II 

110TH CONGRESS 

1ST SESSION S. 359 

To amend the Higher Education Act of 1965 to provide additional support 

to students. 

IN THE SENATE OF THE UNITED STATES 

JANUARY 22, 2007 

Mr. KENNEDY (for himself, Ms. MIKULSKI, Mr. LIEBERMAN, Mr. SCHUMER, 

Mr. DURBIN, and Mr. OBAMA) introduced the following bill; which was 

read twice and referred to the Committee on Finance 

A BILL 

To amend the Higher Education Act of 1965 to provide 

additional support to students. 

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

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Student Debt Relief 

5 Act of 2007’’. 

6 SEC. 2. INCREASE IN FEDERAL PELL GRANTS. 

7 (a) PROGRAM AUTHORITY.—Section 401(a)(1) of the 

8 Higher Education Act of 1965 (20 U.S.C. 1070a(a)(1)) 

9 is amended by striking ‘‘2004’’ and inserting ‘‘2012’’. 


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1 (b) AMOUNT OF GRANTS.—Section 401(b)(2)(A) of 

2 the Higher Education Act of 1965 (20 U.S.C. 

3 1070a(b)(2)(A)) is amended by striking clauses (i) 

4 through (v) and inserting the following: 

5 ‘‘(i) $5,100 for academic year 2007–2008; 

6 ‘‘(ii) $5,400 for academic year 2008–2009; 

7 ‘‘(iii) $5,700 for academic year 2009–2010; 

8 ‘‘(iv) $6,000 for academic year 2010–2011; and 

9 ‘‘(v) $6,300 for academic year 2011–2012,’’. 

10 (c) ADDITIONAL FUNDS.— 

11 (1) IN GENERAL.—For an academic year, there 

12 are authorized to be appropriated, and there are ap13 propriated, to carry out paragraph (2) (in addition 

14 to any other amounts appropriated to carry out sec15 tion 401 of the Higher Education Act of 1965 (20 

16 U.S.C. 1070a) and out of any money in the Treas17 ury not otherwise appropriated) as follows: 

18 (A) For academic year 2007–2008, 

19 $4,331,000,000. 

20 (B) For academic year 2008–2009, 

21 $5,674,000,000. 

22 (C) For academic year 2009–2010, 

23 $7,050,000,000. 

24 (D) For academic year 2010–2011, 

25 $8,452,000,000. 


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1 (E) For academic year 2011–2012, 

2 $9,894,000,000. 

3 (2) INCREASE IN PELL GRANTS.—The amounts 

4 made available pursuant to paragraph (1) shall be 

5 used to increase the amount of the maximum Fed6 eral Pell Grant under section 401 of the Higher 

7 Education Act of 1965 (20 U.S.C. 1070a) for which 

8 funds are appropriated under appropriations Acts 

9 for a fiscal year by— 

10 (A) $1,050 for award year 2007–2008; 

11 (B) $1,350 for award year 2008–2009; 

12 (C) $1,650 for award year 2009–2010; 

13 (D) $1,950 for award year 2010–2011; 

14 and 

15 (E) $2,250 for award year 2011–2012. 

16 SEC. 3. STUDENT AID REWARD PROGRAM. 

17 Part G of title IV of the Higher Education Act of 

18 1965 (20 U.S.C. 1088 et seq.) is amended by inserting 

19 after section 489 the following: 

20 ‘‘SEC. 489A. STUDENT AID REWARD PROGRAM. 

21 ‘‘(a) PROGRAM AUTHORIZED.—The Secretary shall 

22 carry out a Student Aid Reward Program to encourage 

23 institutions of higher education to participate in the stu24 dent loan program under this title that is most cost-effec25 tive for taxpayers. 


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1 ‘‘(b) PROGRAM REQUIREMENTS.—In carrying out the 

2 Student Aid Reward Program, the Secretary shall— 

3 ‘‘(1) provide to each institution of higher edu4 cation participating in the student loan program 

5 under this title that is most cost-effective for tax6 payers, a Student Aid Reward Payment, in an 

7 amount determined in accordance with subsection 

8 (c), to encourage the institution to participate in 

9 that student loan program; 

10 ‘‘(2) require each institution of higher edu11 cation receiving a payment under this section to pro12 vide student loans under such student loan program 

13 for a period of 5 years after the date the first pay14 ment is made under this section; 

15 ‘‘(3) where appropriate, require that funds paid 

16 to institutions of higher education under this section 

17 be used to award students a supplement to such stu18 dents’ Federal Pell Grants under subpart 1 of part 

19 A; 

20 ‘‘(4) permit such funds to also be used to award 

21 need-based grants to lower- and middle-income grad22 uate students; and 

23 ‘‘(5) encourage all institutions of higher edu24 cation to participate in the Student Aid Reward Pro25 gram under this section. 


