Student Default Initiative Act of 1988

Student Default Initiative Act of 1988 - Amends the Higher Education Act of 1965 (the Act) to lower the maximum amount of a Pell Grant for academic years 1989-1990, 1990-1991, and 1991-1992.

Eliminates provisions authorizing adjustments in Pell Grant payments when appropriations are insufficient. Authorizes the Secretary of Education (the Secretary), when appropriations are insufficient, to draw funds from subsequent year appropriations for Pell Grants.

Revises provisions relating to the period of eligibility for Pell Grants to limit such period to the full-time equivalent of: (1) the number of academic years that the undergraduate degree normally requires, plus one academic year; or (2) six academic years in the case of a degree or certificate program normally requiring more than four academic years.

Requires that insurance program agreements to qualify loans for Guaranteed Student Loan (GSL) interest subsidies provide that the lender must promptly notify the borrower (and the last institution the student attended before the beginning of repayment) of: (1) any sale or other transfer of the loan to another holder; and (2) such holder's address and phone number. Requires such agreements to require the guaranty agency to provide preclaims assistance for default prevention.

Revises provisions under the Supplemental Loans for Students (SLS) program.

Revises the conditions of SLS eligibility of undergraduate dependent students. Requires "exceptional" (rather than "extenuating") circumstances to preclude such a student's parents from borrowing under the parent loan (PLUS loan) program. Requires appropriate documentation that such circumstances exist to be maintained in the institution's records to support such determination.

Reduces the amount of an individual's SLS loan eligibility by the amount of such individual's GSL loan eligibility (added to other financial aid).

Sets forth additional requirements with respect to disbursement of student loans.

Requires multiple disbursement of student loans under part B of title IV of the Act. Requires that any such loan for $1,000 or more for an enrollment period ending more than 180 days or six months after the disbursement date, be disbursed in two or more installments, none of which exceeds one-half of the loan. Requires a minimum interval between the first and second installments. Requires such interval to be at least one-half of the enrollment period, except as necessary to permit disbursement of the second installment at the beginning of the second semester, quarter, or similar division of such enrollment period.

Sets forth requirements for the initial disbursement. Prohibits disbursement of the first installment to a new student borrower entering the first undergraduate year until: (1) 30 days after the beginning of the enrollment period; and (2) the institution certifies to the lender that the student continues to be enrolled in good standing at the institution and has received specified loan counseling. Prohibits disbursement of loans to any other student more than 30 days before the beginning of the enrollment period.

Sets forth requirements for methods of multiple disbursement.

Requires the lender or escrow agent to withhold a second or succeeding installment if the borrower has ceased to be enrolled on at least a half-time basis, unless notified by the institution that the disbursement is necessary to cover costs already earned by the institution. Requires the institution to withhold and return to the lender or escrow agent any portion of an installment which exceeds the amount for which the student is eligible.

Provides that all loans issued for the same enrollment period shall be considered a single loan for specified purposes.

Excludes from such additional disbursement requirements parent (PLUS) loans, consolidation loans, and loans to cover study at an institution outside the United States.

Provides for transmittal of institutional disbursement schedules to lenders. Applies such additional disbursement requirements to the GSL, SLS, and federally insured student loan (FISL) programs.

Directs the Secretary, guaranty agency, eligible lender, or subsequent holder to disclose to credit bureau organizations any information concerning the date a delinquency began and the repayment status of any loan that has been delinquent for 90 days. Requires that the borrower be informed that such organizations will be notified of such delinquency.

Sets forth requirements for default reduction agreements.

Directs the Secretary, by September 30, 1990, and annually thereafter, to send the Congress an annual default report, including: (1) the annual default rate for each guaranty agency, eligible lender, and higher education institution participating in the part B, title IV program; and (2) the annual dollars in default for each such institution.

Directs the Secretary or a designated guaranty agency, within 90 days of the publication of each such report, to initiate program reviews at those institutions that fall in the top five percent of: (1) all institutions ranked by annual default rates; or (2) all institutions ranked by annual dollars in default.

Sets forth the required contents of program reviews.

Directs the Secretary or the designated State guaranty agency, within 30 days of completion of the program review, to enter into a negotiated default reduction agreement with the institution, based on review findings.

Sets forth conditions which the default reduction agreement may include.

Allows waivers of the required program review or default reduction agreement for an institution if the Secretary determines that compliance with such requirement will not lead to a significant reduction of the institution's annual default rate or annual dollars in default.

