(2) An institution of higher education may charge, with respect to any loan assigned as security as provided in paragraph (1), additional interest as a rate not exceeding 12 per centum per annum. The Commissioner shall, if requested by the student borrower, pay to such institution the amount of any such additional interest charged with respect to any loan up to the date on which the first installment of principal becomes due, but the total of such payments made by the Commissioner shall be added on such date, or at the time of any default prior to such date, to the principal due on such loan, and shall be refunded to the Commissioner in accordance with his regulations upon collection by the institution of higher education. (f) The consolidation of the obligations of two or more insured loans obtained by a student borrower in any fiscal year into a single obligation evidenced by a single instrument of indebtedness shall not affect the insurance by the United States. Upon surrender of the original certificates of insurance in such cases, the Commissioner may issue a new certificate of insurance in accordance with this section upon such consolidated obligation. PROCEDURE ON DEFAULT, DEATH, OR DISABILITY OF STUDENT SEC. 8. (a) Upon default in payment of principal or interest due upon any loan covered by insurance pursuant to this Act, or upon the death of the student borrower or a finding by the lender or insurance beneficiary that the borrower has become "totally and permanently disabled" (as such term is defined in regulations prescribed by the Commissioner) before the loan has been repaid in full, and prior to the commencement of suit or other enforcement proceeding upon the loan or upon any security for such loan, the insurance beneficiary shall promptly notify the Commissioner who shall thereupon, if requested by such beneficiary or on his own motion, if the insurance is still in effect, pay to the beneficiary, within the limits of liability specified in section 4(b), the amount of the loss sustained by the insured upon such loan as soon as such amount has been determined. The "amount of loss" on any loan shall, for the purposes of this subsection, be deemed to be an amount equal to the unpaid balance of the loan, including interest accrued and unpaid on the date of payment by the United States on its insurance obligation pursuant to subsection (b), but not including any amount due to the United States on account of payments of additional interest pursuant to section 7(e) (2), except that where the Commissioner has decided to make payment on his own motion the amount of loss as so determined shall be deemed tentative and shall be increased by the excess, if any, over such tentative amount of any net recovery made by the Commissioner on such loan or security therefor after deduction of the cost of such recovery (including reasonable administrative cost). (b) Upon payment by the Commissioner of the insured portion of the loss, or tentative amount of loss, pursuant to subsection (a), the United States shall be subrogated to the rights of the holder of the obligation upon the insured loan and be entitled to an assignment of the note or other evidence of the insured loan and any security therefor by the insurance beneficiary. (c) Nothing in this section or in this Act shall be construed to preclude any forbearance for the benefit of the student borrower which may be agreed upon by the parties to the insured loan and approved by the Commissioner, or to preclude forbearance by the Commissioner in the enforcement of the insured obligation after payment on such insurance, or to require collection of the amount of any loan by the insurance beneficiary or by the Commissioner from the estate of a decreased borrower or from a borrower found by the insurance beneficiary to have become permanently and totally disabled. (d) Nothing in this section or in this Act shall be construed to excuse the institution of higher education from exercising in the making and collection of loans under the provisions of this Act, the same care and diligence which would reasonably be used in making and collecting loans not insured. If the Commissioner, after reasonable notice and opportunity for hearing to the institution, finds that an institution of higher education has substantially failed to exercise such care and diligence, or to make the reports and statements required under section 7(c), or to pay the required insurance premiums, he shall disqualify such institution for further insurance on loans granted pursuant to this Act until he is satisfied that such failure has ceased and finds that there is reasonable assurance that the institution will in the future exercise necessary care and diligence or comply with such requirements, as the case may be. (e) As used in this section, the term "insurance beneficiary" means the insured or its authorized assignee, if the certificate of insurance is held by such assignee. REVOLVING INSURANCE FUND SEC. 9. (a) Premiums and all other moneys derived by the Commissioner in the course of operations under this Act shall be deposited in a revolving fund in the Treasury of the United States. All moneys in the revolving fund shall upon requisition by the Commissioner, be available until expended, (1) for the payment of losses in connection