SECTION 1. ELIGIBILITY FOR LOANS.

    (a) In General.--Title I of the Rural Electrification Act of 1936 
(7 U.S.C. 901-918) is amended by adding at the end the following:

``SEC. 19. ELIGIBILITY FOR LOANS.

    ``Notwithstanding any other provision of this Act, a person shall 
not be eligible for a loan under this Act to finance an activity for a 
period of time unless the person is unable to obtain sufficient credit 
elsewhere to finance the activity at reasonable rates and terms, taking 
into consideration prevailing private and cooperative rates and terms 
for loans for similar activities and periods of time.''.
    (b) Conforming Amendments.--Section 307 of such Act (7 U.S.C. 937) 
is hereby repealed.

SEC. 2. REDUCTION OF LOAN SUBSIDIES.

    (a) In General.--Title I of the Rural Electrification Act of 1936 
(7 U.S.C. 901-918) is amended by adding after the section added by 
section 1(a) of this Act the following:

``SEC. 20. INTEREST RATE ON LOANS AND ADVANCES UNDER THIS ACT.

    ``The rate of interest on any loan made on or after the date of the 
enactment of this section, and on any advance made on or after such 
date under loan commitments made at any time, under this Act, shall 
equal such rate (exceeding the coupon equivalent yield on obligations 
of the Treasury of the United States of comparable maturity, at the 
most recent auction of such obligations by the Department of the 
Treasury) as the Administrator determines is appropriate, taking into 
account the purpose for which the loan is to be made, the 
creditworthiness of the borrower, and the term of the loan.''.
    (b) Conforming Amendments.--
            (1) Section 4 of such Act (7 U.S.C. 904) is amended by 
        striking ``, and shall bear interest at the rate of 2 per 
        centum per annum''.
            (2) Section 5 of such Act (7 U.S.C. 905) is amended by 
        striking ``, and shall be at a rate of interest of 2 per centum 
        per annum''.
            (3) Section 305 of such Act (7 U.S.C. 935) is amended by 
        striking subsection (b), and by redesignating subsections (c) 
        and (d) as subsections (b) and (c), respectively.
            (4) Section 408(b) of such Act (7 U.S.C. 948(b)) is amended 
        by striking paragraph (3), and by redesignating paragraphs (4) 
        through (8) as paragraphs (3) through (7), respectively.

SEC. 3. TERMINATION OF AUTHORITIES RELATED TO TELEPHONE LOANS, AND 
              AUTHORITIES RELATED TO GRANTS.

    (a) Amendments to Section 2.--Section 2 of such Act (7 U.S.C. 902) 
is amended--
            (1) by striking ``and for the purpose of furnishing and 
        improving telephone service in rural areas''; and
            (2) by striking ``and the furnishing of adequate telephone 
        service in rural areas''.
    (b) Amendment to Section 3.--Section 3(a) of such Act (7 U.S.C. 
903(a)) is amended by striking ``and for the purpose of financing the 
improvement, expansion, construction, acquisition, and operation of 
facilities to render telephone service''.
    (c) Amendments to Section 11A.--Section 11A of such Act (7 U.S.C. 
911a) is amended--
            (1) in subsection (a), by striking ``and telephone'';
            (2) in subsection (c)(1), by striking ``or telephone''; and
            (3) in subsection (c)(2), by striking ``and the Assistant 
        Administrator for Telephone''.
    (d) Amendment to Section 18.--Section 18 of such Act (7 U.S.C. 918) 
is amended by striking ``and the Governor of the telephone bank''.
    (e) Repeal of Title II.--Title II of such Act (7 U.S.C. 922-928) is 
hereby repealed.
    (f) Amendments to Section 301.--Section 301 of such Act (7 U.S.C. 
931) is amended--
            (1) in the section heading, by striking ``and Telephone''; 
        and
            (2) in subsection (a), in the matter preceding paragraph 
        (1), by striking ``and Telephone''.
    (g) Amendments to Section 302.--Section 302 of such Act (7 U.S.C. 
932) is amended--
            (1) in subsection (b)--
                    (A) in paragraph (1), by striking ``4, 5, and 201'' 
                and inserting ``4 and 5''; and
                    (B) in paragraph (2), by striking ``and 
                telephone''; and
            (2) by striking subsection (c).
    (h) Amendment to Section 305.--Section 305 of such Act (7 U.S.C. 
935) is amended by striking subsection (d).
    (i) Amendments to Section 306.--Section 306 of such Act (7 U.S.C. 
936) is amended--
            (1) by striking ``Rural Telephone Bank,''; and
            (2) by striking the 2nd sentence.
    (j) Amendments to Section 309.--Section 309 of such Act (7 U.S.C. 
939) is amended--
            (1) by striking ``(a) In General.--''; and
            (2) by striking subsection (b).
    (k) Amendments to Section 313.--Section 313 of such Act (7 U.S.C. 
940c) is amended, in each of subsections (a)(1), (b)(1)(A), and 
(b)(2)(A), by striking ``and Telephone''.
    (l) Amendments to Section 314.--Section 314 of such Act (7 U.S.C. 
940d) is amended--
            (1) in the section heading, by striking ``AND TELEPHONE'';
            (2) in each of subsections (a) and (b)(1), by striking 
        ``and Telephone'';
            (3) in subsection (d)(3), by striking ``, the Rural 
        Telephone Bank,''; and
            (4) in subsection (e), by striking paragraph (2).
    (m) Repeal of Title IV.--Title IV of such Act (7 U.S.C. 941-950b) 
is hereby repealed.
    (n) Repeal of Title V.--Title V of such Act (7 U.S.C. 951) is 
hereby repealed.

