Student Loan Lower Interest Rate and Lower Monthly Payment Refinancing Act of 2017

To amend the Higher Education Act of 1965 to provide for the refinancing of certain Federal student loans. 1. Short title This Act may be cited as the Student Loan Lower Interest Rate and Lower Monthly Payment Refinancing Act of 2017 2. Refinancing program (a) Program authority Part C of title I of the Higher Education Act of 1965 is amended by adding at the end the following: 138A. Refinancing certain Federal student loans (a) In general To enable State, private and nonprofit lenders to make loans at lower market-based variable interest rates to all eligible borrowers for the purpose of refinancing existing student loan debt incurred pursuant to parts B, D, and E, of title IV, there are hereby made available, in accordance with the provisions of this title and title IV, such sums as may be necessary to insure a portion of each loan, as set forth in this part, and to otherwise make payments consistent with the terms in this part. (b) Discrimination by creditors prohibited No agency, organization, institution, bank, credit union, corporation, or other lender who regularly extends, renews, or continues credit or provides insurance under this part shall exclude from receipt or deny the benefits of, or discriminate against any borrower or applicant in obtaining, such credit or insurance on the basis of race, national origin, religion, sex, marital status, age, or handicapped status. (c) Designation (1) In general The program established under this part shall be referred to as the Student Loan Lower Interest Rate and Lower Monthly Payment Refinancing Program (2) Refinancing loans Notwithstanding any other provision of this part, loans made to borrowers under this part that, except as otherwise specified in this part, have the same terms, conditions, and benefits as loans made to borrowers under section 428C, shall be known as Refinancing Loans 138B. Refinancing certain Federal student loans (a) In general Beginning not later than 180 days after the date of enactment of the Student Loan Lower Interest Rate and Lower Monthly Payment Refinancing Act, the Secretary shall establish a process under which eligible lenders may receive loan insurance from the Secretary for the purpose of extending, upon the receipt of an application from an eligible borrower, a loan to refinance one or more eligible loans, in accordance with the provisions of this section. (b) Definitions (1) Definition of eligible borrower For the purpose of this section, the term eligible borrower (A) has one or more eligible loans; (B) is not subject to a judgment secured through litigation with respect to a loan under this title or to an order for wage garnishment under section 488A; and (C) at the time of application for a Refinancing Loan— (i) is in repayment status as determined under section 428(b)(7)(A); (ii) is in a grace period preceding repayment; or (iii) is a defaulted borrower who has made arrangements to repay the obligation on the defaulted loans satisfactory to the holders of the defaulted loans. (2) Termination An individual’s status as an eligible borrower under this section terminates upon receipt of a Refinancing Loan under this section, except that— (A) an individual who receives eligible loans after the date of receipt of the Refinancing loan may receive a subsequent Refinancing Loan; (B) eligible loans received prior to the date of a Refinancing Loan may be added during the 180-day period following the making of the Refinancing Loan; (C) eligible loans received following the making of the Refinancing Loan may be added during the 180-day period following the making of the Refinancing Loan; and (D) eligible loans received prior to the date of the first Refinancing Loan may be added to a subsequent Refinancing Loan. (3) Eligible lenders Entities eligible to make Refinancing Loans, and receive default insurance from the Secretary, shall be either— (A) State agencies described in subparagraphs (D) and (F) of section 435(d)(1); (B) other eligible lenders described in subparagraphs (A) and (J) of such section, which made or held loans prior to July 1, 2010; and (C) any other entity that prior to July 1, 2010, made or held a loan as a beneficiary of an eligible lender trustee agreement under part B of title IV. (4) Eligible loans For the purposes of this section, eligible loans (c) Refinancing eligible loans Upon application of an eligible borrower, an eligible lender shall repay directly to the existing holder of each of that eligible borrower’s eligible loans with the proceeds of a Refinancing Loan in an amount equal to the sum of the unpaid principal, accrued unpaid interest, and late charges of the original eligible loans in order to discharge the eligible borrower from any remaining obligation to the existing holder with respect to the original eligible loans. (d) Interest rates (1) In general Notwithstanding the current interest rates of the eligible loans being refinanced, the interest rate for the Refinancing Loan, shall be a variable rate equal to no more than— (A) for the calendar quarter beginning on July 1, 2015, and each subsequent calendar quarter, the daily average of 1-month London Inter Bank Offered Rate (LIBOR) for United States dollars in effect for each of the days in the prior calendar quarter as compiled and released by the British Bankers Association, plus (B) 3.5 percent per annum. (2) Adjustable rate The applicable rate of interest determined under paragraph (1) for a Refinancing Loan under this section shall adjust on the first day of each calendar quarter for the period of the loan. (e) Insurance (1) Default insurance The Secretary shall provide default insurance on Refinancing Loans and shall upon presentment with a defaulted Refinancing Loan shall pay an amount, as set for below, to the eligible lender in exchange for all rights, title and interest to the Refinancing Loan. (2) Default (A) a Refinancing Loan is in default and eligible for an insurance payment, if the Refinancing Loan has, experienced at least 270 consecutive days of nonpayment; and (B) such state of nonpayment is not caused by application of a deferment or forbearance as described in section 435. (3) Phase-out of default insurance coverage To the extent an eligible