1-1     By:  Solis, et al. (Senate Sponsor - Bivins)          H.B. No. 1938
 1-2           (In the Senate - Received from the House April 19, 2001;
 1-3     April 20, 2001, read first time and referred to Committee on
 1-4     Education; May 4, 2001, reported adversely, with favorable
 1-5     Committee Substitute by the following vote:  Yeas 8, Nays 0;
 1-6     May 4, 2001, sent to printer.)
 1-7     COMMITTEE SUBSTITUTE FOR H.B. No. 1938                  By:  Bivins
 1-8                            A BILL TO BE ENTITLED
 1-9                                   AN ACT
1-10     relating to education loans made or financed by a higher education
1-11     authority or nonprofit corporation.
1-13           SECTION 1. Section 53.47, Education Code, is amended to read
1-14     as follows:
1-17     section:
1-18                 (1)  "Accredited institution" means an institution that
1-19     has either been recognized by a recognized accrediting agency, as
1-20     defined by Section 61.003, or accredited by the Accrediting
1-21     Commission for Independent Colleges and Schools, the Accrediting
1-22     Commission for Career Schools and Colleges of Technology, or the
1-23     National Accrediting Commission of Cosmetology Arts and Sciences.
1-24                 (2)  "Alternative education loan" means a loan other
1-25     than a guaranteed student loan that is made to or for the benefit
1-26     of a student for the purpose of financing all or part of the
1-27     student's cost of attendance at an accredited institution.
1-28                 (3)  "Cost of attendance" means all costs of a student
1-29     incurred in connection with a program of study at an accredited
1-30     institution, as determined by the institution, including tuition
1-31     and instructional fees, the cost of room and board, books,
1-32     computers, and supplies, and other related fees, charges, and
1-33     expenses.
1-34                 (4)  "Guaranteed student loan" means a loan made by an
1-35     eligible lender under the Higher Education Act of 1965 (Pub. L. No.
1-36     89-329), as amended.
1-37                 (5)  "Qualified alternative education loan lender"
1-38     means a nonprofit corporation incorporated under the laws of this
1-39     state that:
1-40                       (A)  is a qualified nonprofit corporation;
1-41                       (B)  has serviced education loans made under the
1-42     Higher Education Act of 1965, as amended, for a qualified nonprofit
1-43     corporation for a period of not less than 10 years; or
1-44                       (C)  is a charitable organization qualified under
1-45     Section 509(a)(2), Internal Revenue Code of 1986, as amended, that
1-46     provides services to a qualified nonprofit corporation.
1-47                 (6)  "Qualified nonprofit corporation" means a
1-48     nonprofit corporation:
1-49                       (A)  that issued bonds on or after January 1,
1-50     1990, and before January 1, 2001, that qualified as qualified
1-51     student loan bonds under Section 144(b), Internal Revenue Code of
1-52     1986, as amended; or
1-53                       (B)  that the office of the governor, in
1-54     consultation with the state student loan guaranty agency or any
1-55     other public or private entity the office of the governor considers
1-56     appropriate, has determined meets a need for student loan financing
1-57     that existing qualified nonprofit corporations cannot meet, which
1-58     determination may include information provided by the nonprofit
1-59     corporation's plan for doing business that should include
1-60     documented limitations in:
1-61                             (i)  the geographic coverage of existing
1-62     qualified nonprofit corporations in the nonprofit corporation's
1-63     proposed area of service;
1-64                             (ii)  the willingness of existing qualified
 2-1     nonprofit corporations to serve the eligible lenders in the
 2-2     proposed area of service; and
 2-3                             (iii)  the ability of existing qualified
 2-4     nonprofit corporations to serve the eligible lenders in the
 2-5     proposed area of service.
 2-6           (b)  An authority may, upon approval of the city or cities
 2-7     which created the same, issue revenue bonds or otherwise borrow
 2-8     money to obtain funds to purchase or to make guaranteed student
 2-9     loans [student or parent loan notes which are guaranteed under the
2-10     provisions of the Higher Education Act of 1965 (Public Law
2-11     89-329)].  Revenue bonds issued for such purpose shall be issued in
2-12     accordance with and with the effect provided in this chapter,
2-13     except Section 53.36 shall not apply, as this [said] chapter has
2-14     been modified by Chapter 1204, Government Code, and Subchapters A
2-15     and D, Chapter 1207, Government Code [3, Acts of the 61st
2-16     Legislature, Regular Session, 1969, as amended (Article 717k-2,
2-17     Vernon's Texas Civil Statutes), and by Chapter 784, Acts of the
2-18     61st Legislature, Regular Session, 1969 (Article 717k-3, Vernon's
2-19     Texas Civil Statutes)].  Such bonds shall be payable from and
2-20     secured by a pledge of revenues derived from or by reason of the
2-21     ownership of guaranteed student loans [student or parent loan
2-22     notes] and investment income after deduction of such expenses of
2-23     [or] operating the loan program as may be specified by the bond
2-24     resolution or trust indenture.
