 
      CHAPTER 28--HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE
 
                    SUBCHAPTER IV--STUDENT ASSISTANCE
 
              Part B--Federal Family Education Loan Program
 
Sec. 1082. Legal powers and responsibilities


(a) General powers

    In the performance of, and with respect to, the functions, powers, 
and duties, vested in him by this part, the Secretary may--
        (1) prescribe such regulations as may be necessary to carry out 
    the purposes of this part, including regulations applicable to third 
    party servicers (including regulations concerning financial 
    responsibility standards for, and the assessment of liabilities for 
    program violations against, such servicers) to establish minimum 
    standards with respect to sound management and accountability of 
    programs under this part, except that in no case shall damages be 
    assessed against the United States for the actions or inactions of 
    such servicers;
        (2) sue and be sued in any court of record of a State having 
    general jurisdiction or in any district court of the United States, 
    and such district courts shall have jurisdiction of civil actions 
    arising under this part without regard to the amount in controversy, 
    and action instituted under this subsection by or against the 
    Secretary shall survive notwithstanding any change in the person 
    occupying the office of Secretary or any vacancy in that office; but 
    no attachment, injunction, garnishment, or other similar process, 
    mesne or final, shall be issued against the Secretary or property 
    under the Secretary's control and nothing herein shall be construed 
    to except litigation arising out of activities under this part from 
    the application of sections 509, 517, 547, and 2679 of title 28;
        (3) include in any contract for Federal loan insurance such 
    terms, conditions, and covenants relating to repayment of principal 
    and payment of interest, relating to the Secretary's obligations and 
    rights to those of eligible lenders, and borrowers in case of 
    default, and relating to such other matters as the Secretary 
    determines to be necessary to assure that the purposes of this part 
    will be achieved; and any term, condition, and covenant made 
    pursuant to this paragraph or pursuant to any other provision of 
    this part may be modified by the Secretary, after notice and 
    opportunity for a hearing, if the Secretary finds that the 
    modification is necessary to protect the United States from the risk 
    of unreasonable loss;
        (4) subject to the specific limitations in this part, consent to 
    modification, with respect to rate of interest, time of payment of 
    any installment of principal and interest or any portion thereof, or 
    any other provision of any note or other instrument evidencing a 
    loan which has been insured by the Secretary under this part;
        (5) enforce, pay, or compromise, any claim on, or arising 
    because of, any such insurance or any guaranty agreement under 
    section 1078(c) of this title; and
        (6) enforce, pay, compromise, waive, or release any right, 
    title, claim, lien, or demand, however acquired, including any 
    equity or any right of redemption.

(b) Financial operations responsibilities

    The Secretary shall, with respect to the financial operations 
arising by reason of this part prepare annually and submit a budget 
program as provided for wholly owned Government corporations by chapter 
91 of title 31. The transactions of the Secretary, including the 
settlement of insurance claims and of claims for payments pursuant to 
section 1078 of this title, and transactions related thereto and 
vouchers approved by the Secretary in connection with such transactions, 
shall be final and conclusive upon all accounting and other officers of 
the Government.

(c) Data collection

                 (1) Collection by category of loan

        (A) For loans insured after December 31, 1976, or in the case of 
    each insurer after such earlier date where the data required by this 
    subsection are available, the Secretary and all other insurers under 
    this part shall collect and accumulate all data relating to (i) loan 
    volume insured and (ii) defaults reimbursed or default rates 
    according to the categories of loans listed in subparagraph (B) of 
    this paragraph.
        (B) The data indicated in subparagraph (A) of this paragraph 
    shall be accumulated according to the category of lender making the 
    loan and shall be accumulated separately for lenders who are (i) 
    eligible institutions, (ii) State or private, nonprofit direct 
    lenders, (iii) commercial financial institutions who are banks, 
    savings and loan associations, or credit unions, and (iv) all other 
    types of institutions or agencies.
        (C) The Secretary may designate such additional subcategories 
    within the categories specified in subparagraph (B) of this 
    paragraph as the Secretary deems appropriate.
        (D) The category or designation of a loan shall not be changed 
    for any reason, including its purchase or acquisition by a lender of 
    another category.

              (2) Collection and reporting requirements

        (A) The Secretary shall collect data under this subsection from 
    all insurers under this part and shall publish not less often than 
    once every fiscal year a report showing loan volume guaranteed and 
    default data for each category specified in subparagraph (B) of 
    paragraph (1) of this subsection and for the total of all lenders.
        (B) The reports specified in subparagraph (A) of this paragraph 
    shall include a separate report for each insurer under this part 
    including the Secretary, and where an insurer insures loans for 
    lenders in more than one State, such insurer's report shall list all 
    data separately for each State.

           (3) Institutional, public, or nonprofit lenders

        For purposes of clarity in communications, the Secretary shall 
    separately identify loans made by the lenders referred to in clause 
    (i) and loans made by the lenders referred to in clause (ii) of 
    paragraph (1)(B) of this subsection.

(d) Delegation

                        (1) Regional offices

        The functions of the Secretary under this part listed in 
    paragraph (2) of this subsection may be delegated to employees in 
    the regional office of the Department.

