurance premiums collected from borrowers pursuant to 
    sections 1078(b)(1)(H) and 1078-8(h) of this title;
        (4) all amounts received from the Secretary as payment for 
    supplemental preclaims activity performed prior to October 7, 1998;
        (5) 70 percent of amounts received after October 7, 1998, from 
    the Secretary as payment for administrative cost allowances for 
    loans upon which insurance was issued prior to October 7, 1998; and
        (6) other receipts as specified in regulations of the Secretary.

(d) Uses of funds

    Subject to subsection (f) of this section, the Federal Fund may only 
be used by a guaranty agency--
        (1) to pay lender claims pursuant to sections 1078(b)(1)(G), 
    1078(j), 1087, and 1087-2(q) of this title; and
        (2) to pay into the Agency Operating Fund established pursuant 
    to section 1072b of this title (in this section and section 1072b of 
    this title referred to as the ``Operating Fund'') a default aversion 
    fee in accordance with section 1078(l) of this title.

(e) Ownership of Federal Fund

    The Federal Fund, and any nonliquid asset (such as a building or 
equipment) developed or purchased by the guaranty agency in whole or in 
part with Federal reserve funds, regardless of who holds or controls the 
Federal reserve funds or such asset, shall be considered to be the 
property of the United States, prorated based on the percentage of such 
asset developed or purchased with Federal reserve funds, which property 
shall be used in the operation of the program authorized by this part, 
as provided in subsection (d) of this section. The Secretary may 
restrict or regulate the use of such asset only to the extent necessary 
to reasonably protect the Secretary's prorated share of the value of 
such asset. The Secretary may direct a guaranty agency, or such agency's 
officers or directors, to cease any activity involving expenditures, 
use, or transfer of the Federal Fund administered by the guaranty agency 
that the Secretary determines is a misapplication, misuse, or improper 
expenditure of the Federal Fund or the Secretary's share of such asset.

(f) Transition

                           (1) In general

        In order to establish the Operating Fund, each guaranty agency 
    may transfer not more than 180 days' cash expenses for normal 
    operating expenses (not including claim payments) as a working 
    capital reserve as defined in Office of Management and Budget 
    Circular A-87 (Cost Accounting Standards) from the Federal Fund for 
    deposit into the Operating Fund for use in the performance of the 
    guaranty agency's duties under this part. Such transfers may occur 
    during the first 3 years following the establishment of the 
    Operating Fund. However, no agency may transfer in excess of 45 
    percent of the balance, as of September 30, 1998, of the agency's 
    Federal Fund to the agency's Operating Fund during such 3-year 
    period. In determining the amount that may be transferred, the 
    agency shall ensure that sufficient funds remain in the Federal Fund 
    to pay lender claims within the required time periods and to meet 
    the reserve recall requirements of this section and subsections (h) 
    and (i) of section 1072 of this title.

                          (2) Special rule

        A limited number of guaranty agencies may transfer interest 
    earned on the Federal Fund to the Operating Fund during the first 3 
    years after October 7, 1998, if the guaranty agency demonstrates to 
    the Secretary that--
            (A) the cash flow in the Operating Fund will be negative 
        without the transfer of such interest; and
            (B) the transfer of such interest will substantially improve 
        the financial circumstances of the guaranty agency.

                      (3) Repayment provisions

        Each guaranty agency shall begin repayment of sums transferred 
    pursuant to this subsection not later than the start of the fourth 
    year after the establishment of the Operating Fund, and shall repay 
    all amounts transferred not later than 5 years from the date of the 
    establishment of the Operating Fund. With respect to amounts 
    transferred from the Federal Fund, the guaranty agency shall not be 
    required to repay any interest on the funds transferred and 
    subsequently repaid. The guaranty agency shall provide to the 
    Secretary a reasonable schedule for repayment of the sums 
    transferred and an annual financial analysis demonstrating the 
    agency's ability to comply with the schedule and repay all 
    outstanding sums transferred.

                           (4) Prohibition

        If a guaranty agency transfers funds from the Federal Fund in 
    accordance with this section, and fails to make scheduled repayments 
    to the Federal Fund, the agency may not receive any other funds 
    under this part until the Secretary determines that the agency has 
    made such repayments. The Secretary shall pay to the guaranty agency 
    any funds withheld in accordance with this paragraph immediately 
    upon making the determination that the guaranty agency has made all 
    such repayments.

                             (5) Waiver

        The Secretary may--
            (A) waive the requirements of paragraph (3), but only with 
        respect to repayment of interest that was transferred in 
        accordance with paragraph (2); and
            (B) waive paragraph (4);

    for a guaranty agency, if the Secretary determines that there are 
    extenuating circumstances (such as State constitutional 
    prohibitions) beyond the control of the agency that justify such a 
    waiver.

           (6) Extension of repayment period for interest

        (A) Extension permitted

            The Secretary shall extend the period for repayment of 
        interest that was transferred in accordance with paragraph (2) 
        from 2 years to 5 years if the Secretary determines that--
                (i) the cash flow of the Operating Fund will be negative 
            as a result of repayment as required by paragraph (3);
                (ii) the repayment of the interest transferred will 
            substantially diminish the financial circumstances of the 
            guaranty agency; and
                (iii) the guaranty agency has demonstrated--
                    (I) that the agency is able to repay all transferred 
                funds by the end of the 8th year following the date of 
                establishment of the Operating Fund; and
                    (II) that the agency will be financially sound on 
                the completion of repayment.

        (B) Repayment of income on transferred funds

            All repayments made to the Federal Fund during the 6th, 7th, 
        and 8th years following the establishment of the Operating Fund 
        of interest that was transferred shall include the sums 
        transferred plus any income earned from the investment of the 
        sums transferred after the 5th year.

                   (7) Investment of Federal funds

        Funds transferred from the Federal Fund to the Operating Fund 
    for operating expenses shall be invested in obligations issued or 
    guaranteed by the United States or a State, or in other similarly 
    low-risk securities selected by the guaranty agency, with the 
    approval of the Secretary.

                          (8) Special rule

        In calculating the minimum reserve level required by section 
    1078(c)(9)(A) of this title, the Secretary shall include all amounts 
    owed to the Federal Fund by the guaranty agency in the calculation.

(Pub. L. 89-329, title IV, Sec. 422A, as added Pub. L. 105-244, title 
IV, Sec. 413(a), Oct. 7, 1998, 112 Stat. 1674.)


                             Effective Date

    Section effective Oct. 1, 1998, except as otherwise provided 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.

                  Section Referred to in Other Sections

    This section is referred to in sections 1072, 1072b, 1078, 1087h of 
this title.
