[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1819 Introduced in House (IH)]







105th CONGRESS
  1st Session
                                H. R. 1819

     To amend the Internal Revenue Code of 1986 to provide for the 
    establishment of lifetime learning accounts for the purpose of 
  accumulating funds to pay the qualified expenses related to higher 
 education and job training of the taxpayer and the taxpayer's family.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                              June 5, 1997

     Mr. Rothman (for himself, Mr. Frost, and Ms. Christian-Green) 
 introduced the following bill; which was referred to the Committee on 
 Ways and Means, and in addition to the Committee on Education and the 
 Workforce, for a period to be subsequently determined by the Speaker, 
 in each case for consideration of such provisions as fall within the 
                jurisdiction of the committee concerned

_______________________________________________________________________

                                 A BILL


 
     To amend the Internal Revenue Code of 1986 to provide for the 
    establishment of lifetime learning accounts for the purpose of 
  accumulating funds to pay the qualified expenses related to higher 
 education and job training of the taxpayer and the taxpayer's family.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Lifetime Learning Affordability Act 
of 1997''.

SEC. 2. FINDINGS AND PURPOSE.

    (a) Findings.--The Congress finds that--
            (1) the rising costs of higher education are putting 
        lifetime learning and training opportunities out of reach for 
        millions of Americans;
            (2) individuals who complete at least 2 years of college 
        generally earn more than those with only a high school diploma;
            (3) offering tax incentives to help American families save 
        for education expenses will lead to more Americans going to 
        college; and
            (4) ensuring the American workforce is well educated and 
        well trained throughout their lifetime will give our Nation a 
        significant competitive advantage in the global marketplace.
    (b) Purpose.--The purpose of this Act is to ensure that all 
Americans are given an opportunity to obtain the education and job 
training they need to compete in the world's rapidly changing 
marketplace.

                  TITLE I--LIFETIME LEARNING ACCOUNTS

SEC. 101. DEDUCTION FOR CONTRIBUTIONS TO LIFETIME LEARNING ACCOUNTS.

    (a) In General.--Part VII of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to additional itemized 
deductions for individuals) is amended by redesignating section 221 as 
section 222 and by inserting after section 220 the following new 
section:

``SEC. 221. LIFETIME LEARNING ACCOUNTS.