lender provides the Secretary with a defaulted eligible loan, the Secretary shall pay to the eligible lender an amount equal to— (A) for a default occurring in the first 5 years from the date of disbursement of the Refinancing Loan made, the Secretary shall insure 97 percent of the unpaid principal and accrued interest and fees; (B) for a default occurring in the second 5 years (years 6 through 10) from the date of disbursement of the Refinancing Loan, the Secretary shall insure 87 percent of the unpaid principal and accrued interest and fees; and (C) for a default occurring at any point after the tenth year after disbursement of the Refinancing Loan, the Secretary shall insure 77 percent of the unpaid principal and accrued interest. (f) Insurance fees paid to the secretary In lieu of any other fees or charges by the Secretary associated with loans under this part, eligible lenders shall pay to the Secretary— (1) a Default Insurance Fee equal to 0.50 percent of the disbursed loan amount; and (2) a Monthly Insurance Fee payable each month calculated on annual basis equal to 1.05 percent of the average principal plus accrued unpaid interest for the prior month of the Refinancing Loans disbursed under this section. (g) No special allowance No special allowance under section 438 shall be paid with respect to the portion of any Refinancing Loan. (h) Terms and conditions of refinancing loans (1) In general A Refinancing Loan made under this section shall have the same terms and conditions as the loans authorized under section 455, except as otherwise provided in this section. (2) No automatic extension of repayment period Refinancing a loan under this section may, at the behest of the eligible borrower, result in the extension of the duration of the repayment period of the loan. In addition, a borrower may, at the time of making the Refinancing Loan, enroll in any repayment plan for which the eligible borrower is eligible in accordance with section 455(d)(3). (3) Borrower benefits Eligible lenders may offer any borrower benefits, including interest rate and principal reductions as desirable in connection with Refinancing Loans. In addition to such benefits, and any other benefits required of Consolidation loans authorized under section 455— (A) Refinancing Loans may, to the extent offered under the Direct Loan Program, also offer— (i) an income contingent repayment plan; (ii) an income-based repayment plan; (iii) a Pay As You Earn (PAYE) Repayment Plan; and (iv) the public service loan forgiveness program under section 455(m); and (B) Refinancing Loans shall, to the extent offered under the Direct Loan Program, also offer— (i) the benefit for active duty service members benefit offered under section 455(o); (ii) deferment as provided for in section 435; (iii) forbearance as provided for in section 435; and (iv) discharge for disability or death of the borrower. (i) Loan discharge In the case of loans discharged under income contingent repayment, income-based repayment, or public service loan forgiveness, or for disability or death of the borrower, the Secretary shall, upon such discharge, pay to the eligible lender an amount equal to the unpaid principal and accrued interest. . (b) Conforming amendments (1) Part B Section 428C(a)(3)(B)(i) of the Higher Education Act of 1965 ( 20 U.S.C. 1078–3(a)(3)(B)(i) (A) in the matter preceding subclause (I)— (i) by inserting , section 138A, An individual’s status as an eligible borrower under this section (ii) by striking both sections each such section (iii) by inserting , a Refinancing Loan under section 138A, upon receipt of a consolidation loan under this section (B) in subclause (III), by striking the semicolon and inserting ; and (C) in subclause (IV), by striking ; and (D) by striking subclause (V). (2) Part D Section 455 of the Higher Education Act of 1965 ( 20 U.S.C. 1087e (A) in subsection (a), by adding at the end the following: (4) (A) Consolidation of Refinancing Loans Notwithstanding any provisions of this part, eligible borrowers may consolidate Refinancing Loans authorized under section 138A into a Direct Consolidation Loan in the event that the interest rate on each such Refinancing Loan exceeds 6.875 percent for the quarter. (B) Eligibility period Any application for a Consolidation Loan that includes Refinancing Loans under this paragraph must be received by the Secretary by the end of a quarter during which the Refinancing Loan interest exceeds 6.875 percent. ; and (B) by adding at the end the following new subsection: (r) Repayment terms for federal family education loans (1) Applicability of programs available under this section The Secretary shall apply subsections (d), (e), (f), (l), (m), and (o) to all loans made under part B as if such loans were made under this part. (2) Payment of balance and interest In carrying out paragraph (1), the Secretary shall pay to the holder of a loan made under part B the amount of principal, interest, or special allowance payments necessary to apply subsections (d), (e), (f), (l), (m), and (o) to such loan, as appropriate. . 3. Offset (a) 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 The Secretary Except as provided in paragraph (2)(B), the Secretary (2) in paragraph (2)— (A) by striking After the (A) In general Except as provided in subparagraph (B), after the ; and (B) by adding after subparagraph (A) the following: (B) Cap on loan cancellation With respect to any eligible Federal Direct Loans made to a new borrower on or after July 1, 2017, the Secretary may cancel, in accordance with subparagraph (A), up to $57,500 of the obligation on such loans. . (b) Income-Based repayment Section 493C of the Higher Education Act of 1965 ( 20 U.S.C. 1098e (f) Special terms for new borrowers On and after July 1, 2017 Subsection (e)(2) shall not apply with respect to any loan made to a new borrower on or after July 1, 2017, for enrollment in a graduate or professional program. .

Summary: Student Loan Lower Interest Rate and Lower Monthly Payment Refinancing Act of 2017 This bill amends title IV (Student Assistance) of the Higher Education Act of 1965 to address refinancing of student loans, including to authorize states and private lenders to refinance federal student loans at lower market-based variable interest rates.