H. R IN THE HOUSE OF REPRESENTATIVES

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1 I 2TH CONGRESS 2D SESSION H. R. 40 To increase purchasing power, strengthen economic recovery, and restore fairness in financing higher education in the United States through student loan forgiveness, caps on interest rates on Federal student loans, and refinancing opportunities for private borrowers, and for other purposes. IN THE HOUSE OF REPRESENTATIVES MARCH, Mr. CLARKE of Michigan introduced the following bill; which was referred to the Committee on Education and the Workforce, and in addition to the Committees on Foreign Affairs and Armed Services, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned A BILL To increase purchasing power, strengthen economic recovery, and restore fairness in financing higher education in the United States through student loan forgiveness, caps on interest rates on Federal student loans, and refinancing opportunities for private borrowers, and for other purposes. 1 Be it enacted by the Senate and House of Representa- rfrederick on DSKVPTVN1PROD with BILLS 2 tives of the United States of America in Congress assembled, VerDate Mar 0:2 Mar 0, Jkt 000 PO Frm Fmt 2 Sfmt 1 E:\BILLS\H40.IH H40

2 SECTION 1. SHORT TITLE. VerDate Mar 0:2 Mar 0, Jkt 000 PO Frm Fmt 2 Sfmt 1 E:\BILLS\H40.IH H40 2 This Act may be cited as the Student Loan Forgiveness Act of. SEC. 2. FINDINGS. Congress finds the following: (1) A well-educated citizenry is critical to our Nation s ability to compete in the global economy. (2) The Federal Government has a vested interest in ensuring access to higher education. () Higher education should be viewed as a public good benefitting our country rather than as a commodity solely benefitting individual students. (4) Total outstanding student loan debt officially surpassed total credit card debt in the United States in, and is on track to exceed $1,000,000,000,000 during. () Excessive student loan debt is impeding economic growth in the United States. Faced with excessive repayment burdens, many individuals are unable to start businesses, invest, or buy homes. Relieving student loan debt would give these individuals greater control over their earnings and would increase entrepreneurship and demand for goods and services. () Because of soaring tuition costs, students often have no choice but to amass significant debt

3 1 to obtain an education that is widely considered a 2 prerequisite for earning a living wage. () Amidst rising tuition rates and stagnant 4 grant funding, many students are forced to supple- ment Federal loans with private loans, which fre- quently feature higher interest rates with fewer con- sumer protections. () A borrower who experiences an extended hardship for whatever reason, or a borrower who ex- periences a series of separate hardships over a longer period of time, will often have no choice but to default on his or her private student loans. Op- portunities to put such private loans into forbear- ance are limited. () During the period of forbearance on private 1 student loans, interest continues to accrue and is capitalized, and once the borrower comes out of for- bearance, he or she owes significantly more on the 1 principal of the loan than before the hardship period began. 2 SEC.. / LOAN REPAYMENT AND FORGIVENESS. Part G of title IV of the Higher Education Act of is amended by adding at the end the following: SEC. 4E. / LOAN REPAYMENT AND FORGIVENESS. (a) / LOAN REPAYMENT PLAN. VerDate Mar 0:2 Mar 0, Jkt 000 PO Frm 0000 Fmt 2 Sfmt 1 E:\BILLS\H40.IH H40

4 4 1 (1) / LOAN REPAYMENT PLAN AUTHOR- 2 IZED. Notwithstanding any other provision of this Act, the Secretary shall carry out a program (to be 4 known as the / Loan Repayment Plan ) under which (A) a borrower of an eligible loan who is eligible under paragraph () may elect to have the borrower s aggregate monthly payment for all such loans not exceed the monthly payment amount described in paragraph (2); (B) the holder of such an eligible loan shall apply the borrower s monthly payment under this subsection first toward interest due on the loan, next toward any fees due on the loan, and then toward the principal of the loan; 1 (C) any interest due and not paid under subparagraph (B) shall continue to accrue but shall not be capitalized, and 1 (i) shall not be capitalized if the bor- rower ends the election to make / Loan Repayment under this subsection; or (ii) shall be forgiven in accordance with subsection (b) if the borrower meets the requirements for forgiveness under 2 such subsection; VerDate Mar 0:2 Mar 0, Jkt 000 PO Frm Fmt 2 Sfmt 1 E:\BILLS\H40.IH H40

