(a)(1) shall not be allowed for qualified tuition 
and related expenses for the enrollment or at-
tendance of a student for any academic period 
if such student has been convicted of a Federal 
or State felony offense consisting of the posses-
sion or distribution of a controlled substance 
before the end of the taxable year with or with-
in which such period ends. 
‘‘(3) ELIGIBLE
STUDENT.—For purposes of 
this subsection, the term ‘eligible student’ means, 
with respect to any academic period, a student 
who— 
‘‘(A) meets the requirements of section 
484(a)(1) of the Higher Education Act of 1965 
(20 U.S.C. 1091(a)(1)), as in effect on the date 
of the enactment of this section, and 
‘‘(B) is carrying at least 1⁄2 the normal 
full-time work load for the course of study the 
student is pursuing.’’. 
(b) EARNED TUITION CREDIT NOT REDUCED BY 
FEDERAL PELL GRANTS
AND SUPPLEMENTAL EDU-
CATIONAL OPPORTUNITY GRANTS.—Subsection (g) of sec-
tion 25A of such Code (relating to special rules) is amend-
ed by adding at the end the following new paragraph: 
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‘‘(8) PELL AND SEOG GRANTS.—For purposes 
of the earned tuition credit, paragraph (2) shall not 
apply to amounts paid for an individual as a Federal 
Pell Grant or a Federal supplemental educational 
opportunity grant under subparts 1 and 3, respec-
tively, of part A of title IV of the Higher Education 
Act of 1965 (20 U.S.C. 1070a and 1070b et seq., 
respectively).’’. 
(c) DEFINITION OF QUALIFIED TUITION AND RE-
LATED EXPENSES.—Paragraph (1) of section 25A(f) of 
such Code (relating to definitions) is amended to read as 
follows: 
‘‘(1) QUALIFIED
TUITION
AND
RELATED
EX-
PENSES.— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
tuition and related expenses’ means the quali-
fied higher education expenses of— 
‘‘(i) the taxpayer, 
‘‘(ii) the taxpayer’s spouse, or 
‘‘(iii) any dependent of the taxpayer 
with respect to whom the taxpayer is al-
lowed a deduction under section 151. 
‘‘(B) QUALIFIED HIGHER EDUCATION EX-
PENSES.—The term ‘qualified higher education 
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expenses’ has the meaning given to such term 
by section 529(e)(3).’’. 
(d) CONFORMING AMENDMENTS.—Section 25A of 
such Code is amended— 
(1) in the heading, by striking ‘‘HOPE’’ and in-
serting ‘‘EARNED TUITION’’, 
(2) in subsection (a)(1), by striking ‘‘Hope 
Scholarship Credit’’ and inserting ‘‘earned tuition 
credit’’, 
(3) in subsection (c)(2)(A)— 
(A) in the heading, by striking ‘‘HOPE 
SCHOLARSHIP’’ and inserting ‘‘EARNED TUITION 
CREDIT’’, 
(B) in the text, by striking ‘‘Hope Scholar-
ship Credit’’ and inserting ‘‘earned tuition cred-
it’’, and 
(4) in subsection (h)(1)(A)— 
(A) by striking ‘‘2001’’ and inserting 
‘‘2007’’, 
(B) by striking ‘‘the $1,000 amounts’’ and 
inserting ‘‘the dollar amounts’’, and 
(C) in clause (ii), by striking ‘‘substituting 
‘calendar year 2000’ ’’ and inserting ‘‘sub-
stituting ‘calendar year 2006’ ’’. 
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SEC. 5. EARNED TUITION AND LIFETIME LEARNING CRED-
ITS TO BE REFUNDABLE. 
(a) CREDIT TO BE REFUNDABLE.—Section 25A of 
the Internal Revenue Code of 1986, as amended by this 
Act, is hereby moved to subpart C of part IV of subchapter 
A of chapter 1 of such Code (relating to refundable cred-
its) and inserted after section 35. 
(b) TECHNICAL AMENDMENTS.— 
(1) Section 36 of such Code is redesignated as 
section 37. 
(2) Section 25A of such Code (as moved by 
subsection (a)) is redesignated as section 36. 
(3) Paragraph (1) of section 36(a) of such Code 
(as redesignated by paragraph (2)) is amended by 
striking ‘‘this chapter’’ and inserting ‘‘this subtitle’’. 
(4) Subparagraph (B) of section 72(t)(7) of 
such 
Code 
is 
amended 
by 
striking 
‘‘section 
25A(g)(2)’’ and inserting ‘‘section 36(g)(2)’’. 
(5) Subparagraph (A) of section 135(d)(2) of 
such Code is amended by striking ‘‘section 25A’’ and 
inserting ‘‘section 36’’. 
(6) Section 221(d) of such Code is amended— 
(A) by striking ‘‘section 25A(g)(2)’’ in 
paragraph 
(2)(B) 
and 
inserting 
‘‘section 
36(g)(2)’’, 
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(B) by striking ‘‘section 25A(f)(2)’’ in the 
matter following paragraph (2)(B) and insert-
ing ‘‘section 36(f)(2)’’, and 
(C) by striking ‘‘section 25A(b)(3)’’ in 
paragraph (3) and inserting ‘‘section 36(b)(3)’’. 
(7) Section 222 of such Code is amended— 
(A) by striking ‘‘section 25A’’ in subpara-
graph (A) of subsection (c)(2) and inserting 
‘‘section 36’’, 
(B) by striking ‘‘section 25A(f)’’ in sub-
section (d)(1) and inserting ‘‘section 36(f)’’, 
and 
(C) by striking ‘‘section 25A(g)(2)’’ in sub-
section (d)(1) and inserting ‘‘section 36(g)(2)’’. 
(8) Section 529 of such Code is amended— 
(A) by striking ‘‘section 25A(g)(2)’’ in sub-
clause (I) of subsection (c)(3)(B)(v) and insert-
ing ‘‘section 36(g)(2)’’, 
(B) by striking ‘‘section 25A’’ in subclause 
(II) of subsection (c)(3)(B)(v) and inserting 
‘‘section 36’’, and 
(C) by striking ‘‘section 25A(b)(3)’’ in 
clause (i) of subsection (e)(3)(B) and inserting 
‘‘section 36(b)(3)’’. 
(9) Section 530 of such Code is amended— 
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