To amend the Internal Revenue Code of 1986 to consolidate education tax benefits into one credit against income tax for higher education expenses.

Summary: Higher Education Affordability Act of 2010 - Amends the Internal Revenue Code to replace the Hope and lifetime learning tax credits with a partially refundable $3,000 tax credit for the higher education expenses of a taxpayer, the taxpayer's spouse, or any dependent at an institution of higher education.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Higher Education Affordability Act 
of 2010''.

SEC. 2. CONSOLIDATION OF EDUCATION TAX INCENTIVES INTO HIGHER EDUCATION 
              TAX CREDIT.

    (a) In General.--Section 25A of the Internal Revenue Code of 1986 
(relating to Hope and Lifetime Learning credits) is amended to read as 
follows:

``SEC. 25A. HIGHER EDUCATION TAX CREDIT.

    ``(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 so much of the higher education 
expenses paid by the taxpayer during the taxable year (for education 
furnished during any academic period beginning in such taxable year 
with respect to each student for whom an election is in effect under 
this section for any taxable year) as does not exceed $3,000.
    ``(b) Limitations.--
            ``(1) Lifetime credit limitation.--The amount of the credit 
        allowed under subsection (a) for any taxable year with respect 
        to any student shall not exceed the excess of--
                    ``(A) $15,000, over
                    ``(B) the aggregate credit allowed under subsection 
                (a) with respect to such individual for all prior 
                taxable years.
            ``(2) Credit 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) for the taxable year shall be reduced (but not 
                below $500) by the amount determined under subparagraph 
                (B).
                    ``(B) Amount of reduction.--The amount determined 
                under this subparagraph is 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) the applicable amount under 
                                subparagraph (D), bears to
                            ``(ii) $24,000 ($48,000 in the case of a 
                        joint return).
                    ``(C) Modified adjusted gross income.--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.
                    ``(D) Applicable amount.--The applicable amount 
                under this subparagraph is--
                            ``(i) in the case of a joint return, 200 
                        percent of the dollar amount in effect under 
                        clause (ii) for the taxable year, and
                            ``(ii) in any other case, $80,000.
            ``(3) Limitation based on amount of tax.--In the case of a 
        taxable year to which section 26(a)(2) does not apply, the 
        credit allowed under subsection (a) for the taxable year shall 
        not exceed the excess of--
                    ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                    ``(B) the sum of the credits allowable under this 
                subpart (other than this section and section 23) and 
                section 27 for the taxable year.
    ``(c) Definitions.--For purposes of this subsection--
            ``(1) Higher education expense.--The term `higher education 
        expense' means any expense of a type which is taken into 
        account in determining the cost of attendance (as defined in 
        section 472 of the Higher Education Act of 1965, as in effect 
        on the date of the enactment of this section) of a student who 
        is--
                    ``(A) the taxpayer,
                    ``(B) the taxpayer's spouse, or
                    ``(C) any dependent of the taxpayer with respect to 
                whom the taxpayer is allowed a deduction under section 
                151,
        at an eligible educational institution with respect to the 
        attendance of such student at such institution for the academic 
        period for which the credit under this section is being 
        determined.
            ``(2) Eligible educational institution.--The term `eligible 
        educational institution' means an institution--
                    ``(A) which is described in section 481 of the 
                Higher Education Act of 1965, as in effect on the date 
                of the enactment of the Taxpayer Relief Act of 1997, 
                and
                    ``(B) which is eligible to participate in a program 
                under title IV of such Act.
    ``(d) Special Rules.--
