(i) and (ii) (after the application of
clause (iv)) for such year,
the taxpayer shall allocate such expenses
among such distributions for purposes of
determining the amount of the exclusion
under clauses (i) and (ii) and section
530(d)(2)(A).’’.
(2) CONFORMING AMENDMENTS.—
(A) Section 135(d)(2)(B) is amended by
striking 
‘‘the 
exclusion 
under 
section
530(d)(2)’’ and inserting ‘‘the exclusions under
sections 529(c)(3)(B)(i) and 530(d)(2)’’.
(B) Section 221(e)(2)(A) is amended by
inserting ‘‘529,’’ after ‘‘135,’’.
(d) ROLLOVER TO DIFFERENT PROGRAM FOR BEN-
EFIT
OF
SAME
DESIGNATED
BENEFICIARY.—Section
529(c)(3)(C) (relating to change in beneficiaries) is
amended—
(1) by striking ‘‘transferred to the credit’’ in
clause (i) and inserting ‘‘transferred—
‘‘(I) to another qualified tuition
program for the benefit of the des-
ignated beneficiary, or
‘‘(II) to the credit’’,
(2) by adding at the end the following new
clause:
‘‘(iii) LIMITATION ON CERTAIN ROLL-
OVERS.—Clause (i)(I) shall not apply to
any amount transferred with respect to a
designated beneficiary if, at any time dur-
ing the 1-year period ending on the day of
such transfer, any other amount was
transferred with respect to such beneficiary
which was not includible in gross income
by reason of clause (i)(I).’’, and
(3) by inserting ‘‘OR PROGRAMS’’ after ‘‘BENE-
FICIARIES’’ in the heading.
(e) MEMBER OF FAMILY INCLUDES FIRST COUS-
IN.—Section 529(e)(2) (defining member of family) is
amended by striking ‘‘and’’ at the end of subparagraph
(B), by striking the period at the end of subparagraph
(C) and inserting ‘‘; and’’, and by adding at the end the
following new subparagraph:
‘‘(D) any first cousin of such beneficiary.’’.
(f ) DEFINITION OF QUALIFIED HIGHER EDUCATION
EXPENSES.—
(1) IN GENERAL.—Subparagraph (A) of section
529(e)(3) (relating to definition of qualified higher
education expenses) is amended to read as follows:
‘‘(A) IN
GENERAL.—The term ‘qualified
higher education expenses’ means—
‘‘(i) tuition and fees required for the
enrollment or attendance of a designated
beneficiary at an eligible educational insti-
tution for courses of instruction of such
beneficiary at such institution, and
‘‘(ii) expenses for books, supplies, and
equipment which are incurred in connec-
tion with such enrollment or attendance,
but not to exceed the allowance for books
and supplies included in the cost of attend-
ance (as defined in section 472 of the
Higher Education Act of 1965 (20 U.S.C.
1087ll), as in effect on the date of the en-
actment of the Education Savings and
School Excellence Act of 2001, as deter-
mined by the eligible educational institu-
tion.’’.
(2) EXCEPTION
FOR
EDUCATION
INVOLVING
SPORTS, ETC.—Paragraph (3) of section 529(e) (re-
lating to qualified higher education expenses) is
amended by adding at the end the following new
subparagraph:
‘‘(C) EXCEPTION FOR EDUCATION INVOLV-
ING SPORTS, ETC.—The term ‘qualified higher
education expenses’ shall not include expenses
with respect to any course or other education
involving sports, games, or hobbies unless such
course or other education is part of the bene-
ficiary’s degree program or is taken to acquire
or improve job skills of the beneficiary.’’.
(g) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section shall apply to taxable years beginning
after the date of the enactment of this Act.
(2) 
QUALIFIED
HIGHER
EDUCATION
EX-
PENSES.—The amendments made by subsection (f )
shall apply to amounts paid for courses beginning in
taxable years beginning after the date of the enact-
ment of this Act.
SEC. 4. EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE
MADE PERMANENT.
(a) PERMANENT EXTENSION.—Section 127 (relating
to exclusion for educational assistance programs) is
amended by striking subsection (d) and by redesignating
subsection (e) as subsection (d).
(b) RESTORATION OF EXCLUSION FOR GRADUATE
EDUCATION.—The last sentence of paragraph (1) of sec-
tion 127(c) (defining educational assistance) is amended
by striking ‘‘, and such term also does not include any
payment for, or the provision of any benefits with respect
to, any graduate level course of a kind normally taken by
an individual pursuing a program leading to a law, busi-
ness, medical, or other advanced academic or professional
degree’’.
(c) EFFECTIVE DATES.—
(1) PERMANENT
EXTENSION.—The amend-
ments made by subsection (a) shall apply to taxable
years beginning after December 31, 2001.
(2) GRADUATE EDUCATION.—The amendment
made by subsection (b) shall apply to expenses relat-
ing to courses beginning after the date of the enact-
ment of this Act.
SEC. 5. EXPANSION OF DEDUCTION FOR INTEREST ON EDU-
CATION LOANS.
(a) REPEAL OF DOLLAR LIMITATION ON, AND IN-
CREASE IN INCOME THRESHOLD FOR PHASE OUT OF, DE-
DUCTION FOR INTEREST ON EDUCATION LOANS.—
(1) IN
GENERAL.—Subsection (b) of section
221 (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 ($150,000 in the case
of a joint return), bears to
‘‘(B) $15,000.
