To permit refinancing of Federal student consolidation loans, and to permit students freedom to select a student loan consolidator.

July 10, 2003

Mr. WU (for himself, Mr. SIMMONS, Mr. WAXMAN, Mr. HINCHEY, Mr. BRADY of Pennsylvania, Mr. SANDERS, Mr. CLAY, Mr. FARR, Mr. FILNER, Mr. RAHALL, Mr. FORD, Mr. PETRI, Mr. MCNULTY, Mr. SCOTT of Georgia, Mr. HOLDEN, Mr. MCGOVERN, Ms. WOOLSEY, Mr. GOODE, Mr. BOUCHER, Mr. SANDLIN, Ms. LEE, Mr. OWENS, Mr. CONYERS, Mr. ETHERIDGE, Mr. LANTOS, Mr. BISHOP of Georgia, Mr. UDALL of Colorado, Ms. JACKSON-LEE of Texas, Mr. BROWN of Ohio, Mr. SHAYS, Ms. BALDWIN, Mr. ROTHMAN, Mr. SERRANO, Mr. CLYBURN, Mr. RYAN of Ohio, Mr. RUSH, Ms. LOFGREN, Mr. MURPHY, Mr. WEXLER, Mr. RANGEL, Ms. LORETTA SANCHEZ of California, Mr. TERRY, Mr. PETERSON of Minnesota, Mr. GILLMOR, Mr. HOLT, Mr. ISRAEL, Mrs. JONES of Ohio, Mrs. MALONEY, Mr. DOYLE, Mr. ROSS, Ms. WATSON, Mr. MOORE, and Mr. GRIJALVA) introduced the following bill; which was referred to the Committee on Education and the Workforce

To permit refinancing of Federal student consolidation loans, and to permit students freedom to select a student loan consolidator.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Student Loan Fairness Act of 2003'.

SEC. 2. REMOVAL OF PROHIBITION ON REFINANCING CONSOLIDATION LOANS.

Section 428C(a)(3) the Higher Education Act of 1965 (20 U.S.C. 1078-3(a)(3)) is amended--

(1) by striking subparagraph (B);

(2) in subparagraph (C), by striking `subparagraphs (A) and (B)' and inserting `subparagraph (A)'; and

(3) by redesignating subparagraph (C) as subparagraph (B).

SEC. 3. STUDENT LOAN BORROWER CHOICE OF LOAN CONSOLIDATOR.

(a) SELECTION OF LENDER- Section 428C(b)(1)(A) of the Higher Education Act of 1965 (20 U.S.C. 1078-3(b)(1)(A)) is amended by striking `and (i) the lender holds' and all that follows through `selected for consolidation)'.

(b) INFORMATION ABOUT CONSOLIDATION LOANS-

(1) INFORMATION FROM LENDERS- Section 428C(b)(1) of such Act is further amended--

(A) by striking `and' at the end of subparagraph (E);

(B) by redesignating subparagraph (F) as subparagraph (G); and

(C) by inserting after subparagraph (E) the following new subparagraph:

`(F) that the lender will provide to each applicant for a consolidation loan a clear and conspicuous notice, in such form as the Secretary shall prescribe, describing, in relation to the borrower's reported current loan balance and the likely interest rate estimated by the lender for the consolidation loan--

`(i) the effects of a consolidation loan and its available repayment plans on the borrower's interest rate, the amount of his or her monthly and total payments, total interest accrued, the length of the repayment term;

`(ii) the ability of the student borrower to pre-pay loans; and

`(iii) the differences between variable and fixed interest rates; and'.

(2) INFORMATION FROM INSTITUTIONS- Section 485(b)(1)(A) of such Act (20 U.S.C. 1092(b)) is amended--

(A) by striking `and' at the end of clause (i);

(B) by striking the period at the end of clause (ii) and inserting `; and'; and

(C) by adding at the end the following new clause:

`(iii) providing to the borrower of a loan made under part B, D, or E, a clear and conspicuous notice, in such form as the Secretary shall prescribe, describing the effect of using a consolidation loan to discharge the borrower's student loans, and including, with respect to a series of loan amounts ranges--

`(I) the differences between fixed and variable interest rates;

`(II) the effects of consolidation loan and its available repayment plans on the borrower's interest rate, the amount of his or her monthly and total payments, total interest accrued, and the length of repayment term; and

`(III) the ability of the student borrower to prepay loans.'.

SEC. 4. INTEREST RATES ON CONSOLIDATED AND RECONSOLIDATED LOANS.

