Student Loan Fairness Act

To increase purchasing power, strengthen economic recovery, and restore fairness in financing higher education in the United States through student loan forgiveness, caps on interest rates on Federal student loans, and refinancing opportunities for private borrowers, and for other purposes. 1. Short title This Act may be cited as the Student Loan Fairness Act 2. Findings Congress finds the following: (1) A well-educated citizenry is critical to our Nation’s ability to compete in the global economy. (2) The Federal Government has a vested interest in ensuring access to higher education. (3) Higher education should be viewed as a public good benefiting our country rather than as a commodity solely benefiting individual students. (4) Recently, total outstanding student loan debt officially surpassed total credit card debt in the United States in 2015, and is on track to exceed $1,230,000,000,000. (5) Excessive student loan debt is impeding economic growth in the United States. Faced with excessive repayment burdens, many individuals are unable to start businesses, invest, or buy homes. Relieving student loan debt would give these individuals greater control over their earnings and would increase entrepreneurship and demand for goods and services. (6) Because of soaring tuition costs, students often have no choice but to amass significant debt to obtain an education that is widely considered a prerequisite for earning a living wage. (7) Amidst rising tuition rates and stagnant grant funding, many students are forced to supplement Federal loans with private loans, which frequently feature higher interest rates with fewer consumer protections. (8) A borrower who experiences an extended hardship for whatever reason, or a borrower who experiences a series of separate hardships over a longer period of time, will often have no choice but to default on his or her private student loans. Opportunities to put such private loans into forbearance are limited. (9) During the period of forbearance on private student loans, interest continues to accrue and is capitalized, and once the borrower comes out of forbearance, he or she owes significantly more on the principal of the loan than before the hardship period began. 3. 10/10 Loan Repayment and Forgiveness Part G of title IV of the Higher Education Act of 1965 is amended by adding at the end the following: 493E. 10/10 Loan Repayment and Forgiveness (a) 10/10 Loan Repayment Plan (1) 10/10 Loan Repayment Plan authorized Notwithstanding any other provision of this Act, the Secretary shall carry out a program (to be known as the 10/10 Loan Repayment Plan (A) a borrower of an eligible loan who is eligible under paragraph (3) may elect to have the borrower's aggregate monthly payment for all such loans not exceed the monthly payment amount described in paragraph (2); (B) any interest due and not paid under a monthly payment under this subsection— (i) shall continue to accrue; and (ii) shall be capitalized up to an amount equal to 10 percent of the original principal amount of all the eligible loans that the borrower is repaying under this subsection; (C) any principal due and not paid under a monthly payment under this subsection shall be deferred, and shall be forgiven in accordance with subsection (b) (D) the amount of time the borrower makes monthly payments under this subsection may exceed 10 years; (E) a borrower who is repaying an eligible loan pursuant to 10/10 Loan Repayment under this subsection may elect, at any time, to terminate repayment pursuant to 10/10 Loan Repayment and repay such loan under the standard repayment plan, in which case the amount of time the borrower is permitted to repay such loans may exceed 10 years; and (F) the special allowance payment to a lender calculated under section 438(b)(2)(I), when calculated for a loan in repayment under this section, shall be calculated on the principal balance of the loan and on any accrued interest unpaid by the borrower in accordance with this section. (2) 10/10 Loan Repayment monthly payment formula A borrower who has elected to participate in the 10/10 Loan Repayment Plan under this subsection shall, during each month the borrower is participating in such Plan, make a monthly payment in an amount equal to— (A) one-twelfth of the amount that is 10 percent of the result obtained by calculating, on at least an annual basis, the amount by which— (i) the borrower’s, and the borrower’s spouse’s (if applicable), adjusted gross income; exceeds (ii) 150 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) (B) in the case of a borrower who is in deferment due to an economic hardship described in section 435(o), $0. (3) Eligibility The Secretary