                       (2) Delegable functions

        The functions which may be delegated pursuant to this subsection 
    are--
            (A) reviewing applications for loan insurance under section 
        1079 of this title and issuing contracts for Federal loan 
        insurance, certificates of insurance, and certificates of 
        comprehensive insurance coverage to eligible lenders which are 
        financial or credit institutions subject to examination and 
        supervision by an agency of the United States or of any State;
            (B) receiving claims for payments under section 1080(a) of 
        this title, examining those claims, and pursuant to regulations 
        of the Secretary, approving claims for payment, or requiring 
        lenders to take additional collection action as a condition for 
        payment of claims; and
            (C) certifying to the central office when collection of 
        defaulted loans has been completed, compromising or agreeing to 
        the modification of any Federal claim against a borrower 
        (pursuant to regulations of the Secretary issued under 
        subsection (a) of this section), and recommending litigation 
        with respect to any such claim.

(e) Use of information on borrowers

    Notwithstanding any other provision of law, the Secretary may 
provide to eligible lenders, and to any guaranty agency having a 
guaranty agreement under section 1078(c)(1) of this title, any 
information with respect to the names and addresses of borrowers or 
other relevant information which is available to the Secretary, from 
whatever source such information may be derived.

(f) Audit of financial transactions

       (1) Comptroller General and Inspector General authority

        The Comptroller General and the Inspector General of the 
    Department of Education shall each have the authority to conduct an 
    audit of the financial transactions of--
            (A) any guaranty agency operating under an agreement with 
        the Secretary pursuant to section 1078(b) of this title;
            (B) any eligible lender as defined in section 1085(d)(1) of 
        this title;
            (C) a representative sample of eligible lenders under this 
        part, upon the request of the Committee on Education and the 
        Workforce of the House of Representatives or the Committee on 
        Labor and Human Resources of the Senate, with respect to the 
        payment of the special allowance under section 1087-1 of this 
        title in order to evaluate the program authorized by this part.

                        (2) Access to records

        For the purpose of carrying out this subsection, the records of 
    any entity described in subparagraph (A), (B), (C), or (D) \1\ of 
    paragraph (1) shall be available to the Comptroller General and the 
    Inspector General of the Department of Education. For the purpose of 
    section 716(c) of title 31, such records shall be considered to be 
    records to which the Comptroller General has access by law, and for 
    the purpose of section 6(a)(4) of the Inspector General Act of 1978, 
    such records shall be considered to be records necessary in the 
    performance of functions assigned by that Act to the Inspector 
    General.
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    \1\ See References in Text note below.
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                       (3) ``Record'' defined

        For the purpose of this subsection, the term ``record'' includes 
    any information, document, report, answer, account, paper, or other 
    data or documentary evidence.

                        (4) Audit procedures

        In conducting audits pursuant to this subsection, the 
    Comptroller General and the Inspector General of the Department of 
    Education shall audit the records to determine the extent to which 
    they, at a minimum, comply with Federal statutes, and rules and 
    regulations prescribed by the Secretary, in effect at the time that 
    the record was made, and in no case shall the Comptroller General or 
    the Inspector General apply subsequently determined standards, 
    procedures, or regulations to the records of such agency, lender, or 
    Authority.

(g) Civil penalties

                  (1) Authority to impose penalties

        Upon determination, after reasonable notice and opportunity for 
    a hearing, that a lender or a guaranty agency--
            (A) has violated or failed to carry out any provision of 
        this part or any regulation prescribed under this part, or
            (B) has engaged in substantial misrepresentation of the 
        nature of its financial charges,

    the Secretary may impose a civil penalty upon such lender or agency 
    of not to exceed $25,000 for each violation, failure, or 
    misrepresentation.

                           (2) Limitations

        No civil penalty may be imposed under paragraph (1) of this 
    subsection unless the Secretary determines that--
            (A) the violation, failure, or substantial misrepresentation 
        referred to in that paragraph resulted from a violation, 
        failure, or misrepresentation that is material; and
            (B) the lender or guaranty agency knew or should have known 
        that its actions violated or failed to carry out the provisions 
        of this part or the regulations thereunder.

                      (3) Correction of failure

        A lender or guaranty agency has no liability under paragraph (1) 
    of this subsection if, prior to notification by the Secretary under 
    that paragraph, the lender or guaranty agency cures or corrects the 
    violation or failure or notifies the person who received the 
    substantial misrepresentation of the actual nature of the financial 
    charges involved.

                (4) Consideration as single violation

        For the purpose of paragraph (1) of this subsection, violations, 
    failures, or substantial misrepresentations arising from a specific 
    practice of a lender or guaranty agency, and occurring prior to 
    notification by the Secretary under that paragraph, shall be deemed 
    to be a single violation, failure, or substantial misrepresentation 
    even if the violation, failure, or substantial misrepresentation 
    affects more than one loan or more than one borrower, or both. The 
    Secretary may only impose a single civil penalty for each such 
    violation, failure, or substantial misrepresentation.

