Archived Information
Balanced Budget Act of 1997
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Below you will find the sections of the Balanced Budget Act of 1997 that are relevant to education and to the HOPE Scholarship and Lifetime Learning Tax Credits. If you would like to view the entire law, it is available in portable document format (pdf). To read a pdf file you will need the Adobe Acrobat reader; if you do not have Acrobat, you can download a free copy from Adobe. |
TITLE VI--EDUCATION AND RELATED PROVISIONS
SUBTITLE A--HIGHER EDUCATION SEC. 6101. MANAGEMENT AND RECOVERY OF RESERVES. (a) AMENDMENT- Section 422 of the Higher Education Act of 1965 (20 U.S.C. 1072) is amended by adding after subsection (g) the following new subsection: `(h) RECALL OF RESERVES; LIMITATIONS ON USE OF RESERVE FUNDS AND ASSETS- `(1) IN GENERAL- Notwithstanding any other provision of law, the Secretary shall, except as otherwise provided in this subsection, recall $1,000,000,000 from the reserve funds held by guaranty agencies on September 1, 2002. `(2) DEPOSIT- Funds recalled by the Secretary under this subsection shall be deposited in the Treasury. `(3) REQUIRED SHARE- The Secretary shall require each guaranty agency to return reserve funds under paragraph (1) based on the agency's required share of recalled reserve funds held by guaranty agencies as of September 30, 1996. For purposes of this paragraph, a guaranty agency's required share of recalled reserve funds shall be determined as follows: `(A) The Secretary shall compute each guaranty agency's reserve ratio by dividing (i) the amount held in the agency's reserve funds as of September 30, 1996 (but reflecting later accounting or auditing adjustments approved by the Secretary), by (ii) the original principal amount of all loans for which the agency has an outstanding insurance obligation as of such date, including amounts of outstanding loans transferred to the agency from another guaranty agency. `(B) If the reserve ratio of any guaranty agency as computed under subparagraph (A) exceeds 2.0 percent, the agency's required share shall include so much of the amounts held in the agency's reserve funds as exceed a reserve ratio of 2.0 percent. `(C) If any additional amount is required to be recalled under paragraph (1) (after deducting the total of the required shares calculated under subparagraph (B)), such additional amount shall be obtained by imposing on each guaranty agency an equal percentage reduction in the amount of the agency's reserve funds remaining after deduction of the amount recalled under subparagraph (B), except that such percentage reduction under this subparagraph shall not result in the agency's reserve ratio being reduced below 0.58 percent. The equal percentage reduction shall be the percentage obtained by dividing-- `(i) the additional amount required to be recalled (after deducting the total of the required shares calculated under subparagraph (B)), by `(ii) the total amount of all such agencies' reserve funds remaining (after deduction of the required shares calculated under such subparagraph). `(D) If any additional amount is required to be recalled under paragraph (1) (after deducting the total of the required shares calculated under subparagraphs (B) and (C)), such additional amount shall be obtained by imposing on each guaranty agency with a reserve ratio (after deducting the required shares calculated under such subparagraphs) in excess of 0.58 percent an equal percentage reduction in the amount of the agency's reserve funds remaining (after such deduction) that exceed a reserve ratio of 0.58 percent. The equal percentage reduction shall be the percentage obtained by dividing-- `(i) the additional amount to be recalled under paragraph (1) (after deducting the amount recalled under subparagraphs (B) and (C)), by `(ii) the total amount of all such agencies' reserve funds remaining (after deduction of the required shares calculated under such subparagraphs) that exceed a reserve ratio of 0.58 percent. `(4) RESTRICTED ACCOUNTS REQUIRED- `(A) IN GENERAL- Within 90 days after the beginning of each of the fiscal years 1998 through 2002, each guaranty agency shall transfer a portion of the agency's required share determined under paragraph (3) to a restricted account established by the agency that is of a type selected by the agency with the approval of the Secretary. Funds transferred to such restricted accounts shall be invested in obligations issued or guaranteed by the United States or in other similarly low-risk securities. `(B) REQUIREMENT- A guaranty agency shall not use the funds in such a restricted account for any purpose without the express written permission of the Secretary, except that a guaranty agency may use the earnings from such restricted account for default reduction activities. `(C) INSTALLMENTS- In each of fiscal years 1998 through 2002, each guaranty agency shall transfer the agency's required share to such restricted account in 5 equal annual installments, except that-- `(i) a guaranty agency that has a reserve ratio (as computed under subparagraph (3)(A)) equal to or less than 1.10 percent may transfer the agency's required share to such account in 4 equal installments beginning in fiscal year 1999; and `(ii) a guaranty agency may transfer such required share to such account in accordance with such other payment schedules as are approved by the Secretary. `(5) SHORTAGE- If, on September 1, 2002, the total amount in the restricted accounts described in paragraph (4) is less than the amount the Secretary is required to recall under paragraph (1), the Secretary shall require the return of the amount of the shortage from other reserve funds held by guaranty agencies under procedures established by the Secretary. The Secretary shall first attempt to obtain the amount of such shortage from each guaranty agency that failed to transfer the agency's required share to the agency's restricted account in accordance with paragraph (4). `(6) ENFORCEMENT- `(A) IN GENERAL- The Secretary may take such reasonable measures, and require such information, as may be necessary to ensure that guaranty agencies comply with the requirements of this subsection. `(B) PROHIBITION- If the Secretary determines that a guaranty agency has failed to transfer to a restricted account