107 
made on or after July 1, 2008, and before 
July 1, 2009; 
‘‘(iv) by substituting ‘0.5 percent’ for 
‘3.0 percent’ with respect to loans for 
which the first disbursement of principal is 
made on or after July 1, 2009, and before 
July 1, 2010; and 
‘‘(v) by substituting ‘0.0 percent’ for 
‘3.0 percent’ with respect to loans for 
which the first disbursement of principal is 
made on or after July 1, 2010.’’. 
(2) DIRECT LOAN PROGRAM.—Subsection (c) of 
section 455 (20 U.S.C. 1087e(c)) is amended to 
read as follows: 
‘‘(c) LOAN FEE.— 
‘‘(1) IN GENERAL.—The Secretary shall charge 
the borrower of a loan made under this part an 
origination fee of 4.0 percent of the principal 
amount of loan. 
‘‘(2) 
SUBSEQUENT
REDUCTION.—Paragraph 
(1) shall be applied to loans made under this part, 
other than Federal Direct Consolidation loans and 
Federal Direct PLUS loans— 
‘‘(A) by substituting ‘not more or less than 
3.0 percent’ for ‘4.0 percent’ with respect to
108 
loans for which the first disbursement of prin-
cipal is made on or after July 1, 2006, and be-
fore July 1, 2007; 
‘‘(B) by substituting ‘not more or less than 
2.5 percent’ for ‘4.0 percent’ with respect to 
loans for which the first disbursement of prin-
cipal is made on or after July 1, 2007, and be-
fore July 1, 2008; 
‘‘(C) by substituting ‘not more or less than 
2.0 percent’ for ‘4.0 percent’ with respect to 
loans for which the first disbursement of prin-
cipal is made on or after July 1, 2008, and be-
fore July 1, 2009; 
‘‘(D) by substituting ‘not more or less than 
1.5 percent’ for ‘4.0 percent’ with respect to 
loans for which the first disbursement of prin-
cipal is made on or after July 1, 2009, and be-
fore July 1, 2010; and 
‘‘(E) by substituting ‘not more or less than 
1.0 percent’ for ‘4.0 percent’ with respect to 
loans for which the first disbursement of prin-
cipal is made on or after July 1, 2010. 
‘‘(3) WAIVERS
AND
REPAYMENT
INCENTIVES 
PROHIBITED.—Beginning with loans made on or 
after July 1, 2006, the Secretary is prohibited—
109 
‘‘(A) from waiving any amount of the loan 
fee prescribed under this section as part of a 
repayment incentive in section 455(b)(7); and 
‘‘(B) from providing any repayment incen-
tive before the borrower enters repayment.’’. 
(e) CONSOLIDATION LOAN OFFSET CHARGE.— 
(1) FFEL CONSOLIDATION
LOANS.—Section 
438(c) (20 U.S.C. 1087–1(c)) is further amended— 
(A) in paragraph (1)(A), by inserting after 
‘‘paragraph (2) of this subsection’’ the fol-
lowing: ‘‘and the amount the lender is author-
ized to collect as a consolidation loan offset 
charge in accordance with paragraph (9) of this 
subsection’’; 
(B) in paragraph (1)(B)— 
(i) by inserting ‘‘and the consolidation 
loan offset charge’’ after ‘‘origination fee’’; 
and 
(ii) by inserting ‘‘and consolidation 
loan offset charges’’ after ‘‘origination 
fees’’; 
(C) in paragraphs (3) and (4), by inserting 
‘‘and consolidation loan offset charge’’ after 
‘‘origination fee’’ each place it appears; 
(D) in paragraph (5)—
110 
(i) by inserting ‘‘or consolidation loan 
offset charge’’ after ‘‘origination fee’’; and 
(ii) by inserting ‘‘or consolidation loan 
offset charges’’ after ‘‘origination fees’’; 
(E) in paragraph (7)— 
(i) by inserting ‘‘and consolidation 
loan offset charges’’ after ‘‘origination 
fees’’; and 
(ii) by striking ‘‘428A or’’; and 
(F) by adding at the end the following new 
paragraph: 
‘‘(9) CONSOLIDATION LOAN OFFSET CHARGE.— 
For any loan under section 428C, the lender is au-
thorized to collect a consolidation loan offset charge 
in an amount not to exceed 1.0 percent of the prin-
cipal amount of the loan. Such amount may be 
added to the principal amount of the loan for repay-
ment by the borrower.’’. 
