I 

109TH CONGRESS 

2D SESSION H. R. 5407 

To amend the Internal Revenue Code of 1986 to expand deductions allowed 

for education-related expenses and to allow an earned tuition credit 

against income tax for qualified tuition and related expenses. 

IN THE HOUSE OF REPRESENTATIVES 

MAY 17, 2006 

Mrs. LOWEY 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 expand 

deductions allowed for education-related expenses and 

to allow an earned tuition credit against income tax 

for qualified tuition and related 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 ‘‘Deductibility and In5 centives to Promote Learning Opportunities and Maximize 

6 Assistance (DIPLOMA) Act of 2006’’. 


bajohnson on PROD1PC69 with BILLS
2 

•HR 5407 IH

1 SEC. 2. DEDUCTION FOR HIGHER EDUCATION EXPENSES. 

2 (a) ELIMINATION OF DOLLAR LIMITATION FOR

3 QUALIFIED TUITION AND RELATED EXPENSES DEDUC4 TION.—Subsection (b) of section 222 of the Internal Rev5 enue Code of 1986 (relating to qualified tuition and re6 lated expenses) is amended to read as follows: 

7 ‘‘(b) LIMITATION BASED ON ADJUSTED GROSS IN8 COME.— 

9 ‘‘(1) IN GENERAL.—In the case of a taxpayer 

10 whose adjusted gross income for a taxable year ex11 ceeds $80,000 ($160,000 in the case of a joint re12 turn), the amount of the deduction allowed under 

13 subsection (a) for the taxable year shall be zero. 

14 ‘‘(2) ADJUSTED GROSS INCOME.—For purposes 

15 of this subsection, adjusted gross income shall be de16 termined— 

17 ‘‘(A) without regard to this section and 

18 sections 199, 911, 931, and 933, and 

19 ‘‘(B) after application of sections 86, 135, 

20 137, 219, 221, and 469.’’. 

21 (b) TERMINATION.—Subsection (e) of such section of 

22 such Code is amended by striking ‘‘December 31, 2005’’ 

23 and inserting ‘‘December 31, 2010’’. 

24 SEC. 3. INTEREST AND PRINCIPAL ON EDUCATION LOANS. 

25 (a) EXPANSION OF DEDUCTION FOR INTEREST ON

26 EDUCATION LOANS TO INCLUDE PRINCIPAL PAYVerDate Aug 31 2005 05:13 May 24, 2006 Jkt 049200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H5407.IH H5407

bajohnson on PROD1PC69 with BILLS
3 

•HR 5407 IH

1 MENTS.—Section 221 of the Internal Revenue Code of 

2 1986 (relating to interest on education loans) is amend3 ed— 

4 (1) in subsection (a), by striking ‘‘interest 

5 paid’’ and inserting ‘‘interest and principal paid’’, 

6 (2) by redesignating subsections (d), (e), and 

7 (f) as subsections (e), (f), and (g), respectively, 

8 (3) by inserting after subsection (c) the fol9 lowing new subsection: 

10 ‘‘(d) LIMIT ON PERIOD DEDUCTION ALLOWED.— 

11 With respect to principal paid on any qualified education 

12 loan after the first 60 months (whether or not consecutive) 

13 in which principal payments are required, a deduction 

14 shall not be allowed under this section. For purposes of 

15 this paragraph, any loan and all refinancings of such loan 

16 shall be treated as 1 loan. Such 60 months shall be deter17 mined in the manner prescribed by the Secretary in the 

18 case of multiple loans which are refinanced by, or serviced 

19 as, a single loan and in the case of loans incurred before 

20 the date of the enactment of this section.’’, and 

21 (4) in the heading, by striking ‘‘INTEREST’’ 

22 and inserting ‘‘INTEREST AND PRINCIPAL’’. 

23 (b) CLERICAL AMENDMENTS.—The item relating to 

24 section 221 in the table of sections for part VII of subVerDate Aug 31 2005 05:13 May 24, 2006 Jkt 049200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H5407.IH H5407

bajohnson on PROD1PC69 with BILLS
4 

•HR 5407 IH

1 chapter B of chapter 1 of such Code is amended to read 

2 as follows: 

‘‘Sec. 221. Interest and principal on education loans.’’. 

