(3) by redesignating paragraphs (8) and (9) as 
paragraphs (7) and (8), respectively. 
(c) CONSOLIDATION LOAN INTEREST RATES.— 
(1) 
FFEL 
LOANS.—Section 
427A(k) 
(20 
U.S.C. 1077a(k)) is further amended— 
(A) in the heading of paragraph (4), by in-
serting ‘‘BEFORE JULY 1, 2006’’ after ‘‘LOANS’’; 
(B) by redesignating paragraph (5) as 
paragraph (6); and 
(C) by inserting after paragraph (4) the 
following: 
‘‘(5) CONSOLIDATION
LOANS
ON
OR
AFTER 
JULY 1, 2006.— 
‘‘(A) BORROWER ELECTION.—With respect 
to any consolidation loan under section 428C 
for which the application is received by an eligi-
ble lender on or after July 1, 2006, the applica-
ble rate of interest shall, at the election of the 
borrower at the time of application for the loan, 
be either at the rate determined under subpara-
graph (B) or the rate determined under sub-
paragraph (C). 
‘‘(B) VARIABLE
RATE.—Except as pro-
vided in subparagraph (D), the rate determined 
under this subparagraph shall, during any 12-
month period beginning on July 1 and ending 
on June 30, be determined on the preceding 
June 1 and, for such 12-month period, not be 
more than— 
‘‘(i) the bond equivalent rate of 91- 
day Treasury bills auctioned at the final 
auction held prior to such June 1; plus 
‘‘(ii) 2.3 percent, 
except that such rate shall not exceed 8.25 per-
cent. 
‘‘(C) FIXED RATE.—Except as provided in 
subparagraph (D), the rate determined under 
this subparagraph shall be determined for the 
duration of the term of the loan on the July 1 
that is or precedes the date on which the appli-
cation is received by an eligible lender, and 
shall be, for such duration, not more than— 
‘‘(i) the bond equivalent rate of 91- 
day Treasury bills auctioned at the final 
auction held prior to the June 1 imme-
diately preceding such July 1; plus 
‘‘(ii) 3.3 percent, 
except that such rate shall not exceed 8.25 per-
cent.
‘‘(D) CONSOLIDATION OF PLUS LOANS.— 
In the case of any such consolidation loan that 
is used to repay loans each of which was made 
under section 428B or was a Federal Direct 
PLUS Loan (or both), the rates determined 
under clauses (B) and (C) shall be deter-
mined— 
‘‘(i) by substituting ‘3.1 percent’ for 
‘2.3 percent’; 
‘‘(ii) by substituting ‘4.1 percent’ for 
‘3.3 percent’; and 
‘‘(iii) by substituting ‘9.0 percent’ for 
‘8.25 percent’.’’. 
(2) DIRECT
LOANS.—Section 455(b)(6) (20 
U.S.C. 1087e(b)(6)) is further amended— 
(A) in the heading of subparagraph (D), 
by inserting ‘‘BEFORE
JULY
1, 2006’’ after 
‘‘LOANS’’ 
(B) by redesignating subparagraph (E) as 
subparagraph (F); and 
(C) by inserting after subparagraph (D) 
the following: 
‘‘(E) CONSOLIDATION LOANS ON OR AFTER 
JULY 1, 2006.—
‘‘(i) BORROWER ELECTION.—Notwith-
standing the preceding paragraphs of this 
subsection, with respect to any Federal Di-
rect Consolidation Loan for which the ap-
plication is received by the Secretary on or 
after July 1, 2006, the applicable rate of 
interest shall, at the election of the bor-
rower at the time of application for the 
loan, be either at the rate determined 
under clause (ii) or the rate determined 
under clause (iii). 
‘‘(ii) VARIABLE
RATE.—Except as 
provided in clause (iv), the rate determined 
under this clause shall, during any 12- 
month period beginning on July 1 and 
ending on June 30, be determined on the 
preceding June 1 and, for such 12-month 
period, be equal to— 
‘‘(I) the bond equivalent rate of 
91-day Treasury bills auctioned at the 
final auction held prior to such June 
1; plus 
‘‘(II) 2.3 percent, 
except that such rate shall not exceed 8.25 
percent.