Federal Accountability and Institutional Reform in Education Act of 1997

Federal Accountability and Institutional Reform in Education Act of 1997 - Amends the Higher Education Act of 1965 (HEA) to revise requirements for student loan cohort default management. Requires guaranty agreements, with regard to due diligence in insured loan collection efforts, to require proof that the institution and the State licensing board were contacted. Requires guaranty agreements to prohibit reimbursement to a guaranty agency upon a default claim unless the agency demonstrates (currently, certifies) diligent attempts, including direct contact with the institution and the State licensing board, have been made.

(Sec. 3) Prohibits the Secretary from reimbursing or permitting any eligible lender, servicer, or guaranty agency (or its affiliates) which previously filed a claim for reimbursement on a loan to retain any proceeds from subsequent collection of a defaulted loan to the extent that such funds, when added to the amount of prior reimbursement, exceed 100 percent of the original principal of the loan.

Revises provisions relating to notice to the Secretary, payment of loss, notice to institutions of credit bureau information, and cohort default rate.

Directs the Secretary to: (1) report annually to the Congress that lenders, servicers and guaranty agencies have demonstrated their compliance with servicing and due diligence requirements; and (2) provide information on the successful practices of low-default lenders, servicers, and guaranty agencies to other financial, servicing, and guaranty institutions participating in HEA student aid programs, to encourage duplication of successful servicing and collection programs.

Requires uniform application to all eligible institutions of certain mitigating circumstances which allow an institution to continue in the student loan insurance program despite a high default rate for its three most recent fiscal years. Limits such circumstances to the following criteria: (1) at least 50 percent of the students enrolled in eligible programs qualify for a Pell grant; (2) an institution's student completion rate is 60 percent or greater; and (3) the initial job placement rate of program graduates is 60 percent or greater.

(Sec. 4) Provides for: (1) judicial review of any final determination of the Secretary concerning eligibility for, or the terms of participation in, any student loan or grant program; as well as (2) injunctive relief from such determination.

(Sec. 5) Requires an institution, at its request, to have access to a complete copy of loan servicing and collection records when appealing, on the basis of alleged improper loan servicing, a loss of eligibility for Federal student loan programs.

(Sec. 6) Provides for standard (ten-year), extended (30-year), graduated (30-year), and income-sensitive (25-year) repayment plans for insured, guaranteed, consolidated, and direct loans. Directs the Secretary to discharge a borrower's liability by repaying the holder of a loan subject to an income-sensitive repayment plan the amount of remaining unpaid principal and interest after the borrower has completed 25 years of repayment in accordance with such plan.

(Sec. 7) Declares that certain types of student loans shall not be considered in default for any purpose under this paragraph if the borrower is making regularly scheduled payments towards the repayment of the borrower's loan obligation in the amount required by the borrower's repayment plan, even if those payments are not sufficient to pay the interest accruing on a monthly or quarterly basis (negative amortization waiver).

(Sec. 8) Revises certain requirements for interest rates for consolidation loans under the Federal Family Education Loan program. Provides for consolidation of new student loans for which no interest subsidy may be paid along with Federal Stafford loans on which the Secretary shall continue making such interest subsidies.