II 

109TH CONGRESS 

2D SESSION S. 3593 

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

to students. 

IN THE SENATE OF THE UNITED STATES 

JUNE 28, 2006 

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

HARKIN, Mrs. CLINTON, and Mr. LIEBERMAN) 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 2006’’. 

6 SEC. 2. INCREASE IN FEDERAL PELL GRANTS. 

7 (a) IN GENERAL.—Section 401(b)(2)(A) of the High8 er Education Act of 1965 (20 U.S.C. 1070a(b)(2)(A)) is 

9 amended by striking clauses (i) through (v) and inserting 

10 the following: 


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

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

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

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

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

6 (b) ADDITIONAL FUNDS.—For an academic year, in 

7 the case in which discretionary amounts appropriated to 

8 carry out the Federal Pell Grant program under subpart 

9 1 of part A of title IV of the Higher Education Act of 

10 1965 (20 U.S.C. 1070a et seq.) for such academic year 

11 are sufficient to fund a maximum Federal Pell Grant 

12 award of $4,050, then there are authorized to be appro13 priated, and there are appropriated, additional amounts 

14 to carry out the amendment made by subsection (a) as 

15 follows: 

16 (1) For academic year 2007–2008, 

17 $4,310,000,000. 

18 (2) For academic year 2008–2009, 

19 $5,563,000,000. 

20 (3) For academic year 2009–2010, 

21 $6,982,000,000. 

22 (4) For academic year 2010–2011, 

23 $8,398,000,000. 

24 (5) For academic year 2011–2012, 

25 $9,831,000,000. 


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1 SEC. 3. STUDENT AID REWARD PROGRAM. 

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

3 1965 (20 U.S.C. 1088 et seq.) is amended by inserting 

4 after section 489 the following: 

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

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

7 carry out a Student Aid Reward Program to encourage 

8 institutions of higher education to participate in the stu9 dent loan program under this title that is most cost-effec10 tive for taxpayers. 

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

12 Student Aid Reward Program, the Secretary shall— 

13 ‘‘(1) provide to each institution of higher edu14 cation participating in the student loan program 

15 under this title that is most cost-effective for tax16 payers, a Student Aid Reward Payment, in an 

17 amount determined in accordance with subsection 

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

19 that student loan program; 

20 ‘‘(2) require each institution of higher edu21 cation receiving a payment under this section to pro22 vide student loans under such student loan program 

23 for a period of 5 years after the date the first pay24 ment is made under this section; 

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

26 to institutions of higher education under this section 


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1 be used to award students a supplement to such stu2 dents’ Federal Pell Grants under subpart 1 of part 

3 A; 

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

5 need-based grants to lower- and middle-income grad6 uate students; and 

7 ‘‘(5) encourage all institutions of higher edu8 cation to participate in the Student Aid Reward Pro9 gram under this section. 

10 ‘‘(c) AMOUNT.—The amount of a Student Aid Re11 ward Payment under this section shall be not less than 

12 50 percent of the savings to the Federal Government gen13 erated by the institution of higher education’s participa14 tion in the student loan program under this title that is 

15 most cost-effective for taxpayers instead of the institu16 tion’s participation in the student loan program that is 

17 not most cost-effective for taxpayers. 

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

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

20 Notwithstanding subsection (c), the Secretary shall 

21 not distribute Student Aid Reward Payments under 

22 the Student Aid Reward Program that, in the aggre23 gate, exceed the Federal savings resulting from the 

24 implementation of the Student Aid Reward Pro25 gram. 


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1 ‘‘(2) FEDERAL SAVINGS.—In calculating Fed2 eral savings, as used in paragraph (1), the Secretary 

3 shall determine Federal savings on loans made to 

4 students at institutions of higher education that par5 ticipate in the student loan program under this title 

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

7 the date of enactment of this section, participated in 

8 the student loan program that is not most cost-effec9 tive for taxpayers, resulting from the difference of— 

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

11 under the student loan program under this title 

12 that is most cost-effective for taxpayers; and 

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

14 and amount of loan volume made, insured, or 

15 guaranteed under the student loan program 

16 under this title that is not most cost-effective 

17 for taxpayers. 