shall establish procedures for annually determining the borrower's eligibility for 10/10 Loan Repayment, including verification of a borrower's annual adjusted gross income and the annual amount due on the total amount of eligible loans, and such other procedures as are necessary to effectively implement 10/10 Loan Repayment under this subsection. (4) Special rule for married borrowers filing separately In the case of a married borrower who files a separate Federal income tax return, the Secretary shall calculate the amount of the borrower's 10/10 Loan Repayment under this subsection solely on the basis of the borrower's student loan debt and adjusted gross income. (b) 10/10 Loan Forgiveness (1) In general The Secretary shall carry out a program (to be known as the 10/10 Loan Forgiveness Program paragraph (3) Student Loan Fairness Act (A) Monthly payment under the 10/10 Loan Repayment Plan under subsection (a) (B) Monthly payment under any other repayment plan authorized under part B or D of an amount that, for a given month, is not less than the monthly payment amount calculated under subsection (a) that the borrower would have owed in the year in which such payment was made, based on the borrower’s adjusted gross income and eligible loan balance for such year. (C) For any month after such date during which the borrower is in deferment due to an economic hardship described in section 435(o), monthly payment of $0. (2) Method of loan forgiveness To provide loan forgiveness under paragraph (1) (A) through the holder of the loan, to assume the obligation to repay a qualified loan amount for a loan made, insured, or guaranteed under part B of this title; and (B) to cancel a qualified loan amount for a loan made under part D of this title. (3) Qualified loan amount After the borrower has made 120 monthly payments described in paragraph (1) (A) with respect to new borrowers on or after the date of enactment of the Student Loan Fairness Act (i) the balance of principal and fees due on the borrower’s eligible loans as of the time of such forgiveness, not to exceed $45,520; and (ii) the amount of interest that has accrued on the balance described in clause (i) (B) with respect to any other eligible borrower, the balance of principal, interest, and fees due on the borrower’s eligible loans as of the time of such forgiveness. (4) Exclusion from taxable income The amount of a borrower’s eligible loans forgiven under this section shall not be included in the gross income of the borrower for purposes of the Internal Revenue Code of 1986. (c) Supporting documentation required A borrower who has elected to participate in the 10/10 Loan Repayment Plan under subsection (a), or who is requesting forgiveness under the 10/10 Loan Forgiveness Program under subsection (b) (d) Definition of eligible loan In this section the term eligible loan . 4. Capping interest rates for all Federal Direct loans Section 455(b) of the Higher Education Act of 1965 ( 20 U.S.C. 1087e(b) (1) by redesignating paragraphs (8) and (9) as paragraphs (9) and (10), respectively; and (2) by inserting after paragraph (7) the following: (8) Rate of interest for all new Federal Direct loans Notwithstanding any other provision of this Act, with respect to a loan under this part for which the first disbursement of principal is made (or in the case of a Federal Direct Consolidation Loan, for which the application is received) on or after October 1, 2016, or the date of enactment of the Student Loan Fairness Act . 5. 10/10 Loan Repayment Plan as plan selected by the Secretary (a) FFEL Loans (1) In general Section 428(b) of the Higher Education Act of 1965 ( 20 U.S.C. 1078(b)(9) (A) in subparagraph (A)— (i) by striking and (ii) in clause (v), by striking the period at the end and inserting ; and (iii) by adding at the end the following new clause: (vi) beginning October 1, 2016, a 10/10 Loan Repayment Plan, with varying annual repayment amounts based on the discretionary income of the borrower, in accordance with section 493E. ; and (B) in subparagraph (B), by striking (A)(i) (A)(vi) (2) Effective date The amendment made by paragraph (1)(B) shall be effective beginning October 1, 2016. (b) Direct Loans (1) In general Section 455(d) of the Higher Education Act of 1965 ( 20 U.S.C. 1087e(d) (A) in paragraph (1)— (i) by striking and (ii) in subparagraph (E), by striking the period at the end and inserting a semicolon; and (iii) by adding at the end the following new subparagraph: (F) beginning on October 1, 2016, a 10/10 Loan Repayment Plan, with varying annual repayment amounts based on the discretionary income of the borrower, in accordance with section 493E. ; and (B) in paragraph (2)— (i) by striking may shall (ii) by striking (A), (B), or (C) (F) (2) Effective date The amendment made by paragraph (1)(B) shall be effective beginning October 1, 2016. 