150 
(e) 
COLLECTION
RETENTION
PERCENTAGES.— 
Clause 
(ii) 
of 
section 
428(c)(6)(B) 
(20 
U.S.C. 
1078(c)(6)(B)), as redesignated by subsection (d)(3) of 
this section, is amended to read as follows: 
‘‘(ii) an amount equal to 24 percent of 
such payments for use in accordance with sec-
tion 422B, except that— 
‘‘(I) beginning on October 1, 2003, 
and ending on October 1, 2006, this clause 
shall be applied by substituting ‘23 per-
cent’ for ‘24 percent’; and 
‘‘(II) beginning on October 1, 2006, 
this clause shall be applied by substituting 
‘20 percent’ for ‘24 percent’.’’. 
(f) 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 subsection (a), by 
striking ‘‘and any waivers provided to other guar-
anty agencies under paragraph (2)’’;
151 
(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-
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).’’. 
(g) 
FRAUD: 
REPAYMENT
REQUIRED.—Section 
428B(a)(1) (20 U.S.C. 1078–2(a)(1)) is amended— 
(1) by striking ‘‘and’’ at the end of subpara-
graph (A); 
(2) by redesignating subparagraph (B) as sub-
paragraph (C); and 
(3) by inserting after subparagraph (A) the fol-
lowing new subparagraph:
152 
‘‘(B) in the case of a parent who has been 
convicted of, or has pled nolo contendere or 
guilty to, a crime involving fraud in obtaining 
funds under this title, such parent has com-
pleted the repayment of such funds to the Sec-
retary, or to the holder in the case of a loan 
under this title obtained by fraud; and’’. 
(h) 
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).’’. 
(i) FINANCIAL AND ECONOMIC LITERACY.—
153 
(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 financial and economic education ma-
terials available to the borrower.’’. 
(2) PROGRAM ASSISTANCE FOR BORROWERS.— 
Section 432(k)(1) (20 U.S.C. 1082(k)(1)) is amend-
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.’’. 
(j) CREDIT BUREAU ORGANIZATION AGREEMENTS.— 
Section 430A(a) (20 U.S.C. 1080a(a)) is amended by 
striking ‘‘agreements with credit bureau organizations’’ 
and inserting ‘‘an agreement with each national credit bu-
reau organization (as described in section 603(p) of the 
Fair Credit Reporting Act)’’. 
(k) 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’’.
154 
(l) 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. 
(m) SCHOOLS AS LENDERS.—Paragraph (2) of sec-
tion 435(d) (20 U.S.C. 1085(d)(2)) is amended to read 
as follows: 
‘‘(2) REQUIREMENTS FOR ELIGIBLE INSTITU-
TIONS.— 
‘‘(A) IN GENERAL.—To be an eligible lend-
er 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
155 
‘‘(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 that 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 
special allowance payments and interest 
payments from borrowers, interest sub-
sidies received from the Department of 
Education, and any proceeds from the sale
156 
or other disposition of loans, for need- 
based grant programs. 
‘‘(B) ADMINISTRATIVE EXPENSES.—An el-
igible 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 
eligible lender under subparagraph (A) shall en-
sure that the proceeds described in subpara-
graph (A)(viii) are used to supplement, and not 
to supplant, non-Federal funds that would oth-
erwise be used for need-based grant pro-
grams.’’. 
(n) 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 not re-
quire a borrower who has been certified as permanently 
and totally disabled by the Department of Veterans Af-
fairs or the Social Security Administration to present fur-
ther documentation of disability for purposes of this 
title.’’. 
(o) TREATMENT
OF
FALSELY
CERTIFIED
BOR-
ROWERS.—Section 437(c)(1) (20 U.S.C. 1087(c)(1)) is
157 
amended by inserting ‘‘or parent’s eligibility’’ after ‘‘such 
student’s eligibility’’. 
(p) 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. 
(q) 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 sub-
clause (I); 
(B) by striking the period at the end of 
subclause (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.’’.
158 
(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 out-
side 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-
159 
puted’’ and all that follows through ‘‘to the loan’’ 
and inserting ‘‘described in subparagraph (A) shall 
be computed using the interest rate described in sec-
tion 3902(a) of title 31, United States Code,’’. 
SEC. 2124. FUNDS FOR ADMINISTRATIVE EXPENSES. 
Section 458 is amended to read as follows: 
‘‘SEC. 458. FUNDS FOR ADMINISTRATIVE EXPENSES. 