          (5) Assignees not liable for violations by others

        If a loan affected by a violation, failure, or substantial 
    misrepresentation is assigned to another holder, the lender or 
    guaranty agency responsible for the violation, failure, or 
    substantial misrepresentation shall remain liable for any civil 
    money penalty provided for under paragraph (1) of this subsection, 
    but the assignee shall not be liable for any such civil money 
    penalty.

                           (6) Compromise

        Until a matter is referred to the Attorney General, any civil 
    penalty under paragraph (1) of this subsection may be compromised by 
    the Secretary. In determining the amount of such penalty, or the 
    amount agreed upon in compromise, the Secretary shall consider the 
    appropriateness of the penalty to the resources of the lender or 
    guaranty agency subject to the determination; the gravity of the 
    violation, failure, or substantial misrepresentation; the frequency 
    and persistence of the violation, failure, or substantial 
    misrepresentation; and the amount of any losses resulting from the 
    violation, failure, or substantial misrepresentation. The amount of 
    such penalty, when finally determined, or the amount agreed upon in 
    compromise, may be deducted from any sums owing by the United States 
    to the lender or agency charged, unless the lender or agency has, in 
    the case of a final agency determination, commenced proceedings for 
    judicial review within 90 days of the determination, in which case 
    the deduction may not be made during the pendency of the proceeding.

(h) Authority of the Secretary to impose and enforce limitations, 
        suspensions, and terminations

                     (1) Imposition of sanctions

        (A) If the Secretary, after a reasonable notice and opportunity 
    for hearing to an eligible lender, finds that the eligible lender--
            (i) has substantially failed--
                (I) to exercise reasonable care and diligence in the 
            making and collecting of loans under the provisions of this 
            part,
                (II) to make the reports or statements under section 
            1078(a)(4) of this title, or
                (III) to pay the required loan insurance premiums to any 
            guaranty agency, or

            (ii) has engaged in--
                (I) fraudulent or misleading advertising or in 
            solicitations that have resulted in the making of loans 
            insured or guaranteed under this part to borrowers who are 
            ineligible; or
                (II) the practice of making loans that violate the 
            certification for eligibility provided in section 1078 of 
            this title,

    the Secretary shall limit, suspend, or terminate that lender from 
    participation in the insurance programs operated by guaranty 
    agencies under this part.
        (B) The Secretary shall not lift any such limitation, 
    suspension, or termination until the Secretary is satisfied that the 
    lender's failure under subparagraph (A)(i) of this paragraph or 
    practice under subparagraph (A)(ii) of this paragraph has ceased and 
    finds that there are reasonable assurances that the lender will--
            (i) exercise the necessary care and diligence,
            (ii) comply with the requirements described in subparagraph 
        (A)(i), or
            (iii) cease to engage in the practices described in 
        subparagraph (A)(ii),

    as the case may be.

                 (2) Review of sanctions on lenders

        (A) The Secretary shall review each limitation, suspension, or 
    termination imposed by any guaranty agency pursuant to section 
    1078(b)(1)(U) of this title within 60 days after receipt by the 
    Secretary of a notice from the guaranty agency of the imposition of 
    such limitation, suspension, or termination, unless the right to 
    such review is waived in writing by the lender. The Secretary shall 
    uphold the imposition of such limitation, suspension, or termination 
    in the student loan insurance program of each of the guaranty 
    agencies under this part, and shall notify such guaranty agencies of 
    such sanction--
            (i) if such review is waived; or
            (ii) if such review is not waived, unless the Secretary 
        determines that the limitation, suspension, or termination was 
        not imposed in accordance with requirements of such section.

        (B) The Secretary's review under this paragraph of the 
    limitation, suspension, or termination imposed by a guaranty agency 
    pursuant to section 1078(b)(1)(U) of this title shall be limited 
    to--
            (i) a review of the written record of the proceedings in 
        which the guaranty agency imposed such sanctions; and
            (ii) a determination as to whether the guaranty agency 
        complied with section 1078(b)(1)(U) of this title and any notice 
        and hearing requirements prescribed in regulations of the 
        Secretary under this part.

        (C) The Secretary shall not lift any such sanction until the 
    Secretary is satisfied that the lender has corrected the failures 
    which led to the limitation, suspension, or termination, and finds 
    that there are reasonable assurances that the lender will, in the 
    future, comply with the requirements of this part. The Secretary 
    shall notify each guaranty agency of the lifting of any such 
    sanction.

          (3) Review of sanctions on eligible institutions

        (A) The Secretary shall review each limitation, suspension, or 
    termination imposed by any guaranty agency pursuant to section 
    1078(b)(1)(T) of this title within 60 days after receipt by the 
    Secretary of a notice from the guaranty agency of the imposition of 
    such limitation, suspension, or termination, unless the right to 
    such review is waived in writing by the institution. The Secretary 
    shall uphold the imposition of such limitation, suspension, or 
    termination in the student loan insurance program of each of the 
    guaranty agencies under this part, and shall notify such guaranty 
    agencies of such sanctions--
            (i) if such review is waived; or
            (ii) if such review is not waived, unless the Secretary 
        determines that the limitation, suspension, or termination was 
        not imposed in accordance with requirements of such section.

