[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[S. 268 Introduced in Senate (IS)]
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115th CONGRESS
1st Session
S. 268
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
February 1, 2017
Mr. Young (for himself and 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
2017''.
SEC. 2. DEFINITION.
In this Act, 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 future income of the
individual, for a specified period of time, in exchange for payments to
or on behalf of the individual for postsecondary education, workforce
development, or other purposes.
TITLE I--AUTHORIZATION OF INCOME SHARE AGREEMENTS
SEC. 101. DEFINITIONS.
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. 102. PURPOSE; LAWFULNESS OF INSTRUMENTS; PREEMPTION OF STATE LAW.
(a) Purpose.--The purpose of this title is 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 future income
of the individual.
(b) Lawfulness of Contracts; Preemption.--Any income share
agreement that complies with the requirements of section 103 shall be a
valid, binding, and enforceable contract notwithstanding any State law
limiting or otherwise regulating assignments of future wages or other
income.
SEC. 103. TERMS AND CONDITIONS OF INCOME SHARE AGREEMENT CONTRACTS.
(a) 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 the 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 the data
are available) the individual shall not be required to pay for
that year any portion of the income of the individual.
(2) Definition of income.--An income share agreement shall
specify the definition of income to be used for purposes of
calculating the obligation of the individual 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 the future income of the individual that
the individual agrees to pay under that contract, and any other
income share agreements of the individual, exceeds 15 percent
of the 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
the 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 the future income required to be paid during
the period covered by the income share
agreement; 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)).
(6) Extension of period.--The income share agreement may
provide that the period covered by the income share agreement
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 annual income of the individual 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 obligations of the
individual 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) 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 the
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 future
income of the individual;
(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 dependents of the
debtor;
(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 obligations of the
individual 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
(a)(1), triggers the obligation of the individual under
the agreement to make payments for such year; and
(F) the definition of income to be used for
purposes of calculating the obligation of the
individual; 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; and
(B) the amounts required to be paid under a
comparable loan that bears interest at a fixed annual
rate of 10 percent.
(c) Non-Interference.--An income share agreement--
(1) represents an obligation by the individual to pay the
specific percentage of future income; and
(2) shall not be construed to give the contract holder any
rights over the actions of an individual.
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 180 days after the date of
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 103(b).
(2) Safe harbor.--Any person who uses the model disclosure
form promulgated pursuant to paragraph (1) and includes
accurate information required to be disclosed under section
103(c) shall be deemed to have satisfied the requirements of
section 103(b).
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 103 to or on behalf of the individual
who commits to pay a specified percentage of the future income of the
individual 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 the agreement, as a repayment of
investment in the contract which reduces the basis of the
holder in the agreement; and
(2) second, as income on the contract which is includible
in gross income.
TITLE III--QUALIFIED EDUCATION LOAN
SEC. 301. QUALIFIED EDUCATION LOAN.
(a) In General.--Section 221(d)(1) 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 2 of the
Investing in Student Success Act of 2017), 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.--Section 6050S(e) 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 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 (20 U.S.C.
1001 et seq.).
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 ``income share
agreements (as defined in section 2 of the Investing in Student
Success Act of 2017),'' after ``industrial banking,''; and
(2) in paragraph (5), by inserting ``, including income
share agreements (as defined in section 2 of the Investing in
Student Success Act of 2017)'' after ``services'' each place
that term appears.
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