 
      CHAPTER 28--HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE
 
                    SUBCHAPTER IV--STUDENT ASSISTANCE
 
              Part B--Federal Family Education Loan Program
 
Sec. 1087-1. Special allowances


(a) Findings

    In order to assure (1) that the limitation on interest payments or 
other conditions (or both) on loans made or insured under this part, do 
not impede or threaten to impede the carrying out of the purposes of 
this part or do not cause the return to holders of loans to be less than 
equitable, (2) that incentive payments on such loans are paid promptly 
to eligible lenders, and (3) that appropriate consideration of relative 
administrative costs and money market conditions is made in setting the 
quarterly rate of such payments, the Congress finds it necessary to 
establish an improved method for the determination of the quarterly rate 
of the special allowances on such loans, and to provide for a thorough, 
expeditious, and objective examination of alternative methods for the 
determination of the quarterly rate of such allowances.

(b) Computation and payment

            (1) Quarterly payment based on unpaid balance

        A special allowance shall be paid for each of the 3-month 
    periods ending March 31, June 30, September 30, and December 31 of 
    every year and the amount of such allowance paid to any holder with 
    respect to any 3-month period shall be a percentage of the average 
    unpaid balance of principal (not including unearned interest added 
    to principal) of all eligible loans held by such holder during such 
    period.

                    (2) Rate of special allowance

        (A) Subject to subparagraphs (B), (C), (D), (E), (F), (G), (H), 
    and (I) and paragraph (4), the special allowance paid pursuant to 
    this subsection on loans shall be computed (i) by determining the 
    average of the bond equivalent rates of 91-day Treasury bills 
    auctioned for such 3-month period, (ii) by subtracting the 
    applicable interest rate on such loans from such average, (iii) by 
    adding 3.10 percent to the resultant percent, and (iv) by dividing 
    the resultant percent by 4. If such computation produces a number 
    less than zero, such loans shall be subject to section 1077a(f) of 
    this title.
        (B)(i) The quarterly rate of the special allowance for holders 
    of loans which were made or purchased with funds obtained by the 
    holder from the issuance of obligations, the income from which is 
    exempt from taxation under title 26 shall be one-half the quarterly 
    rate of the special allowance established under subparagraph (A), 
    except that, in determining the rate for the purpose of this 
    division, subparagraph (A)(iii) shall be applied by substituting 
    ``3.5 percent'' for ``3.10 percent''. Such rate shall also apply to 
    holders of loans which were made or purchased with funds obtained by 
    the holder from collections or default reimbursements on, or 
    interests or other income pertaining to, eligible loans made or 
    purchased with funds described in the preceding sentence of this 
    subparagraph or from income on the investment of such funds. This 
    subparagraph shall not apply to loans which were made or insured 
    prior to October 1, 1980.
        (ii) The quarterly rate of the special allowance set under 
    division (i) of this subparagraph shall not be less than 9.5 percent 
    minus the applicable interest rate on such loans, divided by 4.
        (iii) No special allowance may be paid under this subparagraph 
    unless the issuer of such obligations complies with subsection (d) 
    of this section.
        (iv) Notwithstanding clauses (i) and (ii), the quarterly rate of 
    the special allowance for holders of loans which are financed with 
    funds obtained by the holder from the issuance of obligations 
    originally issued on or after October 1, 1993, the income from which 
    is excluded from gross income under title 26, shall be the quarterly 
    rate of the special allowance established under subparagraph (A), 
    (E), (F), (G), (H), or (I) as the case may be. Such rate shall also 
    apply to holders of loans which were made or purchased with funds 
    obtained by the holder from collections or default reimbursements 
    on, or interest or other income pertaining to, eligible loans made 
    or purchased with funds described in the preceding sentence of this 
    subparagraph or from income on the investment of such funds.
        (C)(i) In the case of loans made before October 1, 1992, 
    pursuant to section 1078-1 \1\ or 1078-2 of this title for which the 
    interest rate is determined under section 1077a(c)(4) of this title, 
    a special allowance shall not be paid unless the rate determined for 
    any 12-month period under subparagraph (B) of such section exceeds 
    12 percent.
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    \1\ See References in Text note below.
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        (ii) Subject to subparagraphs (G), (H), and (I) in the case of 
    loans disbursed on or after October 1, 1992, pursuant to section 
    1078-1 \1\ or 1078-2 of this title for which the interest rate is 
    determined under section 1077a(c)(4) of this title, a special 
    allowance shall not be paid unless the rate determined for any 12-
    month period under section 1077a(c)(4)(B) of this title exceeds--
            (I) 11 percent in the case of a loan under section 1078-1 
        \1\ of this title; or
            (II) 10 percent in the case of a loan under section 1078-2 
        of this title.