    ``(a) Deduction Allowed.--In the case of an individual, there shall 
be allowed as a deduction an amount equal to the amount paid in cash 
for the taxable year by the taxpayer to a lifetime learning account 
established for the purpose of accumulating funds to pay the qualified 
expenses related to higher education or job training of the taxpayer or 
any family member of the taxpayer.
    ``(b) Limitations.--
            ``(1) Maximum deduction.--The amount allowable as a 
        deduction under subsection (a) to the taxpayer for any taxable 
        year shall not exceed $4,000 ($2,000 in the case of a married 
        individual filing a separate return) for amounts paid for the 
        benefit of the taxpayer and each family member of the taxpayer.
            ``(2) Deduction not to exceed compensation.--The amount 
        allowable as a deduction under subsection (a) shall not exceed 
        the amount of the taxpayer's gross income for the taxable year.
            ``(3) Maximum amount of deposit for which deduction is 
        allowable in case of multiple contributors.--With respect to a 
        lifetime learning account of a beneficiary who has not attained 
        age 22 before the close of the calendar year in which such 
        payment is made, the total amount allowable as a deduction 
        under subsection (a) for the taxable year of the beneficiary is 
        $4,000 ($2,000 in the case of a married individual filing a 
        separate return). The allocation of such deduction among 
        contributors shall be in accordance with regulations prescribed 
        by the Secretary.
            ``(4) Deductions after beneficiary attains age 22.--
                    ``(A) Limited to deposits by beneficiary; maximum 
                amount.--In the case of a beneficiary of a lifetime 
                learning account who has attained age 22 before the 
                close of the calendar year--
                            ``(i) no deduction for any payment in that 
                        calendar year shall be allowed under subsection 
                        (a) to any individual other than the 
                        beneficiary or the spouse of the beneficiary 
                        (where a joint return is filed), and
                            ``(ii) the amount allowable as such 
                        deduction for any taxable year shall not exceed 
                        $2,000.
                    ``(B) No deduction after beneficiary attains age 
                40.--No deduction shall be allowed for any payment to a 
                lifetime learning account established for the benefit 
                of an individual who has attained age 40 before the 
                close of the calendar year in which such payment is 
                made.
            ``(5) Account may not be established for benefit of more 
        than 1 individual.--A lifetime learning account may not be 
        established for the benefit of more than 1 individual.
            ``(6) Income limitation based on income of parents or legal 
        guardian of beneficiary.--No deduction shall be allowed under 
        subsection (a) for a payment by a taxpayer to the lifetime 
        learning account of a beneficiary if the adjusted gross income 
        of the parents or legal guardian of such beneficiary (other 
        than a beneficiary described by paragraph (4)(A)) exceeds 
        $85,000 ($125,000 in the case of a joint return and $62,500 in 
        the case of a married individual filing a separate return). For 
        purposes of the preceding sentence, rules similar to rules of 
        section 152(e) (relating to support test in case of child of 
        divorced parents, etc.).
            ``(7) No contribution if balance in account exceeds 
        $100,000.--No amount may be contributed, or rolled over under 
        clause (ii) of subsection (c)(1)(E), to a lifetime learning 
        account if the balance of such account exceeds $100,000.
    ``(c) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Lifetime learning account.--The term `lifetime 
        learning account' means a trust created or organized in the 
        United States exclusively for the purpose of paying the 
        qualified expenses of the account holder related to higher 
        education or job training, but only if the written governing 
        instrument creating the trust meets the following requirements:
                    ``(A) No contribution will be accepted unless it is 
                in cash, and contributions will not be accepted for the 
                taxable year in excess of an aggregate of $4,000 
                ($2,000 in the case of a beneficiary who has attained 
                the age of 22).
                    ``(B) The trustee is a bank (as defined in section 
                408(n)) or another person who demonstrates to the 
                satisfaction of the Secretary that the manner in which 
                that person will administer the trust will be 
                consistent with the requirements of this section.
                    ``(C) No part of the trust assets will be invested 
                in life insurance contracts.
                    ``(D) The assets of the trust shall not be 
                commingled with other property except in a common trust 
                fund or common investment fund.
                    ``(E) On the termination date--
                            ``(i) the balance in the account shall be 
                        distributed to the individual for whose benefit 
                        the account is established, or
                            ``(ii) at the election of such individual, 
                        from amounts in the account, not to exceed 
                        $50,000 in the aggregate--
                                    ``(I) shall be treated for purposes 
                                of this title as a lifetime learning 
                                account for each of those designated 
                                family members of such individual who 
                                does not have a lifetime learning 
                                account and who has not attained the 
                                age of 18 before the close of the 
                                calendar year in which such date 
                                occurs,
                                    ``(II) shall be rolled over in 
                                accordance with subsection (d)(4) into 
                                the lifetime learning account of each 
                                of those designated family members of 
                                such individual who has a lifetime 
                                learning account and who has not 
                                attained the age of 18 before the close 
                                of the calendar year in which such date 
                                occurs,
