I 

108TH CONGRESS 

1ST SESSION H. R. 2504

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. 

IN THE HOUSE OF REPRESENTATIVES 

JUNE 18, 2003

Mr. DAVIS of Illinois introduced the following bill; which was referred to the 

Committee on Education and the Workforce 

A BILL

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.

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 Fairness 

5 Consolidation Act of 2003’’. 

6 SEC. 2. AUTHORITY TO REFINANCE EXISTING CONSOLIDA7 TION LOANS. 

8 (a) FFEL CONSOLIDATION LOANS.—Section 

9 428C(a)(3)(B) of the Higher Education Act of 1965 (20 
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1 U.S.C. 1078–3(a)(3)(B)) is amended by adding at the end 

2 the following new clause: 

3 ‘‘(ii) Notwithstanding clause (i) of this subpara4 graph, a borrower of a consolidation loan on which 

5 the interest is established at a fixed rate under sec6 tion 427A, 428C(c), or 455 may obtain a subsequent 

7 consolidation loan for the purposes of refinancing 

8 such earlier consolidation loan at a variable rate of 

9 interest under section 427A(m) or 455(b)(8), except 

10 that the authority to refinance a consolidation loan 

11 under this clause shall not apply to a consolidation 

12 loan that was used exclusively to repay loans made 

13 under section 428B or Federal Direct PLUS Loans 

14 (or both such loans).’’. 

15 (b) PARALLEL TERMS FOR FEDERAL DIRECT CON16 SOLIDATION LOANS.—Section 455(a) of the Higher Edu17 cation Act of 1965 (20 U.S.C. 1087e(a)) is amended—

18 (1) in paragraph (1), by inserting ‘‘428C,’’ 

19 after ‘‘428B,’’; and 

20 (2) in paragraph (2)—

21 (A) by striking ‘‘and’’ at the end of sub22 paragraph (B); 

23 (B) by redesignating subparagraph (C) as 

24 subparagraph (D); and 
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1 (C) by inserting after subparagraph (B) 

2 the following: 

3 ‘‘(C) section 428C shall be known as ‘Fed4 eral Direct Consolidation Loans’.’’. 

5 SEC. 3. AVAILABILITY OF VARIABLE INTEREST RATE CON6 SOLIDATION LOANS. 

7 (a) FFEL CONSOLIDATION LOANS.—Section 427A 

8 of the Higher Education Act of 1965 (20 U.S.C. 1077a) 

9 is amended—

10 (1) by redesignating subsection (m) and (n) as 

11 subsections (n) and (o), respectively; and 

12 (2) by inserting after subsection (l) the fol13 lowing: 

14 ‘‘(m) VARIABLE INTEREST RATE CONSOLIDATION

15 LOANS.—

16 ‘‘(1) VARIABLE RATE.—Notwithstanding sub17 sections (h), (k), and (l), with respect to any loan 

18 made pursuant to section 428C for which the first 

19 disbursement is made on or after the date of enact20 ment of the Student Loan Fairness Consolidation 

21 Act of 2003, the applicable rate of interest shall, 

22 during any 12-month period beginning on July 1 

23 and ending on June 30, be determined on the pre24 ceding June 1 and be equal to—
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1 ‘‘(A) the bond equivalent rate of 91-day 

2 Treasury bills auctioned at the final auction 

3 held prior to such June 1; plus 

4 ‘‘(B) 2.3 percent, 

5 except that such rate shall not exceed 8.25 percent. 

6 ‘‘(2) RECOVERY OF EXCESS INTEREST.—If, 

7 with respect to a consolidation loan on which the ap8 plicable interest rate is determined under this sub9 section, the applicable interest rate for any 3-month 

10 period exceeds the special allowance rate applicable 

11 to such loan under section 438(b)(2)(I) for such pe12 riod, then an adjustment shall be made—

13 ‘‘(A) by calculating the excess interest in 

14 the amount computed under paragraph (3) of 

15 this subsection; and 

16 ‘‘(B) by crediting the excess interest to the 

17 Government. 

18 ‘‘(3) AMOUNT OF ADJUSTMENT.—The amount 

19 of any adjustment of interest on a loan to be made 

20 under this subsection for any quarter shall be equal 

21 to—

22 ‘‘(A) the applicable interest rate minus the 

23 special allowance rate determined under section 

24 438(a)(2)(I); multiplied by 
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1 ‘‘(B) the average daily principal balance of 

2 the loan (not including unearned interest added 

3 to principal) during such calendar quarter; di4 vided by 

5 ‘‘(C) four. 

6 ‘‘(4) INAPPLICABILITY TO CONSOLIDATION

7 LOANS USED TO REPAY PLUS LOANS.—The provi8 sions of paragraph (1) of this subsection shall not 

9 apply to a consolidation loan that was used exclu10 sively to repay loans made under section 428B or 

11 Federal Direct PLUS Loans (or both such loans).’’. 

12 (b) FEDERAL DIRECT CONSOLIDATION LOANS.—

13 Section 455(b) of the Higher Education Act of 1965 (20 

14 U.S.C. 1087e(b)) is amended—

15 (1) by redesignating paragraphs (8) and (9) as 

16 paragraphs (9) and (10), respectively; and 

17 (2) by inserting after paragraph (7) the fol18 lowing: 

19 ‘‘(8) VARIABLE INTEREST RATE CONSOLIDA20 TION LOANS.—

21 ‘‘(A) VARIABLE RATE.—Notwithstanding 

22 the preceding paragraphs of this subsection, 

23 with respect to any Federal Direct Consolida24 tion Loan for which the first disbursement is 

25 made on or after the date of enactment of the 
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1 Student Loan Fairness Consolidation Act of 

2 2003, the applicable rate of interest shall, dur3 ing any 12-month period beginning on July 1 

4 and ending on June 30, be determined on the 

5 preceding June 1 and be equal to—

6 ‘‘(i) the bond equivalent rate of 91-

7 day Treasury bills auctioned at the final 

8 auction held prior to such June 1; plus 

9 ‘‘(ii) 2.3 percent, 

10 except that such rate shall not exceed 8.25 per11 cent. 

12 ‘‘(B) INAPPLICABILITY TO CONSOLIDATION

13 LOANS USED TO REPAY PLUS LOANS.—The pro14 visions of this subsection shall not apply to a 

15 consolidation loan that was used exclusively to 

16 repay loans made under section 428B or Fed17 eral Direct PLUS Loans (or both such loans).’’. 

18 (c) CONFORMING AMENDMENT.—Section 

19 438(b)(2)(I) is amended by striking ‘‘section 427A(k)(4) 

20 or (l)(3)’’ each place it appears in clauses (iv) and (vi) 

21 and inserting ‘‘section 427A(k)(4), (l)(3), or (m)’’.

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