‘‘(a) ADMINISTRATIVE EXPENSES.— 
‘‘(1) MANDATORY
FUNDS
FOR
FISCAL
YEAR 
2006.—For fiscal year 2006, there shall be available 
to the Secretary, from funds not otherwise appro-
priated, funds to be obligated for— 
‘‘(A) administrative costs under this part 
and part B, including the costs of the direct 
student loan programs under this part; and 
‘‘(B) account maintenance fees payable to 
guaranty agencies under part B and calculated 
in accordance with subsections (b) and (c), 
not to exceed (from such funds not otherwise appro-
priated) $820,000,000 in fiscal year 2006. 
‘‘(2) AUTHORIZATION
FOR
ADMINISTRATIVE 
COSTS BEGINNING IN FISCAL YEAR 2007.—For each 
of the fiscal years 2007 through 2011, there are au-
thorized to be appropriated such sums as may be 
necessary for administrative costs under this part
160 
and part B, including the costs of the direct student 
loan programs under this part. 
‘‘(3) CONTINUING MANDATORY FUNDS FOR AC-
COUNT MAINTENANCE FEES.—For each of the fiscal 
years 2007 through 2011, there shall be available to 
the Secretary, from funds not otherwise appro-
priated, funds to be obligated for account mainte-
nance fees payable to guaranty agencies under part 
B and calculated in accordance with subsection (b). 
‘‘(4) ACCOUNT
MAINENANCE
FEES.—Account 
maintenance fees under paragraph (3) shall be paid 
quarterly and deposited in the Agency Operating 
Fund established under section 422B. 
‘‘(5) CARRYOVER.—The Secretary may carry 
over funds made available under this section to a 
subsequent fiscal year. 
‘‘(b) CALCULATION BASIS.—Account maintenance 
fees payable to guaranty agencies under subsection (a)(3) 
shall not exceed the basis of 0.10 percent of the original 
principal amount of outstanding loans on which insurance 
was issued under part B. 
‘‘(c) BUDGET JUSTIFICATION.—No funds may be ex-
pended under this section unless the Secretary includes 
in the Department of Education’s annual budget justifica-
tion to Congress a detailed description of the specific ac-
161 
tivities for which the funds made available by this section 
have been used in the prior and current years (if applica-
ble), the activities and costs planned for the budget year, 
and the projection of activities and costs for each remain-
ing year for which administrative expenses under this sec-
tion are made available.’’. 
SEC. 2125. SIGNIFICANTLY SIMPLIFYING THE STUDENT AID 
APPLICATION PROCESS. 
(a) EXPANDING
THE AUTO-ZERO
AND FURTHER 
SIMPLIFYING THE SIMPLIFIED NEEDS TEST.— 
(1) SIMPLIFIED NEEDS TEST.—Section 479 (20 
U.S.C. 1087ss) is amended— 
(A) in subsection (b)— 
(i) in paragraph (1)— 
(I) by striking clause (i) of sub-
paragraph (A) and inserting the fol-
lowing: 
‘‘(i) the student’s parents file, or are 
eligible to file, a form described in para-
graph (3) or certify that they are not re-
quired to file an income tax return, and 
the student files, or is eligible to file, such 
a form or certifies that the student is not 
required to file an income tax return, or 
the student’s parents, or the student, re-
162 
ceived benefits at some time during the 
previous 12-month period under a means- 
tested Federal benefit program as defined 
under subsection (d); and’’; and 
(II) by striking clause (i) of sub-
paragraph (B) and inserting the fol-
lowing: 
‘‘(i) the student (and the student’s 
spouse, if any) files, or is eligible to file, a 
form described in paragraph (3) or cer-
tifies that the student (and the student’s 
spouse, if any) is not required to file an in-
come tax return, or the student (and the 
student’s spouse, if any) received benefits 
at some time during the previous 12-month 
period under a means-tested Federal ben-
efit program as defined under subsection 
(d); and’’; and 
(ii) in paragraph (3), by striking ‘‘A 
student or family files a form described in 
this subsection, or subsection (c), as the 
case may be, if the student or family, re-
spectively, files’’ and inserting ‘‘In the case 
of an independent student, the student, or 
in the case of a dependent student, the
163 
parent, files a form described in this sub-
section, or subsection (c), as the case may 
be, if the student or parent, as appro-
priate, files’’; 
(B) in subsection (c)— 
(i) in paragraph (1), by striking sub-
paragraph (A) and inserting the following: 
‘‘(A) the student’s parents file, or are eligi-
ble to file, a form described in subsection (b)(3) 
or certify that they are not required to file an 
income tax return, and the student files, or is 
eligible to file, such a form or certifies that the 
