HBA-JLV C.S.H.B. 1938 77(R)BILL ANALYSIS


Office of House Bill AnalysisC.S.H.B. 1938
By: Solis, Jim
Higher Education
3/28/2001
Committee Report (Substituted)


BACKGROUND AND PURPOSE 

Higher Education Servicing Corporations service student loans of the six
higher education authorities in various parts of the state.  These
authorities are nonprofit corporations and were established to provide
student loan access in the state of Texas.  The authorities provide
liquidity to financial institutions that make student loans by purchasing
their guaranteed student loans, and funding their programs primarily
through the sale of tax-exempt bonds.  In an effort to make sure that
student borrowers are protected against unreasonable fees, proponents seek
to designate reliable sources of long-term education loans so that Texas
students can afford to attend the college or university of their choice.
C.S.H.B. 1938 limits the authority for making education loans to qualified
Texas nonprofit corporations that have already established a record of
servicing loans under the Higher Education Authority Act. 

RULEMAKING AUTHORITY

It is the opinion of the Office of House Bill Analysis that this bill does
not expressly delegate any additional rulemaking authority to a state
officer, department, agency, or institution. 

ANALYSIS

C.S.H.B. 1938 amends the Education Code to prohibit an education loan that
is not made under the federal Higher Education Act of 1965 from being in an
amount in excess of the difference between the cost of attendance and the
amount of other student assistance to the student, other than Federal PLUS
loans for which a student borrower may be eligible.   

The bill provides that an education loan is subject to provisions governing
consumer loans and that it is prohibited for the maximum interest rate on
the loan to exceed the interest rate ceiling.  The bill also provides that
application and originating fees may be agreed to by the parties and
assessed at the inception of the loan, provided that if any such fees
constitute additional interest under applicable law, the effective rate of
interest agreed to over the stated term of the loan is prohibited from
exceeding the rate allowed by current provisions.  The bill provides that
accrued interest may be added to unpaid principal at the beginning of the
agreed repayment period at the borrower's option and in accordance with the
terms of the agreement for purposes of determining the total principal
amount due at the inception of the repayment period. 

The bill authorizes a qualified nonprofit corporation to make education
loans and issue securities or otherwise obtains funds to purchase or make
education loans.                      

The bill provides that an authority or nonprofit corporation making
education loans is exempt from licensing requirements under provisions
governing consumer loans.  The bill removes provisions relating to the
custody of student or parent loan notes.           

EFFECTIVE DATE

On passage, or if the Act does not receive the necessary vote, the Act
takes effect September 1, 2001. 

 


COMPARISON OF ORIGINAL TO SUBSTITUTE

C.S.H.B. 1938 modifies the original to remove provisions providing that the
interest rate on an education loan may be computed by spreading all
interest contracted for, charged, or received during the state term of the
loan.   

The substitute modifies the original to provide that certain fees may be
agreed to by the parties and assessed at the inception of the loan,
provided that the effective rate of interest agreed to may not exceed the
rate allowed by current provisions. The substitute modifies the original to
provide that any accrued interest may be added to unpaid principal at the
beginning of the agreed repayment period at the borrower's option. 

The substitute removes eligibility requirements of a nonprofit corporation
in order to issue bonds and moves the eligibility requirements under the
definition of a qualified nonprofit corporation.