I
105TH CONGRESS
1ST SESSION
H. R. 1233
To amend the Internal Revenue Code of 1986 to provide tax relief to middle
income families who are struggling to pay for college, to amend the
Higher Education Act of 1965 to provide significantly increased financial
aid for needy students, provide universal access to postsecondary edu-
cation, reduce student loan costs while improving student loan benefits,
to streamline the Federal Family Education Loan Program, and for
other purposes.
IN THE HOUSE OF REPRESENTATIVES
APRIL 8, 1997
Mr. CLAY (for himself and Mr. RANGEL) introduced the following bill; which
was referred to the Committee on Education and the Workforce, and in
addition to the Committee on Ways and Means, for a period to be subse-
quently determined by the Speaker, in each case for consideration of such
provisions as fall within the jurisdiction of the committee concerned
A BILL
To amend the Internal Revenue Code of 1986 to provide
tax relief to middle income families who are struggling
to pay for college, to amend the Higher Education Act
of 1965 to provide significantly increased financial aid
for needy students, provide universal access to post-
secondary education, reduce student loan costs while im-
proving student loan benefits, to streamline the Federal
Family Education Loan Program, and for other pur-
poses.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Hope and Opportunity
for Postsecondary Education Act of 1997’’.
TITLE I—TAX PROVISIONS
SEC. 101. SHORT TITLE; AMENDMENT OF 1986 CODE.
(a) SHORT TITLE.—This title may be cited as the
‘‘Higher Education Tax Incentive Act of 1997’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this title an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
SEC. 102. CREDIT FOR HIGHER EDUCATION EXPENSES.
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 (relating to nonrefundable personal
credits) is amended by inserting after section 23 the fol-
lowing new section:
‘‘SEC. 24. HIGHER EDUCATION TUITION AND FEES.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in-
dividual, there shall be allowed as a credit against the tax
imposed by this chapter for the taxable year the amount
of qualified higher education expenses paid by the tax-
payer during such taxable year for education furnished
during any academic period beginning in such year.
‘‘(b) LIMITATIONS.—
‘‘(1) DOLLAR LIMITATION.—
‘‘(A) IN GENERAL.—The amount allowed
as a credit under subsection (a) for any taxable
year with respect to the qualified higher edu-
cation expenses of any 1 individual shall not ex-
ceed $1,500.
‘‘(B) 
REDUCTION
FOR
OTHER
NON-
TAXABLE FEDERAL ASSISTANCE.—
‘‘(i) IN GENERAL.—If any nontaxable
Federal assistance is allocable to any aca-
demic period, the dollar amount applicable
under subparagraph (A) for the taxable
year in which such period begins shall be
reduced by the amount of such assistance.
‘‘(ii) NONTAXABLE FEDERAL ASSIST-
ANCE.—For purposes of clause (i), the
term 
‘nontaxable 
Federal 
assistance’
means any scholarship or grant provided
by the Federal Government which is ex-
empt from tax under this chapter by rea-
son of section 117 or any other Federal
law. Such term shall not include any bene-
fit described in section 480(c)(2) of the
Higher Education Act of 1965 (20 U.S.C.
1087vv(c)(2)), as in effect on the date of
enactment of this section.
‘‘(2) CREDIT ALLOWED FOR ONLY 2 TAXABLE
YEARS.—No credit shall be allowed under subsection
(a) for a taxable year with respect to the qualified
higher education expenses of an individual unless the
taxpayer elects to have this section apply with re-
spect to such individual for such year. An election
under this paragraph shall not take effect with re-
spect to an individual for any taxable year if an elec-
tion under this paragraph (by the taxpayer or any
other individual) is in effect with respect to such in-
dividual for any 2 prior taxable years.
‘‘(3) CREDIT ALLOWED FOR YEAR ONLY IF IN-
DIVIDUAL IS AT LEAST 1⁄2 TIME STUDENT FOR POR-
TION OF YEAR.—No credit shall be allowed under
subsection (a) for a taxable year with respect to the
qualified higher education expenses of an individual
unless such individual is an eligible student for at
least one academic period which begins during such
year.
