I 

114TH CONGRESS 

1ST SESSION H. R. 3947 

To amend the Higher Education Act of 1965 and the Truth in Lending 

Act to clarify the application of prepayment and underpayment amounts 

on student loans, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

NOVEMBER 5, 2015 

Mr. DEUTCH introduced the following bill; which was referred to the Committee on Education and the Workforce, and in addition to the Committee on Financial Services, for a period to be subsequently determined 

by the Speaker, in each case for consideration of such provisions as fall 

within the jurisdiction of the committee concerned 

A BILL 

To amend the Higher Education Act of 1965 and the Truth 

in Lending Act to clarify the application of prepayment 

and underpayment amounts on student loans, and for 

other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Student Loan Payment 

5 Optimization Act’’. 


tkelley on DSK3SPTVN1PROD with BILLS
2 

•HR 3947 IH

1 SEC. 2. APPLICATION OF PREPAYMENT AND UNDER2 PAYMENT AMOUNTS FOR FFEL AND DIRECT 

3 LOANS. 

4 (a) IN GENERAL.—Section 455(d) of the Higher 

5 Education Act of 1965 (20 U.S.C. 1087e(d)) is amended 

6 by adding at the end the following new paragraph: 

7 ‘‘(6) APPLICATION OF PREPAYMENT AND UN8 DERPAYMENT AMOUNTS.— 

9 ‘‘(A) PREPAYMENT AMOUNTS.—Notwith10 standing any other provision of this subsection 

11 or any other provision of law, with respect to 

12 loans made to an eligible borrower under this 

13 part or part B which are held by the same hold14 er and which have different applicable rates of 

15 interest, the holder of such loans shall apply the 

16 borrower’s prepayment amount (within the 

17 meaning of section 682.209(b) of title 34, Code 

18 of Federal Regulations, or a successor regula19 tion) for one or more of such loans— 

20 ‘‘(i) first toward any outstanding bal21 ance of fees, including collection costs and 

22 authorized late charges, due on such loans; 

23 and 

24 ‘‘(ii) then, except as otherwise re25 quested by the borrower in writing, toward 

26 the outstanding balance of principal due on 


tkelley on DSK3SPTVN1PROD with BILLS
3 

•HR 3947 IH

1 the loan with the highest applicable rate of 

2 interest among such loans. 

3 ‘‘(B) UNDERPAYMENT AMOUNTS.—Not4 withstanding any other provision of this sub5 section or any other provision of law, with re6 spect to loans made to an eligible borrower 

7 under this part or part B which are held by the 

8 same holder and which have different applicable 

9 rates of interest, the holder of such loans shall 

10 apply any payment made by the borrower which 

11 is less than the amount due at the time of the 

12 payment for one or more of such loans— 

13 ‘‘(i) first toward any outstanding bal14 ance of fees, including collection costs and 

15 authorized late charges, due on such loans; 

16 and 

17 ‘‘(ii) then, except as otherwise re18 quested by the borrower in writing, toward 

19 the balance of the loan with the smallest 

20 balance of principal and interest among 

21 such loans. 

22 ‘‘(C) SPECIAL RULE FOR BORROWERS

23 UNDER INCOME-BASED REPAYMENT PLAN.—In 

24 the case of a loan for which the borrower has 

25 elected to participate in an income-based repayVerDate Sep 11 2014 23:09 Nov 07, 2015 Jkt 059200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H3947.IH H3947

tkelley on DSK3SPTVN1PROD with BILLS
4 

•HR 3947 IH

1 ment plan under section 493C, subparagraphs 

2 (A) and (B) shall not apply unless there is no 

3 interest due on the loan.’’. 

4 (b) REQUIREMENTS FOR CONTRACTS WITH

5 SERVICERS OF LOANS.—Section 456(a)(2) of such Act 

6 (20 U.S.C. 1087f(a)(2)) is amended by striking the period 

7 at the end of the first sentence and inserting the following: 

8 ‘‘, including the requirements with respect to the applica9 tion of prepayment and underpayment amounts under sec10 tion 455(d)(6).’’. 

