text: SECTION 1. SHORT TITLE.
  
      This Act may be cited as the ``Higher Education Affordability and 
  Fairness Act''.
  
  SEC. 2. DEDUCTION FOR HIGHER EDUCATION EXPENSES.
  
      (a) Deduction Allowed.--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 222 as 
  section 223 and by inserting after section 221 the following:
  
  ``SEC. 222. HIGHER EDUCATION EXPENSES.
  
      ``(a) Allowance of Deduction.--In the case of an individual, there 
  shall be allowed as a deduction an amount equal to the qualified 
  tuition and related expenses paid by the taxpayer during the taxable 
  year.
      ``(b) Limitations.--
              ``(1) Limitation for first 2 years of postsecondary 
          education.--For any taxable year preceding a taxable year 
          described in paragraph (2), the amount of qualified tuition and 
          related expenses which may be taken into account under 
          subsection (a) shall not exceed--
                      ``(A) except as provided in subparagraph (B), the 
                  excess (if any) of--
                              ``(i) the lesser of--
                                      ``(I) $10,000 for each eligible 
                                  student, or
                                      ``(II) $15,000, over
                              ``(ii) the amount of such expenses which 
                          are taken into account in determining the 
                          credit allowable to the taxpayer or any other 
                          person under section 25A(a)(1) with respect to 
                          such expenses, and
                      ``(B) in the case of a taxpayer with respect to 
                  which the credit under section 25A(a)(1) is reduced to 
                  zero by reason of section 25A(d)(1), $5,000.
              ``(2) Limitation for second 2 years of postsecondary 
          education.--For any taxable year if an eligible student has 
          completed (before the beginning of such taxable year) the first 
          2 years of postsecondary education at an eligible educational 
          institution, the amount of qualified tuition and related 
          expenses which may be taken into account under subsection (a) 
          shall not exceed--
                      ``(A) except as provided in subparagraph (B) or 
                  (C), $10,000,
                      ``(B) in the case of a taxpayer with respect to 
                  which a credit under section 25A(a)(1) would be reduced 
                  to zero by reason of section 25A(d)(1), $5,000, and
                      ``(C) in the case of taxpayer with respect to whom 
                  the credit under section 25A(a)(2) is allowed for such 
                  taxable year, zero.
              ``(3) Deduction allowed only for 4 taxable years for each 
          eligible student.--A deduction may not be allowed under 
          subsection (a) with respect to the qualified tuition and 
          related expenses of an eligible student for any taxable year if 
          such a deduction was allowable with respect to such expenses 
          for such student for any 4 prior taxable years.
      ``(c) Qualified Tuition and Related Expenses.--For purposes of this 
  section, the term `qualified tuition and related expenses' has the 
  meaning given such term by section 25A(f)(1) (determined with regard to 
  section 25A(c)(2)(B)).
      ``(d) Eligible Student.--For purposes of this section, the term 
  `eligible student' has the meaning given such term by section 
  25A(b)(3).
      ``(e) Special Rules.--For purposes of this section--
              ``(1) Identification requirement.--No deduction shall be 
          allowed under subsection (a) to a taxpayer with respect to an 
          eligible student unless the taxpayer includes the name, age, 
          and taxpayer identification number of such eligible student on 
          the return of tax for the taxable year.
              ``(2) No double benefit.--
                      ``(A) Coordination with exclusions.--The amount of 
                  qualified tuition and related expenses otherwise taken 
                  into account under subsection (a) with respect to an 
                  eligible student shall be reduced (before the 
                  application of subsection (b)) by the amount of such 
                  expenses which are taken into account in determining 
                  the exclusion under section 135 or 530(d)(2) for the 
                  taxable year.
                      ``(B) Dependents.--No deduction shall be allowed 
                  under subsection (a) to any individual with respect to 
                  whom a deduction under section 151 is allowable to 
                  another taxpayer for a taxable year beginning in the 
                  calendar year in which such individual's taxable year 
                  begins.
              ``(3) Limitation on taxable year of deduction.--
                      ``(A) In general.--A deduction shall be allowed 
                  under subsection (a) for qualified tuition and related 
                  expenses for any taxable year only to the extent such 
                  expenses are in connection with enrollment at an 
                  institution of higher education during the taxable 
                  year.
                      ``(B) Certain prepayments allowed.--Subparagraph 
                  (A) shall not apply to qualified tuition and related 