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

19 savings determined under paragraph (2) is not suffi20 cient to distribute full Student Aid Reward Pay21 ments under the Student Aid Reward Program, the 

22 Secretary shall— 

23 ‘‘(A) first make Student Aid Reward Pay24 ments to those institutions of higher education 

25 that participated in the student loan program 


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1 under this title that is not most cost-effective 

2 for taxpayers on the date of enactment of this 

3 section; and 

4 ‘‘(B) with any remaining Federal savings 

5 after making Student Aid Reward Payments 

6 under subparagraph (A), make Student Aid Re7 ward Payments to the institutions of higher 

8 education eligible for a Student Aid Reward 

9 Payment and not described in subparagraph 

10 (A) on a pro-rata basis. 

11 ‘‘(4) DISTRIBUTION TO STUDENTS.—Any insti12 tution of higher education that receives a Student 

13 Aid Reward Payment under this section— 

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

15 part or all of such payment among the students 

16 of such institution who are Federal Pell Grant 

17 recipients by awarding such students a supple18 mental grant; and 

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

20 as a supplemental grant to graduate students in 

21 financial need. 

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

23 OVER.— 

24 ‘‘(A) ESTIMATES AND ADJUSTMENTS.— 

25 The Secretary shall make Student Aid Reward 


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1 Payments to institutions of higher education on 

2 the basis of estimates, using the best data avail3 able at the beginning of an academic or fiscal 

4 year. If the Secretary determines thereafter 

5 that loan program costs for that academic or 

6 fiscal year were different than such estimate, 

7 the Secretary shall adjust by reducing or in8 creasing subsequent Student Aid Reward Pay9 ments rewards paid to such institutions of high10 er education to reflect such difference. 

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

12 higher education that receives a reduced Stu13 dent Aid Reward Payment under paragraph 

14 (3)(B), shall remain eligible for the unpaid por15 tion of such institution’s financial reward pay16 ment, as well as any additional financial reward 

17 payments for which the institution is otherwise 

18 eligible, in subsequent academic or fiscal years. 

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

20 ‘‘(1) STUDENT LOAN PROGRAM UNDER THIS

21 TITLE THAT IS MOST COST-EFFECTIVE FOR TAX22 PAYERS.—The term ‘student loan program under 

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

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

25 title that has the lowest overall cost to the Federal 


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1 Government (including administrative costs) for the 

2 loans authorized by such parts. 

3 ‘‘(2) STUDENT LOAN PROGRAM UNDER THIS

4 TITLE THAT IS NOT MOST COST-EFFECTIVE FOR

5 TAXPAYERS.—The term ‘student loan program 

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

7 taxpayers’ means the loan program under part B or 

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

9 cost to the Federal Government (including adminis10 trative costs) for the loans authorized by such 

11 parts.’’. 

12 SEC. 4. REDUCTION IN INTEREST RATES. 

13 (a) FFEL.—Section 427A(l) of the Higher Edu14 cation Act of 1965 (20 U.S.C. 1077a(l)) is amended— 

15 (1) in paragraph (1)— 

16 (A) by striking ‘‘or 428C’’ and inserting ‘‘, 

17 428C, or 428H’’; 

18 (B) by striking ‘‘6.8 percent’’ and inserting 

19 ‘‘3.4 percent’’; and 

20 (C) by adding at the end the following: 

21 ‘‘Notwithstanding subsection (h), with respect 

22 to any loan under section 428H for which the 

23 first disbursement is made on or after July 1, 

24 2006, the applicable rate of interest shall be 6.8 


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1 percent on the unpaid principal balance of the 

2 loan.’’; and 

3 (2) in paragraph (2), by striking ‘‘8.5 percent’’ 

4 and inserting ‘‘4.25 percent’’. 

5 (b) DIRECT LOANS.—Section 455(b)(7) of the High6 er Education Act of 1965 (20 U.S.C. 1087e(b)(7)) is 

7 amended— 

8 (1) in subparagraph (A)— 

9 (A) by striking ‘‘and Federal Direct Un10 subsidized Stafford Loans’’; 

11 (B) by striking ‘‘6.8 percent’’ and inserting 

12 ‘‘3.4 percent’’; and 

13 (C) by adding at the end the following: 

14 ‘‘Notwithstanding the preceding paragraphs of 

15 this subsection, for Federal Direct Unsub16 sidized Stafford Loans for which the first dis17 bursement is made on or after July 1, 2006, 

18 the applicable rate of interest shall be 6.8 per19 cent on the unpaid principal balance of the 

20 loan.’’; and 

21 (2) in subparagraph (B), by striking ‘‘7.9 per22 cent’’ and inserting ‘‘4.25 percent’’. 

