[Congressional Record Volume 153, Number 12 (Monday, January 22, 2007)]
[Senate]
[Pages S847-S852]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. KENNEDY (for himself, Ms. Mikulski, Mr. Lieberman, Mr. 
        Schumer, Mr. Durbin, and Mr. Obama):
  S. 359. 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, today I rise to introduce the Student 
Debt Relief Act of 2007.

[[Page S848]]

  It's long past time for Congress to take action to address the crisis 
in college affordability. The cost of college has more than tripled in 
the last 20 years. Today, the average cost of attendance at a 4-year 
public college is almost $13,000.
  As a result, students and families are pinching pennies more than 
ever to pay for higher education. Increasingly, more and more students 
are finding it's just not possible. Every year, 400,000 students who 
are qualified to attend a 4-year college find themselves shut out 
because of cost factors.
  At a time when 6 out of 10 jobs require some form of post-secondary 
training, this is completely unacceptable. When qualified students are 
blocked from the college gates because of cost, they're also blocked 
from their ticket to the American Dream. It's a situation that's 
putting our prosperity and economic security as a country at risk.
  But the crisis on college affordability is not just limited to those 
most in need. Every low and middle income family in America is affected 
by it.
  Today, the average student in the U.S. leaves college saddled with 
more than $17,000 in federal student loans on graduation day. At 
private universities, the level of student loan debt has increased 108 
percent over the past decade. And at public universities, student loan 
debt has increased an astonishing 116 percent.
  This mountain of debt is distorting countless young Americans' basic 
life choices, from decisions on their career, to getting married, to 
buying a home, and to starting a family. It's discouraging many from 
occupations such as teaching, social work and law enforcement, which 
are lower paying, but bring large rewards for our society. And it's 
perpetuating a shameful status quo, in which low-income and first-
generation students are far less likely to earn a college degree than 
other students.
  It's obvious we need to act immediately to make both college costs 
and student debt more manageable--and that is what this bill is all 
about. The Student Debt Relief Act will help lift the financial yoke 
that burdens our students and families as they try to pay for college.
  To assist our neediest students, it will immediately increase the 
maximum Pell Grant from $4050 to $5100 with mandatory funding. The Pell 
Grant has been the indispensable lifeline to college for low-income and 
middle income students for more than 40 years. But today--after five 
years of broken promises from the President to increase the maximum 
grant--we've seen its buying power erode.
  Twenty years ago, the maximum Pell grant covered 55 percent of the 
cost of tuition, fees, room and board at a public 4-year college. Now 
it covers less than 32 percent of those costs. Over the last five 
years, the gap between the cost of attending college and the maximum 
Pell grant has continued to grow.
  In addition, for the first time in six years, the average Pell Grant 
has declined. We must reverse this trend. It's time to say, No more 
broken promises. That's what we'll do by passing the Student Debt 
Relief Act. The Act will also cut interest rates in half--from 6.8 
percent to 3.4 percent--on new student loans for our neediest students.
  Last year, the Republican Congress allowed interest rates to rise on 
student loans, putting college even further out of reach for millions 
of students. Because of this interest rate hike, typical student 
borrowers--already straining with more than $17,000 in debt--will be 
forced to pay an additional $5,800 for their college loans.
  But a new day has now dawned in Congress, and last week, our 
colleagues in the House showed they have their priorities right on 
college costs by cutting student loan interest rates in half. Now it's 
our turn in the Senate. But we won't stop there.
  We also need to do more to help students manage the burden of 
unreasonable debt on their student loans. No student should have to 
mortgage their future to pay for college. And no one should have their 
lives thrown into disarray when unexpected financial hardship makes it 
much harder for them to make their student loan payments.
  That's why the Student Debt Relief Act caps student loan payments at 
15 percent of monthly discretionary income. It forgives loans after 25 
years, and also provides a 10-year loan forgiveness option for students 
who work in public service professions.
  This Act will also help reform our broken student loan system, which 
is larded with inexcusably large subsidies to big lenders and filled 
with rules that are unfriendly to borrowers.
  Like my Student Aid Reward Act, it gives colleges new incentives to 
offer loans to students through the Direct Loan program--which is 
cheaper for taxpayers--rather than the more expensive loan FFEL program 
that's operated through private lenders.
  President Bush's own figures back this up. According to his 2007 
education budget, the privately-funded student loan program costs 
taxpayers $6 more for every $100 lent than the same loans made through 
the Direct Loan program.
  When colleges switch to the less-expensive program, the Student Debt 
Relief Act will let them keep a portion of the savings to the 
government generated by that switch by giving it back to the schools, 
in the form of increased Pell Grant aid to students.
  The savings generated by this Act will be enough to increase federal 
Pell Grants by $1000 each at many colleges, making higher education 
more affordable for millions of students. For example, in my home state 
of Massachusetts, college students would reap an extra $53 million in 
Pell Grant scholarships per year. And all told, it could generate an 
additional $13 billion in Pell Grants for students over 10 years.
  The Student Debt Relief Act also extends the college tuition tax 
deduction, increasing the allowable deduction to $12,000. It repeals 
the student-unfriendly rule that prevents students from consolidating 
their loans while they're still in school, and allows them to 
reconsolidate them as well.
  In the Direct Loan program, it also reduces the origination fee that 
students pay when loans are made, also helping to ease the burden on 
borrowers. In short, it's a comprehensive plan to ease the double blow 
of soaring college costs and heavy student loan burdens. It's a plan we 
must move forward--for the sake of our students, their future, and the 
future of our Nation.
  Access to college is the key to our opportunity, to our economy, and 
to our values. So we must act now.
  Today, in communities across America, students are dreaming about 
what they want to be when they become adults. And as their parents 
watch tomorrow's doctors, teachers, engineers and lawyers in action, 
they know that all of those dreams depend on a college education.
  When our children dream about their future, they need to know that 
those dreams are within their reach. A college education is the 
foundation of the opportunity society that will keep this country 
strong and growing in the 21st century. So let's work together to get 
it done.
  I ask unanimous consent that 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. 359

