[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 3593 Introduced in Senate (IS)]
109th CONGRESS
2d Session
S. 3593
To amend the Higher Education Act of 1965 to provide additional support
to students.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
June 28, 2006
Mr. Kennedy (for himself, Mr. Dodd, Ms. Mikulski, Mr. Schumer, Mr.
Harkin, Mrs. Clinton, and Mr. Lieberman) introduced the following bill;
which was read twice and referred to the Committee on Finance
_______________________________________________________________________
A BILL
To amend the Higher Education Act of 1965 to provide additional support
to students.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Student Debt Relief Act of 2006''.
SEC. 2. INCREASE IN FEDERAL PELL GRANTS.
(a) In General.--Section 401(b)(2)(A) of the Higher Education Act
of 1965 (20 U.S.C. 1070a(b)(2)(A)) is amended by striking clauses (i)
through (v) and inserting the following:
``(i) $5,100 for academic year 2007-2008;
``(ii) $5,400 for academic year 2008-2009;
``(iii) $5,700 for academic year 2009-2010;
``(iv) $6,000 for academic year 2010-2011; and
``(v) $6,300 for academic year 2011-2012,''.
(b) Additional Funds.--For an academic year, in the case in which
discretionary amounts appropriated to carry out the Federal Pell Grant
program under subpart 1 of part A of title IV of the Higher Education
Act of 1965 (20 U.S.C. 1070a et seq.) for such academic year are
sufficient to fund a maximum Federal Pell Grant award of $4,050, then
there are authorized to be appropriated, and there are appropriated,
additional amounts to carry out the amendment made by subsection (a) as
follows:
(1) For academic year 2007-2008, $4,310,000,000.
(2) For academic year 2008-2009, $5,563,000,000.
(3) For academic year 2009-2010, $6,982,000,000.
(4) For academic year 2010-2011, $8,398,000,000.
(5) For academic year 2011-2012, $9,831,000,000.
SEC. 3. STUDENT AID REWARD PROGRAM.
Part G of title IV of the Higher Education Act of 1965 (20 U.S.C.
1088 et seq.) is amended by inserting after section 489 the following:
``SEC. 489A. STUDENT AID REWARD PROGRAM.
``(a) Program Authorized.--The Secretary shall carry out a Student
Aid Reward Program to encourage institutions of higher education to
participate in the student loan program under this title that is most
cost-effective for taxpayers.
``(b) Program Requirements.--In carrying out the Student Aid Reward
Program, the Secretary shall--
``(1) provide to each institution of higher education
participating in the student loan program under this title that
is most cost-effective for taxpayers, a Student Aid Reward
Payment, in an amount determined in accordance with subsection
(c), to encourage the institution to participate in that
student loan program;
``(2) require each institution of higher education
receiving a payment under this section to provide student loans
under such student loan program for a period of 5 years after
the date the first payment is made under this section;
``(3) where appropriate, require that funds paid to
institutions of higher education under this section be used to
award students a supplement to such students' Federal Pell
Grants under subpart 1 of part A;
``(4) permit such funds to also be used to award need-based
grants to lower- and middle-income graduate students; and
``(5) encourage all institutions of higher education to
participate in the Student Aid Reward Program under this
section.
``(c) Amount.--The amount of a Student Aid Reward Payment under
this section shall be not less than 50 percent of the savings to the
Federal Government generated by the institution of higher education's
participation in the student loan program under this title that is most
cost-effective for taxpayers instead of the institution's participation
in the student loan program that is not most cost-effective for
taxpayers.
``(d) Trigger to Ensure Cost Neutrality.--
``(1) Limit to ensure cost neutrality.--Notwithstanding
subsection (c), the Secretary shall not distribute Student Aid
Reward Payments under the Student Aid Reward Program that, in
the aggregate, exceed the Federal savings resulting from the
implementation of the Student Aid Reward Program.