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1 ‘‘(c) AMOUNT.—The amount of a Student Aid Re2 ward Payment under this section shall be not less than 

3 50 percent of the savings to the Federal Government gen4 erated by the institution of higher education’s participa5 tion in the student loan program under this title that is 

6 most cost-effective for taxpayers instead of the institu7 tion’s participation in the student loan program that is 

8 not most cost-effective for taxpayers. 

9 ‘‘(d) TRIGGER TO ENSURE COST NEUTRALITY.— 

10 ‘‘(1) LIMIT TO ENSURE COST NEUTRALITY.— 

11 Notwithstanding subsection (c), the Secretary shall 

12 not distribute Student Aid Reward Payments under 

13 the Student Aid Reward Program that, in the aggre14 gate, exceed the Federal savings resulting from the 

15 implementation of the Student Aid Reward Pro16 gram. 

17 ‘‘(2) FEDERAL SAVINGS.—In calculating Fed18 eral savings, as used in paragraph (1), the Secretary 

19 shall determine Federal savings on loans made to 

20 students at institutions of higher education that par21 ticipate in the student loan program under this title 

22 that is most cost-effective for taxpayers and that, on 

23 the date of enactment of this section, participated in 

24 the student loan program that is not most cost-effec25 tive for taxpayers, resulting from the difference of— 


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1 ‘‘(A) the Federal cost of loan volume made 

2 under the student loan program under this title 

3 that is most cost-effective for taxpayers; and 

4 ‘‘(B) the Federal cost of an equivalent type 

5 and amount of loan volume made, insured, or 

6 guaranteed under the student loan program 

7 under this title that is not most cost-effective 

8 for taxpayers. 

9 ‘‘(3) DISTRIBUTION RULES.—If the Federal 

10 savings determined under paragraph (2) is not suffi11 cient to distribute full Student Aid Reward Pay12 ments under the Student Aid Reward Program, the 

13 Secretary shall— 

14 ‘‘(A) first make Student Aid Reward Pay15 ments to those institutions of higher education 

16 that participated in the student loan program 

17 under this title that is not most cost-effective 

18 for taxpayers on the date of enactment of this 

19 section; and 

20 ‘‘(B) with any remaining Federal savings 

21 after making Student Aid Reward Payments 

22 under subparagraph (A), make Student Aid Re23 ward Payments to the institutions of higher 

24 education eligible for a Student Aid Reward 


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1 Payment and not described in subparagraph 

2 (A) on a pro-rata basis. 

3 ‘‘(4) DISTRIBUTION TO STUDENTS.—Any insti4 tution of higher education that receives a Student 

5 Aid Reward Payment under this section— 

6 ‘‘(A) shall distribute, where appropriate, 

7 part or all of such payment among the students 

8 of such institution who are Federal Pell Grant 

9 recipients by awarding such students a supple10 mental grant; and 

11 ‘‘(B) may distribute part of such payment 

12 as a supplemental grant to graduate students in 

13 financial need. 

14 ‘‘(5) ESTIMATES, ADJUSTMENTS, AND CARRY

15 OVER.— 

16 ‘‘(A) ESTIMATES AND ADJUSTMENTS.— 

17 The Secretary shall make Student Aid Reward 

18 Payments to institutions of higher education on 

19 the basis of estimates, using the best data avail20 able at the beginning of an academic or fiscal 

21 year. If the Secretary determines thereafter 

22 that loan program costs for that academic or 

23 fiscal year were different than such estimate, 

24 the Secretary shall adjust by reducing or in25 creasing subsequent Student Aid Reward PayVerDate Aug 31 2005 00:07 Jan 25, 2007 Jkt 059200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S359.IS S359

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1 ments rewards paid to such institutions of high2 er education to reflect such difference. 

3 ‘‘(B) CARRY OVER.—Any institution of 

4 higher education that receives a reduced Stu5 dent Aid Reward Payment under paragraph 

6 (3)(B), shall remain eligible for the unpaid por7 tion of such institution’s financial reward pay8 ment, as well as any additional financial reward 

9 payments for which the institution is otherwise 

10 eligible, in subsequent academic or fiscal years. 

11 ‘‘(e) DEFINITION.—In this section: 

12 ‘‘(1) STUDENT LOAN PROGRAM UNDER THIS

13 TITLE THAT IS MOST COST-EFFECTIVE FOR TAX14 PAYERS.—The term ‘student loan program under 

15 this title that is most cost-effective for taxpayers’ 

16 means the loan program under part B or D of this 

17 title that has the lowest overall cost to the Federal 

18 Government (including administrative costs) for the 

19 loans authorized by such parts. 

20 ‘‘(2) STUDENT LOAN PROGRAM UNDER THIS

21 TITLE THAT IS NOT MOST COST-EFFECTIVE FOR

22 TAXPAYERS.—The term ‘student loan program 

23 under this title that is not most cost-effective for 

24 taxpayers’ means the loan program under part B or 

25 D of this title that does not have the lowest overall 


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1 cost to the Federal Government (including adminis2 trative costs) for the loans authorized by such 

3 parts.’’. 