with insurance undertaken pursuant to this Act, (2) for the payment of additional interest on any loan as provided in section 7(e) (2) and (3) for any fiscal year, in the amount provided for by an appropriation Act, for defraying the expenses of administration incurred under this Act. (b) For the purposes of carrying out the provisions of this Act, there are hereby authorized to be appropriated to the revolving fund provided in this section (1) the sum of $500,000 for the initial establishment of the revolving fund; and (2) such further sums, if any, as may become necessary for the adequacy of the revolving fund. (c) The Commissioner shall, from the revolving fund, pay annually into the Treasury, as miscellaneous receipts, interest on any sums appropriated to the revolving fund pursuant to subsection (b) which have not been repaid into the Treasury as provided in subsection (d). The Secretary of the Treasury shall determine the interest rate annually in advance, such rate to be calculated to reimburse the Treasury for its costs in connection with such appropriated funds, taking into consideration the current average interest rate which the Treasury pays upon its marketable obligations. (d) Until all advances made to the revolving fund by appropriation pursuant to subsection (b) (1) and (2) have been repaid through credits as provided in this subsection, the Commissioner shall, at least annually, determine any balance iu the revolving fund in excess of an amount determined by him to be necessary for the requirements of the fund, and for reasonable reserves to maintain the solvency of the fund, and such balance shall be paid into the Treasury as miscellaneous receipts and the amount thereof be credited against such advances. (e) The Commissioner may authorize the Secretary of the Treasury to invest and reinvest such portions of the revolving fund as he may determine to be in excess of current needs in any interest-bearing securities of the United States or in any securities guaranteed as to principal and interest by the United States, and the income therefrom shall constitute a part of the revolving fund, LEGAL POWERS AND RESPONSIBILITIES SEC. 10. (a) With respect to matters arising by reason of this Act, and notwithstanding the provisions of any other law, the Commissioner may (1) sue on behalf of the United States and be sued in his official capacity in any court of competent jurisdiction, State or Federal; (2) subject to the specific limitations in this Act, consent to the modification, with respect to rate of interest, time of payment of principal and interest or any portion thereof, or security, of the provisions of any note, contract, mortgage, or other instrument evidencing or securing a loan which has been insured under this Act; (3) enforce, pay, or compromise, any claim on, or arising because of, any such insurance; and (4) enforce, pay, compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or any right of redemption. (b) The Commissioner shall, with respect to the financial operations, arising by reason of this Act (1) prepare annually and submit a budget program as provided for wholly owned Government corporations by the Government Corporation Control Act: (2) maintain an integral set of accounts, which shall be audited annually by the General Accounting Office in accordance with principles and procedures applicable to commercial corporate transactions, as provided by section 105 of the Government Corporation Control Act, except that the financial transactions of the Commissioner, including the settlement of insurance claims, and transactions related thereto and vouchers approved by the Commissioner in connection with such financial transactions, shall be final and conclusive upon all accounting and other officers of the Government. ADMINISTRATION SEC. 11. (a) This Act shall be administered by the Commissioner, under the supervision and direction of the Secretary. The Commissioner shall, with the approval of the Secretary, make all regulations specifically authorized to be made under this Act and such other regulations, not inconsistent with this Act, as may be necessary to carry out its purposes. The Commissioner is authorized to delegate to any officer or employee of the Office of Education any of his powers and duties under this Act, except the making of regulations. (b) In administering the provisions of this Act, the Commissioner is authorized to utilize the services and facilities of any agency of the Federal Government and, without regard to section 3709 of the Revised Statutes, of any other public or nonprofit agency or institution, in accordance with agreements between the Secretary and the head thereof. Payment for such services and facilities shall be made in advance or by way of reimbursement, as may be agreed upon by the Secretary and the head of the agency or institution. (c) At the beginning of each regular session of the Congress, the Commissioner shall make through the Secretary a full report to Congress of the administration of this Act, including his recommendations for needed revisions in the Act. (d) When deemed necessary by the Commissioner for the effective administration of this Act, experts or consultants may be employed as provided in section 15 of the Act of August 2, 1946 (60 Stat. 806, 810). FEDERAL