                                    ``(III) shall be contributed to an 
                                eligible educational institution, or
                                    ``(IV) shall be contributed to an 
                                organization described in section 
                                501(c) that is exempt from taxation 
                                under section 501(a) whose purpose is 
                                providing scholarships at eligible 
                                educational institutions.
                        Amounts contributed under subclause (III) or 
                        (IV) shall not be treated as a charitable 
                        contribution (as defined in section 170(c).
            ``(2) Family member.--The term `family member' means--
                    ``(A) any individual with a relationship to the 
                taxpayer specified in section 267(c)(4),
                    ``(B) with respect to only to contributions for 
                which a deduction is allowed by subsection (a), any 
sibling of either parent of the account holder and the spouse of any 
such sibling, and
                    ``(C) in the case of lifetime learning account of a 
                minor, or of an individual who is mentally incompetent 
                or under other legal disability adjudged by a court of 
                competent jurisdiction, such term includes the person 
                who is constituted guardian or other fiduciary by the 
                law of the State of residence of such minor or 
                individual or is otherwise legally vested with the care 
                of the minor or individual, or the estate thereof.
            ``(3) Termination date.--The term `termination date' 
        means--
                    ``(A) the date the beneficiary attains age 59\1/2\, 
                or
                    ``(B) the date of the beneficiary's death.
            ``(4) Qualified expenses.--The term `qualified expenses' 
        means--
                    ``(A) educational expenses, and
                    ``(B) job training expenses.
            ``(5) Educational expenses.--
                    ``(A) In general.--
                            ``(i) Educational expenses.--The term 
                        `educational expenses' means--
                                    ``(I) tuition and fees required for 
                                the enrollment or attendance of a 
                                student at an eligible educational 
                                institution,
                                    ``(II) fees, books, supplies, and 
                                equipment required for courses of 
                                instruction at an eligible educational 
                                institution, and
                                    ``(III) a reasonable allowance for 
                                meals and lodging while attending an 
                                eligible educational institution (not 
                                to exceed the amounts specified in 
                                regulations prescribed by the 
                                Secretary).
                            ``(ii) Exception for education involving 
                        sports, etc.--Such term does not include 
                        expenses with respect to any course or other 
                        education involving sports, games, or hobbies, 
                        unless such course or other education is part 
                        of the individual's degree program.
                            ``(iii) Exception for nonacademic fees.--
                        Such term does not include student activity 
                        fees, athletic fees, insurance expenses, or 
                        other expenses unrelated to the individual's 
                        academic course of instruction.
                    ``(B) Eligible educational institution.--The term 
                `eligible educational institution' means--
                            ``(i) an institution of higher education, 
                        or
                            ``(ii) a vocational school.
                    ``(C) Institution of higher education.--The term 
                `institution of higher education' means the 
                institutions described in section 1201(a) or 481(a) of 
                the Higher Education Act of 1965.
                    ``(D) Vocational school.--The term `vocational 
                school' means an area vocational education school as 
                defined in subparagraph (C) or (D) of section 521(4) of 
                the Carl D. Perkins Vocational and Applied Technology 
                Education Act to the extent such school is located 
                within any State (as defined in such section).
            ``(6) Job training expenses.--
                    ``(A) In general.--The term `job training expenses' 
                means--
                            ``(i) tuition and fees required for the 
                        enrollment or attendance of--
                                    ``(I) a student at an eligible 
                                educational institution, or
                                    ``(II) a worker in an applicable 
                                training program,
                            ``(ii) fees, books, supplies, and equipment 
                        required for--
                                    ``(I) courses of instruction at an 
                                eligible educational institution, or
                                    ``(II) for an applicable training 
                                program, and
                            ``(iii) a reasonable allowance for meals 
                        and lodging while attending an eligible 
                        educational institution or an applicable 
                        training program (not to exceed the amounts 
                        specified in regulations prescribed by the 
                        Secretary).
                    ``(B) Exception for education involving sports, 
                etc.--Such term does not include expenses with respect 
                to any job training involving sports, games, or 
                hobbies, unless such training is to improve the 
                individual's job skills or for the individual to 
                acquire new job skills.
                    ``(C) Exception for nonacademic fees.--Such term 
                does not include student activity fees, athletic fees, 
                insurance expenses, or other expenses unrelated to the 
individual's job training.
                    ``(D) Applicable training program.--The term 
                `applicable training program' means--
                            ``(i) any applicable program (as defined in 
                        section 314(g) of the Job Training Partnership 
                        Act), and
