Collapse to view only § 1099d. Competitive loan auction pilot program
§ 1099d. Competitive loan auction pilot program
(a) DefinitionsIn this section:
(1) Eligible Federal PLUS Loan
(2) Eligible lender
(b) Pilot programThe Secretary shall carry out a pilot program under which the Secretary establishes a mechanism for an auction of eligible Federal PLUS Loans in accordance with this subsection. The pilot program shall meet the following requirements:
(1) Planning and implementation
(2) Origination and disbursement; applicability of section 1078–2
(3) Loan origination mechanismThe Secretary shall establish a loan origination auction mechanism that meets the following requirements:
(A) Auction for each State
(B) Prequalification processThe Secretary establishes a prequalification process for eligible lenders desiring to participate in an auction under this paragraph that contains, at a minimum—
(i) a set of borrower benefits and servicing requirements each eligible lender shall meet in order to participate in such an auction;
(ii) an assessment of each such eligible lender’s capacity, including capital capacity, to participate effectively; and
(iii) a commitment from such eligible lender that, if the lender has a winning bid under subparagraph (F), the lender will enter into the agreement required under subparagraph (G).
(C) Timing and origination
(D) Bids
(E) Maximum bid
(F) Winning bids
(G) Agreement with Secretary; compliance
(i) AgreementEach eligible lender having a winning bid under subparagraph (F) shall enter into an agreement with the Secretary under which the eligible lender—(I) agrees to originate eligible Federal PLUS Loans under this paragraph to each borrower who—(aa) seeks an eligible Federal PLUS Loan under this paragraph to enable a dependent student to attend an institution of higher education within the State;(bb) is eligible for an eligible Federal PLUS Loan; and(cc) elects to borrow from the eligible lender; and(II) agrees to accept a special allowance payment (after the application of section 1087–1(b)(2)(I)(v) of this title) from the Secretary with respect to the eligible Federal PLUS Loans originated under subclause (I) in the amount proposed in the second lowest winning bid described in subparagraph (F) for the applicable State auction.
(ii) ComplianceIf an eligible lender with a winning bid under subparagraph (F) fails to enter into the agreement required under clause (i), or fails to comply with the terms of such agreement, the Secretary may sanction such eligible lender through one or more of the following:(I) The assessment of a penalty on such eligible lender for any eligible Federal PLUS Loans that such eligible lender fails to originate under this paragraph in accordance with the agreement required under clause (i), in the amount of the additional costs (including the amounts of any increase in special allowance payments) incurred by the Secretary in obtaining another eligible lender to originate such eligible Federal PLUS Loans. The Secretary shall collect such penalty by—(aa) reducing the amount of any payments otherwise due to such eligible lender from the Secretary by the amount of the penalty; or(bb) requesting any other Federal agency to reduce the amount of any payments due to such eligible lender from such agency by the amount of the penalty, in accordance with section 3716 of title 31.(II) A prohibition of bidding by such lender in other auctions under this section.(III) The limitation, suspension, or termination of such eligible lender’s participation in the loan program under part B.(IV) Any other enforcement action the Secretary is authorized to take under part B.
(H) Sealed bids; confidentiality
(I) Eligible lender of last resort
(i) In general
(ii) Determination of eligible lender of last resort
(iii) Geographic location
(iv) Notification timing
(v) Maximum special allowance
(J) Guarantee against losses
(K) Loan fees
(L) Consolidation
(i) In general
(ii) Notification
(iii) Limitation on eligible lender option to consolidateThe option described in clause (i) shall not apply if—(I) the borrower includes in the notification in clause (ii) verification of consolidation terms and conditions offered by an eligible lender other than the eligible lender described in clause (i); and(II) not later than 10 days after receiving such notification from the borrower, the eligible lender described in clause (i) does not agree to match such terms and conditions, or provide more favorable terms and conditions to such borrower than the offered terms and conditions described in subclause (I).
(iv) Consolidation of additional loansIf a borrower has a Federal Direct PLUS Loan or a loan made on behalf of a dependent student under section 1078–2 of this title and seeks to consolidate such loan with an eligible Federal PLUS Loan made under this paragraph, then the eligible lender that originated the borrower’s loan under this paragraph may include in the consolidation under this subparagraph a Federal Direct PLUS Loan or a loan made on behalf of a dependent student under section 1078–2 of this title, but only if—(I) in the case of a Federal Direct PLUS Loan, the eligible lender agrees, not later than 10 days after the borrower requests such consolidation from the lender, to match the consolidation terms and conditions that would otherwise be available to the borrower if the borrower consolidated such loans in the loan program under part D; or(II) in the case of a loan made on behalf of a dependent student under section 1078–2 of this title, the eligible lender agrees, not later than 10 days after the borrower requests such consolidation from the lender, to match the consolidation terms and conditions offered by an eligible lender other than the eligible lender that originated the borrower’s loans under this paragraph.
(v) Special allowance on consolidation loans that include loans made under this paragraphThe applicable special allowance payment for loans consolidated under this paragraph shall be equal to the lesser of—(I) the weighted average of the special allowance payment on such loans, except that in calculating such weighted average the Secretary shall exclude any Federal Direct PLUS Loan included in the consolidation; or(II) the result of—(aa) 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(bb) 1.59 percent.
(vi) Interest payment rebate fee
(c) Required initial evaluationThe Secretary and Secretary of the Treasury shall jointly conduct an evaluation, in consultation with the Office of Management and Budget, the Congressional Budget Office, and the Comptroller General, of the pilot program carried out by the Secretary under this section. The evaluation shall determine—
(1) the extent of the savings to the Federal Government that are generated through the pilot program, compared to the cost the Federal Government would have incurred in operating the PLUS loan program under section 1078–2 of this title in the absence of the pilot program;
(2) the number of lenders that participated in the pilot program, and the extent to which the pilot program generated competition among lenders to participate in the auctions under the pilot program;
(3) the number and volume of loans made under the pilot program in each State;
(4) the effect of the transition to and operation of the pilot program on the ability of—
(A) lenders participating in the pilot program to originate loans made through the pilot program smoothly and efficiently;
(B) institutions of higher education participating in the pilot program to disburse loans made through the pilot program smoothly and efficiently; and
(C) parents to obtain loans made through the pilot program in a timely and efficient manner;
(5) the differential impact, if any, of the auction among the States, including between rural and non-rural States; and
(6) the feasibility of using the mechanism piloted to operate the other loan programs under part B of this subchapter.
(d) Reports
(1) In generalThe Secretary and the Secretary of the Treasury shall submit to the authorizing committees—
(A) not later than September 1, 2010, a preliminary report regarding the findings of the evaluation described in subsection (c);
(B) not later than September 1, 2012, an interim report regarding such findings; and
(C) not later than September 1, 2013, a final report regarding such findings.
(2) ContentsThe Secretary shall include, in each report required under subparagraphs (A), (B), and (C) of paragraph (1), any recommendations, that are based on the findings of the evaluation under subsection (c), for—
(A) improving the operation and administration of the auction; and
(B) improving the operation and administration of other loan programs under part B.
(Pub. L. 89–329, title IV, § 499, as added Pub. L. 110–84, title VII, § 701, Sept. 27, 2007, 121 Stat. 808; amended Pub. L. 110–315, title IV, § 499, Aug. 14, 2008, 122 Stat. 3328.)