                  expenses paid during a taxable year if such expenses 
                  are in connection with an academic term beginning 
  during such taxable year or during the first 3 months of the next 
  taxable year.
              ``(4) Adjustment for certain scholarships and veterans 
          benefits.--The amount of qualified tuition and related expenses 
          otherwise taken into account under subsection (a) with respect 
          to the education of an individual shall be reduced (before the 
          application of subsection (b)) by the sum of the amounts 
          received with respect to such individual for the taxable year 
          as--
                      ``(A) a qualified scholarship which under section 
                  117 is not includable in gross income,
                      ``(B) an educational assistance allowance under 
                  chapter 30, 31, 32, 34, or 35 of title 38, United 
                  States Code, or
                      ``(C) a payment (other than a gift, bequest, 
                  devise, or inheritance within the meaning of section 
                  102(a)) for educational expenses, or attributable to 
                  enrollment at an eligible educational institution, 
                  which is exempt from income taxation by any law of the 
                  United States.
              ``(5) No deduction for married individuals filing separate 
          returns.--If the taxpayer is a married individual (within the 
          meaning of section 7703), this section shall apply only if the 
          taxpayer and the taxpayer's spouse file a joint return for the 
          taxable year.
              ``(6) Nonresident aliens.--If the taxpayer is a nonresident 
          alien individual for any portion of the taxable year, this 
          section shall apply only if such individual is treated as a 
          resident alien of the United States for purposes of this 
          chapter by reason of an election under subsection (g) or (h) of 
          section 6013.
              ``(7) Regulations.--The Secretary may prescribe such 
          regulations as may be necessary or appropriate to carry out 
          this section, including regulations requiring recordkeeping and 
          information reporting.''.
      (b) Deduction Allowed in Computing Adjusted Gross Income.--Section 
  62(a) of the Internal Revenue Code of 1986 is amended by inserting 
  after paragraph (17) the following:
              ``(18) Higher education expenses.--The deduction allowed by 
          section 222.''.
      (c) Determination of Adjusted Gross Income With Respect To Other 
  Benefits.--
              (1) Section 21(a)(2) of the Internal Revenue Code of 1986 
          is amended by inserting ``(determined without regard to section 
          222)'' after ``adjusted gross income''.
              (2) Section 22(d) of such Code is amended--
                      (A) by inserting ``(determined without regard to 
                  section 222)'' after ``adjusted gross income'' the 
                  first place it appears, and
                      (B) by inserting ``(as so determined)'' after 
                  ``adjusted gross income'' the second place it appears.
              (3) Section 23(b)(2)(B) of such Code is amended by 
          inserting ``222,'' before ``911''.
              (4) Section 24(b)(1) of such Code is amended by inserting 
          ``222,'' before ``911''.
              (5) Section 86(b)(2)(A) of such Code is amended by 
          inserting ``222,'' before ``911''.
              (6) Section 137(b)(3)(A) of such Code is amended by 
          inserting ``222,'' before ``911''.
              (7) Section 151(d)(3) of such Code is amended--
                      (A) by inserting ``(determined without regard to 
                  section 222)'' after ``adjusted gross income'' in 
                  subparagraph (A), and
                      (B) by inserting ``(as so determined)'' after 
                  ``adjusted gross income'' in subparagraph (B).
              (8) Section 165(h)(2)(A)(ii) of such Code is amended by 
          inserting ``(determined without regard to section 222)'' after 
          ``adjusted gross income''.
              (9) Section 213(a) of such Code is amended by inserting 
          ``(determined without regard to section 222)'' after ``adjusted 
          gross income''.
              (10) Section 219(g)(3)(A)(ii) of such Code is amended by 
          inserting ``222,'' after ``221,''.
              (11) Section 221(b)(2)(C)(i) of such Code is amended by 
          inserting ``222,'' before ``911''.
              (12) Section 403(b)(3)(D) of such Code is amended--
                      (A) by inserting ``(determined without regard to 
                  section 222)'' after ``adjusted gross income'' in 
                  clause (ii), and
                      (B) by inserting ``(as so determined)'' after 
                  ``adjusted gross income'' in the matter following 
                  clause (ii).
              (13) Section 469(i)(3)(E)(iii) of such Code is amended by 
          striking ``and 221'' and inserting ``, 221, and 222''.
              (14) Section 1400C(b)(2) of such Code is amended by 
          inserting ``222,'' before ``911''.
      (d) Conforming Amendments.--The table of sections for part VII of 
  subchapter B of chapter 1 of the Internal Revenue Code of 1986 is 
  amended by striking the item relating to section 222 and inserting the 
  following:
  
