138
‘‘(2) AMOUNT OF ORIGINATION FEES.—
‘‘(A) IN GENERAL.—’’; and 
(B) by adding at the end the following new 
subparagraphs: 
‘‘(B) SUBSEQUENT
REDUCTIONS.—Sub-
paragraph (A) shall be applied to loans made 
under this part other than loans made under 
sections 428C and 439(o)—
‘‘(i) by substituting ‘2.0 percent’ for 
‘3.0 percent’ with respect to loans for 
which the first disbursement of principal is 
made on or after July 1, 2006, and before 
July 1, 2008; 
‘‘(ii) by substituting ‘1.5 percent’ for 
‘3.0 percent’ with respect to loans for 
which the first disbursement of principal is 
made on or after July 1, 2008, and before 
July 1, 2010; and 
‘‘(iii) by substituting ‘1.0 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) CONFORMING
AMENDMENT
TO
DIRECT 
LOAN PROGRAM.—Subsection (c) of section 455 (20 
U.S.C. 1087e(c)) is amended to read as follows:
139
‘‘(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
REDUCTIONS.—Paragraph 
(1) shall be applied to loans made under this part 
other than consolidation loans and PLUS loans—
‘‘(A) by substituting ‘2.0 percent’ for ‘4.0 
percent’ with respect to loans for which the first 
disbursement of principal is made on or after 
July 1, 2006, and before July 1, 2008; 
‘‘(B) by substituting ‘1.5 percent’ for ‘4.0 
percent’ with respect to loans for which the first 
disbursement of principal is made on or after 
July 1, 2008, and before July 1, 2010; and 
‘‘(C) by substituting ‘1.0 percent’ for ‘4.0 
percent’ with respect to loans for which the first 
disbursement of principal is made on or after 
July 1, 2010.’’. 
SEC. 425. CONSOLIDATION LOAN CHANGES. 
(a) AMENDMENTS.—Section 428C (20 U.S.C. 1078–
3) is amended—
(1) in subsection (a)(3), by striking subpara-
graph (C); and
140
(2) in subsection (b)(1)—
(A) by striking everything after ‘‘under 
this section’’ the first place it appears in sub-
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;
141
‘‘(ii) the effects of consolidation on a 
borrower’s underlying loan benefits, includ-
ing loan forgiveness, cancellation, and 
deferment; 
‘‘(iii) the ability for the borrower to 
prepay the loan, pay on a shorter schedule, 
and to change repayment plans, and that 
borrower benefit programs may vary 
among different loan holders; 
‘‘(iv) the tax benefits for which bor-
rowers may be eligible; 
‘‘(v) the consequences of default; and 
‘‘(vi) that by making the application 
the applicant is not obligated to agree to 
take the consolidation loan; and’’. 
(b) EFFECTIVE DATE FOR SINGLE HOLDER AMEND-
MENT.—The amendment made by subsection (a)(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. 
(c) CONFORMING AMENDMENTS TO DIRECT LOAN 
PROGRAM.—
(1) PARALLEL TERMS, CONDITIONS, BENEFITS, 
AND
AMOUNTS.—Section 455(a)(1) (20 U.S.C.
142
1087e(a)(1)) is amended by inserting ‘‘428C,’’ after 
‘‘428B,’’. 
(2) DISCLOSURE.—Section 455(g) (20 U.S.C. 
1087e(g)) is amended by adding at the end the fol-
lowing new sentence: ‘‘The Secretary, upon applica-
tion for such a loan, shall comply with the require-
ments applicable to a lender under 428C(b)(1)(F).’’
SEC. 426. UNSUBSIDIZED STAFFORD LOANS. 
(a) 
AMENDMENT.—Section 
428H(d)(2)(C) 
(20 
U.S.C. 
1078–8(d)(2)(C)) 
is 
amended 
by 
striking 
‘‘$10,000’’ and inserting ‘‘$12,000’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to loans for which the first dis-
bursement of principal is made on or after July 1, 2007. 
SEC. 427. ELIMINATION OF TERMINATION DATES FROM 
TAXPAYER-TEACHER PROTECTION ACT OF 
2004. 
