qualified loan amount in accordance with subsection
(c) for Federal Direct Stafford Loans and Federal
Direct Unsubsidized Stafford Loans made under this
part for any new borrower on or after October 1,
1998, who is not eligible for loan forgiveness under
section 460, but who—
‘‘(A) is employed as a full-time teacher—
‘‘(i) in a public elementary or sec-
ondary school;
‘‘(ii) if employed as a secondary school
teacher, is teaching a subject area that is
relevant to the borrower’s academic major
as certified by the chief administrative offi-
cer of the public or nonprofit private sec-
ondary school in which the borrower is em-
ployed; and
‘‘(iii) if employed as an elementary
school teacher, has demonstrated, as cer-
tified by the chief administrative officer of
the public or nonprofit private elementary
school in which the borrower is employed,
knowledge and teaching skills in reading,
writing, mathematics, and other areas of
the elementary school curriculum;
‘‘(B) has a State certification (which may
include certification obtained through alter-
native means) or a State license to teach, and
has not failed to comply with State or local ac-
countability standards; and
‘‘(C) is not in default on a loan for which
the borrower seeks forgiveness.
‘‘(2) SELECTION
OF
RECIPIENTS.—The Sec-
retary shall by regulations, establish a formula that
ensures fairness and equality for applicants in the
selection of borrowers for loan repayment under this
section, based on the amount available pursuant to
subsection (i).
‘‘(c) QUALIFIED LOANS AMOUNT.—
‘‘(1) IN GENERAL.—The Secretary shall cancel
not more than the percentage specified in paragraph
(2) of the loan obligation on a loan made under this
part that is outstanding after the completion of each
complete school year of teaching described in sub-
section (b)(1). No borrower may receive a reduction
of loan obligations under both this section and sec-
tion 428J.
‘‘(2) PERCENTAGE ELIGIBLE.—The percent of
the loan obligation which the Secretary shall cancel
under paragraph (1) of this subsection is—
‘‘(A) in the case of teaching in a school
that qualifies under section 465(a)(2)(A) for
loan cancellation for Perkins loan recipients
who teach in such schools, 25 percent for the
first or second year of such service, and 50 per-
cent for the third year of such service; or
‘‘(B) in the case of any other public ele-
mentary or secondary school, 15 percent for the
first or second year of such service, 20 percent
for the third or fourth year of such service, and
30 percent for the fifth year of such service.
‘‘(3) TREATMENT OF CONSOLIDATION LOANS.—
A loan amount for a Federal Direct Consolidation
Loan may be a qualified loan amount for the pur-
poses of this subsection only to the extent that such
loan amount was used to repay a Federal Direct
Stafford Loan, a Federal Direct Unsubsidized Staf-
ford Loan, or a loan made under section 428 or
428H for a borrower who meets the requirements of
subsection (b), as determined in accordance with
regulations prescribed by the Secretary.
‘‘(4) TREATMENT OF YEARS OF SERVICE FOR
CONTINUING EDUCATION LOANS.—For purposes of
paragraph (2), the year of service is determined on
the basis of the academic year that the borrower
began the service as a full-time teacher, except that
in the case of a borrower who incurs a loan obliga-
tion for continuing education expenses while teach-
ing, the year of service is determined on the basis
of the academic year following the academic year for
which the loan obligation was incurred.
‘‘(d) REGULATIONS.—The Secretary is authorized to
issue such regulations as may be necessary to carry out
the provisions of this section.
‘‘(e) CONSTRUCTION.—Nothing in this section shall
be construed to authorize any refunding of any repayment
of a loan.
‘‘(f ) LIST.—If the list of schools in which a teacher
may perform service pursuant to subsection (b) is not
available before May 1 of any year, the Secretary may use
the list for the year preceding the year for which the deter-
mination is made to make such service determination.
‘‘(g) ADDITIONAL ELIGIBILITY PROVISIONS.—
‘‘(1) CONTINUED
ELIGIBILITY.—Any teacher
who performs service in a school that—
‘‘(A) meets the requirements of subsection
(b)(1)(A) in any year during such service; and
‘‘(B) in a subsequent year fails to meet the
requirements of such subsection,
may continue to teach in such school and shall be
eligible for loan forgiveness pursuant to subsection
(b).
‘‘(2) PREVENTION OF DOUBLE BENEFITS.—No
borrower may, for the same service, receive a benefit
under both this section and subtitle D of title I of
the National and Community Service Act of 1990
(42 U.S.C. 12571 et seq.).
‘‘(h) DEFINITION.—For purposes of this section, the
term ‘year’, where applied to service as a teacher, means
an academic year as defined by the Secretary.
‘‘(i) AUTHORIZATION OF APPROPRIATIONS.—There
are authorized to be appropriated to carry out this section
such sums as may be necessary for fiscal year 2002 and
each of the 5 succeeding fiscal years.’’.
SEC. 3. NO INCOME TAX BY REASON OF LOAN FORGIVE-
NESS
Subsection (f) of section 108 of the Internal Revenue
Code of 1986 is amended by adding at the end the fol-
lowing new paragraph:
‘‘(4) LOAN FORGIVENESS FOR TEACHERS.—In
the case of an individual, gross income does not in-
clude any amount which (but for this paragraph)
would be includible in gross income by reason of the
discharge (in whole or in part) of any loan if such
discharge was pursuant to section 428J, 428K, 460,
or 460A of the Higher Education Act of 1965 (20
U.S.C. 1078–10), as in effect on the date of the en-
actment of this paragraph.’’
Æ