            ``(1) Identification requirement.--No credit shall be 
        allowed under subsection (a) to a taxpayer with respect to any 
        individual unless the taxpayer includes the name and taxpayer 
        identification number of such student on the return of tax for 
        the taxable year.
            ``(2) Adjustment for certain scholarships.--The amount of 
        higher education expenses otherwise taken into account under 
        subsection (a) with respect to an individual for an academic 
        period shall be reduced (before the application of subsections 
        (a) and (b)) by the sum of any amounts paid for the benefit of 
        such individual which are allocable to such period as--
                    ``(A) a qualified scholarship which is excludable 
                from gross income under section 117,
                    ``(B) an educational assistance allowance under 
                chapter 30, 31, 32, 34, or 35 of title 38, United 
                States Code, or under chapter 1606 of title 10, United 
                States Code, and
                    ``(C) a payment (other than a gift, bequest, 
                devise, or inheritance within the meaning of section 
                102(a)) for such student's educational expenses, or 
                attributable to such individual's enrollment at an 
                eligible educational institution, which is excludable 
                from gross income under any law of the United States.
            ``(3) Treatment of expenses paid by dependent.--If a 
        deduction under section 151 with respect to an individual is 
        allowed to another taxpayer for a taxable year beginning in the 
        calendar year in which such individual's taxable year begins--
                    ``(A) no credit shall be allowed under subsection 
                (a) to such individual for such individual's taxable 
                year, and
                    ``(B) higher education expenses paid by such 
                individual during such individual's taxable year shall 
                be treated for purposes of this section as paid by such 
                other taxpayer.
            ``(4) Treatment of certain prepayments.--If higher 
        education expense is paid by the taxpayer during a taxable year 
        for an academic period which begins during the first 3 months 
        following such taxable year, such academic period shall be 
        treated for purposes of this section as beginning during such 
        taxable year.
            ``(5) Denial of double benefit.--No credit shall be allowed 
        under this section for any expense for which deduction is 
        allowed under any other provision of this chapter.
            ``(6) No credit 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.
            ``(7) 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.
    ``(e) Portion of Credit Refundable.--The aggregate credits allowed 
to a taxpayer under subpart C shall be increased by 20 percent of the 
portion of the amount of the credit which would have been allowed to 
the taxpayer under this section without regard to this subsection and 
the limitation under section 26(a)(2) or subsection (b)(4), as the case 
may be. The amount of the credit allowed under this subsection shall 
not be treated as a credit allowed under this subpart and shall reduce 
the amount of credit otherwise allowable under subsection (a) without 
regard to section 26(a)(2) or subsection (b)(3), as the case may be.
    ``(f) Election Not To Have Section Apply.--A taxpayer may elect not 
to have this section apply with respect to the higher education 
expenses of an individual for any taxable year.
    ``(g) Inflation Adjustment.--
            ``(1) In general.--In the case of a taxable year beginning 
        after 2011, the $3,000 and $15,000 amount in subsections (a) 
        and (b)(1), respectively, 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 2010' for `calendar year 1992' in 
                subparagraph (B) thereof.
            ``(2) Rounding.--If any amount as adjusted under 
        subparagraph (A) is not a multiple of $1,000, such amount shall 
        be rounded to the next lowest multiple of $1,000.
    ``(h) Regulations.--The Secretary may prescribe such regulations as 
may be necessary or appropriate to carry out this section, including 
regulations providing for a recapture of the credit allowed under this 
section in cases where there is a refund in a subsequent taxable year 
of any expense which was taken into account in determining the amount 
of such credit.''.
    (b) Elimination of 529 Plan Reduction for Education Credit.--Clause 
