A bill to amend the Internal Revenue Code of 1986 to make higher education more affordable, and for other purposes.

Summary: Make College Affordable Act of 2005 - Amends the Internal Revenue Code to: (1) increase the amount of the tax deduction for higher education tuition and related expenses; and (2) allow a tax credit for up to $1,500 of the interest paid annually on certain student loans for higher education expenses. Reduces the allowable amount of both the tax deduction and the tax credit based upon taxpayer adjusted gross income levels. Provides for an inflation adjustment for calendar years after 2005 to such adjusted gross income levels.

Makes the tax deduction for higher education tuition and related expenses permanent.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Make College Affordable Act of 
2005''.

SEC. 2. EXPANSION OF DEDUCTION FOR HIGHER EDUCATION EXPENSES.

    (a) Amount of Deduction.--Subsection (b) of section 222 of the 
Internal Revenue Code of 1986 (relating to deduction for qualified 
tuition and related expenses) is amended to read as follows:
    ``(b) Limitations.--
            ``(1) Dollar limitations.--
                    ``(A) In general.--Except as provided in paragraph 
                (2), the amount allowed as a deduction under subsection 
                (a) with respect to the taxpayer for any taxable year 
                shall not exceed the applicable dollar limit.
                    ``(B) Applicable dollar limit.--The applicable 
                dollar limit for any taxable year shall be determined 
                as follows:

                                                             Applicable
  ``Taxable year:                                        dollar amount:
    2005..........................................              $8,000 
    2006 and thereafter...........................             $12,000.
            ``(2) Limitation based on modified adjusted gross income.--
                    ``(A) In general.--The amount which would (but for 
                this paragraph) be taken into account under subsection 
                (a) 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) $65,000 ($130,000 in the 
                                case of a joint return), bears to
                            ``(ii) $15,000 ($30,000 in the case of a 
                        joint return).
                    ``(C) Modified adjusted gross income.--For purposes 
                of this paragraph, the term `modified adjusted gross 
                income' means the adjusted gross income of the taxpayer 
                for the taxable year determined--
                            ``(i) without regard to this section and 
                        sections 199, 911, 931, and 933, and
                            ``(ii) after the application of sections 
                        86, 135, 137, 219, 221, and 469.
                For purposes of the sections referred to in clause 
                (ii), adjusted gross income shall be determined without 
                regard to the deduction allowed under this section.
                    ``(D) Inflation adjustments.--
                            ``(i) In general.--In the case of any 
                        taxable year beginning in a calendar year after 
                        2005, both of the dollar amounts in 
                        subparagraph (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, by 
                                substituting `calendar year 2004' for 
                                `calendar year 1992' in subparagraph 
                                (B) thereof.
                            ``(ii) Rounding.--If any amount as adjusted 
                        under clause (i) is not a multiple of $50, such 
                        amount shall be rounded to the nearest multiple 
                        of $50.''.
    (b) Qualified Tuition and Related Expenses of Eligible Students.--
            (1) In general.--Section 222(a) of the Internal Revenue 
        Code of 1986 (relating to allowance of deduction) is amended by 
        inserting ``of eligible students'' after ``expenses''.
            (2) Definition of eligible student.--Section 222(d) of such 
        Code (relating to definitions and special rules) is amended by 
        redesignating paragraphs (2) through (6) as paragraphs (3) 
        through (7), respectively, and by inserting after paragraph (1) 
        the following new paragraph:
            ``(2) Eligible student.--The term `eligible student' has 
        the meaning given such term by section 25A(b)(3).''.
    (c) Deduction Made Permanent.--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 the amendments made by section 431 of 
such Act.
    (d) Effective Date.--The amendments made by this section shall 
apply to payments made in taxable years beginning after December 31, 
2004.

SEC. 3. CREDIT FOR INTEREST ON HIGHER EDUCATION LOANS.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to nonrefundable 
personal credits) is amended by inserting after section 25B the 
following new section:

``SEC. 25C. INTEREST ON HIGHER EDUCATION LOANS.

    ``(a) Allowance of Credit.--In the case of an individual, there 
shall be allowed as a credit against the tax imposed by this chapter 
for the taxable year an amount equal to the interest paid by the 
taxpayer during the taxable year on any qualified education loan.
    ``(b) Maximum Credit.--
            ``(1) In general.--Except as provided in paragraph (2), the 
        credit allowed by subsection (a) for the taxable year shall not 
        exceed $1,500.
            ``(2) Limitation based on modified adjusted gross income.--
                    ``(A) In general.--If the modified adjusted gross 
                income of the taxpayer for the taxable year exceeds 
                $50,000 ($100,000 in the case of a joint return), the 
                amount which would (but for this paragraph) be 
                allowable as a credit under this section shall be 
                reduced (but not below zero) by the amount which bears 
                the same ratio to the amount which would be so 
                allowable as such excess bears to $20,000 ($40,000 in 
                the case of a joint return).
                    ``(B) Modified adjusted gross income.--The term 
                `modified adjusted gross income' means adjusted gross 
                income determined without regard to sections 199, 222, 
                911, 931, and 933.
                    ``(C) Inflation adjustment.--In the case of any 
                taxable year beginning after 2005, the $50,000 and 
                $100,000 amounts referred to in subparagraph (A) 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, 
                        by substituting `2004' for `1992'.
                    ``(D) Rounding.--If any amount as adjusted under 
                subparagraph (C) is not a multiple of $50, such amount 
                shall be rounded to the nearest multiple of $50.
    ``(c) Dependents not Eligible for Credit.--No credit shall be 
allowed by this section to an individual for the taxable year if a 
deduction under section 151 with respect to such individual is allowed 
to another taxpayer for the taxable year beginning in the calendar year 
in which such individual's taxable year begins.
    ``(d) Limit on Period Credit Allowed.--A credit shall be allowed 
under this section only with respect to interest paid on any qualified 
education loan during the first 60 months (whether or not consecutive) 
in which interest payments are required. For purposes of this 
paragraph, any loan and all refinancings of such loan shall be treated 
as 1 loan.
    ``(e) Definitions.--For purposes of this section--
            ``(1) Qualified education loan.--The term `qualified 
        education loan' has the meaning given such term by section 
        221(d)(1).
            ``(2) Dependent.--The term `dependent' has the meaning 
        given such term by section 152.
    ``(f) Special Rules.--
            ``(1) Denial of double benefit.--No credit shall be allowed 
        under this section for any amount taken into account for any 
        deduction under any other provision of this chapter.
            ``(2) Married couples must file joint return.--If the 
        taxpayer is married at the close of the taxable year, the 
        credit shall be allowed under subsection (a) only if the 
        taxpayer and the taxpayer's spouse file a joint return for the 
        taxable year.
            ``(3) Marital status.--Marital status shall be determined 
        in accordance with section 7703.''.
    (b) Conforming Amendment.--The table of sections for subpart A of 
part IV of subchapter A of chapter 1 of the Internal Revenue Code of 
1986 is amended by inserting after the item relating to section 25B the 
following new item:

``Sec. 25C. Interest on higher education loans.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to any qualified education loan (as defined in section 25C(e)(1) 
of the Internal Revenue Code of 1986, as added by this section) 
incurred on, before, or after the date of the enactment of this Act, 
but only with respect to any loan interest payment due after December 
31, 2004.