A bill to amend the Higher Education Act of 1965 to establish fixed interest rates for student and parent borrowers, to extend current law with respect to special allowances for lenders, and for other purposes.

Amends title IV (Student Assistance) of the Higher Education Act of 1965 (HEA) to set fixed interest rates for new loans made on or after July 1, 2006, under: (1) the Federal Family Education Loan program (FFEL) for student loans (6.8 percent), parent (PLUS) loans, and consolidation loans (8.25 percent or a lesser amount based on a weighted average of interest rates of the loans consolidated); and (2) the William D. Ford Federal Direct Loan program for Federal Direct Stafford Loans and Federal Direct Unsubsidized Stafford Loans (both 6.8 percent), Federal Direct PLUS loans (7.9 percent), and Federal Direct Consolidation loans (8.25 percent or lesser weighted average). Extends current interest rate provisions for: (1) student or parent loans with a first disbursement before July 1, 2006; and (2) consolidation loans with an application received by the lender before July 1, 2006.

Extends provisions for special allowances for lenders. Prohibits payment of such special allowances in the case of PLUS loans made on or after July 1, 2006, unless a certain percentage is reached according to a formula based in part on the average of certain bond equivalent rates published by the Federal Reserve System's Board of Governors for the last calendar week before such date.