Limits the duration of such an agreement to three years and requires at least one program review by the Department of Education or the designated State guaranty agency during such time. Provides for termination of the agreement if, during an interim review, it is determined that the institution no longer would be subject to program review.

Directs the Secretary or the designated guaranty agency to assess the institution's compliance with the agreement upon its expiration. Provides for an exemption from the requirement of subsequent agreements for up to three years if an institution has fully complied with its most recent agreement and remains in the top five percent of all institutions in annual default rates or annual dollars in default.

Directs the Secretary to initiate a limitation, suspension, or termination proceeding with respect to an institution's eligibility to participate in title IV (Student Assistance) programs if it refuses to enter into, or fails substantially to comply with, a default reduction agreement. Prohibits the Secretary from initiating any such proceeding solely on the basis of the default rate of the borrowers at such institution.

Directs the Secretary, if the Secretary designates a State guaranty agency to carry out such review and agreement requirements, to enter into a contract and pay such agency reasonable compensation.

Excludes institutions engaged in a default reduction agreement from the ranking of institutions by default rates or dollars in default.

Directs the Secretary to annually expend specified amounts from the student loan insurance fund for default reduction management activities (in addition to other appropriations made for such purposes). Sets forth activities for which such funds may be used. Directs the Secretary: (1) to submit a plan, to accompany the President's budget for each fiscal year, detailing fund expenditures; and (2) at the conclusion of each fiscal year, to report findings and activities relating to such expenditure of funds to specified congressional committees.

Makes eligible institutions (in addition to lenders and guaranty agencies) liable under certain civil penalty provisions of part B of title IV of the Act. Applies such penalties also to repeated violations of such part or regulations prescribed under it. Provides that a lender or guaranty agency shall not be relieved of civil liability because of its cure of the violation, correction of a failure, or its notification of a person who received a substantial misrepresentation of the actual nature of the financial charges involved, if the remedy is made after the Department of Education discovers such violation, failure, or misrepresentation. Repeals: (1) limitations on such civil penalties; and (2) consideration of several violations arising from a specified practice as a single violation.

Prohibits an institution from being certified or recertified as eligible for the student loan insurance or other title IV (Student Assistance) programs if it: (1) has had its accreditation withdrawn, revoked, or otherwise terminated for cause during the preceding 24 months; or (2) has withdrawn from accreditation voluntarily under a show cause or suspension order during such period.

Sets forth a definition of academic year (current law requires that such term be defined by the Secretary by regulation). Sets forth circumstances under which such term can be defined on a credit hour or clock hour basis.

Provides that SLS and GSL loan recipients must have: (1) received a determination of eligibility or ineligibility for a Pell Grant for the relevant period of enrollment; and (2) filed an application for such a grant, if determined to be eligible.

Requires, for eligibility for an SLS loan for any period of enrollment, that a student who is not a graduate or professional student must have: (1) received a determination of need for a GSL loan; and (2) applied for such a loan, if determined to have need for it.

Revises provisions for admission of students on the basis of their ability to benefit from education or training. Presumes an institution to have established acceptable criteria for such admissions if it annually certifies to the Secretary that its admissions procedures for such students include counseling and a validated test of aptitude to complete the program successfully. Requires an institution to maintain complete records of the admissions criteria used for all students admitted on the basis of ability to benefit. Prohibits the Secretary from promulgating regulations defining such examination or other criteria used by an institution for such purposes.

Deems tuition and fees "unearned," for refund policy purposes, in proportion to the fraction of the enrollment period remaining at the time the student withdraws. Provides that the institution shall be treated as earning initial administrative expenses at the beginning of such enrollment period, in accordance with regulations prescribed by the Secretary.

Requires institutions, under student aid program participating agreements, to withhold academic transcripts of student borrowers in default on any title IV loan unless this: (1) will prevent the borrower from obtaining employment and repaying the loan; or (2) would be unjust or improper due to extraordinary circumstances.

Prohibits institutions, under student aid program participation agreements, from: (1) using any contractor or anyone other than a salaried employee to conduct any activities related to recruiting and admission of students; or (2) paying any commission, bonus, or other incentive to any person engaged in any such activity.

Authorizes the Secretary to prescribe regulations for the limitation, suspension, or termination of eligibility of an individual or organization to administer any aspect of an institution's student assistance program. Limits such suspensions to 60 days, unless the organization and the Secretary agree to an extension, or unless limitation or termination proceedings are initiated.