23 SEC. 5. IN-SCHOOL CONSOLIDATION. 

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

25 1965 (20 U.S.C. 1078(b)(7)(A)) is amended by striking 


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

2 inserting ‘‘shall begin— 

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

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

5 normal full-time academic workload (as deter6 mined by the institution); or 

7 ‘‘(ii) on an earlier date if the borrower re8 quests and is granted a repayment schedule 

9 that provides for repayment to commence at an 

10 earlier date.’’. 

11 SEC. 6. CONSOLIDATION LOAN CHANGES. 

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

13 1965 (20 U.S.C. 1078–3(a)(3)) is amended to read as fol14 lows: 

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

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

17 borrower’ means a borrower who— 

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

19 through litigation with respect to a loan under 

20 this title or to an order for wage garnishment 

21 under section 488A; and 

22 ‘‘(B) at the time of application for a con23 solidation loan— 

24 ‘‘(i) is in repayment status as deter25 mined under section 428(b)(7)(A); 


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1 ‘‘(ii) is in a grace period preceding re2 payment; or 

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

4 made arrangements to repay the obligation 

5 on the defaulted loans satisfactory to the 

6 holders of the defaulted loans.’’. 

7 SEC. 7. REDUCTION OF DIRECT LOAN ORIGINATION FEES. 

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

9 (20 U.S.C. 1087e(c)) is amended— 

10 (1) in paragraph (1)— 

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

12 ‘‘3.0 percent’’; and 

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

14 authorized to’’; and 

15 (2) in paragraph (2)— 

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

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

18 percent’ for ‘3.0 percent’ ’’; 

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

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

21 percent’ for ‘3.0 percent’ ’’; 

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

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

24 percent’ for ‘3.0 percent’ ’’; 


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

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

3 percent’ for ‘3.0 percent’ ’’; and 

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

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

6 percent’ for ‘3.0 percent’ ’’. 

7 SEC. 8. ELIMINATION OF EXCEPTIONAL PERFORMER STA8 TUS FOR LENDERS. 

9 (a) REPEAL.—Section 428I of the Higher Education 

10 Act of 1965 (20 U.S.C. 1078-9) is repealed. 

11 (b) CONFORMING AMENDMENTS.—Part A of title IV 

12 of the Higher Education Act of 1965 (20 U.S.C.1070 et 

13 seq.) is amended— 

14 (1) in section 428(c)(1)— 

15 (A) by striking subparagraph (D); and 

16 (B) by redesignating subparagraphs (E) 

17 through (H) as subparagraphs (D) and (G), re18 spectively; and 

19 (2) in section 438(b)(5), by striking the matter 

20 following subparagraph (B). 

21 SEC. 9. SCHOOLS AS LENDERS. 

22 Section 435(d) of the Higher Education Act of 1965 

23 (20 U.S.C. 1085(d)) is amended— 

24 (1) in paragraph (2)(C), by inserting ‘‘Federal 

25 or’’ after ‘‘not to supplant,’’; and 


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1 (2) by adding at the end the following: 

2 ‘‘(7) ELIGIBLE LENDER TRUSTEE USE BY ELI3 GIBLE INSTITUTION.—In the case of an eligible in4 stitution that uses an eligible lender trustee for the 

5 purpose of qualifying as an eligible lender under 

6 paragraph (2), such eligible lender trustee shall be 

7 subject to the requirements of paragraphs (2) 

8 through (5).’’. 