       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 
     2007''.

     SEC. 2. INCREASE IN FEDERAL PELL GRANTS.

       (a) Program Authority.--Section 401(a)(1) of the Higher 
     Education Act of 1965 (20 U.S.C. 1070a(a)(1)) is amended by 
     striking ``2004'' and inserting ``2012''.
       (b) Amount of Grants.--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,''.
       (c) Additional Funds.--
       (1) In general.--For an academic year, there are authorized 
     to be appropriated, and there are appropriated, to carry out 
     paragraph (2) (in addition to any other amounts appropriated 
     to carry out section 401 of the Higher Education Act of 1965 
     (20 U.S.C. 1070a) and out of any money in the Treasury not 
     otherwise appropriated) as follows:
       (A) For academic year 2007-2008, $4,331,000,000.
       (B) For academic year 2008-2009, $5,674,000,000.

[[Page S849]]

       (C) For academic year 2009-2010, $7,050,000,000.
       (D) For academic year 2010-2011, $8,452,000,000.
       (E) For academic year 2011-2012, $9,894,000,000.
       (2) Increase in pell grants.--The amounts made available 
     pursuant to paragraph (1) shall be used to increase the 
     amount of the maximum Federal Pell Grant under section 401 of 
     the Higher Education Act of 1965 (20 U.S.C. 1070a) for which 
     funds are appropriated under appropriations Acts for a fiscal 
     year by--
       (A) $1,050 for award year 2007-2008;
       (B) $1,350 for award year 2008-2009;
       (C) $1,650 for award year 2009-2010;
       (D) $1,950 for award year 2010-2011; and
       (E) $2,250 for award year 2011-2012.

     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. INTEREST RATE REDUCTIONS.

