Section 1 Short title
This Act may be cited as the “Student Loan Payment Optimization Act”.
Student Loan Payment Optimization Act
A BILL
To amend the Higher Education Act of 1965 and the Truth in Lending Act to clarify the application of prepayment and underpayment amounts on student loans, and for other purposes.
Sec. 2 Application of prepayment and underpayment amounts for FFEL and Direct Loans
In General— 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 and underpayment amounts
“(A) Prepayment amounts—Notwithstanding any other provision of this subsection or any other provision of law, 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 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—
“(i) first toward any outstanding balance of fees, including collection costs and authorized late charges, due on such loans; and
“(ii) then, except as otherwise requested by the borrower in writing, toward the outstanding balance of principal due on the loan with the highest applicable rate of interest among such loans.
“(B) Underpayment amounts—Notwithstanding any other provision of this subsection or any other provision of law, 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 apply any payment made by the borrower which is less than the amount due at the time of the payment for one or more of such loans—
“(i) first toward any outstanding balance of fees, including collection costs and authorized late charges, due on such loans; and
“(ii) then, except as otherwise requested by the borrower in writing, toward the balance of the loan with the smallest balance of principal and interest among such loans.
“(C) Special rule for borrowers under income-based repayment plan—In the case of a loan for which the borrower has elected to participate in an income-based repayment plan under section 493C, subparagraphs (A) and (B) shall not apply unless there is no interest due on the loan.”
Requirements for Contracts With Servicers of Loans— Section 456(a)(2) of such Act (20 U.S.C. 1087f(a)(2)) is amended by striking the period at the end of the first sentence and inserting the following: “, including the requirements with respect to the application of prepayment and underpayment amounts under section 455(d)(6).”.
Sec. 3 Application of prepayment and underpayment amounts for Perkins Loans
In General— Section 464(c)(1)(C) of the Higher Education Act of 1965 (20 U.S.C. 1087dd(c)(1)(C)) is amended—
by striking “and” at the end of clause (i); and
by adding at the end the following:
“(iii) shall provide that the institution shall, in the case of a borrower who provides the institution with a 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 the loans held by the institution, apply such prepayment amount—
“(I) first toward any outstanding balance of fees, including collection costs and authorized late charges, due on such loans; and
“(II) then, except as otherwise requested by the borrower in writing, toward the outstanding balance of principal due on the loan with the highest applicable rate of interest among such loans; and
“(iv) shall provide that the institution shall apply any payment made by the borrower which is less than the amount due for a repayment period for one or more of the loans held by the institution—
“(I) first toward any outstanding balance of fees, including collection costs and authorized late charges, due on such loans; and
“(II) then, except as otherwise requested by the borrower in writing, toward the balance of the loan with the smallest balance of principal and interest among such loans;”
by striking “and” at the end of paragraph (8);
by redesignating paragraph (9) as paragraph (10); and
by inserting after paragraph (8) the following new paragraph:
“(9) provide assurances that the institution will meet the requirements with respect to the application of prepayment and underpayment amounts under section 464(c)(1)(C); and”
Sec. 4 Application of prepayment and underpayment 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 and underpayment amounts
“(A) Prepayment amounts—Notwithstanding any other provision of law, with respect to a borrower with one or more private education loans which are held by the same holder and which have different applicable rates of interest, the holder of such loans shall 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—
“(i) first toward any outstanding balance of fees, including collection costs and authorized late charges, due on any private education loan held by such holder; and
“(ii) then, except as otherwise requested by the borrower in writing, toward the outstanding balance of principal due on the loan with the highest applicable rate of interest among such loans.
“(B) Underpayment amounts—Notwithstanding any other provision of law, with respect to a borrower with one or more private education loans which are held by the same holder and which have different applicable rates of interest, the holder of such loans shall apply any payment made by the borrower which is less than the amount due at the time of the payment for one or more of such loans—
“(i) first toward any outstanding balance of fees, including collection costs and authorized late charges, due on any private education loans held by such holder; and
“(ii) then, except as otherwise requested by the borrower in writing, toward the balance of the loan with the smallest balance of principal and interest among such loans.”