To amend the Internal Revenue Code of 1986 to make higher education more affordable by providing a tax deduction for higher education expenses, and for other purposes.

Summary: Higher Education Affordability and Fairness Act of 2005 - Amends the Internal Revenue Code to increase the tax deduction for qualified higher education tuition and related expenses. Makes such tax deduction permanent. Increases adjusted gross income limits for purposes of determining the allowable amount of the Hope Scholarship tax credit. Directs the Comptroller General of the United States to conduct an annual study to examine whether the Federal income tax incentives to provide education assistance affect higher education tuition rates in order to identify if institutions of higher education are absorbing the intended savings by raising tuition rates. Expresses the sense of the House of Representatives that the maximum Pell Grant should be increased to $4,700 to pay approximately: (1) 20 percent of the tuition, fees, room and board, and other expenses of the average college; or (2) the tuition and fees of the average public college.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Higher Education Affordability and 
Fairness Act of 2005''.

SEC. 2. DEDUCTION FOR HIGHER EDUCATION EXPENSES.

    (a) Increase in Dollar Limitation.--Subsection (b) of section 222 
of the Internal Revenue Code of 1986 (relating to dollar limitations) 
is amended to read as follows:
    ``(b) Limitations.--
            ``(1) Limitation for first 2 years of postsecondary 
        education.--For any taxable year preceding a taxable year 
        described in paragraph (2), the amount of qualified tuition and 
        related expenses which may be taken into account under 
        subsection (a) shall not exceed--
                    ``(A) except as provided in subparagraph (B), the 
                excess (if any) of--
                            ``(i) the lesser of--
                                    ``(I) $10,000 for each eligible 
                                student, or
                                    ``(II) $15,000, over
                            ``(ii) the amount of such expenses which 
                        are taken into account in determining the 
                        credit allowable to the taxpayer or any other 
                        person under section 25A(a)(1) with respect to 
                        such expenses, and
                    ``(B) in the case of a taxpayer with respect to 
                whom the credit under section 25A(a)(1) is reduced to 
                zero by reason of section 25A(d)(1), $5,000.
            ``(2) Limitation for second 2 years of postsecondary 
        education.--For any taxable year if an eligible student has 
        completed (before the beginning of such taxable year) the first 
        2 years of postsecondary education at an eligible educational 
        institution, the amount of qualified tuition and related 
        expenses which may be taken into account under subsection (a) 
        shall not exceed--
                    ``(A) except as provided in subparagraph (B) or 
                (C), $10,000,
                    ``(B) in the case of a taxpayer with respect to 
                which a credit under section 25A(a)(1) would be reduced 
                to zero by reason of section 25A(d)(1), $5,000, and
                    ``(C) in the case of taxpayer with respect to whom 
                the credit under section 25A(a)(2) is allowed for such 
                taxable year, zero.
            ``(3) Deduction allowed only for 4 taxable years for each 
        eligible student.--A deduction may not be allowed under 
        subsection (a) with respect to the qualified tuition and 
        related expenses of an eligible student for any taxable year if 
        such a deduction was allowable with respect to such expenses 
        for such student for any 4 prior taxable years.
            ``(4) Eligible student.--For purposes of this section, the 
        term `eligible student' has the meaning given such term by 
        section 25A(b)(3).''.
    (b) Repeal of Termination.--Section 222 of such Code is amended by 
striking subsection (e).
    (c) Determination of Adjusted Gross Income With Respect to Other 
Benefits.--
            (1) Section 21(a)(2) of such Code is amended by inserting 
        ``(determined without regard to section 222)'' after ``adjusted 
        gross income''.
            (2) Section 22(d) of such Code is amended--
                    (A) by inserting ``(determined without regard to 
                section 222)'' after ``adjusted gross income'' the 
                first place it appears, and
                    (B) by inserting ``(as so determined)'' after 
                ``adjusted gross income'' the second place it appears.
            (3) Section 23(b)(2)(B) of such Code is amended by 
        inserting ``222,'' before ``911''.
            (4) Section 24(b)(1) of such Code is amended by inserting 
        ``222,'' before ``911''.
            (5) Section 151(d)(3) of such Code is amended--
                    (A) by inserting ``(determined without regard to 
                section 222)'' after ``adjusted gross income'' in 
                subparagraph (A), and
                    (B) by inserting ``(as so determined)'' after 
                ``adjusted gross income'' in subparagraph (B).
            (6) Section 165(h)(2)(A)(ii) of such Code is amended by 
        inserting ``(determined without regard to section 222)'' after 
        ``adjusted gross income''.
            (7) Section 213(a) of such Code is amended by inserting 
        ``(determined without regard to section 222)'' after ``adjusted 
        gross income''.
            (8) Section 1400C(b)(2) of such Code is amended by 
        inserting ``222,'' before ``911''.
    (d) Effective Date.--The amendments made by this section shall 
apply to expenses paid after December 31, 2004 (in taxable years ending 
after such date), for education furnished in academic periods beginning 
after such date.