‘‘(4) CREDIT
ALLOWED
ONLY
FOR
FIRST
YEARS OF POSTSECONDARY EDUCATION.—No credit
shall be allowed under subsection (a) for a taxable
year with respect to the qualified higher education
expenses of an individual if the individual has com-
pleted (before the beginning of such taxable year)
the first 2 years of postsecondary education at an
institution of higher education.
‘‘(c) LIMITATION BASED ON MODIFIED ADJUSTED
GROSS INCOME.—
‘‘(1) IN GENERAL.—The amount which would
(but for this subsection) be taken into account under
subsection (a) for the taxable year 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) $50,000 ($80,000 in the case of
a joint return), bears to
‘‘(B) $20,000.
‘‘(3) MODIFIED
ADJUSTED
GROSS
INCOME.—
The term ‘modified adjusted gross income’ means
the adjusted gross income of the taxpayer for the
taxable year—
‘‘(A) determined without regard to section
221, and
‘‘(B) increased by any amount excluded
from gross income under section 911, 931, or
933.
‘‘(d) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED
HIGHER
EDUCATION
EX-
PENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
higher education expenses’ means tuition and
fees required for the enrollment or attendance
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,
at an institution of higher education.
‘‘(B) EXCEPTION FOR EDUCATION INVOLV-
ING SPORTS, ETC.—Such term does 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 individual’s degree program.
‘‘(C) 
EXCEPTION
FOR
NONACADEMIC
FEES.—Such term does not include student ac-
tivity fees, athletic fees, insurance expenses, or
other expenses unrelated to an individual’s aca-
demic course of instruction.
‘‘(2) INSTITUTION OF HIGHER EDUCATION.—
The term ‘institution of higher education’ means an
institution—
‘‘(A) which is described 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 section, and
‘‘(B) which is eligible to participate in a
program under title IV of such Act.
‘‘(3) ELIGIBLE STUDENT.—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.
‘‘(4) OTHER TERMS RELATING TO THE HIGHER
EDUCATION ACT.—The following terms shall have
the meanings prescribed in regulations under section
481(g) of the Higher Education Act of 1965 (20
U.S.C. 1088(g)), as added by the Student Financial
Aid Improvements Act of 1997:
‘‘(A) Academic period.
‘‘(B) Normal full-time workload.
‘‘(C) First 2 years of postsecondary edu-
cation.
‘‘(D) Qualifying grade point average.
‘‘(E) Job skills and new job skills.
‘‘(e) TREATMENT OF EXPENSES PAID BY DEPEND-
ENT.—If a deduction under section 151 with respect to
an individual is allowed to another taxpayer for a taxable
year beginning in the calendar year in which such individ-
ual’s taxable year begins—
‘‘(1) no credit shall be allowed under subsection
(a) to such individual for such individual’s taxable
year, and
‘‘(2) qualified higher education expenses paid
by such individual during such individual’s taxable
year shall be treated for purposes of this section as
paid by such other taxpayer.
‘‘(f) TREATMENT OF CERTAIN PREPAYMENTS.—If
qualified higher education expenses are paid by the tax-
payer during a taxable year for an academic period which
begins during the first 3 months following such taxable
year, such academic period shall be treated for purposes
of this section as beginning during such taxable year.
‘‘(g) SPECIAL RULES.—
‘‘(1) DENIAL OF CREDIT IF INDIVIDUAL CON-
VICTED OF DRUG OFFENSE.—No credit shall be al-
lowed under subsection (a) with respect to the quali-
fied higher education expenses of an individual for
any taxable year if the individual has been convicted
before the end of such year of a Federal or State fel-
ony offense consisting of the possession or distribu-
tion of a controlled substance.
‘‘(2) DENIAL OF CREDIT IF INDIVIDUAL FAILS
TO
SATISFY
GRADE
POINT
AVERAGE
REQUIRE-
MENT.—If an election was in effect under this sec-
tion with respect to the qualified higher education
expenses of an individual for any taxable year, no
credit shall be allowed under subsection (a) with re-
spect to qualified higher education expenses of such
individual for a succeeding taxable year if the indi-
vidual does not have a qualifying grade point aver-
age for all courses at an institution of higher edu-
cation for academic periods ending before the begin-
ning of such succeeding taxable year. Such average
shall be determined without regard to—
‘‘(A) courses taken while attending high
school, and
‘‘(B) courses referred to in subsection
(d)(1)(B).