student is not required to file an income tax re-
turn, or the student’s parents, or the student, 
received benefits at some time during the pre-
vious 12-month period under a means-tested 
Federal benefit program as defined in sub-
section (d); and’’; and 
(ii) in paragraph (2), by striking sub-
paragraph (A) and inserting the following: 
‘‘(A) the student (and the student’s 
spouse, if any) files, or is eligible to file, a form 
described in subsection (b)(3) or certifies that 
the student (and the student’s spouse, if any) 
is not required to file an income tax return, or
164 
the student (and the student’s spouse, if any) 
received benefits at some time during the pre-
vious 12-month period under a means-tested 
Federal benefit program as defined in sub-
section (d); and’’; and 
(C) by adding at the end the following new 
subsections: 
‘‘(d) DEFINITION
OF
MEANS-TESTED
FEDERAL 
BENEFIT PROGRAM.—For the purposes of this section, 
the term ‘means-tested Federal benefit program’ means 
a mandatory spending program of the Federal Govern-
ment, other than a program under this title, in which eligi-
bility for the program’s benefits, or the amount of such 
benefits, or both, are determined on the basis of income 
or resources of the individual or family seeking the benefit, 
and may include such programs as the supplemental secu-
rity income program under title XVI of the Social Security 
Act, the food stamp program under the Food Stamp Act 
of 1977, the free and reduced price school lunch program 
established under the Richard B. Russell National School 
Lunch Act, the temporary assistance to needy families 
program established under part A of title IV of the Social 
Security Act, and the women, infants and children pro-
gram established under Section 17 of the Child Nutrition
165 
Act of 1966, and other programs identified by the Sec-
retary. 
‘‘(e) REPORTING REQUIREMENTS.—The Secretary 
shall regularly evaluate the impact of the eligibility guide-
lines in subsections (b)(1)(A)(i), (b)(1)(B)(i), (c)(1)(A) 
and (c)(2)(A) of this section. In particular, the Secretary 
shall evaluate whether using receipt of benefits under a 
means-tested Federal benefit program (as defined in sub-
section (d)) for eligibility continues to target the Sim-
plified Needs Test, to the greatest extent possible, for use 
by low- and moderate-income students and their fami-
lies.’’. 
(b) IMPROVEMENTS
TO PAPER
AND ELECTRONIC 
FORMS.— 
(1) COMMON FINANCIAL AID FORM DEVELOP-
MENT AND PROCESSING.—Section 483(a) (20 U.S.C. 
1090(a)) is amended— 
(A) by striking paragraphs (1), (2), and 
(5); 
(B) by redesignating paragraphs (3), (4), 
(6), and (7), as paragraphs (9), (10), (11), and 
(12), respectively; 
(C) by inserting before paragraph (9), as 
redesignated by subparagraph (B), the fol-
lowing:
166 
‘‘(1) IN GENERAL.—The Secretary, in coopera-
tion with representatives of agencies and organiza-
tions involved in student financial assistance, shall 
produce, distribute, and process free of charge com-
mon financial reporting forms as described in this 
subsection to be used for application and reapplica-
tion to determine the need and eligibility of a stu-
dent for financial assistance under parts A through 
E (other than subpart 4 of part A). These forms 
shall be made available to applicants in both paper 
and electronic formats and shall be referred to as 
the ‘Free Application for Federal Student Aid’ or 
the ‘FAFSA’ . 
‘‘(2) EARLY ESTIMATES.— 
‘‘(A) IN
GENERAL.—The Secretary shall 
permit applicants to complete such forms as de-
scribed in this subsection in the 4 years prior 
to enrollment in order to obtain a non-binding 
estimate of the family contribution, as defined 
in section 473. The estimate shall clearly and 
conspicuously indicate that it is only an esti-
mate of family contribution, and may not re-
flect the actual family contribution of the appli-
cant that shall be used to determine the grant, 
loan, or work assistance that the applicant may
167 
receive under this title when enrolled in a pro-
gram of postsecondary education. Such appli-
cants shall be permitted to update information 
submitted on forms described in this subsection 
using the process required under paragraph 
(5)(A). 
‘‘(B) EVALUATION.—Two years after the 
early estimates are implemented under this 
paragraph and from data gathered from the 
early estimates, the Secretary shall evaluate the 
differences between initial, non-binding early es-
timates and the final financial aid award made 
available under this title. 
