I
105TH CONGRESS
1ST SESSION
H. R. 82
To amend the Internal Revenue Code of 1986 to make higher education
more affordable by providing tax benefits to individuals who save for,
or pay for, higher education.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 7, 1997
Mr. SCHUMER (for himself and Ms. SLAUGHTER) 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 make
higher education more affordable by providing tax bene-
fits to individuals who save for, or pay for, higher edu-
cation.
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 ‘‘Family Affordable Col-
lege Tuition Act of 1997’’.
SEC. 2. DEDUCTION FOR HIGHER EDUCATION EXPENSES.
(a) DEDUCTION ALLOWED.— Part VII of subchapter
B of chapter 1 of the Internal Revenue Code of 1986 (re-
lating to additional itemized deductions for individuals) is
amended by redesignating section 221 as section 222 and
by inserting after section 220 the following new section:
‘‘SEC. 221. HIGHER EDUCATION EXPENSES.
‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of an
individual, there shall be allowed as a deduction an
amount equal to—
‘‘(1) the qualified higher education expenses,
and
‘‘(2) interest on qualified higher education
loans,
paid by the taxpayer during the taxable year.
‘‘(b) 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) shall be reduced (but not below zero)
by the amount determined under paragraph (2).
‘‘(2) AMOUNT
OF
REDUCTION.—The amount
determined under this paragraph equals 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) $140,000 ($200,000 in the case
of a joint return), bears to
‘‘(B) $20,000.
‘‘(3) MODIFIED
ADJUSTED
GROSS
INCOME.—
For purposes of this subsection, the term ‘modified
adjusted gross income’ means the adjusted gross in-
come of the taxpayer for the taxable year deter-
mined—
‘‘(A) without regard to this section and
sections 911, 931, and 933, and
‘‘(B) after the application of sections 86,
135, 219, 220, and 469.
For purposes of the sections referred to in subpara-
graph (B), adjusted gross income shall be deter-
mined without regard to the deduction allowed under
this section.
‘‘(4) INFLATION ADJUSTMENTS.—
‘‘(A) IN GENERAL.—In the case of a tax-
able year beginning after 1999, the $140,000
and $200,000 amounts described in paragraph
(2) shall each be increased by an amount equal
to—
‘‘(i) such dollar amounts, 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 1998’ 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.
‘‘(c) QUALIFIED HIGHER EDUCATION EXPENSES.—
For purposes of this section—
‘‘(1) QUALIFIED
HIGHER
EDUCATION
EX-
PENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
higher education expenses’ means—
‘‘(i) tuition and fees charged by an
educational institution and required for the
enrollment or attendance of—
‘‘(I) the taxpayer,
‘‘(II) the taxpayer’s spouse,
‘‘(III) any dependent of the tax-
payer with respect to whom the tax-
payer is allowed a deduction under
section 151, or
‘‘(IV) any grandchild of the tax-
payer,
as an eligible student at an institution of
higher education, and
‘‘(ii) reasonable living expenses for
such an individual while away from home
and attending such institution.
‘‘(B) ELIGIBLE COURSES.—Amounts paid
for qualified higher education expenses of any
individual shall be taken into account under
subsection (a) only to the extent such ex-
penses—
‘‘(i) are attributable to courses of in-
struction for which credit is allowed toward
a baccalaureate degree by an institution of
higher education or toward a certificate of
required course work at a vocational
school, and
‘‘(ii) are not attributable to any grad-
uate program of such individual.
‘‘(C) 
EXCEPTION
FOR
NONACADEMIC
FEES.—Such term does not include any student
activity fees, athletic fees, insurance expenses,
or other expenses unrelated to a student’s aca-
demic course of instruction.
‘‘(D) ELIGIBLE STUDENT.—For purposes
of subparagraph (A), the term ‘eligible student’
means a student who—
‘‘(i) 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 sec-
tion, and
‘‘(ii) is carrying at least one-half the
normal full-time work load for the course
of study the student is pursuing, as deter-
mined by the institution of higher edu-
cation.
‘‘(E) IDENTIFICATION REQUIREMENT.—No
deduction shall be allowed under subsection (a)
to a taxpayer with respect to an eligible student
unless the taxpayer includes the name, age, and
taxpayer identification number of such eligible
student on the return of tax for the taxable
year.