‘‘(3) NO DOUBLE BENEFIT.—No credit shall be
allowed under subsection (a) for any taxable year for
any expense—
‘‘(A) with respect to an individual if a de-
duction is allowed under section 221 for the
taxable year for any expense with respect to
such individual, or
‘‘(B) for which a deduction is allowed
under any other provision of this chapter.
‘‘(4) 
IDENTIFICATION
REQUIREMENT.—No
credit shall be allowed under subsection (a) to a tax-
payer with respect to the qualified higher education
expenses of an individual unless the taxpayer in-
cludes the name and taxpayer identification number
of such individual on the return of tax for the tax-
able year.
‘‘(5) ADJUSTMENT
FOR
CERTAIN
SCHOLAR-
SHIPS.—The amount of qualified higher education
expenses otherwise taken into account under sub-
section (a) with respect to an individual for an aca-
demic period shall be reduced (before the application
of subsections (b) and (c)) by the sum of—
‘‘(A) any amounts paid for the benefit of
such individual which are allocable to such pe-
riod as—
‘‘(i) a qualified scholarship which is
excludable from gross income under section
117,
‘‘(ii) an educational assistance allow-
ance under chapter 30, 31, 32, 34, or 35
of title 38, United States Code, or under
chapter 1606 of title 10, United States
Code,
‘‘(iii) a payment which is excludable
from gross income under section 127, or
‘‘(iv) a payment (other than a gift, be-
quest, devise, or inheritance within the
meaning of section 102(a)) for such indi-
vidual’s educational expenses, or attrib-
utable to such individual’s enrollment at an
institution of higher education, which is ex-
cludable from gross income under any law
of the United States, and
‘‘(B) the amount excludable from gross in-
come under section 135 which is allocable to
such expenses with respect to such individual
for such period.
‘‘(6) NO
CREDIT
FOR
MARRIED
INDIVIDUALS
FILING SEPARATE RETURNS.—If the taxpayer is a
married individual (within the meaning of section
7703), this section shall apply only if the taxpayer
and the taxpayer’s spouse file a joint return for the
taxable year.
‘‘(7) NONRESIDENT ALIENS.—If the taxpayer is
a nonresident alien individual for any portion of the
taxable year, this section shall apply only if such in-
dividual is treated as a resident alien of the United
States for purposes of this chapter by reason of an
election under subsection (g) or (h) of section 6013.
‘‘(h) INFLATION ADJUSTMENTS.—
‘‘(1) DOLLAR
LIMITATION
ON
AMOUNT
OF
CREDIT.—
‘‘(A) IN GENERAL.—In the case of a tax-
able year beginning after 1997, the $1,500
amount in subsection (b)(1)(A) shall be in-
creased by an amount equal to—
‘‘(i) such dollar amount, multiplied by
‘‘(ii) the cost-of-living adjustment de-
termined under section 1(f)(3) for the cal-
endar year in which the taxable year be-
gins, determined by substituting ‘calendar
year 1996’ for ‘calendar year 1992’ in sub-
paragraph (B) thereof.
‘‘(B) ROUNDING.—If any amount as ad-
justed under subparagraph (A) is not a multiple
of $50, such amount shall be rounded to the
next lowest multiple of $50.
‘‘(2) INCOME LIMITS.—
‘‘(A) IN GENERAL.—In the case of a tax-
able year beginning after 2000, the $50,000
and $80,000 amounts in subsection (c)(2) and
section 221(b)(2)(B)(i)(II) shall each be in-
creased by an amount equal to—
‘‘(i) such dollar amount, multiplied by
‘‘(ii) the cost-of-living adjustment de-
termined under section 1(f)(3) for the cal-
endar year in which the taxable year be-
gins, determined by substituting ‘calendar
year 1999’ for ‘calendar year 1992’ in sub-
paragraph (B) thereof.
‘‘(B) ROUNDING.—If any amount as ad-
justed under subparagraph (A) is not a multiple
of $5,000, such amount shall be rounded to the
next lowest multiple of $5,000.
