To amend the Internal Revenue Code of 1986 to increase tax incentives for higher education.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``College Tuition Assistance Act of 
2002''.

SEC. 2. INCREASE IN DEDUCTION FOR QUALIFIED TUITION AND RELATED 
              EXPENSES.

    (a) In General.--Paragraph (2) of section 222(b) of the Internal 
Revenue Code of 1986 (relating to applicable dollar limit) is amended 
to read as follows:
            ``(2) Applicable dollar limit.--The applicable dollar 
        amount for any taxable year shall be determined as follows:

                                                             Applicable
``Taxable year:                                           dollar limit:
    2002..........................................              $5,000 
    2003 and thereafter...........................          $10,000.''.
    (b) Phaseout based on adjusted gross income.--Subsection (b) of 
section 222 of such Code (relating to dollar limitations) is amended by 
adding at the end the following new paragraphs:
            ``(3) Limitation based on adjusted gross income.--
                    ``(A) In general.--The amount which would (but for 
                this paragraph) be allowable as a deduction under this 
                section shall be reduced (but not below zero) by the 
                amount determined under subparagraph (B).
                    ``(B) Amount of reduction.--The amount determined 
                under this subparagraph is the amount which bears the 
                same ratio  to the amount which would be so allowable 
as--
                            ``(i) the excess of--
                                    ``(I) the taxpayer's adjusted gross 
                                income for such taxable year, over
                                    ``(II) $65,000 ($130,000 in the 
                                case of a joint return), bears to
                            ``(ii) $10,000 ($20,000 in the case of a 
                        joint return).
            ``(4) Adjusted gross income.--For purposes of this 
        subsection, adjusted gross income shall be determined--
                            ``(A) without regard to this section and 
                        sections 911, 931, and 933, and
                            ``(B) after application of sections 86, 
                        135, 137, 219, 221, and 469.
            ``(5) Adjustments for inflation.--
                    ``(A) In general.--In the case of a taxable year 
                beginning after 2002, the $65,000 and $130,000 amounts 
                in paragraph (3)(B)(i)(II) shall be increased by an 
                amount equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for the 
                        calendar year in which the taxable year begins, 
                        determined by substituting `calendar year 2001' 
                        for `calendar year 1992' in subparagraph (B) 
                        thereof.
                    ``(B) Rounding.--If any amount as adjusted under 
                subparagraph (A) is not a multiple of $1,000, such 
                amount shall be rounded to the next lowest multiple of 
                $1,000.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to payments made in taxable years beginning after December 31, 
2001.

SEC. 3. EXPANSION OF LIFETIME LEARNING CREDIT.

    (a) In General.--Section 25A(c)(1) of the Internal Revenue Code of 
1986 (relating to lifetime learning credit) is amended by striking ``20 
percent'' and inserting ``28 percent''.
    (b) Increase in AGI Limits.--
            (1) In general.--Subsection (d) of section 25A of such Code 
        (relating to limitation based on modified adjusted gross 
        income) is amended to read as follows:
    ``(d) Limitation Based on Modified Adjusted Gross Income.--
            ``(1) Hope credit.--
                    ``(A) In general.--The amount which would (but for 
                this subsection) be taken into account under subsection 
                (a)(1) 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 amount which would be so taken 
                into account as--
                            ``(i) the excess of--
                                    ``(I) the taxpayer's modified 
                                adjusted gross income for such taxable 
                                year, over
                                    ``(II) $40,000 ($80,000 in the case 
                                of a joint return), bears to
                            ``(ii) $10,000 ($20,000 in the case of a 
                        joint return).
            ``(2) Lifetime learning credit.--
                    ``(A) In general.--The amount which would (but for 
                this subsection) be taken into account under subsection 
                (a)(2) 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 amount which would be so taken 
                into account as--
                            ``(i) the excess of--
                                    ``(I) the taxpayer's modified 
                                adjusted gross income for such taxable 
                                year, over
                                    ``(II) $50,000 ($100,000 in the 
                                case of a joint return), bears to
                            ``(ii) $10,000 ($20,000 in the case of a 
                        joint return).
            ``(3) Modified adjusted gross income.--For purposes of this 
        subsection, the term `modified adjusted gross income' means the 
        adjusted gross income of the taxpayer for the taxable year 
        increased by any amount excluded from gross income under 
        section 911, 931, or 933.''.
            (2) Conforming amendments.--
                    (A) Section 25A(h)(2)(A) of such Code is amended by 
                striking ``subsection (d)(2)'' and inserting 
                ``subsection (d)(1)(B) and the $50,000 and $100,000 
                amounts in subsection (d)(2)(B)''.
                    (B) Section 25A(h)(2)(A)(ii) of such Code is 
                amended by striking ``determined by substituting'' and 
                all that follows and inserting the following: 
                ``determined--
                                    ``(I) in the case of the $40,000 
                                and $80,000 amounts in subsection 
                                (d)(1)(B)(i)(II), by substituting 
                                `calendar year 2000' for `calendar year 
                                1992' in subparagraph (B) thereof, and
                                    ``(II) in the case of the $50,000 
                                and $100,000 amounts in subsection 
                                (d)(2)(B)(i)(II), by substituting 
                                `calendar year 2001' for `calendar year 
                                1992' in subparagraph (B) thereof.''.
    (c) Use of Certain Needs-Based Aid for Qualified Expenses.--Section 
25A(g)(2)(C) of the Internal Revenue Code of 1986 (relating to 
adjustment for certain scholarships , etc.) is amended by inserting 
``or needs-based aid received under part A of title IV of the Higher 
Education Act of 1965'' after ``section 102(a)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to expenses paid after December 31, 2001 (in taxable years ending 
after such date), for education furnished in academic periods beginning 
after such date.

SEC. 4. EXPANSION OF STUDENT LOAN INTEREST DEDUCTION ALLOWED ON A PER 
              STUDENT BASIS.

    (a) In General.--Section 221(b)(1) of the Internal Revenue Code of 
1986 (relating to maximum deduction) is amended by inserting ``with 
respect to qualified education loans of each eligible student'' after 
``paragraph (2),''.
    (b) Effective Date.--The amendment made by this section shall apply 
with respect to any loan interest paid after December 31, 2001, in 
taxable years ending after such date.

SEC. 5. EXTENSION AND INCREASE OF PELL GRANT MAXIMUM AMOUNTS.

    Section 401(b)(2)(A) of the Higher Education Act of 1965 (20 U.S.C. 
1070a(b)(2)(A)) is amended by striking clauses (i) through (v) and 
inserting the following:
            ``(i) $6,500 for academic year 2003-2004; and
            ``(ii) $7,000 for academic year 2004-2005,''.

Summary: College Tuition Assistance Act of 2002 - Amends the Internal Revenue Code to increase the applicable dollar amount for the qualified tuition and related expenses deduction from $3,000 (for 2002 and 2003) and $4,000 (for 2004 and 2005) to $10,000.Increases the Lifetime Learning Credit percentage from 20 to 28 percent.Permits the student loan interest deduction on a per student basis.Amends the Higher Education Act of 1965 to extend and increase Pell grant maximum amounts ($6,500 for academic year 2003-2004 and $7,000 for academic year 2004-2005).