        (D)(i) In the case of loans made or purchased directly from 
    funds loaned or advanced pursuant to a qualified State obligation, 
    subparagraph (A)(iii) shall be applied by substituting ``3.5 
    percent'' for ``3.10 percent''.
        (ii) For the purpose of division (i) of this subparagraph, the 
    term ``qualified State obligation'' means--
            (I) an obligation of the Maine Educational Loan Marketing 
        Corporation to the Student Loan Marketing Association pursuant 
        to an agreement entered into on January 31, 1984; or
            (II) an obligation of the South Carolina Student Loan 
        Corporation to the South Carolina National Bank pursuant to an 
        agreement entered into on July 30, 1986.

        (E) In the case of any loan for which the applicable rate of 
    interest is described in section 1077a(g)(2) of this title, 
    subparagraph (A)(iii) shall be applied by substituting ``2.5 
    percent'' for ``3.10 percent''.
        (F) Subject to paragraph (4), the special allowance paid 
    pursuant to this subsection on loans for which the applicable rate 
    of interest is determined under section 1077a(h) of this title shall 
    be computed (i) by determining the applicable bond equivalent rate 
    of the security with a comparable maturity, as established by the 
    Secretary, (ii) by subtracting the applicable interest rates on such 
    loans from such applicable bond equivalent rate, (iii) by adding 1.0 
    percent to the resultant percent, and (iv) by dividing the resultant 
    percent by 4. If such computation produces a number less than zero, 
    such loans shall be subject to section 1077a(f) of this title.
        (G) Loans disbursed between july 1, 1998, and october 1, 1998.--
            (i) In general.--Subject to paragraph (4) and clauses (ii), 
        (iii), and (iv) of this subparagraph, and except as provided in 
        subparagraph (B), the special allowance paid pursuant to this 
        subsection on loans for which the first disbursement is made on 
        or after July 1, 1998, and before October 1, 1998, shall be 
        computed--
                (I) by determining the average of the bond equivalent 
            rates of 91-day Treasury bills auctioned for such 3-month 
            period;
                (II) by subtracting the applicable interest rates on 
            such loans from such average bond equivalent rate;
                (III) by adding 2.8 percent to the resultant percent; 
            and
                (IV) by dividing the resultant percent by 4.

            (ii) In school and grace period.--In the case of any loan 
        for which the first disbursement is made on or after July 1, 
        1998, and before October 1, 1998, and for which the applicable 
        rate of interest is described in section 1077a(j)(2) of this 
        title, clause (i)(III) of this subparagraph shall be applied by 
        substituting ``2.2 percent'' for ``2.8 percent''.
            (iii) PLUS loans.--In the case of any loan for which the 
        first disbursement is made on or after July 1, 1998, and before 
        October 1, 1998, and for which the applicable rate of interest 
        is described in section 1077a(j)(3) of this title, clause 
        (i)(III) of this subparagraph shall be applied by substituting 
        ``3.1 percent'' for ``2.8 percent'', subject to clause (v) of 
        this subparagraph.
            (iv) Consolidation loans.--This subparagraph shall not apply 
        in the case of any consolidation loan.
            (v) Limitation on special allowances for PLUS loans.--In the 
        case of PLUS loans made under section 1078-2 of this title and 
        disbursed on or after July 1, 1998, and before October 1, 1998, 
        for which the interest rate is determined under 1077a(j)(3) of 
        this title, a special allowance shall not be paid for such loan 
        for such \2\ unless the rate determined under subparagraph (A) 
        of such section (without regard to subparagraph (B) of such 
        section) exceeds 9.0 percent.
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    \2\ So in original.

        (H) Loans disbursed on or after october 1, 1998, and before 
    january 1, 2000.--
            (i) In general.--Subject to paragraph (4) and clauses (ii), 
        (iii), and (iv) of this subparagraph, and except as provided in 
        subparagraph (B), the special allowance paid pursuant to this 
        subsection on loans for which the first disbursement is made on 
        or after October 1, 1998, and before January 1, 2000, shall be 
        computed--
                (I) by determining the average of the bond equivalent 
            rates of 91-day Treasury bills auctioned for such 3-month 
            period;
                (II) by subtracting the applicable interest rates on 
            such loans from such average bond equivalent rate;
                (III) by adding 2.8 percent to the resultant percent; 
            and
                (IV) by dividing the resultant percent by 4.

