To amend the Higher Education Act of 1965 to improve the opportunity for Federal student loan borrowers to consolidate their loans at reasonable interest rates.

June 18, 2003

Mr. DAVIS of Illinois introduced the following bill; which was referred to the Committee on Education and the Workforce

To amend the Higher Education Act of 1965 to improve the opportunity for Federal student loan borrowers to consolidate their loans at reasonable interest rates.

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 Consolidation Act of 2003'.

SEC. 2. AUTHORITY TO REFINANCE EXISTING CONSOLIDATION LOANS.

(a) FFEL CONSOLIDATION LOANS- Section 428C(a)(3)(B) of the Higher Education Act of 1965 (20 U.S.C. 1078-3(a)(3)(B)) is amended by adding at the end the following new clause:

`(ii) Notwithstanding clause (i) of this subparagraph, a borrower of a consolidation loan on which the interest is established at a fixed rate under section 427A, 428C(c), or 455 may obtain a subsequent consolidation loan for the purposes of refinancing such earlier consolidation loan at a variable rate of interest under section 427A(m) or 455(b)(8), except that the authority to refinance a consolidation loan under this clause shall not apply to a consolidation loan that was used exclusively to repay loans made under section 428B or Federal Direct PLUS Loans (or both such loans).'.

(b) PARALLEL TERMS FOR FEDERAL DIRECT CONSOLIDATION LOANS- Section 455(a) of the Higher Education Act of 1965 (20 U.S.C. 1087e(a)) is amended--

(1) in paragraph (1), by inserting `428C,' after `428B,'; and

(2) in paragraph (2)--

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

(B) by redesignating subparagraph (C) as subparagraph (D); and

(C) by inserting after subparagraph (B) the following:

`(C) section 428C shall be known as `Federal Direct Consolidation Loans'.'.

SEC. 3. AVAILABILITY OF VARIABLE INTEREST RATE CONSOLIDATION LOANS.

(a) FFEL CONSOLIDATION LOANS- Section 427A of the Higher Education Act of 1965 (20 U.S.C. 1077a) is amended--

(1) by redesignating subsection (m) and (n) as subsections (n) and (o), respectively; and

(2) by inserting after subsection (l) the following:

`(m) VARIABLE INTEREST RATE CONSOLIDATION LOANS-

`(1) VARIABLE RATE- Notwithstanding subsections (h), (k), and (l), with respect to any loan made pursuant to section 428C for which the first disbursement is made on or after the date of enactment of the Student Loan Fairness Consolidation Act of 2003, 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) RECOVERY OF EXCESS INTEREST- If, with respect to a consolidation loan on which the applicable interest rate is determined under this subsection, the applicable interest rate for any 3-month period exceeds the special allowance rate applicable to such loan under section 438(b)(2)(I) for such period, then an adjustment shall be made--

`(A) by calculating the excess interest in the amount computed under paragraph (3) of this subsection; and

`(B) by crediting the excess interest to the Government.

`(3) AMOUNT OF ADJUSTMENT- The amount of any adjustment of interest on a loan to be made under this subsection for any quarter shall be equal to--

`(A) the applicable interest rate minus the special allowance rate determined under section 438(a)(2)(I); multiplied by

`(B) the average daily principal balance of the loan (not including unearned interest added to principal) during such calendar quarter; divided by

`(C) four.

`(4) INAPPLICABILITY TO CONSOLIDATION LOANS USED TO REPAY PLUS LOANS- The provisions of paragraph (1) of this subsection shall not apply to a consolidation loan that was used exclusively to repay loans made under section 428B or Federal Direct PLUS Loans (or both such loans).'.

(b) FEDERAL DIRECT CONSOLIDATION LOANS- Section 455(b) of the Higher Education Act of 1965 (20 U.S.C. 1087e(b)) is amended--

(1) by redesignating paragraphs (8) and (9) as paragraphs (9) and (10), respectively; and

(2) by inserting after paragraph (7) the following:

`(8) VARIABLE INTEREST RATE CONSOLIDATION LOANS-

`(A) VARIABLE RATE- Notwithstanding the preceding paragraphs of this subsection, with respect to any Federal Direct Consolidation Loan for which the first disbursement is made on or after the date of enactment of the Student Loan Fairness Consolidation Act of 2003, 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--

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

`(ii) 2.3 percent,

except that such rate shall not exceed 8.25 percent.

`(B) INAPPLICABILITY TO CONSOLIDATION LOANS USED TO REPAY PLUS LOANS- The provisions of this subsection shall not apply to a consolidation loan that was used exclusively to repay loans made under section 428B or Federal Direct PLUS Loans (or both such loans).'.

(c) CONFORMING AMENDMENT- Section 438(b)(2)(I) is amended by striking `section 427A(k)(4) or (l)(3)' each place it appears in clauses (iv) and (vi) and inserting `section 427A(k)(4), (l)(3), or (m)'.

END