[Congressional Record Volume 152, Number 86 (Wednesday, June 28, 2006)]
[Senate]
[Pages S6643-S6717]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. KENNEDY (for himself, Mr. Dodd, Ms. Mikulski, Mr. Schumer, 
        Mr. Harkin, Mrs. Clinton, and Mr. Lieberman):
  S. 3593 A bill to amend the Higher Education Act of 1965 to provide 
additional support to students; to the Committee on Finance.
  Mr. KENNEDY. Mr. President, it is a privilege to join my colleagues 
in introducing the Student Debt Relief Act to lower college expenses 
for millions of families and help ensure that cost is not a barrier to 
a college education.
  Earlier today, my colleagues and I released a report on ``The College 
Cost Crunch,'' which contains detailed information showing that 
students and their families in every State are struggling with 
skyrocketing college costs and rising student loan debt.
  The report makes clear that the American dream is at risk unless 
college becomes more affordable. Parents and students know how 
important a college education is in our rapidly changing world, and 
they're willing to make immense sacrifices in order to afford it. But 
that sacrifice is getting harder and harder as college costs go up and 
as student debt increases as well.
  It is unacceptable in this era when higher education in the United 
States is becoming more important, that it is also becoming more and 
more expensive. As the report shows, the cost of attending a public 4-
year college has increased 32 percent since 2000, while median family 
incomes have increased by only 6 percent over the same time period.
  Today, the cost of attendance is over $12,000 at public colleges and 
over $26,000 at private colleges, and federal student aid has not kept 
pace with these rising costs. The maximum Pell grant covered 51 percent 
of the cost of college in 1986, but it covered only 35 percent of the 
cost last year.
  As a result, families and students are borrowing more than ever from 
the federal government and from private banks to finance higher 
education. Sixty-two percent of undergraduates at 4-year colleges are 
borrowing to finance their educations. The average student graduates 
with over $19,000 in student loan debt.
  We need to solve this debt crisis now before it spirals even farther 
out of control.
  Ensuring access to college is key to our opportunity, our economy, 
and to our values as a nation.
  It affects opportunity, because each year 400,000 qualified students 
do not go to a 4-year college, because they cannot afford to do so.
  It affects our economy, because we need to equip all of our citizens 
with a college education to compete effectively in the global economy.
  It affects our values, because high college costs and high student 
debt are discouraging young Americans from taking lower paying public 
service jobs, from buying homes, and even from getting married and 
starting a family.
  On July 1, to make matters even worse, students and families face one 
of the biggest student loan interest rate hikes in the history of the 
program--almost 2 percentage points in a single year.
  Our bill deals with these issues in several ways.
  First, it provides mandatory funding for an immediate increase in the 
maximum Pell grant from $4,050 to $5,100, with additional increases 
each year.
  The bill also reforms the current student loan programs and uses the 
savings to pay for additional increases in need-based aid. This 
proposal--known as the Student Aid Reward Act, or the STAR Act--
generates $13 billion over 10 years for new Pell grants--at zero cost 
to the government and taxpayers--by encouraging schools to use the more 
efficient Direct Loan Program instead of the guaranteed loan program.
  The bill cuts student loan interest rates in half--to 3.4 percent for 
students and 4.25 percent for parents. This change will save average 
borrowers nearly $4,000 in interest payments over the life of their 
loans.
  The bill gives borrowers the option to help keep loan payments 
manageable by tying the payments to income level and capping the 
payments at 15 percent of a borrower's income. This provision will 
enable young people to pursue their passions in public service careers 
such as teaching and social work, without worrying about making ends 
meet as they repay their debt.
  The bill also extends and expands a popular college tuition tax 
deduction,

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which Republicans allowed to expire at the end of last year. The IRS 
estimates that nearly 4.7 million students and families took advantage 
of the deduction in 2004, which allowed them to deduct up to $4,000 in 
tuition expenses from their taxes.
  In Massachusetts, these changes would help thousands of students. If 
the Pell grant is increased to $5,100, Massachusetts would receive $63 
million in new Pell grant aid. 4,700 additional students would receive 
grants, and the average grant would increase by more than $620--from 
$2,329 to $2,950. If student loan interest rates are cut in half, 
students in Massachusetts would save $3,470 over the life of their 
loans.
  With more options to make loan payments contingent on income, new 
teachers in Massachusetts, who earn $34,000 a year, would have a 
reduction of 22 percent in their monthly loan payments, and after 10 
years, their loans would be forgiven.
  Congress needs to act now to make education a priority and do more to 
help struggling students and families.
  But the administration and the Republican Congress have other 
priorities. Earlier this year, they perpetrated the biggest raid on 
student aid in the history of the program--stripping $12 billion from 
the program to offset tax giveaways for the wealthiest Americans.
  If we returned tax rates for the wealthiest Americans to their levels 
when President Bush took office, we could pay for this entire proposal, 
and pay for other priorities for struggling middle class families as 
well.
  Some of these proposals pay for themselves by cutting wasteful bank 
subsidies from the student loan programs and directing those funds to 
help students afford college. Report after report has shown that the 
Direct Loan Program saves taxpayer money. It is time for the Republican 
Congress to stand up to their friends in the lending industry and do 
what's right for students and families and the Nation.
  We also need new investments in education if we are serious about 
reviving the American dream of a college education.
  When Congress passed the G.I. bill after World War II, the Nation 
reaped a benefit of $7 for every $1 invested in sending our returning 
troops to college.
  We need that kind of investment again to assure prosperity for our 
families and our Nation in the years ahead. The Student Debt Relief Act 
is a good step in the right direction, and I urge my colleagues to 
support it.
  I ask unanimous consent that our report and the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 3593

       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

[[Page S6645]]

     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

[[Page S6646]]

     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

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     `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.
  There being no objection, the additional material was ordered to be 
printed in the Record, as follows:

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