239 
(3) by adding at the end the following new sub-
paragraph: 
‘‘(C) if either of the parents has been con-
victed of, or has pled nolo contendere or guilty 
to, a crime involving fraud in obtaining funds 
under this title, such parent has completed the 
repayment of such funds to the Secretary, or to 
the holder in the case of a loan under this title 
obtained by fraud.’’. 
(g) 
DEFAULT
REDUCTION
PROGRAM.—Section 
428F(a)(1) (20 U.S.C. 1078–6(a)(1)) is amended— 
(1) in subparagraph (A), by striking ‘‘consecu-
tive payments for 12 months’’ and inserting ‘‘9 pay-
ments made within 20 days of the due date during 
10 consecutive months’’; 
(2) by redesignating subparagraph (C) as sub-
paragraph (D); and 
(3) by inserting after subparagraph (B) the fol-
lowing new subparagraph: 
‘‘(C) A guaranty agency may charge the 
borrower and retain collection costs in an 
amount not to exceed 18.5 percent of the out-
standing principal and interest at the time of 
sale of a loan rehabilitated under subparagraph 
(A).’’.
240 
(h) FINANCIAL AND ECONOMIC LITERACY.— 
(1) DEFAULT
REDUCTION
PROGRAM.—Section 
428F is further amended by adding at the end the fol-
lowing: 
‘‘(c) FINANCIAL
AND ECONOMIC LITERACY.—Where 
appropriate, each program described under subsection (b) 
shall include making available financial and economic edu-
cation materials for the borrower.’’. 
(2) PROGRAM ASSISTANCE FOR BORROWERS.— 
Section 432(k)(1) (20 U.S.C. 1082(k)(1)) is amended 
by striking ‘‘and offering’’ and all that follows 
through the period and inserting ‘‘, offering loan re-
payment matching provisions as part of employee 
benefit packages, and providing employees with finan-
cial and economic education and counseling.’’. 
(i) CREDIT BUREAU ORGANIZATION AGREEMENTS.— 
Section 430A(a) (20 U.S.C. 1080a(a)) is amended by strik-
ing ‘‘agreements with credit bureau organizations’’ and in-
serting ‘‘an agreement with each national credit bureau or-
ganization (as described in section 603(p) of the Fair Credit 
Reporting Act)’’. 
(j) UNIFORM ADMINISTRATIVE AND CLAIMS PROCE-
DURE.—Section 432(l)(1)(H) (20 U.S.C. 1082(l)(1)(H)) is 
amended by inserting ‘‘and anticipated graduation date’’ 
after ‘‘status change’’.
241 
(k) DEFAULT
REDUCTION
MANAGEMENT.—Section 
432 is further amended— 
(1) by striking subsection (n); and 
(2) by redesignating subsections (o) and (p) as 
subsections (n) and (o), respectively. 
(l) SCHOOLS AS LENDERS.—Paragraph (2) of section 
435(d) (20 U.S.C. 1085(d)(2)) is amended to read as fol-
lows: 
‘‘(2) REQUIREMENTS
FOR
ELIGIBLE
INSTITU-
TIONS.— 
‘‘(A) IN GENERAL.—To be an eligible lender 
under this part, an eligible institution— 
‘‘(i) shall employ at least one person 
whose full-time responsibilities are limited 
to the administration of programs of finan-
cial aid for students attending such institu-
tion; 
‘‘(ii) shall not be a home study school; 
‘‘(iii) shall not— 
‘‘(I) make a loan to any under-
graduate student; 
‘‘(II) make a loan other than a 
loan under section 428 or 428H to a 
graduate or professional student; or
242 
‘‘(III) make a loan to a borrower 
who is not enrolled at that institution; 
‘‘(iv) shall award any contract for fi-
nancing, servicing, or administration of 
loans under this title on a competitive basis; 
‘‘(v) shall offer loans which carry an 
origination fee or an interest rate, or both, 
that are less than such fee or rate author-
ized under the provisions of this title; 
‘‘(vi) shall not have a cohort default 
rate (as defined in section 435(m)) greater 
than 10 percent; 
‘‘(vii) shall, for any year for which the 
institution engages in activities as an eligi-
ble lender, provide for a compliance audit 
conducted 
in 
accordance 
with 
section 
428(b)(1)(U)(iii)(I), and the regulations 
thereunder, and submit the results of such 
audit to the Secretary; and 
‘‘(viii) shall use any proceeds from spe-
cial allowance payments and interest pay-
ments from borrowers, interest subsidies re-
ceived from the Department of Education, 
and any proceeds from the sale or other dis-
243 
position of loans, for need-based grant pro-
grams. 
