and other public or nonprofit organizations and institutions for the purpose of (a) identifying qualified youths of exceptional financial need and encouraging them to complete secondary school and undertake postsecondary educational training, (b) publicizing existing forms of student financial aid, including educational opportunity grants, or (c) encouraging secondary-school or college dropouts of demonstrated aptitude to reenter educational programs, including postsecondaryschool programs. This section also authorizes appropriations of such sums as may be necessary to carry out these objectives. Section 409. Definition of "Academic Year" This section states that as used in the part, the term "academic year" means an academic year or its equivalent as defined in regulations of the Commissioner. Federal, State, and Private Programs of Low Interest Insured Section 421. Statement of Purpose and Appropriations Authorized Subsection (a) of this section states that it is the purpose of this part to enable the Commissioner (1) to encourage States and nonprofit institutions and organizations to establish adequate insurance programs for students in eligible institutions, (2) to provide a Federal program of student loan insurance for students who do not have reasonable access to a State or private nonprofit student loan insurance programs, and (3) to pay a portion of the interest on certain student loans which are insured by the Commissioner under this part, are made by a State under a direct student loan program, or are insured under certain State or private loan insurance programs. "Eligible institution" is defined in section 435. Subsection (b) of this section authorizes the appropriation (1) of $1 million, plus such further sums as may be necessary, for the establishment of the Federal student loan insurance fund, (2) of such sums as may be necessary to make interest payments on student loans under section 428, and (3) of $17.5 million to make advances under section 422 for the reserve funds of State and nonprofit private student loan insurance programs. Section 422. Advances for Reserve Funds of State and Nonprofit Private Loan Insurance Programs Subsection (a) of this section authorizes the Commissioner to make advances to any State with which he has made an agreement pursuant to section 428 (b), for the purpose of helping to establish or strengthen the reserve fund of the student loan insurance program covered by that agreement. If it appears that a State will not have a student loan insurance program covered by an agreement under section 428 (b)--as determined for each of the fiscal years 1966, 1967, and 1968--then for any such year advances could be made to one or more nonprofit private insurance organizations with which the Commissioner has an agreement. Advances can, however, be made to both State and private insurance programs if necessary in order to assure that students at every eligible institution have access through such institution to a student loan insurance program. The making of advances under this subsection and the repayment of such advances will be upon such terms and conditions as are prescribed by the Commissioner. Advances to a State and the nonprofit private programs in such State under subsection (a) may not exceed that percentage of the authorization that the population of the State aged 18 to 22, inclusive, bears to the total population of all the States aged 18 to 22, inclusive. Such limitation shall in no case be less than $25,000. Section 423. Effect of Adequate Non-Federal Programs This section prohibits the Commissioner from issuing insurance certificates to lenders in a State when he determines that every eligible institution has reasonable access in that State to either a State or private nonprofit student loan insurance program covered by an agreement under section 428 (b). Section 424. Scope and Duration of Federal Loan Insurance Program Subsection (a) limits the total principal amount of new loans made (and installments paid pursuant to lines of credit) to students covered by Federal loan insurance under this part to $700 million in the fiscal year ending in 1966, $1 billion in the fiscal year ending in 1967, and $1,400 billion in the fiscal year ending in 1968. Thereafter, insurance under this part may be granted only for loans made (or for loan installments paid pursuant to lines of credit) to enable students, who have already obtained federally insured loans under this part, to continue or complete their educational program; but no insurance may be granted for any loan made or installment paid after June 30, 1972. Subsection (b) permits the Commissioner to determine the amount of federally insured loans that may be made by eligible lenders in a State or other area, in order to assure an equitable distribution of benefits. Section 425. Limitations on Individual Federally Insured Loans and on Subsection (a) of this section limits the amount of federally insured loans that may be made to a student to $1,500 per year in the case of a graduate or professional student, and to $1,000 per year in the case of any other student. The overall amount of the unpaid principal on all federally insured loans made to any student may not exceed $7,500 in the case of a graduate or professional student, and $5,000 for any other student. This subsection also precludes the Commissioner from insuring a loan under this part in any case where, during the same academic year, the student has received a loan made or insured by the Commissioner under the National Vocational Student Loan Insurance Act of 1965 and from insuring or making loans under that Act, in any case where during the same academic year the student has received a loan insured under this part. Subsection (b) provides that the insurance liability on any loan insured under this part shall be 100 percent of the unpaid balance of the principal amount of the loan, exclusive of any interest which may be added to principal. Section 426. Sources of Funds This section permits insurance of loans made from funds held in trust or a similar capacity. Section 427. Eligibility of Student Borrowers and Terms of Student Loans Subsection (a) of this section provides that loans are insurable by the Commissioner only if they meet the following conditions: The borrower must be accepted for enrollment, or if already in attendance, be in good standing at an eligible institution, must carry at least half of the normal full-time workload, and must provide the lender with the institution's statement of