To make college debt more affordable, and for other purposes.

Summary: College Affordability and Lifetime Savings Act - Amends the Internal Revenue Code to: (1) convert the current deduction for interest on education loans to a credit equal to 50 percent of the interest paid during the taxable year on any qualified education loan; and (2) exclude from gross income amounts which would be included under specified loan forgiveness programs for teachers and other public servants.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``College Affordability and Lifetime 
Savings Act''.

SEC. 2. DEDUCTION FOR INTEREST ON EDUCATION LOANS CONVERTED TO CREDIT.

    (a) In General.--Section 221 of the Internal Revenue Code of 1986 
(relating to interest on education loans) is hereby moved to subpart A 
of part IV of subchapter B of chapter 1 of such Code, inserted after 
section 25B, and redesignated as section 25C.
    (b) Conversion to 50 Percent Credit.--Subsection (a) of section 25C 
of such Code, as redesignated by subsection (a), is amended to read as 
follows:
    ``(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 50 percent of the interest paid 
by the taxpayer during the taxable year on any qualified education 
loan.''.
    (c) Limitation Based on Modified Adjusted Gross Income.--Subsection 
(b) of section 25C of such Code, as redesignated by subsection (a), 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 allowed 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 allowed as--
                    ``(A) the excess of--
                            ``(i) the taxpayer's modified adjusted 
                        gross income for such taxable year, over
                            ``(ii) $75,000 ($150,000 in the case of a 
                        joint return), bears to
                    ``(B) $15,000 ($30,000 in the case of a joint 
                return).
            ``(2) Modified adjusted gross income.--For purposes of this 
        subsection, the term `modified adjusted gross income' means 
        adjusted gross income determined without regard to sections 
        911, 931, and 933.
            ``(3) Inflation adjustments.--
                    ``(A) In general.--In the case of a taxable year 
                beginning after 2003, the $75,000 and $150,000 amounts 
                in paragraph (1)(A)(ii) shall each 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 2002' 
                        for `calendar year 1992' in subparagraph (B) 
                        thereof.
                    ``(B) Rounding.--If any amount as adjusted under 
                subparagraph (A) is not a multiple of $5,000, such 
                amount shall be rounded to the next lowest multiple of 
                $5,000.''.
    (d) Technical Amendments.--
            (1) Section 25C of such Code, as so redesignated, is 
        amended by striking subsection (f).
            (2) Subsection (c) of section 25C of such Code, as so 
        redesignated, is amended by striking ``Deduction'' in the 
        heading and inserting ``Credit'' and by striking ``deduction'' 
        the first place it appears in the text and inserting 
        ``credit''.
            (3) Paragraphs (1) and (2) of section 25C(e) of such Code, 
        as so redesignated, are each amended by striking ``deduction'' 
        the first place it appears in each such paragraph and inserting 
        ``credit''.
            (4) Section 62(a) of such Code is amended by striking 
        paragraph (17).
            (5) Sections 86(b)(2)(A), 135(c)(4)(A), 137(b)(3)(A), 
        219(g)(3)(A)(ii), and 222(b)(2)(C)(ii) of such Code are each 
        amended by striking ``221,''.
            (6) Subparagraph (F) of section 163(h)(2) of such Code is 
        amended to read as follows:
                    ``(F) any interest taken into account under section 
                25C (relating to interest on educational loans).''.
            (7) Section 469(i)(3)(F)(iii) of such Code is amended by 
        striking ``, 222,''.
            (8) Section 6050S(e) is amended by striking ``section 
        221(d)(1)'' and inserting ``section 25C(d)(1)''.
            (9) 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.
            (10) The table of sections for subpart A of part IV of 
        subchapter A of chapter 1 of such Code is amended by inserting 
        after the item relating to section 25B the following new item:

                              ``Sec. 25C. Interest on Education 
                                        Loans.''
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 3. NO INCOME TAX BY REASON OF LOAN FORGIVENESS.

    Subsection (f) of section 108 of the Internal Revenue Code of 1986 
is amended by adding at the end the following new paragraph:
            ``(4) Loan forgiveness for teachers and other public 
        servants.--In the case of an individual, gross income does not 
        include any amount which (but for this paragraph) would be 
        includible in gross income by reason of the discharge (in whole 
        or in part) of any loan if--
                    ``(A) such discharge was pursuant to section 428J, 
                428K, 460, or 460A of the Higher Education Act of 1965 
                (20 U.S.C. 1078-10); or
                    ``(B) such loan is an applicable loan (as defined 
                in section 6103(l)(13)(C)), the repayment amounts on 
                such loan are based in whole or in part on the 
                taxpayer's income, and such discharge is the result of 
                the expiration of the period during which the taxpayer 
                is obligated to repay such loan.''