To amend the Internal Revenue Code of 1986 to coordinate the reduction in the American Opportunity Tax Credit with Federal Pell Grants, to the extent such grants are attributable to expenses not eligible for such credit.

Amends the Internal Revenue Code, with respect to the American Opportunity Tax Credit, to provide that any credit amount which is attributable to a federal Pell Grant under the Higher Education Act of 1965 shall be reduced by the  amount of expenses (other than qualified tuition and related expenses) which are taken into account in determining the cost of attendance at an institution of higher education for the academic period for which the credit amount is being determined.  Modifies the definition of "qualified scholarship," for purposes of the tax exclusion for such scholarships, to eliminate the requirement that such scholarships be used for qualified tuition and related expenses and to include a federal Pell Grant as a qualified scholarship.