‘‘(2) INSTITUTION OF HIGHER EDUCATION.—
The term ‘institution of higher education’ means an
institution which—
‘‘(A) 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) is eligible to participate in programs
under title IV of such Act.
‘‘(d) QUALIFIED HIGHER EDUCATION LOAN.—For
purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualified higher
education loan’ means a loan which is—
‘‘(A) made, insured, or guaranteed by the
Federal Government,
‘‘(B) made by a State or a political sub-
division of a State,
‘‘(C) made from the proceeds of a qualified
student loan bond under section 144(b), or
‘‘(D) made by an institution of higher edu-
cation (as defined in section 1201(a) of the
Higher Education Act of 1965 (20 U.S.C.
1141(a))).
‘‘(2) LIMITATION.—The amount of interest on
a qualified higher education loan which is taken into
account under subsection (a)(2) shall not exceed the
amount which bears the same ratio to such amount
of interest as—
‘‘(A) the proceeds from such loan used for
qualified higher education expenses, bears to
‘‘(B) the total proceeds from such loan.
For purposes of the preceding sentence, the term
‘qualified higher education expenses’ shall be deter-
mined without regard to subsection (c)(1)(A)(i)(IV).
‘‘(e) SPECIAL RULES.—
‘‘(1) NO DOUBLE BENEFIT.—
‘‘(A) IN GENERAL.—No deduction shall be
allowed under subsection (a) for any expense
for which a deduction is allowable to the tax-
payer under any other provision of this chapter
unless the taxpayer irrevocably waives his right
to the deduction of such expense under such
other provision.
‘‘(B) DEPENDENTS.—No deduction shall
be allowed under subsection (a) to any individ-
ual with respect to whom a deduction under
section 151 is allowable to another taxpayer for
a taxable year beginning in the calendar year in
which such individual’s taxable year begins.
‘‘(C) SAVINGS BOND EXCLUSION.—A de-
duction shall be allowed under subsection (a)
for qualified higher education expenses only to
the extent the amount of such expenses exceeds
the amount excludable under section 135 for
the taxable year.
‘‘(2) LIMITATION ON TAXABLE YEAR OF DE-
DUCTION.—
‘‘(A) IN GENERAL.—A deduction shall be
allowed under subsection (a) for qualified high-
er education expenses for any taxable year only
to the extent such expenses are in connection
with enrollment at an institution of higher edu-
cation during the taxable year.
‘‘(B) CERTAIN PREPAYMENTS ALLOWED.—
Subparagraph (A) shall not apply to qualified
higher education expenses paid during a taxable
year if such expenses are in connection with an
academic term beginning during such taxable
year or during the first 3 months of the next
taxable year.
‘‘(3) ADJUSTMENT
FOR
CERTAIN
SCHOLAR-
SHIPS AND VETERANS BENEFITS.—The amount of
qualified higher education expenses otherwise taken
into account under subsection (a) or (d)(2) with re-
spect to the education of an individual shall be re-
duced (before the application of subsection (b)) by
the sum of the amounts received with respect to
such individual for the taxable year as—
‘‘(A) a qualified scholarship which under
section 117 is not includable in gross income,
‘‘(B) an educational assistance allowance
under chapter 30, 31, 32, 34, or 35 of title 38,
United States Code, or
‘‘(C) a payment (other than a gift, be-
quest, devise, or inheritance within the meaning
of section 102(a)) for educational expenses, or
attributable to enrollment at an eligible edu-
cational institution, which is exempt from in-
come taxation by any law of the United States.
‘‘(4) NO
DEDUCTION
FOR
MARRIED
INDIVID-
UALS FILING SEPARATE RETURNS.—If the taxpayer
is a married individual (within the meaning of sec-
tion 7703), this section shall apply only if the tax-
payer and the taxpayer’s spouse file a joint return
for the taxable year.
‘‘(5) 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.
‘‘(6) REGULATIONS.—The Secretary may pre-
scribe such regulations as may be necessary or ap-
propriate to carry out this section, including regula-
tions requiring recordkeeping and information re-
porting.’’
(b) DEDUCTION
ALLOWED
IN
COMPUTING
AD-
JUSTED GROSS INCOME.—Section 62(a) of such Code is
amended by inserting after paragraph (16) the following
new paragraph:
‘‘(17) HIGHER
EDUCATION
EXPENSES.—The
deduction allowed by section 221.’’