‘‘(B) ADMINISTRATIVE EXPENSES.—An eli-
gible lender under subparagraph (A) shall be 
permitted to use a portion of the proceeds de-
scribed in subparagraph (A)(viii) for reasonable 
and direct administrative expenses. 
‘‘(C) SUPPLEMENT, NOT SUPPLANT.—An el-
igible lender under subparagraph (A) shall en-
sure that the proceeds described in subparagraph 
(A)(viii) are used to supplement, and not to sup-
plant, non-Federal funds that would otherwise be 
used for need-based grant programs.’’. 
(m) DISABILITY DETERMINATIONS.—Section 437(a) 
(20 U.S.C. 1087(a)) is amended by adding at the end the 
following new sentence: ‘‘In making such determination of 
permanent and total disability, the Secretary shall provide 
that a borrower who has been certified as permanently and 
totally disabled by the Department of Veterans Affairs or 
the Social Security Administration shall not be required 
to present further documentation for purposes of this title.’’. 
(n) TREATMENT
OF
FALSELY
CERTIFIED
BOR-
ROWERS.—Section 437(c)(1) (20 U.S.C. 1087(c)(1)) is 
amended by inserting ‘‘or parent’s eligibility’’ after ‘‘such 
student’s eligibility’’.
244 
(o) PERFECTION OF SECURITY INTERESTS.—Section 
439(d) (20 U.S.C. 1087–2(d)) is amended— 
(1) by striking paragraph (3); and 
(2) by redesignating paragraphs (4) and (5) as 
paragraphs (3) and (4), respectively. 
(p) ADDITIONAL TECHNICAL AMENDMENTS.— 
(1) 
Section 
428(a)(2)(A) 
(20 
U.S.C. 
1078(a)(2)(A)) is amended— 
(A) by striking ‘‘and’’ at the end of sub-
clause (II) of clause (i); and 
(B) by moving the margin of clause (iii) 
two ems to the left. 
(2) 
Section 
428(a)(3)(A)(v) 
(20 
U.S.C. 
1078(a)(3)(A)(v)) is amended— 
(A) by striking ‘‘or’’ at the end of subclause 
(I); 
(B) by striking the period at the end of sub-
clause (II) and inserting ‘‘; or’’; and 
(C) by adding after subclause (II) the fol-
lowing new subclause: 
‘‘(III) in the case of a loan disbursed 
through an escrow agent, 3 days before the first 
disbursement of the loan.’’.
245 
(3) 
Section 
428(c)(1)(A) 
(20 
U.S.C. 
1078(c)(1)(A)) is amended by striking ‘‘45 days’’ in 
the last sentence and inserting ‘‘30 days’’. 
(4) Section 428(i)(1) (20 U.S.C. 1078(i)(1)) is 
amended by striking ‘‘21 days’’ in the third sentence 
and inserting ‘‘10 days’’. 
(5) Section 428G(e) (20 U.S.C. 1078–7(e)) is 
amended by striking ‘‘, made to a student to cover the 
cost of attendance at an eligible institution outside 
the United States,’’. 
(6) Section 428H(e) (20 U.S.C. 1078–8(e)) is 
amended by striking paragraph (6) and inserting the 
following: 
‘‘(6) TIME
LIMITS
ON
BILLING
INTEREST.—A 
lender may not receive interest on a loan under this 
section from a borrower for any period that precedes 
the dates described in section 428(a)(3)(A)(v).’’. 
(7) 
Section 
432(m)(1)(B) 
(20 
U.S.C. 
1082(m)(1)(B)) is amended— 
(A) in clause (i), by inserting ‘‘and’’ after 
the semicolon at the end; and 
(B) in clause (ii), by striking ‘‘; and’’ and 
inserting a period. 
(8) Section 438(b)(4)(B) (20 U.S.C. 1087– 
1(b)(4)(B)) is amended by striking ‘‘shall be com-
246 
puted’’ and all that follows through ‘‘to the loan’’ and 
inserting ‘‘described in subparagraph (A) shall be 
computed using the interest rate described in section 
3902(a) of title 31, United States Code,’’. 
