PUBLIC LAW 107–139—FEB. 8, 2002

STUDENT LOAN INTEREST RATES

116 STAT. 8 PUBLIC LAW 107–139—FEB. 8, 2002

Public Law 107–139

107th Congress

An Act

To amend the Higher Education Act of 1965 to establish fixed interest rates for

student and parent borrowers, to extend current law with respect to special

allowances for lenders, and for other purposes.

Be it enacted by the Senate and House of Representatives of

the United States of America in Congress assembled,

SECTION 1. INTEREST RATE PROVISIONS.

(a) FFEL FIXED INTEREST RATES.—

(1) AMENDMENT.—Section 427A of the Higher Education

Act of 1965 (20 U.S.C. 1077a) is amended—

(A) by redesignating subsections (l) and (m) as subsections (m) and (n), respectively; and

(B) by inserting after subsection (k) the following new

subsection:

‘‘(l) INTEREST RATES FOR NEW LOANS ON OR AFTER JULY 1,

2006.—

‘‘(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

July 1, 2006, the applicable rate of interest shall be 6.8 percent

on the unpaid principal balance of the loan.

‘‘(2) PLUS LOANS.—Notwithstanding subsection (h), with

respect to any loan under section 428B for which the first

disbursement is made on or after July 1, 2006, the applicable

rate of interest shall be 7.9 percent on the unpaid principal

balance of the loan.

‘‘(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 July 1, 2006, 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 oneeighth of 1 percent; or

‘‘(B) 8.25 percent.’’.

(2) CONFORMING AMENDMENT.—Section 428C(c)(1)(A) of

such Act (20 U.S.C. 1078–3(c)(1)(A)) is amended to read as

follows:

Feb. 8, 2002

[S. 1762]

PUBLIC LAW 107–139—FEB. 8, 2002 116 STAT. 9

‘‘(1) INTEREST RATE.—(A) Notwithstanding subparagraphs

(B) and (C), with respect to any loan made under this section

for which the application is received by an eligible lender—

‘‘(i) on or after October 1, 1998, and before July 1,

2006, the applicable interest rate shall be determined under

section 427A(k)(4); or

‘‘(ii) on or after July 1, 2006, the applicable interest

rate shall be determined under section 427A(l)(3).’’.

(b) DIRECT LOANS FIXED INTEREST RATES.—

(1) TECHNICAL CORRECTION.—Paragraph (6) of section

455(b) of the Higher Education Act of 1965 (20 U.S.C. 1087e(b)),

as redesignated by section 8301(c)(1) of the Transportation

Equity Act for the 21st Century (Public Law 105–178; 112

Stat. 498) is redesignated as paragraph (9) and is transferred

to follow paragraph (7) of section 455(b) of the Higher Education

Act of 1965.

(2) AMENDMENTS.—Section 455(b) of the Higher Education

Act of 1965 (20 U.S.C. 1087e(b)) is amended—

(A) by redesignating paragraph (7) as paragraph (8);

and

(B) by inserting after paragraph (6) the following new

paragraph:

‘‘(7) INTEREST RATE PROVISION FOR NEW LOANS ON OR AFTER

JULY 1, 2006.—

‘‘(A) RATES FOR FDSL AND FDUSL.—Notwithstanding the

preceding paragraphs of this subsection, for Federal Direct

Stafford Loans and Federal Direct Unsubsidized Stafford

Loans for which the first disbursement is made on or

after July 1, 2006, the applicable rate of interest shall

be 6.8 percent on the unpaid principal balance of the loan.

‘‘(B) PLUS LOANS.—Notwithstanding the preceding

paragraphs of this subsection, with respect to any Federal

Direct PLUS loan for which the first disbursement is made

on or after July 1, 2006, the applicable rate of interest

shall be 7.9 percent on the unpaid principal balance of

the loan.