``(2) Federal savings.--In calculating Federal savings, as
used in paragraph (1), the Secretary shall determine Federal
savings on loans made to students at institutions of higher
education that participate in the student loan program under
this title that is most cost-effective for taxpayers and that,
on the date of enactment of this section, participated in the
student loan program that is not most cost-effective for
taxpayers, resulting from the difference of--
``(A) the Federal cost of loan volume made under
the student loan program under this title that is most
cost-effective for taxpayers; and
``(B) the Federal cost of an equivalent type and
amount of loan volume made, insured, or guaranteed
under the student loan program under this title that is
not most cost-effective for taxpayers.
``(3) Distribution rules.--If the Federal savings
determined under paragraph (2) is not sufficient to distribute
full Student Aid Reward Payments under the Student Aid Reward
Program, the Secretary shall--
``(A) first make Student Aid Reward Payments to
those institutions of higher education that
participated in the student loan program under this
title that is not most cost-effective for taxpayers on
the date of enactment of this section; and
``(B) with any remaining Federal savings after
making Student Aid Reward Payments under subparagraph
(A), make Student Aid Reward Payments to the
institutions of higher education eligible for a Student
Aid Reward Payment and not described in subparagraph
(A) on a pro-rata basis.
``(4) Distribution to students.--Any institution of higher
education that receives a Student Aid Reward Payment under this
section--
``(A) shall distribute, where appropriate, part or
all of such payment among the students of such
institution who are Federal Pell Grant recipients by
awarding such students a supplemental grant; and
``(B) may distribute part of such payment as a
supplemental grant to graduate students in financial
need.
``(5) Estimates, adjustments, and carry over.--
``(A) Estimates and adjustments.--The Secretary
shall make Student Aid Reward Payments to institutions
of higher education on the basis of estimates, using
the best data available at the beginning of an academic
or fiscal year. If the Secretary determines thereafter
that loan program costs for that academic or fiscal
year were different than such estimate, the Secretary
shall adjust by reducing or increasing subsequent
Student Aid Reward Payments rewards paid to such
institutions of higher education to reflect such
difference.
``(B) Carry over.--Any institution of higher
education that receives a reduced Student Aid Reward
Payment under paragraph (3)(B), shall remain eligible
for the unpaid portion of such institution's financial
reward payment, as well as any additional financial
reward payments for which the institution is otherwise
eligible, in subsequent academic or fiscal years.
``(e) Definition.--In this section:
``(1) Student loan program under this title that is most
cost-effective for taxpayers.--The term `student loan program
under this title that is most cost-effective for taxpayers'
means the loan program under part B or D of this title that has
the lowest overall cost to the Federal Government (including
administrative costs) for the loans authorized by such parts.
``(2) Student loan program under this title that is not
most cost-effective for taxpayers.--The term `student loan
program under this title that is not most cost-effective for
taxpayers' means the loan program under part B or D of this
title that does not have the lowest overall cost to the Federal
Government (including administrative costs) for the loans
authorized by such parts.''.
SEC. 4. REDUCTION IN INTEREST RATES.
(a) FFEL.--Section 427A(l) of the Higher Education Act of 1965 (20
U.S.C. 1077a(l)) is amended--
(1) in paragraph (1)--
(A) by striking ``or 428C'' and inserting ``, 428C,
or 428H'';
(B) by striking ``6.8 percent'' and inserting ``3.4
percent''; and
(C) by adding at the end the following:
``Notwithstanding subsection (h), with respect to any
loan under section 428H for which the first
disbursement is made on or after July 1, 2006, the
applicable rate of interest shall be 6.8 percent on the
unpaid principal balance of the loan.''; and
(2) in paragraph (2), by striking ``8.5 percent'' and
inserting ``4.25 percent''.
