[Congressional Bills 116th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1810 Introduced in House (IH)]
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116th CONGRESS
1st Session
H. R. 1810
To provide the legal framework and income tax treatment necessary for
the growth of innovative private financing options, and for other
purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
March 18, 2019
Mr. Green of Tennessee (for himself and Mr. Gonzalez of Texas)
introduced the following bill; which was referred to the Committee on
Financial Services, and in addition to the Committees on Ways and
Means, Education and Labor, Armed Services, and Veterans' Affairs, for
a period to be subsequently determined by the Speaker, in each case for
consideration of such provisions as fall within the jurisdiction of the
committee concerned
_______________________________________________________________________
A BILL
To provide the legal framework and income tax treatment necessary for
the growth of innovative private financing options, 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; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Kids to College
Act''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; table of contents.
Sec. 2. Definitions.
TITLE I--TAX TREATMENT OF INCOME-SHARE AGREEMENTS
Sec. 101. Tax treatment of proceeds and payments of future income.
Sec. 102. Terms and conditions of income-share agreement contracts.
Sec. 103. Rulemaking; model disclosure forms.
Sec. 104. Truth in Lending Act.
Sec. 105. Consent to continuing release of taxpayer information under
income share agreement.
TITLE II--TREATMENT OF INCOME-SHARE AGREEMENTS UNDER STATE LAW
Sec. 201. Lawfulness of contracts; preemption of State law.
Sec. 202. Preemption of State law with respect to usury.
Sec. 203. Preemption of pre-existing State laws with respect to
ability-to-repay and licensing laws.
TITLE III--QUALIFIED EDUCATION LOAN
Sec. 301. Qualified education loan.
TITLE IV--FEDERAL INDIVIDUAL ASSISTANCE TREATMENT OF INCOME-SHARE
AGREEMENTS
Sec. 401. Proceeds not treated as income in calculation of financial
need under the Higher Education Act of
1965.
TITLE V--TREATMENT UNDER SECURITIES LAWS
Sec. 501. Income-share agreements not treated as securities.
Sec. 502. Businesses making income-share agreements excluded from
investment company treatment.
TITLE VI--TREATMENT UNDER FEDERAL CONSUMER FINANCE LAWS
Sec. 601. Income-share agreement anti-discrimination protections.
Sec. 602. Prohibition on requiring preauthorized electronic fund
transfers.
Sec. 603. Treatment under the Fair Credit Reporting Act.
Sec. 604. Application of the Military Lending Act.
Sec. 605. Application of the Servicemembers Civil Relief Act.
Sec. 606. Rulemaking.
TITLE VII--TREATMENT UNDER OTHER LAWS
Sec. 701. Insurance and wagering.
Sec. 702. Payments not considered prepayments.
SEC. 2. DEFINITIONS.
For purposes of this Act:
(1) Comparable loan.--The term ``comparable loan'' means,
with respect to an income-share agreement, a loan that--
(A) has an original principal amount such that,
after any origination fees on the loan are paid, the
amount of loan financing received by the individual is
equal to the total amount of funding provided under the
income-share agreement to or on behalf of the
individual subject to the agreement;
(B) has the same term to maturity as the duration
of the income-share agreement; and
(C) is fully amortized over such term with monthly
payments of principal and interest.
(2) Income-share agreement.--The term ``income-share
agreement'' means an agreement--
(A) between an individual and an ISA funder;
(B) which meets the requirements of section 102;
and
(C) under which--
(i) the ISA funder pays amounts to, or on
behalf of, such individual for costs associated
with a postsecondary training program, or any
other program designed to increase the
individual's human capital, employability, or
earning potential (and not limited to programs
eligible to participate in programs under title
IV of the Higher Education Act of 1965), as
well as any personal expenses (such as books,
supplies, transportation, and living costs)
incurred by the individual while enrolled in
such a program, or for the refinancing of debt
used for these purposes (hereinafter in this
Act referred to as ``income-share funding'');
and
(ii) such individual pays to such ISA
funder (or the ISA funder's successor in
interest) amounts equal to a specified
percentage of the individual's future income,
for a defined term (hereinafter in this Act
referred to as ``income-share payments'').