                            ``(ii) any training program approved under 
                        section 236 of the Trade Act of 1974.
            ``(7) Denial of deduction for amounts paid from account.--
        If any amount paid or distributed from a lifetime learning 
        account is not included in gross income by reason of being used 
        to pay any qualified expense, such expense shall not be taken 
        into account in determining the amount of any deduction under 
        section 212, 217, or any other provision of this chapter.
            ``(8) Time when contributions deemed made.--A taxpayer 
        shall be deemed to have made a contribution on the last day of 
        the preceding taxable year if the contribution is made on 
        account of such taxable year and is made not later than the 
        time prescribed by law for filing the return for such taxable 
        year (including extensions thereof).
    ``(d) Tax Treatment of Distributions.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, any amount paid from a lifetime learning account 
        shall be included in the gross income of the beneficiary of 
        such account for the taxable year in which the payment is 
        received.
            ``(2) Amounts used for education, job training, or 
        expenses.--If any payment from a lifetime learning account is 
        used to pay the qualified expenses of the beneficiary of such 
        account--
                    ``(A) paragraph (1) shall not apply, but
                    ``(B) such amount shall be included in gross income 
                of the beneficiary of such account for--
                            ``(i) the 8th taxable year beginning after 
                        the taxable year in which the payment is 
                        received, or
                            ``(ii) at the election of, and in the 
                        amounts allocated by, the beneficiary, any of 
                        the first eight taxable years beginning after 
                        the taxable year in which the payment is 
                        received.
            ``(3) Excess contributions returned before due date of 
        return.--Paragraph (1) shall not apply to the distribution of 
        any contribution made during a taxable year to a lifetime 
        learning account to the extent that such contribution exceeds 
        the amount allowable as a deduction under subsection (a) if--
                    ``(A) such distribution is received on or before 
                the day prescribed by law (including extensions of 
                time) for filing such individual's return for such 
                taxable year,
                    ``(B) no deduction is allowed under subsection (a) 
                with respect to such excess contribution, and
                    ``(C) such distribution is accompanied by the 
                amount of net income attributable to such excess 
                contribution.
        Any net income described in subparagraph (C) shall be included 
        in the gross income of the individual for the taxable year in 
        which such excess contribution was made.
            ``(4) Treatment as other lifetime learning accounts and 
        nontaxable contributions that are not subject to income tax 
        inclusion.--The treatment described in subsection (c)(1)(E)(ii) 
        shall not be treated as a distribution for purposes of this 
        subsection. The preceding sentence shall apply in the case of a 
        rollover under subclause (II) of such subsection to any amount 
        (not to exceed $50,000) paid or distributed on the termination 
        date out of a lifetime learning account to an individual for 
        whose benefit the account is maintained if the entire amount 
        received (including money and any other property) is paid into 
        the lifetime learning account for the benefit of a family 
        member of such individual not later than the 60th day after the 
        day on which he received the payment or distribution.
    ``(e) Tax Treatment of Accounts.--
            ``(1) Exemption from tax.--A lifetime learning account is 
        exempt from taxation under this subtitle unless such account 
        has ceased to be a lifetime learning account by reason of 
        paragraph (2) or (3). Notwithstanding the preceding sentence, 
        any such account is subject to the taxes imposed by section 511 
        (relating to imposition of tax on unrelated business income of 
        charitable, etc. organizations).
            ``(2) Loss of exemption of account where individual engages 
        in prohibited transaction or fails to make required payment.--
                    ``(A) In general.--
                            ``(i) Prohibited transaction.--If the 
                        individual for whose benefit a lifetime 
                        learning account is established or any 
                        individual who contributes to such account 
                        engages in any transaction prohibited by 
                        section 4975 with respect to the account, the 
                        account shall cease to be a lifetime learning 
                        account as of the first day of the taxable year 
                        (of the individual so engaging in such 
                        transaction) during which such transaction 
                        occurs.
                            ``(ii) Failure to make required payment.--
                                    ``(I) In general.--In the case of a 
                                beneficiary who incurs qualified 
                                expenses (reduced by amounts described 
                                in subclause (II)) but who fails to 
                                make a payment for such expenses from 
                                the beneficiary's lifetime learning 
                                account, the account shall cease to be 
                                a lifetime learning account as of the 
                                first day of the taxable year of the 
                                beneficiary during which such failure 
                                occurs.
                                    ``(II) Scholarships and educational 
                                benefits.--The amounts described in 
                                this clause are amounts received by, or 
                                on behalf of, the beneficiary that are 
                                described in section 135(c)(1) 
                                (relating to qualified United States 
                                savings bond) and subparagraphs (A), 
                                (B), and (D) of section 135(d)(1) 
                                (relating to certain scholarships and 
                                veterans benefits).
                    ``(B) Account treated as distributing all its 
