P.L. 105-244
TITLE IV--STUDENT ASSISTANCE
PART D--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM
SEC. 452. TERMS AND CONDITIONS
(a) DIRECT LOAN INTEREST RATES-
(1) AMENDMENT- Section 455(b) (20 U.S.C. 1087e(b)) is amended by adding at the end the following:
`(6) INTEREST RATE PROVISION FOR NEW LOANS ON OR AFTER OCTOBER 1, 1998, AND BEFORE JULY 1, 2003-
`(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 October 1, 1998, and before July 1, 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--
`(i) the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1; plus
`(ii) 2.3 percent,
except that such rate shall not exceed 8.25 percent.
`(B) IN SCHOOL AND GRACE PERIOD RULES- Notwithstanding the preceding paragraphs of this subsection, with respect to any Federal Direct Stafford Loan or Federal Direct Unsubsidized Stafford Loan for which the first disbursement is made on or after October 1, 1998, and before July 1, 2003, the applicable rate of interest for interest which accrues--
`(i) prior to the beginning of the repayment period of the loan; or
`(ii) 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 428(b)(1)(M) or 427(a)(2)(C),
shall be determined under subparagraph (A) by substituting `1.7 percent' for `2.3 percent'.
`(C) PLUS LOANS- Notwithstanding the preceding paragraphs of this subsection, with respect to Federal Direct PLUS Loan for which the first disbursement is made on or after October 1, 1998, and before July 1, 2003, the applicable rate of interest shall be determined under subparagraph (A)--
`(i) by substituting `3.1 percent' for `2.3 percent'; and
`(ii) by substituting `9.0 percent' for `8.25 percent'.
`(D) CONSOLIDATION LOANS- Notwithstanding the preceding paragraphs of this subsection, any Federal Direct Consolidation loan for which the application is received on or after February 1, 1999, and before July 1, 2003, 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.
`(E) TEMPORARY RULES FOR CONSOLIDATION LOANS- Notwithstanding the preceding paragraphs of this subsection, any Federal Direct Consolidation loan for which the application is received on or after October 1, 1998, and before February 1, 1999, shall bear interest at an annual rate on the unpaid principal balance of the loan that is equal to--
`(i) the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1; plus
`(ii) 2.3 percent,
except that such rate shall not exceed 8.25 percent.'.
(2) LIMITATION ON CONSOLIDATION LOANS DURING TEMPORARY INTEREST RATE- Notwithstanding section 455(g) of the Higher Education Act of 1965, a borrower who is enrolled or accepted for enrollment in an institution of higher education may not consolidate loans under such section during the period beginning October 1, 1998, and ending February 1, 1999, unless the borrower certifies that the borrower has no outstanding loans made, insured, or guaranteed under title IV of such Act other than loans made under part D of such title.
(b) REPAYMENT INCENTIVES- Section 455(b) (20 U.S.C. 1087e(b)) is further amended by adding at the end the following:
`(7) REPAYMENT INCENTIVES-
`(A) IN GENERAL- Notwithstanding any other provision of this part, the Secretary is authorized to prescribe by regulation such reductions in the interest rate paid by a borrower of a loan made under this part as the Secretary determines appropriate to encourage on-time repayment of the loan. Such reductions may be offered only if the Secretary determines the reductions are cost neutral and in the best financial interest of the Federal Government. Any increase in subsidy costs resulting from such reductions shall be completely offset by corresponding savings in funds available for the William D. Ford Federal Direct Loan Program in that fiscal year from section 458 and other administrative accounts.
`(B) ACCOUNTABILITY- Prior to publishing regulations proposing repayment incentives, the Secretary shall ensure the cost neutrality of such reductions. The Secretary shall not prescribe such regulations in final form unless an official report from the Director of the Office of Management and Budget to the Secretary and a comparable report from the Director of the Congressional Budget Office to the Congress each certify that any such reductions will be completely cost neutral. Such reports shall be transmitted to the Committee on Labor and Human Resources of the Senate and the Committee on Education and the Workforce of the House of Representatives not less than 60 days prior to the publication of regulations proposing such reductions.'.
(c) CONSOLIDATION LOANS- The first sentence of section 455(g) is amended by striking everything after `section 428C(a)(4)' and inserting a period.
(d) EFFECTIVE DATE- The amendments made by subsection (a) shall apply with respect to any loan made under part D of title IV of the Higher Education Act of 1965 for which the first disbursement is made on or after October 1, 1998, and before July 1, 2003, except that such amendments shall apply with respect to a Federal Direct Consolidation Loan for which the application is received on or after October 1, 1998, and before July 1, 2003.
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