any portion of the agency's required share under this subsection, the agency may not receive any other funds under this part until the Secretary determines that the agency has so transferred the agency's required share. `(C) WAIVER- The Secretary may waive the requirements of subparagraph (B) for a guaranty agency described in such subparagraph if the Secretary determines that there are extenuating circumstances beyond the control of the agency that justify such waiver. `(7) LIMITATION- `(A) RESTRICTION ON OTHER AUTHORITY- The Secretary shall not have any authority to direct a guaranty agency to return reserve funds under subsection (g)(1)(A) during the period from the date of enactment of the Balanced Budget Act of 1997 through September 30, 2002. `(B) USE OF TERMINATION COLLECTIONS- Any reserve funds directed by the Secretary to be returned to the Secretary under subsection (g)(1)(B) during such period that do not exceed a guaranty agency's required share of recalled reserve funds under paragraph (3)-- `(i) shall be used to satisfy the agency's required share of recalled reserve funds; and `(ii) shall be deposited in the restricted account established by the agency under paragraph (4), without regard to whether such funds exceed the next installment required under such paragraph. `(C) USE OF SANCTIONS COLLECTIONS- Any reserve funds directed by the Secretary to be returned to the Secretary under subsection (g)(1)(C) during such period that do not exceed a guaranty agency's next installment under paragraph (4)-- `(i) shall be used to satisfy the agency's next installment; and `(ii) shall be deposited in the restricted account established by the agency under paragraph (4). `(D) BALANCE AVAILABLE TO SECRETARY- Any reserve funds directed by the Secretary to be returned to the Secretary under subparagraph (B) or (C) of subsection (g)(1) that remain after satisfaction of the requirements of subparagraphs (B) and (C) of this paragraph shall be deposited in the Treasury. `(8) DEFINITIONS- For the purposes of this subsection: `(A) DEFAULT REDUCTION ACTIVITIES- The term `default reduction activities' means activities to reduce student loan defaults that improve, strengthen, and expand default prevention activities, such as-- `(i) establishing a program of partial loan cancellation to reward disadvantaged borrowers for good repayment histories with their lenders; `(ii) establishing a financial and debt management counseling program for high-risk borrowers that provides long-term training (beginning prior to the first disbursement of the borrower's first student loan and continuing through the completion of the borrower's program of education or training) in budgeting and other aspects of financial management, including debt management; `(iii) establishing a program of placement counseling to assist high-risk borrowers in identifying employment or additional training opportunities; and `(iv) developing public service announcements that would detail consequences of student loan default and provide information regarding a toll-free telephone number established by the guaranty agency for use by borrowers seeking assistance in avoiding default. `(B) RESERVE FUNDS- The term `reserve funds' when used with respect to a guaranty agency-- `(i) includes any reserve funds in cash or liquid assets held by the guaranty agency, or held by, or under the control of, any other entity; and `(ii) does not include buildings, equipment, or other nonliquid assets.'. (b) CONFORMING AMENDMENT- Section 428(c)(9)(A) of the Higher Education Act of 1965 (20 U.S.C. 1078(c)(9)(A)) is amended-- (1) in the first sentence, by striking `for the fiscal year of the agency that begins in 1993'; and (2) by striking the third sentence. SEC. 6102. REPEAL OF DIRECT LOAN ORIGINATION FEES TO INSTITUTIONS OF HIGHER EDUCATION. Section 452 of the Higher Education Act of 1965 (20 U.S.C. 1087b) is amended-- (1) by striking subsection (b); and (2) by redesignating subsections (c) and (d) as subsections (b) and (c), respectively. SEC. 6103. FUNDS FOR ADMINISTRATIVE EXPENSES. Subsection (a) of section 458 of the Higher Education Act of 1965 (20 U.S.C. 1087h(a)) is amended to read as follows: `(a) ADMINISTRATIVE EXPENSES- `(1) IN GENERAL- Each fiscal year, there shall be available to the Secretary from funds not otherwise appropriated, funds to be obligated for-- `(A) administrative costs under this part and part B, including the costs of the direct student loan programs under this part, and `(B) administrative cost allowances payable to guaranty agencies under part B and calculated in accordance with paragraph (2), not to exceed (from such funds not otherwise appropriated) $532,000,000 in fiscal year 1998, $610,000,000 in fiscal year 1999, $705,000,000 in fiscal year 2000, $750,000,000 in fiscal year 2001, and $750,000,000 in fiscal year 2002. Administrative cost allowances under subparagraph (B) of this paragraph shall be paid quarterly and used in accordance with section 428(f). The Secretary may carry over funds available under this section to a subsequent fiscal year. `(2) CALCULATION BASIS- Administrative cost allowances payable to guaranty agencies under paragraph (1)(B) shall be calculated on the basis of 0.85 percent of the total principal amount of loans upon which insurance was issued in excess of $8,200,000,000 in fiscal year 1997 and upon which insurance is issued on or after October 1, 1997, except that such allowances shall not exceed-- `(A) $170,000,000 for each of the fiscal years 1998 and 1999; or `(B) $150,000,000 for each of the fiscal years 2000, 2001, and 2002.'. SEC. 6104. EXTENSION OF STUDENT AID PROGRAMS. Title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.) is amended-- (1) in section 424(a), by striking `1998.' and `2002.' and inserting `2002.' and `2006.', respectively; (2) in section 428(a)(5), by striking `1998,' and `2002.' and inserting `2002,' and `2006.', respectively; and (3) in section 428C(e), by striking `1998.' and inserting `2002.'. SUBTITLE B--REPEAL OF SMITH-HUGHES VOCATIONAL EDUCATION ACT SEC. 6201. REPEAL OF SMITH-HUGHES VOCATIONAL EDUCATION ACT. The Act of February 23, 1917 (39 Stat. 929, chapter 114; 20 U.S.C. 11 et seq.) (commonly known as the `Smith-Hughes Vocational Education Act'), is repealed.
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