4 SEC. 4. INTEREST RATE REDUCTIONS. 

5 (a) FFEL INTEREST RATES.— 

6 (1) Section 427A(l) of the Higher Education 

7 Act of 1965 (20 U.S.C. 1077a(l)) is amended by 

8 adding at the end the following: 

9 ‘‘(4) REDUCED RATES FOR UNDERGRADUATE

10 SUBSIDIZED LOANS.—Notwithstanding subsection 

11 (h) and paragraph (1) of this subsection, with re12 spect to any loan to an undergraduate student made, 

13 insured, or guaranteed under this part (other than 

14 a loan made pursuant to section 428B, 428C, or 

15 428H) for which the first disbursement is made on 

16 or after July 1, 2006, and before July 1, 2012, the 

17 applicable rate of interest shall be as follows: 

18 ‘‘(A) For a loan for which the first dis19 bursement is made on or after July 1, 2006, 

20 and before July 1, 2007, 6.8 percent on the un21 paid principal balance of the loan. 

22 ‘‘(B) For a loan for which the first dis23 bursement is made on or after July 1, 2007, 

24 and before July 1, 2008, 6.12 percent on the 

25 unpaid principal balance of the loan. 


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1 ‘‘(C) For a loan for which the first dis2 bursement is made on or after July 1, 2008, 

3 and before July 1, 2009, 5.44 percent on the 

4 unpaid principal balance of the loan. 

5 ‘‘(D) For a loan for which the first dis6 bursement is made on or after July 1, 2009, 

7 and before July 1, 2010, 4.76 percent on the 

8 unpaid principal balance of the loan. 

9 ‘‘(E) For a loan for which the first dis10 bursement is made on or after July 1, 2010, 

11 and before July 1, 2011, 4.08 percent on the 

12 unpaid principal balance of the loan. 

13 ‘‘(F) For a loan for which the first dis14 bursement is made on or after July 1, 2011, 

15 and before July 1, 2012, 3.40 percent on the 

16 unpaid principal balance of the loan.’’. 

17 (2) SPECIAL ALLOWANCE CROSS REFERENCE.— 

18 Section 438(b)(2)(I)(ii)(II) of such Act is amended 

19 by striking ‘‘section 427A(l)(1)’’ and inserting ‘‘sec20 tion 427A(l)(1) or (l)(4)’’. 

21 (b) DIRECT LOAN INTEREST RATES.—Section 

22 455(b)(7) of the Higher Education Act of 1965 (20 

23 U.S.C. 1087e(b)(7)) is amended by adding at the end the 

24 following: 


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1 ‘‘(D) REDUCED RATES FOR UNDER2 GRADUATE FDSL.—Notwithstanding the pre3 ceding paragraphs of this subsection, for Fed4 eral Direct Stafford Loans made to under5 graduate students for which the first disburse6 ment is made on or after July 1, 2006, and be7 fore July 1, 2012, the applicable rate of interest 

8 shall be as follows: 

9 ‘‘(i) For a loan for which the first dis10 bursement is made on or after July 1, 

11 2006, and before July 1, 2007, 6.8 percent 

12 on the unpaid principal balance of the 

13 loan. 

14 ‘‘(ii) For a loan for which the first 

15 disbursement is made on or after July 1, 

16 2007, and before July 1, 2008, 6.12 per17 cent on the unpaid principal balance of the 

18 loan. 

19 ‘‘(iii) For a loan for which the first 

20 disbursement is made on or after July 1, 

21 2008, and before July 1, 2009, 5.44 per22 cent on the unpaid principal balance of the 

23 loan. 

24 ‘‘(iv) For a loan for which the first 

25 disbursement is made on or after July 1, 


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1 2009, and before July 1, 2010, 4.76 per2 cent on the unpaid principal balance of the 

3 loan. 

4 ‘‘(v) For a loan for which the first 

5 disbursement is made on or after July 1, 

6 2010, and before July 1, 2011, 4.08 per7 cent on the unpaid principal balance of the 

8 loan. 

9 ‘‘(vi) For a loan for which the first 

10 disbursement is made on or after July 1, 

11 2011, and before July 1, 2012, 3.40 per12 cent on the unpaid principal balance of the 

13 loan.’’. 

14 SEC. 5. INCOME CONTINGENT REPAYMENT FOR PUBLIC 

15 SECTOR EMPLOYEES. 

16 Section 455(e) of the Higher Education Act of 1965 

17 (20 U.S.C. 1087e(e)) is amended by adding at the end 

18 the following: 

19 ‘‘(7) REPAYMENT PLAN FOR PUBLIC SECTOR

20 EMPLOYEES.— 

21 ‘‘(A) IN GENERAL.—The Secretary shall 

22 forgive the balance due on any loan made under 

23 this part or section 428C(b)(5) for a bor24 rower— 


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1 ‘‘(i) who has made 120 payments on 

2 such loan pursuant to income contingent 

3 repayment; and 

4 ‘‘(ii) who is employed, and was em5 ployed for the 10-year period in which the 

6 borrower made the 120 payments de7 scribed in clause (i), in a public sector job. 