11 SEC. 3. APPLICATION OF PREPAYMENT AND UNDER12 PAYMENT AMOUNTS FOR PERKINS LOANS. 

13 (a) IN GENERAL.—Section 464(c)(1)(C) of the High14 er Education Act of 1965 (20 U.S.C. 1087dd(c)(1)(C)) 

15 is amended— 

16 (1) by striking ‘‘and’’ at the end of clause (i); 

17 and 

18 (2) by adding at the end the following: 

19 ‘‘(iii) shall provide that the institution shall, in 

20 the case of a borrower who provides the institution 

21 with a prepayment amount (within the meaning of 

22 section 682.209(b) of title 34, Code of Federal Reg23 ulations, or a successor regulation) for one or more 

24 of the loans held by the institution, apply such pre25 payment amount— 


tkelley on DSK3SPTVN1PROD with BILLS
5 

•HR 3947 IH

1 ‘‘(I) first toward any outstanding balance 

2 of fees, including collection costs and authorized 

3 late charges, due on such loans; and 

4 ‘‘(II) then, except as otherwise requested 

5 by the borrower in writing, toward the out6 standing balance of principal due on the loan 

7 with the highest applicable rate of interest 

8 among such loans; and 

9 ‘‘(iv) shall provide that the institution shall 

10 apply any payment made by the borrower which is 

11 less than the amount due for a repayment period for 

12 one or more of the loans held by the institution— 

13 ‘‘(I) first toward any outstanding balance 

14 of fees, including collection costs and authorized 

15 late charges, due on such loans; and 

16 ‘‘(II) then, except as otherwise requested 

17 by the borrower in writing, toward the balance 

18 of the loan with the smallest balance of prin19 cipal and interest among such loans;’’. 

20 (b) AGREEMENTS WITH INSTITUTIONS.—Section 

21 463(a) of such Act (20 U.S.C. 1087cc(a)) is amended— 

22 (1) by striking ‘‘and’’ at the end of paragraph 

23 (8); 

24 (2) by redesignating paragraph (9) as para25 graph (10); and 


tkelley on DSK3SPTVN1PROD with BILLS
6 

•HR 3947 IH

1 (3) by inserting after paragraph (8) the fol2 lowing new paragraph: 

3 ‘‘(9) provide assurances that the institution will 

4 meet the requirements with respect to the applica5 tion of prepayment and underpayment amounts 

6 under section 464(c)(1)(C); and’’. 

7 SEC. 4. APPLICATION OF PREPAYMENT AND UNDER8 PAYMENT AMOUNTS FOR PRIVATE EDU9 CATION LOANS. 

10 Section 128(e) of the Truth in Lending Act (15 

11 U.S.C. 1638(e)) is amended by adding at the end the fol12 lowing: 

13 ‘‘(12) APPLICATION OF PREPAYMENT AND UN14 DERPAYMENT AMOUNTS.— 

15 ‘‘(A) PREPAYMENT AMOUNTS.—Notwith16 standing any other provision of law, with re17 spect to a borrower with one or more private 

18 education loans which are held by the same 

19 holder and which have different applicable rates 

20 of interest, the holder of such loans shall apply 

21 the borrower’s prepayment amount (within the 

22 meaning of section 682.209(b) of title 34, Code 

23 of Federal Regulations, or a successor regula24 tion) for one or more of such loans— 


tkelley on DSK3SPTVN1PROD with BILLS
7 

•HR 3947 IH

1 ‘‘(i) first toward any outstanding bal2 ance of fees, including collection costs and 

3 authorized late charges, due on any private 

4 education loan held by such holder; and 

5 ‘‘(ii) then, except as otherwise re6 quested by the borrower in writing, toward 

7 the outstanding balance of principal due on 

8 the loan with the highest applicable rate of 

9 interest among such loans. 

10 ‘‘(B) UNDERPAYMENT AMOUNTS.—Not11 withstanding any other provision of law, with 

12 respect to a borrower with one or more private 

13 education loans which are held by the same 

14 holder and which have different applicable rates 

15 of interest, the holder of such loans shall apply 

16 any payment made by the borrower which is 

17 less than the amount due at the time of the 

18 payment for one or more of such loans— 

19 ‘‘(i) first toward any outstanding bal20 ance of fees, including collection costs and 

21 authorized late charges, due on any private 

22 education loans held by such holder; and 

23 ‘‘(ii) then, except as otherwise re24 quested by the borrower in writing, toward 

25 the balance of the loan with the smallest 


tkelley on DSK3SPTVN1PROD with BILLS
8 

•HR 3947 IH

1 balance of principal and interest among 

2 such loans.’’. 

Æ 


tkelley on DSK3SPTVN1PROD with BILLS