5 1 (D) any principal due and not paid under 2 subparagraph (B) shall be deferred, and shall be forgiven in accordance with subsection (b) if 4 the borrower meets the requirements for for- giveness under such subsection; (E) the amount of time the borrower makes monthly payments under this subsection may exceed years; (F) a borrower who is repaying an eligible loan pursuant to / Loan Repayment under this subsection may elect, at any time, to termi- nate repayment pursuant to / Loan Repay- ment and repay such loan under the standard repayment plan, in which case the amount of time the borrower is permitted to repay such 1 loans may exceed years; and (G) the special allowance payment to a lender calculated under section 4(b)(2)(I), 1 when calculated for a loan in repayment under this section, shall be calculated on the principal balance of the loan and on any accrued interest unpaid by the borrower in accordance with this section. (2) / LOAN REPAYMENT MONTHLY PAY- 2 MENT FORMULA. A borrower who has elected to VerDate Mar 0:2 Mar 0, Jkt 000 PO Frm 0000 Fmt 2 Sfmt 1 E:\BILLS\H40.IH H40

6 1 participate in the / Loan Repayment Plan 2 under this subsection shall, during each month the borrower is participating in such Plan, make a 4 monthly payment in an amount equal to (A) one-twelfth of the amount that is percent of the result obtained by calculating, on at least an annual basis, the amount by which (i) the borrower s, and the bor- rower s spouse s (if applicable), adjusted gross income; exceeds (ii) 0 percent of the poverty line applicable to the borrower s family size as determined under section (2) of the Community Services Block Grant Act (42 1 U.S.C. 02(2)); (B) in the case of a borrower who is in deferment due to an economic hardship de- 1 scribed in section 4(o), $0; or (C) in the case of a borrower for whom the payment calculated under subparagraph (A) is $0, but who is not in deferment due to an economic hardship described in section 4(o), an amount determined by the Secretary, on a 2 case-by-case basis and not less than annually, VerDate Mar 0:2 Mar 0, Jkt 000 PO Frm 0000 Fmt 2 Sfmt 1 E:\BILLS\H40.IH H40

7 1 based on criteria established by the Secretary 2 that shall take into consideration (i) the specific financial and other 4 relevant circumstances of a borrower, and the borrower s spouse (if applicable), in- cluding income, assets, total amount of eli- gible loans, other debt, family size, employ- ment status, and the period of time the borrower has been subject to this subpara- graph; (ii) the need to prevent abuse of the relief provided under the / Loan Re- payment Plan under this subsection and the / Forgiveness Program under sub- section (b); and 1 (iii) any other factors the Secretary considers to be appropriate to such deter- mination. 1 2 () ELIGIBILITY. (A) ELIGIBILITY DETERMINATIONS. The Secretary shall establish procedures for annually determining the borrower s eligibility for / Loan Repayment, including verification of a borrower s annual adjusted gross income and the annual amount due on the total VerDate Mar 0:2 Mar 0, Jkt 000 PO Frm 0000 Fmt 2 Sfmt 1 E:\BILLS\H40.IH H40

8 1 amount of eligible loans, and such other proce- 2 dures as are necessary to effectively implement / Loan Repayment under this subsection. 4 The Secretary shall consider, but is not limited to, the procedures established in accordance with section 4(e)(1) or in connection with in- come sensitive repayment schedules under sec- tion 42(b)()(A)(iii) or 42C(b)(1)(E). (B) AUTO-DEBIT REQUIREMENT. To be eligible to participate in the / Loan Repay- ment Plan under this subsection, a borrower shall agree to have all eligible loan payments that are made on or after the date that the bor- rower elects to participate in such repayment plan automatically electronically debited from a 1 bank account. 1 (4) SPECIAL RULE FOR MARRIED BORROWERS FILING SEPARATELY. In the case of a married borrower who files a separate Federal income tax return, the Secretary shall calculate the amount of the borrower s / Loan Repayment under this subsection solely on the basis of the borrower s student loan debt and adjusted gross income. (b) / LOAN FORGIVENESS. VerDate Mar 0:2 Mar 0, Jkt 000 PO Frm 0000 Fmt 2 Sfmt 1 E:\BILLS\H40.IH H40

9 1 (1) IN GENERAL. The Secretary shall carry 2 out a program (to be known as the / Loan Forgiveness Program ) to forgive a qualified loan 4 amount, in accordance with paragraph (), on an eli- gible loan for a borrower who, after the date that is years prior to the date of enactment of the Stu- dent Loan Forgiveness Act of, has made 0 monthly payments on the eligible loan pursuant to any one or a combination of the following: (A) Monthly payment under the / Loan Repayment Plan under subsection (a). (B) Monthly payment under any other re- payment plan authorized under part B or D of an amount that, for a given month, is not less than the monthly payment amount calculated 1 under subsection (a) that the borrower would have owed in the year in which such payment was made, based on the borrower s adjusted 1 gross income and eligible loan balance for such year. (C) For any month after such date dur- ing which the borrower is in deferment due to an economic hardship described in section 4(o), monthly payment of $0. VerDate Mar 0:2 Mar 0, Jkt 000 PO Frm 0000 Fmt 2 Sfmt 1 E:\BILLS\H40.IH H40

