the applicable rate of interest for interest which 
accrues—
‘‘(i) prior to the beginning of the re-
payment period of the loan; or 
‘‘(ii) during the period in which prin-
cipal need not be paid (whether or not 
such principal is in fact paid) by reason of 
a 
provision 
described 
in 
section 
428(b)(1)(M) or 427(a)(2)(C), 
shall be determined under subparagraph (A) by 
substituting ‘1.7 percent’ for ‘2.3 percent’. 
‘‘(C) PLUS LOANS.—Notwithstanding the 
preceding paragraphs of this subsection, with 
respect to Federal Direct PLUS Loan for which 
the first disbursement is made on or after Octo-
ber 1, 1998, and before July 1, 2006, the appli-
cable rate of interest shall be determined under 
subparagraph (A)—
‘‘(i) by substituting ‘3.1 percent’ for 
‘2.3 percent’; and 
‘‘(ii) by substituting ‘7.9 percent’ for 
‘6.8 percent’.’’.
SEC. 106. RECAPTURE OF EXCESS INTEREST. 
(a) AMENDMENT.—Subparagraph (I) of section 
438(b)(2) (20 U.S.C. 1087–1(b)(2)) is amended by insert-
ing after clause (vii) the following new clause: 
‘‘(viii) RECAPTURE OF EXCESS INTER-
EST.—
‘‘(I) EXCESS
CREDITED.—With 
respect to a loan on which the applica-
ble interest rate is determined under 
subsection (l) of section 427A and for 
which the first disbursement of prin-
cipal is made on or after July 1, 
2006, if the applicable interest rate 
for any 3-month period exceeds the 
special allowance rate applicable to 
such loan under this subparagraph for 
such period, then an adjustment shall 
be made by calculating the excess in-
terest in the amount computed under 
subclause (II) of this clause, and by 
crediting the excess interest to the 
Government not less often than annu-
ally. 
‘‘(II) 
CALCULATION
OF
EX-
CESS.—The amount of any adjust-
ment of interest on a loan to be made
under this subsection for any quarter 
shall be equal to—
‘‘(aa) the applicable interest 
rate minus the special allowance 
rate determined under this sub-
paragraph; multiplied by 
‘‘(bb) the average daily prin-
cipal balance of the loan (not in-
cluding unearned interest added 
to principal) during such cal-
endar quarter; divided by 
‘‘(cc) four.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall not apply with respect to any special al-
lowance payment made under section 438 of the Higher 
Education Act of 1965 (20 U.S.C 1087–1) before July 
1, 2006. 
SEC. 107. TERMINATION OF EXCESSIVE ALLOWANCES. 
(a) AMENDMENT.—Section 438(b)(2)(B) of the 
Higher Education Act of 1965 (20 U.S.C. 1087–
1(b)(2)(B)) is amended by striking clause (v) and insert-
ing the following: 
‘‘(v) This subparagraph shall not 
apply to—
‘‘(I) any loan made or purchased 
after the date of enactment of the 
College Opportunity for All Act; 
‘‘(II) any loan that had not quali-
fied before such date of enactment for 
receipt of a special allowance payment 
determined under this subparagraph; 
or 
‘‘(III) any loan made or pur-
chased before such date of enactment 
with funds described in the first or 
second sentence of clause (i) if—
‘‘(aa) 
the 
obligation 
de-
scribed in the first such sentence 
has, after such date of enact-
ment, matured, or been retired or 
defeased; or 
‘‘(bb) the maturity date or 
the date of retirement of the obli-
gation described in the first such 
sentence has, after such date of 
enactment, been extended.’’. 
(b) CONTINUING AUDITS OF PRIOR CLAIMS.—The 
Inspector General of the Department of Education shall 
conduct an audit of each holder of student loans who, at