‘‘(3) MODIFIED
ADJUSTED
GROSS
INCOME.—
The term ‘modified adjusted gross income’ means
adjusted gross income determined—
‘‘(A) without regard to this section and
sections 911, 931, and 933, and
‘‘(B) after application of sections 86, 135,
137, 219, and 469.’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to taxable years begin-
ning after the date of the enactment of this Act.
(b) REPEAL OF 60-MONTH LIMITATION ON DEDUC-
TION FOR INTEREST ON EDUCATION LOANS.—
(1) IN GENERAL.—Section 221 (relating to in-
terest on education loans) is amended by striking
subsection (d) and by redesignating subsections (e),
(f), and (g) as subsections (d), (e), and (f), respec-
tively.
(2) CONFORMING AMENDMENT.—Subsection (e)
of section 6050S of such Code is amended by strik-
ing ‘‘section 221(e)(1)’’ and inserting ‘‘section
221(d)(1)’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to loan interest pay-
ments due and paid after the date of the enactment
of this Act in taxable years ending after such date.
SEC. 6. 2-PERCENT FLOOR ON MISCELLANEOUS ITEMIZED
DEDUCTIONS NOT TO APPLY TO QUALIFIED
PROFESSIONAL DEVELOPMENT EXPENSES OF
ELEMENTARY 
AND 
SECONDARY 
SCHOOL
TEACHERS.
(a) IN GENERAL.—Section 67(b) (defining miscella-
neous itemized deductions) is amended by striking ‘‘and’’
at the end of paragraph (11), by striking the period at
the end of paragraph (12) and inserting ‘‘, and’’, and by
adding at the end the following new paragraph:
‘‘(13) any deduction allowable for the qualified
professional development expenses of an eligible
teacher.’’.
(b) DEFINITIONS.—Section 67 (relating to 2-percent
floor on miscellaneous itemized deductions) is amended by
adding at the end the following new subsection:
‘‘(g) QUALIFIED PROFESSIONAL DEVELOPMENT EX-
PENSES OF ELIGIBLE TEACHERS.—For purposes of sub-
section (b)(13)—
‘‘(1) QUALIFIED PROFESSIONAL DEVELOPMENT
EXPENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
professional development expenses’ means ex-
penses in an amount not to exceed $1,000 for
any taxable year—
‘‘(i) for tuition, fees, books, supplies,
equipment, and transportation required for
the enrollment or attendance of an indi-
vidual in a qualified course of instruction,
and
‘‘(ii) with respect to which a deduction
is allowable under section 162 (determined
without regard to this section).
‘‘(B) QUALIFIED
COURSE
OF
INSTRUC-
TION.—The term ‘qualified course of instruc-
tion’ means a course of instruction which—
‘‘(i) is—
‘‘(I) at an institution of higher
education (as defined in section 481
of the Higher Education Act of 1965
(20 U.S.C. 1088), as in effect on the
date of the enactment of this sub-
section), or
‘‘(II) a professional conference,
and
‘‘(ii) is part of a program of profes-
sional development which is approved and
certified by the appropriate local edu-
cational agency as furthering the individ-
ual’s teaching skills.
‘‘(C) LOCAL EDUCATIONAL AGENCY.—The term
‘local educational agency’ has the meaning given
such term by section 14101 of the Elementary and
Secondary Education Act of 1965, as so in effect.
‘‘(2) ELIGIBLE TEACHER.—
‘‘(A) IN
GENERAL.—The term ‘eligible
teacher’ means an individual who is a kinder-
garten through grade 12 classroom teacher, in-
structor, counselor, aide, or principal in an ele-
mentary or secondary school.
‘‘(B) 
ELEMENTARY
OR
SECONDARY
SCHOOL.—The terms ‘elementary school’ and
‘secondary school’ have the meanings given
such terms by section 14101 of the Elementary
and Secondary Education Act of 1965 (20
U.S.C. 8801), as so in effect.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
SEC. 7. EXCLUSION OF CERTAIN AMOUNTS RECEIVED
UNDER THE NATIONAL HEALTH SERVICE
CORPS SCHOLARSHIP PROGRAM, THE F. ED-
WARD HEBERT ARMED FORCES HEALTH PRO-
FESSIONS SCHOLARSHIP AND FINANCIAL AS-
SISTANCE PROGRAM, AND CERTAIN OTHER
PROGRAMS.
(a) IN GENERAL.—Section 117(c) (relating to the ex-
clusion from gross income amounts received as a qualified
scholarship) is amended—
(1) by striking ‘‘Subsections (a)’’ and inserting
the following:
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), subsections (a)’’, and
(2) by adding at the end the following new
paragraph:
‘‘(2) EXCEPTIONS.—Paragraph (1) shall not
apply to any amount received by an individual
under—
‘‘(A) the National Health Service Corps
Scholarship 
program 
under 
section
338A(g)(1)(A) of the Public Health Service
Act,
‘‘(B) the Armed Forces Health Professions
Scholarship and Financial Assistance program
under subchapter I of chapter 105 of title 10,
United States Code,
‘‘(C) the National Institutes of Health Un-
dergraduate Scholarship program under section
487D of the Public Health Service Act, or
‘‘(D) any State program determined by the
Secretary to have substantially similar objec-
tives as such programs.’’.
(b) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by subsection (a)
shall apply to amounts received in taxable years be-
ginning after December 31, 1993.
(2) STATE
PROGRAMS.—Section 117(c)(2)(D)
of the Internal Revenue Code of 1986 (as added by
the amendments made by subsection (a)) shall apply
to amounts received in taxable years beginning after
the date of the enactment of this Act.
Æ