        (B) The Secretary's review under this paragraph of the 
    limitation, suspension, or termination imposed by a guaranty agency 
    pursuant to section 1078(b)(1)(T) of this title shall be limited 
    to--
            (i) a review of the written record of the proceedings in 
        which the guaranty agency imposed such sanctions; and
            (ii) a determination as to whether the guaranty agency 
        complied with section 1078(b)(1)(T) of this title and any notice 
        and hearing requirements prescribed in regulations of the 
        Secretary under this part.

        (C) The Secretary shall not lift any such sanction until the 
    Secretary is satisfied that the institution has corrected the 
    failures which led to the limitation, suspension, or termination, 
    and finds that there are reasonable assurances that the institution 
    will, in the future, comply with the requirements of this part. The 
    Secretary shall notify each guaranty agency of the lifting of any 
    such sanction.

(i) Authority to sell defaulted loans

    In the event that all other collection efforts have failed, the 
Secretary is authorized to sell defaulted student loans assigned to the 
United States under this part to collection agencies, eligible lenders, 
guaranty agencies, or other qualified purchaser on such terms as the 
Secretary determines are in the best financial interests of the United 
States. A loan may not be sold pursuant to this subsection if such loan 
is in repayment status.

(j) Authority of Secretary to take emergency actions against lenders

                     (1) Imposition of sanctions

        If the Secretary--
            (A) receives information, determined by the Secretary to be 
        reliable, that a lender is violating any provision of this 
        subchapter and part C of subchapter I of chapter 34 of title 42, 
        any regulation prescribed under this subchapter and part C of 
        subchapter I of chapter 34 of title 42, or any applicable 
        special arrangement, agreement, or limitation;
            (B) determines that immediate action is necessary to prevent 
        misuse of Federal funds; and
            (C) determines that the likelihood of loss outweighs the 
        importance of following the limitation, suspension, or 
        termination procedures authorized in subsection (h) of this 
        section;

    the Secretary shall, effective on the date on which a notice and 
    statement of the basis of the action is mailed to the lender (by 
    registered mail, return receipt requested), take emergency action to 
    stop the issuance of guarantee commitments and the payment of 
    interest benefits and special allowance to the lender.

                   (2) Length of emergency action

        An emergency action under this subsection may not exceed 30 days 
    unless a limitation, suspension, or termination proceeding is 
    initiated against the lender under subsection (h) of this section 
    before the expiration of that period.

                    (3) Opportunity to show cause

        The Secretary shall provide the lender, if it so requests, an 
    opportunity to show cause that the emergency action is unwarranted.

(k) Program of assistance for borrowers

                           (1) In general

        The Secretary shall undertake a program to encourage 
    corporations and other private and public employers, including the 
    Federal Government, to assist borrowers in repaying loans received 
    under this subchapter and part C of subchapter I of chapter 34 of 
    title 42, including providing employers with options for payroll 
    deduction of loan payments and offering loan repayment matching 
    provisions as part of employee benefit packages.

                           (2) Publication

        The Secretary shall publicize models for providing the repayment 
    assistance described in paragraph (1) and each year select entities 
    that deserve recognition, through means devised by the Secretary, 
    for the development of innovative plans for providing such 
    assistance to employees.

                         (3) Recommendation

        The Secretary shall recommend to the appropriate committees in 
    the Senate and House of Representatives changes to statutes that 
    could be made in order to further encourage such efforts.

(l) Uniform administrative and claims procedures

                           (1) In general

        The Secretary shall, by regulation developed in consultation 
    with guaranty agencies, lenders, institutions of higher education, 
    secondary markets, students, third party servicers and other 
    organizations involved in providing loans under this part, prescribe 
    standardized forms and procedures regarding--
            (A) origination of loans;
            (B) electronic funds transfer;
            (C) guaranty of loans;
            (D) deferments;
            (E) forbearance;
            (F) servicing;
            (G) claims filing;
            (H) borrower status change; and
            (I) cures.

                          (2) Special rules

        (A) The forms and procedures described in paragraph (1) shall 
    include all aspects of the loan process as such process involves 
    eligible lenders and guaranty agencies and shall be designed to 
    minimize administrative costs and burdens (other than the costs and 
    burdens involved in the transition to new forms and procedures) 
    involved in exchanges of data to and from borrowers, schools, 
    lenders, secondary markets, and the Department.
        (B) Nothing in this paragraph shall be construed to limit the 
    development of electronic forms and procedures.

                   (3) Simplification requirements

        Such regulations shall include--
            (A) standardization of computer formats, forms design, and 
        guaranty agency procedures relating to the origination, 
        servicing, and collection of loans made under this part;
            (B) authorization of alternate means of document retention, 
        including the use of microfilm, microfiche, laser disc, compact 
        disc, and other methods allowing the production of a facsimile 
        of the original documents;
            (C) authorization of the use of computer or similar 
        electronic methods of maintaining records relating to the 
        performance of servicing, collection, and other regulatory 
        requirements under this chapter; and
            (D) authorization and implementation of electronic data 
        linkages for the exchange of information to and from lenders, 
        guarantors, institutions of higher education, third party 
        servicers, and the Department of Education for student status 
        confirmation reports, claim filing, interest and special 
        allowance billing, deferment processing, and all other 
        administrative steps relating to loans made pursuant to this 
        part where using electronic data linkage is feasible.