tuition, fees, and estimated room and board. The loan must be evidenced by an unsecured note, which may be required to be endorsed only if necessary to create a binding obligation. The note must provide for repayment within 15 years of its execution in installments over a period of 5 to 10 years beginning between 9 months and 1 year after the student ceases to carry half of the normal fulltime workload at an eligible institution. The note must also provide that periodic payments of principal need not be paid, but interest shall accrue and be paid, while the borrower is a full-time student at an institution of hither education and for a period of not to exceed 3 years during which the borrower is a member of the Armed Forces or a volunteer in the Peace Corps. Interest on the loan cannot exceed the applicable maximum rate prescribed by the Secretary and is to be paid over the period of the loan unless the note provides for deferral of the payment of interest until the first payment of principal. The lender must agree not to try to collect from the borrower interest payable by the Commissioner under section 428. The note must permit the borrower to accelerate repayment, without penalty. Subsection (b) provides that no federally insured loan may bear an interest rate in excess of 6 percent, except that under certain exceptional circumstances the Secretary may authorize insuring loans bearing interest at 7 percent per annum. Subsection (c) requires a minimum annual repayment by a borrower on all of his loans insured by the Commissioner under this part of $360 or his outstanding balance, whichever is less. Section 428. Federal Payments To Reduce Student Interest Costs Subsection (a) of this section directs the Commissioner to make payments to holders of insured student loans to reduce student interest costs. Each student whose adjusted family income is less than $15,000, and who has received a loan after the enactment of the Act which is insured by the Commissioner under this part, or which was made under a State student loan program, or which is insured under a State or nonprofit private program meeting required standards, will be entitled to have paid on his behalf to the holder of the loan, over the period of the loan, a portion of the interest on the loan. (Adjusted family income will be determined as of the time of execution of the loan note and will be determined under regulations of the Commissioner which will take into account appropriate factors such as family size.) In order to entitle student borrowers to benefit from the interest subsidy with respect to direct loans made under a State student loan program, the program must meet the criteria prescribed by the Commissioner. In order to entitle student borrowers to the benefit of the interest subsidy with respect to loans insured by any State or private nonprofit program, such program must, after June 30, 1967, have entered into an agreement with the Commissioner and meet all of the requirements provided for in section 428 (b) concerning the terms of the loan insurance program. During the transitional period prior to July 1, 1967, these latter insurance programs need only provide that the interest rate on loans insured be no higher than 6 percent yearly on the unpaid principal balance of the loan and that repayment of the insured loans begin no earlier than 60 days after the student ceases to pursue a course of study at an eligible institution. The payment a student is entitled to have made on his behalf under this section will, during the period which precedes the repayment period of the loan, be equal to the total amount of the interest which accrues prior to the beginning of the repayment period, and will, during the repayment period, be equal to 3 percent per annum of the unpaid principal amount of the loan. However, the payment may not exceed, for any period, the amount of the interest, which (but for such payments) would be actually payable by the student, taking into consideration interest payments on his behalf for that period under any State or private loan insurance program. The holder of an insured loan will have a contractual right, as against the United States, to be paid by the Commissioner the portion of interest which has been determined under this section. The Commissioner will prescribe the manner of payment and the form of certain reports to be made by the holder of the loan. Subsection (b) provides that any State or any nonprofit private institution or organization which has a student loan insurance program may enter into an agreement with the Commissioner to permit students who receive loans which are insured under its program to have made on their behalf the interest payments provided for under subsection (a), if the Commissioner determines that the insurance program- (A) Authorizes the insurance of up to $1,000 but not more than $1,500 in loans per student per academic year or its equivalent; (B) Authorizes the insurance of loans to any individual student for at least 6 academic years of study or their equivalent; (C) Provides that (i) the student borrower may accelerate without penalty the whole or any part of an insured loan, (ii) the period of any insured loan may not exceed 15 years from the date of execution of the note evidencing the loan, and (iii) the note may contain certain repayment provisions in the event of default as may be prescribed in regulations of the Commissioner. (D) Subject to the preceding subparagraph, provides that, if a student's insured loans held by any one person exceed $2,000, then repayment of such loans shall be in installments over a period of not less than 5 years nor more than 10 years beginning between 9 months and 1 year after the student ceases to pursue a full-time course of study at an eligible institution (except that if the program provides for the insurance of loans for part-time study at eligible institutions, the repayment period will begin between 9 months and 1 year after the student ceases to carry at least one-half the normal full-time academic workload); (E) Limits interest (exclusive of the insurance premium) to 6 percent per annum on the unpaid principal balance of the loan; (F) Insures at least 80 percent of the unpaid principal of loans insured under the program; (G) Does not provide for collection of an excessive insurance premium; (H) Provides that the benefits of the loan insurance program will not be denied any student because of his family income or lack of need, if his adjusted family income is less than $15,000; |