Pub.L. 107-140 To amend title 18 of the United States Code to correct a technical error in the codification of title 36 of the United States Code. <> ...

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[[Page 7]]

                       STUDENT LOAN INTEREST RATES

[[Page 116 STAT. 8]]

Public Law 107-139
107th Congress

                                 An Act


 
 To amend the Higher Education Act of 1965 to establish fixed interest 
   rates for student and parent borrowers, to extend current law with 
        respect to special allowances for lenders, and for other 
             purposes. <<NOTE: Feb. 8, 2002 -  [S. 1762]>> 

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. INTEREST RATE PROVISIONS.

    (a) FFEL Fixed Interest Rates.--
            (1) Amendment.--Section 427A of the Higher Education Act of 
        1965 (20 U.S.C. 1077a) is amended--
                    (A) by redesignating subsections (l) and (m) as 
                subsections (m) and (n), respectively; and
                    (B) by inserting after subsection (k) the following 
                new subsection:

    ``(l) Interest Rates for New Loans on or After July 1, 2006.--
            ``(1) In general.--Notwithstanding subsection (h), with 
        respect to any loan made, insured, or guaranteed under this part 
        (other than a loan made pursuant to section 428B or 428C) for 
        which the first disbursement is made on or after July 1, 2006, 
        the applicable rate of interest shall be 6.8 percent on the 
        unpaid principal balance of the loan.
            ``(2) PLUS loans.--Notwithstanding subsection (h), with 
        respect to any loan under section 428B for which the first 
        disbursement is made on or after July 1, 2006, the applicable 
        rate of interest shall be 7.9 percent on the unpaid principal 
        balance of the loan.
            ``(3) Consolidation loans.--With respect to any 
        consolidation loan under section 428C for which the application 
        is received by an eligible lender on or after July 1, 2006, the 
        applicable rate of interest shall be at an annual rate on the 
        unpaid principal balance of the loan that is equal to the lesser 
        of--
                    ``(A) the weighted average of the interest rates on 
                the loans consolidated, rounded to the nearest higher 
                one-eighth of 1 percent; or
                    ``(B) 8.25 percent.''.
            (2) Conforming amendment.--Section 428C(c)(1)(A) of such Act 
        (20 U.S.C. 1078-3(c)(1)(A)) is amended to read as follows:

[[Page 116 STAT. 9]]

            ``(1) Interest rate.--(A) Notwithstanding subparagraphs (B) 
        and (C), with respect to any loan made under this section for 
        which the application is received by an eligible lender--
                    ``(i) on or after October 1, 1998, and before July 
                1, 2006, the applicable interest rate shall be 
                determined under section 427A(k)(4); or
                    ``(ii) on or after July 1, 2006, the applicable 
                interest rate shall be determined under section 
                427A(l)(3).''.

    (b) Direct Loans Fixed Interest Rates.--
            (1) Technical correction.--Paragraph (6) of section 455(b) 
        of the Higher Education Act of 1965 (20 U.S.C. 1087e(b)), as 
        redesignated by section 8301(c)(1) of the Transportation Equity 
        Act for the 21st Century (Public Law 105-178; 112 Stat. 498) is 
        redesignated as paragraph (9) and is transferred to follow 
        paragraph (7) of section 455(b) of the Higher Education Act of 
        1965.
            (2) Amendments.--Section 455(b) of the Higher Education Act 
        of 1965 (20 U.S.C. 1087e(b)) is amended--
                    (A) by redesignating paragraph (7) as paragraph (8); 
                and
                    (B) by inserting after paragraph (6) the following 
                new paragraph:
            ``(7) Interest rate provision for new loans on or after july 
        1, 2006.--
                    ``(A) Rates for fdsl and fdusl.--Notwithstanding the 
                preceding paragraphs of this subsection, for Federal 
                Direct Stafford Loans and Federal Direct Unsubsidized 
                Stafford Loans for which the first disbursement is made 
                on or after July 1, 2006, the applicable rate of 
                interest shall be 6.8 percent on the unpaid principal 
                balance of the loan.
                    ``(B) PLUS loans.--Notwithstanding the preceding 
                paragraphs of this subsection, with respect to any 
                Federal Direct PLUS loan for which the first 
                disbursement is made on or after July 1, 2006, the 
                applicable rate of interest shall be 7.9 percent on the 
                unpaid principal balance of the loan.
                    ``(C) Consolidation loans.--Notwithstanding the 
                preceding paragraphs of this subsection, any Federal 
                Direct Consolidation loan for which the application is 
                received on or after July 1, 2006, shall bear interest 
                at an annual rate on the unpaid principal balance of the 
                loan that is equal to the lesser of--
                          ``(i) the weighted average of the interest 
                      rates on the loans consolidated, rounded to the 
                      nearest higher one-eighth of one percent; or
                          ``(ii) 8.25 percent.''.

