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

Summary: Student Loan Fairness Act of 2003 - Amends the Higher Education Act of 1965 to revise student aid requirements for consolidation loans.

Repeals a prohibition against refinancing consolidation loans.

Allows borrowers to select lenders of consolidation loans. Requires lenders and institutions to provide certain information on consolidation loans to applicants.

Revises interest rates on consolidated and reconsolidated loans.

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''.