                assets.--In any case in which any account ceases to be 
                a lifetime learning account by reason of subparagraph 
                (A) as of the first day of any taxable year, paragraph 
                (1) of subsection (d) shall apply as if there was a 
                distribution on such first day in an amount equal to 
                the fair market value (on such first day) of all assets 
                in the account (on such first day).
            ``(3) Effect of pledging account as security.--If, during 
        any taxable year, the individual for whose benefit a lifetime 
        learning account is established, or any individual who 
        contributes to such account, uses the account or any portion 
        thereof as security for a loan, the portion so used shall be 
        treated as distributed to the individual so using such portion.
    ``(f) Additional Tax on Certain Distributions.--
            ``(1) Distribution not used for educational or job training 
        expenses.--If any payment from a lifetime learning account is 
        used for any purpose other than the payment of the qualified 
        expenses of the beneficiary of such account, the tax liability 
        under this chapter of such beneficiary for the taxable year in 
        which the payment is received shall be increased by an amount 
        equal to 20 percent of such payment.
            ``(2) Distributions on termination of account.--
                    ``(A) In general.--Paragraph (1) shall be applied 
                by substituting `10 percent' for `20 percent' in the 
                case of any distribution made on the termination date 
                to the beneficiary of the account.
                    ``(B) Termination of subsequent account.--If--
                            ``(i) the election under subsection 
                        (c)(1)(E)(ii) is made with respect to any 
                        account, and
                            ``(ii) the termination date occurs other 
                        than by reason of the death of the account 
                        beneficiary,
                the tax liability under this chapter of such 
                beneficiary for the taxable year which includes the 
                termination date shall be increased by an amount equal 
                to 20 percent of the balance in such account on such 
                date.
            ``(3) Disability cases.--Paragraphs (1) and (2)(A) shall 
        not apply if the distribution is made after the account 
        beneficiary becomes disabled within the meaning of section 
        72(m)(7).
            ``(4) Disqualification cases.--Any amount treated under 
        paragraph (2) or (3) of subsection (e) as distributed from a 
        lifetime learning account shall be treated as a distribution to 
        which the tax imposed by paragraph (1) applies.
    ``(g) Community Property Laws.--This section shall be applied 
without regard to any community property laws.
    ``(h) Reports.--The trustee of a lifetime learning account shall 
make such reports regarding such account to the Secretary and to the 
individual for whose benefit the account is maintained with respect to 
contributions, distributions, and such other matters as the 
Secretary may require under regulations. The reports required by this 
subsection shall be filed at such time and in such manner and furnished 
to such individuals at such time and in such manner as may be required 
by those regulations.''
    (b) Deduction Allowed in Arriving at Adjusted Gross Income.--
Subsection (a) of section 62 of such Code (relating to retirement 
savings) is amended by inserting after paragraph (16) the following new 
paragraph:
            ``(17) Education and job training savings.--The deduction 
        allowed by section 221 (relating to lifetime learning 
        accounts).''
    (c) Tax on Excess Contributions.--Section 4973 of such Code 
(relating to tax on excess contributions to individual retirement 
accounts, certain section 403(b) contracts, and certain individual 
retirement annuities) is amended--
            (1) by inserting ``lifetime learning accounts,'' after 
        ``savings accounts,'' in the heading of such section,
            (2) by striking ``or'' at the end of paragraph (2) of 
        subsection (a),
            (3) by redesignating paragraph (3) of subsection (a) as 
        paragraph (4) and by inserting after paragraph (2) the 
        following new paragraph:
            ``(3) a lifetime learning account (within the meaning of 
        section 221(c)(1)), or'', and
            (4) by adding at the end the following new subsection:
    ``(e) Excess Contributions to Lifetime Learning Accounts.--For 
purposes of this section, in the case of a lifetime learning account, 
the term `excess contributions' means the amount by which the amount 
contributed for the taxable year to the account exceeds the amount 
allowable as a deduction under section 221 for such taxable year. For 
purposes of this subsection, any contribution which is distributed out 
of the lifetime learning account in a distribution to which section 
221(d)(3) applies shall be treated as an amount not contributed.''
    (d) Tax on Prohibited Transactions.--
            (1) Subsection (c) of section 4975 of such Code (relating 
        to prohibited transactions) is amended by adding at the end the 
        following new paragraph:
            ``(5) Special rule for lifetime learning accounts.--An 
        individual for whose benefit a lifetime learning account is 
        established and any contributor to such account shall be exempt 
        from the tax imposed by this section with respect to any 
        transaction concerning such account (which would otherwise be 
        taxable under this section) if, with respect to such 
        transaction, the account ceases to be a lifetime learning 
        account by reason of the application of section 221(e)(2)(A) to 
        such account.''
            (2) Paragraph (1) of section 4975(e) of such Code is 
        amended by striking ``or'' at the end of subparagraph (D), by 
        redesignating subparagraph (E) as subparagraph (F), and by 
        inserting after subparagraph (D) the following new 
        subparagraph:
                    ``(E) a lifetime learning account described in 
                section 221(c)(1), or''.
    (e) Failure To Provide Reports on Lifetime Learning Accounts.--
            (1) Paragraph (2) of section 6693(a) of such Code (relating 
        to failure to provide reports on individual retirement accounts 
        or annuities) is amended by striking ``and'' at the end of 
        subparagraph (A), by striking the period at the end of 
        subparagraph (B) and inserting ``, and'', and by adding at the 
        end the following new subparagraph:
                    ``(C) section 221(i) (relating to lifetime learning 
                accounts).''.
            (2) The heading for section 6693 of such Code is amended to 
        read as follows:

