A bill 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.

SECTION 1. SHORT TITLE.

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

SEC. 2. DEDUCTION FOR HIGHER EDUCATION EXPENSES.

    (a) Deduction Allowed.--Part VII of subchapter B of chapter 1 of 
the Internal Revenue Code of 1986 (relating to additional itemized 
deductions for individuals) is amended by redesignating section 222 as 
section 223 and by inserting after section 221 the following:

``SEC. 222. HIGHER EDUCATION EXPENSES.

    ``(a) Allowance of Deduction.--In the case of an individual, there 
shall be allowed as a deduction an amount equal to the qualified 
tuition and related expenses paid by the taxpayer during the taxable 
year.
    ``(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 
                which 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.
    ``(c) Qualified Tuition and Related Expenses.--For purposes of this 
section, the term `qualified tuition and related expenses' has the 
meaning given such term by section 25A(f)(1) (determined with regard to 
section 25A(c)(2)(B)).
    ``(d) Eligible Student.--For purposes of this section, the term 
`eligible student' has the meaning given such term by section 
25A(b)(3).
    ``(e) Special Rules.--For purposes of this section--
            ``(1) Identification requirement.--No deduction shall be 
        allowed under subsection (a) to a taxpayer with respect to an 
        eligible student unless the taxpayer includes the name, age, 
        and taxpayer identification number of such eligible student on 
        the return of tax for the taxable year.
            ``(2) No double benefit.--
                    ``(A) Coordination with exclusions.--The amount of 
                qualified tuition and related expenses otherwise taken 
                into account under subsection (a) with respect to an 
                eligible student shall be reduced (before the 
                application of subsection (b)) by the amount of such 
                expenses which are taken into account in determining 
                the exclusion under section 135 or 530(d)(2) for the 
                taxable year.
                    ``(B) Dependents.--No deduction shall be allowed 
                under subsection (a) to any individual with respect to 
                whom a deduction under section 151 is allowable to 
                another taxpayer for a taxable year beginning in the 
                calendar year in which such individual's taxable year 
                begins.
            ``(3) Limitation on taxable year of deduction.--
                    ``(A) In general.--A deduction shall be allowed 
                under subsection (a) for qualified tuition and related 
                expenses for any taxable year only to the extent such 
                expenses are in connection with enrollment at an 
                institution of higher education during the taxable 
                year.
                    ``(B) Certain prepayments allowed.--Subparagraph 
                (A) shall not apply to qualified tuition and related 
                expenses paid during a taxable year if such expenses 
                are in connection with an academic term beginning 
during such taxable year or during the first 3 months of the next 
taxable year.
            ``(4) Adjustment for certain scholarships and veterans 
        benefits.--The amount of qualified tuition and related expenses 
        otherwise taken into account under subsection (a) with respect 
        to the education of an individual shall be reduced (before the 
        application of subsection (b)) by the sum of the amounts 
        received with respect to such individual for the taxable year 
        as--
                    ``(A) a qualified scholarship which under section 
                117 is not includable in gross income,
                    ``(B) an educational assistance allowance under 
                chapter 30, 31, 32, 34, or 35 of title 38, United 
                States Code, or
                    ``(C) a payment (other than a gift, bequest, 
                devise, or inheritance within the meaning of section 
                102(a)) for educational expenses, or attributable to 
                enrollment at an eligible educational institution, 
                which is exempt from income taxation by any law of the 
                United States.
            ``(5) No deduction 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.
            ``(6) 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.
            ``(7) Regulations.--The Secretary may prescribe such 
        regulations as may be necessary or appropriate to carry out 
        this section, including regulations requiring recordkeeping and 
        information reporting.''.
    (b) Deduction Allowed in Computing Adjusted Gross Income.--Section 
62(a) of the Internal Revenue Code of 1986 is amended by inserting 
after paragraph (17) the following:
            ``(18) Higher education expenses.--The deduction allowed by 
        section 222.''.
    (c) Determination of Adjusted Gross Income With Respect To Other 
Benefits.--
            (1) Section 21(a)(2) of the Internal Revenue Code of 1986 
        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 86(b)(2)(A) of such Code is amended by 
        inserting ``222,'' before ``911''.
            (6) Section 137(b)(3)(A) of such Code is amended by 
        inserting ``222,'' before ``911''.
            (7) 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).
            (8) Section 165(h)(2)(A)(ii) of such Code is amended by 
        inserting ``(determined without regard to section 222)'' after 
        ``adjusted gross income''.
            (9) Section 213(a) of such Code is amended by inserting 
        ``(determined without regard to section 222)'' after ``adjusted 
        gross income''.
            (10) Section 219(g)(3)(A)(ii) of such Code is amended by 
        inserting ``222,'' after ``221,''.
            (11) Section 221(b)(2)(C)(i) of such Code is amended by 
        inserting ``222,'' before ``911''.
            (12) Section 403(b)(3)(D) of such Code is amended--
                    (A) by inserting ``(determined without regard to 
                section 222)'' after ``adjusted gross income'' in 
                clause (ii), and
                    (B) by inserting ``(as so determined)'' after 
                ``adjusted gross income'' in the matter following 
                clause (ii).
            (13) Section 469(i)(3)(E)(iii) of such Code is amended by 
        striking ``and 221'' and inserting ``, 221, and 222''.
            (14) Section 1400C(b)(2) of such Code is amended by 
        inserting ``222,'' before ``911''.
    (d) Conforming Amendments.--The table of sections for part VII of 
subchapter B of chapter 1 of the Internal Revenue Code of 1986 is 
amended by striking the item relating to section 222 and inserting the 
following:

                              ``Sec. 222. Higher education expenses.
                              ``Sec. 223. Cross reference.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to expenses paid after December 31, 2001 (in taxable years ending 
after such date), for education furnished in academic periods beginning 
after such date.

SEC. 3. EDUCATION TAX CREDIT FAIRNESS.

    (a) In General.--Section 25A(c)(1) of the Internal Revenue Code of 
1986 (relating to lifetime learning credit) is amended by striking 
``2003'' and inserting ``2002''.
    (b) 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 2002, 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 2001' 
                        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.''.
    (c) Coordination With Other Higher Education Benefits.--
            (1) Subsection (e) of section 25A of the Internal Revenue 
        Code of 1986 is amended to read as follows:
    ``(e) Election Not To Have Section Apply.--A taxpayer may elect not 
to have this section apply with respect to the qualified tuition and 
related expenses of an individual for any taxable year.''.
            (2) 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.
            (3) Section 135(d)(2)(A) of such Code is amended by 
        striking ``allowable'' and inserting ``allowed''.
    (d) Effective Date.--The amendments made by this section shall 
apply to expenses paid after December 31, 2001 (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 SENATE REGARDING PELL GRANTS.

    It is the sense of the Senate 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.

Summary: Higher Education Affordability and Fairness Act - Amends the Internal Revenue Code to allow a limited tax deduction for qualified higher education tuition and related expenses. Provides that the increase in the Lifetime Learning Credit to 20 percent of $10,000 of tuition from $5,000 of tuition shall be effective starting in 2002 rather than 2003. 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 Senate 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.