PART C—FEDERAL WORK-STUDY PROGRAMS 
SEC. 441. AUTHORIZATION OF APPROPRIATIONS. 
Section 441(b) (42 U.S.C. 2751(b)) is amended— 
(1) by striking ‘‘1999’’ and inserting ‘‘2006’’; 
and 
(2) by striking ‘‘4 succeeding’’ and inserting ‘‘5 
succeeding’’. 
SEC. 442. COMMUNITY SERVICE. 
Section 441(c)(1) (42 U.S.C. 2751(c)(1)) is amended 
by striking ‘‘that are open and accessible to the commu-
nity’’. 
SEC. 443. ALLOCATION OF FUNDS. 
(a) PHASEOUT OF ALLOCATION BASED ON PREVIOUS 
ALLOCATIONS.—Subsection (a) of section 442 (42 U.S.C. 
2752(a)) is amended to read as follows: 
‘‘(a) ALLOCATION BASED
ON PREVIOUS ALLOCA-
TION.— 
‘‘(1) BASE GUARANTEE.—From the amount ap-
propriated pursuant to section 441(b) for each fiscal 
year after fiscal year 2007, the Secretary shall, sub-
ject to paragraph (2), first allocate to each eligible in-
247 
stitution an amount equal to the following percentage 
of the amount such institution received under sub-
section (a) of this section for fiscal year 2007 (as such 
subsection was in effect with respect to allocations for 
such fiscal year): 
‘‘(A) 80 percent for fiscal years 2008 and 
2009; 
‘‘(B) 60 percent for fiscal years 2010 and 
2011; 
‘‘(C) 40 percent for fiscal years 2012 and 
2013; 
‘‘(D) 20 percent for fiscal years 2014 and 
2015; and 
‘‘(E) 0 percent for fiscal year 2016 and any 
succeeding fiscal year. 
‘‘(2) RATABLE REDUCTIONS FOR INSUFFICIENT 
APPROPRIATIONS.— 
‘‘(A) REDUCTION OF BASE GUARANTEE.—If 
the amount appropriated for any fiscal year is 
less than the amount required to be allocated to 
all institutions under this subsection, then the 
amount of the allocation to each such institution 
shall be ratably reduced. 
‘‘(B) ADDITIONAL APPROPRIATIONS ALLOCA-
TION.—If additional amounts are appropriated
248 
for any such fiscal year, such reduced amounts 
shall be increased on the same basis as they were 
reduced (until the amount allocated equals the 
amount required to be allocated under this sub-
section). 
‘‘(3) ADDITIONAL ALLOCATIONS FOR CERTAIN IN-
STITUTIONS.— 
‘‘(A) ALLOCATIONS
PERMITTED.—Notwith-
standing any other provision of this section, the 
Secretary may allocate an amount equal to not 
more than 10 percent of the amount by which the 
amount appropriated in any fiscal year to carry 
out this part exceeds $700,000,000 among eligible 
institutions described in subparagraph (B). 
‘‘(B) ELIGIBLE
INSTITUTIONS.—An other-
wise eligible institution may receive a portion of 
the allocation described in subparagraph (A) 
if— 
‘‘(i) not less than 10 percent of the stu-
dents attending the institution receive Fed-
eral Pell Grants; and 
‘‘(ii)(I) in the case of an institution 
that offers programs of at least 4 years in 
duration, if its graduation rate for Federal 
Pell Grant recipients attending the institu-
249 
tion and graduating within the period of 
time equal to normal duration of the longest 
undergraduate program offered by the insti-
tution, as measured from the first day of 
their enrollment, exceeds the median rate for 
the class of institution (as defined in section 
131(f)(5)(C)); or 
‘‘(II) in the case of an institution that 
offers programs of at least 2, but less than 
4, years in duration, if its rate for Federal 
Pell Grant recipients attending the institu-
tion and graduating or transferring to an 
institution that offers programs of at least 
4 years in duration within the period of 
time equal to the normal duration of the 
program offered, as measured from the first 
day of their enrollment, exceeds the median 
rate for the class of institution (as defined 
in section 131(f)(5)(C)).’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply with respect to any amounts appro-
priated under section 441(b) of the Higher Education Act 
of 1965 (42 U.S.C. 2751(b)) for fiscal year 2008 or any 
succeeding fiscal year.
250 
SEC. 444. BOOKS AND SUPPLIES. 