3 SEC. 4. EARNED TUITION CREDIT. 

4 (a) IN GENERAL.—Subsection (b) of section 25A of 

5 the Internal Revenue Code of 1986 (relating to Hope and 

6 Lifetime Learning credits) is amended to read as follows: 

7 ‘‘(b) EARNED TUITION CREDIT.— 

8 ‘‘(1) PER STUDENT CREDIT.—In the case of 

9 any eligible student for whom an election is in effect 

10 under this section for any taxable year, the earned 

11 tuition credit is an amount equal to the sum of— 

12 ‘‘(A) 100 percent of so much of the quali13 fied tuition and related expenses paid by the 

14 taxpayer during the taxable year (for education 

15 furnished to the eligible student during any 

16 academic period beginning in such taxable year) 

17 as does not exceed $1,500, plus 

18 ‘‘(B) 50 percent of such expenses so paid 

19 as exceeds $1,500 but does not exceed $4,000. 

20 ‘‘(2) LIMITATIONS APPLICABLE TO EARNED

21 TUITION CREDIT.— 

22 ‘‘(A) CREDIT ALLOWED ONLY FOR 4 TAX23 ABLE YEARS.—An election to have this section 

24 apply with respect to any eligible student for 

25 purposes of the earned tuition credit under subVerDate Aug 31 2005 05:13 May 24, 2006 Jkt 049200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H5407.IH H5407

bajohnson on PROD1PC69 with BILLS
5 

•HR 5407 IH

1 section (a)(1) may not be made for any taxable 

2 year if such an election (by the taxpayer or any 

3 other individual) is in effect with respect to 

4 such student for any 4 prior taxable years. 

5 ‘‘(B) CREDIT ALLOWED FOR YEAR ONLY IF

6 INDIVIDUAL IS AT LEAST 1/2 TIME STUDENT

7 FOR PORTION OF YEAR.—The earned tuition 

8 credit under subsection (a)(1) shall not be al9 lowed for a taxable year with respect to the 

10 qualified tuition and related expenses of an in11 dividual unless such individual is an eligible 

12 student for at least one academic period which 

13 begins during such year. 

14 ‘‘(C) CREDIT ALLOWED ONLY FOR FIRST 4

15 YEARS OF POSTSECONDARY EDUCATION.—The 

16 earned tuition credit under subsection (a)(1) 

17 shall not be allowed for a taxable year with re18 spect to the qualified tuition and related ex19 penses of an eligible student if the student has 

20 completed (before the beginning of such taxable 

21 year) the first 4 years of postsecondary edu22 cation at an eligible educational institution. 

23 ‘‘(D) DENIAL OF CREDIT IF STUDENT

24 CONVICTED OF A FELONY DRUG OFFENSE.— 

25 The earned tuition credit under subsection 


bajohnson on PROD1PC69 with BILLS
6 

•HR 5407 IH

1 (a)(1) shall not be allowed for qualified tuition 

2 and related expenses for the enrollment or at3 tendance of a student for any academic period 

4 if such student has been convicted of a Federal 

5 or State felony offense consisting of the posses6 sion or distribution of a controlled substance 

7 before the end of the taxable year with or with8 in which such period ends. 

9 ‘‘(3) ELIGIBLE STUDENT.—For purposes of 

10 this subsection, the term ‘eligible student’ means, 

11 with respect to any academic period, a student 

12 who— 

13 ‘‘(A) meets the requirements of section 

14 484(a)(1) of the Higher Education Act of 1965 

15 (20 U.S.C. 1091(a)(1)), as in effect on the date 

16 of the enactment of this section, and 

‘‘(B) is carrying at least 1 17 ⁄2 the normal 

18 full-time work load for the course of study the 

19 student is pursuing.’’. 

20 (b) EARNED TUITION CREDIT NOT REDUCED BY

21 FEDERAL PELL GRANTS AND SUPPLEMENTAL EDU22 CATIONAL OPPORTUNITY GRANTS.—Subsection (g) of sec23 tion 25A of such Code (relating to special rules) is amend24 ed by adding at the end the following new paragraph: 


bajohnson on PROD1PC69 with BILLS
7 

•HR 5407 IH

1 ‘‘(8) PELL AND SEOG GRANTS.—For purposes 

2 of the earned tuition credit, paragraph (2) shall not 

3 apply to amounts paid for an individual as a Federal 

4 Pell Grant or a Federal supplemental educational 

5 opportunity grant under subparts 1 and 3, respec6 tively, of part A of title IV of the Higher Education 

7 Act of 1965 (20 U.S.C. 1070a and 1070b et seq., 

8 respectively).’’. 