    (c) Extension of Current Interest Rate Provisions for Three Years.--
Sections 427A(k) and 455(b)(6) of the Higher Education Act of 1965 (20 
U.S.C. 1077a(k), 1087e(b)(6)) are each amended--
            (1) by striking ``2003'' in the heading and inserting 
        ``2006''; and
            (2) by striking ``July 1, 2003,'' each place it appears and 
        inserting ``July 1, 2006,''.

[[Page 116 STAT. 10]]

SEC. 2. EXTENSION OF SPECIAL ALLOWANCE PROVISION.

    Section 438(b)(2)(I) of the Higher Education Act of 1965 (20 U.S.C. 
1087-1(b)(2)(I)) is amended--
            (1) by striking ``, and before july 1, 2003'' in the 
        heading;
            (2) by striking ``and before July 1, 2003,'' each place it 
        appears, other than in clauses (ii) and (v);
            (3) by striking clause (ii) and inserting the following:
                          ``(ii) In school and grace period.--In the 
                      case of any loan--
                                    ``(I) for which the first 
                                disbursement is made on or after January 
                                1, 2000, and before July 1, 2006, and 
                                for which the applicable rate of 
                                interest is described in section 
                                427A(k)(2); or
                                    ``(II) for which the first 
                                disbursement is made on or after July 1, 
                                2006, and for which the applicable rate 
                                of interest is described in section 
                                427A(l)(1), but only with respect to 
                                (aa) periods prior to the beginning of 
                                the repayment period of the loan; or 
                                (bb) during the periods in which 
                                principal need not be paid (whether or 
                                not such principal is in fact paid) by 
                                reason of a provision described in 
                                section 427(a)(2)(C) or 428(b)(1)(M);
                      clause (i)(III) of this subparagraph shall be 
                      applied by substituting `1.74 percent' for `2.34 
                      percent'.'';
            (4) in clause (iii), by inserting ``or (l)(2)'' after 
        ``427A(k)(3)'';
            (5) in clause (iv), by inserting ``or (l)(3)'' after 
        ``427A(k)(4)'';
            (6) in clause (v)--
                    (A) in the heading, by inserting ``before july 1, 
                2006'' after ``plus loans''; and
                    (B) by striking ``July 1, 2003,'' and inserting 
                ``July 1, 2006,'';
            (7) in clause (vi)--
                    (A) by inserting ``or (l)(3)'' after ``427A(k)(4)'' 
                the first place it appears; and
                    (B) by inserting ``or (l)(3), whichever is 
                applicable'' after ``427A(k)(4)'' the second place it 
                appears; and
            (8) by adding at the end the following new clause:
                          ``(vii) Limitation on special allowances for 
                      plus loans on or after july 1, 2006.--In the case 
                      of PLUS loans made under section 428B and first 
                      disbursed on or after July 1, 2006, for which the 
                      interest rate is determined under section 
                      427A(l)(2), a special allowance shall not be paid 
                      for such loan during any 12-month period beginning 
                      on July 1 and ending on June 30 unless--

[[Page 116 STAT. 11]]

                                    ``(I) the average of the bond 
                                equivalent rates of the quotes of the 3-
                                month commercial paper (financial), as 
                                published by the Board of Governors of 
                                the Federal Reserve System in 
                                Publication H-15 (or its successor), for 
                                the last calendar week ending on or 
                                before such July 1; plus
                                    ``(II) 2.64 percent,
                      exceeds 9.0 percent.''.

    Approved February 8, 2002.

LEGISLATIVE HISTORY--S. 1762:
---------------------------------------------------------------------------

CONGRESSIONAL RECORD:
                                                        Vol. 147 (2001):
                                    Dec. 14, considered and passed 
                                        Senate.
                                    Dec. 19, 20, considered and rejected 
                                        in House.
                                                        Vol. 148 (2002):
                                    Jan. 24, considered and passed 
                                        House.

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