9 SEC. 10. ADMINISTRATIVE ACCOUNT FOR DIRECT LOAN 

10 PROGRAM. 

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

12 U.S.C. 1087h) is amended— 

13 (1) in subsection (a)— 

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

15 inserting the following: 

16 ‘‘(2) MANDATORY FUNDS FOR FISCAL YEARS

17 2007 THROUGH 2011.—Each fiscal year there shall be 

18 available to the Secretary, from funds not otherwise 

19 appropriated, funds to be obligated for— 

20 ‘‘(A) administrative costs under this part 

21 and part B, including the costs of the direct 

22 student loan programs under this part; and 

23 ‘‘(B) account maintenance fees payable to 

24 guaranty agencies under part B and calculated 

25 in accordance with subsection (b), 


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1 not to exceed (from such funds not otherwise appro2 priated) $904,000,000 in fiscal year 2007, 

3 $943,000,000 in fiscal year 2008, $983,000,000 in 

4 fiscal year 2009, $1,023,000,000 in fiscal year 2010, 

5 $1,064,000,000 in fiscal year 2011, and 

6 $1,106,000,000 in fiscal year 2012.’’; 

7 (B) by redesignating paragraphs (4) and 

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

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

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

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

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

13 inserting ‘‘(a)(2)’’. 

14 SEC. 11. 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), or public interest legal services (in14 cluding prosecution or public defense). 

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

16 borrower who is repaying a loan made under this 

17 part pursuant to income contingent repayment may 

18 choose, at any time, to terminate repayment pursu19 ant to income contingent repayment and repay such 

20 loan under the standard repayment plan.’’. 

21 SEC. 12. DEFINITIONS OF PARTIAL FINANCIAL HARDSHIP 

22 AND ECONOMIC HARDSHIP. 

23 (a) PARTIAL FINANCIAL HARDSHIP.—Section 435 of 

24 the Higher Education Act of 1965 (20 U.S.C. 1085) is 

25 amended by inserting after subsection (m) the following: 


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1 ‘‘(n) PARTIAL FINANCIAL HARDSHIP.—For purposes 

2 of this part and part E, the term ‘partial financial hard3 ship’ means the amount by which the borrower’s annual 

4 Federal educational debt burden exceeds 15 percent of the 

5 difference between— 

6 ‘‘(1) the borrower’s adjusted gross income; and 

7 ‘‘(2) the poverty line applicable to the bor8 rower’s family size as determined under section 

9 673(2) of the Community Services Block Grant 

10 Act.’’. 

11 (b) ECONOMIC HARDSHIP.—Section 435(o) of the 

12 Higher Education Act of 1965 (20 U.S.C. 1085(o)) is 

13 amended— 

14 (1) in paragraph (1)— 

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

16 ‘‘100 percent of the poverty line for a family of 

17 2’’ and inserting ‘‘150 percent of the poverty 

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

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

20 (C) by redesignating subparagraph (C) as 

21 subparagraph (B); and 

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

23 inserting ‘‘(1)(B)’’. 


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1 SEC. 13. DEFERRALS. 

2 (a) FISL.—Section 427(a)(2)(C) of the Higher Edu3 cation Act of 1965 (20 U.S.C. 1077(a)(2)(C)) is amended 

4 to read as follows: 

5 ‘‘(C) provides that— 

6 ‘‘(i) periodic installments of principal 

7 need not be paid, but interest shall accrue 

8 and be paid, during any period— 

9 ‘‘(I) during which the borrower— 

10 ‘‘(aa) is pursuing at least a 

11 half-time course of study as de12 termined by an eligible institu13 tion; or 

14 ‘‘(bb) is pursuing a course 

15 of study pursuant to a graduate 

16 fellowship program approved by 

17 the Secretary, or pursuant to a 

18 rehabilitation training program 

19 for individuals with disabilities 

20 approved by the Secretary, 

21 except that no borrower shall be eligi22 ble for a deferment under this clause, 

23 or a loan made under this part (other 

24 than a loan made under section 428B 

25 or 428C), while serving in a medical 

26 internship or residency program; 


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1 ‘‘(II) not in excess of 3 years 

2 during which the borrower is seeking 

3 and unable to find full-time employ4 ment; or 

5 ‘‘(III) during which the borrower 

6 has, or will have, an economic hard7 ship described in section 435(o), as 

8 determined by the lender in accord9 ance with regulations prescribed by 

10 the Secretary under such section; and 

11 ‘‘(ii) during any period during which a 

12 borrower has, or will have, a partial finan13 cial hardship defined in section 435(n), as 

14 determined by the lender in accordance 

15 with regulations prescribed by the Sec16 retary under such section, the borrower— 

17 ‘‘(I) need only pay the portion of 

18 the periodic installments of principal 

19 and interest that exceeds the bor20 rower’s partial financial hardship for 

21 such period; and 

22 ‘‘(II) may defer the remaining 

23 amount of principal and interest 

24 (which interest shall continue to ac25 crue) for such period, 


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1 and provides that any such period shall not be 

2 included in determining the 10-year period de3 scribed in subparagraph (B);’’. 