                   (4) Additional recommendations

        The Secretary shall review regulations prescribed pursuant to 
    paragraph (1) and seek additional recommendations from guaranty 
    agencies, lenders, institutions of higher education, students, 
    secondary markets, third party servicers and other organizations 
    involved in providing loans under this part, not less frequently 
    than annually, for additional methods of simplifying and 
    standardizing the administration of the programs authorized by this 
    part.

(m) Common forms and formats

      (1) Common guaranteed student loan application form and 
                               promissory note

        (A) In general

            The Secretary, in cooperation with representatives of 
        guaranty agencies, eligible lenders, and organizations involved 
        in student financial assistance, shall prescribe common 
        application forms and promissory notes, or master promissory 
        notes, to be used for applying for loans under this part.

        (B) Requirements

            The forms prescribed by the Secretary shall--
                (i) use clear, concise, and simple language to 
            facilitate understanding of loan terms and conditions by 
            applicants;
                (ii) be formatted to require the applicant to clearly 
            indicate a choice of lender; and \2\
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    \2\ So in original. The ``; and'' probably should be a period.
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        (C) Free application form

            For academic year 1999-2000 and succeeding academic years, 
        the Secretary shall prescribe the form developed under section 
        1090 of this title as the application form under this part, 
        other than for loans under sections 1078-2 and 1078-3 of this 
        title.

        (D) Master promissory note

            (i) In general

                The Secretary shall develop and require the use of 
            master promissory note forms for loans made under this part 
            and part C of this subchapter. Such forms shall be available 
            for periods of enrollment beginning not later than July 1, 
            2000. Each form shall allow eligible borrowers to receive, 
            in addition to initial loans, additional loans for the same 
            or subsequent periods of enrollment through a student 
            confirmation process approved by the Secretary. Such forms 
            shall be used for loans made under this part or part C of 
            this subchapter as directed by the Secretary.
            (ii) Consultation

                In developing the master promissory note under this 
            subsection, the Secretary shall consult with representatives 
            of guaranty agencies, eligible lenders, institutions of 
            higher education, students, and organizations involved in 
            student financial assistance.
            (iii) Sale; assignment; enforceability

                Notwithstanding any other provision of law, each loan 
            made under a master promissory note under this subsection 
            may be sold or assigned independently of any other loan made 
            under the same promissory note and each such loan shall be 
            separately enforceable in all Federal and State courts on 
            the basis of an original or copy of the master promissory 
            note in accordance with the terms of the master promissory 
            note.

        (E) Perfection of security interests in student loans

            (i) In general

                Notwithstanding the provisions of any State law to the 
            contrary, including the Uniform Commercial Code as in effect 
            in any State, a security interest in loans made under this 
            part, on behalf of any eligible lender (as defined in 
            section 1085(d) of this title) shall attach, be perfected, 
            and be assigned priority in the manner provided by the 
            applicable State's law for perfection of security interests 
            in accounts, as such law may be amended from time to time 
            (including applicable transition provisions). If any such 
            State's law provides for a statutory lien to be created in 
            such loans, such statutory lien may be created by the entity 
            or entities governed by such State law in accordance with 
            the applicable statutory provisions that created such a 
            statutory lien.
            (ii) Collateral description

                In addition to any other method for describing 
            collateral in a legally sufficient manner permitted under 
            the laws of the State, the description of collateral in any 
            financing statement filed pursuant to this subparagraph 
            shall be deemed legally sufficient if it lists such loans, 
            or refers to records (identifying such loans) retained by 
            the secured party or any designee of the secured party 
            identified in such financing statement, including the debtor 
            or any loan servicer.
            (iii) Sales

                Notwithstanding clauses (i) and (ii) and any provisions 
            of any State law to the contrary, other than any such 
            State's law providing for creation of a statutory lien, an 
            outright sale of loans made under this part shall be 
            effective and perfected automatically upon attachment as 
            defined in the Uniform Commercial Code of such State.

                      (2) Common deferment form

        The Secretary, in cooperation with representatives of guaranty 
    agencies, institutions of higher education, and lenders involved in 
    loans made under this part, shall prescribe a common deferment 
    reporting form to be used for the processing of deferments of loans 
    made under this subchapter and part C of subchapter I of chapter 34 
    of title 42.

                    (3) Common reporting formats

        The Secretary shall promulgate standards including necessary 
    rules, regulations (including the definitions of all relevant 
    terms), and procedures so as to require all lenders and guaranty 
    agencies to report information on all aspects of loans made under 
    this part in uniform formats, so as to permit the direct comparison 
    of data submitted by individual lenders, servicers, or guaranty 
    agencies.

                        (4) Electronic forms

        Nothing in this section shall be construed to limit the 
    development and use of electronic forms and procedures.

