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1 ice as a full-time teacher in a public or other nonprofit

2 elementary or secondary school which is in the school dis

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trict of a local educational agency which is eligible in that 4 year for assistance pursuant to title II of the Act of Sep5 tember 30, 1950, Public Law 874, Eighty-first Congress, 6 as amended, and which for purposes of this paragraph and 7 for that year has been determined by the Commissioner, 8 pursuant to regulations and after consultation with the ap9 propriate State educational agency, to be a school in which 10 there is a high concentration of students from low-income 11 families, except that the Commissioner shall not make such 12 determination with respect to more than 25 per centum of 13 the total of the public and other nonprofit elementary and 14 secondary schools in any one State for any one year; and 15 for the purpose of payments pursuant to this sentence, an 16 aggregate amount equal to an additional 50 per centum of 17 the applicable total principal amount of any such loan may 18 be so paid. No payment shall be made under this subsec19 tion for service performed more than fifteen years from the 20 execution of the note or written agreement evidencing it."

21 ENCOURAGING PRIVATE CAPITAL FOR NATIONAL DEFENSE

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STUDENT LOANS

SEC. 202. Section 203 of the National Defense Educa

24 tion Act of 1958 is amended by designating the present text

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as subsection (a) and by inserting at the end thereof the 2 following new subsection:

3 "(b) (1) For the purpose of substituting for direct 4 Federal support to the maximum extent practicable private 5 and other non-Federal funds for student loans, the Commis6 sioner is authorized to provide the following forms of assist7 ance, upon such terms and conditions as he may deem 8 appropriate, for the benefit of students attending institutions 9 of higher education:

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"(A) If an institution of higher education borrows 11 non-Federal funds (or otherwise receives or makes available repayable non-Federal funds) for use as capi

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tal contributions to a student loan fund established under this title, the Commissioner may (i) guarantee timely repayment of all or part of such funds (plus interest thereon), (ii) agree to reimburse the institution for up to 90 per centum of the loss to it from defaults on student loans made from such funds, (iii) agree to pay

to the institution the amount of the interest differential

(as defined in paragraph (3) of this subsection) with respect to such funds, and (iv) agree to pay the institution the amount of administrative expenses authorized

by clause (3) of section 204 to be paid out of a student

loan fund with respect to such funds.

"(B) If an institution of higher education arranges

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for a student assistance organization (as defined in paragraph (3) of this subsection) to make loans to students attending the institution, the Commissioner may enter

into an agreement with the organization upon the terms set forth in section 204 and may (i) guarantee timely repayment of funds (plus interest thereon) borrowed by the organization for use as capital contributions to a student loan fund established under this title, (ii) agree to reimburse the organization for up to 90 per centum

of the loss to it from defaults on student loans made from

such borrowed funds, (iii) agree to pay to the organiza

tion the amount of the interest differential with respect to such borrowed funds, and (iv) agree to pay to the organization the amount of administrative expenses authorized by clause (3) of section 204 to be paid out of a student loan fund with respect to such funds. A student

assistance organization with which the Commissioner

makes an agreement pursuant to this subparagraph shall

be deemed to be an institution of higher education for

purpose of applying the other provisions of this title.

"(C) If an institution of higher education enters

into arrangement with one or more lenders pursuant to

23 which the lender makes loans (upon terms and condi

tions set forth in section 205 (b)) in such amounts and

to such students as the institution may determine on the

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basis of the criteria set forth in section 205, the Commissioner may (i) guarantee to the lender timely repayment of the loans (including amounts thereof which are canceled). (ii) agree to pay to the lender such amount as the Commissioner determines will give the lender, considering the interest on the loan, a reasonable rate of return on such loans, and (iii) agree to pay to the institution, with respect to the aggregate amount of outstanding principal on such loans, an amount equal to the amount of administrative expenses authorized by clause (3) of section 204 to be paid from a student loan fund. The Commissioner shall condition any such assistance upon agreement by the institution to pay the Commissioner promptly an amount equal to 10 per centum of the amount paid by him to the lender on account of defaults on such student loans.

"(2) The assistance provided by the Commissioner pur18 suant to paragraph (1) shall be subject to the following 19 limitations:

"(A) If the interest on an obligation is exempt from income taxation by reason of section 103 (a) of the Internal Revenue Code of 1954, the Commissioner

shall not guarantee timely payment of that obligation except during such time or times as it is held beneficially

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1 by a holder which is exempt from income tax because it

is a State or an instrumentality of a State or because of

section 501 (c) of such Code.

"(B) No payment shall be made under this subsec

tion with respect to a loan if the rate of interest on that loan exceeds such per centum per annum on the principal obligation outstanding as the Secretary (after consultation with the Secretary of the Treasury) determines

to be reasonable, taking into account the range of interest rates prevailing in the private market for similar loans and the rate of interest the borrower pays or would

have to pay with respect to other loans of a similar duration.

"(3) For purposes of this subsection

"(A) the term 'interest differential' means the excess of (i) the amount of interest paid by an institution or organization with respect to sums deposited by it

as capital contributions to a student loan fund established

under this title, over (ii) the amount of interest received by it on student loans made from such funds.

"(B) The term 'student assistance organization' means a nonprofit organization authorized to make loans to students in one or more institutions of higher education.