Short title

This Act may be cited as the

Higher Education Affordability and Equity Act of 2005

Expansion of deduction for interest on education loans

(a)

Repeal of dollar limitation; increase in phaseout beginning point

Subsection (b) of section 221 of the Internal Revenue Code of 1986 (relating to maximum deduction) is amended to read as follows:

(b)

Limitation based on modified adjusted gross income

(1)

In general

The amount which would (but for this subsection) be allowable as a deduction under this section shall be reduced (but not below zero) by the amount determined under paragraph (2). (2)

Amount of reduction

The amount determined under this paragraph is the amount which bears the same ratio to the amount which would be so taken into account as— (A)the excess of— (i)the taxpayer’s modified adjusted gross income for such taxable year, over (ii)$100,000 ($200,000 in the case of a joint return), bears to (B)$15,000 ($30,000 in the case of a joint return). (3)

Modified adjusted gross income

The term modified adjusted gross income means adjusted gross income determined— (A)without regard to this section and sections 199, 222, 911, 931, and 933, and (B)after application of sections 86, 135, 137, 219, and 469.

(b)

Conforming amendment

Section 221(f)(1) of such Code is amended to read as follows:

(1)

In general

In the case of a taxable year beginning after 2006, the $100,000 and $200,000 amounts in subsection (b) shall each be increased by an amount equal to— (A)such dollar amount, multiplied by (B)the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2005 for calendar year 1992 in subparagraph (B) thereof.

(c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2005.

Deduction for qualified tuition and related expenses made permanent

(a)

Repeal of termination

Section 222 of the Internal Revenue Code of 1986 is amended by striking subsection (e). (b)

Conforming amendments

Subparagraph (B) of section 222(b)(2) of such Code is amended— (1)by striking 2004 or 2005 and inserting 2004 or thereafter, and (2)in the heading by striking and 2005 and inserting and thereafter. (c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2005.

Education savings accounts

(a)

Increase in allowable contributions

(1)

In general

Clause (iii) of section 530(b)(1)(A) of the Internal Revenue Code of 1986 is amended by striking $2,000 and inserting $5,000. (2)

Conforming amendment

Section 4973(e)(1)(A) of such Code is amended by striking $2,000 and inserting $5,000. (b)

Reports

Subsection (h) of section 530 of such Code is amended by striking the period at the end of the last sentence and inserting , except that reports shall be so filed and furnished for any calendar year not later than June 30 of the following year.. (c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2005.

Allowance of room, board, and special needs services in the case of scholarships and tuition reduction programs with respect to higher education

(a)

In general

Paragraph (1) of section 117(b) of the Internal Revenue Code of 1986 (defining qualified scholarship) is amended by inserting before the period at the end the following: or, in the case of enrollment or attendance at an eligible educational institution, for qualified higher education expenses.. (b)

Definitions

Subsection (b) of section 117 of such Code is amended by adding at the end the following new paragraph:

(3)

Qualified higher education expenses; eligible educational institution

The terms qualified higher education expenses and eligible educational institution have the meanings given such terms in section 529(e).

(c)

Tuition reduction programs

Paragraph (5) of section 117(d) of such Code (relating to special rules for teaching and research assistants) is amended by striking shall be applied as if it did not contain the phrase (below the graduate level). and inserting

shall be applied— (A)as if it did not contain the phrase (below the graduate level), and (B)by substituting qualified higher education expenses for tuition the second place it appears.

(d)

Effective date

The amendments made by this section shall apply to expenses paid after December 31, 2005 (in taxable years ending after such date), for education furnished in academic periods beginning after such date.

Treatment of prepayment and savings plans under student financial aid needs analysis

(a)

Definition of assets

Subsection (f) of section 480 of the Higher Education Act of 1965 (20 U.S.C. 1087vv(j)) is amended— (1)in paragraph (1) by inserting qualified education benefit (except as provided in paragraph (3)), after tax shelters,; and (2)by adding at the end the following new paragraphs:

(3)A qualified education benefit shall not be considered an asset of the student under section 475 of this part. (4)For purposes of this subsection, the term qualified education benefit means— (A)a program which is described in clause (i) of section 529(b)(1)(A) of the Internal Revenue Code of 1986 and which meets the requirements of section 529(b)(1)(B) of such Code; (B)a State tuition program described in clause (ii) of section 529(b)(1)(A) of the Internal Revenue Code of 1986 which meets the requirements of section 529(b)(1)(B) of such Code; and (C)a Coverdell education savings account (as defined in section 530(b)(1) of the Internal Revenue Code of 1986).

(b)

Definition of other financial assistance

Subsection (j) of section 480 of the Higher Education Act of 1965 (20 U.S.C. 1087vv(j)) is amended— (1)by striking ; Tuition Prepayment Plans in the heading of such subsection; (2)by striking (1) For purposes and inserting For purposes; and (3)by striking paragraph (2). (c)

Effective date

The amendments made by this section shall apply with respect to determinations of need under part F of title IV of the Higher Education Act of 1965 for academic years beginning on or after July 1, 2006.

Expansion of educational expenses allowed as part of Hope Scholarship Credit

(a)

Qualified Tuition and Related Expenses Expanded to Include Books, Supplies, and Equipment

Paragraph (1) of section 25A(f) of the Internal Revenue Code of 1986 (defining qualified tuition and related expenses) is amended by adding at the end the following new subparagraph:

(D)

Additional expenses allowed for hope scholarship credit

For purposes of the Hope Scholarship Credit, such term shall include fees, books, supplies, and equipment required for courses of instruction at the eligible educational institution.

(b)

Hope Scholarship Credit not Reduced by Federal Pell Grants and Supplemental Educational Opportunity Grants

Subsection (g) of section 25A of such Code (relating to special rules) is amended by adding at the end the following new paragraph:

(8)

Pell and SEOG grants

For purposes of the Hope Scholarship Credit, paragraph (2) shall not apply to amounts paid for an individual as a Federal Pell Grant or a Federal supplemental educational opportunity grant under subparts 1 and 3, respectively, of part A of title IV of the Higher Education Act of 1965 (20 U.S.C. 1070a and 1070b et seq., respectively).

(c)

Expanded Hope Expenses not Subject to Information Reporting Requirements

Subsection (e) of section 6050S of such Code (relating to definitions) is amended by striking subsection (g)(2) and inserting subsections (f)(1)(D) and (g)(2). (d)

Effective Date

The amendments made by this section shall apply to expenses paid after December 31, 2005 (in tax years ending after such date), for education furnished in academic periods beginning after such date.

Repeal of egtrra sunset applicability to certain education provisions

Title IX of the Economic Growth and Tax Relief Reconciliation Act of 2001 (relating to sunset of provisions of such Act) shall not apply to subtitles A, B, and D of title IV of such Act.