I

104TH CONGRESS

1ST SESSION H. R. 2050

To amend the Internal Revenue Code of 1986 to restore the deduction

for interest on higher education loans and to permit penalty-free withdrawals from qualified retirement plans to pay for higher education

expenses.

IN THE HOUSE OF REPRESENTATIVES

JULY 18, 1995

Mr. BAKER of Louisiana introduced the following bill; which was referred to

the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to restore

the deduction for interest on higher education loans and

to permit penalty-free withdrawals from qualified retirement plans to pay for higher education expenses.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Higher Education Fi5 nance Improvement Act’’.
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1 SEC. 2. RESTORATION OF DEDUCTION FOR INTEREST ON

2 HIGHER EDUCATION LOANS.

3 (a) IN GENERAL.—Paragraph (2) of section 163(h)

4 of the Internal Revenue Code of 1986 (defining personal

5 interest) is amended by striking ‘‘and’’ at the end of sub6 paragraph (D), by redesignating subparagraph (E) as sub7 paragraph (F), and by inserting after subparagraph (D)

8 the following new subparagraph:

9 ‘‘(E) any interest on a qualified higher

10 education loan, and’’.

11 (b) QUALIFIED HIGHER EDUCATION LOAN.—Para12 graph (5) of section 163(h) of such Code (relating to

13 phase-in of limitations) is amended to read as follows:

14 ‘‘(5) QUALIFIED HIGHER EDUCATION LOAN.—

15 For purposes of this subsection—

16 ‘‘(A) IN GENERAL.—The term ‘qualified

17 higher education loan’ means any indebtedness

18 which—

19 ‘‘(i) is incurred by the taxpayer to pay

20 qualified higher education expenses which

21 are paid or incurred within a reasonable

22 period of time before or after the indebted23 ness is incurred, and

24 ‘‘(ii) is incurred pursuant to a Federal

25 or State loan guarantee or insurance pro26 gram.
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1 ‘‘(B) QUALIFIED HIGHER EDUCATION EX2 PENSES.—For purposes of this paragraph—

3 ‘‘(i) IN GENERAL.—The term ‘quali4 fied higher education expenses’ means tui5 tion and related expenses of—

6 ‘‘(I) the taxpayer,

7 ‘‘(II) the taxpayer’s spouse, or

8 ‘‘(III) the taxpayer’s child (as de9 fined in section 151(c)(3)).

10 ‘‘(ii) TUITION AND RELATED EX11 PENSES.—The term ‘tuition and related

12 expenses’ means—

13 ‘‘(I) tuition and fees required for

14 enrollment or attendance at an eligible

15 educational institution (as defined in

16 section 135(c)(3)),

17 ‘‘(II) fees, books, supplies, and

18 equipment required for courses of in19 struction at such an institution, and

20 ‘‘(III) reasonable living expenses

21 for attendance at such an institution

22 while away from home.

23 ‘‘(C) COORDINATION WITH OTHER PROVI24 SIONS.—
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1 ‘‘(i) PARAGRAPH (3)(C)(ii).—Any

2 qualified higher education loan shall not be

3 taken into account for purposes of apply4 ing the limitation of paragraph (3)(C)(ii).

5 ‘‘(ii) SAVINGS BONDS PROVISIONS.—

6 The amount of qualified higher education

7 expenses for any taxable year shall be re8 duced by any amount excludable from

9 gross income under section 135 for the

10 taxable year.’’

11 (c) EFFECTIVE DATE.—The amendments made by

12 this section shall apply to taxable years beginning after

13 December 31, 1992.

14 SEC. 3. PENALTY-FREE WITHDRAWALS FROM QUALIFIED

15 RETIREMENT PLANS FOR HIGHER EDU16 CATION EXPENSES.

17 (a) IN GENERAL.—Paragraph (2) of section 72(t) of

18 the Internal Revenue Code of 1986 (relating to exceptions

19 to 10 percent additional tax on early distributions from

20 qualified retirement plans) is amended by adding at the

21 end the following new subparagraph:

22 ‘‘(D) HIGHER EDUCATION EXPENSES.—

23 Any distribution to the extent the distribution

24 is used before the close of the 60th day after

25 the day on which the distribution is received to
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1 pay qualified higher education expenses (within

2 the meaning of subparagraphs (B) and (C)(ii)

3 of section 163(h)(5)).’’

4 (b) EFFECTIVE DATE.—The amendment made by

5 this section shall apply to distributions made after the

6 date of the enactment of this Act.

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