       (a) FFEL Interest Rates.--
       (1) Section 427A(l) of the Higher Education Act of 1965 (20 
     U.S.C. 1077a(l)) is amended by adding at the end the 
     following:
       ``(4) Reduced rates for undergraduate subsidized loans.--
     Notwithstanding subsection (h) and paragraph (1) of this 
     subsection, with respect to any loan to an undergraduate 
     student made, insured, or guaranteed under this part (other 
     than a loan made pursuant to section 428B, 428C, or 428H) for 
     which the first disbursement is made on or after July 1, 
     2006, and before July 1, 2012, the applicable rate of 
     interest shall be as follows:
       ``(A) For a loan for which the first disbursement is made 
     on or after July 1, 2006, and before July 1, 2007, 6.8 
     percent on the unpaid principal balance of the loan.
       ``(B) For a loan for which the first disbursement is made 
     on or after July 1, 2007, and before July 1, 2008, 6.12 
     percent on the unpaid principal balance of the loan.
       ``(C) For a loan for which the first disbursement is made 
     on or after July 1, 2008, and before July 1, 2009, 5.44 
     percent on the unpaid principal balance of the loan.
       ``(D) For a loan for which the first disbursement is made 
     on or after July 1, 2009, and before July 1, 2010, 4.76 
     percent on the unpaid principal balance of the loan.
       ``(E) For a loan for which the first disbursement is made 
     on or after July 1, 2010, and before July 1, 2011, 4.08 
     percent on the unpaid principal balance of the loan.
       ``(F) For a loan for which the first disbursement is made 
     on or after July 1, 2011, and before July 1, 2012, 3.40 
     percent on the unpaid principal balance of the loan.''.
       (2) Special allowance cross reference.--Section 
     438(b)(2)(I)(ii)(II) of such Act is amended by striking 
     ``section 427A(l)(1)'' and inserting ``section 427A(l)(1) or 
     (l)(4)''.
       (b) Direct Loan Interest Rates.--Section 455(b)(7) of the 
     Higher Education Act of 1965 (20 U.S.C. 1087e(b)(7)) is 
     amended by adding at the end the following:
       ``(D) Reduced rates for undergraduate fdsl.--
     Notwithstanding the preceding paragraphs of this subsection, 
     for Federal Direct Stafford Loans made to undergraduate 
     students for which the first disbursement is made on or after 
     July 1, 2006, and before July 1, 2012, the applicable rate of 
     interest shall be as follows:
       ``(i) For a loan for which the first disbursement is made 
     on or after July 1, 2006, and before July 1, 2007, 6.8 
     percent on the unpaid principal balance of the loan.
       ``(ii) For a loan for which the first disbursement is made 
     on or after July 1, 2007, and before July 1, 2008, 6.12 
     percent on the unpaid principal balance of the loan.
       ``(iii) For a loan for which the first disbursement is made 
     on or after July 1, 2008, and before July 1, 2009, 5.44 
     percent on the unpaid principal balance of the loan.
       ``(iv) For a loan for which the first disbursement is made 
     on or after July 1, 2009, and before July 1, 2010, 4.76 
     percent on the unpaid principal balance of the loan.
       ``(v) For a loan for which the first disbursement is made 
     on or after July 1, 2010, and before July 1, 2011, 4.08 
     percent on the unpaid principal balance of the loan.
       ``(vi) For a loan for which the first disbursement is made 
     on or after July 1, 2011, and before July 1, 2012, 3.40 
     percent on the unpaid principal balance of the loan.''.

     SEC. 5. 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

[[Page S850]]

     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), social work in a public child or family service 
     agency, 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. 6. FAIR PAYMENT ASSURANCE.

       (a) Amendment.--Part G of title IV of the Higher Education 
     Act of 1965 (20 U.S.C. 1088 et seq.) is further amended by 
     adding at the end the following:

     ``SEC. 493C. FAIR PAYMENT ASSURANCE.

