[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 1964 Introduced in Senate (IS)]








109th CONGRESS
  1st Session
                                S. 1964

To amend the Internal Revenue Code of 1986 to modify the determination 
        and deduction of interest on qualified education loans.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            November 4, 2005

Ms. Snowe (for herself and Mr. Schumer) introduced the following bill; 
     which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to modify the determination 
        and deduction of interest on qualified education loans.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. INTEREST DETERMINATIONS ON STUDENT LOANS.

    (a) In General.--Section 221 of the Internal Revenue Code of 1986 
(relating to interest on education loans) is amended by redesignating 
subsection (f) as subsection (g) and by inserting after subsection (e) 
the following new subsection:
    ``(f) Determination of Interest Paid.--In the case of a qualified 
education loan made after December 31, 2004, for purposes of this 
section and notwithstanding any other provision of this title--
            ``(1) In general.--
                    ``(A) Treatment as interest.--Any payment on such 
                loan shall be treated as a payment of interest to the 
                extent of the balance, immediately before such payment, 
                in the accumulated interest account with respect to 
                such loan.
                    ``(B) Exception.--Subparagraph (A) shall not apply 
                to any payment of collection costs, late fees, and 
                penalties.
            ``(2) Accumulated interest account.--
                    ``(A) In general.--The term `accumulated interest 
                account' means an account which is adjusted in 
                accordance with this paragraph.
                    ``(B) Increases.--The balance in the accumulated 
                interest account shall be increased for any period by 
                the sum of--
                            ``(i) the loan origination fees incurred by 
                        the borrower in such period,
                            ``(ii) the amount of stated interest on the 
                        loan for such period, and
                            ``(iii) the amount of any fee imposed under 
                        section 428(b)(1)(H) of the Higher Education 
                        Act of 1965 (20 U.S.C. 1078(b)(1)(H)).
                    ``(C) Decreases.--The balance in the accumulated 
                interest account shall be decreased (but not below 
                zero) by payments made on the loan to the extent 
                treated as interest under this section.
            ``(3) Loan origination fees.--
                    ``(A) Federal programs.--The term `loan origination 
                fee' includes any fee imposed under any of the 
                following provisions of the Higher Education Act of 
                1965:
                            ``(i) Section 438(c) (20 U.S.C. 1087-1(c)).
                            ``(ii) Section 455(c) (20 U.S.C. 1087e(c)).
                    ``(B) Fees for services or property excluded.--
                Except as provided under subparagraph (A), the term 
                `loan origination fee' does not include any fee which 
                is a fee for services or property.
            ``(4) Stated interest.--The term `stated interest' means, 
        with respect to any period, the amount of interest determined 
        for the period based on the stated rate of interest applicable 
        to the period (whether or not the interest is required to be 
        paid in such period).
            ``(5) Anti-abuse rule.--The Secretary may prescribe rules 
        to prevent the acceleration or deceleration of additions to the 
        accumulated interest account where the loan origination fees or 
        stated interest do not properly reflect the substance of the 
        loan.''.
    (b) Information Returns.--
            (1) Interest and loan origination fee defined.--Subsection 
        (e) of section 6050S of such Code (relating to the general rule 
        for form and manner of returns) is amended by inserting before 
        the period at the end the following: ``, and the term 
        `interest' has the same meaning as when used in section 221''.
            (2) Pre-2005 loans.--The regulations under section 6050S of 
        the Internal Revenue Code of 1986 which are applicable to loans 
        made before September 1, 2004, shall also apply to loans made 
        on or after such date which are made before January 1, 2005.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2004.
                                 <all>