[Congressional Record Volume 149, Number 145 (Thursday, October 16, 2003)]
[Senate]
[Pages S12741-S12742]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. CAMPBELL:
  S. 1742. A bill to amend title IV of the Higher Education Act of 1965 
to provide for variable interest rates on student loans; to the 
Committee on Health, Education, Labor and Pensions.
  Mr. CAMPBELL. Mr. President, today I am introducing legislation which 
would change the student borrower interest rate structure by continuing 
or establishing variable rates for all student loans on a going-forward 
basis. More specifically, it would tie all future loan interest rates 
for student loan borrowers to the bond equivalent rate for 91-day 
Treasury bills and would cap the loans at 7.75 percent. PLUS loans 
would be capped at 8.5 percent.
  Briefly, variable rates for all student loan borrowers would provide 
the following: They will automatically ``refinance'' outstanding loans 
to current rates on a routine basis, thereby, avoiding the problems 
associated with the refinancing of old loans under new rate structures. 
They will mitigate the extraordinary costs to the Federal Government 
currently associated with the consolidation of student loans under a 
fixed rate structure. They will ensure that consolidation loans are 
offered to those borrowers who need them rather than as a loan of 
convenience for those who no longer need Federal subsidies. They will 
allow savings which will ensure that Federal resources can be directed 
to those who have not yet had an opportunity to pursue or to complete 
an educational program thereby ensuring future access to higher 
education. They will provide borrowers with the best rates available in 
the market while also capping those rates to ensure that borrowers are 
not adversely affected if rates rise beyond an acceptable level. And, 
they will protect the Federal Treasury against extraordinary subsidies 
as interest rates rise above a preset fixed rate structure.
  The Federal student loan programs have made it possible for millions 
of American students to attend college. The current program structure 
has resulted in a highly reliable, low-cost source of funds for 
students and their families. But, the recent consolidation-
reconsolidation loan situation shows that changes are needed.
  The intent of the consolidation loan program was to provide an 
opportunity for borrowers with multiple loan holders and a high debt 
level to consolidate that debt with one holder and allow for a single 
monthly payment. However, with recent interest rate drops, the number 
and volume of consolidation loans has increased dramatically. Some 
borrowers have consolidated their loans and locked in at a fixed rate 
only to see the rates drop further and leave them with no way to access 
the lower rates. And, recently, the well-publicized growth in the 
Federal consolidation loan program prompted the Congressional Budget 
Office to project the estimated program costs for the current fiscal 
year to triple from $3 billion to $9 billion.
  There has been much talk about allowing borrowers to reconsolidate 
their loans at a lower rate. However, it appears that retroactive 
changes to the law could undermine the predictability that makes it 
possible for lenders and investors to offer efficient pricing to 
students who need loans. Reconsolidation could diminish the quality and 
the stability of the overall loan program which would hurt future 
student borrowers.
  Currently, student loans, known as Stafford Loans, are payable on a 
variable rate basis, a program feature that protects the Federal 
Treasury from sharp increases in costs. However, consolidation loans 
are made on a fixed rate basis, creating an incentive for borrowers to 
``consolidate'' their student loans even when they are not experiencing 
repayment problems.
  My legislation would prevent future borrowers from facing the 
situation which confronts many of our borrowers today. It would 
establish a variable interest rate and establish a reasonable cap on 
all student loans. It would level the playing field for future students 
and borrowers.
  It appears clear that changes are needed. I urge my colleagues to 
support this legislation and move forward with a plan that would 
preserve the integrity of the overall loan program while protecting all 
future student borrowers from the vagaries of fluctuating interest 
rates.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the additional material ordered to be 
printed in the Record, as follows:

                                S. 1742

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Higher Education Loan Plan 
     Act of 2003''.

     SEC. 2. INTEREST RATES ON STUDENT LOANS.

       (a) Interest Rate Changes.--Section 427A of the Higher 
     Education Act of 1965 (20 U.S.C. 1077a) is amended by 
     striking subsections (k) and (l) and inserting the following:
       [``(k) Interest Rates for New Loans on or After October 1, 
     1998, and Before the Date of Enactment of the Higher 
     Education Loan Plan Act of 2003.--
       ``(1) In general.--Notwithstanding subsection (h) and 
     subject to paragraph (2), 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 October 1, 1998, and before 
     the date of enactment of the Higher Education Loan Plan Act 
     of 2003, the applicable rate of interest shall, during any 
     12-month period beginning on July 1 and ending on June 30, be 
     determined on the preceding June 1 and be equal to--
       ``(A) the bond equivalent rate of 91-day Treasury bills 
     auctioned at the final auction held prior to such June 1; 
     plus
       ``(B) 2.3 percent,
     except that such rate shall not exceed 8.25 percent.
       ``(2) In school and grace period rules.--Notwithstanding 
     subsection (h), with respect to any loan under this part 
     (other than a loan made pursuant to section 428B or 428C) for 
     which the first disbursement is made on or after October 1, 
     1998, and before the date of enactment of the Higher 
     Education Loan Plan Act of 2003, the applicable rate of 
     interest for interest which accrues--
       ``(A) prior to the beginning of the repayment period of the 
     loan; or
       ``(B) during the period 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),