(b) Direct Loans.--Section 455(b)(7) of the Higher Education Act of
1965 (20 U.S.C. 1087e(b)(7)) is amended--
(1) in subparagraph (A)--
(A) by striking ``and Federal Direct Unsubsidized
Stafford Loans'';
(B) by striking ``6.8 percent'' and inserting ``3.4
percent''; and
(C) by adding at the end the following:
``Notwithstanding the preceding paragraphs of this
subsection, for Federal Direct Unsubsidized Stafford
Loans for which the first disbursement is made on or
after July 1, 2006, the applicable rate of interest
shall be 6.8 percent on the unpaid principal balance of
the loan.''; and
(2) in subparagraph (B), by striking ``7.9 percent'' and
inserting ``4.25 percent''.
SEC. 5. IN-SCHOOL CONSOLIDATION.
Section 428(b)(7)(A) of the Higher Education Act of 1965 (20 U.S.C.
1078(b)(7)(A)) is amended by striking ``shall begin'' and all that
follows through the period and inserting ``shall begin--
``(i) the day after 6 months after the date the
student ceases to carry at least one-half the normal
full-time academic workload (as determined by the
institution); or
``(ii) on an earlier date if the borrower requests
and is granted a repayment schedule that provides for
repayment to commence at an earlier date.''.
SEC. 6. CONSOLIDATION LOAN CHANGES.
Section 428C(a)(3) of the Higher Education Act of 1965 (20 U.S.C.
1078-3(a)(3)) is amended to read as follows:
``(3) Definition of eligible borrower.--For the purpose of
this section, the term `eligible borrower' means a borrower
who--
``(A) is not subject to a judgment secured through
litigation with respect to a loan under this title or
to an order for wage garnishment under section 488A;
and
``(B) at the time of application for a
consolidation loan--
``(i) is in repayment status as determined
under section 428(b)(7)(A);
``(ii) is in a grace period preceding
repayment; or
``(iii) is a defaulted borrower who has
made arrangements to repay the obligation on
the defaulted loans satisfactory to the holders
of the defaulted loans.''.
SEC. 7. REDUCTION OF DIRECT LOAN ORIGINATION FEES.
Section 455(c) of the Higher Education Act of 1965 (20 U.S.C.
1087e(c)) is amended--
(1) in paragraph (1)--
(A) by striking ``4.0 percent'' and inserting ``3.0
percent''; and
(B) by striking ``shall'' and inserting ``is
authorized to''; and
(2) in paragraph (2)--
(A) in subparagraph (A), by striking ```3.0
percent' for `4.0 percent''' and inserting ```2.0
percent' for `3.0 percent''';
(B) in subparagraph (B), by striking ```2.5
percent' for `4.0 percent''' and inserting ```1.5
percent' for `3.0 percent''';
(C) in subparagraph (C), by striking ```2.0
percent' for `4.0 percent''' and inserting ```1.0
percent' for `3.0 percent''';
(D) in subparagraph (D), by striking ```1.5
percent' for `4.0 percent''' and inserting ```0.5
percent' for `3.0 percent'''; and
(E) in subparagraph (E), by striking ```1.0
percent' for `4.0 percent''' and inserting ```0.0
percent' for `3.0 percent'''.
SEC. 8. ELIMINATION OF EXCEPTIONAL PERFORMER STATUS FOR LENDERS.
(a) Repeal.--Section 428I of the Higher Education Act of 1965 (20
U.S.C. 1078-9) is repealed.
(b) Conforming Amendments.--Part A of title IV of the Higher
Education Act of 1965 (20 U.S.C.1070 et seq.) is amended--
(1) in section 428(c)(1)--
(A) by striking subparagraph (D); and
(B) by redesignating subparagraphs (E) through (H)
as subparagraphs (D) and (G), respectively; and
(2) in section 438(b)(5), by striking the matter following
subparagraph (B).
SEC. 9. SCHOOLS AS LENDERS.
Section 435(d) of the Higher Education Act of 1965 (20 U.S.C.