``SEC. 6693. FAILURE TO PROVIDE REPORTS ON INDIVIDUAL RETIREMENT PLANS 
              AND CERTAIN OTHER SAVINGS PLANS.''

    (f) Clerical Amendments.--
            (1) The table of sections for part VII of subchapter B of 
        chapter 1 of such Code is amended by striking the item relating 
        to section 221 and inserting the following new items:

                              ``Sec. 221. Lifetime learning accounts.
                              ``Sec. 222. Cross reference.''
            (2) The table of sections for chapter 43 of such Code is 
        amended by striking the item relating to section 4973 and 
        inserting the following new item:

                              ``Sec. 4973. Tax on excess contributions 
                                        to individual retirement 
                                        accounts, medical savings 
                                        accounts, lifetime learning 
                                        accounts, certain 403(b) 
                                        contracts, and certain 
                                        individual retirement 
                                        annuities.''
            (3) The table of sections for subchapter B of chapter 68 of 
        such Code is amended by striking the item relating to section 
        6693 and inserting the following new item:

                              ``Sec. 6693. Failure to provide reports 
                                        on individual retirement plans 
                                        and certain other savings 
                                        plans.''
    (g) Treatment of Lifetime Learning Accounts Under Federal Student 
Financial Aid.--Subparagraph (A) of sections 475(d)(2), 476(c)(2), and 
477(c)(2) of the Higher Education Act of 1965 (20 U.S.C. 
1087oo(d)(2)(A), 1087pp(c)(2)(A), 1087rr(c)(2)(A)) are each amended by 
inserting before the semicolon at the end thereof the following: ``, 
excluding any amounts held in a lifetime learning account established 
in accordance with section 221 of the Internal Revenue Code of 1986 (26 
U.S.C. 221)''.
    (h) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to contributions made in taxable years beginning after 
        December 31, 1997.
            (2) Effective date.--The amendments made by subsection (g) 
        shall apply to determinations of need under title IV of the 
        Higher Education Act of 1965 for periods of enrollment 
        beginning on or after July 1, 1998.