6. Improving and expanding Public Service Loan Forgiveness Section 455(m) of the Higher Education Act of 1965 ( 20 U.S.C. 1087e(m) (1) in paragraph (1), by striking 120 60 (2) in paragraph (3)(B)— (A) in clause (i), by striking or (B) in clause (ii), by striking the period and inserting ; or (C) by adding at the end the following: (iii) a full-time job as a primary care physician in an area or population designated as a Medically Underserved Area or Population by the Health Resources and Services Administration. . 7. Refinancing private education loans for certain borrowers (a) Consolidation for certain borrowers Section 455(g) of the Higher Education Act of 1965 ( 20 U.S.C. 1087e(g) (1) by striking A borrower (1) In general A borrower ; (2) by inserting , and any loan described in paragraph (2) July 1, 2010 (3) by adding at the end the following new paragraph: (2) Consolidation of private education loans as a Federal Direct Consolidation Loan for certain borrowers (A) In general Notwithstanding any other provision of law, a borrower who meets the eligibility criteria described in subparagraph (B) shall be eligible to obtain a Federal Direct Consolidation loan under this paragraph that— (i) shall include an eligible private education loan; and (ii) may include a loan described in section 428C(a)(4). (B) Eligible borrower A borrower of an eligible private education loan is eligible to obtain a Federal Direct Consolidation Loan under this paragraph if the borrower— (i) was eligible to borrow a loan under section 428H, a Federal Direct Unsubsidized Stafford Loan, a loan under section 428B, or a Federal Direct PLUS loan for a period of enrollment at an institution of higher education, or, with respect to a borrower who was enrolled at an institution of higher education on less than a half-time basis, would have been eligible to borrow such a loan for such period of enrollment if the borrower had been enrolled on at least a half-time basis; (ii) borrowed at least one eligible private education loan for a period of enrollment described in clause (i) (iii) has an average adjusted gross income (based on the borrower’s adjusted gross income from the 3 most recent calendar years before application for consolidation under this section) that is equal to or less than the borrower’s total education debt (determined by calculating the sum of the borrower’s loans described in section 428C(a)(4) and eligible private education loans) at the time of such application. (C) Definition of eligible private education loan For purposes of this paragraph, the term eligible private education loan 15 U.S.C. 1650 Student Loan Fairness Act (D) Purchase of loan For each eligible private education loan that a borrower is consolidating under this paragraph, the Secretary shall notify the holder that the Secretary is purchasing the loan, and the Secretary shall then purchase such loan, as described under section 140A of the Truth in Lending Act. (E) Terms and rate of interest A Federal Direct Consolidation Loan made under this paragraph shall have the same terms and conditions as a Federal Direct Consolidation loan under paragraph (1), except that the applicable rate of interest for a Federal Direct Consolidation loan made under this paragraph shall not exceed 3.4 percent. (F) Notification of eligible borrowers The Secretary shall take such steps as may be necessary to notify eligible borrowers of the availability of consolidation under this paragraph no later than 60 days after the date of enactment of the Student Loan Fairness Act subparagraph (G) (G) Application deadline for loans under this paragraph A borrower may apply for loans under this paragraph during the 1-year period beginning on the date of enactment of the Student Loan Fairness Act (H) Authorization and appropriation There are authorized to be appropriated, and there are appropriated, such sums as may be necessary to carry out this paragraph. . (b) Sale of private education loans to the Government Chapter 2 of the Truth in Lending Act ( 15 U.S.C. 1631 et seq. (1) by redesignating section 140A as section 140B; (2) by inserting after section 140 the following: 140A. Sale of private education loans to the Government (a) In general The Bureau shall issue regulations to require a private education lender to sell an eligible private education loan to the Secretary of Education, upon request of the Secretary, for purposes of consolidating such loan, as described under section 455(g)(2) of the Higher Education Act of 1965. (b) Determination of price The price paid for a private education loan under