Section 442(c)(4)(D) (42 U.S.C. 2752(c)(4)(D)) is 
amended by striking ‘‘$450’’ and inserting ‘‘$600’’. 
SEC. 445. JOB LOCATION AND DEVELOPMENT. 
Section 446(a)(1) (42 U.S.C. 2756(a)(1)) is amend-
ed— 
(1) by striking ‘‘10 percent or $50,000’’ and in-
serting ‘‘15 percent or $75,000’’; and 
(2) by inserting before the period at the end the 
following: ‘‘, except that not less than one-third of 
such amount shall be specifically allocated to locate 
and develop community service jobs’’. 
SEC. 446. WORK COLLEGES. 
Section 448 (42 U.S.C. 2756b) is amended— 
(1) by striking ‘‘work-learning’’ each place it ap-
pears and inserting ‘‘work-learning-service’’; 
(2) by amending subparagraph (C) of subsection 
(e)(1) to read as follows: 
‘‘(C) requires all resident students, includ-
ing at least one-half of all students who are en-
rolled on a full-time basis, to participate in a 
comprehensive work-learning-service program for 
at least 5 hours each week, or at least 80 hours 
during each period of enrollment, unless the stu-
dent is engaged in an institutionally organized
251 
or approved study abroad or externship pro-
gram; and’’; 
(3) by amending paragraph (2) of subsection (e) 
to read as follows: 
‘‘(2) the term ‘comprehensive student work-learn-
ing-service program’— 
‘‘(A) means a student work-learning-service 
program that is an integral and stated part of 
the institution’s educational philosophy and pro-
gram; 
‘‘(B) requires participation of all resident 
students for enrollment and graduation; 
‘‘(C) includes learning objectives, evalua-
tion, and a record of work performance as part 
of the student’s college record; 
‘‘(D) provides programmatic leadership by 
college personnel at levels comparable to tradi-
tional academic programs; 
‘‘(E) recognizes the educational role of 
work-learning-service supervisors; and 
‘‘(F) includes consequences for nonperform-
ance or failure in the work-learning-service pro-
gram similar to the consequences for failure in 
the regular academic program.’’; and
252 
(4) in subsection (f), by striking ‘‘1999 and such 
sums as may be necessary for each of the 4 succeeding 
fiscal years’’ and inserting ‘‘2006 and such sums as 
may be necessary for the 5 succeeding fiscal years’’. 
PART D—FEDERAL DIRECT LOAN PROGRAM 
SEC. 451. REAUTHORIZATION OF THE DIRECT LOAN PRO-
GRAM. 
(a) ADMINISTRATIVE EXPENSES.—Section 458(a)(1) 
(20 
U.S.C. 
1087h(a)(1)) 
is 
amended 
by 
striking 
‘‘$617,000,000’’ and all that follows through ‘‘fiscal year 
2003’’ and inserting ‘‘$820,000,000 in fiscal year 2006, 
$833,000,000 in fiscal year 2007, $847,000,000 in fiscal 
year 2008, $862,000,000 in fiscal year 2009, and 
$878,000,000 in fiscal year 2010, and $894,000,000 in fis-
cal year 2011’’. 
(b) CALCULATION BASIS.—Subsection (b) of section 
458 (20 U.S.C. 1087h(b)) is amended by striking ‘‘shall be 
calculated—’’ and all that follows through the end of such 
subsection and inserting ‘‘shall be calculated on the basis 
of 0.10 percent of the original principal amount of out-
standing loans on which insurance was issued under part 
B.’’. 
(c) SPECIAL RULES: FEE CAP.—Section 458(c)(1) (20 
U.S.C. 1087h(c)(1)) is amended by striking subparagraphs 
(A) through (E) and inserting the following:
253 
‘‘(A) for fiscal year 2006, shall not exceed 
$220,000,000; 
‘‘(B) for fiscal year 2007, shall not exceed 
$233,000,000; 
‘‘(C) for fiscal year 2008, shall not exceed 
$247,000,000; 
‘‘(D) for fiscal year 2009, shall not exceed 
$262,000,000; 
‘‘(E) for fiscal year 2010, shall not exceed 
$278,000,000; and 
‘‘(F) for fiscal year 2011, shall not exceed 
$294,000,000.’’. 
(d) 
INCOME
CONTINGENT
REPAYMENT.—Section 
455(e)(2) (20 U.S.C. 1087e(e)(2)) is amended by striking 
‘‘and files a Federal income tax return jointly with the bor-
rower’s spouse’’. 
