FF of Public Law 116–260) and subject to the 
effective date of section 701(b) of such Act. 
(e) FULL EXCLUSION FROM GROSS INCOME FOR 
PELL GRANTS.— 
(1) IN GENERAL.—Section 117(b) of the Inter-
nal Revenue Code of 1986 is amended by adding at 
the end the following new paragraph: 
‘‘(3) SPECIAL
RULE
FOR
PELL
GRANTS.— 
Amounts received under a Federal Pell Grant under 
subpart 1 of part A of title IV of the Higher Edu-
cation Act of 1965 (20 U.S.C. 1070a et seq.) shall 
be treated as an amount received as a qualified 
scholarship notwithstanding whether such amount 
was used for qualified tuition and related expenses.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by this subsection shall apply to amounts received in 
taxable years beginning after the date of the enact-
ment of this Act. 
TITLE IV—INCLUSIVE STUDENT 
SUCCESS GRANTS 
SEC. 401. INCLUSIVE STUDENT SUCCESS GRANTS. 
Part F of title VII of the Higher Education Act of 
1965, as added by section 101 and amended by sections 
201 and 202, is further amended by adding at the end 
the following: 
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‘‘Subpart 4—Inclusive Student Success Grants 
‘‘SEC. 800. DEFINITIONS. 
‘‘In this subpart: 
‘‘(1) ELIGIBLE
STATE.—The term ‘eligible 
State’ means a State that is a recipient of a grant 
under subpart 1. 
‘‘(2) EVIDENCE TIERS.— 
‘‘(A) EVIDENCE TIER 1.—The term ‘evi-
dence tier 1’, when used with respect to a re-
form or practice, means a reform or practice 
that meets the criteria for receiving an expan-
sion grant from the education innovation and 
research program under section 4611(a)(2) of 
the Elementary and Secondary Education Act 
of 1965, as determined by the Secretary in ac-
cordance with such section. 
‘‘(B) EVIDENCE TIER 2.—The term ‘evi-
dence tier 2’, when used with respect to a re-
form or practice, means a reform or practice 
that meets the criteria for receiving a mid- 
phase grant from the education innovation and 
research program under section 4611(a)(2) of 
the Elementary and Secondary Education Act 
of 1965, as determined by the Secretary in ac-
cordance with such section. 
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‘‘(3) FIRST GENERATION COLLEGE STUDENT.— 
The term ‘first generation college student’ has the 
meaning given the term in section 402A(h)(3). 
‘‘(4) ELIGIBLE INSTITUTION.—The term ‘eligi-
ble institution’ means— 
‘‘(A) an under-funded institution; or 
‘‘(B) an institution that is— 
‘‘(i) a part B institution (as defined in 
section 322); 
‘‘(ii) a Hispanic-serving institution (as 
defined in section 502(a)); 
‘‘(iii) an Alaska Native-serving insti-
tution (as defined in section 317(b)); 
‘‘(iv) a Native Hawaiian-serving insti-
tution (as defined in section 317(b)); 
‘‘(v) a Predominantly Black Institu-
tion (as defined in section 318(b)); 
‘‘(vi) an Asian American and Native 
American Pacific Islander-serving institu-
tion (as defined in section 320(b)); or 
‘‘(vii) a Native American-serving, non-
tribal institution (as defined in section 
319(b)). 
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‘‘(5) TRIBAL COLLEGE OR UNIVERSITY.—The 
term ‘Tribal College or University’ has the meaning 
given the term in section 316. 
‘‘(6) UNDERFUNDED INSTITUTION.—The term 
‘underfunded institution’ means a public 2-year in-
stitution of higher education or public 4-year institu-
tion of higher education that receives less than the 
national average of State appropriations per full- 
time equivalent student. 
‘‘SEC. 801. INCLUSIVE STUDENT SUCCESS GRANTS. 
‘‘(a) IN
GENERAL.—The Secretary shall award 
grants to eligible States and Tribal Colleges and Univer-
sities to improve student outcomes by carrying out or scal-
ing the activities described in section 804. 
‘‘(b) DISTRIBUTION OF FUNDS.—From amounts ap-
propriated to carry out this subpart, the Secretary shall— 
‘‘(1) distribute 10 percent of the appropriated 
amount in any fiscal year for grants to Tribal Col-
leges or Universities, which shall be distributed ac-
cording to the formula in section 316(d)(3)(B), to 
carry out the activities described in section 804 to 
implement reforms or practices that meet evidence 
tier 1 or evidence tier 2; 
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‘‘(2) use 2 percent of the appropriated amount 
in any fiscal year to evaluate the effectiveness of the 
activities carried out under this subpart; 
‘‘(3) distribute 60 percent of the appropriated 
amount in any fiscal year to award competitive 
grants to eligible States to carry out activities de-
scribed in section 804; 
‘‘(4) distribute 18 percent of the appropriated 
amount in any fiscal year to supplement the com-
petitive grant amounts awarded to eligible States 
under paragraph (3) to implement reforms or prac-
tices that meet evidence tier 1; and 
‘‘(5) distribute 10 percent of the appropriated 
amount in any fiscal year to supplement the com-
petitive grant amounts awarded to eligible States 
under paragraph (3) to implement reforms or prac-
tices that meet evidence tier 1 or evidence tier 2, or 
a combination of such reforms or practices. 
‘‘SEC. 802. APPLICATION. 
‘‘(a) IN GENERAL.—An eligible State or Tribal Col-
lege or University that desires to receive a grant under 
this subpart shall submit an application to the Secretary 
at such time, in such manner, and accompanied by such 
information as the Secretary may require. The application 
shall include, at a minimum, a description of— 
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‘‘(1) in the case of an eligible State, how the el-
igible State will— 
‘‘(A) prioritize spending for underfunded 
institutions in the State and close gaps in State 
appropriations per full-time equivalent student 
with respect to institutions in the State de-
scribed in section 800(4)(B); and 
‘‘(B) sustain such reforms or practices; 
and 
‘‘(2) in the case of an eligible State or Tribal 
College or University, how the eligible State or Trib-
al College or University will use the funds to imple-
ment or expand evidence-based reforms or practices 
funded by a grant under this subpart to improve 
student outcomes at eligible institutions in such 
State or the Tribal College or University. 
‘‘(b) PRIORITY.—In awarding grants under this sub-
part, the Secretary shall give priority to eligible States 
that propose to use a significant share of grant funds to 
improve enrollment, retention, transfer, or completion 
rates or labor market outcomes among students with dis-
parate outcomes, such as students of color, low-income 
students, students with disabilities, students in need of re-
mediation, first generation college students, student par-
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