I
104TH CONGRESS
1ST SESSION
H. R. 2050
To amend the Internal Revenue Code of 1986 to restore the deduction
for interest on higher education loans and to permit penalty-free with-
drawals from qualified retirement plans to pay for higher education
expenses.
IN THE HOUSE OF REPRESENTATIVES
JULY 18, 1995
Mr. BAKER of Louisiana 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 restore
the deduction for interest on higher education loans and
to permit penalty-free withdrawals from qualified retire-
ment plans to pay for higher education expenses.
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 ‘‘Higher Education Fi-
nance Improvement Act’’.
SEC. 2. RESTORATION OF DEDUCTION FOR INTEREST ON
HIGHER EDUCATION LOANS.
(a) IN GENERAL.—Paragraph (2) of section 163(h)
of the Internal Revenue Code of 1986 (defining personal
interest) is amended by striking ‘‘and’’ at the end of sub-
paragraph (D), by redesignating subparagraph (E) as sub-
paragraph (F), and by inserting after subparagraph (D)
the following new subparagraph:
‘‘(E) any interest on a qualified higher
education loan, and’’.
(b) QUALIFIED HIGHER EDUCATION LOAN.—Para-
graph (5) of section 163(h) of such Code (relating to
phase-in of limitations) is amended to read as follows:
‘‘(5) QUALIFIED HIGHER EDUCATION LOAN.—
For purposes of this subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified
higher education loan’ means any indebtedness
which—
‘‘(i) is incurred by the taxpayer to pay
qualified higher education expenses which
are paid or incurred within a reasonable
period of time before or after the indebted-
ness is incurred, and
‘‘(ii) is incurred pursuant to a Federal
or State loan guarantee or insurance pro-
gram.
‘‘(B) QUALIFIED HIGHER EDUCATION EX-
PENSES.—For purposes of this paragraph—
‘‘(i) IN GENERAL.—The term ‘quali-
fied higher education expenses’ means tui-
tion and related expenses of—
‘‘(I) the taxpayer,
‘‘(II) the taxpayer’s spouse, or
‘‘(III) the taxpayer’s child (as de-
fined in section 151(c)(3)).
‘‘(ii) TUITION
AND
RELATED
EX-
PENSES.—The term ‘tuition and related
expenses’ means—
‘‘(I) tuition and fees required for
enrollment or attendance at an eligible
educational institution (as defined in
section 135(c)(3)),
‘‘(II) fees, books, supplies, and
equipment required for courses of in-
struction at such an institution, and
‘‘(III) reasonable living expenses
for attendance at such an institution
while away from home.
‘‘(C) COORDINATION WITH OTHER PROVI-
SIONS.—
‘‘(i) 
PARAGRAPH
(3)(C)(ii).—Any
qualified higher education loan shall not be
taken into account for purposes of apply-
ing the limitation of paragraph (3)(C)(ii).
‘‘(ii) SAVINGS BONDS PROVISIONS.—
The amount of qualified higher education
expenses for any taxable year shall be re-
duced by any amount excludable from
gross income under section 135 for the
taxable year.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1992.
SEC. 3. PENALTY-FREE WITHDRAWALS FROM QUALIFIED
RETIREMENT 
PLANS 
FOR 
HIGHER 
EDU-
CATION EXPENSES.
(a) IN GENERAL.—Paragraph (2) of section 72(t) of
the Internal Revenue Code of 1986 (relating to exceptions
to 10 percent additional tax on early distributions from
qualified retirement plans) is amended by adding at the
end the following new subparagraph:
‘‘(D) HIGHER
EDUCATION
EXPENSES.—
Any distribution to the extent the distribution
is used before the close of the 60th day after
the day on which the distribution is received to
pay qualified higher education expenses (within
the meaning of subparagraphs (B) and (C)(ii)
of section 163(h)(5)).’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to distributions made after the
date of the enactment of this Act.
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