[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.
                                 <all>