I 

109TH CONGRESS 

1ST SESSION H. R. 1617 

To allow borrowers consolidating student loans to choose a variable or fixed 

interest rate, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 13, 2005 

Mr. PETRI introduced the following bill; which was referred to the Committee 

on Education and the Workforce 

A BILL 

To allow borrowers consolidating student loans to choose 

a variable or fixed interest rate, 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. REFERENCE. 

4 Except as otherwise expressly provided, whenever in 

5 this Act an amendment or repeal is expressed in terms 

6 of an amendment to, or repeal of, a section or other provi7 sion, the reference shall be considered to be made to a 

8 section or other provision of the Higher Education Act of 

9 1965 (20 U.S.C. 1001 et seq.). 
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1 SEC. 2. CONSOLIDATION LOAN INTEREST RATES. 

2 (a) FFEL LOANS.—Paragraph (3) of section 

3 427A(l) (20 U.S.C. 1077a(l)) is amended to read as fol4 lows: 

5 ‘‘(3) CONSOLIDATION LOANS.— 

6 ‘‘(A) BORROWER ELECTION.—With respect 

7 to any consolidation loan under section 428C 

8 for which the application is received by an eligi9 ble lender on or after July 1, 2006, the applica10 ble rate of interest shall, at the election of the 

11 borrower at the time of application for the loan, 

12 be either at the rate determined under subpara13 graph (B) or the rate determined under sub14 paragraph (C). 

15 ‘‘(B) VARIABLE RATE.—Except as pro16 vided in subparagraph (D), the rate determined 

17 under this subparagraph shall, during any 12- 

18 month period beginning on July 1 and ending 

19 on June 30, be determined on the preceding 

20 June 1 and be equal, for such 12-month period, 

21 to— 

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

23 day Treasury bills auctioned at the final 

24 auction held prior to such June 1; plus 

25 ‘‘(ii) 2.3 percent, 
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1 except that such rate shall not exceed 8.25 per2 cent. 

3 ‘‘(C) FIXED RATE.—Except as provided in 

4 subparagraph (D), the rate determined under 

5 this subparagraph shall be determined on the 

6 date on which the obligation to repay the loan 

7 is signed, and be equal, for the duration of the 

8 term of the loan, to— 

9 ‘‘(i) the average bond equivalent rate 

10 of the 3-year Treasury note as determined 

11 on the basis of the last publication in May 

12 of the Federal Reserve Statistical Release 

13 H–15 (or its successor) prior to the date 

14 on which the obligation to repay the loan 

15 is signed; plus 

16 ‘‘(ii) 2.3 percent, 

17 except that such rate shall not exceed 8.25 per18 cent. 

19 ‘‘(D) CONSOLIDATION OF PLUS LOANS.— 

20 In the case of any such consolidation loan that 

21 is used to repay loans each of which was made 

22 under section 428B or was a Federal Direct 

23 PLUS Loan (or both), the rates determined 

24 under subparagraphs (B) and (C) shall be de25 termined— 
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1 ‘‘(i) by substituting ‘3.1 percent’ for 

2 ‘2.3 percent’; and 

3 ‘‘(ii) by substituting ‘9.0 percent’ for 

4 ‘8.25 percent’.’’. 

5 (b) DIRECT LOANS.—Subparagraph (C) of section 

6 455(b)(7) (20 U.S.C. 1087e(b)(7)) is amended to read as 

7 follows: 

8 ‘‘(C) CONSOLIDATION LOANS.— 

9 ‘‘(i) BORROWER ELECTION.—Notwith10 standing the preceding paragraphs of this 

11 subsection, with respect to any Federal Di12 rect Consolidation Loan for which the ap13 plication is received by an eligible lender 

14 on or after July 1, 2006, the applicable 

15 rate of interest shall, at the election of the 

16 borrower at the time of application for the 

17 loan, be either at the rate determined 

18 under clause (ii) or the rate determined 

19 under clause (iii). 

20 ‘‘(ii) VARIABLE RATE.—Except as 

21 provided in clause (iv), the rate determined 

22 under this clause shall, during any 12- 

23 month period beginning on July 1 and 

24 ending on June 30, be determined on the 
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1 preceding June 1 and, for such 12-month 

2 period, not be more than— 

3 ‘‘(I) the bond equivalent rate of 

4 91-day Treasury bills auctioned at the 

5 final auction held prior to such June 

6 1; plus 

7 ‘‘(II) 2.3 percent, 

8 except that such rate shall not exceed 8.25 

9 percent. 

10 ‘‘(iii) FIXED RATE.—Except as pro11 vided in clause (iv), the rate determined 

12 under this clause shall be determined on 

13 the date on which the obligation to repay 

14 the loan is signed, and, for the duration of 

15 the term of the loan, not be more than— 

16 ‘‘(I) the average bond equivalent 

17 rate of the 3-year Treasury note as 

18 determined on the basis of the last 

19 publication in May of the Federal Re20 serve Statistical Release H–15 (or its 

21 successor) prior to the date on which 

22 the obligation to repay the loan is 

23 signed; plus 

24 ‘‘(II) 2.3 percent, 
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1 except that such rate shall not exceed 8.25 

2 percent. 

3 ‘‘(iv) CONSOLIDATION OF PLUS

4 LOANS.—In the case of any such Federal 

5 Direct Consolidation Loan that is used to 

6 repay loans each of which was made under 

7 section 428B or was a Federal Direct 

8 PLUS Loan, the rates determined under 

9 clauses (ii) and (iii) shall be determined— 

10 ‘‘(I) by substituting ‘3.1 percent’ 

11 for ‘2.3 percent’; and 

12 ‘‘(II) by substituting ‘9.0 per13 cent’ for ‘8.25 percent’.’’. 

14 SEC. 3. RECAPTURE OF EXCESS INTEREST. 

15 Section 438(b)(2)(I) (20 U.S.C. 1087–1(b)(2)(I)) is 

16 amended by inserting after clause (vii) the following new 

17 clause: 

18 ‘‘(viii) RECAPTURE OF EXCESS INTER19 EST.— 

20 ‘‘(I) EXCESS CREDITED.—With 

21 respect to a loan on which the applica22 ble interest rate is determined under 

23 section 427A(l) and for which the 

24 first disbursement of principal is 

25 made on or after July 1, 2006, if the 
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1 applicable interest rate for any 3- 

2 month period exceeds the special al3 lowance rate applicable to such loan 

4 under this subparagraph for such pe5 riod, then an adjustment shall be 

6 made by calculating the excess inter7 est in the amount computed under 

8 subclause (II) of this clause, and by 

9 crediting the excess interest to the 

10 Government not less often than annu11 ally. 

12 ‘‘(II) CALCULATION OF EX13 CESS.—The amount of any adjust14 ment of interest on a loan to be made 

15 under this subsection for any quarter 

16 shall be equal to— 

17 ‘‘(aa) the applicable interest 

18 rate minus the special allowance 

19 rate determined under this sub20 paragraph; multiplied by 

21 ‘‘(bb) the average daily prin22 cipal balance of the loan (not in23 cluding unearned interest added 

24 to principal) during such cal25 endar quarter; divided by 
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1 ‘‘(cc) four.’’. 

2 SEC. 4. STUDENT LOAN BORROWER CHOICE OF LOAN 

3 CONSOLIDATOR. 

4 Section 428C(b)(1)(A) of the Higher Education Act 

5 of 1965 (20 U.S.C. 1078–3(b)(1)(A)) is amended by strik6 ing ‘‘and (i) the lender holds’’ and all that follows through 

7 ‘‘selected for consolidation)’’. 

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