[Congressional Bills 114th Congress]
[From the U.S. Government Publishing Office]
[S. 2186 Introduced in Senate (IS)]

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114th CONGRESS
  1st Session
                                S. 2186

 To provide the legal framework necessary for the growth of innovative 
private financing options for students to fund postsecondary education, 
                        and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            October 20, 2015

   Mr. Rubio introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
 To provide the legal framework necessary for the growth of innovative 
private financing options for students to fund postsecondary education, 
                        and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Investing in Student Success Act of 
2015''.

           TITLE I--AUTHORIZATION OF INCOME SHARE AGREEMENTS

SEC. 101. PURPOSE; LAWFULNESS OF INSTRUMENTS; PREEMPTION OF STATE LAW.

    (a) Purpose.--It is the purpose of this title to authorize 
individuals to enter into income share agreements for the purposes of 
obtaining funds for postsecondary education in exchange for agreeing to 
pay to the holder of the contract a specified percentage of the 
individual's future income.
    (b) Lawfulness of Contracts; Preemption.--Any income share 
agreement that complies with the requirements of section 102 shall be a 
valid, binding, and enforceable contract notwithstanding any State law 
limiting or otherwise regulating assignments of future wages or other 
income.

SEC. 102. TERMS AND CONDITIONS OF INCOME SHARE AGREEMENT CONTRACTS.

    (a) Definition of Income Share Agreement.--For purposes of this 
title, the term ``income share agreement'' means an agreement between 
an individual and any other person under which the individual commits 
to pay a specified percentage of the individual's future income, for a 
specified period of time, in exchange for payments to or on behalf of 
such individual for postsecondary education, workforce development, or 
other purposes.
    (b) Terms and Conditions of Agreements.--An income share agreement 
complies with the requirements of this section if the contract complies 
with each of the following conditions:
            (1) Specified percentage of income.--The income-share 
        agreement shall specify the percentage of future income that 
        the individual subject to the agreement will be obligated to 
        pay, except that the agreement shall provide for that any year 
        covered by such agreement during which the individual has an 
        income that is less than $15,000 (adjusted each year to reflect 
        changes in the Consumer Price Index for All Urban Consumers 
        published by the Bureau of Labor Statistics of the Department 
        of Labor for the most recent 12-month period for which such 
        data are available) the individual shall not be required to pay 
        for such year any portion of the individual's income.
            (2) Definition of income.--An income share agreement shall 
        specify the definition of income to be used for purposes of 
        calculating an individual's obligation under the contract.
            (3) Annual limitation on obligation.--The percentage of 
        income required under the income share agreement to be paid by 
        the individual subject to the agreement may not exceed a 
        percentage such that, when multiplied by $15,000, the product 
        exceeds the aggregate amount of periodic payments of principal 
        and interest that would be required to be paid during a 12-
        month period under a comparable loan that bears interest at a 
        fixed annual rate of 20 percent.
            (4) Aggregate limitation on obligation.--No eligible 
        individual may enter into any income share agreement if the 
        total percentage of such individual's future income that the 
        individual agrees to pay under that contract, and any other 
        income share agreements of such individual, exceeds 15 percent 
        of such future income.
            (5) Time-based limitation on obligation.--
                    (A) Limitation.--The income-share agreement may not 
                provide for the individual subject to the agreement to 
                assume a commitment to pay future income having a 
                commitment factor, that when added to the commitment 
                factors for any other income-share agreements to which 
                such individual is subject, equals a sum that exceeds 
                the maximum commitment factor.
                    (B) Commitment factor.--As used in this paragraph, 
                the term ``commitment factor'' means, with respect to 
                an income-share agreement, the product of--
                            (i) the percentage (expressed as a decimal) 
                        of such future income required to be paid 
                        during such period; and
                            (ii) the remaining number of years under 
                        the agreement that future income is required to 
                        be paid at such percentage.
                    (C) Maximum commitment factor.--As used in this 
                paragraph, the term ``maximum commitment factor'' 
                means, with respect to an income-share agreement, 2.25 
                (which figure is the product of 7.5 percent and the 
                number of years in the longest allowable contract under 
                paragraph (6)(A)).
            (6) Extension of period.--The income-share agreement may 
        provide that such period may be extended by a number of years 
        that is equal to the number of years during which the agreement 
        is in force for which the individual's annual income is below 
        the dollar amount specified in paragraph (1).
            (7) Early termination.--The income-share agreement shall 
        specify the terms and conditions by which the individual 
        subject to the agreement may extinguish the individual's 
        obligations under the agreement before the end of the payment 
        period specified in the agreement and any application extension 
        provided for in the agreement pursuant to paragraph (6)(B).
    (c) Required Disclosures.--An income share agreement does not 
comply with the requirements of this section unless the individual who 
is committing to pay future income is provided, before entry into such 
agreement, a disclosure document that clearly and simply discloses--
            (1) that--
                    (A) the agreement is not a debt instrument, and 
                that the amount the individual will be required to pay 
                under the agreement--
                            (i) may be more or less than the amount 
                        provided to the individual; and
                            (ii) will vary in proportion to the 
                        individual's future income;
                    (B) that the obligations of the individual under 
                the agreement are not dischargeable under bankruptcy 
                law, except in a case that would impose an undue 
                hardship on the debtor and the debtor's dependents;
                    (C) whether the obligations of the individual under 
                the agreement may be extinguished by accelerating 
                payments, and, if so, under what terms;
                    (D) the duration of the individual's obligations 
                under the agreement (absent such accelerating 
                payments), including any circumstances under which the 
                contract would be extended;
                    (E) the percentage of income the individual is 
                committing to pay under the agreement and the minimum 
                amount of annual income that, pursuant to subsection 
                (b)(1), triggers the individual's obligation under the 
                agreement to make payments for such year; and
                    (F) the definition of income to be used for 
                purposes of calculating the individual's obligation; 
                and
            (2) a comparison of--
                    (A) the amounts an individual would be required to 
                pay under the income-share agreement at a range of 
                annual income levels, which income levels shall 
                correspond to the levels the individual might 
                reasonably be expected to make given the intended use 
                of the funds provided under the agreement, as 
                determined in accordance with guidance issued by the 
                Secretary of the Treasury; to
                    (B) the amounts required to be paid under a 
                comparable loan that bears interest at a fixed annual 
                rate of 10 percent.
    (d) Non-Interference.--An income-share agreement represents an 
obligation by the individual pay the specific percentage of future 
income, but shall not be construed to give the contract holder any 
rights over an individual's actions.

