II 

109TH CONGRESS 

1ST SESSION S. 1964 

To amend the Internal Revenue Code of 1986 to modify the determination 

and deduction of interest on qualified education loans. 

IN THE SENATE OF THE UNITED STATES 

NOVEMBER 4, 2005 

Ms. SNOWE (for herself and Mr. SCHUMER) introduced the following bill; 

which was read twice and referred to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to modify 

the determination and deduction of interest on qualified 

education loans. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. INTEREST DETERMINATIONS ON STUDENT 

4 LOANS. 

5 (a) IN GENERAL.—Section 221 of the Internal Rev6 enue Code of 1986 (relating to interest on education 

7 loans) is amended by redesignating subsection (f) as sub8 section (g) and by inserting after subsection (e) the fol9 lowing new subsection: 
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1 ‘‘(f) DETERMINATION OF INTEREST PAID.—In the 

2 case of a qualified education loan made after December 

3 31, 2004, for purposes of this section and notwithstanding 

4 any other provision of this title— 

5 ‘‘(1) IN GENERAL.— 

6 ‘‘(A) TREATMENT AS INTEREST.—Any 

7 payment on such loan shall be treated as a pay8 ment of interest to the extent of the balance, 

9 immediately before such payment, in the accu10 mulated interest account with respect to such 

11 loan. 

12 ‘‘(B) EXCEPTION.—Subparagraph (A) 

13 shall not apply to any payment of collection 

14 costs, late fees, and penalties. 

15 ‘‘(2) ACCUMULATED INTEREST ACCOUNT.— 

16 ‘‘(A) IN GENERAL.—The term ‘accumu17 lated interest account’ means an account which 

18 is adjusted in accordance with this paragraph. 

19 ‘‘(B) INCREASES.—The balance in the ac20 cumulated interest account shall be increased 

21 for any period by the sum of— 

22 ‘‘(i) the loan origination fees incurred 

23 by the borrower in such period, 

24 ‘‘(ii) the amount of stated interest on 

25 the loan for such period, and 
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1 ‘‘(iii) the amount of any fee imposed 

2 under section 428(b)(1)(H) of the Higher 

3 Education Act of 1965 (20 U.S.C. 

4 1078(b)(1)(H)). 

5 ‘‘(C) DECREASES.—The balance in the ac6 cumulated interest account shall be decreased 

7 (but not below zero) by payments made on the 

8 loan to the extent treated as interest under this 

9 section. 

10 ‘‘(3) LOAN ORIGINATION FEES.— 

11 ‘‘(A) FEDERAL PROGRAMS.—The term 

12 ‘loan origination fee’ includes any fee imposed 

13 under any of the following provisions of the 

14 Higher Education Act of 1965: 

15 ‘‘(i) Section 438(c) (20 U.S.C. 1087– 

16 1(c)). 

17 ‘‘(ii) Section 455(c) (20 U.S.C. 

18 1087e(c)). 

19 ‘‘(B) FEES FOR SERVICES OR PROPERTY

20 EXCLUDED.—Except as provided under sub21 paragraph (A), the term ‘loan origination fee’ 

22 does not include any fee which is a fee for serv23 ices or property. 

24 ‘‘(4) STATED INTEREST.—The term ‘stated in25 terest’ means, with respect to any period, the 
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1 amount of interest determined for the period based 

2 on the stated rate of interest applicable to the period 

3 (whether or not the interest is required to be paid 

4 in such period). 

5 ‘‘(5) ANTI-ABUSE RULE.—The Secretary may 

6 prescribe rules to prevent the acceleration or decel7 eration of additions to the accumulated interest ac8 count where the loan origination fees or stated inter9 est do not properly reflect the substance of the 

10 loan.’’. 

11 (b) INFORMATION RETURNS.— 

12 (1) INTEREST AND LOAN ORIGINATION FEE DE13 FINED.—Subsection (e) of section 6050S of such 

14 Code (relating to the general rule for form and man15 ner of returns) is amended by inserting before the 

16 period at the end the following: ‘‘, and the term ‘in17 terest’ has the same meaning as when used in sec18 tion 221’’. 

19 (2) PRE-2005 LOANS.—The regulations under 

20 section 6050S of the Internal Revenue Code of 1986 

21 which are applicable to loans made before September 

22 1, 2004, shall also apply to loans made on or after 

23 such date which are made before January 1, 2005. 
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1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2004. 

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