8 ‘‘(B) PUBLIC SECTOR JOB.—In this para9 graph, the term ‘public sector job’ means a full10 time job in emergency management, govern11 ment, public safety, law enforcement, public 

12 health, education (including early childhood 

13 education), social work in a public child or fam14 ily service agency, or public interest legal serv15 ices (including prosecution or public defense). 

16 ‘‘(8) RETURN TO STANDARD REPAYMENT.—A 

17 borrower who is repaying a loan made under this 

18 part pursuant to income contingent repayment may 

19 choose, at any time, to terminate repayment pursu20 ant to income contingent repayment and repay such 

21 loan under the standard repayment plan.’’. 

22 SEC. 6. FAIR PAYMENT ASSURANCE. 

23 (a) AMENDMENT.—Part G of title IV of the Higher 

24 Education Act of 1965 (20 U.S.C. 1088 et seq.) is further 

25 amended by adding at the end the following: 


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1 ‘‘SEC. 493C. FAIR PAYMENT ASSURANCE. 

2 ‘‘(a) DEFINITIONS.—In this section: 

3 ‘‘(1) EXCEPTED PLUS LOAN.—The term ‘ex4 cepted PLUS loan’ means a loan under section 

5 428B, or a Federal Direct PLUS Loan, that is 

6 made, insured, or guaranteed on behalf of a depend7 ent student. 

8 ‘‘(2) PARTIAL FINANCIAL HARDSHIP.—The 

9 term ‘partial financial hardship’ means the amount 

10 by which the annual amount due on the total 

11 amount of loans made, insured, or guaranteed under 

12 part B or D (other than an excepted PLUS loan) 

13 to a borrower as calculated under the standard re14 payment plan under section 428(b)(9)(A)(i) or 

15 455(d)(1)(A) exceeds 15 percent of the result ob16 tained by calculating the amount by which— 

17 ‘‘(A) the borrower’s adjusted gross income; 

18 exceeds 

19 ‘‘(B) 150 percent of the poverty line appli20 cable to the borrower’s family size as deter21 mined under section 673(2) of the Community 

22 Services Block Grant Act. 

23 ‘‘(b) FAIR PAYMENT ASSURANCE PROGRAM AUTHOR24 IZED.—Notwithstanding any other provision of this Act, 

25 the Secretary shall carry out a program under which— 


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1 ‘‘(1) a borrower of any loan made, insured or 

2 guaranteed under part B or D (other than an ex3 cepted PLUS loan) who has a partial financial hard4 ship may elect, during any period the borrower has 

5 the partial financial hardship, to have the borrower’s 

6 aggregate monthly payment for all such loans not 

7 exceed 15 percent of the result described in sub8 section (a)(2) divided by 12; 

9 ‘‘(2) the holder of such a loan shall apply the 

10 borrower’s monthly payment under this subsection 

11 first toward interest due on the loan and then to12 ward the principal of the loan; 

13 ‘‘(3) any interest due and not paid under para14 graph (2)— 

15 ‘‘(A) in the case of a Federal Stafford 

16 Loan or Federal Direct Stafford Loan, shall be 

17 paid by the Secretary; or 

18 ‘‘(B) in the case of any other loan under 

19 part B or D (other than a loan described in 

20 subparagraph (A) or an excepted PLUS loan), 

21 shall be capitalized; 

22 ‘‘(4) any principal due and not paid under 

23 paragraph (2) shall be deferred in the same manner 

24 as deferments under section 428(b)(1)(M); 


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1 ‘‘(5) the amount of time the borrower makes 

2 monthly payments under paragraph (1) may exceed 

3 10 years; 

4 ‘‘(6) if the borrower no longer has a partial fi5 nancial hardship or no longer wishes to continue the 

6 election under this subsection, then— 

7 ‘‘(A) the maximum monthly payment re8 quired to be paid for all loans made to the bor9 rower under part B or D (other than an ex10 cepted PLUS loan) shall not exceed the month11 ly amount calculated under section 

12 428(b)(9)(A)(i) or 455(d)(1)(A) when the bor13 rower first made the election described in this 

14 subsection; and 

15 ‘‘(B) the amount of time the borrower is 

16 permitted to repay such loans may exceed 10 

17 years; and 

18 ‘‘(7) the Secretary shall repay or cancel any 

19 outstanding balance of principal and interest due on 

20 all loans made under part B or D (other than an ex21 cepted PLUS Loan) to a borrower who— 

22 ‘‘(A) is in deferment due to an economic 

23 hardship described in section 435(o) for a pe24 riod of time prescribed by the Secretary, not to 

25 exceed 25 years; or 


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1 ‘‘(B)(i) makes the election under this sub2 section; and 

3 ‘‘(ii) for a period of time prescribed by the 

4 Secretary, not to exceed 25 years (including any 

5 period during which the borrower is in 

6 deferment due to an economic hardship de7 scribed in section 435(o)), meets any 1 or more 

8 of the following requirements: 

9 ‘‘(I) Has made reduced monthly pay10 ments under paragraph (1). 

