To amend the Internal Revenue Code of 1986 to expand incentives for education.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Higher Education Affordability and 
Equity Act of 2003''.

SEC. 2. EXPANSION OF DEDUCTION FOR INTEREST ON EDUCATION LOANS.

    (a) Repeal of Dollar Limitation; Increase in Phaseout Beginning 
Point.--Subsection (b) of section 221 of the Internal Revenue Code of 
1986 (relating to maximum deduction) is amended to read as follows:
    ``(b) Limitation Based on Modified Adjusted Gross Income.--
            ``(1) In general.--The amount which would (but for this 
        subsection) be allowable as a deduction under this section 
        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) $100,000 ($200,000 in the case of a 
                        joint return), bears to
                    ``(B) $15,000 ($30,000 in the case of a joint 
                return).
            ``(3) Modified adjusted gross income.--The term `modified 
        adjusted gross income' means adjusted gross income determined--
                    ``(A) without regard to this section and sections 
                222, 911, 931, and 933, and
                    ``(B) after application of sections 86, 135, 137, 
                219, and 469.''.
    (b) Conforming Amendment.--Section 221(f)(1) of such Code is 
amended to read as follows:
            ``(1) In general.--In the case of a taxable year beginning 
        after 2004, the $100,000 and $200,000 amounts in subsection (b) 
        shall each be increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) 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 2003' for `calendar year 1992' in 
                subparagraph (B) thereof.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 3. DEDUCTION FOR QUALIFIED TUITION AND RELATED EXPENSES MADE 
              PERMANENT.

    (a) Repeal of Termination.--Section 222 of the Internal Revenue 
Code of 1986 is amended by striking subsection (e).
    (b) Conforming Amendments.--Subparagraph (B) of section 222(b)(2) 
of such Code is amended--
            (1) by striking ``2004 or 2005'' and inserting ``2004 or 
        thereafter'', and
            (2) in the heading by striking ``and 2005'' and inserting 
        ``and thereafter''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 4. EDUCATION SAVINGS ACCOUNTS.

    (a) Increase in Allowable Contributions.--
            (1) In general.--Clause (iii) of section 530(b)(1)(A) of 
        the Internal Revenue Code of 1986 is amended by striking 
        ``$2,000'' and inserting ``$5,000''.
            (2) Conforming amendment.--Section 4973(e)(1)(A) of such 
        Code is amended by striking ``$2,000'' and inserting 
        ``$5,000''.
    (b) Reports.--Subsection (h) of section 530 of such Code is amended 
by striking the period at the end of the last sentence and inserting 
``, except that reports shall be so filed and furnished for any 
calendar year not later than June 30 of the following year.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 5. ALLOWANCE OF ROOM, BOARD, AND SPECIAL NEEDS SERVICES IN THE 
              CASE OF SCHOLARSHIPS AND TUITION REDUCTION PROGRAMS WITH 
              RESPECT TO HIGHER EDUCATION.

    (a) In General.--Paragraph (1) of section 117(b) of the Internal 
Revenue Code of 1986 (defining qualified scholarship) is amended by 
inserting before the period at the end the following: ``or, in the case 
of enrollment or attendance at an eligible educational institution, for 
qualified higher education expenses.''.
    (b) Definitions.--Subsection (b) of section 117 of such Code is 
amended by adding at the end the following new paragraph:
            ``(3) Qualified higher education expenses; eligible 
        educational institution.--The terms `qualified higher education 
        expenses' and `eligible educational institution' have the 
        meanings given such terms in section 529(e).''.
    (c) Tuition Reduction Programs.--Paragraph (5) of section 117(d) of 
such Code (relating to special rules for teaching and research 
assistants) is amended by striking ``shall be applied as if it did not 
contain the phrase `(below the graduate level)'.'' and inserting 
``shall be applied--
                    ``(A) as if it did not contain the phrase `(below 
                the graduate level)', and
                    ``(B) by substituting `qualified higher education 
                expenses' for `tuition' the second place it appears.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to expenses paid after December 31, 2003 (in taxable years ending 
after such date), for education furnished in academic periods beginning 
after such date.

SEC. 6. TREATMENT OF PREPAYMENT AND SAVINGS PLANS UNDER STUDENT 
              FINANCIAL AID NEEDS ANALYSIS.

    (a) Definition of Assets.--Subsection (f) of section 480 of the 
Higher Education Act of 1965 (20 U.S.C. 1087vv(j)) is amended--
            (1) in paragraph (1) by inserting ``qualified education 
        benefit (except as provided in paragraph (3)),'' after ``tax 
        shelters,''; and
            (2) by adding at the end the following new paragraphs:
    ``(3) A qualified education benefit shall not be considered an 
asset of the student under section 475 of this part.
    ``(4) For purposes of this subsection, the term `qualified 
education benefit' means--
            ``(A) a program which is described in clause (i) of section 
        529(b)(1)(A) of the Internal Revenue Code of 1986 and which 
        meets the requirements of section 529(b)(1)(B) of such Code;
            ``(B) a State tuition program described in clause (ii) of 
        section 529(b)(1)(A) of the Internal Revenue Code of 1986 which 
        meets the requirements of section 529(b)(1)(B) of such Code; 
        and
            ``(C) a Coverdell education savings account (as defined in 
        section 530(b)(1) of the Internal Revenue Code of 1986).''.
    (b) Definition of Other Financial Assistance.--Subsection (j) of 
section 480 of the Higher Education Act of 1965 (20 U.S.C. 1087vv(j)) 
is amended--
            (1) by striking ``; Tuition Prepayment Plans'' in the 
        heading of such subsection;
            (2) by striking ``(1) For purposes'' and inserting ``For 
        purposes''; and
            (3) by striking paragraph (2).
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to determinations of need under part F of title IV 
of the Higher Education Act of 1965 for academic years beginning on or 
after July 1, 2005.

SEC. 7. REPEAL OF EGTRRA SUNSET APPLICABILITY TO CERTAIN EDUCATION 
              PROVISIONS.

    Title IX of the Economic Growth and Tax Relief Reconciliation Act 
of 2001 (relating to sunset of provisions of such Act) shall not apply 
to subtitles A, B, and D of title IV of such Act.

Summary: Higher Education Affordability and Equity Act of 2003 - Amends the Internal Revenue Code and the Higher Education Act of 1965 to expand education incentives, including: (1) the deduction for interest on education loans; (2) making the deduction for qualified tuition and related expenses permanent; (3) increasing allowable contributions to Coverdell education savings accounts; (4) allowing qualified higher education expenses (books, supplies, room, board, and special needs services) to be excluded from gross income in the case of scholarship programs for higher education; and (5) repealing the sunset provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 applicable to title IV (Affordable Education Provisions) of such Act.