(n) Default reduction management

                          (1) Authorization

        There are authorized to be appropriated $25,000,000 for fiscal 
    year 1999 and each of the four succeeding fiscal years, for the 
    Secretary to expend for default reduction management activities for 
    the purposes of establishing a performance measure that will reduce 
    defaults by 5 percent relative to the prior fiscal year. Such funds 
    shall be in addition to, and not in lieu of, other appropriations 
    made for such purposes.

                      (2) Allowable activities

        Allowable activities for which such funds shall be expended by 
    the Secretary shall include the following: (A) program reviews; (B) 
    audits; (C) debt management programs; (D) training activities; and 
    (E) such other management improvement activities approved by the 
    Secretary.

                      (3) Plan for use required

        The Secretary shall submit a plan, for inclusion in the 
    materials accompanying the President's budget each fiscal year, 
    detailing the expenditure of funds authorized by this section to 
    accomplish the 5 percent reduction in defaults. At the conclusion of 
    the fiscal year, the Secretary shall report the Secretary's findings 
    and activities concerning the expenditure of funds and whether the 
    performance measure was met. If the performance measure was not met, 
    the Secretary shall report the following:
            (A) why the goal was not met, including an indication of any 
        managerial deficiencies or of any legal obstacles;
            (B) plans and a schedule for achieving the established 
        performance goal;
            (C) recommended legislative or regulatory changes necessary 
        to achieve the goal; and
            (D) if the performance standard or goal is impractical or 
        infeasible, why that is the case and what action is recommended, 
        including whether the goal should be changed or the program 
        altered or eliminated.

    This report shall be submitted to the Appropriations Committees of 
    the House of Representatives and the Senate and to the Committee on 
    Education and the Workforce of the House of Representatives and the 
    Committee on Labor and Human Resources of the Senate.

(o) Consequences of guaranty agency insolvency

    In the event that the Secretary has determined that a guaranty 
agency is unable to meet its insurance obligations under this part, the 
holder of loans insured by the guaranty agency may submit insurance 
claims directly to the Secretary and the Secretary shall pay to the 
holder the full insurance obligation of the guaranty agency, in 
accordance with insurance requirements no more stringent than those of 
the guaranty agency. Such arrangements shall continue until the 
Secretary is satisfied that the insurance obligations have been 
transferred to another guarantor who can meet those obligations or a 
successor will assume the outstanding insurance obligations.

(p) Reporting requirement

    All officers and directors, and those employees and paid consultants 
of eligible institutions, eligible lenders, guaranty agencies, loan 
servicing agencies, accrediting agencies or associations, State 
licensing agencies or boards, and entities acting as secondary markets 
(including the Student Loan Marketing Association), who are engaged in 
making decisions as to the administration of any program or funds under 
this subchapter and part C of subchapter I of chapter 34 of title 42 or 
as to the eligibility of any entity or individual to participate under 
this subchapter and part C of subchapter I of chapter 34 of title 42, 
shall report to the Secretary, in such manner and at such time as the 
Secretary shall require, on any financial interest which such individual 
may hold in any other entity participating in any program assisted under 
this subchapter and part C of subchapter I of chapter 34 of title 42.

(Pub. L. 89-329, title IV, Sec. 432, as added Pub. L. 99-498, title IV, 
Sec. 402(a), Oct. 17, 1986, 100 Stat. 1401; amended Pub. L. 100-50, 
Sec. 10(x), (y), June 3, 1987, 101 Stat. 346; Pub. L. 101-239, title II, 
Sec. 2006(a), Dec. 19, 1989, 103 Stat. 2118; Pub. L. 102-325, title IV, 
Sec. 425, July 23, 1992, 106 Stat. 543; Pub. L. 103-208, Sec. 2(k)(2), 
(3), Dec. 20, 1993, 107 Stat. 2485; Pub. L. 104-66, title I, 
Sec. 1042(e), Dec. 21, 1995, 109 Stat. 716; Pub. L. 105-244, title IV, 
Sec. 427, Oct. 7, 1998, 112 Stat. 1702; Pub. L. 106-554, Sec. 1(a)(1) 
[title III, Sec. 311], Dec. 21, 2000, 114 Stat. 2763, 2763A-46.)

                       References in Text

    Subparagraph (D) of paragraph (1) of subsec. (f), referred to in 
subsec. (f)(2), was repealed by Pub. L. 105-244, title IV, 
Sec. 427(a)(3), Oct. 7, 1998, 112 Stat. 1702.
    The Inspector General Act of 1978, referred to in subsec. (f)(2), is 
Pub. L. 95-452, Oct. 12, 1978, 92 Stat. 1101, as amended, which is set 
out in the Appendix to Title 5, Government Organization and Employees.
    This chapter, referred to in subsec. (l)(3)(C), was in the original 
``this Act'', meaning Pub. L. 89-329, as amended, known as the Higher 
Education Act of 1965. For complete classification of this Act to the 
Code, see Short Title note set out under section 1001 of this title and 
Tables.