(a) EXTENSION OF LIMITATIONS ON SPECIAL AL-
LOWANCE FOR LOANS FROM THE PROCEEDS OF TAX EX-
EMPT ISSUES.—Section 438(b)(2)(B) (20 U.S.C. 1087–
1(b)(2)(B)) is amended—
(1) in clause (iv), by striking ‘‘and before Janu-
ary 1, 2006,’’; and 
(2) in clause (v)(II)—
143
(A) by striking ‘‘and before January 1, 
2006,’’ each place it appears in divisions (aa) 
and (bb); and 
(B) by striking ‘‘, and before January 1, 
2006’’ in division (cc). 
(b) ELIMINATION OF EFFECTIVE DATE LIMITATION 
ON HIGHER TEACHER LOAN FORGIVENESS BENEFITS.—
Section 3(b) of the Taxpayer-Teacher Protection Act of 
2004 is amended by striking paragraph (3). 
SEC. 428. ADDITIONAL ADMINISTRATIVE PROVISIONS. 
(a) TREATMENT OF EXEMPT CLAIMS.—
(1) 
INSURANCE
COVERAGE.—Section 
428(b)(1)(G) (20 U.S.C. 1078(b)(1)(G)) is amended 
by inserting before the semicolon at the end the fol-
lowing: ‘‘and 100 percent of the unpaid principal 
amount of exempt claims as defined in subsection 
(c)(1)(G)’’. 
(2) 
TREATMENT.—Section 
428(c)(1) 
(20 
U.S.C. 1078(c)(1)) is amended—
(A) by redesignating subparagraph (G) as 
subparagraph (H), and moving such subpara-
graph 2 em spaces to the left; and 
(B) by inserting after subparagraph (F) 
the following new subparagraph:
144
‘‘(G)(i) Notwithstanding any other provisions of 
this section, in the case of exempt claims, the Sec-
retary shall apply the provisions of—
‘‘(I) the fourth sentence of subparagraph 
(A) by substituting ‘100 percent’ for ‘95 per-
cent’; 
‘‘(II) subparagraph (B)(i) by substituting 
‘100 percent’ for ‘85 percent’; and 
‘‘(III) subparagraph (B)(ii) by substituting 
‘100 percent’ for ‘75 percent’. 
‘‘(ii) For purposes of clause (i) of this subpara-
graph, the term ‘exempt claims’ means claims with 
respect to loans for which it is determined that the 
borrower (or the student on whose behalf a parent 
has borrowed), without the lender’s or the institu-
tion’s knowledge at the time the loan was made, pro-
vided false or erroneous information or took actions 
that caused the borrower or the student to be ineli-
gible for all or a portion of the loan or for interest 
benefits thereon.’’. 
(b) DOCUMENTATION
OF FORBEARANCE AGREE-
MENTS.—Section 428(c) (20 U.S.C. 1078(c)) is further 
amended—
(1) in paragraph (3)(A)(i), by striking ‘‘in writ-
ing’’; and
145
(2) by adding at the end the following new 
paragraph: 
‘‘(10) 
DOCUMENTATION
OF
FORBEARANCE 
AGREEMENTS.—For the purposes of paragraph (3), 
the terms of forbearance agreed to by the parties 
shall be documented by confirming the agreement of 
the borrower by notice to the borrower from the 
lender, and by recording the terms in the borrower’s 
file.’’. 
(c) VOLUNTARY FLEXIBLE AGREEMENTS.—Section 
428A (20 U.S.C. 1078–1) is amended—
(1) in subsection (a)(1)(B), by striking ‘‘unless 
the Secretary’’ and all that follows through ‘‘des-
ignated guarantor’’; 
(2) by striking paragraph (2) of subsection (a); 
(3) in paragraph (4)(B) of such subsection, by 
striking ‘‘and any waivers provided to other guar-
anty agencies under paragraph (2)’’; 
(4) by redesignating paragraphs (3) and (4) of 
subsection (a) as paragraphs (2) and (3), respec-
tively; and 
(5) by striking paragraph (3) of subsection (c) 
and inserting the following: 
‘‘(3) NOTICE TO INTERESTED PARTIES.—Once 
the Secretary reaches a tentative agreement in prin-
146
ciple under this section, the Secretary shall publish 
in the Federal Register a notice that invites inter-
ested parties to comment on the proposed agree-
ment. The notice shall state how to obtain a copy of 
the tentative agreement in principle and shall give 
interested parties no less than 30 days to provide 
comments. The Secretary may consider such com-
ments prior to providing the notices pursuant to 
paragraph (2).’’. 
