To amend the Internal Revenue Code of 1986 to expand incentives for education.

Summary: Higher Education Affordability and Equity Act of 2007 - Amends the Internal Revenue Code to: (1) repeal the dollar limitation on the tax deduction for interest on education loans and expand eligibility for such deduction by revising the modified adjusted gross income phaseout for such deduction; (2) make the tax deduction for qualified tuition and related expenses permanent; (3) increase from $2,000 to $5,000 the maximum allowable contribution to a Coverdell savings account; (4) exclude from gross income amounts received for qualified higher education expenses (e.g., books, supplies, room, board, and special needs services); and (5) allow certain additional expenses (e.g., fees, books, supplies, and equipment) for purposes of the Hope Scholarship Tax Credit and provide that such tax credit shall not be reduced by Federal Pell Grants and Supplemental Educational Opportunity (SEOG) Grants.

Repeals the sunset provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) applicable to title IV, subtitles A, B, and D (Affordable Education Provisions) of such Act.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Higher Education Affordability and 
Equity Act of 2007''.

SEC. 2. EXPANSION OF DEDUCTION FOR INTEREST ON EDUCATION LOANS.

    (a) Repeal of Dollar Limitation; Increase in Phaseout Beginning 
Point.--Subsection (b) of section 221 of the Internal Revenue Code of 
1986 (relating to maximum deduction) 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 allowable as a deduction under this section 
        shall be reduced (but not below zero) by the amount determined 
        under paragraph (2).
            ``(2) Amount of reduction.--The amount determined under 
        this paragraph is the amount which bears the same ratio to the 
        amount which would be so taken into account as--
                    ``(A) the excess of--
                            ``(i) the taxpayer's modified adjusted 
                        gross income for such taxable year, over
                            ``(ii) $100,000 ($200,000 in the case of a 
                        joint return), bears to
                    ``(B) $15,000 ($30,000 in the case of a joint 
                return).
            ``(3) Modified adjusted gross income.--The term `modified 
        adjusted gross income' means adjusted gross income determined--
                    ``(A) without regard to this section and sections 
                199, 222, 911, 931, and 933, and
                    ``(B) after application of sections 86, 135, 137, 
                219, and 469.''.
    (b) Conforming Amendment.--Section 221(f)(1) of such Code is 
amended to read as follows:
            ``(1) In general.--In the case of a taxable year beginning 
        after 2008, the $100,000 and $200,000 amounts in subsection (b) 
        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 2007' for `calendar year 1992' in 
                subparagraph (B) thereof.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2007.

SEC. 3. DEDUCTION FOR QUALIFIED TUITION AND RELATED EXPENSES MADE 
              PERMANENT.

    (a) Repeal of Termination.--Section 222 of the Internal Revenue 
Code of 1986 is amended by striking subsection (e).
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2007.

SEC. 4. EDUCATION SAVINGS ACCOUNTS.

    (a) Increase in Allowable Contributions.--
            (1) In general.--Clause (iii) of section 530(b)(1)(A) of 
        the Internal Revenue Code of 1986 is amended by striking 
        ``$2,000'' and inserting ``$5,000''.
            (2) Conforming amendment.--Section 4973(e)(1)(A) of such 
        Code is amended by striking ``$2,000'' and inserting 
        ``$5,000''.
    (b) Reports.--Subsection (h) of section 530 of such Code is amended 
by striking the period at the end of the last sentence and inserting 
``, except that reports shall be so filed and furnished for any 
calendar year not later than June 30 of the following year.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2007.

SEC. 5. ALLOWANCE OF ROOM, BOARD, AND SPECIAL NEEDS SERVICES IN THE 
              CASE OF SCHOLARSHIPS AND TUITION REDUCTION PROGRAMS WITH 
              RESPECT TO HIGHER EDUCATION.

    (a) In General.--Paragraph (1) of section 117(b) of the Internal 
Revenue Code of 1986 (defining qualified scholarship) is amended by 
inserting before the period at the end the following: ``or, in the case 
of enrollment or attendance at an eligible educational institution, for 
qualified higher education expenses.''.
    (b) Definitions.--Subsection (b) of section 117 of such Code is 
amended by adding at the end the following new paragraph:
            ``(3) Qualified higher education expenses; eligible 
        educational institution.--The terms `qualified higher education 
        expenses' and `eligible educational institution' have the 
        meanings given such terms in section 529(e).''.
    (c) Tuition Reduction Programs.--Paragraph (5) of section 117(d) of 
such Code (relating to special rules for teaching and research 
assistants) is amended by striking ``shall be applied as if it did not 
contain the phrase `(below the graduate level)'.'' and inserting 
``shall be applied--
                    ``(A) as if it did not contain the phrase `(below 
                the graduate level)', and
                    ``(B) by substituting `qualified higher education 
                expenses' for `tuition' the second place it appears.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to expenses paid after December 31, 2007 (in taxable years ending 
after such date), for education furnished in academic periods beginning 
after such date.

SEC. 6. EXPANSION OF EDUCATIONAL EXPENSES ALLOWED AS PART OF HOPE 
              SCHOLARSHIP CREDIT.

    (a) Qualified Tuition and Related Expenses Expanded To Include 
Books, Supplies, and Equipment.--Paragraph (1) of section 25A(f) of the 
Internal Revenue Code of 1986 (defining qualified tuition and related 
expenses) is amended by adding at the end the following new 
subparagraph:
                    ``(D) Additional expenses allowed for hope 
                scholarship credit.--For purposes of the Hope 
                Scholarship Credit, such term shall include fees, 
                books, supplies, and equipment required for courses of 
                instruction at the eligible educational institution.''.
    (b) Hope Scholarship Credit Not Reduced by Federal Pell Grants and 
Supplemental Educational Opportunity Grants.--Subsection (g) of section 
25A of such Code (relating to special rules) is amended by adding at 
the end the following new paragraph:
            ``(8) Pell and seog grants.--For purposes of the Hope 
        Scholarship Credit, paragraph (2) shall not apply to amounts 
        paid for an individual as a Federal Pell Grant or a Federal 
        supplemental educational opportunity grant under subparts 1 and 
        3, respectively, of part A of title IV of the Higher Education 
        Act of 1965 (20 U.S.C. 1070a and 1070b et seq., 
        respectively).''.
    (c) Expanded Hope Expenses Not Subject to Information Reporting 
Requirements.--Subsection (e) of section 6050S of such Code (relating 
to definitions) is amended by striking ``subsection (g)(2)'' and 
inserting ``subsections (f)(1)(D) and (g)(2)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to expenses paid after December 31, 2007 (in tax years ending 
after such date), for education furnished in academic periods beginning 
after such date.

SEC. 7. REPEAL OF EGTRRA SUNSET APPLICABILITY TO CERTAIN EDUCATION 
              PROVISIONS.

    Title IX of the Economic Growth and Tax Relief Reconciliation Act 
of 2001 (relating to sunset of provisions of such Act) shall not apply 
to subtitles A, B, and D of title IV of such Act.