     shall be determined under paragraph (1) by substituting `1.7 
     percent' for `2.3 percent'.
       ``(3) PLUS loans.--Notwithstanding subsection (h), with 
     respect to any loan under section 428B for which the first 
     disbursement is made on or after October 1, 1998, and before 
     the date of enactment of the Higher Education Loan Plan Act 
     of 2003, the applicable rate of interest shall be determined 
     under paragraph (1)--
       ``(A) by substituting `3.1 percent' for `2.3 percent'; and
       ``(B) by substituting `9.0 percent' for `8.25 percent'.
       ``(4) Consolidation loans.--With respect to any 
     consolidation loan under section 428C

[[Page S12742]]

     for which the application is received by an eligible lender 
     on or after October 1, 1998, and before the date of enactment 
     of the Higher Education Loan Plan Act of 2003, 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.
       ``(5) Consultation.--The Secretary shall determine the 
     applicable rate of interest under this subsection after 
     consultation with the Secretary of the Treasury and shall 
     publish such rate in the Federal Register as soon as 
     practicable after the date of determination.
       ``(l) Interest Rates for New Loans on or After the Date of 
     Enactment of the Higher Education Loan Plan Act of 2003.--
       ``(1) In general.--Notwithstanding subsection (h) and 
     subject to paragraph (2), 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 the date of enactment of the 
     Higher Education Loan Plan Act of 2003, the applicable rate 
     of interest shall, during any 12-month period beginning on 
     July 1 and ending on June 30, be determined on the preceding 
     June 1 and be equal to--
       ``(A) the bond equivalent rate of 91-day Treasury bills 
     auctioned at the final auction held prior to such June 1; 
     plus
       ``(B) 2.3 percent,

     except that such rate shall not exceed [7.75] percent.
       ``(2) In school and grace period rules.--Notwithstanding 
     subsection (h), with respect to any loan under this part 
     (other than a loan made pursuant to section 428B or 428C) for 
     which the first disbursement is made on or after the date of 
     enactment of the Higher Education Loan Plan Act of 2003, the 
     applicable rate of interest for interest which accrues--
       ``(A) prior to the beginning of the repayment period of the 
     loan; or
       ``(B) during the period 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),
     shall be determined under paragraph (1) by substituting 
     `[1.7] percent' for `[2.3] percent'.
       ``(3) PLUS loans.--Notwithstanding subsection (h), with 
     respect to any loan under section 428B for which the first 
     disbursement is made on or after the date of enactment of the 
     Higher Education Loan Plan Act of 2003, the applicable rate 
     of interest shall be determined under paragraph (1)--
       ``(A) by substituting `3.1 percent' for `2.3 percent'; and
       ``(B) by substituting `8.5 percent' for `[7.75] percent'.
       ``(4) Consolidation loans.--With respect to any 
     consolidation loan under section 428C for which the 
     application is received by an eligible lender on or after the 
     date of enactment of the Higher Education Loan Plan Act of 
     2003, the applicable rate of interest shall, during any 12-
     month period beginning on July 1 and ending on June 30, be 
     determined on the preceding June 1 and be equal to--
       ``(A) the bond equivalent rate of 91-day Treasury bills 
     auctioned at the final auction held prior to such June 1; 
     plus
       ``(B) 2.3 percent,

     except that such rate shall not exceed [7.75] percent.''.
       (b) Special Allowance Conforming Changes.--Section 
     438(b)(2) of the Higher Education Act of 1965 (20 U.S.C. 
     1087-1(b)(2)) is amended by striking ``July 1, 2006'' each 
     place it appears in clauses (ii), (v), and (vii) of 
     subparagraph (I), including in the headings of such clauses, 
     and inserting ``the date of enactment of the Higher Education 
     Loan Plan Act of 2003''.
       (c) Additional Conforming Amendments.--Section 428C(c)(1) 
     of the Higher Education Act of 1965 (20 U.S.C. 1078-3(c)(1)) 
     is amended by striking ``July 1, 2006'' each place it appears 
     and inserting ``the date of enactment of the Higher Education 
     Loan Plan Act of 2003''.
                                 ______