This legislation, titled the "Tax-Free Pell Grant Act," aims to expand the tax-exempt status of Federal Pell Grants. It achieves this by amending the Internal Revenue Code of 1986 to explicitly exclude these grants from an individual's gross income, treating them similarly to scholarships used for qualified educational expenses. A significant provision ensures that the exclusion of Pell Grants from gross income does not negatively impact a student's eligibility for other educational tax benefits. Specifically, it clarifies that these excluded Pell Grants will not reduce qualified education expenses when calculating the American Opportunity and Lifetime Learning Credits, preventing a reduction in potential credit amounts. These changes are slated to take effect for taxable years beginning after December 31, 2025, providing a clearer and more beneficial tax treatment for Pell Grant recipients.