10 VerDate Mar 0:2 Mar 0, Jkt 000 PO Frm 000 Fmt 2 Sfmt 1 E:\BILLS\H40.IH H40 (2) METHOD OF LOAN FORGIVENESS. To provide loan forgiveness under paragraph (1), the Secretary is authorized to carry out a program (A) through the holder of the loan, to assume the obligation to repay a qualified loan amount for a loan made, insured, or guaranteed under part B of this title; and (B) to cancel a qualified loan amount for a loan made under part D of this title. () QUALIFIED LOAN AMOUNT. After the borrower has made 0 monthly payments described in paragraph (1), the Secretary shall forgive (A) with respect to new borrowers on or after the date of enactment of the Student Loan Forgiveness Act of, the sum of (i) the balance of principal and fees due on the borrower s eligible loans as of the time of such forgiveness, not to exceed $4,; and (ii) the amount of interest that has accrued on the balance described in clause (i) as of the time of such forgiveness; or (B) with respect to any other eligible borrower, the balance of principal, interest, and

11 fees due on the borrower s eligible loans as of the time of such forgiveness. (4) EXCLUSION FROM TAXABLE INCOME. The amount of a borrower s eligible loans forgiven under this section shall not be included in gross income of the borrower for purposes of the Internal Revenue Code of. (c) SUPPORTING DOCUMENTATION REQUIRED. A borrower who has elected to participate in the / Loan Repayment Plan under subsection (a), or who is requesting forgiveness under the / Loan Forgiveness Program under subsection (b), shall provide to the Secretary such information and documentation as the Secretary determines, by regulation, to be necessary to verify the borrower s adjusted gross income and payment amounts made on eligible loans of the borrower for the purposes of such Plan or Program. (d) DEFINITION OF ELIGIBLE LOAN. In this section the term eligible loan means any loan made, insured, or guaranteed under part B or D (including loans described in clauses (i) through (iii) of section 42L(b)(2)(B) and loans under paragraph (2) of section 4(g)).. rfrederick on DSKVPTVN1PROD with BILLS VerDate Mar 0:2 Mar 0, Jkt 000 PO Frm 000 Fmt 2 Sfmt 1 E:\BILLS\H40.IH H40

12 VerDate Mar 0:2 Mar 0, Jkt 000 PO Frm 000 Fmt 2 Sfmt 1 E:\BILLS\H40.IH H40 SEC. 4. CAPPING INTEREST RATES FOR ALL FEDERAL DI- RECT LOANS. Section 4(b) of the Higher Education Act of ( U.S.C. e(b)) is amended (1) by redesignating paragraphs () and () as paragraphs () and (), respectively; and (2) by inserting after paragraph () the following: () RATE OF INTEREST FOR ALL NEW FED- ERAL DIRECT LOANS. Notwithstanding any other provision of this Act, with respect to a loan under this part for which the first disbursement of principal is made (or in the case of a Federal Direct Consolidation Loan, for which the application is received) on or after July 1,, or the date of enactment of the Student Loan Forgiveness Act of, whichever is later, the applicable rate of interest shall not exceed.4 percent.. SEC.. IMPROVING AND EXPANDING PUBLIC SERVICE LOAN FORGIVENESS. Section 4(m) of the Higher Education Act of ( U.S.C. e(m)) is amended (1) in paragraph (1), by striking 0 and inserting 0 each place it appears; and (2) in paragraph ()(B)

13 1 (A) in clause (i), by striking or after the 2 semicolon; (B) in clause (ii), by striking the period 4 and inserting ; or ; and (C) by adding at the end the following: (iii) a full-time job as a primary care physician in an area or population des- ignated as a Medically Underserved Area or Population by the Health Resource and Services Administration SEC.. REFINANCING PRIVATE EDUCATION LOANS FOR CERTAIN BORROWERS. (a) CONSOLIDATION FOR CERTAIN BORROWERS. Section 4(g) of the Higher Education Act of ( U.S.C. e(g)) is amended (1) by striking A borrower and inserting the following: (1) IN GENERAL. A borrower ; (2) by inserting, and any loan described in paragraph (2) after July 1, ; and () by adding at the end the following new paragraph: (2) CONSOLIDATION OF PRIVATE EDUCATION LOANS AS A FEDERAL DIRECT CONSOLIDATION LOAN FOR CERTAIN BORROWERS. VerDate Mar 0:2 Mar 0, Jkt 000 PO Frm 000 Fmt 2 Sfmt 1 E:\BILLS\H40.IH H40