CONTROL OF EDUCATION PROHIBITED SEC. 12. Nothing contained in this Act shall be construed to authorize any department, agency, officer, or employee of the United States to exercise any direction, supervision, or control over the curriculum or program of instruction of any educational institution or, except as provided in sections 7 and 8(d), over its administration or personnel. (See revised bill at p. 113.) Hon. LISTER HILL, Chairman, Committee on Labor and Public Welfare, JUNE 17, 1960. MY DEAR MR. CHAIRMAN: Reference is made to your request for the views of this Department on S. 2710, to provide for loan insurance on loans to students in higher education. Title II of the National Defense Education Act of 1958 established a program of loans to students in institutions of higher education. In 1959 nearly 28,000 loans and over 20,000 loan commitments were made by 1,197 institutions of higher education. During the current school year more than 100,000 students from 1,368 colleges are expected to borrow from college loan funds. Appropriations of $30 million for the program were made for the fiscal year 1960 and the proposed budget for the fiscal year 1961 includes a supplemental appropriation of nearly $10 million for 1960, in addition to $44 million proposed for the fiscal year 1961. In view of the existing student loan program, the Department does not believe that a new program for the insurance of student loans would be warranted. Moreover, the Department believes that money for long-term loans would not be available in the present money market at the interest rate that would be established by the bill, even with a Government guarantee. Furthermore, the proposed maximum insurance premium of one-half of 1 percent would not be sufficient, in our judgment, to cover the administrative costs and the probable losses that may be expected from an unsecured loan program of this nature, with the result that the ultimate cost of the program to the Government could be substantial. Consequently, the Department would be opposed to the enactment of the bill. The Department has been advised by the Bureau of the Budget that there is no objection to the submission of this report to your committee. Very truly yours, Hon. LISTER HILL, JULIAN B. BAIRD, Acting Secretary of the Treasury. DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE, June 17, 1960. Chairman, Committee on Labor and Public Welfare, DEAR MR. CHAIRMAN: This letter is in response to your request of September 24, 1959, for a report on S. 2710, a bill to provide for loan insurance on loans to students in higher education. This bill would authorize an initial appropriation of $500,000 for the establishment of a revolving insurance fund to permit the Commissioner of Education to insure loans to college students made by institutions of higher learning, the total principal amount of new loans to students covered by such insurance not to exceed $100 million in any fiscal year. The Commissioner would issue certificates of insurance to the college or university making loans to eligible students evidenced by a note providing, among other things, for (1) full repayment of principal with interest within 10 years after the borrower ceases to be a fulltime student, (2) interest not exceeding 3 percent per year with an additional interest rate not to exceed 12 percent per year on loans assigned by the institution as security (which additional interest might be paid by the Commissioner until the first installment of principal fell due), and (3) payment (by either the lender or the borrower) of insurance premiums not to exceed one-half percent per annum of the unpaid balance of principal and interest. The aggregate amount of loans to a student subject to such insurance could not exceed $1,000 in any fiscal year and the aggregate unpaid principal amount of all such loans to a student could not exceed $4,000. The purpose of the instant bill, to facilitate loans to students in higher education, is meritorious. Moreover, State and private college loan insurance programs are operating successfully to meet a particular kind of financial need incident to providing a college education. However, we would oppose enactment of the instant bill because the program it would authorize would not be effective in meeting the type of institutional and student financial needs which are of particular concern to the Federal Government, and for which State, institutional, and private programs are inadequate. Title II of the National Defense Education Act of 1958 authorizes a national defense student loan program which is successfully meeting the needs of college students who require financial assistance in order to complete their education. By June 30, 1960, well over 100,000 college students will have been aided by this program. Sixty-two million dollars in Federal funds have been made available to 1.372 participating colleges and universities. Student loans are averaging $500 per year (as compared to $162 per year from institutional loan funds prior to this program), and the favorable terms of the loan, generous repayment provisions, and the forgiveness features are making it possible for able but financially needy students to commence and continue their higher education. The loan insurance program which would be authorized by S. 