Student Loan Fair Prepayment Act

To amend the Higher Education Act of 1965 and the Truth in Lending Act to clarify the application of prepayment amounts on student loans. 1. Short title This Act may be cited as the Student Loan Fair Prepayment Act 2. Application of prepayment amounts for FFEL and Direct Loans Section 455(d) of the Higher Education Act of 1965 ( 20 U.S.C. 1087e(d) (6) Application of prepayment amounts (A) Requirement Notwithstanding any other provision of this subsection or any other provision of law, with respect to loans made to an eligible borrower under this part or part B, which are held by the same holder and which have different applicable rates of interest, the holder of such loans shall, except as otherwise requested by the borrower in writing, apply the borrower’s prepayment amount (within the meaning of section 682.209(b) (B) Eligible borrower (i) In general For purposes of this paragraph, the term eligible borrower (ii) Prepayment amounts A prepayment amount (as described in subparagraph (A)) made by a borrower who is not an eligible borrower to a holder shall be applied first toward the borrower’s outstanding balance of fees, including collection costs and authorized late charges, due on any loan made under this part or part B held by such holder. (C) Exceptions This paragraph shall not apply to an income-based repayment plan under section 493C or an income contingent repayment plan under section 455(d)(1)(D), such as a Pay As You Earn repayment plan. . 3. Application of prepayment amounts for Perkins Loans Section 464(c)(1)(C) of the Higher Education Act of 1965 ( 20 U.S.C. 1087dd(c)(1)(C) (1) by striking and (2) by adding at the end the following: (iii) shall provide that the institution shall, in the case of a borrower with no outstanding balance of fees (including collection costs and authorized late charges) due on the loans held by the institution and who repays more than the amount due for a repayment period, use the excess to prepay (within the meaning of section 674.31(b)(4)(iv) (iv) shall provide that the institution shall, in the case of a borrower with an outstanding balance of fees (such as collection costs and authorized late charges) due on the loans held by the institution and who repays more than the amount due for a repayment period, first apply such excess toward such outstanding balance of fees; . 4. Application of prepayment amounts for private education loans Section 128(e) of the Truth in Lending Act ( 15 U.S.C. 1638(e) (12) Application of prepayment amounts (A) In general Notwithstanding any other provision of law, with respect to a borrower with more than one private education loan which are held by the same holder and which have different applicable rates of interest, the holder of such loans shall, except as otherwise requested by the borrower in writing, apply the borrower’s prepayment amount (within the meaning of section 682.209(b) (B) Exception (i) In general Subparagraph (A) shall not apply to any prepayment amount made by a borrower to a holder if the borrower has an outstanding balance of fees, including collection costs and authorized late charges, due on any private education loan held by such holder. (ii) Prepayment amounts A prepayment amount (as described in subparagraph (A)) made by a borrower described in subparagraph (B) to a holder shall be applied first toward the borrower’s outstanding balance of fees, including collection costs and authorized late charges, due on any private education loan held by such holder. .

Summary: Student Loan Fair Prepayment Act - Amends title IV (Student Assistance) of the Higher Education Act of 1965 to require that when the holder of a borrower's loans under the Federal Family Education Loan (FFEL) or William D. Ford Federal Direct Loan (DL) programs receives a prepayment for such loans, it is to be applied first toward any fees due on such loans and then, unless the borrower requests otherwise, toward the principal due on the loan that bears the highest interest rate. Makes that requirement inapplicable to income-based or income contingent repayment plans for FFELs or DLs. Requires an institution of higher education holding a borrower's loans under the Federal Perkins Loan program to first apply any excess payments by the borrower toward any fees due on such loans and then, unless the borrower requests otherwise, toward the principal due on the loan that bears the highest interest rate. Amends the Truth in Lending Act to require a private education loan holder that holds more than one private education loan for a borrower to apply any prepayments on those loans first toward any fees due on such loans and then, unless the borrower requests otherwise, toward the principal due on the loan that bears the highest interest rate.