subsection (a) shall— (1) include the amount of outstanding principal on the loan, the amount of accrued interest on the loan, and any fees or other costs owed by the consumer on the loan; and (2) be adjusted to account for the time value of such amount. (c) Definitions For purposes of this section: (1) Eligible private education loan The term eligible private education loan (2) Private education lender The term private education lender ; and (3) in the table of contents for such chapter— (A) by redesignating the item relating to section 140A as item 140B; and (B) by inserting after the item relating to section 140 the following: 140A. Sale of private education loans to the Government. . (c) Conforming amendment Section 428C(a)(3)(B)(i)(V) of the Higher Education Act of 1965 ( 20 U.S.C. 1078–3(a)(3)(B)(i)(V) (1) by striking or (2) by striking the period at the end of item (cc) and inserting ; or (3) by adding at the end the following: (dd) for the purpose of consolidating an eligible private education loan under section 455(g)(2), whether such loan is consolidated alone, with other eligible private education loans, or with loans described in paragraph (4). . 8. Interest-free deferment of unsubsidized loans during periods of unemployment (a) FFEL Unsubsidized loan deferment (1) Section 428H(e)(2) of the Higher Education Act of 1965 ( 20 U.S.C. 1078–8(e)(2) (A) in subparagraph (A), by inserting Except as provided in subparagraph (C), Interest on (B) by adding at the end the following: (C) Interest on loans made under this section for which payments are deferred under clause (ii) of section 428(b)(1)(M), for a period of deferment granted to a borrower on or after the date of enactment of the Student Loan Fairness Act . (2) Conforming amendment Section 428(b)(1)(Y)(iii) of the Higher Education Act of 1965 ( 20 U.S.C. 1078(b)(1)(Y)(iii) (other than a deferment under clause (ii) of such subparagraph on or after the date of enactment of the Student Loan Fairness Act of this paragraph (b) Direct Unsubsidized loan deferment Section 455(f)(1) of the Higher Education Act of 1965 ( 20 U.S.C. 1087e(f)(1) (1) in subparagraph (A)— (A) by striking or (B) by adding at the end the following: (iii) a Federal Direct Unsubsidized Stafford Loan, with respect to a period of deferment described in subparagraph (B) of paragraph (2) granted to a borrower on or after the date of enactment of the Student Loan Fairness Act ; and (2) in subparagraph (B), by inserting not described in subparagraph (A)(iii) Unsubsidized Stafford Loan (c) Treatment of consolidation loans Section 428C(b)(4)(C)(ii) of the Higher Education Act of 1965 ( 20 U.S.C. 1078–3(b)(4)(C)(ii) (1) by striking or (2) by redesignating subclause (III) as subclause (IV); (3) by inserting after subclause (II) the following: (III) by the Secretary, in the case of a consolidation loan for which the application is received on or after the date of enactment of the Student Loan Fairness Act ; and (4) in subclause (IV) (as so redesignated by this subsection), by striking (I) or (II) (I), (II), or (III) (d) Income-Based repayment Section 493C(b) of the Higher Education Act of 1965 ( 20 U.S.C. 10983(b) (1) in paragraph (3)— (A) in subparagraph (A), by striking and (B) by redesignating subparagraph (B) as subparagraph (C); (C) by inserting after subparagraph (A) the following: (B) shall, on subsidized and unsubsidized loans, be paid by the Secretary for a period of not more than 3 years during which the borrower is eligible for a deferment due to unemployment described in section 455(f)(2)(B) (regardless of whether the student is in such a deferment), except that— (i) this subparagraph shall only apply to periods during which the borrower is eligible for a such deferment on or after the date of enactment of the Student Loan Fairness Act (ii) in the case of a subsidized loan, such period shall not include any period described in subparagraph (A) or any period during which the borrower is in deferment due to an economic hardship described in section 435(o); and ; (D) in subparagraph (C) (as so redesignated by paragraph (2) (i) in clause (i), by striking subparagraph (A) subparagraphs (A) and (B) (ii) in clause (ii), by inserting , subject to subparagraph (B), unsubsidized loan (E) by striking and (F) by striking the period at the end of paragraph (9) and inserting a semicolon; and (G) by adding at the end the following new paragraph: (10) the amount of the principal and interest on a borrower’s loans repaid or canceled under paragraph (7) shall not be included in the gross income of the borrower for purposes of the Internal Revenue Code of 1986. . 