                            Prior Provisions

    A prior section 1082, Pub. L. 89-329, title IV, Sec. 432, Nov. 8, 
1965, 79 Stat. 1246; Pub. L. 90-460, Sec. 3(d), Aug. 3, 1968, 82 Stat. 
638; Pub. L. 93-604, title VII, Sec. 705(a), Jan. 2, 1975, 88 Stat. 
1964; Pub. L. 94-482, title I, Sec. 127(a), Oct. 12, 1976, 90 Stat. 
2127; Pub. L. 96-88, title III, Sec. 301(b)(2), Oct. 17, 1979, 93 Stat. 
678; Pub. L. 96-374, title IV, Sec. 416(c), title XIII, Sec. 1391(a)(1), 
Oct. 3, 1980, 94 Stat. 1421, 1503; Pub. L. 99-272, title XVI, 
Sec. 16024, Apr. 7, 1986, 100 Stat. 351, related to functions, powers, 
and duties of Secretary, prior to the general revision of this part by 
Pub. L. 99-498.


                               Amendments

    2000--Subsec. (m)(1)(D)(iv). Pub. L. 106-554, Sec. 1(a)(1) [title 
III, Sec. 311(1)], struck out heading and text of cl. (iv). Text read as 
follows: ``Notwithstanding the provisions of any State law to the 
contrary, including the Uniform Commercial Code as in effect in any 
State, a security interest in loans made under this part created on 
behalf of any eligible lender as defined in section 1085(d) of this 
title may be perfected either through the taking of possession of such 
loans (which can be through taking possession of an original or copy of 
the master promissory note) or by the filing of notice of such security 
interest in such loans in the manner provided by such State law for 
perfection of security interests in accounts.''
    Subsec. (m)(1)(E). Pub. L. 106-554, Sec. 1(a)(1) [title III, 
Sec. 311(2)], added subpar. (E).
    1998--Subsec. (f)(1)(B). Pub. L. 105-244, Sec. 427(a)(1), 
substituted ``section 1085(d)(1)'' for ``section 1085(d)(1)(D), (F), or 
(H)''.
    Subsec. (f)(1)(C). Pub. L. 105-244, Sec. 427(a)(2), substituted 
``and the Workforce'' for ``and Labor'' and a period for ``; and'' at 
end.
    Subsec. (f)(1)(D). Pub. L. 105-244, Sec. 427(a)(3), struck out 
subpar. (D) which read as follows: ``any Authority required to file a 
plan for doing business under section 1087-1(d) of this title.''
    Subsec. (k)(3). Pub. L. 105-244, Sec. 427(b), substituted ``The 
Secretary'' for ``Within 1 year after July 23, 1992, the Secretary''.
    Subsec. (m)(1)(A). Pub. L. 105-244, Sec. 427(c)(1)(A), substituted 
``common application forms and promissory notes, or master promissory 
notes,'' for ``a common application form and promissory note''.
    Subsec. (m)(1)(B). Pub. L. 105-244, Sec. 427(c)(1)(B), substituted 
``The forms'' for ``The form'' in introductory provisions and struck out 
cl. (iii) which read as follows: ``permit, to the maximum extent 
practicable, application for any loan under this part.''
    Subsec. (m)(1)(C). Pub. L. 105-244, Sec. 427(c)(1)(C), amended 
heading and text of subpar. (C) generally. Prior to amendment, text read 
as follows: ``The Secretary shall approve a form for use not later than 
360 days after July 23, 1992.''
    Subsec. (m)(1)(D). Pub. L. 105-244, Sec. 427(c)(1)(D), amended 
heading and text of subpar. (D) generally. Prior to amendment, text read 
as follows: ``Nothing in this section shall be construed to limit the 
development of electronic forms and procedures.''
    Subsec. (m)(4). Pub. L. 105-244, Sec. 427(c)(2), added par. (4).
    Subsec. (n)(1). Pub. L. 105-244, Sec. 427(d)(1), substituted 
``1999'' for ``1993''.
    Subsec. (n)(3). Pub. L. 105-244, Sec. 427(d)(2), substituted ``and 
the Workforce'' for ``and Labor'' in concluding provisions.
    Subsec. (p). Pub. L. 105-244, Sec. 427(e), struck out ``State 
postsecondary reviewing entities designated under subpart 1 of part G of 
this subchapter,'' after ``agencies or boards,''.
    1995--Subsec. (b). Pub. L. 104-66 amended heading and text of 
subsec. (b) generally. Prior to amendment, text read as follows: ``The 
Secretary shall, with respect to the financial operations arising by 
reason of this part--
        ``(1) prepare annually and submit a budget program as provided 
    for wholly owned Government corporations by chapter 91 of title 31; 
    and
        ``(2) maintain with respect to insurance under this part an 
    integral set of accounts and prepare financial statements in 
    accordance with generally accepted accounting principles, which 
    shall be audited annually by the General Accounting Office in 
    conformity with generally accepted Government auditing standards 
    except that the transactions of the Secretary, including the 
    settlement of insurance claims and of claims for payments pursuant 
    to section 1078 of this title, and transactions related thereto and 
    vouchers approved by the Secretary in connection with such 
    transactions, shall be final and conclusive upon all accounting and 
    other officers of the Government.''
    1993--Subsec. (h)(2)(A), (3)(A). Pub. L. 103-208 amended directory 
language of Pub. L. 102-325, Sec. 425(d)(1). See 1992 Amendment notes 
below.
