II
109th CONGRESS
2d Session
S. 3593
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.
Short title
This Act may be cited as
the Student Debt Relief Act of
2006
.
Increase in Federal Pell Grants
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:
$5,100 for academic year 2007–2008;
$5,400 for academic year 2008–2009;
$5,700 for academic year 2009–2010;
$6,000 for academic year 2010–2011; and
$6,300 for academic year 2011–2012,
.
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:
For academic year 2007–2008, $4,310,000,000.
For academic year 2008–2009, $5,563,000,000.
For academic year 2009–2010, $6,982,000,000.
For academic year 2010–2011, $8,398,000,000.
For academic year 2011–2012, $9,831,000,000.
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:
Student aid reward program
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.
Program requirements
In carrying out the Student Aid Reward Program, the Secretary shall—
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;
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;
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;
permit such funds to also be used to award need-based grants to lower- and middle-income graduate students; and
encourage all institutions of higher education to participate in the Student Aid Reward Program under this section.
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.
Trigger to ensure cost neutrality
Limit to ensure cost neutrality
Federal savings
the Federal cost of loan volume made under the student loan program under this title that is most cost-effective for taxpayers; and
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.
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—
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
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.
Distribution to students
Any institution of higher education that receives a Student Aid Reward Payment under this section—
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
may distribute part of such payment as a supplemental grant to graduate students in financial need.
Estimates, adjustments, and carry over
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.
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.
Definition
In this section:
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.
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.
.
Reduction in interest rates
FFEL
Section 427A(l) of the Higher Education Act of 1965 (20 U.S.C. 1077a(l)) is amended—
in paragraph (1)—
by striking
or 428C
and inserting , 428C, or 428H
;
by striking
6.8 percent
and inserting 3.4 percent
; and
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
in paragraph (2),
by striking 8.5 percent
and inserting 4.25
percent
.
Direct loans
Section 455(b)(7) of the Higher Education Act of 1965 (20 U.S.C. 1087e(b)(7)) is amended—
in subparagraph (A)—
by striking
and Federal Direct Unsubsidized Stafford Loans
;
by striking
6.8 percent
and inserting 3.4 percent
; and
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
in subparagraph
(B), by striking 7.9 percent
and inserting 4.25
percent
.
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—
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
on an earlier date if the borrower requests and is granted a repayment schedule that provides for repayment to commence at an earlier date.
.
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:
Definition of eligible borrower
For the purpose of this section, the term eligible borrower means a borrower who—
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
at the time of application for a consolidation loan—
is in repayment status as determined under section 428(b)(7)(A);
is in a grace period preceding repayment; or
is a defaulted borrower who has made arrangements to repay the obligation on the defaulted loans satisfactory to the holders of the defaulted loans.
.
Reduction of Direct Loan origination fees
Section 455(c) of the Higher Education Act of 1965 (20 U.S.C. 1087e(c)) is amended—
in paragraph (1)—
by striking 4.0 percent
and
inserting 3.0 percent
; and
by striking
shall
and inserting is authorized to
; and
in paragraph (2)—
in subparagraph
(A), by striking
and inserting 3.0 percent
for 4.0
percent
;2.0 percent
for
3.0 percent
in subparagraph
(B), by striking
and inserting 2.5 percent
for 4.0
percent
;1.5 percent
for
3.0 percent
in subparagraph
(C), by striking
and inserting 2.0 percent
for 4.0
percent
;1.0 percent
for
3.0 percent
in subparagraph
(D), by striking
and inserting 1.5 percent
for 4.0
percent
; and0.5 percent
for
3.0 percent
in subparagraph
(E), by striking
and inserting 1.0 percent
for 4.0
percent
.0.0 percent
for
3.0 percent
Elimination of exceptional performer status for lenders
Repeal
Section 428I of the Higher Education Act of 1965 (20 U.S.C. 1078-9) is repealed.
Conforming amendments
Part A of title IV of the Higher Education Act of 1965 (20 U.S.C.1070 et seq.) is amended—
in section 428(c)(1)—
by striking subparagraph (D); and
by redesignating subparagraphs (E) through (H) as subparagraphs (D) and (G), respectively; and
in section 438(b)(5), by striking the matter following subparagraph (B).
Schools as lenders
Section 435(d) of the Higher Education Act of 1965 (20 U.S.C. 1085(d)) is amended—
in paragraph
(2)(C), by inserting Federal or
after not to
supplant,
; and
by adding at the end the following:
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).
.