SEC. 3. EDUCATION TAX CREDIT FAIRNESS.

    (a) Increase in AGI Limits.--
            (1) In general.--Subsection (d) of section 25A of the 
        Internal Revenue Code of 1986 is amended to read as follows:
    ``(d) Limitation Based on Modified Adjusted Gross Income.--
            ``(1) Hope credit.--
                    ``(A) In general.--The amount which would (but for 
                this subsection) be taken into account under subsection 
                (a)(1) 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) $50,000 ($100,000 in the 
                                case of a joint return), bears to
                            ``(ii) $10,000 ($20,000 in the case of a 
                        joint return).
            ``(2) Lifetime learning credit.--
                    ``(A) In general.--The amount which would (but for 
                this subsection) be taken into account under subsection 
                (a)(2) 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) $40,000 ($80,000 in the case 
                                of a joint return), bears to
                            ``(ii) $10,000 ($20,000 in the case of a 
                        joint return).
            ``(3) Modified adjusted gross income.--For purposes of this 
        subsection, 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.''.
            (2) Conforming amendment.--Paragraph (2) of section 25A(h) 
        of such Code is amended to read as follows:
            ``(2) Income limits.--
                    ``(A) Hope credit.--In the case of a taxable year 
                beginning after 2005, the $50,000 and $100,000 amounts 
                in subsection (d)(1)(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, 
                        determined by substituting `calendar year 2004' 
                        for `calendar year 1992' in subparagraph (B) 
                        thereof.
                    ``(B) Lifetime learning credit.--In the case of a 
                taxable year beginning after 2001, the $40,000 and 
                $80,000 amounts in subsection (d)(2)(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, 
                        determined by substituting `calendar year 2000' 
                        for `calendar year 1992' in subparagraph (B) 
                        thereof.
                    ``(C) Rounding.--If any amount as adjusted under 
                subparagraph (A) or (B) is not a multiple of $1,000, 
                such amount shall be rounded to the next lowest 
                multiple of $1,000.''.
    (b) Coordination With Other Higher Education Benefits.--Section 
25A(g) of such Code is amended by striking paragraph (5) and by 
redesignating paragraphs (6) and (7) as paragraphs (5) and (6), 
respectively.
    (c) Effective Date.--The amendments made by this section shall 
apply to expenses paid after December 31, 2004 (in taxable years ending 
after such date), for education furnished in academic periods beginning 
after such date.

SEC. 4. RELATIONSHIP BETWEEN TUITION AND FINANCIAL AID.

    (a) Study.--The Comptroller General of the United States shall 
conduct an annual study to examine whether the Federal income tax 
incentives to provide education assistance affect higher education 
tuition rates in order to identify if institutions of higher education 
are absorbing the intended savings by raising tuition rates.
    (b) Report.--The Comptroller General of the United States shall 
report the results of the study required under subsection (a) to 
Congress on an annual basis.

SEC. 5. SENSE OF THE HOUSE OF REPRESENTATIVES REGARDING PELL GRANTS.

    It is the sense of the House of Representatives that the maximum 
Pell Grant should be increased to $4,700 to pay approximately--
            (1) 20 percent of the tuition, fees, room and board, and 
        other expenses of the average college, or
            (2) the tuition and fees of the average public college.