‘‘(i) REGULATIONS.—The Secretary may prescribe
such regulations as may be necessary or appropriate to
carry out this section, including regulations providing for
a recapture of credit allowed under this section in cases
where there is a refund in a subsequent taxable year of
any amount which was taken into account in determining
the amount of such credit.’’
(b) EXTENSION OF PROCEDURES APPLICABLE TO
MATHEMATICAL OR CLERICAL ERRORS.—Paragraph (2)
of section 6213(g) (relating to the definition of mathe-
matical or clerical errors) is amended by striking ‘‘and’’
at the end of subparagraph (G), by striking the period
at the end of subparagraph (H) and inserting ‘‘, and’’,
and by inserting after subparagraph (H) the following new
subparagraph:
‘‘(I) an omission of a correct TIN required
under 
section 
24(g)(4) 
or 
under 
section
221(d)(2)(A) (relating to higher education tui-
tion and fees) to be included on a return.’’
(c) RETURNS RELATING
TO HIGHER EDUCATION
EXPENSES.—
(1) IN GENERAL.—Subpart B of part III of
subchapter A of chapter 61 (relating to information
concerning transactions with other persons) is
amended by inserting after section 6050R the fol-
lowing new section:
‘‘SEC. 6050S. RETURNS RELATING TO HIGHER EDUCATION
EXPENSES.
‘‘(a) IN GENERAL.—Any person—
‘‘(1) which is an institution of higher education
which receives payments for qualified higher edu-
cation expenses with respect to any individual for
any calendar year, or
‘‘(2) which is engaged in a trade or business
which, in the course of such trade or business makes
payments during any calendar year to any individual
which constitute reimbursements or refunds (or
similar amounts) of qualified higher education ex-
penses of such individual,
shall make the return described in subsection (b) with re-
spect to the individual at such time as the Secretary may
by regulations prescribe.
‘‘(b) FORM AND MANNER OF RETURNS.—A return
is described in this subsection if such return—
‘‘(1) is in such form as the Secretary may pre-
scribe,
‘‘(2) contains—
‘‘(A) the name, address, and TIN of the
individual with respect to whom payments de-
scribed in subsection (a) were received from (or
were paid to),
‘‘(B) the name, address, and TIN of any
individual certified by the individual described
in subparagraph (A) as the taxpayer who will
claim the individual as a dependent for pur-
poses of the deduction allowable under section
151 for any taxable year ending with or within
the calendar year,
‘‘(C) the—
‘‘(i) aggregate amount of payments
for qualified higher education expenses re-
ceived with respect to the individual de-
scribed in subparagraph (A) during the
calendar year, and
‘‘(ii) aggregate amount of reimburse-
ments or refunds (or similar amounts)
paid to such individual during the calendar
year,
‘‘(D) the aggregate amount of nontaxable
Federal assistance received with respect to the
individual described in subparagraph (A) during
the calendar year, and
‘‘(E) such other information as the Sec-
retary may prescribe.
‘‘(c) APPLICATION TO GOVERNMENTAL UNITS.—For
purposes of this section—
‘‘(1) a governmental unit or any agency or in-
strumentality thereof shall be treated as a person,
and
‘‘(2) any return required under subsection (a)
by such governmental entity shall be made by the of-
ficer or employee appropriately designated for the
purpose of making such return.
‘‘(d) STATEMENTS TO BE FURNISHED TO INDIVID-
UALS WITH RESPECT TO WHOM INFORMATION IS RE-
QUIRED.—Every person required to make a return under
subsection (a) shall furnish to each individual whose name
is required to be set forth in such return under subpara-
graph (A) or (B) of subsection (b)(2) a written statement
showing—
‘‘(1) the name, address, and phone number of
the information contact of the person required to
make such return, and
‘‘(2) the aggregate amounts described in sub-
paragraphs (C) and (D) of subsection (b)(2).
The written statement required under the preceding sen-
tence shall be furnished on or before January 31 of the
year following the calendar year for which the return
under subsection (a) was required to be made.
‘‘(e) DEFINITIONS.—For purposes of this section, the
terms ‘institution of higher education’, ‘qualified higher
education expenses’, and ‘nontaxable Federal assistance’
have the meanings given such terms by section 24.