Administrative account for direct loan program
Section 458 of the Higher Education Act of 1965 (20 U.S.C. 1087h) is amended—
in subsection (a)—
by striking paragraphs (2) and (3) and inserting the following:
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—
administrative costs under this part and part B, including the costs of the direct student loan programs under this part; and
account maintenance fees payable to guaranty agencies under part B and calculated in accordance with subsection (b),
;
by redesignating paragraphs (4) and (5) as paragraphs (3) and (4), respectively; and
in paragraph (3)
(as redesignated in subparagraph (B)), by striking paragraph (3)
and inserting paragraph (2)
; and
in subsection
(b), by striking (a)(3)
and inserting
(a)(2)
.
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:
Repayment plan for public sector employees
In general
The Secretary shall forgive the balance due on any loan made under this part or section 428C(b)(5) for a borrower—
who has made 120 payments on such loan pursuant to income contingent repayment; and
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.
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).
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.
.
Definitions of partial financial hardship and economic hardship
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:
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—
the borrower's adjusted gross income; and
the poverty line applicable to the borrower's family size as determined under section 673(2) of the Community Services Block Grant Act.
.
Economic hardship
Section 435(o) of the Higher Education Act of 1965 (20 U.S.C. 1085(o)) is amended—
in paragraph (1)—
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
;
by striking subparagraph (B); and
by redesignating subparagraph (C) as subparagraph (B); and
in paragraph (2),
by striking (1)(C)
and inserting (1)(B)
.
Deferrals
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:
provides that—
periodic installments of principal need not be paid, but interest shall accrue and be paid, during any period—
during which the borrower—
is pursuing at least a half-time course of study as determined by an eligible institution; or
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,
not in excess of 3 years during which the borrower is seeking and unable to find full-time employment; or
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
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—
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
may defer the remaining amount of principal and interest (which interest shall continue to accrue) for such period,
.
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:
provides that—
periodic installments of principal need not be paid, but interest shall accrue and be paid by the Secretary, during any period—
during which the borrower—
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
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,
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;
not in excess of 3 years during which the borrower—
is serving on active duty during a war or other military operation or national emergency; or
is performing qualifying National Guard duty during a war or other military operation or national emergency; or
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
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:
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
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);
.
Direct loans
Section 455(f) of the Higher Education Act of 1965 (20 U.S.C. 1087e(f)) is amended—
in paragraph
(2)(D), by striking not in excess of 3 years
; and
by adding at the end the following:
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:
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—
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
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).
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)—
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
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.
.
Perkins
Section 464(c) of the Higher Education Act of 1965 (20 U.S.C. 1087dd(c)) is amended—
by striking paragraph (2)(A)(iv) and inserting the following:
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
by adding at the end the following:
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:
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
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).
.
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:
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—
is not in default on any loan that is included in the income contingent repayment plan; and
qualifies for economic hardship described in section 435(o);
has a partial financial hardship defined in section 435(n);
makes payments under a standard repayment plan described in section 428(b)(9)(A)(i) or 455(d)(1)(A), or
makes payments under an extended repayment plan described in section 428(b)(9)(A)(iv) or 455(d)(1)(C).
.
Increase in consolidation loan lender fees
Amendment
Paragraph (2) of section 438(d) (20 U.S.C. 1087–1(d)) is amended to read as follows:
Amount of loan fees
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.
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.
.
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.
College tuition deduction and credit for interest on higher education loans
Expansion of deduction for higher education expenses
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:
Limitations
Dollar limitations
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.
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. |
Limitation based on modified adjusted gross income
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).
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—
the excess of—
the taxpayer’s modified adjusted gross income for such taxable year, over
$65,000 ($130,000 in the case of a joint return), bears to
$15,000 ($30,000 in the case of a joint return).
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—
without regard to this section and sections 199, 911, 931, and 933, and
after the application of sections 86, 135, 137, 219, 221, and 469.
Inflation adjustments
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—
such dollar amount, multiplied by
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.
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.
.
Qualified tuition and related expenses of eligible students
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
.
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:
Eligible student
The term eligible student has the meaning given such term by section 25A(b)(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.
Effective date
The amendments made by this subsection shall apply to payments made in taxable years beginning after December 31, 2005.
Credit for interest on higher education loans
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:
Interest on higher education loans
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.
Maximum credit
In general
Except as provided in paragraph (2), the credit allowed by subsection (a) for the taxable year shall not exceed $1,500.
Limitation based on modified adjusted gross income
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).
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.
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—
such dollar amount, multiplied by
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
.
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.
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.
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.
Definitions
For purposes of this section—
Qualified education loan
The term qualified education loan has the meaning given such term by section 221(d)(1).
Dependent
The term dependent has the meaning given such term by section 152.
Special rules
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.
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.
Marital status
Marital status shall be determined in accordance with section 7703.
.
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.
.
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.