9. Excluding loans forgiven under certain repayment programs from gross income (a) Income-Contingent repayment Section 455(e)(2) of the Higher Education Act of 1965 ( 20 U.S.C. 1087e(e)(2) (1) in the subsection heading, by inserting and forgiveness repayment (2) by adding at the end the following: The amount of the principal and interest on a borrower’s loans forgiven pursuant to income contingent repayment shall not be included in the gross income of the borrower for purposes of the Internal Revenue Code of 1986. (b) Pay As you earn repayment; Revise pay As you earn repayment The amount of the principal and interest on a borrower’s loans forgiven pursuant to the income-contingent repayment plan based on the Pay As You Earn repayment plan described in section 685.209 of title 34, Code of Federal Regulations (or the successor regulations), or the income-contingent repayment based on the Revised Pay As You Earn repayment plan described in sections 685.208 and 685.209 of title 34, Code of Federal Regulations, as amended the final regulations published by the Department of Education in the Federal Register on October 30, 2015 (80 Fed. Reg. 67203 et seq.), shall not be included in the gross income of the borrower for purposes of the Internal Revenue Code of 1986.

Summary: Student Loan Fairness Act This bill amends title IV (Student Assistance) of the Higher Education Act of 1965 (HEA) to establish a 10/10 Loan Repayment Plan that allows borrowers of Federal Family Education Loans (FFELs) and Direct Loans (DLs) to limit their monthly payments on such loans to one-twelfth of 10% of the amount by which their adjusted gross incomes and that of their spouses (if applicable) exceed 150% of the federal poverty level. Additionally, it establishes a 10/10 Loan Forgiveness Program that provides FFEL and DL forgiveness to borrowers who, after the date that is 10 years before this bill's enactment, have made 120 monthly payments under the 10/10 Loan Repayment Plan or under another repayment plan that required them to make payments at least as large as those they would have made under the 10/10 Loan Repayment Plan. It credits the months during which an individual is in deferment due to an economic hardship as months for which payment was made for purposes of the 10/10 Loan Forgiveness Program. The bill caps the amount of loan forgiveness that the program will provide to individuals who become new borrowers after this bill's enactment. It caps the interest rate on new DLs at 3.4%. It amends the public service employee loan forgiveness program to forgive the DLs of participants who have made 60 (currently, 120) monthly payments on such loans pursuant to specified repayment plans. The bill includes primary care physicians in medically underserved areas in the public service employee loan forgiveness program. Certain borrowers may consolidate their private education loans as Direct Consolidation Loans, provided the private loans were made on or before this bill's enactment. The bill limits such borrowers to those who: (1) were students eligible for unsubsidized Stafford loans or PLUS loans under the FFEL or DL programs for their enrollment at an institution of higher education, or would have been had they been enrolled on at least a half-time basis; (2) borrowed at least one private education loan for such enrollment; and (3) have an average adjusted gross income that does not exceed their total education debt. It caps the interest rate on those Direct Consolidation Loans at 3.4%. Borrowers must apply for such loans within one year of this bill's enactment. It amends the Truth in Lending Act to direct the Consumer Financial Protection Bureau to issue regulations that require private education lenders to sell private education loans to the Department of Education (ED) for consolidation as Direct Consolidation Loans. It sets forth the data to be used in determining the price paid for such loans. ED must pay the interest that accrues on unsubsidized FFELs and DLs that are deferred due to a student borrower's lack of full-time employment. ED must pay the interest that accrues on Federal Consolidation Loans that are in deferment due to a borrower's lack of full-time employment, provided the application for such a loan is received on or after this bill's enactment. ED must pay the interest that accrues on FFELs and DLs that are subject to income-based repayment provisions and are in deferment due to a borrower's lack of full-time employment. The bill limits these interest-free deferment periods to those occurring on or after this bill's enactment and covering no more than three years of full-time unemployment. It excludes from a borrower's gross income for income tax purposes the principal and interest on FFELs and DLs that is forgiven pursuant to income-based repayment plans.