To ensure that the Federal student loans are delivered as efficiently as possible, so that there is more grant aid for students.

April 11, 2005

Mr. KENNEDY (for himself, Mr. SMITH, and Mr. DURBIN) introduced the following bill; which was read twice and referred to the Committee on Health, Education, Labor, and Pensions

To ensure that the Federal student loans are delivered as efficiently as possible, so that there is more grant aid for students.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Student Aid Reward Act of 2005'.

SEC. 2. STUDENT AID REWARD PROGRAM.

Part G of title IV of the Higher Education Act of 1965 (20 U.S.C. 1088 et seq.) is amended by inserting after section 489 the following:

`SEC. 489A. STUDENT AID REWARD PROGRAM.

`(a) Program Authorized- The Secretary shall carry out a Student Aid Reward Program to encourage institutions of higher education to participate in the student loan program under this title that is most cost-effective for taxpayers.

`(b) Program Requirements- In carrying out the Student Aid Reward Program, the Secretary shall--

`(1) provide to each institution of higher education participating in the student loan program under this title that is most cost-effective for taxpayers, a Student Aid Reward Payment, in an amount determined in accordance with subsection (c), to encourage the institution to participate in that student loan program;

`(2) require each institution of higher education receiving a payment under this section to provide student loans under such student loan program for a period of 5 years after the date the first payment is made under this section;

`(3) where appropriate, require that funds paid to institutions of higher education under this section be used to award students a supplement to such students' Federal Pell Grants under subpart 1 of part A;

`(4) permit such funds to also be used to award need-based grants to lower- and middle-income graduate students; and

`(5) encourage all institutions of higher education to participate in the Student Aid Reward Program under this section.

`(c) Amount- The amount of a Student Aid Reward Payment under this section shall be not less than 50 percent of the savings to the Federal Government generated by the institution of higher education's participation in the student loan program under this title that is most cost-effective for taxpayers instead of the institution's participation in the student loan program that is not most cost-effective for taxpayers.

`(d) Trigger to Ensure Cost Neutrality-

`(1) LIMIT TO ENSURE COST NEUTRALITY- Notwithstanding subsection (c), the Secretary shall not distribute Student Aid Reward Payments under the Student Aid Reward Program that, in the aggregate, exceed the Federal savings resulting from the implementation of the Student Aid Reward Program.

`(2) FEDERAL SAVINGS- In calculating Federal savings, as used in paragraph (1), the Secretary shall determine Federal savings on loans made to students at institutions of higher education that participate in the student loan program under this title that is most cost-effective for taxpayers and that, on the date of enactment of the Student Aid Reward Act of 2005, participated in the student loan program that is not most cost-effective for taxpayers, resulting from the difference of--

`(A) the Federal cost of loan volume made under the student loan program under this title that is most cost-effective for taxpayers; and

`(B) the Federal cost of an equivalent type and amount of loan volume made, insured, or guaranteed under the student loan program under this title that is not most cost-effective for taxpayers.

`(3) DISTRIBUTION RULES- If the Federal savings determined under paragraph (2) is not sufficient to distribute full Student Aid Reward Payments under the Student Aid Reward Program, the Secretary shall--

`(A) first make Student Aid Reward Payments to those institutions of higher education that participated in the student loan program under this title that is not most cost-effective for taxpayers on the date of enactment of the Student Aid Reward Act of 2005; and

`(B) with any remaining Federal savings after making Student Aid Reward Payments under subparagraph (A), make Student Aid Reward Payments to the institutions of higher education eligible for a Student Aid Reward Payment and not described in subparagraph (A) on a pro-rata basis.

`(4) DISTRIBUTION TO STUDENTS- Any institution of higher education that receives a Student Aid Reward Payment under this section--

`(A) shall distribute, where appropriate, part or all of such payment among the students of such institution who are Federal Pell Grant recipients by awarding such students a supplemental grant; and

`(B) may distribute part of such payment as a supplemental grant to graduate students in financial need.

`(5) ESTIMATES, ADJUSTMENTS, AND CARRY OVER-

`(A) ESTIMATES AND ADJUSTMENTS- The Secretary shall make Student Aid Reward Payments to institutions of higher education on the basis of estimates, using the best data available at the beginning of an academic or fiscal year. If the Secretary determines thereafter that loan program costs for that academic or fiscal year were different than such estimate, the Secretary shall adjust by reducing or increasing subsequent Student Aid Reward Payments rewards paid to such institutions of higher education to reflect such difference.

`(B) CARRY OVER- Any institution of higher education that receives a reduced Student Aid Reward Payment under paragraph (3)(B), shall remain eligible for the unpaid portion of such institution's financial reward payment, as well as any additional financial reward payments for which the institution is otherwise eligible, in subsequent academic or fiscal years.

`(e) Definition- In this section:

`(1) STUDENT LOAN PROGRAM UNDER THIS TITLE THAT IS MOST COST-EFFECTIVE FOR TAXPAYERS- The term `student loan program under this title that is most cost-effective for taxpayers' means the loan program under part B or D of this title that has the lowest overall cost to the Federal Government (including administrative costs) for the loans authorized by such parts.

`(2) STUDENT LOAN PROGRAM UNDER THIS TITLE THAT IS NOT MOST COST-EFFECTIVE FOR TAXPAYERS- The term `student loan program under this title that is not most cost-effective for taxpayers' means the loan program under part B or D of this title that does not have the lowest overall cost to the Federal Government (including administrative costs) for the loans authorized by such parts.'.

END