            (ii) In school and grace period.--In the case of any loan 
        for which the first disbursement is made on or after October 1, 
        1998, and before January 1, 2000, and for which the applicable 
        rate of interest is described in section 1077a(k)(2) of this 
        title, clause (i)(III) of this subparagraph shall be applied by 
        substituting ``2.2 percent'' for ``2.8 percent''.
            (iii) PLUS loans.--In the case of any loan for which the 
        first disbursement is made on or after October 1, 1998, and 
        before January 1, 2000, and for which the applicable rate of 
        interest is described in section 1077a(k)(3) of this title, 
        clause (i)(III) of this subparagraph shall be applied by 
        substituting ``3.1 percent'' for ``2.8 percent'', subject to 
        clause (v) of this subparagraph.
            (iv) Consolidation loans.--In the case of any consolidation 
        loan for which the application is received by an eligible lender 
        on or after October 1, 1998, and before January 1, 2000, and for 
        which the applicable interest rate is determined under section 
        1077a(k)(4) of this title, clause (i)(III) of this subparagraph 
        shall be applied by substituting ``3.1 percent'' for ``2.8 
        percent'', subject to clause (vi) of this subparagraph.
            (v) Limitation on special allowances for plus loans.--In the 
        case of PLUS loans made under section 1078-2 of this title and 
        first disbursed on or after October 1, 1998, and before January 
        1, 2000, for which the interest rate is determined under section 
        1077a(k)(3) of this title, a special allowance shall not be paid 
        for such loan during any 12-month period beginning on July 1 and 
        ending on June 30 unless, on the June 1 preceding such July 1--
                (I) the bond equivalent rate of 91-day Treasury bills 
            auctioned at the final auction held prior to such June 1 (as 
            determined by the Secretary for purposes of such section); 
            plus
                (II) 3.1 percent,

        exceeds 9.0 percent.
            (vi) Limitation on special allowances for consolidation 
        loans.--In the case of consolidation loans made under section 
        1078-3 of this title and for which the application is received 
        on or after October 1, 1998, and before January 1, 2000, for 
        which the interest rate is determined under section 1077a(k)(4) 
        of this title, a special allowance shall not be paid for such 
        loan during any 3-month period ending March 31, June 30, 
        September 30, or December 31 unless--
                (I) the average of the bond equivalent rate of 91-day 
            Treasury bills auctioned for such 3-month period; plus
                (II) 3.1 percent,

        exceeds the rate determined under section 1077a(k)(4) of this 
        title.

        (I) Loans disbursed on or after january 1, 2000, and before july 
    1, 2003.--
            (i) In general.--Notwithstanding subparagraphs (G) and (H), 
        but subject to paragraph (4) and clauses (ii), (iii), and (iv) 
        of this subparagraph, and except as provided in subparagraph 
        (B), the special allowance paid pursuant to this subsection on 
        loans for which the first disbursement is made on or after 
        January 1, 2000, and before July 1, 2003, shall be computed--
                (I) by determining the average of the bond equivalent 
            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 Reserve in Publication H-
            15 (or its successor) for such 3-month period;
                (II) by subtracting the applicable interest rates on 
            such loans from such average bond equivalent rate;
                (III) by adding 2.34 percent to the resultant percent; 
            and
                (IV) by dividing the resultant percent by 4.

            (ii) In school and grace period.--In the case of any loan 
        for which the first disbursement is made on or after January 1, 
        2000, and before July 1, 2003, and for which the applicable rate 
        of interest is described in section 1077a(k)(2) of this title, 
        clause (i)(III) of this subparagraph shall be applied by 
        substituting ``1.74 percent'' for ``2.34 percent''.
            (iii) PLUS loans.--In the case of any loan for which the 
        first disbursement is made on or after January 1, 2000, and 
        before July 1, 2003, and for which the applicable rate of 
        interest is described in section 1077a(k)(3) of this title, 
        clause (i)(III) of this subparagraph shall be applied by 
        substituting ``2.64 percent'' for ``2.34 percent'', subject to 
        clause (v) of this subparagraph.
            (iv) Consolidation loans.--In the case of any consolidation 
        loan for which the application is received by an eligible lender 
        on or after January 1, 2000, and before July 1, 2003, and for 
        which the applicable interest rate is determined under section 
        1077a(k)(4) of this title, clause (i)(III) of this subparagraph 
        shall be applied by substituting ``2.64 percent'' for ``2.34 
        percent'', subject to clause (vi) of this subparagraph.
            (v) Limitation on special allowances for plus loans.--In the 
        case of PLUS loans made under section 1078-2 of this title and 
        first disbursed on or after January 1, 2000, and before July 1, 
        2003, for which the interest rate is determined under section 
        1077a(k)(3) of this title, a special allowance shall not be paid 
        for such loan during any 12-month period beginning on July 1 and 
        ending on June 30 unless, on the June 1 preceding such July 1--
                (I) the bond equivalent rate of 91-day Treasury bills 
            auctioned at the final auction held prior to such June 1 (as 
            determined by the Secretary for purposes of such section); 
            plus
                (II) 3.1 percent,

        exceeds 9.0 percent.
            (vi) Limitation on special allowances for consolidation 
        loans.--In the case of consolidation loans made under section 
        1078-3 of this title and for which the application is received 
        on or after January 1, 2000, and before July 1, 2003, for which 
        the interest rate is determined under section 1077a(k)(4) of 
        this title, a special allowance shall not be paid for such loan 
        during any 3-month period ending March 31, June 30, September 
        30, or December 31 unless--
                (I) the average of the bond equivalent 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 Reserve in Publication H-15 (or its successor) 
            for such 3-month period; plus
                (II) 2.64 percent,

        exceeds the rate determined under section 1077a(k)(4) of this 
        title.