SEC. 103. DEFINITIONS.

    As used in this title:
            (1) State.--The term ``State'' includes, in addition to the 
        several States of the Union, the Commonwealth of Puerto Rico, 
        the District of Columbia, Guam, American Samoa, the Virgin 
        Islands, the government of the Northern Mariana Islands, and 
        the Trust Territory of the Pacific Islands.
            (2) State law.--The term ``State law'' means any law, 
        decision, rule, regulation, or other action having the effect 
        of a law of any State or any political subdivision of a State, 
        or any agency or instrumentality of a State or political 
        subdivision of a State, except that a law of the United States 
        applicable only to the District of Columbia shall be treated as 
        a State law (rather than a law of the United States).

SEC. 104. PREEMPTION OF STATE LAW WITH RESPECT TO USURY.

    Income share agreements shall not be subject to State usury laws.

SEC. 105. RULEMAKING; MODEL DISCLOSURE FORMS.

    (a) In General.--The Secretary of the Treasury, in consultation 
with such other agency heads as the Secretary considers appropriate, 
may issue such regulations as may be necessary to carry out this title.
    (b) Model Disclosure Forms.--
            (1) In general.--Not later than the end of the 180-day 
        period beginning upon the date of the enactment of this Act, 
        the Secretary of the Treasury, after consultation with such 
        other agency heads as the Secretary considers appropriate, 
        shall promulgate a model disclosure form for the disclosures 
        required under section 102(c).
            (2) Safe harbor.--Any person who uses the model disclosure 
        form promulgated pursuant to paragraph (1) and includes 
        accurate information required under section 102(c) to be 
        disclosed shall be deemed to have satisfied the requirements of 
        section 102(c).

           TITLE II--TAX TREATMENT OF INCOME SHARE AGREEMENTS

SEC. 201. TAX TREATMENT OF INCOME SHARE AGREEMENTS.

    (a) Exclusion From Gross Income of Income Share Agreement 
Proceeds.--Payments made under an income-share agreement that complies 
with the requirements of section 102 to or on behalf of the individual 
who commits to pay a specified percentage of such individual's future 
income to another person under such agreement, and any difference in 
value of the payments to or on behalf of such individual and the total 
amount paid by such individual, shall not be includible in the gross 
income of such individual for purposes of the Internal Revenue Code of 
1986.
    (b) Treatment of Payments of Future Income.--Payments of future 
income received by another person under an income share agreement shall 
be treated for purposes of the Internal Revenue Code of 1986--
            (1) first, with respect to so much of such payments as does 
        not exceed the amount of the payments to which subsection (a) 
        applies with respect to such agreement, as a repayment of 
        investment in the contract which reduces the holder's basis in 
        such agreement, and
            (2) second, as income on the contract which is includible 
        in gross income.
    (c) Income Share Agreement.--For purposes of this title, the term 
``income share agreement'' has the meaning given such term under title 
I.

                  TITLE III--QUALIFIED EDUCATION LOAN

SEC. 301. QUALIFIED EDUCATION LOAN.

    (a) In General.--Paragraph (1) of section 221(d) of the Internal 
Revenue Code of 1986 is amended by adding at the end the following: 
``Such term includes any income share agreement (as defined in section 
102 of the Investing in Student Success Act of 2015), except that 
payments made by the taxpayer during the taxable year to meet an income 
share agreement obligation shall not be taken into account under 
subsection (a)''.
    (b) Information Reporting Not Required.--Subsection (e) of section 
6050S of such Code is amended by inserting ``(without regard to the 
last sentence thereof)'' after ``section 221(d)(1)''.

   TITLE IV--FEDERAL INDIVIDUAL ASSISTANCE TREATMENT OF INCOME SHARE 
                               AGREEMENTS

SEC. 401. AMOUNTS RECEIVED NOT TREATED AS INCOME IN CALCULATION OF 
              FINANCIAL NEED UNDER THE HIGHER EDUCATION ACT OF 1965.

    No portion of any amounts received by an individual for entering 
into an income share agreement (as such term is defined in title I) 
shall be included as income or assets in the computation of expected 
family contribution for any program funded in whole or in part under 
the Higher Education Act of 1965.

                 TITLE V--INVESTMENT COMPANY TREATMENT

SEC. 501. BUSINESSES MAKING INCOME SHARE AGREEMENTS EXCLUDED FROM 
              INVESTMENT COMPANY TREATMENT.

    Section 3(c) of the Investment Company Act of 1940 (15 U.S.C. 80a-
3(c)) is amended--
            (1) in paragraph (4), by inserting after ``industrial 
        banking,'' the following: ``income share agreements (as defined 
        under section 102 of the Investing in Student Success Act of 
        2015),''; and
            (2) in paragraph (5), by inserting ``, including income 
        share agreements'' after ``services'' each place such term 
        appears.
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