11 ‘‘(II) Has made monthly payments of 

12 not less than the monthly amount cal13 culated under section 428(b)(9)(A)(i) or 

14 455(d)(1)(A) when the borrower first made 

15 the election described in this subsection. 

16 ‘‘(III) Has made payments under a 

17 standard repayment plan under section 

18 428(b)(9)(A)(i) or 455(d)(1)(A). 

19 ‘‘(IV) Has made payments under an 

20 income contingent repayment plan under 

21 section 455(d)(1)(D).’’. 

22 (b) CONFORMING ICR AMENDMENT.—Section 

23 455(d)(1)(D) of the Higher Education Act of 1965 (20 

24 U.S.C. 1087e(d)(1)(D)) is amended by inserting ‘‘made 

25 on behalf of a dependent student’’ after ‘‘PLUS loan’’. 


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1 SEC. 7. DEFINITION OF ECONOMIC HARDSHIP. 

2 Section 435(o) of the Higher Education Act of 1965 

3 (20 U.S.C. 1085(o)) is amended— 

4 (1) in paragraph (1)— 

5 (A) in subparagraph (A)(ii), by striking 

6 ‘‘100 percent of the poverty line for a family of 

7 2’’ and inserting ‘‘150 percent of the poverty 

8 line applicable to the borrower’s family size’’; 

9 (B) by striking subparagraph (B); and 

10 (C) by redesignating subparagraph (C) as 

11 subparagraph (B); and 

12 (2) in paragraph (2), by striking ‘‘(1)(C)’’ and 

13 inserting ‘‘(1)(B)’’. 

14 SEC. 8. DEFERRALS. 

15 (a) FISL.—Section 427(a)(2)(C)(iii) of the Higher 

16 Education Act of 1965 (20 U.S.C. 1077(a)(2)(C)(iii)) is 

17 amended by striking ‘‘not in excess of 3 years’’. 

18 (b) INTEREST SUBSIDIES.—Section 428(b)(1)(M)(iv) 

19 of the Higher Education Act of 1965 (20 U.S.C. 

20 1078(b)(1)(M)(iv)) is amended by striking ‘‘not in excess 

21 of 3 years’’. 

22 (c) DIRECT LOANS.—Section 455(f)(2)(D) of the 

23 Higher Education Act of 1965 (20 U.S.C. 1087e(f)(2)(D)) 

24 is amended by striking ‘‘not in excess of 3 years’’. 


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1 (d) PERKINS.—Section 464(c)(2)(A)(iv) of the High2 er Education Act of 1965 (20 U.S.C. 1087dd(c)(2)(A)(iv)) 

3 is amended by striking ‘‘not in excess of 3 years’’. 

4 SEC. 9. MAXIMUM REPAYMENT PERIOD. 

5 (a) IN GENERAL.—Section 455(e) of the Higher 

6 Education Act of 1965 (20 U.S.C. 1087e(e)) is amended 

7 by adding at the end the following: 

8 ‘‘(7) MAXIMUM REPAYMENT PERIOD.—In calcu9 lating the extended period of time for which an in10 come contingent repayment plan under this sub11 section may be in effect for a borrower, the Sec12 retary shall include all time periods during which a 

13 borrower of loans under part B, part D, or part E— 

14 ‘‘(A) is not in default on any loan that is 

15 included in the income contingent repayment 

16 plan; and 

17 ‘‘(B)(i) is in deferment due to an economic 

18 hardship described in section 435(o); 

19 ‘‘(ii) makes monthly payments under para20 graph (1) or (6) of section 493C(b); or 

21 ‘‘(iii) makes payments under a standard 

22 repayment plan described in section 

23 428(b)(9)(A)(i) or subsection (d)(1)(A).’’. 


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1 (b) TECHNICAL CORRECTION.—Section 455(d)(1)(C) 

2 (20 U.S.C. 1087e(d)(1)(C)) is amended by striking 

3 ‘‘428(b)(9)(A)(v)’’ and inserting ‘‘428(b)(9)(A)(iv)’’. 

4 SEC. 10. IN-SCHOOL CONSOLIDATION. 

5 Section 428(b)(7)(A) of the Higher Education Act of 

6 1965 (20 U.S.C. 1078(b)(7)(A)) is amended by striking 

7 ‘‘shall begin’’ and all that follows through the period and 

8 inserting ‘‘shall begin— 

9 ‘‘(i) the day after 6 months after the date 

10 the student ceases to carry at least one-half the 

11 normal full-time academic workload (as deter12 mined by the institution); or 

13 ‘‘(ii) on an earlier date if the borrower re14 quests and is granted a repayment schedule 

15 that provides for repayment to commence at an 

16 earlier date.’’. 

