PUBLIC LAW 109–171—FEB. 8, 2006
120 STAT. 169
and the deposit into the Federal Student Loan Reserve Fund under section 422A of a Federal default fee of an amount equal to 1.0 percent of the principal amount of the loan, which fee shall be collected either by deduction from the proceeds of the loan or by payment from other non-Federal sources, and ensures that the proceeds of the Federal default fee will not be used for incentive payments to lenders;’’. (2) UNSUBSIDIZED LOANS.—Section 428H(h) (20 U.S.C. 1078–8(h)) is amended by adding at the end the following new sentences: ‘‘Effective for loans for which the date of guarantee of principal is on or after July 1, 2006, in lieu of the insurance premium authorized under the preceding sentence, each State or nonprofit private institution or organization having an agreement with the Secretary under section 428(b)(1) shall collect and deposit into the Federal Student Loan Reserve Fund under section 422A, a Federal default fee of an amount equal to 1.0 percent of the principal amount of the loan, which fee shall be collected either by deduction from the proceeds of the loan or by payment from other non-Federal sources. The Federal default fee shall not be used for incentive payments to lenders.’’. (3) VOLUNTARY FLEXIBLE AGREEMENTS.—Section 428A(a)(1) (20 U.S.C. 1078–1(a)(1)) is amended— (A) by striking ‘‘or’’ at the end of subparagraph (A); (B) by striking the period at the end of subparagraph (B) and inserting ‘‘; or’’; and (C) by adding at the end the following new subparagraph: ‘‘(C) the Federal default fee required by section 428(b)(1)(H) and the second sentence of section 428H(h).’’. (c) TREATMENT OF EXEMPT CLAIMS.— (1) AMENDMENT.—Section 428(c)(1) (20 U.S.C. 1078(c)(1)) is amended— (A) by redesignating subparagraph (G) as subparagraph (H), and moving such subparagraph 2 em spaces to the left; and (B) by inserting after subparagraph (F) the following new subparagraph: ‘‘(G)(i) Notwithstanding any other provisions of this section, in the case of exempt claims, the Secretary shall apply the provisions of— ‘‘(I) the fourth sentence of subparagraph (A) by substituting ‘100 percent’ for ‘95 percent’; ‘‘(II) subparagraph (B)(i) by substituting ‘100 percent’ for ‘85 percent’; and ‘‘(III) subparagraph (B)(ii) by substituting ‘100 percent’ for ‘75 percent’. ‘‘(ii) For purposes of clause (i) of this subparagraph, the term ‘exempt claims’ means claims with respect to loans for which it is determined that the borrower (or the student on whose behalf a parent has borrowed), without the lender’s or the institution’s knowledge at the time the loan was made, provided false or erroneous information or took actions that caused the borrower or the student to be ineligible for all or a portion of the loan or for interest benefits thereon.’’.
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