                                ``Sec. 222. Higher education expenses.
                                ``Sec. 223. Cross reference.''.
      (e) Effective Date.--The amendments made by this section shall 
  apply to expenses paid after December 31, 2001 (in taxable years ending 
  after such date), for education furnished in academic periods beginning 
  after such date.
  
  SEC. 3. EDUCATION TAX CREDIT FAIRNESS.
  
      (a) In General.--Section 25A(c)(1) of the Internal Revenue Code of 
  1986 (relating to lifetime learning credit) is amended by striking 
  ``2003'' and inserting ``2002''.
      (b) Increase in AGI Limits.--
              (1) In general.--Subsection (d) of section 25A of the 
          Internal Revenue Code of 1986 is amended to read as follows:
      ``(d) Limitation Based on Modified Adjusted Gross Income.--
              ``(1) Hope credit.--
                      ``(A) In general.--The amount which would (but for 
                  this subsection) be taken into account under subsection 
                  (a)(1) shall be reduced (but not below zero) by the 
                  amount determined under subparagraph (B).
                      ``(B) Amount of reduction.--The amount determined 
                  under this subparagraph equals the amount which bears 
                  the same ratio to the amount which would be so taken 
                  into account as--
                              ``(i) the excess of--
                                      ``(I) the taxpayer's modified 
                                  adjusted gross income for such taxable 
                                  year, over
                                      ``(II) $50,000 ($100,000 in the 
                                  case of a joint return), bears to
                              ``(ii) $10,000 ($20,000 in the case of a 
                          joint return).
              ``(2) Lifetime learning credit.--
                      ``(A) In general.--The amount which would (but for 
                  this subsection) be taken into account under subsection 
                  (a)(2) shall be reduced (but not below zero) by the 
                  amount determined under subparagraph (B).
                      ``(B) Amount of reduction.--The amount determined 
                  under this subparagraph equals the amount which bears 
                  the same ratio to the amount which would be so taken 
                  into account as--
                              ``(i) the excess of--
                                      ``(I) the taxpayer's modified 
                                  adjusted gross income for such taxable 
                                  year, over
                                      ``(II) $40,000 ($80,000 in the case 
                                  of a joint return), bears to
                              ``(ii) $10,000 ($20,000 in the case of a 
                          joint return).
              ``(3) Modified adjusted gross income.--For purposes of this 
          subsection, the term `modified adjusted gross income' means the 
          adjusted gross income of the taxpayer for the taxable year 
          increased by any amount excluded from gross income under 
          section 911, 931, or 933.''.
              (2) Conforming amendment.--Paragraph (2) of section 25A(h) 
          of such Code is amended to read as follows:
              ``(2) Income limits.--
                      ``(A) Hope credit.--In the case of a taxable year 
                  beginning after 2002, the $50,000 and $100,000 amounts 
                  in subsection (d)(1)(B)(i)(II) shall be increased by an 
                  amount equal to--
                              ``(i) such dollar amount, multiplied by
                              ``(ii) 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 2001' 
                          for `calendar year 1992' in subparagraph (B) 
                          thereof.
                      ``(B) Lifetime learning credit.--In the case of a 
                  taxable year beginning after 2001, the $40,000 and 
                  $80,000 amounts in subsection (d)(2)(B)(i)(II) shall be 
                  increased by an amount equal to--
                              ``(i) such dollar amount, multiplied by
                              ``(ii) 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 2000' 
                          for `calendar year 1992' in subparagraph (B) 
                          thereof.
                      ``(C) Rounding.--If any amount as adjusted under 
                  subparagraph (A) or (B) is not a multiple of $1,000, 
                  such amount shall be rounded to the next lowest 
                  multiple of $1,000.''.
      (c) Coordination With Other Higher Education Benefits.--
              (1) Subsection (e) of section 25A of the Internal Revenue 
          Code of 1986 is amended to read as follows:
      ``(e) Election Not To Have Section Apply.--A taxpayer may elect not 
  to have this section apply with respect to the qualified tuition and 
  related expenses of an individual for any taxable year.''.
              (2) Section 25A (g) of such Code is amended by striking 
          paragraph (5) and by redesignating paragraphs (6) and (7) as 
          paragraphs (5) and (6), respectively.
              (3) Section 135(d)(2)(A) of such Code is amended by 
          striking ``allowable'' and inserting ``allowed''.
      (d) Effective Date.--The amendments made by this section shall 
  apply to expenses paid after December 31, 2001 (in taxable years ending 
  after such date), for education furnished in academic periods beginning 
  after such date.
  
  SEC. 4. RELATIONSHIP BETWEEN TUITION AND FINANCIAL AID.
  
      (a) Study.--The Comptroller General of the United States shall 
  conduct an annual study to examine whether the Federal income tax 
  incentives to provide education assistance affect higher education 
  tuition rates in order to identify if institutions of higher education 
  are absorbing the intended savings by raising tuition rates.
      (b) Report.--The Comptroller General of the United States shall 
  report the results of the study required under subsection (a) to 
  Congress on an annual basis.
  
  SEC. 5. SENSE OF THE SENATE REGARDING PELL GRANTS.
  
      It is the sense of the Senate that the maximum Pell Grant should be 
  increased to $4,700 to pay approximately--
              (1) 20 percent of the tuition, fees, room and board, and 
          other expenses of the average college, or
              (2) the tuition and fees of the average public college.
target: Higher Education Affordability and Fairness Act - Amends the Internal Revenue Code to allow a limited tax deduction for qualified higher education tuition and related expenses.Provides that the increase in the Lifetime Learning Credit to 20 percent of $10,000 of tuition from $5,000 of tuition shall be effective starting in 2002 rather than 2003.Directs the Comptroller General of the United States to conduct an annual study to examine whether the Federal income tax incentives to provide education assistance affect higher education tuition rates in order to identify if institutions of higher education are absorbing the intended savings by raising tuition rates.Expresses the sense of the Senate that the maximum Pell Grant should be increased to $4,700 to pay approximately: (1) 20 percent of the tuition, fees, room and board, and other expenses of the average college; or (2) the tuition and fees of the average public college.
feat_title: A bill to amend the Internal Revenue Code of 1986 to make higher education more affordable by providing a tax deduction for higher education expenses, and for other purposes.