PART E—FEDERAL PERKINS LOAN PROGRAM 
SEC. 461. REAUTHORIZATION OF PROGRAM. 
(a) PROGRAM AUTHORIZATION.— 
(1) AUTHORIZATION OF APPROPRIATIONS.—Sec-
tion 461(b) (20 U.S.C. 1087aa(b)) is amended— 
(A) in paragraph (1)— 
(i) by striking ‘‘1999’’ and inserting 
‘‘2006’’; and
254 
(ii) by striking ‘‘4 succeeding’’ and in-
serting ‘‘5 succeeding’’; and 
(B) in paragraph (2), by striking ‘‘2003’’ 
each place it appears and inserting ‘‘2012’’. 
(2) FEDERAL
CAPITAL
CONTRIBUTION
RECOV-
ERY.—Section 466 (20 U.S.C. 1087ff) is amended— 
(A) by striking ‘‘2004’’ each place it ap-
pears in subsections (a) and (c) and inserting 
‘‘2012’’; and 
(B) in subsection (a), by striking ‘‘2003’’ 
each place it appears and inserting ‘‘2011’’. 
(b) PHASEOUT OF ALLOCATION BASED ON PREVIOUS 
ALLOCATIONS.— 
(1) AMENDMENT.—Subsection (a) of section 462 
(20 U.S.C. 1087bb(a)) is amended to read as follows: 
‘‘(a) ALLOCATION BASED
ON PREVIOUS ALLOCA-
TION.— 
‘‘(1) BASE GUARANTEE.—From the amount ap-
propriated pursuant to section 461(b) for each fiscal 
year after fiscal year 2007, the Secretary shall, sub-
ject to paragraphs (2) and (3), first allocate to each 
eligible institution an amount equal to— 
‘‘(A) 100 percent of the amount such insti-
tution received under subsection (a) of this sec-
tion for fiscal year 2007 (as such subsection was
255 
in effect with respect to allocations for such fiscal 
year), multiplied by 
‘‘(B) the institution’s default penalty, as de-
termined under subsection (e), except that if the 
institution has a cohort default rate in excess of 
the applicable maximum cohort default rate 
under subsection (f), the institution may not re-
ceive an allocation under this paragraph. 
‘‘(2) PHASE OUT.—For each of the fiscal years 
after fiscal year 2007, paragraph (1) shall be applied 
by substituting for ‘100 percent’: 
‘‘(A) ‘80 percent’ for fiscal years 2008 and 
2009; 
‘‘(B) ‘60 percent’ for fiscal years 2010 and 
2011; 
‘‘(C) ‘40 percent’ for fiscal years 2012 and 
2013; 
‘‘(D) ‘20 percent’ for fiscal years 2014 and 
2015; and 
‘‘(E) ‘0 percent’ for fiscal year 2016 and 
any succeeding fiscal year. 
‘‘(3) RATABLE REDUCTIONS FOR INSUFFICIENT 
APPROPRIATIONS.— 
‘‘(A) REDUCTION OF BASE GUARANTEE.—If 
the amount appropriated for any fiscal year is
256 
less than the amount required to be allocated to 
all institutions under this subsection, then the 
amount of the allocation to each such institution 
shall be ratably reduced. 
‘‘(B) ADDITIONAL APPROPRIATIONS ALLOCA-
TION.—If additional amounts are appropriated 
for any such fiscal year, such reduced amounts 
shall be increased on the same basis as they were 
reduced (until the amount allocated equals the 
amount required to be allocated under this sub-
section).’’. 
(2) EFFECTIVE DATE.—The amendment made by 
paragraph (1) shall apply with respect to any 
amounts appropriated under section 461(b) of the 
Higher Education Act of 1965 (20 U.S.C. 1087bb(b)) 
for fiscal year 2008 or any succeeding fiscal year. 
(c) BOOKS AND SUPPLIES.—Section 462(c)(4)(D) (20 
U.S.C. 1087bb(c)(4)(D)) is amended by striking ‘‘$450’’ 
and inserting ‘‘$600’’. 
SEC. 462. LOAN TERMS AND CONDITIONS. 
(a) LOAN
LIMITS.—Section 464(a) (20 U.S.C. 
1087dd(a)) is amended— 
(1) in paragraph (2)(A)— 
(A) by striking ‘‘$4,000’’ in clause (i) and 
inserting ‘‘$5,500’’; and