College Access and Affordability Act of 1997

College Access and Affordability Act of 1997 - Amends the Higher Education Act of 1965 (HEA) to extend and set forth the maximum Federal Pell Grant award for academic year 1998-1999 and each of the four succeeding academic years. Establishes a maximum Pell grant amount of $3,300 for academic year 1998-1999 which is lower than the maximum $4,500 for 1997-1998; and provides for incremental increases until $4,500 is reached as the maximum for academic year 2002-2003.

(Sec. 2) Specifies sums that shall be available to the Secretary of Education annually to provide funds for such grants. Authorizes the Secretary, in case of insufficient funds to pay all such grants as specified, to reduce them by either a fixed or variable percentage reduction or by a fixed dollar reduction.

(Sec. 3) Provides for forgiveness of student loans for those who do specified types of teaching service for certain periods.

(Sec. 4) Makes any institution exempt from the cohort default rate trigger also exempt from administrative action by the Secretary based solely on such institution's cohort default rate under provisions appearing in the Code of Federal Regulations.

(Sec. 5) Adjusts specified student aid need analysis formulas. Revises the income protection allowance (IPA) for dependent students and for independent students without dependents (other than a spouse). Permits updating IPA calculations to reflect inflation.

(Sec. 6) Directs the Secretary to recall to the Treasury from the reserve funds held by guaranty agencies specified minimum amounts in FY 1998 through 2002. Requires each guaranty agency to transfer all non-recalled reserve funds to a restricted account and invest them in U.S. Government securities specified by the Secretary. Prohibits a guaranty agency (except for FY 1998 operational expenses) from using any restricted account funds without the express permission of the Secretary.

(Sec. 7) Provides borrowers under the Federal Family Education Loan (FFEL) program with certain extended and graduated repayment options currently available to Direct Loan program borrowers, including the option to change repayment plans. Directs the Secretary to ensure that the repayment plans offered to FFEL borrowers are comparable to Direct Loan repayment plans.

(Sec. 8) Reduces the applicable interest rate on all subsidized and unsubsidized FFEL and Direct Loans during in-school, grace, and deferment periods to the same rate as the borrowing rate of the Department of Education, but retains current cap levels on such interest rates.

(Sec. 9) Reduces the lenders' insurance rate from 98 to 95 percent.

(Sec. 10) Eliminates the one percent insurance premium charged to a FFEL borrower at the time of loan origination on or after July 1, 1998.

Reduces FFEL origination fees on subsidized FFELs.

Reduces the loan fees charged on various types of subsidized and unsubsidized direct loans over a specified phaseout period. Prohibits the Secretary from charging borrowers origination fees on any direct loan made after the calendar year 2001.

(Sec. 11) Revises the role of the guaranty agency in the FFEL program. Makes the Secretary the sole guarantor of FFELs. Authorizes the Secretary to enter into an agreement with a guaranty agency to insure loans, with the guaranty agency acting as the Secretary's agent. Replaces outstanding loan insurance issued by the guaranty agency by loan insurance issued by the Secretary. Makes new guaranty agreements effective for five years, renewable by the Secretary for successive five-year periods, but terminable by the Secretary before expiration under certain circumstances.

Authorizes the Secretary, after the initial agreement has ended, to enter into: (1) another agreement with that guaranty agency; (2) an alternate agreement with a different guaranty agency; or (3) one or more contracts under which contractors would carry out one or more of the functions formerly performed by the guaranty agency.

Authorizes the Secretary to permit a guaranty agency to engage in other businesses, previously purchased or developed with reserve funds, that relate to the FFEL program. Provides that, under such agreements, guaranty agencies shall receive specified fees and revenues. Permits guaranty agencies to retain a share of their net revenues for activities in support of postsecondary education. Establishes fines for guaranty agencies that fail to achieve a specified level of performance on one or more performance standards.

Grants an exemption to lenders with small FFEL portfolios, by requiring only eligible lenders that originate or hold more than $5 million in FFELs during an annual audit period to submit to compliance audit for that period.

Requires an eligible lender to pay a guaranty agency, to which the lender referred a delinquent loan, a default prevention fee of up to $100 per borrower account if the agency succeeds in bringing such loan into current repayment status.

(Sec. 12) Repeals the requirement that a State pay the Secretary an annual amount representing the State's share of risk for high default rates at institutions within the State.

(Sec. 13) Revises certain requirements for FFEL consolidation loans.

(Sec. 14) Authorizes the Secretary to enter into one or more contracts to carry out any of the functions that otherwise would be carried out by a guaranty agency.

(Sec. 15) Revises the definition of an eligible lender to exclude lenders that do not offer uniform terms and conditions to all borrowers taking out the same type of FFEL loans.

(Sec. 16) Requires computation of special allowance rates at the same time and in the same manner as student loan interest rates (annually rather than quarterly).

(Sec. 17) Revises the formula for computation of the Student Loan Marketing Association (Sallie Mae) offset fee on loans it holds.

(Sec. 18) Limits the payment of the direct loan transition fee to: (1) institutions or consortia in their first year of participation in the direct loan program; and (2) an amount not more than an average of $10 per borrower at such institutions.

(Sec. 19) Authorizes funds through FY 2002 for mandatory administrative expenses for the student financial aid programs, including the direct loan program.

(Sec. 20) Extends the FFEL program and certain other HEA title IV student assistance programs through FY 2002.