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.