; and (C) by redesignating subparagraph (C) as subparagraph (B); and (2) in section 460(g)(2) ( 20 U.S.C. 1087j(g)(2) )— (A) in subparagraph (A), by inserting or after the semicolon at the end; (B) by striking subparagraph (B); and (C) by redesignating subparagraph (C) as subparagraph (B). III Interest Capitalization 301. Elimination of interest capitalization (a) Federal PLUS loans Section 428B(d)(2) of the Higher Education Act of 1965 ( 20 U.S.C. 1078–2(d)(2) ) is amended to read as follows: (2) No capitalization of interest Interest on loans made under this section for which payments of principal are deferred pursuant to paragraph (1) shall be paid by the borrower and shall not be capitalized. . (b) Federal consolidation loans deferrals Section 428C(b)(4)(C)(ii)(III) of the Higher Education Act of 1965 ( 20 U.S.C. 1078–3(b)(4)(C)(III) ) is amended by striking or capitalized, . (c) Default reduction program Section 428F(a)(1)(E) of such Act of 1965 ( 20 U.S.C. 1078–6(a)(1)(E) ) is amended to read as follows: (E) Duties upon assignment With respect to a loan assigned under subparagraph (A)(ii)— (i) the guaranty agency shall add to the principal and interest outstanding at the time of the assignment of such loan an amount equal to the amount described in subparagraph (D)(i)(II)(aa); (ii) the Secretary shall pay the guaranty agency, for deposit in the agency’s Operating Fund established pursuant to section 422B, an amount equal to the amount added to the principal and interest outstanding at the time of the assignment in accordance with clause (i) ; (iii) for a loan assigned on or after the date of enactment of the LOAN Act, the interest outstanding at the time of the assignment of such loan, and any interest accruing after such time, shall not be capitalized; and (iv) beginning on the date of enactment of LOAN Act, interest shall only accrue on the percentage of such a loan that is equal to— (I) the amount of the outstanding principal on the original loan on the date it was assigned