A bill to amend the Higher Education Act of 1965 to make certain alterations in Federal, State, and private programs of low-interest insured loans for students in institutions of higher education.

Amends part B (Federal, State, and Private Programs of Low-Interest Insured Loans to Students in Institutions of Higher Education) of title IV of the Higher Education Act of 1965 to direct the Secretary of Education to take necessary actions, including direct payments to eligible institutions, to insure that the proceeds of any loan under the guaranteed student loan (GSL) program are used for educational expenses.

Requires, as a condition for a loan under the GSL program, the endorsement of: (1) an individual who claims the student as a dependent for Federal income tax purposes for the taxable year during which the loan is made; or (2) any individual at least 21 years of age, if the student is not claimed as such a dependent.

Shortens from six months to three months the deferral period before repayment of such loans must begin.

Provides for a late charge for GSL installment payments not paid within ten days after due date.

Revises provisions for Federal interest subsidy payments under the GSL program to require student borrowers to pay the holder of a GSL loan an amount equal to nine percent of the unpaid principal amount of the loan. Requires that such interest assessment be paid in four equal installments at three-month intervals during the 12 months beginning on the date the proceeds of such loan are received by the student. Permits the holder to keep the amount of one of such payments, unless the Secretary determines that this violates State law. Directs the holder to deduct the amount of any other such payments from the amount of the principal and interest of the loan. Directs the holder to notify the Secretary of any such payment which is not made during a required three-month installment period.

Directs the Secretary to determine with respect to each eligible institution under the GSL program the outstanding amount of all loans which: (1) are either insured under a student loan insurance program for which Federal interest subsidy payments are provided or covered by Federal loan insurance; (2) were made after the date of enactment of this Act by any student borrower accepted or in attendance on the date the loan was made; and (3) are in default on the first day of each fiscal year. Directs the Secretary to determine the average of such outstanding amounts for all eligible institutions on the first day of such fiscal year. Directs the Secretary to require each eligible institution to provide information necessary to make such determinations. Directs the Secretary to: (1) notify each eligible institution for which the outstanding amount exceeds the national average; (2) review such institution's outstanding amounts and eligibility under the GSL program; and (3) require such institution to pay a penalty of 25 percent of the sum by which its outstanding amounts exceed the national average. (Prohibits assessing such penalty during the first fiscal year in which the Secretary notifies the institution.) Authorizes the Secretary to refuse under the GSL program to make Federal interest subsidy payments for, or to cover by Federal loan insurance, any student loan at any institution refusing to pay such penalty.

Authorizes the Secretary to prescribe regulations requiring all eligible institutions to take all possible actions to determine the location and financial resources of any student borrower receiving a loan under the GSL program and to cooperate with lenders in collecting on such loans.

Repeals provisions for origination fees under the GSL program.