9 (c) DEFINITION OF QUALIFIED TUITION AND RE10 LATED EXPENSES.—Paragraph (1) of section 25A(f) of 

11 such Code (relating to definitions) is amended to read as 

12 follows: 

13 ‘‘(1) QUALIFIED TUITION AND RELATED EX14 PENSES.— 

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

16 tuition and related expenses’ means the quali17 fied higher education expenses of— 

18 ‘‘(i) the taxpayer, 

19 ‘‘(ii) the taxpayer’s spouse, or 

20 ‘‘(iii) any dependent of the taxpayer 

21 with respect to whom the taxpayer is al22 lowed a deduction under section 151. 

23 ‘‘(B) QUALIFIED HIGHER EDUCATION EX24 PENSES.—The term ‘qualified higher education 


bajohnson on PROD1PC69 with BILLS
8 

•HR 5407 IH

1 expenses’ has the meaning given to such term 

2 by section 529(e)(3).’’. 

3 (d) CONFORMING AMENDMENTS.—Section 25A of 

4 such Code is amended— 

5 (1) in the heading, by striking ‘‘HOPE’’ and in6 serting ‘‘EARNED TUITION’’, 

7 (2) in subsection (a)(1), by striking ‘‘Hope 

8 Scholarship Credit’’ and inserting ‘‘earned tuition 

9 credit’’, 

10 (3) in subsection (c)(2)(A)— 

11 (A) in the heading, by striking ‘‘HOPE

12 SCHOLARSHIP’’ and inserting ‘‘EARNED TUITION

13 CREDIT’’, 

14 (B) in the text, by striking ‘‘Hope Scholar15 ship Credit’’ and inserting ‘‘earned tuition cred16 it’’, and 

17 (4) in subsection (h)(1)(A)— 

18 (A) by striking ‘‘2001’’ and inserting 

19 ‘‘2006’’, 

20 (B) by striking ‘‘the $1,000 amounts’’ and 

21 inserting ‘‘the dollar amounts’’, and 

22 (C) in clause (ii), by striking ‘‘substituting 

23 ‘calendar year 2000’ ’’ and inserting ‘‘sub24 stituting ‘calendar year 2005’ ’’. 


bajohnson on PROD1PC69 with BILLS
9 

•HR 5407 IH

1 SEC. 5. EARNED TUITION AND LIFETIME LEARNING CRED2 ITS TO BE REFUNDABLE. 

3 (a) CREDIT TO BE REFUNDABLE.—Section 25A of 

4 the Internal Revenue Code of 1986, as amended by this 

5 Act, is hereby moved to subpart C of part IV of subchapter 

6 A of chapter 1 of such Code (relating to refundable cred7 its) and inserted after section 35. 

8 (b) TECHNICAL AMENDMENTS.— 

9 (1) Section 36 of such Code is redesignated as 

10 section 37. 

11 (2) Section 25A of such Code (as moved by 

12 subsection (a)) is redesignated as section 36. 

13 (3) Paragraph (1) of section 36(a) of such Code 

14 (as redesignated by paragraph (2)) is amended by 

15 striking ‘‘this chapter’’ and inserting ‘‘this subtitle’’. 

16 (4) Subparagraph (B) of section 72(t)(7) of 

17 such Code is amended by striking ‘‘section 

18 25A(g)(2)’’ and inserting ‘‘section 36(g)(2)’’. 

19 (5) Subparagraph (A) of section 135(d)(2) of 

20 such Code is amended by striking ‘‘section 25A’’ and 

21 inserting ‘‘section 36’’. 