1085(d)) is amended--
(1) in paragraph (2)(C), by inserting ``Federal or'' after
``not to supplant,''; and
(2) by adding at the end the following:
``(7) Eligible lender trustee use by eligible
institution.--In the case of an eligible institution that uses
an eligible lender trustee for the purpose of qualifying as an
eligible lender under paragraph (2), such eligible lender
trustee shall be subject to the requirements of paragraphs (2)
through (5).''.
SEC. 10. ADMINISTRATIVE ACCOUNT FOR DIRECT LOAN PROGRAM.
Section 458 of the Higher Education Act of 1965 (20 U.S.C. 1087h)
is amended--
(1) in subsection (a)--
(A) by striking paragraphs (2) and (3) and
inserting the following:
``(2) Mandatory funds for fiscal years 2007 through 2011.--
Each fiscal year there shall be available to the Secretary,
from funds not otherwise appropriated, 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
subsection (b),
not to exceed (from such funds not otherwise appropriated)
$904,000,000 in fiscal year 2007, $943,000,000 in fiscal year
2008, $983,000,000 in fiscal year 2009, $1,023,000,000 in
fiscal year 2010, $1,064,000,000 in fiscal year 2011, and
$1,106,000,000 in fiscal year 2012.'';
(B) by redesignating paragraphs (4) and (5) as
paragraphs (3) and (4), respectively; and
(C) in paragraph (3) (as redesignated in
subparagraph (B)), by striking ``paragraph (3)'' and
inserting ``paragraph (2)''; and
(2) in subsection (b), by striking ``(a)(3)'' and inserting
``(a)(2)''.
SEC. 11. INCOME CONTINGENT REPAYMENT FOR PUBLIC SECTOR EMPLOYEES.
Section 455(e) of the Higher Education Act of 1965 (20 U.S.C.
1087e(e)) is amended by adding at the end the following:
``(7) Repayment plan for public sector employees.--
``(A) In general.--The Secretary shall forgive the
balance due on any loan made under this part or section
428C(b)(5) for a borrower--
``(i) who has made 120 payments on such
loan pursuant to income contingent repayment;
and
``(ii) who is employed, and was employed
for the 10-year period in which the borrower
made the 120 payments described in clause (i),
in a public sector job.
``(B) Public sector job.--In this paragraph, the
term `public sector job' means a full-time job in
emergency management, government, public safety, law
enforcement, public health, education (including early
childhood education), or public interest legal services
(including prosecution or public defense).
``(8) Return to standard repayment.--A borrower who is
repaying a loan made under this part pursuant to income
contingent repayment may choose, at any time, to terminate
repayment pursuant to income contingent repayment and repay
such loan under the standard repayment plan.''.
SEC. 12. DEFINITIONS OF PARTIAL FINANCIAL HARDSHIP AND ECONOMIC
HARDSHIP.
(a) Partial Financial Hardship.--Section 435 of the Higher
Education Act of 1965 (20 U.S.C. 1085) is amended by inserting after
subsection (m) the following:
``(n) Partial Financial Hardship.--For purposes of this part and
part E, the term `partial financial hardship' means the amount by which
the borrower's annual Federal educational debt burden exceeds 15
percent of the difference between--
``(1) the borrower's adjusted gross income; and
``(2) the poverty line applicable to the borrower's family
size as determined under section 673(2) of the Community
Services Block Grant Act.''.
(b) Economic Hardship.--Section 435(o) of the Higher Education Act
of 1965 (20 U.S.C. 1085(o)) is amended--
(1) in paragraph (1)--
(A) in subparagraph (A)(ii), by striking ``100
percent of the poverty line for a family of 2'' and
inserting ``150 percent of the poverty line applicable
to the borrower's family size'';
(B) by striking subparagraph (B); and
(C) by redesignating subparagraph (C) as
subparagraph (B); and
(2) in paragraph (2), by striking ``(1)(C)'' and inserting
``(1)(B)''.