‘‘(f) RETURNS WHICH WOULD BE REQUIRED TO BE
MADE BY 2 OR MORE PERSONS.—Except to the extent
provided in regulations prescribed by the Secretary, in the
case of any amount received by any person on behalf of
another person, only the person first receiving such
amount shall be required to make the return under sub-
section (a).
‘‘(g) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary to carry out the pro-
visions of this section. No penalties shall be imposed under
section 6724 with respect to any return or statement re-
quired under this section until such time as such regula-
tions are issued.’’
(2) ASSESSABLE PENALTIES.—Section 6724(d)
(relating to definitions) is amended—
(A) by redesignating clauses (x) through
(xv) as clauses (xi) through (xvi), respectively,
in paragraph (1)(B) and by inserting after
clause (ix) of such paragraph the following new
clause:
‘‘(x) section 6050S (relating to re-
turns relating to payments for qualified
higher education expenses),’’, and
(B) by striking ‘‘or’’ at the end of the next
to last subparagraph, by striking the period at
the end of the last subparagraph and inserting
‘‘, or’’, and by adding at the end the following
new subparagraph:
‘‘(Z) section 6050S(d) (relating to returns
relating to qualified higher education ex-
penses).’’
(3) CLERICAL AMENDMENT.—The table of sec-
tions for subpart B of part III of subchapter A of
chapter 61 is amended by inserting after the item
relating to section 6050R the following new item:
‘‘Sec. 6050S. Returns relating to higher education expenses.’’
(d) CLERICAL AMENDMENT.—The table of sections
for subpart A of part IV of subchapter A of chapter 1
is amended by inserting after the item relating to section
23 the following new item:
‘‘Sec. 24. Higher education tuition and fees.’’
(e) EFFECTIVE DATE; SUNSET.—
(1) PURPOSE.—The President’s budget pro-
duces balance in fiscal year 2002 under Office of
Management and Budget assumptions, including the
permanent changes in law providing the tax reduc-
tion set forth in the preceding portions of this sec-
tion. The President’s budget also includes a mecha-
nism to guarantee balance under Congressional
Budget Office assumptions. As a part of that mech-
anism, the following provision sunsetting the tax re-
duction is included, as well as specific expedited pro-
cedures for reinstatement of the reduction to the ex-
tent that Office of Management and Budget as-
sumptions prove correct.
(2) EFFECTIVE DATE.—The amendments made
by this section shall apply to expenses paid after De-
cember 31, 1996 (in taxable years ending after such
date), for education furnished in academic periods
beginning after June 30, 1997, except that no credit
shall be allowed under section 24 of the Internal
Revenue Code of 1986 for taxable years beginning
after December 31, 2000.
SEC. 103. DEDUCTION FOR HIGHER EDUCATION EXPENSES.
(a) DEDUCTION ALLOWED.—Part VII of subchapter
B of chapter 1 (relating to additional itemized deductions
for individuals) is amended by redesignating section 221
as section 222 and by inserting after section 220 the fol-
lowing new section:
‘‘SEC. 221. HIGHER EDUCATION TUITION AND FEES.
‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of an
individual, there shall be allowed as a deduction the
amount of qualified higher education expenses paid by the
taxpayer during the taxable year for education furnished
to the taxpayer, the taxpayer’s spouse, or any dependent
of the taxpayer with respect to whom the taxpayer is al-
lowed a deduction under section 151, as an eligible student
at an institution of higher education during any academic
period beginning in such year.
‘‘(b) LIMITATIONS.—
‘‘(1) DOLLAR LIMITATION.—
‘‘(A) IN GENERAL.—The amount allowed
as a deduction under subsection (a) for any tax-
able year shall not exceed $10,000.
‘‘(B) PHASE-IN.—In the case of taxable
years beginning in 1997 or 1998, subparagraph
(A) shall be applied by substituting ‘$5,000’ for
‘$10,000’.
‘‘(2) LIMITATION
BASED
ON
MODIFIED
AD-
JUSTED GROSS INCOME.—
‘‘(A) IN
GENERAL.—The amount which
would (but for this paragraph) be allowed as a
deduction under subsection (a) shall be reduced
(but not below zero) by the amount determined
under subparagraph (B).
