I 
109TH CONGRESS 
2D SESSION 
H. R. 5407 
To amend the Internal Revenue Code of 1986 to expand deductions allowed 
for education-related expenses and to allow an earned tuition credit 
against income tax for qualified tuition and related expenses. 
IN THE HOUSE OF REPRESENTATIVES 
MAY 17, 2006 
Mrs. LOWEY 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 expand 
deductions allowed for education-related expenses and 
to allow an earned tuition credit against income tax 
for qualified tuition and related 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 ‘‘Deductibility and In-
centives to Promote Learning Opportunities and Maximize 
Assistance (DIPLOMA) Act of 2006’’. 
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SEC. 2. DEDUCTION FOR HIGHER EDUCATION EXPENSES. 
(a) ELIMINATION
OF
DOLLAR
LIMITATION
FOR 
QUALIFIED TUITION AND RELATED EXPENSES DEDUC-
TION.—Subsection (b) of section 222 of the Internal Rev-
enue Code of 1986 (relating to qualified tuition and re-
lated expenses) is amended to read as follows: 
‘‘(b) LIMITATION BASED ON ADJUSTED GROSS IN-
COME.— 
‘‘(1) IN GENERAL.—In the case of a taxpayer 
whose adjusted gross income for a taxable year ex-
ceeds $80,000 ($160,000 in the case of a joint re-
turn), the amount of the deduction allowed under 
subsection (a) for the taxable year shall be zero. 
‘‘(2) ADJUSTED GROSS INCOME.—For purposes 
of this subsection, adjusted gross income shall be de-
termined— 
‘‘(A) without regard to this section and 
sections 199, 911, 931, and 933, and 
‘‘(B) after application of sections 86, 135, 
137, 219, 221, and 469.’’. 
(b) TERMINATION.—Subsection (e) of such section of 
such Code is amended by striking ‘‘December 31, 2005’’ 
and inserting ‘‘December 31, 2010’’. 
SEC. 3. INTEREST AND PRINCIPAL ON EDUCATION LOANS. 
(a) EXPANSION OF DEDUCTION FOR INTEREST ON 
EDUCATION
LOANS
TO
INCLUDE
PRINCIPAL
PAY-
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MENTS.—Section 221 of the Internal Revenue Code of 
1986 (relating to interest on education loans) is amend-
ed— 
(1) in subsection (a), by striking ‘‘interest 
paid’’ and inserting ‘‘interest and principal paid’’, 
(2) by redesignating subsections (d), (e), and 
(f) as subsections (e), (f), and (g), respectively, 
(3) by inserting after subsection (c) the fol-
lowing new subsection: 
‘‘(d) LIMIT ON PERIOD DEDUCTION ALLOWED.— 
With respect to principal paid on any qualified education 
loan after the first 60 months (whether or not consecutive) 
in which principal payments are required, a deduction 
shall not be allowed under this section. For purposes of 
this paragraph, any loan and all refinancings of such loan 
shall be treated as 1 loan. Such 60 months shall be deter-
mined in the manner prescribed by the Secretary in the 
case of multiple loans which are refinanced by, or serviced 
as, a single loan and in the case of loans incurred before 
the date of the enactment of this section.’’, and 
(4) in the heading, by striking ‘‘INTEREST’’ 
and inserting ‘‘INTEREST AND PRINCIPAL’’. 
(b) CLERICAL AMENDMENTS.—The item relating to 
section 221 in the table of sections for part VII of sub-
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chapter B of chapter 1 of such Code is amended to read 
as follows: 
‘‘Sec. 221. Interest and principal on education loans.’’. 
SEC. 4. EARNED TUITION CREDIT. 
(a) IN GENERAL.—Subsection (b) of section 25A of 
the Internal Revenue Code of 1986 (relating to Hope and 
Lifetime Learning credits) is amended to read as follows: 
‘‘(b) EARNED TUITION CREDIT.— 
‘‘(1) PER STUDENT CREDIT.—In the case of 
any eligible student for whom an election is in effect 
under this section for any taxable year, the earned 
tuition credit is an amount equal to the sum of— 
‘‘(A) 100 percent of so much of the quali-
fied tuition and related expenses paid by the 
taxpayer during the taxable year (for education 
furnished to the eligible student during any 
academic period beginning in such taxable year) 
as does not exceed $1,500, plus 
‘‘(B) 50 percent of such expenses so paid 
as exceeds $1,500 but does not exceed $4,000. 
‘‘(2) LIMITATIONS
APPLICABLE
TO
EARNED 
TUITION CREDIT.— 
‘‘(A) CREDIT ALLOWED ONLY FOR 4 TAX-
ABLE YEARS.—An election to have this section 
apply with respect to any eligible student for 
purposes of the earned tuition credit under sub-
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section (a)(1) may not be made for any taxable 
year if such an election (by the taxpayer or any 
other individual) is in effect with respect to 
such student for any 4 prior taxable years. 
‘‘(B) CREDIT ALLOWED FOR YEAR ONLY IF 
INDIVIDUAL IS AT LEAST 1/2 TIME STUDENT 
FOR
PORTION
OF
YEAR.—The earned tuition 
credit under subsection (a)(1) shall not be al-
lowed for a taxable year with respect to the 
qualified tuition and related expenses of an in-
dividual unless such individual is an eligible 
student for at least one academic period which 
begins during such year. 
‘‘(C) CREDIT ALLOWED ONLY FOR FIRST 4 
YEARS OF POSTSECONDARY EDUCATION.—The 
earned tuition credit under subsection (a)(1) 
shall not be allowed for a taxable year with re-
spect to the qualified tuition and related ex-
penses of an eligible student if the student has 
completed (before the beginning of such taxable 
year) the first 4 years of postsecondary edu-
cation at an eligible educational institution. 
‘‘(D) DENIAL
OF
CREDIT
IF
STUDENT 
CONVICTED OF A FELONY DRUG OFFENSE.— 
The earned tuition credit under subsection 
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