SEC. 13. DEFERRALS.
(a) FISL.--Section 427(a)(2)(C) of the Higher Education Act of 1965
(20 U.S.C. 1077(a)(2)(C)) is amended to read as follows:
``(C) provides that--
``(i) periodic installments of principal
need not be paid, but interest shall accrue and
be paid, during any period--
``(I) during which the borrower--
``(aa) is pursuing at least
a half-time course of study as
determined by an eligible
institution; or
``(bb) is pursuing a course
of study pursuant to a graduate
fellowship program approved by
the Secretary, or pursuant to a
rehabilitation training program
for individuals with
disabilities approved by the
Secretary,
except that no borrower shall be
eligible for a deferment under this
clause, or a loan made under this part
(other than a loan made under section
428B or 428C), while serving in a
medical internship or residency
program;
``(II) not in excess of 3 years
during which the borrower is seeking
and unable to find full-time
employment; or
``(III) during which the borrower
has, or will have, an economic hardship
described in section 435(o), as
determined by the lender in accordance
with regulations prescribed by the
Secretary under such section; and
``(ii) during any period during which a
borrower has, or will have, a partial financial
hardship defined in section 435(n), as
determined by the lender in accordance with
regulations prescribed by the Secretary under
such section, the borrower--
``(I) need only pay the portion of
the periodic installments of principal
and interest that exceeds the
borrower's partial financial hardship
for such period; and
``(II) may defer the remaining
amount of principal and interest (which
interest shall continue to accrue) for
such period,
and provides that any such period shall not be included
in determining the 10-year period described in
subparagraph (B);''.
(b) Interest Subsidies.--Section 428(b)(1)(M) of the Higher
Education Act of 1965 (20 U.S.C. 1078(b)(1)(M)) is amended to read as
follows:
``(M) provides that--
``(i) periodic installments of principal
need not be paid, but interest shall accrue and
be paid by the Secretary, during any period--
``(I) during which the borrower--
``(aa) is pursuing at least
a half-time course of study as
determined by an eligible
institution, except that no
borrower, notwithstanding the
provisions of the promissory
note, shall be required to
borrow an additional loan under
this title in order to be
eligible to receive a deferment
under this clause; or
``(bb) is pursuing a course
of study pursuant to a graduate
fellowship program approved by
the Secretary, or pursuant to a
rehabilitation training program
for disabled individuals
approved by the Secretary,
except that no borrower shall be
eligible for a deferment under this
clause, or loan made under this part
(other than a loan made under 428B or
428C), while serving in a medical
internship or residency program;
``(II) not in excess of 3 years
during which the borrower is seeking
and unable to find full-time
employment, except that no borrower who
provides evidence of eligibility for
unemployment benefits shall be required
to provide additional paperwork for a
deferment under this clause;
``(III) not in excess of 3 years
during which the borrower--
``(aa) is serving on active
duty during a war or other
military operation or national
emergency; or
``(bb) is performing
qualifying National Guard duty
during a war or other military
operation or national
emergency; or
``(IV) during which the borrower
has, or will have, an economic hardship
described in section 435(o), as
determined by the lender in accordance
with regulations prescribed by the
Secretary under such section; and
``(ii) during any period during which a
borrower has, or will have, a partial financial
hardship defined in section 435(n), as
determined by the lender in accordance with
regulations prescribed by the Secretary under
such section, a portion of the periodic
installments of principal and interest need not
be paid as follows:
``(I) the Secretary shall first pay
the portion of the periodic
installments of interest due that does
not exceed the borrower's partial
financial hardship for such period, and
any amount of interest due in excess of
the borrower's partial financial
hardship for such period shall be paid
by the borrower; and
``(II) the borrower shall pay the
periodic installments of principal due
for such period, reduced by the
difference between the partial
financial hardship and the amount of
interest paid under subclause (I);''.