17 SEC. 11. CONSOLIDATION LOAN CHANGES. 

18 Section 428C(a)(3) of the Higher Education Act of 

19 1965 (20 U.S.C. 1078–3(a)(3)) is amended to read as fol20 lows: 

21 ‘‘(3) DEFINITION OF ELIGIBLE BORROWER.— 

22 For the purpose of this section, the term ‘eligible 

23 borrower’ means a borrower who— 

24 ‘‘(A) is not subject to a judgment secured 

25 through litigation with respect to a loan under 


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1 this title or to an order for wage garnishment 

2 under section 488A; and 

3 ‘‘(B) at the time of application for a con4 solidation loan— 

5 ‘‘(i) is in repayment status as deter6 mined under section 428(b)(7)(A); 

7 ‘‘(ii) is in a grace period preceding re8 payment; or 

9 ‘‘(iii) is a defaulted borrower who has 

10 made arrangements to repay the obligation 

11 on the defaulted loans satisfactory to the 

12 holders of the defaulted loans.’’. 

13 SEC. 12. REDUCTION OF DIRECT LOAN ORIGINATION FEES. 

14 Section 455(c) of the Higher Education Act of 1965 

15 (20 U.S.C. 1087e(c)) is amended— 

16 (1) in paragraph (1)— 

17 (A) by striking ‘‘4.0 percent’’ and inserting 

18 ‘‘3.0 percent’’; and 

19 (B) by striking ‘‘shall’’ and inserting ‘‘is 

20 authorized to’’; and 

21 (2) in paragraph (2)— 

22 (A) in subparagraph (A), by striking ‘‘ ‘3.0 

23 percent’ for ‘4.0 percent’ ’’ and inserting ‘‘ ‘2.0 

24 percent’ for ‘3.0 percent’ ’’; 


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1 (B) in subparagraph (B), by striking ‘‘ ‘2.5 

2 percent’ for ‘4.0 percent’ ’’ and inserting ‘‘ ‘1.5 

3 percent’ for ‘3.0 percent’ ’’; 

4 (C) in subparagraph (C), by striking ‘‘ ‘2.0 

5 percent’ for ‘4.0 percent’ ’’ and inserting ‘‘ ‘1.0 

6 percent’ for ‘3.0 percent’ ’’; 

7 (D) in subparagraph (D), by striking ‘‘ ‘1.5 

8 percent’ for ‘4.0 percent’ ’’ and inserting ‘‘ ‘0.5 

9 percent’ for ‘3.0 percent’ ’’; and 

10 (E) in subparagraph (E), by striking ‘‘ ‘1.0 

11 percent’ for ‘4.0 percent’ ’’ and inserting ‘‘ ‘0.0 

12 percent’ for ‘3.0 percent’ ’’. 

13 SEC. 13. ADMINISTRATIVE ACCOUNT FOR DIRECT LOAN 

14 PROGRAM. 

15 Section 458 of the Higher Education Act of 1965 (20 

16 U.S.C. 1087h) is amended— 

17 (1) in subsection (a)— 

18 (A) by striking paragraphs (2) and (3) and 

19 inserting the following: 

20 ‘‘(2) MANDATORY FUNDS FOR FISCAL YEARS

21 2007 THROUGH 2011.—Each fiscal year there shall be 

22 available to the Secretary, from funds not otherwise 

23 appropriated, funds to be obligated for— 


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1 ‘‘(A) administrative costs under this part 

2 and part B, including the costs of the direct 

3 student loan programs under this part; and 

4 ‘‘(B) account maintenance fees payable to 

5 guaranty agencies under part B and calculated 

6 in accordance with subsection (b), 

7 not to exceed (from such funds not otherwise appro8 priated) $904,000,000 (less any amounts previously 

9 appropriated for the costs and fees described this 

10 paragraph for fiscal year 2007) for fiscal year 2007, 

11 $943,000,000 for fiscal year 2008, $983,000,000 for 

12 fiscal year 2009, $1,023,000,000 for fiscal year 

13 2010, $1,064,000,000 for fiscal year 2011, and 

14 $1,106,000,000 for fiscal year 2012.’’; 

15 (B) by redesignating paragraphs (4) and 

16 (5) as paragraphs (3) and (4), respectively; and 

17 (C) in paragraph (3) (as redesignated in 

18 subparagraph (B)), by striking ‘‘paragraph (3)’’ 

19 and inserting ‘‘paragraph (2)’’; and 

20 (2) in subsection (b), by striking ‘‘(a)(3)’’ and 

21 inserting ‘‘(a)(2)’’. 

