To improve the administration and management of the Department of Defense school system for dependents in overseas areas.

Amends the Defense Dependents' Education Act of 1978 to require the President to include in his annual budget a separate request for funds for the operation of the defense dependents' education system. Requires appropriations for the system to be included in the appropriation Act for the fiscal year preceding the fiscal year for which they are available for obligation. Permits appropriations to be made available to the Director of Dependents' education for the defense dependents' education system on the basis of an academic or school year differing from a fiscal year. Provides that funds appropriated but unexpended at the end of the fiscal or academic year shall remain available into the next fiscal or academic year.

Amends the Panama Canal Act of 1979 to revise provisions concerning the maximum allowance for quarters for Department of Defense employees serving in the Panama Canal Zone for whom adequate Government-owned or leased quarters are not available.

Directs the Secretary of Education to permit the Panama Canal College to qualify as an eligible institution for the student assistance programs under title IV of the Higher Education Act of 1965, notwithstanding certain eligibility requirements under such Act. Terminates such eligibility for student assistance if the College ceases to be owned and operated by the Department of Defense.