SEC. 3. EXCLUSION FROM GROSS INCOME FOR DISCHARGE 
OF 
INCOME 
CONTINGENT 
AND 
INCOME- 
BASED STUDENT LOAN INDEBTEDNESS. 
(a) IN GENERAL.—Paragraph (1) of section 108(f) 
of the Internal Revenue Code of 1986 is amended to read 
as follows: 
‘‘(1) IN
GENERAL.—In the case of an indi-
vidual, gross income does not include any amount 
which (but for this subsection) would be includible in 
gross income by reason of the discharge (in whole or 
in part) of any student loan if such discharge was 
pursuant to— 
‘‘(A) a provision of such loan under which 
all or part of the indebtedness of the individual 
would be discharged if the individual worked for 
a certain period of time in certain professions 
for any of a broad class of employers, or 
‘‘(B) subsections (d)(1)(D) and (e)(7) of 
section 455 or section 493C(b)(7) of the Higher 
Education Act of 1965 (relating to income con-
tingent and income-based repayment, respec-
tively).’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to discharges of indebtedness after 
the date of the enactment of this Act. 
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SEC. 4. GRACE PERIOD EXTENSION. 
(a) IN GENERAL.—Section 455 of the Higher Edu-
cation Act of 1965 (20 U.S.C. 1087e) is amended by add-
ing at the end the following: 
‘‘(r) GRACE PERIOD EXTENSION.— 
‘‘(1) IN GENERAL.—With respect to the Federal 
Direct Stafford Loans and Federal Direct Unsub-
sidized Stafford Loans, section 487(b)(7) shall be 
applied— 
‘‘(A) in subparagraph (A), by substituting 
‘12 months’ for ‘6 months’; and 
‘‘(B) in subparagraph (D), by substituting 
‘12-month period’ for ‘6-month period’. 
‘‘(2) NO
ACCRUAL
OF
INTEREST.—Notwith-
standing any other provision of this part, interest 
shall not accrue on a Federal Direct Unsubsidized 
Stafford Loan during the 12-month period described 
in paragraph (1). 
‘‘(s) EXTENSION OF CERTAIN DEFERMENT PERIOD 
FOR FEDERAL DIRECT PLUS LOANS.— 
‘‘(1) IN
GENERAL.—With respect to Federal 
Direct PLUS Loans, section 428B(d)(1)(B) shall be 
applied— 
‘‘(A) in the case of a parent borrower, in 
clause (i), by substituting ‘12-month period’ for 
‘6-month period’; and 
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‘‘(B) in the case of a graduate or profes-
sional student borrower, in clause (ii), by sub-
stituting ‘12-month period’ for ‘6-month pe-
riod’. 
‘‘(2) NO
ACCRUAL
OF
INTEREST.—Notwith-
standing any other provision of this part, interest 
shall not accrue on a Federal Direct PLUS Loan 
during the 12-month period described in paragraph 
(1).’’. 
(b) EFFECTIVE
DATE
AND
APPLICATION.—The 
amendments made by this section shall take effect on the 
date of enactment of this Act, and shall apply with respect 
to— 
(1) Federal Direct Stafford Loans, Federal Di-
rect Unsubsidized Stafford Loans, and Federal Di-
rect PLUS Loans made on or after the date of en-
actment of this Act; and 
(2) Federal Direct Stafford Loans, Federal Di-
rect Unsubsidized Stafford Loans, and Federal Di-
rect PLUS Loans made before such date of enact-
ment to borrowers who have not yet entered repay-
ment on such loans on such date of enactment. 
Æ 
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