        (3) Contractual right of holders to special allowance

        The holder of an eligible loan shall be deemed to have a 
    contractual right against the United States, during the life of such 
    loan, to receive the special allowance according to the provisions 
    of this section. The special allowance determined for any such 3-
    month period shall be paid promptly after the close of such period, 
    and without administrative delay after receipt of an accurate and 
    complete request for payment, pursuant to procedures established by 
    regulations promulgated under this section.

                    (4) Penalty for late payment

        (A) If payments of the special allowances payable under this 
    section or of interest payments under section 1078(a) of this title 
    with respect to a loan have not been made within 30 days after the 
    Secretary has received an accurate, timely, and complete request for 
    payment thereof, the special allowance payable to such holder shall 
    be increased by an amount equal to the daily interest accruing on 
    the special allowance and interest benefits payments due the holder.
        (B) Such daily interest shall be computed at the daily 
    equivalent rate of the sum of the special allowance rate computed 
    pursuant to paragraph (2) and the interest rate applicable to the 
    loan and shall be paid for the later of (i) the 31st day after the 
    receipt of such request for payment from the holder, or (ii) the 
    31st day after the final day of the period or periods covered by 
    such request, and shall be paid for each succeeding day until, and 
    including, the date on which the Secretary authorizes payment.
        (C) For purposes of reporting to the Congress the amounts of 
    special allowances paid under this section, amounts of special 
    allowances paid pursuant to this paragraph shall be segregated and 
    reported separately.

                    (5) ``Eligible loan'' defined

        As used in this section, the term ``eligible loan'' means a 
    loan--
            (A)(i) on which a portion of the interest is paid on behalf 
        of the student and for the student's account to the holder of 
        the loan under section 1078(a) of this title;
            (ii) which is made under section 1078-1,\3\ 1078-2, 1078-3, 
        1078-8, or 1087-2(o) of this title; or
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    \3\ See References in Text note below.
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            (iii) which was made prior to October 1, 1981; and
            (B) which is insured under this part, or made under a 
        program covered by an agreement under section 1078(b) of this 
        title.

    As used in this section, the term ``eligible loan'' includes all 
    loans subject to section 1078-9 of this title.

            (6) Regulation of time and manner of payment

        The Secretary shall pay the holder of an eligible loan, at such 
    time or times as are specified in regulations, a special allowance 
    prescribed pursuant to this subsection subject to the condition that 
    such holder shall submit to the Secretary, at such time or times and 
    in such a manner as the Secretary may deem proper, such information 
    as may be required by regulation for the purpose of enabling the 
    Secretary to carry out his functions under this section and to carry 
    out the purposes of this section.

                (7) Use of average quarterly balance

        The Secretary shall permit lenders to calculate interest 
    benefits and special allowance through the use of the average 
    quarterly balance method until July 1, 1988.

(c) Origination fees from students

     (1) Deduction from interest and special allowance subsidies

        (A) Notwithstanding subsection (b) of this section, the 
    Secretary shall collect the amount the lender is authorized to 
    charge as an origination fee in accordance with paragraph (2) of 
    this subsection--
            (i) by reducing the total amount of interest and special 
        allowance payable under section 1078(a)(3)(A) of this title and 
        subsection (b) of this section, respectively, to any holder; or
            (ii) directly from the holder of the loan, if the lender 
        fails or is not required to bill the Secretary for interest and 
        special allowance or withdraws from the program with unpaid loan 
        origination fees.

        (B) If the Secretary collects the origination fee under this 
    subsection through the reduction of interest and special allowance, 
    and the total amount of interest and special allowance payable under 
    section 1078(a)(3)(A) of this title and subsection (b) of this 
    section, respectively, is less than the amount the lender was 
    authorized to charge borrowers for origination fees in that quarter, 
    the Secretary shall deduct the excess amount from the subsequent 
    quarters' payments until the total amount has been deducted.

                   (2) Amount of origination fees

        Subject to paragraph (6) of this subsection, with respect to any 
    loan (including loans made under section 1078-8 of this title, but 
    excluding loans made under sections 1078-3 and 1087-2(o) of this 
    title) for which a completed note or other written evidence of the 
    loan was sent or delivered to the borrower for signing on or after 
    10 days after August 13, 1981, each eligible lender under this part 
    is authorized to charge the borrower an origination fee in an amount 
    not to exceed 3.0 percent of the principal amount of the loan, to be 
    deducted proportionately from each installment payment of the 
    proceeds of the loan prior to payment to the borrower. Except as 
    provided in paragraph (8), a lender that charges an origination fee 
    under this paragraph shall assess the same fee to all student 
    borrowers.

