Student Loan Fair Prepayment Act

Summary: Student Loan Fair Prepayment Act - Amends title IV (Student Assistance) of the Higher Education Act of 1965 to require that when the holder of a borrower's loans under the Federal Family Education Loan (FFEL) or William D. Ford Federal Direct Loan (DL) programs receives a prepayment for such loans, it is to be applied first toward any fees due on such loans and then, unless the borrower requests otherwise, toward the principal due on the loan that bears the highest interest rate. Makes that requirement inapplicable to income-based or income contingent repayment plans for FFELs or DLs. Requires an institution of higher education holding a borrower's loans under the Federal Perkins Loan program to first apply any excess payments by the borrower toward any fees due on such loans and then, unless the borrower requests otherwise, toward the principal due on the loan that bears the highest interest rate. Amends the Truth in Lending Act to require a private education loan holder that holds more than one private education loan for a borrower to apply any prepayments on those loans first toward any fees due on such loans and then, unless the borrower requests otherwise, toward the principal due on the loan that bears the highest interest rate.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Student Loan Fair Prepayment Act''.

SEC. 2. APPLICATION OF PREPAYMENT AMOUNTS FOR FFEL AND DIRECT LOANS.

    Section 455(d) of the Higher Education Act of 1965 (20 U.S.C. 
1087e(d)) is amended by adding at the end the following new paragraph:
            ``(6) Application of prepayment amounts.--
                    ``(A) Requirement.--Notwithstanding any other 
                provision of this subsection or any other provision of 
                law, with respect to loans made to an eligible borrower 
                under this part or part B, which are held by the same 
                holder and which have different applicable rates of 
                interest, the holder of such loans shall, except as 
                otherwise requested by the borrower in writing, apply 
                the borrower's prepayment amount (within the meaning of 
                section 682.209(b) of title 34, Code of Federal 
                Regulations, or a successor regulation) for one or more 
                of such loans, first toward the outstanding balance of 
                principal due on the loan with the highest applicable 
                rate of interest among such loans.
                    ``(B) Eligible borrower.--
                            ``(i) In general.--For purposes of this 
                        paragraph, the term `eligible borrower' means a 
                        borrower with no outstanding balance of fees, 
                        including collection costs and authorized late 
                        charges, due on any loan made under this part 
                        or part B.
                            ``(ii) Prepayment amounts.--A prepayment 
                        amount (as described in subparagraph (A)) made 
                        by a borrower who is not an eligible borrower 
                        to a holder shall be applied first toward the 
                        borrower's outstanding balance of fees, 
                        including collection costs and authorized late 
                        charges, due on any loan made under this part 
                        or part B held by such holder.
                    ``(C) Exceptions.--This paragraph shall not apply 
                to an income-based repayment plan under section 493C or 
                an income contingent repayment plan under section 
                455(d)(1)(D), such as a Pay As You Earn repayment 
                plan.''.

SEC. 3. APPLICATION OF PREPAYMENT AMOUNTS FOR PERKINS LOANS.

    Section 464(c)(1)(C) of the Higher Education Act of 1965 (20 U.S.C. 
1087dd(c)(1)(C)) is amended--
            (1) by striking ``and'' at the end of clause (i);
            (2) by adding at the end the following:
                            ``(iii) shall provide that the institution 
                        shall, in the case of a borrower with no 
                        outstanding balance of fees (including 
                        collection costs and authorized late charges) 
                        due on the loans held by the institution and 
                        who repays more than the amount due for a 
                        repayment period, use the excess to prepay 
                        (within the meaning of section 674.31(b)(4)(iv) 
                        of title 34, Code of Federal Regulations, or a 
                        successor regulation) the principal due on the 
                        loan with the highest applicable rate of 
                        interest among such loans, unless otherwise 
                        requested by the borrower in writing; and
                            ``(iv) shall provide that the institution 
                        shall, in the case of a borrower with an 
                        outstanding balance of fees (such as collection 
                        costs and authorized late charges) due on the 
                        loans held by the institution and who repays 
                        more than the amount due for a repayment 
                        period, first apply such excess toward such 
                        outstanding balance of fees;''.

SEC. 4. APPLICATION OF PREPAYMENT AMOUNTS FOR PRIVATE EDUCATION LOANS.

    Section 128(e) of the Truth in Lending Act (15 U.S.C. 1638(e)) is 
amended by adding at the end the following:
            ``(12) Application of prepayment amounts.--
                    ``(A) In general.--Notwithstanding any other 
                provision of law, with respect to a borrower with more 
                than one private education loan which are held by the 
                same holder and which have different applicable rates 
                of interest, the holder of such loans shall, except as 
                otherwise requested by the borrower in writing, apply 
                the borrower's prepayment amount (within the meaning of 
                section 682.209(b) of title 34, Code of Federal 
                Regulations, or a successor regulation) for one or more 
                of such loans, first toward the outstanding balance of 
                principal due on the loan with the highest applicable 
                rate of interest among such loans.
                    ``(B) Exception.--
                            ``(i) In general.--Subparagraph (A) shall 
                        not apply to any prepayment amount made by a 
                        borrower to a holder if the borrower has an 
                        outstanding balance of fees, including 
                        collection costs and authorized late charges, 
                        due on any private education loan held by such 
                        holder.
                            ``(ii) Prepayment amounts.--A prepayment 
                        amount (as described in subparagraph (A)) made 
                        by a borrower described in subparagraph (B) to 
                        a holder shall be applied first toward the 
                        borrower's outstanding balance of fees, 
                        including collection costs and authorized late 
                        charges, due on any private education loan held 
                        by such holder.''.