(v) of section 529(c)(3)(B) of such Code is amended by striking ``shall 
be reduced'' and all that follows through the period at the end and 
inserting the following ``shall be reduced as provided in section 
25A(g)(2).''.
    (c) Conforming Amendments.--
            (1) Subparagraph (B) of section 24(b)(3) of such Code is 
        amended by striking ``25A(i)'' and inserting ``25A''.
            (2) Clause (ii) of section 25(e)(1)(C) of such Code is 
        amended by striking ``2A(i)'' inserting ``25A''.
            (3) Paragraph (2) of section 25B(g) of such Code is amended 
        by striking ``25A(i)'' and inserting ``25A''.
            (4) Paragraph (2) of section 1400C(d) of such Code is 
        amended by striking ``25A(i)'' and inserting ``25A''.
            (5) Section 62(a) of such Code is amended by striking 
        paragraph (18).
            (6) Subparagraph (A) of section 86(b)(2) of such Code is 
        amended by striking ``, 222''.
            (7) Subparagraph (B) of section 72(t)(7) of such Code is 
        amended by striking ``section 25A(g)(2)'' and inserting 
        ``section 25A(d)(2)''.
            (8) Subparagraph (A) of section 135(c)(4) of such Code is 
        amended by striking ``, 222''.
            (9) Subparagraph (A) of section 137(b)(3) of such Code is 
        amended by striking ``, 222''.
            (10) Subparagraph (A) of section 199(d)(2) of such Code is 
        amended by striking ``, 222''.
            (11) Clause (ii) of section 219(g)(3)(A) of such Code is 
        amended by striking ``, 222''.
            (12) Clause (i) of section 221(b)(2)(C) of such Code is 
        amended by striking ``, 222''.
            (13) Clause (iii) of section 469(i)(3)(F) of such Code is 
        amended by striking ``221, and 222'' and inserting ``and 221''.
            (14) Subsection (d) of section 221 of such Code is 
        amended--
                    (A) by striking ``section 25A(g)(2)'' in paragraph 
                (2)(B) and inserting ``section 25A(d)(2)'', and
                    (B) by striking ``section 25A(f)(2)'' in the second 
                sentence of paragraph (2) and inserting ``section 
                25A(c)(2)''.
            (15) Paragraph (3) of section 221(d) of such Code is 
        amended to read as follows:
            ``(3) Eligible student.--The term `eligible student' means, 
        with respect to any academic period, a student who--
                    ``(A) meets the requirements of section 484(a)(1) 
                of the Higher Education Act of 1965 (20 U.S.C. 
                1091(a)(1)), as in effect on the date of the enactment 
                of the Taxpayer Relief Act of 1997, and
                    ``(B) is carrying at least \1/2\ the normal full-
                time workload for the course of study the student is 
                pursuing.''.
            (16) Subclause (I) of section 529(c)(3)(B)(v) of such Code, 
        as amended by this Act, is amended by striking ``section 
        25A(g)(2)'' and inserting ``25A(d)(2)''.
            (17) Clause (i) of section 529(e)(3)(B) of such Code is 
        amended by striking ``section 25A(b)(3)'' and inserting 
        ``section 221(d)(3)''.
            (18) Subclause (I) of section 530(d)(2)(C)(i) of such Code 
        is amended by striking ``section 25A(g)(2)'' and inserting 
        ``section 25A(d)(2)''.
            (19) Clause (iii) of section 530(d)(4)(B) of such Code is 
        amended by striking ``section 25A(g)(2)'' and inserting 
        ``25A(d)(2)''.
            (20) Section 1400O of such Code is amended by adding at the 
        end the following flush sentence:
    ``For purposes of this section, any reference to section 25A shall 
be treated as a reference to such section as in effect on the day 
before the date of the enactment of this sentence.''.
            (21) Subsection (e) of section 6050S of such Code is 
        amended by striking ``subsection (g)(2)'' and inserting 
        ``subsection (d)(2)''.
            (22) Subparagraph (J) of section 6213(g)(2) of such Code is 
        amended by striking ``section 25A(g)(1) (relating to higher 
        education tuition and related expenses)'' and inserting 
        ``section 25A(d)(1) (relating to higher education tax 
        credit)''.
            (23) Paragraph (2) of section 1324(b) of title 31, United 
        States Code, is amended by inserting ``, 25A,'' after ``section 
        35''.
    (d) Effective Date.--The amendments made by this section shall 
apply to expenses paid after December 31, 2010, for education furnished 
in academic periods beginning after such date.