I

105TH CONGRESS

1ST SESSION H. R. 553

To amend the Internal Revenue Code of 1986 to exclude scholarships and

fellowships from income, to restore the deduction for interest on educational loans, and to permit penalty-free withdrawals from individual

retirement plans to pay higher education expenses.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 6, 1997

Mr. PRICE of North Carolina (for himself and Mr. ETHERIDGE) 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 exclude

scholarships and fellowships from income, to restore the

deduction for interest on educational loans, and to permit

penalty-free withdrawals from individual retirement plans

to pay 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 ‘‘Education Afford5 ability Act of 1997’’.
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1 SEC. 2. RESTORATION OF PRIOR LAW EXCLUSION FOR

2 SCHOLARSHIPS AND FELLOWSHIPS.

3 (a) IN GENERAL.—Each provision of law amended by

4 section 123 of the Tax Reform Act of 1986 is amended

5 to read as if the amendments made by such section had

6 not been enacted.

7 (b) EFFECTIVE DATE.—The amendments made by

8 this section shall apply to taxable years ending after the

9 date of the enactment of this Act.

10 SEC. 3. RESTORATION OF DEDUCTION FOR INTEREST ON

11 EDUCATIONAL LOANS.

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

13 of the Internal Revenue Code of 1986 (defining personal

14 interest) is amended by striking ‘‘and’’ at the end of sub15 paragraph (D), by redesignating subparagraph (E) as sub16 paragraph (F), and by inserting after subparagraph (D)

17 the following new subparagraph:

18 ‘‘(E) any interest on a qualified edu19 cational loan, and’’.

20 (b) QUALIFIED EDUCATIONAL LOAN DEFINED.—

21 Subsection (h) of section 163 of such Code is amended

22 by adding at the end the following new paragraph:

23 ‘‘(6) QUALIFIED EDUCATIONAL LOAN.—

24 ‘‘(A) IN GENERAL.—For purposes of this

25 subsection, the term ‘qualified educational loan’
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1 means any indebtedness incurred to pay quali2 fied educational expenses which are paid or in3 curred within a reasonable period of time before

4 or after the indebtedness is incurred.

5 ‘‘(B) QUALIFIED EDUCATIONAL EX6 PENSES.—For purposes of this paragraph—

7 ‘‘(i) IN GENERAL.—The term ‘quali8 fied educational expenses’ means qualified

9 tuition and related expenses of the tax10 payer, his spouse, or a dependent for at11 tendance at an educational institution de12 scribed in section 170(b)(1)(A)(ii).

13 ‘‘(ii) QUALIFIED TUITION AND RELAT14 ED EXPENSES.—The term ‘qualified tui15 tion and related expenses’ means—

16 ‘‘(I) tuition and fees required for

17 enrollment or attendance at an edu18 cational institution described in sec19 tion 170(b)(1)(A)(ii),

20 ‘‘(II) fees, books, supplies, and

21 equipment required for courses of in22 struction at such an institution, and

23 ‘‘(III) reasonable living expenses

24 while away from home.
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1 ‘‘(C) DEPENDENT.—For purposes of this

2 paragraph, the term ‘dependent’ has the mean3 ing given such term by section 152.

4 ‘‘(D) COORDINATION WITH PARAGRAPH

5 (3)(C)(ii).—Any qualified educational loan shall

6 not be taken into account for purposes of apply7 ing the limitation of paragraph (3)(C)(ii).’’

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

9 this section shall apply to taxable years ending after the

10 date of the enactment of this Act.

11 SEC. 4. DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT

12 PLANS MAY BE USED WITHOUT PENALTY TO

13 PAY HIGHER EDUCATION EXPENSES.

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

15 the Internal Revenue Code of 1986 (relating to exceptions

16 to 10-percent additional tax on early distributions from

17 qualified retirement plans) is amended by adding at the

18 end the following new subparagraph:

19 ‘‘(E) DISTRIBUTIONS FROM INDIVIDUAL

20 RETIREMENT PLANS FOR EDUCATIONAL EX21 PENSES.—Distributions to an individual from

22 an individual retirement plan to the extent such

23 distributions do not exceed the qualified edu24 cational expenses (as defined in section

25 163(h)(6)) of the taxpayer for the taxable year.
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1 The amount of such expenses for any taxable

2 year shall be reduced by any amount excludable

3 from gross income under section 135.’’.

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

5 this section shall apply to distributions received after the

6 date of the enactment of this Act.

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