‘‘(B) 
AMOUNT
OF
REDUCTION.—The
amount determined under this subparagraph
equals the amount which bears the same ratio
to the deduction (determined without regard to
this paragraph) as—
‘‘(i) the excess of—
‘‘(I) the taxpayer’s modified ad-
justed gross income for the taxable
year, over
‘‘(II) $50,000 ($80,000 in the
case of a joint return), bears to
‘‘(ii) $20,000.
‘‘(C) MODIFIED
ADJUSTED
GROSS
IN-
COME.—For purposes of subparagraph (B), the
term ‘modified adjusted gross income’ means
the adjusted gross income of the taxpayer for
the taxable year determined—
‘‘(i) without regard to this section and
sections 911, 931, and 933, and
‘‘(ii) after the application of sections
86, 135, 219, and 469.
For purposes of sections 86, 135, 219, and
469, adjusted gross income shall be determined
without regard to the deduction allowed under
this section.
‘‘(D) CROSS REFERENCE.—
‘‘For inflation adjustment of $50,000 and $80,000
amounts, see section 24(h).
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), terms used in this section which are also
used in section 24 have the respective meanings
given such terms in section 24.
‘‘(2) DEDUCTION AVAILABLE FOR EDUCATION
TO ACQUIRE OR IMPROVE JOB SKILLS.—For pur-
poses of applying this section, the requirement of
section 24(d)(3) shall be treated as met if—
‘‘(A) the individual is enrolled in a course
which enables the individual to improve the in-
dividual’s job skills or to acquire new job skills,
and
‘‘(B) the individual is not enrolled in an el-
ementary or secondary school.
‘‘(d) SPECIAL RULES.—
‘‘(1) DENIAL OF DOUBLE BENEFIT.—No deduc-
tion shall be allowed under subsection (a) for any ex-
pense for which a deduction is allowed to the tax-
payer under any other provision of this chapter.
‘‘(2) CERTAIN RULES TO APPLY.—Rules similar
to the rules of subsections (e) and (f) of section 24,
and the following rules of section 24(g), shall apply
for purposes of this section:
‘‘(A) Paragraph (4) (relating to identifica-
tion requirement).
‘‘(B) Paragraph (5) (relating to adjust-
ment for certain scholarships).
‘‘(C) Paragraph (6) (relating to no benefit
for married individuals filing separate returns).
‘‘(D) Paragraph (7) (relating to non-
resident aliens).
‘‘(3) REGULATIONS.—The Secretary may pre-
scribe such regulations as may be necessary or ap-
propriate to carry out this section.’’
(b) DEDUCTION
ALLOWED
IN
COMPUTING
AD-
JUSTED GROSS INCOME.—Section 62(a) is amended by in-
serting after paragraph (16) the following new paragraph:
‘‘(17) 
HIGHER
EDUCATION
TUITION
AND
FEES.—The deduction allowed by section 221.’’
(c) CONFORMING AMENDMENT.—The table of sec-
tions for part VII of subchapter B of chapter 1 is amended
by striking the item relating to section 221 and inserting:
‘‘Sec. 221. Higher education tuition and fees.
‘‘Sec. 222. Cross reference.’’
(d) EFFECTIVE DATE; SUNSET.—
(1) PURPOSE.—The President’s budget pro-
duces balance in fiscal year 2002 under Office of
Management and Budget assumptions, including the
permanent changes in law providing the tax reduc-
tion set forth in the preceding portions of this sec-
tion. The President’s budget also includes a mecha-
nism to guarantee balance under Congressional
Budget Office assumptions. As a part of that mech-
anism, the following provision sunsetting the tax re-
duction is included, as well as specific expedited pro-
cedures for reinstatement of the reduction to the ex-
tent that Office of Management and Budget as-
sumptions prove correct.
(2) EFFECTIVE DATE.—The amendments made
by this section shall apply to expenses paid after De-
cember 31, 1996 (in taxable years ending after such
date), for education furnished in academic periods
beginning after June 30, 1997, except that no de-
duction shall be allowed under section 221 of the In-
ternal Revenue Code of 1986 for taxable years be-
ginning after December 31, 2000.
SEC. 104. TREATMENT OF CANCELLATION OF CERTAIN STU-
DENT LOANS.
