Making College More Affordable Act

Summary: Making College More Affordable Act This bill amends the Higher Education Act of 1965 by creating federal interest-free education loans for undergraduate students. The loans must have the same terms and conditions and benefits to borrowers as federal direct Stafford Loans. Interest on these loans may only accrue during periods when a borrower is not earning taxable income due to professional negligence, professional incompetence, or malicious action on the part of the borrower. The Department of Education (ED) must carry out a repayment plan program for the interest-free loans under which loans payments are automatically withheld from the pre-tax income of the borrower. ED must cancel any outstanding balance of principal or interest due on those interest-free loans made to a borrower who has made 300 monthly payments. The borrower must be taxed on the amount canceled. Those taxes must be applied to carry out the federal direct loan program.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Making College More Affordable 
Act''.

SEC. 2. DIRECT FEDERAL UNDERGRADUATE LOANS AND REPAYMENT PLAN.

    (a) Interest Rates.--Section 455(a) of the Higher Education Act of 
1965 (20 U.S.C. 1087e(a)) is amended by adding at the end the 
following:
            ``(4) Undergraduate loans on or after the date of enactment 
        of the making college more affordable act.--
                    ``(A) In general.--Notwithstanding any other 
                provision of this Act, a new borrower on or after the 
                date of enactment of the Making College More Affordable 
                Act may only borrow a Federal Interest Free Education 
                Loan for the undergraduate course work being pursued by 
                such borrower.
                    ``(B) Terms, conditions, and benefits.--A Federal 
                Interest Free Education Loan shall have the same terms 
                and conditions, and benefits to borrowers as Federal 
                Direct Stafford Loans with respect to undergraduate 
                borrowers, except that--
                            ``(i) a Federal Interest Free Education 
                        Loan shall have an applicable rate of interest 
                        of 3.76 percent for the term of the loan;
                            ``(ii) the aggregate maximum amount of 
                        Federal Interest Free Education Loan that may 
                        be awarded to a borrower shall be $90,000, for 
                        not more than a 4-year academic period;
                            ``(iii) interest on a Federal Interest Free 
                        Education Loan shall only accrue during periods 
                        when a borrower is not earning taxable income 
                        due to professional negligence, professional 
                        incompetence, or malicious action on the part 
                        of the borrower;
                            ``(iv) a borrower may consolidate any loan 
                        under section 428B, or a Federal Direct PLUS 
                        Loan, that is made, insured, or guaranteed on 
                        behalf of such borrower with the Federal 
                        Interest Free Education Loan of such borrower;
                            ``(v) a Federal Interest Free Education 
                        Loan may only be repaid under the income-
                        contingent repayment plan under subsection (r); 
                        and
                            ``(vi) the Secretary may determine other 
                        terms and conditions, and benefits to borrowers 
                        of a Federal Interest Free Education Loan.''.
    (b) Income-Contingent Repayment Plan for Undergraduate Loans.--
Section 455 of the Higher Education Act of 1965 (20 U.S.C. 1087e) is 
further amended by adding at the end the following:
    ``(r) Income-Contingent Repayment Plan for Undergraduate Loans.--
Notwithstanding any other provision of this Act, the Secretary shall 
carry out a program under which--
            ``(1) a borrower of a Federal Interest Free Education 
        Loan--
                    ``(A) shall have an aggregate monthly payment for 
                the outstanding balance of principal and interest due 
                on all such loans automatically withheld from the pre-
                tax income of the borrower by the employer of the 
                borrower in a manner which--
                            ``(i) prohibits employers from using any 
                        information about an employee's outstanding 
                        balance or principal and interest due on such 
                        loans for any purpose of use as an advantage 
                        against the employee;
                            ``(ii) is determined by the Secretary, in 
                        coordination with the heads of other 
                        appropriate Federal agencies (including the 
                        Secretary of the Treasury and the Commissioner 
                        of the Social Security Administration); and
                            ``(iii) is an amount equal to--
                                    ``(I) if the borrower's gross 
                                income is less than 337 percent of the 
                                poverty line applicable to the 
                                borrower's family size as determined 
                                under section 673(2) of the Community 
                                Services Block Grant Act (42 U.S.C. 
                                9902(2)), $0;
                                    ``(II) if the borrower's gross 
                                income is equal to or greater than 337 
                                percent, but not more than 841 percent 
                                of such poverty line; 4 percent of the 
                                borrower's gross income;
                                    ``(III) if the borrower's gross 
                                income is equal to or greater than 842 
                                percent, but not more than 925 percent 
                                of such poverty line, 5 percent of the 
                                borrower's gross income;
                                    ``(IV) if the borrower's gross 
                                income is equal to or greater than 926 
                                percent, but not more than 1,010 
                                percent of such poverty line, 6 percent 
                                of the borrower's gross income;
                                    ``(V) if the borrower's gross 
                                income is equal to or greater than 
                                1,011 percent, but not more than 1,094 
                                percent of such poverty line, 7 percent 
                                of the borrower's gross income;
                                    ``(VI) if the borrower's gross 
                                income is equal to or greater than 
                                1,095 percent, but not more than 1,178 
                                percent of such poverty line, 8 percent 
                                of the borrower's gross income;
                                    ``(VII) if the borrower's gross 
                                income is equal to or greater than 
                                1,179 percent, and 1,262 percent of 
                                such poverty line, 9 percent of the 
                                borrower's gross income; and
                                    ``(VIII) if the borrower's gross 
                                income is equal to or greater than 
                                1,263 percent of such poverty line, 10 
                                percent of the borrower's gross income;
                    ``(B) may elect to have any payments made under 
                subparagraph (A) that exceed the amount owed by the 
                borrower on such loans for a calendar year be refunded 
                to the borrower or applied to the amount owed by the 
                borrower on such loans for the succeeding calendar 
                year;
            ``(2) the Secretary will cancel any outstanding balance of 
        principal or interest due on all Federal Interest Free 
        Education Loans made to a borrower who has made 300 monthly 
        payments under this subsection; and
            ``(3) a borrower will be taxed on the amount cancelled 
        under paragraph (2), which taxes shall be applied to carry out 
        the Federal Direct Loan program under this part.''.