(3) ISA funder.--With respect to an income-share agreement,
the term ``ISA funder'' means the party to such agreement who--
(A) pays amounts to, or on behalf of, an individual
solely for the purposes specified in paragraph
(2)(C)(i); and
(B) has the right to receive a specified percentage
of the individual's future income.
(4) Qualified isa.--The term ``Qualified ISA'' means an
income-share agreement that complies with the following:
(A) Affordability for low after-school income.--The
income-share agreement provides that when an individual
subject to the agreement has an income that is equal to
or below the amount that is 150 percent of the poverty
line for a single person (as defined in section 673 of
the Community Services Block Grant Act (42 U.S.C.
9902)), the percentage of income obligation for the
individual is zero. The preceding sentence may not be
interpreted to preclude the charging of fees or nominal
payments (as described under section 102(a)(5)) during
this period.
(B) Limit on percentage of income.--The maximum
percentage of income an individual would be required to
pay under the agreement does not exceed 20 percent, and
the product of such percentage and the number of years
of the agreement does not exceed 2.25 (which figure is
the product of 7.5 percent and the number of years in
the longest allowable contract under section
102(a)(3)).
(C) Appropriate risk sharing.--The payments
required under such agreement for an individual with
income during the payment term equal to 175 percent of
the poverty line for a single person (as defined in
section 673 of the Community Services Block Grant Act
(42 U.S.C. 9902)) would not exceed the payments on a
comparable loan that bears interest at a rate equal to
the annual percentage rate of interest limitation under
section 987(b) of title 10, United States Code.
(5) State.--The term ``State'' means 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.
(6) 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).
TITLE I--TAX TREATMENT OF INCOME-SHARE AGREEMENTS
SEC. 101. TAX TREATMENT OF PROCEEDS AND PAYMENTS OF FUTURE INCOME.
For purposes of the Internal Revenue Code of 1986--
(1) Funding excluded from gross income.--In the case of an
individual, gross income shall not include the amount of any
income-share funding which is paid to or on behalf of such
individual under an income-share agreement.
(2) Difference in repayment not included as gross income.--
In the case of an income-share agreement under which the
income-share funding exceeds the total income-share payments
(in any period over the life of the contract), the individual's
gross income shall not include the amount of such excess.
(3) Treatment of payments of future income.--The amount of
any income-share payments under an income-share agreement shall
be treated--
(A) first, with respect to so much of such amount
as does not exceed the income-share funding under such
agreement, as a recovery of investment (with a
corresponding reduction in basis) in the contract; and
(B) second, as income on the contract which is
includible in gross income.
SEC. 102. TERMS AND CONDITIONS OF INCOME-SHARE AGREEMENT CONTRACTS.
(a) Terms and Conditions.--An income-share agreement shall not be
treated as meeting the requirements of this section unless:
(1) Specified percentage of income.--The agreement
specifies the percentage of future income required to be paid.
(2) Definition of income.--The income-share agreement
specifies the definition of income to be used for purposes of
calculating an individual's obligation to pay under the
agreement, which shall not in any case include the income of
the individual's children.
(3) Specified duration; extension of period.--
(A) Duration.--The agreement specifies the maximum
period of time during which the individual will be
obligated to pay a percentage of the individual's
future income (excluding periods when just a nominal
payment (as described under paragraph (5)) is
required), which may not (except as provided in
subparagraph (B)) exceed 360 months.
(B) Extension of period.--The agreement may provide
for the extension of such period by a number of months
during which the individual's percentage of income
obligation (excluding nominal payments and fees) was
zero, either because of further enrollment in education
or training or the individual's income was below the
level at which payments are required in the agreement.
(4) Early termination.--The agreement specifies the terms
and conditions under which the individual subject to the
agreement may terminate the agreement.
(5) Nominal payments.--The agreement specifies any nominal
monthly payment that is required during periods when the
individual subject to the agreement has no percentage of income
obligation, except that such nominal monthly payment shall not
exceed twenty-five dollars per month (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).
