CONSOLIDATION LOANS.

SEC. 4046. CONSOLIDATION LOANS. (a) Cost Savings From Consolidation Loans.— Section 428C of the Act (20 U.S.C. 1078–3) is amended— 107 STAT. 361 (1) in subsection (a) by amending paragraph (3)(A) to read as follows: “(3) Definition of eligible borrowers.— (A) For the purpose of this section, the term ‘eligible borrower’ means a borrower who, at the time of application for a consolidation loan is in repayment status, or in a grace period preceding repayment, or is a delinquent or defaulted borrower who will reenter repayment through loan consolidation.”; (2) in subsection (b)— (A) in paragraph (1)— (i) in subparagraph (A)(ii), by inserting “with income-sensitive repayment terms” after “obtain a consolidation loan”; (ii) by redesignating subparagraph (E) as subparagraph (F); and (iii) by inserting after subparagraph (D) the following new subparagraph: “(E) that the lender shall offer an income-sensitive repayment schedule, established by the lender in accordance with the regulations promulgated by the Secretary, to the borrower of any consolidation loan made by the lender on or after July 1, 1994; and”; (B) in paragraph (4), by amending subparagraph (C) to read as follows: “(C) (i) provides that periodic installments of principal need not be paid, but interest shall accrue and be paid in accordance with clause (ii), during any period for which the borrower would be eligible for a deferral under section 428(b)(1)(M), and that any such period shall not be included in determining the repayment schedule pursuant to subsection (c)(2) of this section; and “(ii) provides that interest shall accrue and be paid— “(I) by the Secretary, in the case of a consolidation loan that consolidated only Federal Stafford Loans for which the student borrower received an interest subsidy under section 428; or “(II) by the borrower, or capitalized, in the case of a consolidation loan other than a loan described in subclause (I);”; and (C) by adding at the end the following new paragraph: “(5) Direct loans.— In the event that a borrower is unable to obtain a consolidation loan from a lender with an agreement under subsection (a)(1), or is unable to obtain a consolidation loan with income-sensitive repayment terms acceptable to the borrower from such a lender, the Secretary shall offer any such borrower who applies for it, a direct consolidation loan. Such direct consolidation loan shall, as requested by the borrower, be repaid either pursuant to income contingent repayment under part D of this title or pursuant to any other repayment provision under this section. The Secretary shall not offer such loans if, in the Secretary’s judgment, the Department of Education does not have the necessary origination and servicing arrangements in place for such loans.”; and (3) in subsection (c)— (A) in paragraph (1), by amending subparagraphs (B) and (C) to read as follows: 107 STAT. 362 “(B) A consolidation loan made before July 1, 1994, shall bear interest at an annual rate on the unpaid principal balance of the loan that is equal to the greater of— “(i) the weighted average of the interest rates on the loans consolidated, rounded to the nearest whole percent; or “(ii) 9 percent. “(C) A consolidation loan made on or after July 1, 1994, shall bear interest at an annual rate on the unpaid principal balance of the loan that is equal to the weighted average of the interest rates on the loans consolidated, rounded upward to the nearest whole percent.”; (B) in paragraph (2)— (i) in subparagraph (A)— (I) in the matter preceding clause (i), by striking “income sensitive repayment schedules. Such repayment terms” and inserting “income-sensitive repayment schedules, established by the lender in accordance with the regulations of the Secretary. Except as required by such income-sensitive repayment schedules, or by the terms of repayment pursuant to income contingent repayment offered by the Secretary under subsection (b)(5), such repayment terms”; (II) by redesignating clauses (i), (ii), (iii), (iv), and (v) as clauses (ii), (iii), (iv), (v), and (vi), respectively; and (III) by inserting before clause (ii) (as redesignated by subclause (II)) the following new clause: “(i) is less than $7,500, then such consolidation loan shall be repaid in not more than 10 years;”; (ii) by striking subparagraph (B); and (iii) by redesignating subparagraph (C) as subparagraph (B); and (C) in paragraph (3)(B), by inserting “except as required by the terms of repayment pursuant to income contingent repayment offered by the Secretary under subsection (b)(5),” before “the lender”. (b) Cohort Default Rate Conforming Amendments.— (1) Amendments to definition.— Section 435(m)(1) of the Act (20 U.S.C. 1085) is amended— (A) in subparagraph (A), by inserting “(or on the portion of a loan made under section 428C that is used to repay any such loans)” immediately after “on such loans”; (B) in subparagraph (C), by inserting “(or on the portion of a loan made under section 428C that is used to repay any such loans)” immediately after “on such loans”; and (C) in subparagraph (D)— (i) by inserting “(or the portion of a loan made under section 428C that is used to repay a loan made under such section)” after “section 428A” the first place it appears; and (ii) by inserting “(or a loan made under section 428C a portion of which is used to repay a loan made under such section)” after “section 428A” the second place it appears. 107 STAT. 363 (2) Conforming amendment.— Section 428C(a)(3)(B)(ii) of the Act (20 U.S.C. 1078–3(a)(3)(B)(ii)) is amended by striking the second sentence. (c) Effective Date.— The amendments made by this section shall take effect on July 1, 1994, except that the amendments made by subsection (a)(2)(B) shall take effect upon enactment.