To amend the Internal Revenue Code of 1986 to make the Hope and Lifetime Learning Credits refundable, and to allow taxpayers to obtain short-term student loans by using the future refund of such credits as collateral for the loans.

Summary: Amends the Internal Revenue Code to: (1) make the Hope Scholarship and Lifetime Learning tax credits refundable; and (2) allow students to use future refunds of tax credit amounts to secure student loans of up to $1,000 ($1,500 for first or second-year students).

SECTION 1. HOPE AND LIFETIME LEARNING CREDITS TO BE REFUNDABLE.

    (a) Credit to Be Refundable.--Section 25A of the Internal Revenue 
Code of 1986 (relating to Hope and Lifetime Learning credits) is hereby 
moved to subpart C of part IV of subchapter A of chapter 1 of such Code 
(relating to refundable credits) and inserted after section 35.
    (b) Technical Amendments.--
            (1) Section 36 of such Code is redesignated as section 37.
            (2) Section 25A of such Code (as moved by subsection (a)) 
        is redesignated as section 36.
            (3) Paragraph (1) of section 36(a) of such Code (as 
        redesignated by paragraph (2)) is amended by striking ``this 
        chapter'' and inserting ``this subtitle''.
            (4) Subparagraph (B) of section 72(t)(7) of such Code is 
        amended by striking ``section 25A(g)(2)'' and inserting 
        ``section 36(g)(2)''.
            (5) Subparagraph (A) of section 135(d)(2) of such Code is 
        amended by striking ``section 25A'' and inserting ``section 
        36''.
            (6) Section 221(e) of such Code is amended--
                    (A) in paragraph (2)(B), by striking ``section 
                25A(g)(2)'' and inserting ``section 36(g)(2)'' and by 
                striking ``section 25A(f)(2)'' and inserting ``section 
                36(f)(2)'', and
                    (B) in paragraph (3), by striking ``section 
                25A(b)(3)'' and inserting ``section 36(b)(3)''.
            (7) Clause (i) of section 529(e)(3)(B) of such Code is 
        amended by striking ``section 25A(b)(3)'' and inserting 
        ``section 36(b)(3)''.
            (8) Subparagraph (A) of section 530(b)(2) of such Code is 
        amended by striking ``section 25A(g)(2)'' and inserting 
        ``section 36(g)(2)''.
            (9) Clause (iii) of section 530(d)(4)(B) of such Code is 
        amended by striking ``section 25A(g)(2)'' and inserting 
        ``section 36(g)(2)''.
            (10) Subsection (e) of section 6050S of such Code is 
        amended by striking ``section 25A'' and inserting ``section 
        36''.
            (11) Subparagraph (J) of section 6213(g)(2) of such Code is 
        amended by striking ``section 25A(g)(1)'' and inserting 
        ``section 36(g)(1)''.
            (12) Paragraph (2) of section 1324(b) of title 31, United 
        States Code, is amended by inserting ``or 36'' after ``section 
        35''.
            (13) The table of sections for subpart C of part IV of 
        subchapter A of chapter 1 of such Code is amended by 
        redesignating the item relating to section 36 as an item 
        relating to section 37 and by inserting before such item the 
        following new item:

``Sec. 36. Hope and Lifetime Learning credits.''.
            (14) The table of sections for subpart A of such part IV is 
        amended by striking the item relating to section 25A.
    (c) Effective Date.--The amendments made by this subsection shall 
apply to taxable years beginning after December 31, 2005.

SEC. 2. USE OF REFUNDS OF HOPE AND LIFETIME LEARNING CREDITS AS 
              COLLATERAL FOR SHORT-TERM STUDENT LOANS.

    (a) In General.--Section 36 of the Internal Revenue Code of 1986 
(as redesignated by section 1) is amended by redesignating subsection 
(i) as subsection (j) and by inserting after subsection (h) the 
following new section:
    ``(i) Tuition Tax Credit Assignment Loans.--
            ``(1) In general.--Any eligible educational institution may 
        provide to a taxpayer described in paragraph (3) a tuition tax 
        credit assignment loan.
            ``(2) Tuition tax credit assignment loan.--For purposes of 
        this subsection, the term `tuition tax credit assignment loan' 
        means a loan provided to the taxpayer by the eligible 
        educational institution in return for which the taxpayer agrees 
        to authorize the Internal Revenue Service to disburse the loan 
        amount directly to the lender out of the next refund due to the 
        taxpayer that is attributable to a credit under this section.
            ``(3) Taxpayers eligible for loan.--A taxpayer is eligible 
        for a loan under this subsection if the taxpayer is either--
                    ``(A) an eligible student for whom a Hope 
                Scholarship Credit under subsection (a)(1) is allowed, 
                or
                    ``(B) a taxpayer for whom a Lifetime Learning 
                Credit is allowed.
            ``(4) Maximum amount of loan.--The amount of a loan 
        provided under this subsection may not exceed--
                    ``(A) $1,000, or
                    ``(B) in the case of a first-year or second-year 
                student, $1,500.
            ``(5) Loan origination fee may be charged.--An eligible 
        educational institution providing a tuition tax credit 
        assignment loan may charge the taxpayer a loan origination fee 
        of up to 5 percent of the loan amount, but may not charge 
        interest on the loan amount.
            ``(6) 3-year time limit on use of credit refund as 
        collateral.--If a taxpayer who has obtained a tuition tax 
        credit assignment loan has not received a refund attributable 
        to a credit under this section within three years after 
        receiving the loan, then the loan will become due and payable 
        in accordance with the terms of the loan agreement.''.
    (b) Effective Date.--The amendment made by this section shall apply 
with respect to credits claimed in taxable years beginning after 
December 31, 2005.