(c) Direct Loans.--Section 455(f) of the Higher Education Act of
1965 (20 U.S.C. 1087e(f)) is amended--
(1) in paragraph (2)(D), by striking ``not in excess of 3
years''; and
(2) by adding at the end the following:
``(5) Partial financial hardship deferment.--During any
period during which a borrower has, or will have, a partial
financial hardship defined in section 435(n), as determined by
the Secretary in accordance with regulations prescribed under
such section, a portion of the periodic installments of
principal and interest need not be paid as follows:
``(A) In the case of a Federal Direct Stafford
Loan, a Federal Direct Consolidation Loan that
consolidated only Federal Direct Stafford Loans, or a
combination of such loans and Federal Stafford Loans
for which the student borrower received an interest
subsidy under section 428--
``(i) the amount of interest for such
period that does not exceed the borrower's
partial financial hardship shall not accrue,
and any amount of interest due in excess of the
borrower's partial financial hardship shall be
capitalized or be paid by the borrower; and
``(ii) the borrower shall pay the periodic
installments of principal due for such period,
reduced by the difference between the partial
financial hardship and the amount of interest
paid under clause (i).
``(B) In the case of a Federal Direct PLUS Loan, a
Federal Direct Unsubsidized Stafford Loan, or a Federal
Direct Consolidation Loan not described in subparagraph
(A)--
``(i) the amount of interest and principal
that equals the borrower's partial financial
hardship for such period need not be paid but
may be deferred or capitalized by the borrower;
and
``(ii) any amount of interest or principal
due in excess of the borrower's partial
financial hardship for such period shall be
paid by the borrower.''.
(d) Perkins.--Section 464(c) of the Higher Education Act of 1965
(20 U.S.C. 1087dd(c)) is amended--
(1) by striking paragraph (2)(A)(iv) and inserting the
following:
``(iv) during which the borrower has, or will have, an
economic hardship described in section 435(o), as determined by
the lender in accordance with regulations prescribed by the
Secretary under such section; or''; and
(2) by adding at the end the following:
``(8) Partial Financial Hardship Deferment.--During any period
during which a borrower has, or will have, a partial financial hardship
defined in section 435(n), as determined by the lender in accordance
with regulations prescribed by the Secretary under such section, a
portion of the periodic installments of principal and interest need not
be paid as follows:
``(A) the Secretary shall first pay the periodic
installments of interest due for such period that does not
exceed the borrower's partial financial hardship, and any
amount of interest due in excess of the borrower's partial
financial hardship shall be paid by the borrower; and
``(B) the borrower shall pay the periodic installments of
principal due reduced by the difference between the partial
financial hardship and the amount of interest paid under
subparagraph (A).''.
SEC. 14. MAXIMUM REPAYMENT PERIOD.
Section 455(e) of the Higher Education Act of 1965 (20 U.S.C.
1087e(e)) is amended by adding at the end the following:
``(7) Maximum repayment period.--In calculating the
extended period of time for which an income contingent
repayment plan under this subsection may be in effect for a
borrower, the Secretary shall include all time periods during
which a borrower of loans under part B, part D, or part E--
``(A) is not in default on any loan that is
included in the income contingent repayment plan; and
``(B)(i) qualifies for economic hardship described
in section 435(o);
``(ii) has a partial financial hardship defined in
section 435(n);
``(iii) makes payments under a standard repayment
plan described in section 428(b)(9)(A)(i) or
455(d)(1)(A), or
``(iv) makes payments under an extended repayment
plan described in section 428(b)(9)(A)(iv) or
455(d)(1)(C).''.
SEC. 15. INCREASE IN CONSOLIDATION LOAN LENDER FEES.
(a) Amendment.--Paragraph (2) of section 438(d) (20 U.S.C. 1087-
1(d)) is amended to read as follows:
``(2) Amount of loan fees.--
``(A) In general.--Except as provided in
subparagraph (B), with respect to any loan made under
this part for which the first disbursement was made on
or after October 1, 1993, the amount of the loan fee
that shall be deducted under paragraph (1) shall be
equal to 0.50 percent of the principal amount of the
loan.