4 (b) INTEREST SUBSIDIES.—Section 428(b)(1)(M) of 

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

6 1078(b)(1)(M)) is amended to read as follows: 

7 ‘‘(M) provides that— 

8 ‘‘(i) periodic installments of principal 

9 need not be paid, but interest shall accrue 

10 and be paid by the Secretary, during any 

11 period— 

12 ‘‘(I) during which the borrower— 

13 ‘‘(aa) is pursuing at least a 

14 half-time course of study as de15 termined by an eligible institu16 tion, except that no borrower, 

17 notwithstanding the provisions of 

18 the promissory note, shall be re19 quired to borrow an additional 

20 loan under this title in order to 

21 be eligible to receive a deferment 

22 under this clause; or 

23 ‘‘(bb) is pursuing a course 

24 of study pursuant to a graduate 

25 fellowship program approved by 


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1 the Secretary, or pursuant to a 

2 rehabilitation training program 

3 for disabled individuals approved 

4 by the Secretary, 

5 except that no borrower shall be eligi6 ble for a deferment under this clause, 

7 or loan made under this part (other 

8 than a loan made under 428B or 

9 428C), while serving in a medical in10 ternship or residency program; 

11 ‘‘(II) not in excess of 3 years 

12 during which the borrower is seeking 

13 and unable to find full-time employ14 ment, except that no borrower who 

15 provides evidence of eligibility for un16 employment benefits shall be required 

17 to provide additional paperwork for a 

18 deferment under this clause; 

19 ‘‘(III) not in excess of 3 years 

20 during which the borrower— 

21 ‘‘(aa) is serving on active 

22 duty during a war or other mili23 tary operation or national emer24 gency; or 


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1 ‘‘(bb) is performing quali2 fying National Guard duty dur3 ing a war or other military oper4 ation or national emergency; or 

5 ‘‘(IV) during which the borrower 

6 has, or will have, an economic hard7 ship described in section 435(o), as 

8 determined by the lender in accord9 ance with regulations prescribed by 

10 the Secretary under such section; and 

11 ‘‘(ii) during any period during which a 

12 borrower has, or will have, a partial finan13 cial hardship defined in section 435(n), as 

14 determined by the lender in accordance 

15 with regulations prescribed by the Sec16 retary under such section, a portion of the 

17 periodic installments of principal and inter18 est need not be paid as follows: 

19 ‘‘(I) the Secretary shall first pay 

20 the portion of the periodic install21 ments of interest due that does not 

22 exceed the borrower’s partial financial 

23 hardship for such period, and any 

24 amount of interest due in excess of 

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1 ship for such period shall be paid by 

2 the borrower; and 

3 ‘‘(II) the borrower shall pay the 

4 periodic installments of principal due 

5 for such period, reduced by the dif6 ference between the partial financial 

7 hardship and the amount of interest 

8 paid under subclause (I);’’. 

9 (c) DIRECT LOANS.—Section 455(f) of the Higher 

10 Education Act of 1965 (20 U.S.C. 1087e(f)) is amended— 

11 (1) in paragraph (2)(D), by striking ‘‘not in ex12 cess of 3 years’’; and 

13 (2) by adding at the end the following: 

14 ‘‘(5) PARTIAL FINANCIAL HARDSHIP

15 DEFERMENT.—During any period during which a 

16 borrower has, or will have, a partial financial hard17 ship defined in section 435(n), as determined by the 

18 Secretary in accordance with regulations prescribed 

19 under such section, a portion of the periodic install20 ments of principal and interest need not be paid as 

21 follows: 

22 ‘‘(A) In the case of a Federal Direct Staf23 ford Loan, a Federal Direct Consolidation Loan 

24 that consolidated only Federal Direct Stafford 

25 Loans, or a combination of such loans and FedVerDate Aug 31 2005 22:07 Jun 29, 2006 Jkt 049200 PO 00000 Frm 00022 Fmt 6652 Sfmt 6201 E:\BILLS\S3593.IS S3593

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1 eral Stafford Loans for which the student bor2 rower received an interest subsidy under section 

3 428— 

4 ‘‘(i) the amount of interest for such 

5 period that does not exceed the borrower’s 

6 partial financial hardship shall not accrue, 

7 and any amount of interest due in excess 

8 of the borrower’s partial financial hardship 

9 shall be capitalized or be paid by the bor10 rower; and 

11 ‘‘(ii) the borrower shall pay the peri12 odic installments of principal due for such 

13 period, reduced by the difference between 

14 the partial financial hardship and the 

15 amount of interest paid under clause (i). 