                 (3) Relation to applicable interest

        Such origination fee shall not be taken into account for 
    purposes of determining compliance with section 1077a of this title.

                       (4) Disclosure required

        The lender shall disclose to the borrower the amount and method 
    of calculating the origination fee.

      (5) Prohibition on department compelling origination fee 
                           collections by lenders

        Nothing in this subsection shall be construed to permit the 
    Secretary to require any lender that is making loans that are 
    insured or guaranteed under this part, but for which no amount will 
    be payable for interest under section 1078(a)(3)(A) of this title or 
    for special allowances under subsection (b) of this section, to 
    collect any origination fee or to submit the sums collected as 
    origination fees to the United States. The Secretary shall, not 
    later than January 1, 1987, return to any such lender any such sums 
    collected before October 17, 1986, together with interest thereon.

                       (6) SLS and PLUS loans

        With respect to any loans made under section 1078-1 \4\ or 1078-
    2 of this title on or after October 1, 1992, each eligible lender 
    under this part shall charge the borrower an origination fee of 3.0 
    percent of the principal amount of the loan, to be deducted 
    proportionately from each installment payment of the proceeds of the 
    loan prior to payments to the borrower.
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    \4\ See References in Text note below.
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                (7) Distribution of origination fees

        All origination fees collected pursuant to this section on loans 
    authorized under section 1078-1 \4\ or 1078-2 of this title shall be 
    paid to the Secretary by the lender and deposited in the fund 
    authorized under section 1081 of this title.

                            (8) Exception

        Notwithstanding paragraph (2), a lender may assess a lesser 
    origination fee for a borrower demonstrating greater financial need 
    as determined by such borrower's adjusted gross family income.

(d) Loan fees from lenders

     (1) Deduction from interest and special allowance subsidies

        (A) In general

            Notwithstanding subsection (b) of this section, the 
        Secretary shall collect a loan fee in an amount determined in 
        accordance with paragraph (2)--
                (i) by reducing the total amount of interest and special 
            allowance payable under section 1078(a)(3)(A) of this title 
            and subsection (b) of this section, respectively, to any 
            holder of a loan; or
                (ii) directly from the holder of the loan, if the 
            lender--
                    (I) fails or is not required to bill the Secretary 
                for interest and special allowance payments; or
                    (II) withdraws from the program with unpaid loan 
                fees.

        (B) Special rule

            If the Secretary collects loan fees under this subsection 
        through the reduction of interest and special allowance 
        payments, and the total amount of interest and special allowance 
        payable under section 1078(a)(3)(A) of this title and subsection 
        (b) of this section, respectively, is less than the amount of 
        such loan fees, then the Secretary shall deduct the amount of 
        the loan fee balance from the amount of interest and special 
        allowance payments that would otherwise be payable, in 
        subsequent quarterly increments until the balance has been 
        deducted.

                       (2) Amount of loan fees

        With respect to any loan under this part for which the first 
    disbursement was made on or after October 1, 1993, the amount of the 
    loan fee which shall be deducted under paragraph (1) shall be equal 
    to 0.50 percent of the principal amount of the loan.

                    (3) Distribution of loan fees

        The Secretary shall deposit all fees collected pursuant to 
    paragraph (3) into the insurance fund established in section 1081 of 
    this title.

(e) Nondiscrimination

    In order for the holders of loans which were made or purchased with 
funds obtained by the holder from an Authority issuing obligations, the 
income from which is exempt from taxation under title 26, to be eligible 
to receive a special allowance under subsection (b)(2) of this section 
on any such loans, the Authority shall not engage in any pattern or 
practice which results in a denial of a borrower's access to loans under 
this part because of the borrower's race, sex, color, religion, national 
origin, age, disability status, income, attendance at a particular 
eligible institution within the area served by the Authority, length of 
the borrower's educational program, or the borrower's academic year in 
school.

(f) Regulations to prevent denial of loans to eligible students

    The Secretary shall adopt or amend appropriate regulations 
pertaining to programs carried out under this part to prevent, where 
practicable, any practices which the Secretary finds have denied loans 
to a substantial number of eligible students.

(Pub. L. 89-329, title IV, Sec. 438, as added Pub. L. 99-498, title IV, 
Sec. 402(a), Oct. 17, 1986, 100 Stat. 1414; amended Pub. L. 100-50, 
Sec. 10(d)(2), (bb), (cc), June 3, 1987, 101 Stat. 342, 347; Pub. L. 
100-369, Sec. 7(c), July 18, 1988, 102 Stat. 837; Pub. L. 102-325, title 
IV, Sec. 430, July 23, 1992, 106 Stat. 553; Pub. L. 103-66, title IV, 
Secs. 4102(a), 4103, 4105, 4111, Aug. 10, 1993, 107 Stat. 366, 367, 368, 
370; Pub. L. 105-178, title VIII, Sec. 8301(b), June 9, 1998, 112 Stat. 
497; Pub. L. 105-244, title IV, Secs. 416(b)(1), (3), 433(a)-(d)(1), 
Oct. 7, 1998, 112 Stat. 1680, 1682, 1710, 1711; Pub. L. 106-170, title 
IV, Sec. 409(a), Dec. 17, 1999, 113 Stat. 1914.)

