SECTION 1. INTEREST RATE PROVISIONS.

    (a) FFEL Fixed Interest Rates.--
        (1) Amendment.--Section 427A of the Higher Education Act of 
    1965 (20 U.S.C. 1077a) is amended--
            (A) by redesignating subsections (l) and (m) as subsections 
        (m) and (n), respectively; and
            (B) by inserting after subsection (k) the following new 
        subsection:
    ``(l) Interest Rates for New Loans on or After July 1, 2006.--
        ``(1) In general.--Notwithstanding subsection (h), 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 July 1, 2006, the applicable 
    rate of interest shall be 6.8 percent on the unpaid principal 
    balance of the loan.
        ``(2) PLUS loans.--Notwithstanding subsection (h), with respect 
    to any loan under section 428B for which the first disbursement is 
    made on or after July 1, 2006, the applicable rate of interest 
    shall be 7.9 percent on the unpaid principal balance of the loan.
        ``(3) Consolidation loans.--With respect to any consolidation 
    loan under section 428C for which the application is received by an 
    eligible lender on or after July 1, 2006, 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.''.
        (2) Conforming amendment.--Section 428C(c)(1)(A) of such Act 
    (20 U.S.C. 1078-3(c)(1)(A)) is amended to read as follows:
        ``(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--
            ``(i) on or after October 1, 1998, and before July 1, 2006, 
        the applicable interest rate shall be determined under section 
        427A(k)(4); or
            ``(ii) on or after July 1, 2006, the applicable interest 
        rate shall be determined under section 427A(l)(3).''.
    (b) Direct Loans Fixed Interest Rates.--
        (1) Technical correction.--Paragraph (6) of section 455(b) of 
    the Higher Education Act of 1965 (20 U.S.C. 1087e(b)), as 
    redesignated by section 8301(c)(1) of the Transportation Equity Act 
    for the 21st Century (Public Law 105-178; 112 Stat. 498) is 
    redesignated as paragraph (9) and is transferred to follow 
    paragraph (7) of section 455(b) of the Higher Education Act of 
    1965.
        (2) Amendments.--Section 455(b) of the Higher Education Act of 
    1965 (20 U.S.C. 1087e(b)) is amended--
            (A) by redesignating paragraph (7) as paragraph (8); and
            (B) by inserting after paragraph (6) the following new 
        paragraph:
        ``(7) Interest rate provision for new loans on or after july 1, 
    2006.--
            ``(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 July 1, 
        2006, the applicable rate of interest shall be 6.8 percent on 
        the unpaid principal balance of the loan.
            ``(B) PLUS loans.--Notwithstanding the preceding paragraphs 
        of this subsection, with respect to any Federal Direct PLUS 
        loan for which the first disbursement is made on or after July 
        1, 2006, the applicable rate of interest shall be 7.9 percent 
        on the unpaid principal balance of the loan.
            ``(C) Consolidation loans.--Notwithstanding the preceding 
        paragraphs of this subsection, any Federal Direct Consolidation 
        loan for which the application is received on or after July 1, 
        2006, 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.''.
    (c) Extension of Current Interest Rate Provisions for Three 
Years.--Sections 427A(k) and 455(b)(6) of the Higher Education Act of 
1965 (20 U.S.C. 1077a(k), 1087e(b)(6)) are each amended--
        (1) by striking ``2003'' in the heading and inserting ``2006''; 
    and
        (2) by striking ``July 1, 2003,'' each place it appears and 
    inserting ``July 1, 2006,''.

SEC. 2. EXTENSION OF SPECIAL ALLOWANCE PROVISION.

    Section 438(b)(2)(I) of the Higher Education Act of 1965 (20 U.S.C. 
1087-1(b)(2)(I)) is amended--
        (1) by striking ``, and before july 1, 2003'' in the heading;
        (2) by striking ``and before July 1, 2003,'' each place it 
    appears, other than in clauses (ii) and (v);
        (3) by striking clause (ii) and inserting the following:
                ``(ii) In school and grace period.--In the case of any 
            loan--

                    ``(I) for which the first disbursement is made on 
                or after January 1, 2000, and before July 1, 2006, and 
                for which the applicable rate of interest is described 
                in section 427A(k)(2); or
                    ``(II) for which the first disbursement is made on 
                or after July 1, 2006, and for which the applicable 
                rate of interest is described in section 427A(l)(1), 
                but only with respect to (aa) periods prior to the 
                beginning of the repayment period of the loan; or (bb) 
                during the periods 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);

            clause (i)(III) of this subparagraph shall be applied by 
            substituting `1.74 percent' for `2.34 percent'.'';
        (4) in clause (iii), by inserting ``or (l)(2)'' after 
    ``427A(k)(3)'';
        (5) in clause (iv), by inserting ``or (l)(3)'' after 
    ``427A(k)(4)'';
        (6) in clause (v)--
            (A) in the heading, by inserting ``before july 1, 2006'' 
        after ``plus loans''; and
            (B) by striking ``July 1, 2003,'' and inserting ``July 1, 
        2006,'';
        (7) in clause (vi)--
            (A) by inserting ``or (l)(3)'' after ``427A(k)(4)'' the 
        first place it appears; and
            (B) by inserting ``or (l)(3), whichever is applicable'' 
        after ``427A(k)(4)'' the second place it appears; and
        (8) by adding at the end the following new clause:
                ``(vii) Limitation on special allowances for plus loans 
            on or after july 1, 2006.--In the case of PLUS loans made 
            under section 428B and first disbursed on or after July 1, 
            2006, for which the interest rate is determined under 
            section 427A(l)(2), 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--

                    ``(I) the average of the bond equivalent rates of 
                the quotes of the 3-month commercial paper (financial), 
                as published by the Board of Governors of the Federal 
                Reserve System in Publication H-15 (or its successor), 
                for the last calendar week ending on or before such 
                July 1; plus
                    ``(II) 2.64 percent,

            exceeds 9.0 percent.''.

                               Speaker of the House of Representatives.

                            Vice President of the United States and    
                                               President of the Senate.
Amends title IV (Student Assistance) of the Higher Education Act of 1965 (HEA) to set fixed interest rates for new loans made on or after July 1, 2006, under: (1) the Federal Family Education Loan program (FFEL) for student loans (6.8 percent), parent (PLUS) loans, and consolidation loans (8.25 percent or a lesser amount based on a weighted average of interest rates of the loans consolidated); and (2) the William D. Ford Federal Direct Loan program for Federal Direct Stafford Loans and Federal Direct Unsubsidized Stafford Loans (both 6.8 percent), Federal Direct PLUS loans (7.9 percent), and Federal Direct Consolidation loans (8.25 percent or lesser weighted average). Extends current interest rate provisions for: (1) student or parent loans with a first disbursement before July 1, 2006; and (2) consolidation loans with an application received by the lender before July 1, 2006.Extends provisions for special allowances for lenders. Prohibits payment of such special allowances in the case of PLUS loans made on or after July 1, 2006, unless a certain percentage is reached according to a formula based in part on the average of certain bond equivalent rates published by the Federal Reserve System's Board of Governors for the last calendar week before such date.
A bill to amend the Higher Education Act of 1965 to establish fixed interest rates for student and parent borrowers, to extend current law with respect to special allowances for lenders, and for other purposes.