``(B) Consolidation loans.--With respect to any
loan made under section 428C on or after April 1, 2006,
the amount of the loan fee that shall be deducted under
paragraph (1) shall be equal to 1.0 percent of the
principal amount of the loan.''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply with respect to any loan made, insured, or guaranteed under part
B of title IV of the Higher Education Act of 1965 (20 U.S.C. 1071 et
seq.) for which the first disbursement is made on or after April 1,
2006.
SEC. 16. COLLEGE TUITION DEDUCTION AND CREDIT FOR INTEREST ON HIGHER
EDUCATION LOANS.
(a) Expansion of Deduction for Higher Education Expenses.--
(1) Amount of deduction.--Subsection (b) of section 222 of
the Internal Revenue Code of 1986 (relating to deduction for
qualified tuition and related expenses) is amended to read as
follows:
``(b) Limitations.--
``(1) Dollar limitations.--
``(A) In general.--Except as provided in paragraph
(2), the amount allowed as a deduction under subsection
(a) with respect to the taxpayer for any taxable year
shall not exceed the applicable dollar limit.
``(B) Applicable dollar limit.--The applicable
dollar limit for any taxable year shall be determined
as follows:
Applicable
``Taxable year: dollar amount:
2006.......................................... $8,000
2007 and thereafter........................... $12,000.
``(2) Limitation based on modified adjusted gross income.--
``(A) In general.--The amount which would (but for
this paragraph) be taken into account under subsection
(a) shall be reduced (but not below zero) by the amount
determined under subparagraph (B).
``(B) Amount of reduction.--The amount determined
under this subparagraph equals the amount which bears
the same ratio to the amount which would be so taken
into account as--
``(i) the excess of--
``(I) the taxpayer's modified
adjusted gross income for such taxable
year, over
``(II) $65,000 ($130,000 in the
case of a joint return), bears to
``(ii) $15,000 ($30,000 in the case of a
joint return).
``(C) Modified adjusted gross income.--For purposes
of this paragraph, the term `modified adjusted gross
income' means the adjusted gross income of the taxpayer
for the taxable year determined--
``(i) without regard to this section and
sections 199, 911, 931, and 933, and
``(ii) after the application of sections
86, 135, 137, 219, 221, and 469.
For purposes of the sections referred to in clause
(ii), adjusted gross income shall be determined without
regard to the deduction allowed under this section.
``(D) Inflation adjustments.--
``(i) In general.--In the case of any
taxable year beginning in a calendar year after
2006, both of the dollar amounts in
subparagraph (B)(i)(II) shall be increased by
an amount equal to--
``(I) such dollar amount,
multiplied by
``(II) the cost-of-living
adjustment determined under section
1(f)(3) for the calendar year in which
the taxable year begins, by
substituting `calendar year 2005' for
`calendar year 1992' in subparagraph
(B) thereof.
``(ii) Rounding.--If any amount as adjusted
under clause (i) is not a multiple of $50, such
amount shall be rounded to the nearest multiple
of $50.''.
(2) Qualified tuition and related expenses of eligible
students.--
(A) In general.--Section 222(a) of the Internal
Revenue Code of 1986 (relating to allowance of
deduction) is amended by inserting ``of eligible
students'' after ``expenses''.
(B) Definition of eligible student.--Section 222(d)
of such Code (relating to definitions and special
rules) is amended by redesignating paragraphs (2)
through (6) as paragraphs (3) through (7),
respectively, and by inserting after paragraph (1) the
following new paragraph:
``(2) Eligible student.--The term `eligible student' has
the meaning given such term by section 25A(b)(3).''.
(3) Deduction made permanent.--Title IX of the Economic
Growth and Tax Relief Reconciliation Act of 2001 (relating to
sunset of provisions of such Act) shall not apply to the
amendments made by section 431 of such Act.