                       References in Text

    Section 1078-1 of this title, referred to in subsecs. (b)(2)(C), 
(5)(A)(ii) and (c)(6), (7), was repealed by Pub. L. 103-66, title IV, 
Sec. 4047(b)-(d), Aug. 10, 1993, 107 Stat. 364, eff. July 1, 1994, 
except with respect to loans provided under that section as it existed 
prior to Aug. 10, 1993. Subsequently, a new section 1078-1, relating to 
voluntary flexible agreements with guaranty agencies, was enacted by 
Pub. L. 105-244, title IV, Sec. 418, Oct. 7, 1998, 112 Stat. 1691.


                            Prior Provisions

    A prior section 1087-1, Pub. L. 89-329, title IV, Sec. 438, as added 
Pub. L. 92-318, title I, Sec. 132E(a), June 23, 1972, 86 Stat. 264; 
amended Pub. L. 94-482, title I, Sec. 127(a), Oct. 12, 1976, 90 Stat. 
2133; Pub. L. 95-43, Sec. 1(a)(37), June 15, 1977, 91 Stat. 216; Pub. L. 
96-49, Sec. 5(c)(1), Aug. 13, 1979, 93 Stat. 352; Pub. L. 96-374, title 
IV, Secs. 420(a), 451(d), title XIII, Sec. 1391(a)(1), Oct. 3, 1980, 94 
Stat. 1425, 1458, 1503; Pub. L. 97-35, title V, Secs. 532(b)(4), 534(b), 
536(a), Aug. 13, 1981, 95 Stat. 452, 454, 455; Pub. L. 98-79, Sec. 7(a), 
(c), Aug. 15, 1983, 97 Stat. 482, 483; Pub. L. 99-272, title XVI, 
Secs. 16013(d), 16017(b)(3), (c), Apr. 7, 1986, 100 Stat. 340, 347, 
related to special allowances, prior to the general revision of this 
part by Pub. L. 99-498.
    A prior section 1087-1a, Pub. L. 96-374, title IV, Sec. 420(b), Oct. 
3, 1980, 94 Stat. 1427, related to eligibility for special allowances 
covering loans made or purchased with funds obtained from Authorities 
issuing tax exempt obligations, and established requirement relating to 
plans for doing business, prior to repeal by Pub. L. 98-79, Sec. 7(b), 
Aug. 15, 1983, 97 Stat. 483.


