Student Loan Fair Prepayment Act

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Student Loan Fair Prepayment Act''.

SEC. 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)) is amended by adding at the end the following new paragraph:
            ``(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' means a 
                        borrower with no outstanding balance of fees, 
                        including collection costs and authorized late 
                        charges, due on any loan made under this part 
                        or part B.
                            ``(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.''.

SEC. 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)) is amended--
            (1) by striking ``and'' at the end of clause (i);
            (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;''.

SEC. 4. APPLICATION OF PREPAYMENT AMOUNTS FOR PRIVATE EDUCATION LOANS.

    Section 128(e) of the Truth in Lending Act (15 U.S.C. 1638(e)) is 
amended by adding at the end the following:
            ``(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.