2-25           (c) [(b)]  An authority [that is not an eligible lender under
2-26     the Higher Education Act of 1965, acting through a bank with trust
2-27     powers,] may cause money to be expended to make or purchase for its
2-28     account guaranteed student loans [student or parent loan notes]
2-29     that are guaranteed by the Texas Guaranteed Student Loan
2-30     Corporation or that are executed by or on behalf of students who
2-31     (1) are residents of this state or (2) [who] have been admitted to
2-32     attend an accredited institution within this state.  [An accredited
2-33     institution shall mean an institution which has either been
2-34     recognized by a recognized accrediting agency, as defined by
2-35     Section 61.003(12) of the Texas Education Code, or accredited by
2-36     the Association of Independent Colleges and Schools, the National
2-37     Association of Trade and Technical Schools, or the National
2-38     Accrediting Commission of Cosmetology Arts and Sciences.]
2-39           (d) [(c)]  The authority shall contract with a nonprofit
2-40     corporation, organized under the laws of this state, whereby such
2-41     corporation will provide the reports and other information required
2-42     for continued participation in the federally guaranteed loan
2-43     program provided by the Higher Education Act of 1965, as amended
2-44     [(Public Law 89-329)].  [The custody of student or parent loan
2-45     notes, purchased by the bank on behalf of the authority, shall
2-46     remain under the control of a bank with trust powers.]
2-47           (e) [(d)]  The authority, as a municipal corporation of the
2-48     state, is charged with a portion of the responsibility of the state
2-49     to provide educational opportunities in keeping with all applicable
2-50     state and federal laws.  Nothing in this section shall be construed
2-51     as a prohibition against establishing policies to limit the
2-52     purchase of guaranteed student loans to guaranteed student loans
2-53     [notes to notes] executed by students attending school in a certain
2-54     geographical area or by students who are residents of the area.
2-55           (f) [(e)]  In addition to establishing an authority under the
2-56     provisions of this chapter, the governing body of a city or cities
2-57     may request a qualified nonprofit corporation [organized] to
2-58     exercise the powers enumerated and provided in this section for and
2-59     on its behalf.  If the qualified nonprofit corporation agrees to
2-60     exercise such powers, the directors of such corporation shall
2-61     thereafter be appointed by and be subject to removal by the
2-62     governing body of the city or cities, and except as provided in
2-63     this section, Sections 53.14, 53.15,  53.31, 53.32, 53.38, and
2-64     53.41 through 53.43 [of the Texas Education Code shall] apply to
2-65     and govern such corporation, its procedures, and bonds.
2-66     Notwithstanding the provisions of Section 53.42, a qualified
2-67     nonprofit corporation which has been requested to exercise the
2-68     powers enumerated and requested in this section may invest or cause
2-69     a trustee or custodian on behalf of such qualified nonprofit
 3-1     corporation[,] to invest its funds, including the proceeds of any
 3-2     bonds, notes, or other obligations issued by such qualified
 3-3     nonprofit corporation and any monies which are pledged to the
 3-4     payment thereof, in:
 3-5                 (1)  certificates of deposit or other time or demand
 3-6     accounts of banks and savings and loan associations which are
 3-7     insured by the Federal Deposit Insurance Corporation [or the
 3-8     Federal Savings and Loan Insurance Corporation], provided the
 3-9     amount of any certificate of deposit in excess of that covered by
3-10     such insurance must be secured by a first and prior pledge of
3-11     government obligations having a market value of not less than 100
3-12     percent of the excess unless a nationally recognized rating agency
3-13     has given the senior securities of the bank issuing the certificate
3-14     of deposit the highest or next to the highest investment rating
3-15     available;
3-16                 (2)  repurchase agreements;
3-17                 (3)  guaranteed student loans and alternative education
3-18     loans [investment securities, as defined by Chapter 726, Acts of
3-19     the 67th Legislature, Regular Session, 1981 (Article 2529b-1,
3-20     Vernon's Texas Civil Statutes);]
3-21                 [(4)  a collective investment fund that is created as
3-22     provided by Regulation 9 of the Office of the Comptroller of the
3-23     Currency and that is invested in one or more types of investment
3-24     securities or repurchase agreements;]
3-25                 [(5)  an investment authorized by Subchapter A, Chapter
3-26     2256, Government Code]; or
3-27                 (4) [(6)]  a security issued by another nonprofit
3-28     corporation acting under this section.