‘‘(C) REPORT.—The Secretary shall pro-
vide a report to the authorizing committees on 
the results of the evaluation. 
‘‘(3) PAPER FORMAT.— 
‘‘(A) IN
GENERAL.—The Secretary shall 
produce, distribute, and process common forms 
in paper format to meet the requirements of 
paragraph (1). The Secretary shall develop a 
common paper form for applicants who do not 
meet the requirements of subparagraph (B). 
‘‘(B) EZ FAFSA.—
168 
‘‘(i) IN
GENERAL.—The Secretary 
shall develop and use a simplified paper 
application form, to be known as the ‘EZ 
FAFSA’, to be used for applicants meeting 
the requirements of section 479(c). 
‘‘(ii) 
REDUCED
DATA
REQUIRE-
MENTS.—The form under this subpara-
graph shall permit an applicant to submit, 
for financial assistance purposes, only the 
data elements required to make a deter-
mination of whether the applicant meets 
the requirements under section 479(c). 
‘‘(iii) STATE
DATA.—The Secretary 
shall include on the form under this sub-
paragraph such data items as may be nec-
essary to award State financial assistance, 
as provided under paragraph (6), except 
that the Secretary shall not include a 
State’s data if that State does not permit 
its applicants for State assistance to use 
the form under this subparagraph. 
‘‘(iv) FREE AVAILABILITY AND PROC-
ESSING.—The provisions of paragraph (7) 
shall apply to the form under this subpara-
graph, and the data collected by means of
169 
the form under this subparagraph shall be 
available to institutions of higher edu-
cation, guaranty agencies, and States in 
accordance with paragraph (9). 
‘‘(v) TESTING.—The Secretary shall 
conduct appropriate field testing on the 
form under this subparagraph. 
‘‘(C) PROMOTING
THE
USE
OF
ELEC-
TRONIC FAFSA.— 
‘‘(i) IN
GENERAL.—The Secretary 
shall— 
‘‘(I) develop a form that uses 
skip logic to simplify the application 
process for applicants; and 
‘‘(II) make all efforts to encour-
age applicants to utilize the electronic 
forms described in paragraph (4). 
‘‘(ii) MAINTENANCE OF THE FAFSA IN 
A
PRINTABLE
ELECTRONIC
FILE.—The 
Secretary shall maintain a version of the 
paper forms described in subparagraphs 
(A) and (B) in a printable electronic file 
that is easily portable. The printable elec-
tronic file will be made easily accessible 
and downloadable to students on the same
170 
website used to provide students with the 
electronic application forms described in 
paragraph (4) of this subsection. The Sec-
retary shall enable students to submit a 
form created under this subparagraph that 
is downloaded and printed from an elec-
tronic file format in order to meet the fil-
ing requirements of this section and in 
order to receive aid from programs under 
this title. 
‘‘(iii) REPORTING
REQUIREMENT.— 
The Secretary shall report annually to 
Congress on the impact of the digital di-
vide on students completing applications 
for title IV aid described under this para-
graph and paragraph (4). The Secretary 
will also report on the steps taken to elimi-
nate the digital divide and phase out the 
paper form described in subparagraph (A) 
of this paragraph. The Secretary’s report 
will specifically address the impact of the 
digital divide on the following student pop-
ulations: dependent students, independent 
students without dependents, and inde-
171 
pendent students with dependents other 
than a spouse. 
‘‘(4) ELECTRONIC FORMAT.— 
‘‘(A) IN
GENERAL.—The Secretary shall 
produce, distribute, and process common forms 
in electronic format to meet the requirements of 
paragraph (1). The Secretary shall develop 
common electronic forms for applicants who do 
not meet the requirements of subparagraph (C) 
of this paragraph. 
‘‘(B) STATE
DATA.—The Secretary shall 
include on the common electronic forms space 
for information that needs to be submitted from 
the applicant to be eligible for State financial 
assistance, as provided under paragraph (6), ex-
cept the Secretary shall not require applicants 
to complete data required by any State other 
than the applicant’s State of residence. 
‘‘(C) SIMPLIFIED APPLICATIONS: FAFSA ON 
THE WEB.— 
‘‘(i) IN
GENERAL.—The Secretary 
shall develop and use a simplified elec-
tronic application form to be used by appli-
cants meeting the requirements under sub-
section (c) of section 479 and an addi-