(c) CONFORMING AMENDMENT.—The table of sec-
tions for part VII of subchapter B of chapter 1 of such
Code is amended by striking the item relating to section
221 and inserting:
‘‘Sec. 221. Higher education expenses.
‘‘Sec. 222. Cross reference.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to payments made after December
31, 1996.
SEC. 3. EDUCATION SAVINGS PLANS.
(a) IN GENERAL.—Part VII of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
additional itemized deductions for individuals) is amended
by redesignating section 222 as section 223 and by insert-
ing after section 221 the following new section:
‘‘SEC. 222. EDUCATION SAVINGS PLANS.
‘‘(a) DEDUCTION ALLOWED.—In the case of an indi-
vidual, there shall be allowed as a deduction the amount
paid in cash during the taxable year by such individual
to an education savings plan established for the purpose
of accumulating funds to pay the qualified higher edu-
cation expenses of individual who is an eligible individual
with respect to the taxpayer.
‘‘(b) LIMITATIONS.—
‘‘(1) IN GENERAL.—The amount allowable as a
deduction under subsection (a) to the taxpayer for
any taxable year with respect to amounts paid to the
education savings plan of each eligible individual
shall not exceed $4,000.
‘‘(2) LIMITATION
BASED
ON
MODIFIED
AD-
JUSTED
GROSS
INCOME.—The $4,000 amount in
paragraph (1) shall be reduced (but not below zero)
by the amount which bears the same ratio to $4,000
as—
‘‘(A) the excess of—
‘‘(i) the taxpayer’s modified adjusted
gross income for such taxable year, over
‘‘(ii) the dollar amount applicable to
the taxpayer for such taxable year under
section 221(b)(2)(A)(ii), bears to
‘‘(B) $20,000.
‘‘(3) MODIFIED
ADJUSTED
GROSS
INCOME.—
For purposes of this subsection, the term ‘modified
adjusted gross income’ means the adjusted gross in-
come of the taxpayer for the taxable year deter-
mined—
‘‘(A) without regard to this section and
sections 911, 931, and 933, and
‘‘(B) after the application of sections 86,
135, 219, 220, 221, and 469.
For purposes of the sections referred to in subpara-
graph (B), adjusted gross income shall be deter-
mined without regard to the deduction allowed under
this section.
‘‘(3) PLAN
MAY
NOT
BE
ESTABLISHED
FOR
BENEFIT OF MORE THAN 1 INDIVIDUAL.—An edu-
cation savings plan may not be established for the
benefit of more than 1 individual.
‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) ELIGIBLE INDIVIDUAL.—The term ‘eligible
individual’ means an individual who is—
‘‘(A) the taxpayer,
‘‘(B) the taxpayer’s spouse,
‘‘(C) any dependent of the taxpayer with
respect to whom the taxpayer is allowed a de-
duction under section 151, or
‘‘(D) any grandchild of the taxpayer.
‘‘(2) EDUCATION
SAVINGS
PLAN.—The term
‘education savings plan’ means a trust created or or-
ganized in the United States exclusively for the pur-
pose of paying the qualified higher education ex-
penses of an eligible individual, but only if the writ-
ten governing instrument creating the trust meets
the following requirements:
‘‘(A) No contribution will be accepted un-
less it is in cash, and contributions will not be
accepted for any taxable year in excess of
$4,000.
‘‘(B) The trustee is a bank (as defined in
section 408(n)) or another person who dem-
onstrates to the satisfaction of the Secretary
that the manner in which that person will ad-
minister the trust will be consistent with the re-
quirements of this section.
‘‘(C) No part of the trust assets will be in-
vested in life insurance contracts.
‘‘(D) The assets of the trust shall not be
commingled with other property except in a
common trust fund or common investment
fund.
‘‘(3) TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—A taxpayer shall be deemed to have made a
contribution on the last day of the preceding taxable
year if the contribution is made on account of such
taxable year and is made not later than the time
prescribed by law for filing the return for such tax-
able year (including extensions thereof).
‘‘(4) QUALIFIED
HIGHER
EDUCATION
EX-
PENSES.—The term ‘qualified higher education ex-
penses’ has the meaning given such term by section
221(c).
‘‘(5) INSTITUTION OF HIGHER EDUCATION.—
The term ‘institution of higher education’ has the
meaning given such term by section 221(c).
‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, any amount paid or distrib-
uted out of an education savings plan shall be in-
cluded in gross income of the payee or distributee