(a) CERTAIN DIRECT STUDENT LOANS THE REPAY-
MENT OF WHICH IS INCOME CONTINGENT.—Paragraph
(1) of section 108(f) is amended by striking ‘‘any student
loan if’’ and all that follows and inserting ‘‘any student
loan if—
‘‘(A) such discharge was pursuant to a
provision of such loan under which all or part
of the indebtedness of the individual would be
discharged if the individual worked for a certain
period of time in certain professions for any of
a broad class of employers, or
‘‘(B) in the case of a loan made under part
D of title IV of the Higher Education Act of
1965 which has a repayment schedule estab-
lished under section 455(e)(4) of such Act (re-
lating to income contingent repayments), such
discharge is after the maximum repayment pe-
riod under such loan (as prescribed under such
part).’’
(b) CERTAIN LOANS BY EXEMPT ORGANIZATIONS.—
(1) IN
GENERAL.—Paragraph (2) of section
108(f) (defining student loan) is amended by strik-
ing ‘‘or’’ at the end of subparagraphs (B) and (C)
and by striking subparagraph (D) and inserting the
following:
‘‘(D) any organization described in section
501(c)(3) and exempt from tax under section
501(a), or
‘‘(E) any educational organization de-
scribed in section 170(b)(1)(A)(ii) pursuant to
an agreement with any entity described in sub-
paragraph (A), (B), (C), or (D) under which
the funds from which the loan was made were
provided to such educational organization.
The term ‘student loan’ includes any loan made by
an organization described in subparagraph (D) to
refinance a loan meeting the requirements of the
preceding sentence.’’
(2) EXCEPTION FOR DISCHARGES ON ACCOUNT
OF
SERVICES
PERFORMED
FOR
CERTAIN
LEND-
ERS.—Subsection (f) of section 108 is amended by
adding at the end the following new paragraph:
‘‘(3) EXCEPTION
FOR
DISCHARGES
ON
AC-
COUNT
OF
SERVICES
PERFORMED
FOR
CERTAIN
LENDERS.—Paragraph (1) shall not apply to the
discharge of a loan made by an organization de-
scribed in paragraph (2)(D) (or by an organization
described in paragraph (2)(E) from funds provided
cy that has substantially failed to achieve an accept-
able level of performance under its agreement with
the Secretary. A substantial performance failure
under this subparagraph may include the existence
of material internal control weaknesses relating to
data quality in the guaranty agency’s audits for each
of 2 years (that may or may not be consecutive) in
the 5-year period of the agreement under this sub-
section.
‘‘(D) Notwithstanding any other provision of
Federal or State law, if the Secretary has termi-
nated or is seeking to terminate a guaranty agency’s
agreement in advance of its expiration date—
‘‘(i) no State court may issue any order af-
fecting the Secretary’s actions with respect to
such guaranty agency;
‘‘(ii) any contract with respect to the ad-
ministration of reserve funds held by a guar-
anty agency, or the administration of any assets
purchased or developed with the reserve funds
of the guaranty agency, that is entered into or
extended by the guaranty agency, or any other
party on behalf of or with the concurrence of
the guaranty agency, after the date of enact-
ment of the Student Financial Aid Improve-
under this section other than those described in
subparagraphs (D) and (E), the interest rate
applicable to such other loan shall be the inter-
est rate described in subparagraph (D) if such
other loan is considered by the Secretary to be
subsidized, and the interest rate described in
subparagraph (E) if such other loan is consid-
ered by the Secretary to be unsubsidized.’’; and
(B) in paragraph (4)—
(i) by striking ‘‘Repayment’’ and in-
serting ‘‘(A) Except as provided in sub-
paragraph (B), repayment’’; and
(ii) by adding after subparagraph (A)
(as redesignated by clause (i)) the follow-
ing new subparagraph:
‘‘(B) In the case of a consolidation loan that re-
pays a loan made under this part for which the bor-
rower is in an in-school period at the time the con-
solidation application is received, the repayment pe-
riod for such consolidation loan shall commence
after the completion of a grace period, as described
in section 428(b)(7)(i).’’.
SEC. 229. CONTRACTS WITH OTHER ENTITIES.
Part B of title IV of the Act is amended by inserting
after section 428D the following new section: