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— (i) 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, unless otherwise requested by the borrower in writing, apply the borrower’s prepayment amount (within the meaning of section 682.209(b) of title 34, Code of Federal Regulations, or a successor regulation) for one or more of such loans, first toward the outstanding balance of principal due on the loan with the highest applicable rate of interest among such loans; and (ii) except as provided in clause (i), 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 the same applicable rates of interest, the holder of such loans shall, unless otherwise requested by the borrower in writing, apply the borrower’s prepayment amount (within the meaning of section 682.209(b) of title 34, Code of Federal Regulations, or a successor regulation) for one or more of such loans, first toward the outstanding balance of principal due on the loan with the highest principal balance among such loans. (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— (I) with respect to loans held by the same institution and which have different applicable rates of interest, use the excess to prepay (within the meaning of section 674.31(b)(4)(iv) of title 34, Code of Federal Regulations, or a successor regulation) the principal due on the loan with the highest applicable rate of interest among such loans, unless otherwise requested by the borrower in writing; and (II) except as provided in subclause (I), with respect to loans held by the same institution and which have the same applicable rates of interest, use the excess to prepay (within the meaning of section 674.31(b)(4)(iv) of title 34, Code of Federal Regulations, or a successor regulation) the principal due on the loan with the highest principal balance among such loans, unless otherwise requested by the borrower in writing; and (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— (i) 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, unless otherwise requested by the borrower in writing, apply the borrower’s prepayment amount (within the meaning of section 682.209(b) of title 34, Code of Federal Regulations, or a successor regulation) for one or more of such loans, first toward the outstanding balance of principal due on the loan with the highest applicable rate of interest among such loans; and (ii) except as provided in clause (i), with respect to a borrower with more than one private education loan which are held by the same holder and which have the same applicable rates of interest, the holder of such loans shall, unless otherwise requested by the borrower in writing, apply the borrower’s prepayment amount (within the meaning of section 682.209(b) of title 34, Code of Federal Regulations, or a successor regulation) for one or more of such loans, first toward the outstanding balance of principal due on the loan with the highest principal balance among such loans. (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 This bill amends title IV (Student Assistance) of the Higher Education Act of 1965 to require a student loan borrower's prepayment amount on a Federal Family Education Loan, Federal Direct Loan, or Federal Perkins Loan to be applied first toward outstanding fees and then, unless a borrower requests otherwise, in the following order: (1) toward the principle due on the loan with the highest interest rate, if multiple loans have different interest rates; and (2) toward the principle due on the loan with the highest balance, if multiple loans have the same interest rate. Additionally, it amends the Truth in Lending Act to require a borrower's prepayment amount on a private education loan to be applied first toward outstanding fees and then, unless a borrower requests otherwise, in the following order: (1) toward the principle due on the loan with the highest interest rate, if multiple loans have different interest rates; and (2) toward the principle due on the loan with the highest balance, if multiple loans have the same interest rate.