                               Amendments

    1999--Subsec. (b)(2)(A). Pub. L. 106-170, Sec. 409(a)(1), 
substituted ``(G), (H), and (I)'' for ``(G), and (H)'' in first 
sentence.
    Subsec. (b)(2)(B)(iv). Pub. L. 106-170, Sec. 409(a)(2), substituted 
``(G), (H), or (I)'' for ``(G), or (H)'' in first sentence.
    Subsec. (b)(2)(C)(ii). Pub. L. 106-170, Sec. 409(a)(3), substituted 
``(G), (H), and (I)'' for ``(G) and (H)'' in introductory provisions.
    Subsec. (b)(2)(H). Pub. L. 106-170, Sec. 409(a)(4), (5), substituted 
``january 1, 2000'' for ``july 1, 2003'' in subpar. heading and 
``January 1, 2000'' for ``July 1, 2003'' in text wherever appearing.
    Subsec. (b)(2)(I). Pub. L. 106-170, Sec. 409(a)(6), added subpar. 
(I).
    1998--Subsec. (b)(2)(A). Pub. L. 105-244, Sec. 416(b)(3)(A), 
substituted ``(F), (G), and (H)'' for ``(F), and (G)''.
    Pub. L. 105-178, Sec. 8301(b)(2)(A), substituted ``(E), (F), and 
(G)'' for ``(E), and (F)''.
    Subsec. (b)(2)(B)(iv). Pub. L. 105-244, Sec. 416(b)(3)(B), 
substituted ``(F), (G), or (H)'' for ``(F), or (G)''.
    Pub. L. 105-178, Sec. 8301(b)(2)(B), substituted ``(E), (F), or 
(G)'' for ``(E), or (F)''.
    Subsec. (b)(2)(C)(ii). Pub. L. 105-244, Sec. 416(b)(3)(C), 
substituted ``subparagraphs (G) and (H)'' for ``subparagraph (G)''.
    Pub. L. 105-178, Sec. 8301(b)(2)(C), substituted ``Subject to 
subparagraph (G), in the case'' for ``In the case''.
    Subsec. (b)(2)(G). Pub. L. 105-178, Sec. 8301(b)(1), added subpar. 
(G).
    Subsec. (b)(2)(H). Pub. L. 105-244, Sec. 416(b)(1), added subpar. 
(H).
    Subsec. (c)(1). Pub. L. 105-244, Sec. 433(a), amended heading and 
text of par. (1) generally. Prior to amendment, text read as follows: 
``Notwithstanding subsection (b) of this section, the total amount of 
interest and special allowance payable under section 1078(a)(3)(A) of 
this title and subsection (b) of this section, respectively, to any 
holder shall be reduced by the Secretary by the amount which the lender 
is authorized to charge as an origination fee in accordance with 
paragraph (2) of this subsection. If the total amount of interest and 
special allowance payable under section 1078(a)(3)(A) of this title and 
subsection (b) of this section, respectively, is less than the amount 
the lender was authorized to charge borrowers for origination fees in 
that quarter, the Secretary shall deduct the excess amount from the 
subsequent quarters' payments until the total amount has been 
deducted.''
    Subsec. (c)(2). Pub. L. 105-244, Sec. 433(b)(1), substituted 
``(including loans made under section 1078-8 of this title, but 
excluding'' for ``(other than'' and inserted at end ``Except as provided 
in paragraph (8), a lender that charges an origination fee under this 
paragraph shall assess the same fee to all student borrowers.''
    Subsec. (c)(8). Pub. L. 105-244, Sec. 433(b)(2), added par. (8).
    Subsec. (d)(1). Pub. L. 105-244, Sec. 433(c), amended heading and 
text of par. (1) generally. Prior to amendment, text read as follows: 
``Notwithstanding subsection (b) of this section, the Secretary shall 
reduce the total amount of interest and special allowance payable under 
section 1078(a)(3)(A) of this title and subsection (b) of this section, 
respectively, to any holder of a loan by a loan fee in an amount 
determined in accordance with paragraph (2) of this subsection. If the 
total amount of interest and special allowance payable under section 
1078(a)(3)(A) of this title and subsection (b) of this section, 
respectively, is less than the amount of such loan fee, then the 
Secretary shall deduct such excess amount from subsequent quarters' 
payments until the total amount has been deducted.''
    Subsec. (e). Pub. L. 105-244, Sec. 433(d)(1), amended heading and 
text of subsec. (e) generally. Prior to amendment, subsec. (e) related 
to lending from proceeds of tax exempt obligations.
    1993--Subsec. (b)(2)(A). Pub. L. 103-66, Sec. 4111(1), substituted 
``subparagraphs (B), (C), (D), (E), and (F)'' for ``subparagraphs (B), 
(C), and (D)'' and ``section 1077a(f)'' for ``section 1077a(e)''.
    Subsec. (b)(2)(B)(iv). Pub. L. 103-66, Sec. 4105, added cl. (iv).
    Subsec. (b)(2)(E), (F). Pub. L. 103-66, Sec. 4111(2), added subpars. 
(E) and (F).
    Subsec. (c). Pub. L. 103-66, Sec. 4102(a)(1), inserted ``from 
students'' after ``origination fees'' in heading.
    Subsec. (c)(2). Pub. L. 103-66, Sec. 4102(a)(2)(A), substituted 
``sections 1078-3 and 1087-2(o)'' for ``sections 1078-1, 1078-2, 1078-3, 
and 1087-2(o)'' and ``3.0 percent'' for ``5 percent''.
    Subsec. (c)(6). Pub. L. 103-66, Sec. 4102(a)(2)(B), substituted 
``3.0 percent'' for ``5 percent''.
    Subsecs. (d) to (f). Pub. L. 103-66, Sec. 4103, added subsec. (d) 
and redesignated former subsecs. (d) and (e) as (e) and (f), 
respectively.
    1992--Subsec. (b)(2)(A). Pub. L. 102-325, Sec. 430(a)(1), (2), 
substituted ``3.10'' for ``3.25'' and inserted at end ``If such 
computation produces a number less than zero, such loans shall be 
subject to section 1077a(e) of this title.''
    Subsec. (b)(2)(B)(i). Pub. L. 102-325, Sec. 430(a)(3), substituted 
``3.10'' for ``3.25''.
    Subsec. (b)(2)(B)(ii). Pub. L. 102-325, Sec. 430(a)(4), added cl. 
(ii) and struck out former cl. (ii) which read as follows: ``The rate 
set under division (i) shall not be less than (I) 2.5 percent per year 
in the case of loans for which the applicable interest rate is 7 percent 
per year, (II) 1.5 percent per year in the case of loans for which the 
applicable interest rate is 8 percent per year, or (III) 0.5 percent in 
the case of loans for which the applicable rate is 9 percent per year.''
    Subsec. (b)(2)(C). Pub. L. 102-325, Sec. 430(a)(5), designated 
existing provision as cl. (i), inserted ``before October 1, 1992,'' 
after ``made'', and added cl. (ii).
    Subsec. (b)(2)(D)(i). Pub. L. 102-325, Sec. 430(a)(6), substituted 
``3.10'' for ``3.25''.
    Subsec. (b)(5). Pub. L. 102-325, Sec. 430(c), inserted closing 
provision which defined ``eligible loan'' as used in this section to 
include all loans subject to section 1078-9 of this title.
    Subsec. (b)(5)(A)(ii). Pub. L. 102-325, Sec. 430(b), inserted 
``1078-8,'' after ``1078-3,''.
    Subsec. (c)(2). Pub. L. 102-325, Sec. 430(d)(1), substituted 
``Subject to paragraph (6) of this subsection, with'' for ``With''.
    Subsec. (c)(6), (7). Pub. L. 102-325, Sec. 430(d)(2), added pars. 
(6) and (7).
    Subsec. (d)(2)(C). Pub. L. 102-325, Sec. 430(e), struck out ``or 
discount'' after ``premium''.
    1988--Subsecs. (b)(2)(B)(i), (d)(1), (3). Pub. L. 100-369 
substituted ``Internal Revenue Code of 1986'' for ``Internal Revenue 
Code of 1954'', which for purposes of codification was translated as 
``title 26'' thus requiring no change in text.
    1987--Subsec. (b)(2)(B)(iii). Pub. L. 100-50, Sec. 10(bb)(1), 
substituted ``subsection (d) of this section'' for ``subsection (c) of 
this section''.
    Subsec. (b)(2)(C). Pub. L. 100-50, Sec. 10(d)(2), substituted ``12 
percent'' for ``12.5 percent''.
    Subsec. (b)(7). Pub. L. 100-50, Sec. 10(bb)(2), added par. (7).
    Subsec. (d)(4)(C). Pub. L. 100-50, Sec. 10(cc), struck out ``, as 
evidenced by the information submitted under paragraph (2)(G) of this 
subsection'' after ``fiscal year''.