22 SEC. 14. COLLEGE TUITION DEDUCTION AND CREDIT FOR 

23 INTEREST ON HIGHER EDUCATION LOANS. 

24 (a) EXPANSION OF DEDUCTION FOR HIGHER EDU25 CATION EXPENSES.— 


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1 (1) AMOUNT OF DEDUCTION.—Subsection (b) 

2 of section 222 of the Internal Revenue Code of 1986 

3 (relating to deduction for qualified tuition and re4 lated expenses) is amended to read as follows: 

5 ‘‘(b) LIMITATIONS.— 

6 ‘‘(1) DOLLAR LIMITATIONS.— 

7 ‘‘(A) IN GENERAL.—Except as provided in 

8 paragraph (2), the amount allowed as a deduc9 tion under subsection (a) with respect to the 

10 taxpayer for any taxable year shall not exceed 

11 the applicable dollar limit. 

12 ‘‘(B) APPLICABLE DOLLAR LIMIT.—The 

13 applicable dollar limit for any taxable year shall 

14 be determined as follows: 

Applicable 

‘‘Taxable year: dollar amount: 

2007 ......................................................................................... $8,000

2008 and thereafter ................................................................. $12,000. 

15 ‘‘(2) LIMITATION BASED ON MODIFIED AD16 JUSTED GROSS INCOME.— 

17 ‘‘(A) IN GENERAL.—The amount which 

18 would (but for this paragraph) be taken into ac19 count under subsection (a) shall be reduced 

20 (but not below zero) by the amount determined 

21 under subparagraph (B). 

22 ‘‘(B) AMOUNT OF REDUCTION.—The 

23 amount determined under this subparagraph 


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1 equals the amount which bears the same ratio 

2 to the amount which would be so taken into ac3 count as— 

4 ‘‘(i) the excess of— 

5 ‘‘(I) the taxpayer’s modified ad6 justed gross income for such taxable 

7 year, over 

8 ‘‘(II) $65,000 ($130,000 in the 

9 case of a joint return), bears to 

10 ‘‘(ii) $15,000 ($30,000 in the case of 

11 a joint return). 

12 ‘‘(C) MODIFIED ADJUSTED GROSS IN13 COME.—For purposes of this paragraph, the 

14 term ‘modified adjusted gross income’ means 

15 the adjusted gross income of the taxpayer for 

16 the taxable year determined— 

17 ‘‘(i) without regard to this section and 

18 sections 199, 911, 931, and 933, and 

19 ‘‘(ii) after the application of sections 

20 86, 135, 137, 219, 221, and 469. 

21 For purposes of the sections referred to in 

22 clause (ii), adjusted gross income shall be deter23 mined without regard to the deduction allowed 

24 under this section. 

25 ‘‘(D) INFLATION ADJUSTMENTS.— 


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1 ‘‘(i) IN GENERAL.—In the case of any 

2 taxable year beginning in a calendar year 

3 after 2007, both of the dollar amounts in 

4 subparagraph (B)(i)(II) shall be increased 

5 by an amount equal to— 

6 ‘‘(I) such dollar amount, multi7 plied by 

8 ‘‘(II) the cost-of-living adjust9 ment determined under section 1(f)(3) 

10 for the calendar year in which the tax11 able year begins, by substituting ‘cal12 endar year 2006’ for ‘calendar year 

13 1992’ in subparagraph (B) thereof. 

14 ‘‘(ii) ROUNDING.—If any amount as 

15 adjusted under clause (i) is not a multiple 

16 of $50, such amount shall be rounded to 

17 the nearest multiple of $50.’’. 

18 (2) QUALIFIED TUITION AND RELATED EX19 PENSES OF ELIGIBLE STUDENTS.— 

20 (A) IN GENERAL.—Section 222(a) of the 

21 Internal Revenue Code of 1986 (relating to al22 lowance of deduction) is amended by inserting 

23 ‘‘of eligible students’’ after ‘‘expenses’’. 

24 (B) DEFINITION OF ELIGIBLE STUDENT.— 

25 Section 222(d) of such Code (relating to definiVerDate Aug 31 2005 00:07 Jan 25, 2007 Jkt 059200 PO 00000 Frm 00026 Fmt 6652 Sfmt 6201 E:\BILLS\S359.IS S359

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1 tions and special rules) is amended by redesig2 nating paragraphs (2) through (6) as para3 graphs (3) through (7), respectively, and by in4 serting after paragraph (1) the following new 

5 paragraph: 

6 ‘‘(2) ELIGIBLE STUDENT.—The term ‘eligible 

7 student’ has the meaning given such term by section 

8 25A(b)(3).’’. 

9 (3) DEDUCTION MADE PERMANENT.—Title IX 

10 of the Economic Growth and Tax Relief Reconcili11 ation Act of 2001 (relating to sunset of provisions 

12 of such Act) shall not apply to the amendments 

13 made by section 431 of such Act. 

14 (4) EFFECTIVE DATE.—The amendments made 

15 by this subsection shall apply to payments made in 

16 taxable years beginning after December 31, 2006. 