       ``(a) Definitions.--In this section:
       ``(1) Excepted plus loan.--The term `excepted PLUS loan' 
     means a loan under section 428B, or a Federal Direct PLUS 
     Loan, that is made, insured, or guaranteed on behalf of a 
     dependent student.
       ``(2) Partial financial hardship.--The term `partial 
     financial hardship' means the amount by which the annual 
     amount due on the total amount of loans made, insured, or 
     guaranteed under part B or D (other than an excepted PLUS 
     loan) to a borrower as calculated under the standard 
     repayment plan under section 428(b)(9)(A)(i) or 455(d)(1)(A) 
     exceeds 15 percent of the result obtained by calculating the 
     amount by which--
       ``(A) the borrower's adjusted gross income; exceeds
       ``(B) 150 percent of the poverty line applicable to the 
     borrower's family size as determined under section 673(2) of 
     the Community Services Block Grant Act.
       ``(b) Fair Payment Assurance Program Authorized.--
     Notwithstanding any other provision of this Act, the 
     Secretary shall carry out a program under which--
       ``(1) a borrower of any loan made, insured or guaranteed 
     under part B or D (other than an excepted PLUS loan) who has 
     a partial financial hardship may elect, during any period the 
     borrower has the partial financial hardship, to have the 
     borrower's aggregate monthly payment for all such loans not 
     exceed 15 percent of the result described in subsection 
     (a)(2) divided by 12;
       ``(2) the holder of such a loan shall apply the borrower's 
     monthly payment under this subsection first toward interest 
     due on the loan and then toward the principal of the loan;
       ``(3) any interest due and not paid under paragraph (2)--
       ``(A) in the case of a Federal Stafford Loan or Federal 
     Direct Stafford Loan, shall be paid by the Secretary; or
       ``(B) in the case of any other loan under part B or D 
     (other than a loan described in subparagraph (A) or an 
     excepted PLUS loan), shall be capitalized;
       ``(4) any principal due and not paid under paragraph (2) 
     shall be deferred in the same manner as deferments under 
     section 428(b)(1)(M);
       ``(5) the amount of time the borrower makes monthly 
     payments under paragraph (1) may exceed 10 years;
       ``(6) if the borrower no longer has a partial financial 
     hardship or no longer wishes to continue the election under 
     this subsection, then--
       ``(A) the maximum monthly payment required to be paid for 
     all loans made to the borrower under part B or D (other than 
     an excepted PLUS loan) shall not exceed the monthly amount 
     calculated under section 428(b)(9)(A)(i) or 455(d)(1)(A) when 
     the borrower first made the election described in this 
     subsection; and
       ``(B) the amount of time the borrower is permitted to repay 
     such loans may exceed 10 years; and
       ``(7) the Secretary shall repay or cancel any outstanding 
     balance of principal and interest due on all loans made under 
     part B or D (other than an excepted PLUS Loan) to a borrower 
     who--
       ``(A) is in deferment due to an economic hardship described 
     in section 435(o) for a period of time prescribed by the 
     Secretary, not to exceed 25 years; or
       ``(B)(i) makes the election under this subsection; and
       ``(ii) for a period of time prescribed by the Secretary, 
     not to exceed 25 years (including any period during which the 
     borrower is in deferment due to an economic hardship 
     described in section 435(o)), meets any 1 or more of the 
     following requirements:
       ``(I) Has made reduced monthly payments under paragraph 
     (1).
       ``(II) Has made monthly payments of not less than the 
     monthly amount calculated under section 428(b)(9)(A)(i) or 
     455(d)(1)(A) when the borrower first made the election 
     described in this subsection.
       ``(III) Has made payments under a standard repayment plan 
     under section 428(b)(9)(A)(i) or 455(d)(1)(A).
       ``(IV) Has made payments under an income contingent 
     repayment plan under section 455(d)(1)(D).''.
       (b) Conforming ICR Amendment.--Section 455(d)(1)(D) of the 
     Higher Education Act of 1965 (20 U.S.C. 1087e(d)(1)(D)) is 
     amended by inserting ``made on behalf of a dependent 
     student'' after ``PLUS loan''.

     SEC. 7. DEFINITION OF 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. 8. DEFERRALS.

