The Sweathogs try to convince Epstein to give up his smoking habit.

To get into the Christmas spirit, the Sweathogs give a homeless man a shave and a new suit. But after he shows up at the Kotter's Christmas party wearing his old clothes, he tells them he's a bum, but he's a happy bum.

Epstein's younger sister is enrolled in Kotter's class and Arnold is immediately attracted to her, but so is Vinnie, and this drives Juan crazy. Freddie is also in a romantic mood and Kotter sees it as an opportunity to teach the Sweathogs about love.