16 ‘‘(B) In the case of a Federal Direct 

17 PLUS Loan, a Federal Direct Unsubsidized 

18 Stafford Loan, or a Federal Direct Consolida19 tion Loan not described in subparagraph (A)— 

20 ‘‘(i) the amount of interest and prin21 cipal that equals the borrower’s partial fi22 nancial hardship for such period need not 

23 be paid but may be deferred or capitalized 

24 by the borrower; and 


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1 ‘‘(ii) any amount of interest or prin2 cipal due in excess of the borrower’s par3 tial financial hardship for such period shall 

4 be paid by the borrower.’’. 

5 (d) PERKINS.—Section 464(c) of the Higher Edu6 cation Act of 1965 (20 U.S.C. 1087dd(c)) is amended— 

7 (1) by striking paragraph (2)(A)(iv) and insert8 ing the following: 

9 ‘‘(iv) during which the borrower has, or will 

10 have, an economic hardship described in section 

11 435(o), as determined by the lender in accordance 

12 with regulations prescribed by the Secretary under 

13 such section; or’’; and 

14 (2) by adding at the end the following: 

15 ‘‘(8) PARTIAL FINANCIAL HARDSHIP DEFERMENT.— 

16 During any period during which a borrower has, or will 

17 have, a partial financial hardship defined in section 

18 435(n), as determined by the lender in accordance with 

19 regulations prescribed by the Secretary under such sec20 tion, a portion of the periodic installments of principal and 

21 interest need not be paid as follows: 

22 ‘‘(A) the Secretary shall first pay the periodic 

23 installments of interest due for such period that does 

24 not exceed the borrower’s partial financial hardship, 

25 and any amount of interest due in excess of the borVerDate Aug 31 2005 22:07 Jun 29, 2006 Jkt 049200 PO 00000 Frm 00024 Fmt 6652 Sfmt 6201 E:\BILLS\S3593.IS S3593

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1 rower’s partial financial hardship shall be paid by 

2 the borrower; and 

3 ‘‘(B) the borrower shall pay the periodic install4 ments of principal due reduced by the difference be5 tween the partial financial hardship and the amount 

6 of interest paid under subparagraph (A).’’. 

7 SEC. 14. MAXIMUM REPAYMENT PERIOD. 

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

9 (20 U.S.C. 1087e(e)) is amended by adding at the end 

10 the following: 

11 ‘‘(7) MAXIMUM REPAYMENT PERIOD.—In calcu12 lating the extended period of time for which an in13 come contingent repayment plan under this sub14 section may be in effect for a borrower, the Sec15 retary shall include all time periods during which a 

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

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

18 included in the income contingent repayment 

19 plan; and 

20 ‘‘(B)(i) qualifies for economic hardship de21 scribed in section 435(o); 

22 ‘‘(ii) has a partial financial hardship de23 fined in section 435(n); 


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1 ‘‘(iii) makes payments under a standard 

2 repayment plan described in section 

3 428(b)(9)(A)(i) or 455(d)(1)(A), or 

4 ‘‘(iv) makes payments under an extended 

5 repayment plan described in section 

6 428(b)(9)(A)(iv) or 455(d)(1)(C).’’. 

7 SEC. 15. INCREASE IN CONSOLIDATION LOAN LENDER 

8 FEES. 

9 (a) AMENDMENT.—Paragraph (2) of section 438(d) 

10 (20 U.S.C. 1087–1(d)) is amended to read as follows: 

11 ‘‘(2) AMOUNT OF LOAN FEES.— 

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

13 subparagraph (B), with respect to any loan 

14 made under this part for which the first dis15 bursement was made on or after October 1, 

16 1993, the amount of the loan fee that shall be 

17 deducted under paragraph (1) shall be equal to 

18 0.50 percent of the principal amount of the 

19 loan. 

