Laws & Guidance HIGHER EDUCATION
1998 Amendments to Higher Education Act of 1965
P.L. 105-244

TITLE IV--STUDENT ASSISTANCE

Part B--Federal Family Education Loan Program

SEC. 416. APPLICABLE INTEREST RATES

(a) APPLICABLE INTEREST RATES-

(1) AMENDMENT- Section 427A (20 U.S.C. 1077a) is amended--

(A) by redesignating subsections (k) and (l) as subsections (l) and (m), respectively; and

(B) by inserting after subsection (j) the following:

`(k) INTEREST RATES FOR NEW LOANS ON OR AFTER OCTOBER 1, 1998, AND BEFORE JULY 1, 2003-

`(1) IN GENERAL- Notwithstanding subsection (h) and subject to paragraph (2) of this subsection, 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 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--

`(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 July 1, 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 July 1, 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 for which the application is received by an eligible lender on or after October 1, 1998, and before July 1, 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.'.

(2) CONFORMING AMENDMENT- Section 428B(d)(4) (20 U.S.C. 1078-2(d)(4)) is amended by striking `section 427A(c)' and inserting `section 427A'.

(b) SPECIAL ALLOWANCES-

(1) AMENDMENT- Section 438(b)(2) (20 U.S.C. 1087-1(b)(2)) is amended by adding at the end the following:

`(H) LOANS DISBURSED ON OR AFTER OCTOBER 1, 1998, AND BEFORE JULY 1, 2003-

`(i) IN GENERAL- Subject to paragraph (4) and clauses (ii), (iii), and (iv) of this subparagraph, and except as provided in subparagraph (B), the special allowance paid pursuant to this subsection on loans for which the first disbursement is made on or after October 1, 1998, and before July 1, 2003, shall be computed--

`(I) by determining the average of the bond equivalent rates of 91-day Treasury bills auctioned for such 3-month period;

`(II) by subtracting the applicable interest rates on such loans from such average bond equivalent rate;

`(III) by adding 2.8 percent to the resultant percent; and

`(IV) by dividing the resultant percent by 4.

`(ii) IN SCHOOL AND GRACE PERIOD- In the case of any loan for which the first disbursement is made on or after October 1, 1998, and before July 1, 2003, and for which the applicable rate of interest is described in section 427A(k)(2), clause (i)(III) of this subparagraph shall be applied by substituting `2.2 percent' for `2.8 percent'.

`(iii) PLUS LOANS- In the case of any loan for which the first disbursement is made on or after October 1, 1998, and before July 1, 2003, and for which the applicable rate of interest is described in section 427A(k)(3), clause (i)(III) of this subparagraph shall be applied by substituting `3.1 percent' for `2.8 percent', subject to clause (v) of this subparagraph.

`(iv) CONSOLIDATION LOANS- In the case of any consolidation loan for which the application is received by an eligible lender on or after October 1, 1998, and before July 1, 2003, and for which the applicable interest rate is determined under section 427A(k)(4), clause (i)(III) of this subparagraph shall be applied by substituting `3.1 percent' for `2.8 percent', subject to clause (vi) of this subparagraph.

`(v) LIMITATION ON SPECIAL ALLOWANCES FOR PLUS LOANS- In the case of PLUS loans made under section 428B and first disbursed on or after October 1, 1998, and before July 1, 2003, for which the interest rate is determined under section 427A(k)(3), a special allowance shall not be paid for such loan during any 12-month period beginning on July 1 and ending on June 30 unless, on the June 1 preceding such July 1--

`(I) the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1 (as determined by the Secretary for purposes of such section); plus

`(II) 3.1 percent,

exceeds 9.0 percent.

`(vi) LIMITATION ON SPECIAL ALLOWANCES FOR CONSOLIDATION LOANS- In the case of consolidation loans made under section 428C and for which the application is received on or after October 1, 1998, and before July 1, 2003, for which the interest rate is determined under section 427A(k)(4), a special allowance shall not be paid for such loan during any 3-month period ending March 31, June 30, September 30, or December 31 unless--

`(I) the average of the bond equivalent rate of 91-day Treasury bills auctioned for such 3-month period; plus

`(II) 3.1 percent,

exceeds the rate determined under section 427A(k)(4).'.

(2) CONSOLIDATION LOANS- Section 428C(c)(1) (20 U.S.C. 1078-3(c)(1)) is amended by striking everything preceding subparagraph (B) and inserting the following:

`(1) INTEREST RATE- (A) Notwithstanding subparagraphs (B) and (C), with respect to any loan made under this section for which the application is received by an eligible lender on or after October 1, 1998, and before July 1, 2003, the applicable interest rate shall be determined under section 427A(k)(4).'.

(3) CONFORMING AMENDMENT- Section 438(b)(2) (20 U.S.C. 1087-1(b)(2)(C)(ii)) is amended--

(A) in subparagraph (A), by striking `(F), and (G)' and inserting `(F), (G), and (H)';

(B) in subparagraph (B)(iv), by striking `(F), or (G)' and inserting `(F), (G), or (H)'; and

(C) in subparagraph (C)(ii), by striking `subparagraph (G)' and inserting `subparagraphs (G) and (H)'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply with respect to any loan made, insured, or guaranteed under part B 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 any loan made under section 428C of such Act for which the application is received by an eligible lender on or after October 1, 1998, and before July 1, 2003.

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Last Modified: 09/23/2003