       (a) FISL.--Section 427(a)(2)(C)(iii) of the Higher 
     Education Act of 1965 (20 U.S.C. 1077(a)(2)(C)(iii)) is 
     amended by striking ``not in excess of 3 years''.
       (b) Interest Subsidies.--Section 428(b)(1)(M)(iv) of the 
     Higher Education Act of 1965 (20 U.S.C. 1078(b)(1)(M)(iv)) is 
     amended by striking ``not in excess of 3 years''.
       (c) Direct Loans.--Section 455(f)(2)(D) of the Higher 
     Education Act of 1965 (20 U.S.C. 1087e(f)(2)(D)) is amended 
     by striking ``not in excess of 3 years''.
       (d) Perkins.--Section 464(c)(2)(A)(iv) of the Higher 
     Education Act of 1965 (20 U.S.C. 1087dd(c)(2)(A)(iv)) is 
     amended by striking ``not in excess of 3 years''.

     SEC. 9. MAXIMUM REPAYMENT PERIOD.

       (a) In General.--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) is in deferment due to an economic hardship 
     described in section 435(o);
       ``(ii) makes monthly payments under paragraph (1) or (6) of 
     section 493C(b); or
       ``(iii) makes payments under a standard repayment plan 
     described in section 428(b)(9)(A)(i) or subsection 
     (d)(1)(A).''.
       (b) Technical Correction.--Section 455(d)(1)(C)) (20 U.S.C. 
     1087e(d)(1)(C)) is amended by striking ``428(b)(9)(A)(v)'' 
     and inserting ``428(b)(9)(A)(iv)''.

     SEC. 10. 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. 11. 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. 12. 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. 13. 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

[[Page S851]]

     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 (less any amounts previously appropriated for 
     the costs and fees described this paragraph for fiscal year 
     2007) for fiscal year 2007, $943,000,000 for fiscal year 
     2008, $983,000,000 for fiscal year 2009, $1,023,000,000 for 
     fiscal year 2010, $1,064,000,000 for fiscal year 2011, and 
     $1,106,000,000 for 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. 14. 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:
  2007......................................................$8,000 ....

  2008 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 2007, 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 2006' 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, 2006.
       (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 2007, 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 `2006' 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, 2006.

  Mr. OBAMA. Mr. President, since coming to the Senate two years ago, I 
have worked to fulfill pledges I made during my campaign. The first 
piece of legislation I introduced, the HOPE Act, addressed my pledge to 
make college more affordable. The HOPE Act arose from what I heard when 
meeting people across Illinois during my Senate campaign, and what I 
now continue to hear from students and families across the Nation.
  The dreams of our Nation's youth increasingly require a college 
diploma, but that diploma is becoming, for many, ever more difficult to 
attain. That difficulty arises not from lack of ambition or aptitude, 
but from lack of any realistic way for many American families to afford 
the requisite college education.
  This difficulty impacts not only the dreams of millions of students, 
but also the wellbeing of our Nation. Competition in the global economy 
requires the attainment of a college degree, in order to create and 
strengthen the innovative and flexible workforce America needs.

[[Page S852]]

  But as college costs increase, financial aid lags. The College Board 
reports that over the most recent five-year period, the cost of tuition 
and fees at public four-year colleges jumped 35 percent, even adjusting 
for inflation. Over that same five-year period, the maximum award 
offered by the Federal Government through Pell grants increased little. 
As a result, the proportion of college expenses met by Pell Grants 
decreased from 42 percent to 33 percent over that five-year period. At 
the same time, we see that qualified high school graduates from low- 
and moderate-income families are much less likely to earn that college 
degree than their wealthier peers.
  That is why I am pleased to support Senator Kennedy as he introduces 
the Student Debt Relief Act. Not only does it substantially increase 
Federal support for the Pell Grant, it also takes other steps to make 
college more affordable. The Act proposes to cut student loan interest 
rates, to make loan reconsolidation more feasible for many students, 
and to cap the amount of monthly loan payments for graduates who enter 
public service careers.
  These measures require a major investment. I believe we must continue 
to support qualified students who deserve the opportunity to turn their 
dreams into reality. I will continue to work to increase support for 
our students though the Pell Grant Program, and other measure that make 
a college degree attainable for many. This remains a priority for me, 
and I ask all my colleagues to join in this effort.

                          ____________________