14 1 (A) IN GENERAL. Notwithstanding any 2 other provision of law, a borrower who meets the eligibility criteria described in subparagraph 4 (B) shall be eligible to obtain a Federal Direct Consolidation loan under this paragraph that (i) shall include an eligible private education loan; and (ii) may include a loan described in section 42C(a)(4) (B) ELIGIBLE BORROWER. A borrower of an eligible private education loan is eligible to obtain a Federal Direct Consolidation Loan under this paragraph if the borrower (i) was eligible to borrow a loan under section 42H, a Federal Direct Unsubsidized Stafford Loan, a loan under section 42B, or a Federal Direct PLUS loan for a period of enrollment at an institution of higher education, or, with respect to a borrower who was enrolled at an institution of higher education on less than a half-time basis, would have been eligible to borrow such a loan for such period of enrollment if the borrower had been enrolled on at least a half-time basis; VerDate Mar 0:2 Mar 0, Jkt 000 PO Frm 000 Fmt 2 Sfmt 1 E:\BILLS\H40.IH H40

15 1 (ii) borrowed at least one eligible pri- 2 vate education loan for a period of enroll- ment described in clause (i); and 4 (iii) has an average adjusted gross income (based on the borrower s adjusted gross income from the most recent cal- endar years before application for consoli- dation under this section) that is equal to or less than the borrower s total education debt (determined by calculating the sum of the borrower s loans described in section 42C(a)(4) and eligible private education loans) at the time of such application (C) DEFINITION OF ELIGIBLE PRIVATE EDUCATION LOAN. For purposes of this paragraph, the term eligible private education loan means a private education loan (as such term is defined in section 0 of the Truth in Lending Act ( U.S.C. 0)) made on or before the date of enactment of the Student Loan Forgiveness Act of, including the amount of outstanding principal, accrued interest, and related fees and costs (as determined by the Secretary) owed by a borrower on such a loan. (D) PAYMENT TO THE HOLDER. VerDate Mar 0:2 Mar 0, Jkt 000 PO Frm 000 Fmt 2 Sfmt 1 E:\BILLS\H40.IH H40

16 1 1 (i) SECRETARY. For each eligible 2 private education loan that a borrower is consolidating under this paragraph, the 4 Secretary shall make a payment to the holder of such loan in an amount equal to the amount consolidated under this para- graph with respect to such loan. (ii) HOLDER. Upon receipt of a payment described in clause (i), a holder shall discharge the liability on the loan consolidated under this paragraph in the amount of such payment (E) TERMS AND RATE OF INTEREST. A Federal Direct Consolidation Loan made under this paragraph shall have the same terms and conditions as a Federal Direct Consolidation loan under paragraph (1), except that the applicable rate of interest for a Federal Direct Consolidation loan made under this paragraph shall not exceed.4 percent. (F) NOTIFICATION OF ELIGIBLE BOR- ROWERS. The Secretary shall take such steps as may be necessary to notify eligible borrowers of the availability of consolidation under this paragraph no later than 0 days after the date VerDate Mar 0:2 Mar 0, Jkt 000 PO Frm 0001 Fmt 2 Sfmt 1 E:\BILLS\H40.IH H40

17 1 of enactment of the Student Loan Forgiveness 2 Act of, including notifying such borrowers of the deadline to apply for such a loan under 4 subparagraph (G) (G) APPLICATION DEADLINE FOR LOANS UNDER THIS PARAGRAPH. A borrower may apply for loans under this paragraph during the 1-year period beginning on the date of enactment of the Student Loan Forgiveness Act of. The Secretary shall not make a Federal Direct Consolidation Loan under this paragraph to any borrower who has not submitted an application for such a loan to the Secretary before the end of such period. (H) AUTHORIZATION AND APPROPRIA- TION. There are authorized to be appropriated, and there are appropriated, such sums as may be necessary to carry out this paragraph.. (b) CONFORMING AMENDMENT. Section 42C(a)()(B)(i)(V) of the Higher Education Act of ( U.S.C. (a)()(b)(i)(v)) is amended (1) by striking or at the end of item (bb); (2) by striking the period at the end of item (cc) and inserting ; or ; and VerDate Mar 0:2 Mar 0, Jkt 000 PO Frm 000 Fmt 2 Sfmt 1 E:\BILLS\H40.IH H40

18 1 2 4 SEC.. OFFSET. () by adding at the end the following: (dd) for the purpose of consolidating an eligible private education loan under section 4(g)(2), whether such loan is consolidated alone, with other eligible private education loans, or with loans described in paragraph (4).. Funds appropriated or otherwise made available for a fiscal year to carry out this Act and the amendments made by this Act shall be made available from the funds available for Overseas Contingency Operations. Æ rfrederick on DSKVPTVN1PROD with BILLS VerDate Mar 0:2 Mar 0, Jkt 000 PO Frm 000 Fmt 2 Sfmt 01 E:\BILLS\H40.IH H40