20 ‘‘(B) CONSOLIDATION LOANS.—With re21 spect to any loan made under section 428C on 

22 or after April 1, 2006, the amount of the loan 

23 fee that shall be deducted under paragraph (1) 

24 shall be equal to 1.0 percent of the principal 

25 amount of the loan.’’. 


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1 (b) EFFECTIVE DATE.—The amendment made by 

2 subsection (a) shall apply with respect to any loan made, 

3 insured, or guaranteed under part B of title IV of the 

4 Higher Education Act of 1965 (20 U.S.C. 1071 et seq.) 

5 for which the first disbursement is made on or after April 

6 1, 2006. 

7 SEC. 16. COLLEGE TUITION DEDUCTION AND CREDIT FOR 

8 INTEREST ON HIGHER EDUCATION LOANS. 

9 (a) EXPANSION OF DEDUCTION FOR HIGHER EDU10 CATION EXPENSES.— 

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

12 of section 222 of the Internal Revenue Code of 1986 

13 (relating to deduction for qualified tuition and re14 lated expenses) is amended to read as follows: 

15 ‘‘(b) LIMITATIONS.— 

16 ‘‘(1) DOLLAR LIMITATIONS.— 

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

18 paragraph (2), the amount allowed as a deduc19 tion under subsection (a) with respect to the 

20 taxpayer for any taxable year shall not exceed 

21 the applicable dollar limit. 

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

23 applicable dollar limit for any taxable year shall 

24 be determined as follows: 


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Applicable 

‘‘Taxable year: dollar amount: 

2006 ......................................................................................... $8,000

2007 and thereafter ................................................................. $12,000. 

1 ‘‘(2) LIMITATION BASED ON MODIFIED AD2 JUSTED GROSS INCOME.— 

3 ‘‘(A) IN GENERAL.—The amount which 

4 would (but for this paragraph) be taken into ac5 count under subsection (a) shall be reduced 

6 (but not below zero) by the amount determined 

7 under subparagraph (B). 

8 ‘‘(B) AMOUNT OF REDUCTION.—The 

9 amount determined under this subparagraph 

10 equals the amount which bears the same ratio 

11 to the amount which would be so taken into ac12 count as— 

13 ‘‘(i) the excess of— 

14 ‘‘(I) the taxpayer’s modified ad15 justed gross income for such taxable 

16 year, over 

17 ‘‘(II) $65,000 ($130,000 in the 

18 case of a joint return), bears to 

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

20 a joint return). 

21 ‘‘(C) MODIFIED ADJUSTED GROSS IN22 COME.—For purposes of this paragraph, the 

23 term ‘modified adjusted gross income’ means 


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1 the adjusted gross income of the taxpayer for 

2 the taxable year determined— 

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

4 sections 199, 911, 931, and 933, and 

5 ‘‘(ii) after the application of sections 

6 86, 135, 137, 219, 221, and 469. 

7 For purposes of the sections referred to in 

8 clause (ii), adjusted gross income shall be deter9 mined without regard to the deduction allowed 

10 under this section. 

11 ‘‘(D) INFLATION ADJUSTMENTS.— 

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

13 taxable year beginning in a calendar year 

14 after 2006, both of the dollar amounts in 

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

16 by an amount equal to— 

17 ‘‘(I) such dollar amount, multi18 plied by 

19 ‘‘(II) the cost-of-living adjust20 ment determined under section 1(f)(3) 

21 for the calendar year in which the tax22 able year begins, by substituting ‘cal23 endar year 2005’ for ‘calendar year 

24 1992’ in subparagraph (B) thereof. 


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1 ‘‘(ii) ROUNDING.—If any amount as 

2 adjusted under clause (i) is not a multiple 

3 of $50, such amount shall be rounded to 

4 the nearest multiple of $50.’’. 

5 (2) QUALIFIED TUITION AND RELATED EX6 PENSES OF ELIGIBLE STUDENTS.— 

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

8 Internal Revenue Code of 1986 (relating to al9 lowance of deduction) is amended by inserting 

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

11 (B) DEFINITION OF ELIGIBLE STUDENT.— 

12 Section 222(d) of such Code (relating to defini13 tions and special rules) is amended by redesig14 nating paragraphs (2) through (6) as para15 graphs (3) through (7), respectively, and by in16 serting after paragraph (1) the following new 

17 paragraph: 

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

19 student’ has the meaning given such term by section 

20 25A(b)(3).’’. 