(4) Effective date.--The amendments made by this subsection
shall apply to payments made in taxable years beginning after
December 31, 2005.
(b) Credit for Interest on Higher Education Loans.--
(1) In general.--Subpart A of part IV of subchapter A of
chapter 1 of the Internal Revenue Code of 1986 (relating to
nonrefundable personal credits) is amended by inserting after
section 25D the following new section:
``SEC. 25E. INTEREST ON HIGHER EDUCATION LOANS.
``(a) Allowance of Credit.--In the case of an individual, there
shall be allowed as a credit against the tax imposed by this chapter
for the taxable year an amount equal to the interest paid by the
taxpayer during the taxable year on any qualified education loan.
``(b) Maximum Credit.--
``(1) In general.--Except as provided in paragraph (2), the
credit allowed by subsection (a) for the taxable year shall not
exceed $1,500.
``(2) Limitation based on modified adjusted gross income.--
``(A) In general.--If the modified adjusted gross
income of the taxpayer for the taxable year exceeds
$50,000 ($100,000 in the case of a joint return), the
amount which would (but for this paragraph) be
allowable as a credit under this section shall be
reduced (but not below zero) by the amount which bears
the same ratio to the amount which would be so
allowable as such excess bears to $20,000 ($40,000 in
the case of a joint return).
``(B) Modified adjusted gross income.--The term
`modified adjusted gross income' means adjusted gross
income determined without regard to sections 199, 222,
911, 931, and 933.
``(C) Inflation adjustment.--In the case of any
taxable year beginning after 2006, the $50,000 and
$100,000 amounts referred to in subparagraph (A) shall
be increased by an amount equal to--
``(i) such dollar amount, multiplied by
``(ii) the cost-of-living adjustment
determined under section (1)(f)(3) for the
calendar year in which the taxable year begins,
by substituting `2005' for `1992'.
``(D) Rounding.--If any amount as adjusted under
subparagraph (C) is not a multiple of $50, such amount
shall be rounded to the nearest multiple of $50.
``(c) Dependents Not Eligible for Credit.--No credit shall be
allowed by this section to an individual for the taxable year if a
deduction under section 151 with respect to such individual is allowed
to another taxpayer for the taxable year beginning in the calendar year
in which such individual's taxable year begins.
``(d) Limit on Period Credit Allowed.--A credit shall be allowed
under this section only with respect to interest paid on any qualified
education loan during the first 60 months (whether or not consecutive)
in which interest payments are required. For purposes of this
paragraph, any loan and all refinancings of such loan shall be treated
as 1 loan.
``(e) Definitions.--For purposes of this section--
``(1) Qualified education loan.--The term `qualified
education loan' has the meaning given such term by section
221(d)(1).
``(2) Dependent.--The term `dependent' has the meaning
given such term by section 152.
``(f) Special Rules.--
``(1) Denial of double benefit.--No credit shall be allowed
under this section for any amount taken into account for any
deduction under any other provision of this chapter.
``(2) Married couples must file joint return.--If the
taxpayer is married at the close of the taxable year, the
credit shall be allowed under subsection (a) only if the
taxpayer and the taxpayer's spouse file a joint return for the
taxable year.
``(3) Marital status.--Marital status shall be determined
in accordance with section 7703.''.
(2) Conforming amendment.--The table of sections for
subpart A of part IV of subchapter A of chapter 1 of the
Internal Revenue Code of 1986 is amended by inserting after the
item relating to section 25D the following new item:
``Sec. 25E. Interest on higher education loans.''.
(3) Effective date.--The amendments made by this section
shall apply to any qualified education loan (as defined in
section 25E(e)(1) of the Internal Revenue Code of 1986, as
added by this section) incurred on, before, or after the date
of the enactment of this Act, but only with respect to any loan
interest payment due after December 31, 2005.
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