            TITLE II--INCREASE IN MAXIMUM PELL GRANT AWARDS.

SEC. 201. INCREASE IN MAXIMUM PELL GRANTS.

    (a) Maximum Pell Amounts.--Paragraph (2)(A) of section 401(b) of 
the Higher Education Act of 1965 (20 U.S.C. 1070a(b)(2)(A)) is amended 
to read as follows:
    ``(2)(A) The amount of the basic grant for a student eligible under 
this part shall be $3,500, less an amount equal to the amount 
determined to be the expected family contribution with respect to that 
student for that year.''.
    (b) Funding of Pell Grants.--Section 401 of the Higher Education 
Act of 1965 (20 U.S.C. 1070a) is further amended by striking 
subsections (g) and (h) and inserting the following:
    ``(g) Funds for Expenses.--There shall be available to the 
Secretary, from funds not otherwise appropriated, such sums as may be 
necessary to provide funds to be obligated for the costs of the grants 
under this section in the maximum amounts authorized by this 
section.''.
    (c) Conforming Amendments.--Section 401 of the Higher Education Act 
of 1965 (20 U.S.C. 1070a) is further amended--
            (1) in paragraph (7) of subsection (b), by striking ``the 
        appropriate Appropriation Act for this subpart for such year'' 
        and inserting ``subsection (g)'';
            (2) by striking paragraph (3) of such subsection and 
        redesignating paragraphs (4) through (8) of such subsection as 
        paragraphs (3) through (7), respectively; and
            (3) by redesignating subsection (i) as subsection (h).

 TITLE III--RESTORATION OF DEDUCTION FOR INTEREST ON EDUCATIONAL LOANS

SEC. 301. RESTORATION OF DEDUCTION FOR INTEREST ON EDUCATIONAL LOANS.

    (a) In General.--Paragraph (2) of section 163(h) of the Internal 
Revenue Code of 1986 (defining personal interest) is amended by 
striking ``and'' at the end of subparagraph (D), by redesignating 
subparagraph (E) as subparagraph (F), and by inserting after 
subparagraph (D) the following new subparagraph:
                    ``(E) any interest on a qualified educational loan, 
                and''.
    (b) Qualified Educational Loan Defined.--Subsection (h) of section 
163 of such Code is amended by adding at the end the following new 
paragraph:
            ``(6) Qualified educational loan.--
                    ``(A) In general.--For purposes of this subsection, 
                the term `qualified educational loan' means any 
                indebtedness incurred to pay qualified educational 
                expenses which are paid or incurred within a reasonable 
                period of time before or after the indebtedness is 
                incurred.
                    ``(B) Qualified educational expenses.--For purposes 
                of this paragraph--
                            ``(i) In general.--The term `qualified 
                        educational expenses' means qualified tuition 
                        and related expenses of the taxpayer, his 
                        spouse, or a dependent for attendance at an 
                        educational institution described in section 
                        170(b)(1)(A)(ii).
                            ``(ii) Qualified tuition and related 
                        expenses.--The term `qualified tuition and 
                        related expenses' means--
                                    ``(I) tuition and fees required for 
                                enrollment or attendance at an 
                                educational institution described in 
                                section 170(b)(1)(A)(ii),
                                    ``(II) fees, books, supplies, and 
                                equipment required for courses of 
                                instruction at such an institution, and
                                    ``(III) reasonable living expenses 
                                while away from home.
                    ``(C) Dependent.--For purposes of this paragraph, 
                the term `dependent' has the meaning given such term by 
                section 152.
                    ``(D) Coordination with paragraph (3)(C)(ii).--Any 
                qualified educational loan shall not be taken into 
                account for purposes of applying the limitation of 
                paragraph (3)(C)(ii).''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.
                                 <all>