(b) Required Disclosures.--An income-share agreement does not
comply with the requirements of this section unless the individual who
is committing under the agreement to pay future income is provided,
before entering into such agreement, a written document that clearly
and simply discloses--
(1) that the agreement is not a debt instrument, and that
the amount the individual will be required to pay under the
agreement--
(A) may be more or less than the amount provided to
the individual pursuant to the agreement; and
(B) will vary in proportion to the individual's
future income;
(2) 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;
(3) whether the obligations of the individual under the
agreement may be extinguished through prepayment and, if so,
under what terms;
(4) the duration of the individual's obligations under the
agreement (absent such prepayments), including any
circumstances under which the duration of the agreement would
be extended or discharged;
(5) the percentage of income the individual is committing
to pay under the agreement, including whether the percentage of
income is fixed or variable under the agreement, and the
minimum amount of annual income that triggers the individual's
obligation under the agreement to make payments for such year;
(6) the definition of income to be used for purposes of
calculating the individual's obligation under the agreement;
(7) 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
Director of the Bureau of Consumer Financial
Protection; to
(B) the amounts required to be paid under one or
more comparable loans, including a loan at an interest
rate determined by the Director of the Bureau of
Consumer Financial Protection to be an approximation of
the interest rate available to student loan borrowers
in the private marketplace and, where applicable, a
Federal Stafford loan;
(8) income verification documentation, including personal
tax records submitted to the Internal Revenue Service, that the
individual may be required to provide under the agreement;
(9) intent to conduct annual reconciliation relating to
obligations owed by the individual under the agreement; and
(10) any nominal payments required under the agreement.
(c) 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.
(d) Effect of Failure To Provide Documentation.--
(1) In general.--Absent income documentation from an
individual under an income-share agreement, the ISA funder of
such agreement (or the funder's successor in interest) may
assume a certain income level for the individual, up to the
level that would create an obligation equal to the maximum
payment amount under the agreement.
(2) Treatment under state law.--Any obligation resulting
from an assumed income level under paragraph (1) shall not be
considered to be imposing an unlawful fee under a State law
unless such State law was issued after the date of the
enactment of this Act and such State law expressly states that
it is intended to apply to income-share agreements.
(3) Verification of income.--If an individual supplies an
ISA funder (or its successor in interest) with their income
verification information within 180 days of the ISA funder (or
its successor in interest) assuming an income level for such
individual under paragraph (1), the individual shall be
entitled to have any payments that were made in excess of their
actual obligation under the contract either refunded to them or
credited to future obligations under the contract.
SEC. 103. RULEMAKING; MODEL DISCLOSURE FORMS.
(a) No Bureau General Rulemaking Authority.--Except as provided
under subsection (b) and section 102(b)(7), the Director of the Bureau
of Consumer Financial Protection may not issue regulations under this
title.
(b) Model Disclosure Forms.--
(1) In general.--Not later than 180 days after the date of
the enactment of this Act, the Director of the Bureau of
Consumer Financial Protection, after engaging in appropriate
consumer testing of such forms, shall promulgate a model
disclosure form for the disclosures required under section
102(b).
(2) Safe harbor.--Any person who uses the model disclosure
form promulgated pursuant to paragraph (1) and includes
accurate information required under section 102(b) shall be
deemed to be in compliance with the disclosure requirements
under section 102(b).
SEC. 104. TRUTH IN LENDING ACT.
Any income-share agreement that complies with the disclosure
requirements of section 102(b) shall be deemed to be in compliance with
the Truth in Lending Act.
SEC. 105. CONSENT TO CONTINUING RELEASE OF TAXPAYER INFORMATION UNDER
INCOME SHARE AGREEMENT.
The Secretary of the Treasury shall modify Treasury Regulations and
guidance to provide for continuing consent to disclosure of an
individual's return information to an ISA funder (or the funder's
successor in interest) under an income-share agreement, but only for
periods relevant to, and only to the extent the Secretary determines is
necessary and appropriate in carrying out the terms of, such agreement.
TITLE II--TREATMENT OF INCOME-SHARE AGREEMENTS UNDER STATE LAW
SEC. 201. LAWFULNESS OF CONTRACTS; PREEMPTION OF STATE LAW.
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. 202. PREEMPTION OF STATE LAW WITH RESPECT TO USURY.
A Qualified ISA shall not be subject to State law with respect to
usury, unless such State law was issued after the date of the enactment
of this Act and such State law expressly states that it is intended to
apply to income-share agreements.
SEC. 203. PREEMPTION OF PRE-EXISTING STATE LAWS WITH RESPECT TO
ABILITY-TO-REPAY AND LICENSING LAWS.