(2) DIRECT LOANS.—Section 455(c) (20 U.S.C. 
1087e(c)), as amended by subsection (d)(2) of this 
section, is further amended by adding at the end the 
following new paragraph: 
‘‘(4) 
CONSOLIDATION
LOAN
OFFSET 
CHARGES.—For any Federal Direct Consolidation 
Loan, the Secretary shall collect a consolidation loan
111 
offset charge in an amount not more or less than 
1.0 percent of the principal amount of the loan. 
Such amount may be added to the principal amount 
of the loan for repayment by the borrower. Such 
amount is not subject to the requirements of para-
graph (3) of this subsection.’’. 
SEC. 2117. CONSOLIDATION LOAN CHANGES. 
(a) CROSS-CONSOLIDATION BETWEEN PROGRAMS.— 
Section 428C (20 U.S.C. 1078–3) is amended— 
(1) in subsection (a)(3)(B)(i)— 
(A) by inserting ‘‘or under section 455(g)’’ 
after ‘‘under this section’’ both places it ap-
pears; 
(B) by inserting ‘‘under both sections’’ 
after ‘‘terminates’’ 
(C) by striking ‘‘and’’ at the end of sub-
clause (III); 
(D) by striking the period at the end of 
subclause (IV) and inserting ‘‘; and’’; and 
(E) by adding at the end the following new 
subclause: 
‘‘(V) an individual may obtain a subse-
quent consolidation loan under section 455(g) 
only for the purposes of obtaining an income 
contingent repayment plan, and only if the loan
112 
has been submitted to the guaranty agency for 
default aversion.’’; and 
(2) in subsection (b)(5), by striking the first 
sentence and inserting the following: ‘‘In the event 
that a lender with an agreement under subsection 
(a)(1) of this section denies a consolidation loan ap-
plication submitted to it by an eligible borrower 
under this section, or denies an application sub-
mitted to it by such a borrower for a consolidation 
loan with income-sensitive repayment terms, the Sec-
retary shall offer any such borrower who applies for 
it, a Federal Direct Consolidation loan. The Sec-
retary shall offer such a loan to a borrower who has 
defaulted, for the purpose of resolving the default.’’. 
(b) REPEAL OF IN-SCHOOL CONSOLIDATION.— 
(1) DEFINITION OF REPAYMENT PERIOD.—Sec-
tion 428(b)(7)(A) (20 U.S.C. 1078(b)(7)(A)) is 
amended by striking ‘‘shall begin—’’ and all that 
follows through ‘‘earlier date.’’ and inserting the fol-
lowing: ‘‘shall begin the day after 6 months after the 
date the student ceases to carry at least one-half the 
normal full-time academic workload (as determined 
by the institution).’’. 
(2) CONFORMING CHANGE TO ELIGIBLE BOR-
ROWER
DEFINITION.—Section 428C(a)(3)(A)(ii)(I)
113 
(20 U.S.C. 1078–3(a)(3)(A)(ii)(I)) is amended by 
inserting 
‘‘as 
determined 
under 
section 
428(b)(7)(A)’’ after ‘‘repayment status’’. 
(c) INTEREST PAYMENT REBATE FEE.—Section 
428C(f)(2) (20 U.S.C. 1078–2(f)(2)) is amended— 
(1) by striking ‘‘SPECIAL RULE.—’’ and insert-
ing ‘‘SPECIAL RULES.—(A)’’; and 
(2) by adding at the end the following new sub-
paragraph: 
‘‘(B) For consolidation loans based on applica-
tions received on or after July 1, 2006, if 90 percent 
or more of the total principal and accrued unpaid in-
terest outstanding on the loans held, directly or indi-
rectly, by any holder is comprised of principal and 
accrued unpaid interest owed on consolidation loans, 
the rebate described in paragraph (1) for such hold-
er shall be equal to 1.30 percent of the principal 
plus accrued unpaid interest on such loans.’’. 