                    Effective Date of 1999 Amendment

    Pub. L. 106-170, title IV, Sec. 409(b), Dec. 17, 1999, 113 Stat. 
1916, provided that: ``Subparagraph (I) of section 438(b)(2) of the 
Higher Education Act of 1965 (20 U.S.C. 1087-1(b)(2)) as added by 
subsection (a) of this section shall apply with respect to any payment 
pursuant to such section with respect to any 3-month period beginning on 
or after January 1, 2000, for loans for which the first disbursement is 
made after such date.''


                    Effective Date of 1998 Amendment

    Amendment by section 416(b)(1) and (3) of Pub. L. 105-244 applicable 
with respect to any loan made, insured, or guaranteed under this part 
for which the first disbursement is made on or after Oct. 1, 1998, and 
before July 1, 2003, except that such amendment is applicable with 
respect to any loan made under section 1078-3 of this title for which 
application is received by an eligible lender on or after Oct. 1, 1998, 
and before July 1, 2003, see section 416(c) of Pub. L. 105-244, set out 
as a note under section 1077a of this title.
    Amendment by section 433(a)-(c) of 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.
    Pub. L. 105-244, title IV, Sec. 433(d)(2), Oct. 7, 1998, 112 Stat. 
1711, provided that: ``The amendment made by paragraph (1) [amending 
this section] shall be effective as of the date the plan required by 
section 438(e)(1) [subsec. (e)(1) of this section] (as such section was 
in effect prior to such amendment) was approved by the Secretary or the 
Governor (whichever was the case). No Authority shall have a right or 
cause of action against the Secretary for any amounts paid to or offset 
by the Secretary pursuant to a final settlement agreement entered into 
prior to July 1, 1998, resolving any audit or program review findings 
alleging violations of any provision of section 438(e) (as in effect 
prior to such amendment).''


                    Effective Date of 1993 Amendment

    Amendment by section 4102(a) of Pub. L. 103-66 effective July 1, 
1994, see section 4102(d) of Pub. L. 103-66, set out as a note under 
section 1078 of this title.


                    Effective Date of 1992 Amendment

    Amendment by Pub. L. 102-325 applicable with respect to loans for 
which first disbursement is made on or after Oct. 1, 1992, see section 
432(a)(13) of Pub. L. 102-325, set out as a note under section 1078 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.


                             Effective Date

    Section effective Oct. 17, 1986, with subsec. (b) of this section 
effective with respect to loans disbursed on or after 30 days after Oct. 
17, 1986, or made to cover the costs of instruction for periods of 
enrollment beginning on or after 30 days after Oct. 17, 1986, and 
subsec. (d) of this section effective 30 days after Oct. 17, 1986, see 
section 402(b) of Pub. L. 99-498, set out as a note under section 1071 
of this title.

                  Section Referred to in Other Sections

    This section is referred to in sections 1078, 1078-3, 1082 of this 
title; title 2 section 906; title 26 sections 144, 148; title 42 section 
292e.