SEC. 4. LOAN PRIORITY.

    Title I of the Rural Electrification Act of 1936 (7 U.S.C. 901-918) 
is amended by adding after the sections added by sections 1(a) and 2(a) 
of this Act the following:

``SEC. 21. LOAN PRIORITY.

    ``Notwithstanding any other provision of law, in making loans under 
this Act during any calendar quarter, the Administrator shall make such 
loans to persons otherwise eligible for such loans who--
            ``(1) applied for such loans not later than the end of the 
        immediately preceding calendar quarter; and
            ``(2) have the greatest need for such loans, as determined 
        by the Administrator.''.

SEC. 5. TRANSITION RULES.

    (a) Disposition of Payments on Telephone Loans Made Before This 
Act.--The Administrator of the Rural Electrification Administration 
shall return to the Treasury of the United States such amounts received 
by the Rural Electrification Revolving Fund, with respect to loans made 
under the Rural Electrification Act of 1936 the authority for the 
making of which has been terminated by this Act, as the Administrator 
deems unnecessary to meet reserve requirements with respect to such 
loans.
    (b) Disposition of Assets Related to Telephone Loans.--The 
Administrator of the Rural Electrification Administration shall 
determine the disposition of assets held by the Administration with 
respect to loans referred to in subsection (a).
    (c) Retirement of Stock of the Rural Telephone Bank.--After the 
payment or retirement, as the case may be, first, of all liabilities 
incurred under title IV of the Rural Electrification Act of 1936 (as in 
effect before the effective date of this Act), second, of all class A 
stock of the capital stock of the Rural Telephone Bank at par, third, 
of all class B stock of such bank at par, and fourth, of all class C 
stock of such bank at par, any remaining surplus or contingency reserve 
shall be paid to the holders of such class A and such class B stock 
issued and outstanding before such effective date, pro rata.

SEC. 6. EFFECTIVE DATE.

    This Act and the amendments made by this Act shall take effect on 
the 1st day of the first Federal fiscal year that begins 60 or more 
days after the date of the enactment of this Act.
Amends the Rural Electrification Act of 1936 to restrict loan eligibility to only those persons unable to reasonably obtain sufficient credit elsewhere. 
Authorizes the Administrator of the Rural Electrification Administration (REA) to determine appropriate interest rates for REA loans and advances. 
Terminates:  (1) rural telephone service loan authority; and (2) rural economic development authority. 
Establishes loan priorities.
To amend the Rural Electrification Act of 1936 to return the Rural Electrification Administration to its original mission of providing credit to rural electric cooperatives which are unable to obtain needed financing in the private sector.