(d) ADDITIONAL AMENDMENTS.—Section 428C (20 
U.S.C. 1078–3) is amended— 
(1) in subsection (a)(3), by striking subpara-
graph (C); and 
(2) in subsection (b)(1)— 
(A) by striking everything after ‘‘under 
this section’’ the first place it appears in sub-
114 
paragraph (A) and inserting the following: ‘‘and 
that, if all the borrower’s loans under this part 
are held by a single holder, the borrower has 
notified such holder that the borrower is seek-
ing to obtain a consolidation loan under this 
section;’’; 
(B) by striking ‘‘(i) which’’ and all that 
follows through ‘‘and (ii)’’ in subparagraph (C); 
(C) by striking ‘‘and’’ at the end of sub-
paragraph (E); 
(D) by redesignating subparagraph (F) as 
subparagraph (G); and 
(E) by inserting after subparagraph (E) 
the following new subparagraph: 
‘‘(F) that the lender of the consolidation 
loan shall, upon application for such loan, pro-
vide the borrower with a clear and conspicuous 
notice of at least the following information: 
‘‘(i) the effects of consolidation on 
total interest to be paid, fees to be paid, 
and length of repayment; 
‘‘(ii) the effects of consolidation on a 
borrower’s underlying loan benefits, includ-
ing 
loan 
forgiveness, 
cancellation,
115 
deferment, and reduced interest rates on 
those underlying loans; 
‘‘(iii) the ability of the borrower to 
prepay the loan, pay on a shorter schedule, 
and to change repayment plans; 
‘‘(iv) that borrower benefit programs 
may vary among different loan holders, 
and a description of how the borrower ben-
efits may vary among different loan hold-
ers; 
‘‘(v) the tax benefits for which bor-
rowers may be eligible; 
‘‘(vi) the consequences of default; and 
‘‘(vii) that by making the application 
the applicant is not obligated to agree to 
take the consolidation loan; and’’. 
(e) EFFECTIVE DATE FOR SINGLE HOLDER AMEND-
MENT.—The amendment made by subsection (d)(2)(A) 
shall apply with respect to any loan made under section 
428C of the Higher Education Act of 1965 (20 U.S.C. 
1078–3) for which the application is received by an eligible 
lender on or after July 1, 2006. 
(f) CONFORMING AMENDMENTS TO DIRECT LOAN 
PROGRAM.—Section 455 (20 U.S.C. 1087e) is amended
116 
(1) in subsection (a)(1) by inserting ‘‘428C,’’ 
after ‘‘428B,’’; 
(2) in subsection (a)(2)— 
(A) by striking ‘‘and’’ at the end of sub-
paragraph (B); 
(B) by redesignating subparagraph (C) as 
subparagraph (D); and 
(C) by inserting after subparagraph (B) 
the following: 
‘‘(C) section 428C shall be known as ‘Fed-
eral Direct Consolidation Loans’; and ’’; and 
(3) in subsection (g)— 
(A) by striking the second sentence; and 
(B) by adding at the end the following new 
sentences: ‘‘To be eligible for a consolidation 
loan under this part, a borrower must meet the 
eligibility 
criteria 
set 
forth 
in 
section 
428C(a)(3). The Secretary, upon application for 
such a loan, shall comply with the requirements 
applicable 
to 
a 
lender 
under 
section 
428C(b)(1)(F).’’. 
SEC. 2118. DEFERMENT OF STUDENT LOANS FOR MILITARY 
SERVICE. 
(a) FEDERAL FAMILY EDUCATION LOANS.—Section 
428(b)(1)(M) (20 U.S.C. 1078(b)(1)(M)) is amended—