21 (3) DEDUCTION MADE PERMANENT.—Title IX 

22 of the Economic Growth and Tax Relief Reconcili23 ation Act of 2001 (relating to sunset of provisions 

24 of such Act) shall not apply to the amendments 

25 made by section 431 of such Act. 


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1 (4) EFFECTIVE DATE.—The amendments made 

2 by this subsection shall apply to payments made in 

3 taxable years beginning after December 31, 2005. 

4 (b) CREDIT FOR INTEREST ON HIGHER EDUCATION

5 LOANS.— 

6 (1) IN GENERAL.—Subpart A of part IV of sub7 chapter A of chapter 1 of the Internal Revenue Code 

8 of 1986 (relating to nonrefundable personal credits) 

9 is amended by inserting after section 25D the fol10 lowing new section: 

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

12 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in13 dividual, there shall be allowed as a credit against the tax 

14 imposed by this chapter for the taxable year an amount 

15 equal to the interest paid by the taxpayer during the tax16 able year on any qualified education loan. 

17 ‘‘(b) MAXIMUM CREDIT.— 

18 ‘‘(1) IN GENERAL.—Except as provided in para19 graph (2), the credit allowed by subsection (a) for 

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

21 ‘‘(2) LIMITATION BASED ON MODIFIED AD22 JUSTED GROSS INCOME.— 

23 ‘‘(A) IN GENERAL.—If the modified ad24 justed gross income of the taxpayer for the tax25 able year exceeds $50,000 ($100,000 in the 


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

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

3 under this section shall be reduced (but not 

4 below zero) by the amount which bears the 

5 same ratio to the amount which would be so al6 lowable as such excess bears to $20,000 

7 ($40,000 in the case of a joint return). 

8 ‘‘(B) MODIFIED ADJUSTED GROSS IN9 COME.—The term ‘modified adjusted gross in10 come’ means adjusted gross income determined 

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

12 and 933. 

13 ‘‘(C) INFLATION ADJUSTMENT.—In the 

14 case of any taxable year beginning after 2006, 

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

16 in subparagraph (A) shall be increased by an 

17 amount equal to— 

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

19 ‘‘(ii) the cost-of-living adjustment de20 termined under section (1)(f)(3) for the 

21 calendar year in which the taxable year be22 gins, by substituting ‘2005’ for ‘1992’. 

23 ‘‘(D) ROUNDING.—If any amount as ad24 justed under subparagraph (C) is not a multiple 


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

2 nearest multiple of $50. 

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

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

5 the taxable year if a deduction under section 151 with re6 spect to such individual is allowed to another taxpayer for 

7 the taxable year beginning in the calendar year in which 

8 such individual’s taxable year begins. 

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

10 shall be allowed under this section only with respect to 

11 interest paid on any qualified education loan during the 

12 first 60 months (whether or not consecutive) in which in13 terest payments are required. For purposes of this para14 graph, any loan and all refinancings of such loan shall be 

15 treated as 1 loan. 

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

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

18 ‘qualified education loan’ has the meaning given 

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

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

21 the meaning given such term by section 152. 

22 ‘‘(f) SPECIAL RULES.— 

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

24 shall be allowed under this section for any amount 


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1 taken into account for any deduction under any 

2 other provision of this chapter. 

3 ‘‘(2) MARRIED COUPLES MUST FILE JOINT RE4 TURN.—If the taxpayer is married at the close of 

5 the taxable year, the credit shall be allowed under 

6 subsection (a) only if the taxpayer and the tax7 payer’s spouse file a joint return for the taxable 

8 year. 

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

10 determined in accordance with section 7703.’’. 

11 (2) CONFORMING AMENDMENT.—The table of 

12 sections for subpart A of part IV of subchapter A 

13 of chapter 1 of the Internal Revenue Code of 1986 

14 is amended by inserting after the item relating to 

15 section 25D the following new item: 

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

16 (3) EFFECTIVE DATE.—The amendments made 

17 by this section shall apply to any qualified education 

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

19 Revenue Code of 1986, as added by this section) in20 curred on, before, or after the date of the enactment 

21 of this Act, but only with respect to any loan inter22 est payment due after December 31, 2005. 

Æ 


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