22 (6) Section 221(d) of such Code is amended— 

23 (A) by striking ‘‘section 25A(g)(2)’’ in 

24 paragraph (2)(B) and inserting ‘‘section 

25 36(g)(2)’’, 


bajohnson on PROD1PC69 with BILLS
10 

•HR 5407 IH

1 (B) by striking ‘‘section 25A(f)(2)’’ in the 

2 matter following paragraph (2)(B) and insert3 ing ‘‘section 36(f)(2)’’, and 

4 (C) by striking ‘‘section 25A(b)(3)’’ in 

5 paragraph (3) and inserting ‘‘section 36(b)(3)’’. 

6 (7) Section 222 of such Code is amended— 

7 (A) by striking ‘‘section 25A’’ in subpara8 graph (A) of subsection (c)(2) and inserting 

9 ‘‘section 36’’, 

10 (B) by striking ‘‘section 25A(f)’’ in sub11 section (d)(1) and inserting ‘‘section 36(f)’’, 

12 and 

13 (C) by striking ‘‘section 25A(g)(2)’’ in sub14 section (d)(1) and inserting ‘‘section 36(g)(2)’’. 

15 (8) Section 529 of such Code is amended— 

16 (A) by striking ‘‘section 25A(g)(2)’’ in sub17 clause (I) of subsection (c)(3)(B)(v) and insert18 ing ‘‘section 36(g)(2)’’, 

19 (B) by striking ‘‘section 25A’’ in subclause 

20 (II) of subsection (c)(3)(B)(v) and inserting 

21 ‘‘section 36’’, and 

22 (C) by striking ‘‘section 25A(b)(3)’’ in 

23 clause (i) of subsection (e)(3)(B) and inserting 

24 ‘‘section 36(b)(3)’’. 

25 (9) Section 530 of such Code is amended— 


bajohnson on PROD1PC69 with BILLS
11 

•HR 5407 IH

1 (A) by striking ‘‘section 25A(g)(2)’’ in sub2 clause (I) of subsection (d)(2)(C)(i) and insert3 ing ‘‘section 36(g)(2)’’, 

4 (B) by striking ‘‘section 25A’’ in subclause 

5 (II) of subsection (d)(2)(C)(i) and inserting 

6 ‘‘section 36’’, and 

7 (C) by striking ‘‘section 25A(g)(2)’’ in 

8 clause (iii) of subsection (d)(4)(B) and inserting 

9 ‘‘section 36(g)(2)’’. 

10 (10) Subsection (e) of section 6050S of such 

11 Code is amended by striking ‘‘section 25A’’ and in12 serting ‘‘section 36’’. 

13 (11) Subparagraph (J) of section 6213(g)(2) of 

14 such Code is amended by striking ‘‘section 

15 25A(g)(1)’’ and inserting ‘‘section 36(g)(1)’’. 

16 (12) Paragraph (2) of section 1324(b) of title 

17 31, United States Code, is amended by inserting be18 fore the period ‘‘or from section 36 of such Code’’. 

19 (13) Section 1400O of such Code is amended— 

20 (A) by striking paragraph (1) and redesig21 nating paragraphs (2) and (3) as paragraphs 

22 (1) and (2), respectively, 

23 (B) by striking ‘‘section 25A(f)(2)’’ and in24 serting ‘‘section 36(f)(2)’’, 


bajohnson on PROD1PC69 with BILLS
12 

•HR 5407 IH

1 (C) by striking ‘‘section 25A(b)(1)’’ in 

2 paragraph (1) (as redesignated by subpara3 graph (A)) and inserting ‘‘section 36(b)(1)’’, 

4 and 

5 (D) by striking ‘‘section 25A(c)(1)’’ in 

6 paragraph (2) (as redesignated by subpara7 graph (A)) and inserting ‘‘section 36(c)(1)’’. 

8 (14) The table of sections for subpart C of part 

9 IV of subchapter A of chapter 1 of the Internal Rev10 enue Code of 1986 is amended by striking the item 

11 relating to section 36 and inserting the following: 

‘‘Sec. 36. Earned tuition and Lifetime Learning credits.’’. 

12 (15) The table of sections for subpart A of such 

13 part IV is amended by striking the item relating to 

14 section 25A. 

15 SEC. 6. EFFECTIVE DATE. 

16 The amendments made by this Act shall apply to tax17 able years beginning after December 31, 2006. 

Æ 


bajohnson on PROD1PC69 with BILLS