‘‘(C) CONSOLIDATION LOANS.—Notwithstanding the preceding paragraphs of this subsection, any Federal Direct

Consolidation loan for which the application is received

on or after July 1, 2006, shall bear interest at an annual

rate on the unpaid principal balance of the loan that is

equal to the lesser of—

‘‘(i) the weighted average of the interest rates on

the loans consolidated, rounded to the nearest higher

one-eighth of one percent; or

‘‘(ii) 8.25 percent.’’.

(c) EXTENSION OF CURRENT INTEREST RATE PROVISIONS FOR

THREE YEARS.—Sections 427A(k) and 455(b)(6) of the Higher Education Act of 1965 (20 U.S.C. 1077a(k), 1087e(b)(6)) are each

amended—

(1) by striking ‘‘2003’’ in the heading and inserting ‘‘2006’’;

and

(2) by striking ‘‘July 1, 2003,’’ each place it appears and

inserting ‘‘July 1, 2006,’’.

116 STAT. 10 PUBLIC LAW 107–139—FEB. 8, 2002

SEC. 2. EXTENSION OF SPECIAL ALLOWANCE PROVISION.

Section 438(b)(2)(I) of the Higher Education Act of 1965 (20

U.S.C. 1087–1(b)(2)(I)) is amended—

(1) by striking ‘‘, AND BEFORE JULY 1, 2003’’ in the heading;

(2) by striking ‘‘and before July 1, 2003,’’ each place it

appears, other than in clauses (ii) and (v);

(3) by striking clause (ii) and inserting the following:

‘‘(ii) IN SCHOOL AND GRACE PERIOD.—In the case

of any loan—

‘‘(I) for which the first disbursement is made

on or after January 1, 2000, and before July 1,

2006, and for which the applicable rate of interest

is described in section 427A(k)(2); or

‘‘(II) for which the first disbursement is made

on or after July 1, 2006, and for which the

applicable rate of interest is described in section

427A(l)(1), but only with respect to (aa) periods

prior to the beginning of the repayment period

of the loan; or (bb) during the periods 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);

clause (i)(III) of this subparagraph shall be applied

by substituting ‘1.74 percent’ for ‘2.34 percent’.’’;

(4) in clause (iii), by inserting ‘‘or (l)(2)’’ after ‘‘427A(k)(3)’’;

(5) in clause (iv), by inserting ‘‘or (l)(3)’’ after ‘‘427A(k)(4)’’;

(6) in clause (v)—

(A) in the heading, by inserting ‘‘BEFORE JULY 1, 2006’’

after ‘‘PLUS LOANS’’; and

(B) by striking ‘‘July 1, 2003,’’ and inserting ‘‘July

1, 2006,’’;

(7) in clause (vi)—

(A) by inserting ‘‘or (l)(3)’’ after ‘‘427A(k)(4)’’ the first

place it appears; and

(B) by inserting ‘‘or (l)(3), whichever is applicable’’ after

‘‘427A(k)(4)’’ the second place it appears; and

(8) by adding at the end the following new clause:

‘‘(vii) LIMITATION ON SPECIAL ALLOWANCES FOR

PLUS LOANS ON OR AFTER JULY 1, 2006.—In the case

of PLUS loans made under section 428B and first

disbursed on or after July 1, 2006, for which the

interest rate is determined under section 427A(l)(2),

a special allowance shall not be paid for such loan

during any 12-month period beginning on July 1 and

ending on June 30 unless—

PUBLIC LAW 107–139—FEB. 8, 2002 116 STAT. 11

LEGISLATIVE HISTORY—S. 1762:

CONGRESSIONAL RECORD:

Vol. 147 (2001): Dec. 14, considered and passed Senate.

Dec. 19, 20, considered and rejected in House.

Vol. 148 (2002): Jan. 24, considered and passed House.

Æ

‘‘(I) the average of the bond equivalent rates

of the quotes of the 3-month commercial paper

(financial), as published by the Board of Governors

of the Federal Reserve System in Publication H–

15 (or its successor), for the last calendar week

ending on or before such July 1; plus

‘‘(II) 2.64 percent,

exceeds 9.0 percent.’’.

Approved February 8, 2002.