(d) 
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’’; and 
(2) by redesignating subparagraph (C) as sub-
paragraph (D); and 
(3) by inserting after subparagraph (B) the fol-
lowing new subparagraph: 
‘‘(C)(i) A guaranty agency may charge and 
retain collection costs in an amount not to ex-
ceed 18.5 percent of the outstanding principal 
and interest at the time of sale of a loan reha-
bilitated under subparagraph (A).
147
‘‘(ii) Notwithstanding clause (i), on and 
after July 1, 2006, a guaranty agency that re-
habilitates a defaulted loan by making a con-
solidation loan to a borrower under section 
428C(a)(3)(A)(ii)(III) may not charge and re-
tain collection costs in an amount in excess of 
10 percent of the outstanding principal and in-
terest of the defaulted loans being consolidated. 
‘‘(iii) For any year beginning on or after 
July 1, 2009, the total principal and interest of 
loans that a guaranty agency rehabilitates by 
making consolidation loans to borrowers under 
such section shall not exceed 45 percent of the 
total loans rehabilitated under subparagraph 
(A).’’. 
(e) FINANCIAL AND ECONOMIC LITERACY.—
(1) DEFAULT REDUCTION PROGRAM.—Section 
428F is further amended by adding at the end the 
following: 
‘‘(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 amend-
148
ed 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 fi-
nancial and economic education and counseling.’’. 
(f) 
CREDIT
BUREAU
ORGANIZATION
AGREE-
MENTS.—Section 430A(a) (20 U.S.C. 1080a(a)) is 
amended by striking ‘‘agreements with credit bureau orga-
nizations’’ and inserting ‘‘an agreement with each national 
credit bureau organization (as described in section 603(p) 
of the Fair Credit Reporting Act)’’. 
(g) 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’’. 
(h) 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. 
(i) SCHOOL
AS LENDER.—Section 435(d)(2) (20 
U.S.C. 1085(d)(2)) is amended by striking subparagraphs 
(C) through (F) and the material following subparagraph 
(F) and inserting the following:
149
‘‘(C) shall not make a loan, other than a 
loan made under section 428 or 428H to a 
graduate or professional student, unless the 
borrower has previously received a loan from 
the school, and shall not make a loan to a bor-
rower who is not enrolled at that institution; 
‘‘(D) shall not have a cohort default rate 
(as defined in section 435(m)) greater than 15 
percent; and 
‘‘(E) shall use the proceeds from special al-
lowance payments and interest payments from 
borrowers, and any proceeds from the sale or 
other disposition of loans, for need-based grant 
programs, except for reasonable reimbursement 
for direct administrative expenses.’’. 
(j) 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.’’.
150
(k) 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’’. 
(l) 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. 
(m) 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 428H(e) (20 U.S.C. 1078–8(e)) is 
amended—
(A) by striking paragraph (6); and 
(B) by redesignating paragraph (7) as 
paragraph (6). 
(3) Section 428I(g) (20 U.S.C. 1078–9(g)) is 
amended by striking ‘‘Code,’’ and inserting ‘‘Code’’. 
(4) 
Section 
432(m)(1)(B) 
(20 
U.S.C. 
1082(m)(1)(B)) is amended—
151
(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. 
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(a) (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
152
institution an amount equal to the following percent-
age of the amount such institution received under 
subsection (a) of this section for fiscal year 2007 (as 
such subsection was in effect with respect to alloca-
tions 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 insti-
tution shall be ratably reduced. 
‘‘(B) ADDITIONAL APPROPRIATIONS ALLO-
CATION.—If additional amounts are appro-
153
priated 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 subsection). 
‘‘(3) ADDITIONAL ALLOCATIONS FOR CERTAIN 
INSTITUTIONS.—
‘‘(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 sub-
paragraph (B). 
‘‘(B) ELIGIBLE INSTITUTIONS.—For pur-
poses of subparagraph (A)—
‘‘(i) an eligible institution that is a 4-
year institution may receive an allocation 
under subparagraph (A) if more than 50 
percent of the students who are degree-
seeking Pell Grant recipients attending 
such institution graduate within 4 calendar 
years of the first day of enrollment; and