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) move the Hope and Lifetime Learning credits from subpart A (Nonrefundable Personal Credits) to subpart C (Refundable Credits); and (2) permit the use of a future refund of such credits as collateral for short-term student loans.

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 34.
    (b) Technical Amendments.--
            (1) Section 35 of such Code is redesignated as section 36.
            (2) Section 25A of such Code (as moved by subsection (a)) 
        is redesignated as section 35.
            (3) Paragraph (1) of section 35(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 35(g)(2)''.
            (5) Subparagraph (A) of section 135(d)(2) of such Code is 
        amended by striking ``section 25A'' and inserting ``section 
        35''.
            (6) Section 221(e) of such Code is amended--
                    (A) in paragraph (2)(B), by striking ``section 
                25A(g)(2)'' and inserting ``section 35(g)(2)'' and by 
                striking ``section 25A(f)(2)'' and inserting ``section 
                35(f)(2)'', and
                    (B) in paragraph (3), by striking ``section 
                25A(b)(3)'' and inserting ``section 35(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 35(b)(3)''.
            (8) Subparagraph (A) of section 530(b)(2) is amended by 
        striking ``section 25A(g)(2)'' and inserting ``section 
        35(g)(2)''.
            (9) Clause (iii) of section 530(d)(4)(B) is amended by 
        striking ``section 25A(g)(2)'' and inserting ``section 
        35(g)(2)''.
            (10) Subsection (e) of section 6050S is amended by striking 
        ``section 25A'' and inserting ``section 35''.
            (11) Subparagraph (J) of section 6213(g)(2) is amended by 
        striking ``section 25A(g)(1)'' and inserting ``section 
        35(g)(1)''.
            (12) Paragraph (2) of section 1324(b) of title 31, United 
        States Code, is amended by inserting before the period ``or 
        from section 35 of such Code''.
            (13) The table of sections for subpart C of part IV of 
        subchapter A of chapter 1 of such Code is amended by striking 
        the item relating to section 35 and inserting the following:

                              ``Sec. 35. Hope and Lifetime Learning 
                                        credits.
                              ``Sec. 36. Overpayments of tax.''
            (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, 2001.

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

    (a) In General.--Section 35 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, 2001.