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Title II — Ending interest capitalization and origination fees

S. 1002 · 116th Congress · Apr 3, 2019 · Lineage

II Ending interest capitalization and origination fees

Sec. 201 Ending interest capitalization for Federal Direct Loans

(a)
In general— Section 455 (20 U.S.C. 1087e) is amended—
(1)
in subsection (b)—
(A)
in the subsection heading, by inserting “and Practices” after “Rate”; and
(B)
by adding at the end the following:

“(11) Interest practices

“(A) In general—Beginning on the effective date of the Affordable Loans for Any Student Act, interest on a loan made under this part shall accrue and only be added to the balance of interest due on the loan, and shall not ever be capitalized.

“(B) No capitalization of interest during in-school or grace periods

“(i) In general—Beginning on the effective date of the Affordable Loans for Any Student Act, interest on loans made under this part for which payments of principal are not required during the in-school and grace periods or for which payments are deferred in accordance with sections 427(a)(2)(C) and 428(b)(1)(M) shall accrue and be added to the balance of interest due from the borrower when the loan enters repayment, but shall not ever be capitalized.

“(ii) Notice requirement—The Secretary shall adjust any forbearance notice required in accordance with section 428(a)(3)(A)(iii) to reflect the availability of the pause payment process pursuant to section 460B and the treatment of interest under such section.

“(C) Limited retroactivity—For a borrower of a loan made under this part on or before the effective date of the Affordable Loans for Any Student Act that is in a status, on the day before such effective date, that involves interest capitalization, such loan shall have capitalization pro-rated to the effective date of such Act, but shall not be subject to further capitalization after the effective date of such Act.”

(2)
in subsection (e)(5)—
(A)
by inserting “(which, beginning after the effective date of the Affordable Loans for Any Student Act, shall not be capitalized)” after “accrued interest”; and
(B)
by striking the second sentence; and
(3)
in subsection (q)(2), by striking the second sentence and inserting the following: “Such interest shall be paid or shall accrue but not be capitalized in accordance with subsection (b)(11)(B).”.
(b)
Income-Based repayment plans— Paragraph (3)(B) of section 493C(b) (20 U.S.C. 1098e(b)(3)(B)) is amended to read as follows:

“(B)

“(i) beginning on the effective date of the Affordable Loans for Any Student Act, for an eligible loan issued under part D or not otherwise described in clause (ii), shall not be capitalized and shall be added to the balance of interest due for the loan; and

“(ii) for an eligible loan made, insured, or guaranteed under part B and held by a private lender, shall be added to the principal amount and capitalized at the time the borrower—

“(I) ends the election to make income-based repayment under this subsection; or

“(II) begins making payments of not less than the amount specified in paragraph (6)(A);”

Sec. 202 Elimination of origination fees for Federal Direct Loans

(a)
Repeal of origination fees— Subsection (c) of section 455 (20 U.S.C. 1087e(c)) is repealed.
(b)
Effective date— The amendment made by subsection (a) shall apply with respect to loans made under part D of title IV of the Higher Education Act of 1965 (20 U.S.C. 1087a et seq.) for which the first disbursement of principal is made, or, in the case of a Federal Direct Consolidation Loan, the application is received, on or after July 1, 2020.