(a) INTEREST RATE CHANGES- Section 427A of the Higher Education Act of 1965 (20 U.S.C. 1077a) is amended by striking subsections (k) and (l) and inserting the following:

`(k) INTEREST RATES FOR NEW LOANS ON OR AFTER OCTOBER 1, 1998, AND BEFORE JANUARY 1, 2004-

`(1) IN GENERAL- Notwithstanding subsection (h) and subject to paragraph (2) of this subsection, with respect to any loan made, insured, or guaranteed under this part (other than a loan made pursuant to section 428B or 428C) for which the first disbursement is made on or after October 1, 1998, and before January 1, 2004, the applicable rate of interest shall, during any 12-month period beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to--

`(A) the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1; plus

`(B) 2.3 percent,

except that such rate shall not exceed 8.25 percent.

`(2) IN SCHOOL AND GRACE PERIOD RULES- Notwithstanding subsection (h), with respect to any loan under this part (other than a loan made pursuant to section 428B or 428C) for which the first disbursement is made on or after October 1, 1998, and before January 1, 2004, the applicable rate of interest for interest which accrues--

`(A) prior to the beginning of the repayment period of the loan; or

`(B) during the period in which principal need not be paid (whether or not such principal is in fact paid) by reason of a provision described in section 427(a)(2)(C) or 428(b)(1)(M),

shall be determined under paragraph (1) by substituting `1.7 percent' for `2.3 percent'.

`(3) PLUS LOANS- Notwithstanding subsection (h), with respect to any loan under section 428B for which the first disbursement is made on or after October 1, 1998, and before January 1, 2004, the applicable rate of interest shall be determined under paragraph (1)--

`(A) by substituting `3.1 percent' for `2.3 percent'; and

`(B) by substituting `9.0 percent' for `8.25 percent'.

`(4) CONSOLIDATION LOANS- With respect to any consolidation loan under section 428C for which the application is received by an eligible lender on or after October 1, 1998, and before January 1, 2004, the applicable rate of interest shall be at an annual rate on the unpaid principal balance of the loan that is equal to the lesser of--

`(A) the weighted average of the interest rates on the loans consolidated, rounded to the nearest higher one-eighth of 1 percent; or

`(B) 8.25 percent.

`(5) CONSULTATION- The Secretary shall determine the applicable rate of interest under this subsection after consultation with the Secretary of the Treasury and shall publish such rate in the Federal Register as soon as practicable after the date of determination.

`(l) INTEREST RATES FOR NEW LOANS ON OR AFTER JANUARY 1, 2004-

`(1) IN GENERAL- Notwithstanding subsection (h), with respect to any loan made, insured, or guaranteed under this part (other than a loan made pursuant to section 428B or 428C) for which the first disbursement is made on or after January 1, 2004, the applicable rate of interest shall, during any 12-month period beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to--

`(A) the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1; plus

`(B) 2.3 percent,

except that such rate shall not exceed 6.8 percent.

`(2) PLUS LOANS- Notwithstanding subsection (h), with respect to any loan under section 428B for which the first disbursement is made on or after January 1, 2004, the applicable rate of interest shall be determined under paragraph (1)--

`(A) by substituting `3.1 percent' for `2.3 percent'; and

`(B) by substituting `7.5 percent' for `6.8 percent'.

`(3) CONSOLIDATION LOANS- With respect to any consolidation loan under section 428C for which the application is received by an eligible lender on or after January 1, 2004, the applicable rate of interest shall, during any 12-month period beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to--

`(A) the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1; plus

`(B) 2.3 percent,

except that such rate shall not exceed 6.8 percent.'.

(b) OFFSETTING ORIGINATION FEES- Section 438(c) of the Higher Education Act of 1965 (20 U.S.C. 1087-1(c)) is amended--

(1) in paragraph (1), by inserting `or paragraph (7)' after `paragraph (2)';

(2) in paragraph (2), by striking `paragraph (8)' and inserting `paragraph (9)';

(3) by redesignating paragraphs (7) and (8) as paragraphs (8) and (9), respectively; and

(4) by inserting after paragraph (6) the following new paragraph:

`(7) CONSOLIDATION LOANS- With respect to any loans made under section 428C on or after January 1, 2004, each eligible lender under this part is authorized to charge the borrower an origination fee of not to exceed 0.5 percent of the principal amount of the loan. Except as provided in paragraph (9), a lender that charges an origination fee under this paragraph shall assess the same fee to all borrowers.'.

(c) SPECIAL ALLOWANCE CONFORMING CHANGES- Section 438(b)(2) of the Higher Education Act of 1965 (20 U.S.C. 1087-1(b)(2)) is amended by striking `July 1, 2006' each place it appears in clauses (ii), (v), and (vii) of subparagraph (I), including in the headings of such clauses, and inserting `January 1, 2004'.

(d) ADDITIONAL CONFORMING AMENDMENTS- Section 428C(c)(1) of the Higher Education Act of 1965 (20 U.S.C. 1078-3(c)(1)) is amended by striking `July 1, 2006' each place it appears and inserting `January 1, 2004'.

END