    1992--Subsec. (a)(1). Pub. L. 102-325, Sec. 425(a), inserted before 
semicolon at end ``, including regulations applicable to third party 
servicers (including regulations concerning financial responsibility 
standards for, and the assessment of liabilities for program violations 
against, such servicers) to establish minimum standards with respect to 
sound management and accountability of programs under this part, except 
that in no case shall damages be assessed against the United States for 
the actions or inactions of such servicers''.
    Subsecs. (a)(3), (g)(1). Pub. L. 102-325, Sec. 425(b)(1), (2), 
struck out ``on the record'' after ``for a hearing''.
    Subsec. (g)(2). Pub. L. 102-325, Sec. 425(c)(1), amended par. (2) 
generally. Prior to amendment, par. (2) read as follows: ``No civil 
penalty may be imposed under paragraph (1) of this subsection unless it 
is determined that the violation, failure, or substantial 
misrepresentation referred to in that paragraph resulted from--
        ``(A)(i) a clear and consistent pattern or practice of 
    violations, failures, or substantial misrepresentations in which the 
    lender or guaranty agency did not maintain procedures reasonably 
    adapted to avoid the violation, failure, or substantial 
    misrepresentation;
        ``(ii) gross negligence; or
        ``(iii) willful actions on the part of the lender or guaranty 
    agency; and
        ``(B) the violation, failure, or substantial misrepresentation 
    is material.''
    Subsec. (g)(3). Pub. L. 102-325, Sec. 425(c)(2), substituted 
``notification by the Secretary under that paragraph'' for ``the 
institution of an action under that paragraph''.
    Subsec. (g)(4). Pub. L. 102-325, Sec. 425(c)(3), inserted ``, and 
occurring prior to notification by the Secretary under that paragraph,'' 
after ``guaranty agency'' and substituted ``or both. The'' for ``or 
both, and the''.
    Subsec. (h)(2)(A). Pub. L. 102-325, Sec. 425(d)(1), as amended by 
Pub. L. 103-208, Sec. 2(k)(2), in second sentence substituted ``The 
Secretary shall uphold the imposition of such limitation, suspension, or 
termination in the student loan insurance program of each of the 
guaranty agencies under this part, and shall notify such guaranty 
agencies of such sanction'' for ``The Secretary shall disqualify such 
lender from participation in the student loan insurance program of each 
of the guaranty agencies under this part, and notify such guaranty 
agencies of such disqualification''.
    Pub. L. 102-325, Sec. 425(b)(3), in first sentence struck out ``, in 
accordance with sections 556 and 557 of title 5,'' after ``The Secretary 
shall''.
    Subsec. (h)(2)(B), (C). Pub. L. 102-325, Sec. 425(d)(2), (3), added 
subpar. (B), redesignated former subpar. (B) as (C), and substituted 
``sanction'' for ``disqualification'' in two places.
    Subsec. (h)(3)(A). Pub. L. 102-325, Sec. 425(d)(4), as amended by 
Pub. L. 103-208, Sec. 2(k)(3), in second sentence substituted ``The 
Secretary shall uphold the imposition of such limitation, suspension, or 
termination in the student loan insurance program of each of the 
guaranty agencies under this part, and shall notify such guaranty 
agencies of such sanctions'' for ``The Secretary shall disqualify such 
institution from participation in the student loan insurance program of 
each of the guaranty agencies under this part, and notify such guaranty 
agencies of such disqualification''.
    Pub. L. 102-325, Sec. 425(b)(4), in first sentence struck out ``, in 
accordance with sections 556 and 557 of title 5,'' after ``The Secretary 
shall''.
    Subsec. (h)(3)(B), (C). Pub. L. 102-325, Sec. 425(d)(5), (6), added 
subpar. (B), redesignated former subpar. (B) as (C), and substituted 
``sanction'' for ``disqualification'' in two places.
    Subsecs. (k) to (p). Pub. L. 102-325, Sec. 425(e), added subsecs. 
(k) to (p).
    1989--Subsec. (j). Pub. L. 101-239 added subsec. (j).
    1987--Subsec. (f)(4). Pub. L. 100-50, Sec. 10(x), added par. (4).
    Subsec. (g)(2)(A)(i), (B). Pub. L. 100-50, Sec. 10(y), substituted 
``misrepresentation'' for ``representation''.


                    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.


                    Effective Date of 1993 Amendment

    Amendment by Pub. L. 103-208 effective as if included in the Higher 
Education Amendments of 1992, Pub. L. 102-325, except as otherwise 
provided, see section 5(a) of Pub. L. 103-208, set out as a note under 
section 1051 of this title.


                    Effective Date of 1987 Amendment

    Amendment by Pub. L. 100-50 effective as if enacted as part of the 
Higher Education Amendments of 1986, Pub. L. 99-498, see section 27 of 
Pub. L. 100-50, set out as a note under section 1001 of this title.

                  Section Referred to in Other Sections

    This section is referred to in sections 1078, 1087c, 1087hh, 1094, 
1099c-1 of this title.