17 (b) CREDIT FOR INTEREST ON HIGHER EDUCATION

18 LOANS.— 

19 (1) IN GENERAL.—Subpart A of part IV of sub20 chapter A of chapter 1 of the Internal Revenue Code 

21 of 1986 (relating to nonrefundable personal credits) 

22 is amended by inserting after section 25D the fol23 lowing new section: 


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1 ‘‘SEC. 25E. INTEREST ON HIGHER EDUCATION LOANS. 

2 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in3 dividual, there shall be allowed as a credit against the tax 

4 imposed by this chapter for the taxable year an amount 

5 equal to the interest paid by the taxpayer during the tax6 able year on any qualified education loan. 

7 ‘‘(b) MAXIMUM CREDIT.— 

8 ‘‘(1) IN GENERAL.—Except as provided in para9 graph (2), the credit allowed by subsection (a) for 

10 the taxable year shall not exceed $1,500. 

11 ‘‘(2) LIMITATION BASED ON MODIFIED AD12 JUSTED GROSS INCOME.— 

13 ‘‘(A) IN GENERAL.—If the modified ad14 justed gross income of the taxpayer for the tax15 able year exceeds $50,000 ($100,000 in the 

16 case of a joint return), the amount which would 

17 (but for this paragraph) be allowable as a credit 

18 under this section shall be reduced (but not 

19 below zero) by the amount which bears the 

20 same ratio to the amount which would be so al21 lowable as such excess bears to $20,000 

22 ($40,000 in the case of a joint return). 

23 ‘‘(B) MODIFIED ADJUSTED GROSS IN24 COME.—The term ‘modified adjusted gross in25 come’ means adjusted gross income determined 


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1 without regard to sections 199, 222, 911, 931, 

2 and 933. 

3 ‘‘(C) INFLATION ADJUSTMENT.—In the 

4 case of any taxable year beginning after 2007, 

5 the $50,000 and $100,000 amounts referred to 

6 in subparagraph (A) shall be increased by an 

7 amount equal to— 

8 ‘‘(i) such dollar amount, multiplied by 

9 ‘‘(ii) the cost-of-living adjustment de10 termined under section (1)(f)(3) for the 

11 calendar year in which the taxable year be12 gins, by substituting ‘2006’ for ‘1992’. 

13 ‘‘(D) ROUNDING.—If any amount as ad14 justed under subparagraph (C) is not a multiple 

15 of $50, such amount shall be rounded to the 

16 nearest multiple of $50. 

17 ‘‘(c) DEPENDENTS NOT ELIGIBLE FOR CREDIT.—No 

18 credit shall be allowed by this section to an individual for 

19 the taxable year if a deduction under section 151 with re20 spect to such individual is allowed to another taxpayer for 

21 the taxable year beginning in the calendar year in which 

22 such individual’s taxable year begins. 

23 ‘‘(d) LIMIT ON PERIOD CREDIT ALLOWED.—A credit 

24 shall be allowed under this section only with respect to 

25 interest paid on any qualified education loan during the 


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1 first 60 months (whether or not consecutive) in which in2 terest payments are required. For purposes of this para3 graph, any loan and all refinancings of such loan shall be 

4 treated as 1 loan. 

5 ‘‘(e) DEFINITIONS.—For purposes of this section— 

6 ‘‘(1) QUALIFIED EDUCATION LOAN.—The term 

7 ‘qualified education loan’ has the meaning given 

8 such term by section 221(d)(1). 

9 ‘‘(2) DEPENDENT.—The term ‘dependent’ has 

10 the meaning given such term by section 152. 

11 ‘‘(f) SPECIAL RULES.— 

12 ‘‘(1) DENIAL OF DOUBLE BENEFIT.—No credit 

13 shall be allowed under this section for any amount 

14 taken into account for any deduction under any 

15 other provision of this chapter. 

16 ‘‘(2) MARRIED COUPLES MUST FILE JOINT RE17 TURN.—If the taxpayer is married at the close of 

18 the taxable year, the credit shall be allowed under 

19 subsection (a) only if the taxpayer and the tax20 payer’s spouse file a joint return for the taxable 

21 year. 

22 ‘‘(3) MARITAL STATUS.—Marital status shall be 

23 determined in accordance with section 7703.’’. 

24 (2) CONFORMING AMENDMENT.—The table of 

25 sections for subpart A of part IV of subchapter A 


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1 of chapter 1 of the Internal Revenue Code of 1986 

2 is amended by inserting after the item relating to 

3 section 25D the following new item: 

‘‘Sec. 25E. Interest on higher education loans.’’. 

4 (3) EFFECTIVE DATE.—The amendments made 

5 by this section shall apply to any qualified education 

6 loan (as defined in section 25E(e)(1) of the Internal 

7 Revenue Code of 1986, as added by this section) in8 curred on, before, or after the date of the enactment 

9 of this Act, but only with respect to any loan inter10 est payment due after December 31, 2006. 

Æ 


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