3-29           (g) [(f)]  A nonprofit corporation, whether acting at the
3-30     request of a city or cities under Subsection (f) or acting as a
3-31     servicer or administrator for another corporation that purchases
3-32     guaranteed student loans, [(e)] or that on its own behalf[, that]
3-33     issues securities or otherwise obtains [to obtain] funds to
3-34     purchase or make guaranteed student loans or alternative education
3-35     [student or parent] loans, may:
3-36                 (1)  exercise the powers granted by the Texas
3-37     Non-Profit Corporation Act (Article 1396-1.01 et seq., Vernon's
3-38     Texas Civil Statutes);
3-39                 (2)  service loans purchased or made from its funds or
3-40     contract with another person to service the loans;
3-41                 (3)  grant a security interest in a trust estate
3-42     securing its securities;
3-43                 [(4)  purchase or make a student or parent loan that is
3-44     guaranteed or insured, in whole or part, by one or more persons
3-45     engaged in guaranteeing or insuring student or parent loans,
3-46     including any agency of the federal government;]  and
3-47                 (4) [(5)]  make investments as authorized by Subsection
3-48     (f) [(e)].
3-49           (h) [(g)]  A security interest in a trust estate granted
3-50     under Subsection (g)(3) [(f)(3)] is attached and perfected at the
3-51     time the security interest is executed and delivered by the
3-52     nonprofit corporation.  The security interest grants to the secured
3-53     party a first prior perfected security interest in the trust estate
3-54     for the benefit of the secured party without regard to the location
3-55     of the assets that constitute the trust estate.
3-56           (i)  An alternative education loan may be made under this
3-57     section  only by a qualified alternative education loan lender.  An
3-58     alternative education loan may not be in an amount in excess of the
3-59     difference between the cost of attendance and the amount of other
3-60     student assistance to the student, other than loans under Section
3-61     428B(a)(1), Higher Education Act of 1965 (20 U.S.C. Section 1078-2)
3-62     (relating to parent loans), for which the student borrower may be
3-63     eligible.  An alternative education loan covered by this subsection
3-64     is subject to Chapter 342, Finance Code, as applicable, except
3-65     that:
3-66                 (1)  the maximum interest rate on the loan may not
3-67     exceed the rate permitted under Subchapter A, Chapter 303, Finance
3-68     Code; and
3-69                 (2)  application and origination fees may be agreed to
 4-1     by the parties and assessed at the inception of the loan, provided
 4-2     that if any such fees constitute additional interest under
 4-3     applicable law, the effective rate of interest agreed to over the
 4-4     stated term of the loan may not exceed the rate allowed by
 4-5     Subchapter A, Chapter 303, Finance Code, and accrued unpaid
 4-6     interest may be added to unpaid principal at the beginning of the
 4-7     agreed repayment period at the borrower's option and in accordance
 4-8     with the terms of the agreement for purposes of determining the
 4-9     total principal amount due at the inception of the repayment
4-10     period.
4-11           (j)  An authority or nonprofit corporation making education
4-12     loans under this section is exempt from the licensing requirements
4-13     of Chapter 342, Finance Code.
4-14           (k)  Subsection (a)(6) expires September 1, 2003.  On or
4-15     after September 1, 2003, in this section, the term "qualified
4-16     nonprofit corporation" means any nonprofit corporation authorized
4-17     by a city to exercise the powers of an authority under this
4-18     section.
4-19           SECTION 2.  This Act takes effect immediately if it receives
4-20     a vote of two-thirds of all the members elected to each house, as
4-21     provided by Section 39, Article III, Texas Constitution.  If this
4-22     Act does not receive the vote necessary for immediate effect, this
4-23     Act takes effect September 1, 2001.
4-24                                  * * * * *