2710 would add nothing to this existing program. The insurance program set forth in the instant bill would not meet the needs of institutions of higher learning for additional loan funds. Institutions which have loan funds available would not be substantially benefited by Federal insurance of student loans because the experience with the collection of such loans has been so uniformly good that a loan guarantee is unnecessary. The largest student loan funds have experienced a repayment rate approximating 99 percent. This was also the experience of the U.S. Office of Education in administering the student war loan program. Those institutions which do not have loan funds would not be benefited substantially by Federal insurance programs because they can already borrow from commercial sources. Most loans of the type authorized by the bill are helpful only to those students whose financial needs are marginal and who can afford to pay commercial rates. Such programs are particularly helpful to families of moderate income who find borrowing a convenient method of spreading the costs of higher education for their children over a longer period of time. Experience in guarantee programs bears this out. For example, a recent survey by the College Life Insurance Co. of America indicated that the median annual income of the families using the Indiana National Bank plan (a student loan insurance program) was about $8,300. This type of need is being met increasingly by private and State programs of guarantees on commercial loans for this purpose. Such programs have been established in New York, Massachusetts, and Maine, and are in the process of being established in other States. We believe that the national interest is in helping able students to complete a college education who could not do so without financial assistance. This interest is being effectively served by the existing student loan program authorized by title II of the National Defense Education Act. In addition, this direct Federal participation in the establishment of college loan funds permits other vital objectives-such as the encouragement, through partial forgiveness of the loan, of students to pursue careers in teaching-to be served. Accordingly, we recommend that S. 2710 not be enacted. The Bureau of the Budget advises that it perceives no objection to the submission of this report to your committee. Sincerely yours, ARTHUR S. FLEMMING, Secretary. COMPTROLLER GENERAL OF THE UNITED STATES, Hon. LISTER HILL, Chairman, Committee on Labor and Public Welfare, DEAR MR. CHAIRMAN: Your letter of September 24, 1959, requests a report on S. 2710. The purpose of the proposed legislation is to encourage institutions of higher education to make loans to students by providing for insurance by the United State against losses on such loans. We have no particular knowledge as to the need or desirability for such legislation and, accordingly, we have no recommendations to make concerning the merits of the bill. However, we offer the following comments. First of all we would like to point out that Public Law 85-864, approved September 2, 1958, provides for the making of grants to institutions of higher education for the purpose of sharing in loans to qualified students. Under that law the institution must put up at least one-ninth of the funds; however, if an institution is unable to do so, it may borrow its share from the United States. No insurance against loss is provided by that law. Under the provisions of S. 2710 loans would be insurable whether made from funds fully owned by the institution or from funds held in trust or similar capacity and available for such loans. Thus, it appears that loans made pursuant to Public Law 85-864 might be insured under the legislation proposed by S. 2710. If this were done a number of questions might result. For instance, in the event of default the institution might be fully reimbursed by insurance for the full amount of the loan whereas it may have contributed only one-ninth of the amount of the loan. Accordingly, we suggest that S. 2710 be clarified in this respect. Section 6(b) of the bill limits the interest rate on insurable loans to 3 percent. However, section 7(a) authorizes the institutions to assign their insurance to lending institutions as security for loans made to the student loan funds. When so assigned, additional interest at a rate not exceeding 12 percent is authorized which the Commissioner of Education is required to pay if requested by the student borrowers. This additional interest charged by the institutions is added to the principal of the loan, and therefore it would appear to be subject to the regular rate of interest. The soundness of this kind of flexibility in an interest rate seems questionable. In the first place, the borrowers would have no control over the amounts which they might be required to repay. Also, inequalities are foreseeable since students at institutions which find it necessary to borrow money would be penalized by being required to pay a higher interest rate than those borrowers at more prosperous institutions. In any event, we believe that if interest is collected on interest advanced by the Commissioner this amount of interest should be returned to the Commissioner of Education and not be retained by the institution. |