Office of House Bill AnalysisH.B. 1938
By: Solis, Jim
Higher Education


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.
House Bill 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. 


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. 


House Bill 1938 amends the Education Code to prohibit an alternative
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 alternative 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 interest rate ceiling.  The bill provides
that accrued unpaid 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 guaranteed
education student loans and alternative 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.  Provisions limiting the meaning
of a qualified nonprofit corporation expire September 1, 2003, after which
a qualified nonprofit corporation means any nonprofit corporation
authorized by a city to exercise the powers of an authority to make
guaranteed education loans. 


June 16, 2001.