A Qualified ISA shall not be subject to a State law with respect to
``ability-to-repay'' requirements, and an ISA funder issuing a
Qualified ISA shall not be subject to any State law with respect to
licensing or registration, unless such State law was issued after the
date of the enactment of this Act and such State law expressly states
that it is intended to apply to income-share agreements.
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 such term is
defined in section 2 of the Help Our Graduates Act) that complies with
the requirements of section 102 of such Act, 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. PROCEEDS 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 that complies with the requirements of
section 102 of this Act 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--TREATMENT UNDER SECURITIES LAWS
SEC. 501. INCOME-SHARE AGREEMENTS NOT TREATED AS SECURITIES.
An income-share agreement shall not be treated as a security for
purposes of the securities laws (as defined in section 3(a) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a))), any similar State
law, or any State law that directly or indirectly prohibits, limits, or
imposes conditions, based on the merits of an offering or issuer of
securities, upon the offer or sale of any security. Nothing in the
preceding sentence shall be construed to prevent an instrument that is
collateralized by, or serviced by the cash flows of, an income-share
agreement from being treated as a security for purposes of any law
described in such sentence.
SEC. 502. 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
in section 2 of the Help Our Graduates Act),''; and
(2) in paragraph (5)--
(A) by inserting ``, including purchasing or
otherwise acquiring income-share agreements (as defined
in section 2 of the Help Our Graduates Act)'' after
``services'' the first place it appears; and
(B) by inserting ``, including making income-share
agreements (as so defined)'' after ``services'' the
second place it appears.
TITLE VI--TREATMENT UNDER FEDERAL CONSUMER FINANCE LAWS
SEC. 601. INCOME-SHARE AGREEMENT ANTI-DISCRIMINATION PROTECTIONS.
Section 702 of the Equal Credit Opportunity Act (15 U.S.C. 1691a)
is amended--
(1) in subsection (d), by inserting before the period the
following: ``, or the right granted under an income-share
agreement (as defined in section 2 of the Help Our Graduates
Act)''; and
(2) in subsection (e)--
(A) by striking ``or any assignee'' and inserting
``any assignee''; and
(B) by inserting before the period the following:
``; or any person who regularly extends, renews, or
continues funding under an income-share agreement (as
defined in section 2 of the Help Our Graduates Act)''.
SEC. 602. PROHIBITION ON REQUIRING PREAUTHORIZED ELECTRONIC FUND
TRANSFERS.
Section 913(1) of the Electronic Fund Transfer Act (15 U.S.C.
1693k(1)) is amended by inserting after ``a consumer'' the following:
``or the entering into of an income-share agreement (as defined in
section 2 of the Help Our Graduates Act) with a consumer''.
SEC. 603. TREATMENT UNDER THE FAIR CREDIT REPORTING ACT.
Section 605 of the Fair Credit Reporting Act (15 U.S.C. 1681c) is
amended by adding at the end the following:
``(i) Income-Share Agreement Information.--With respect to an
income-share agreement (as defined in section 2 of the Help Our
Graduates Act), a consumer report made by a consumer reporting agency--
``(1) may include a description of the contract terms of
the income-share agreement and, subject to subsection (a),
information with respect to amounts that are owed under such
agreement; and
``(2) may not include any speculation about future amounts
that may be owed under the income-share agreement.''.
SEC. 604. APPLICATION OF THE MILITARY LENDING ACT.
Section 987 of title 10, United States Code, is amended--
(1) by redesignating subsection (i) as subsection (j); and
(2) by inserting after subsection (h) the following:
``(i) Treatment of Income-Share Agreements.--The Secretary of
Defense shall issue regulations to apply this section to income-share
agreements (as defined in section 2 of the Help Our Graduates Act), and
an income-share agreement shall be deemed to meet the annual percentage
rate of interest limitation under subsection (b) if such agreement
would meet the requirements of section 2(4)(C) of the Kids to College
Act (related to appropriate risk sharing) but with reference to the
rate specified in subsection (b).''.
SEC. 605. APPLICATION OF THE SERVICEMEMBERS CIVIL RELIEF ACT.
Section 207 of the Servicemembers Civil Relief Act (50 U.S.C. 3937)
is amended by adding at the end the following:
``(f) Treatment of Income-Share Agreements.--The Secretary of
Defense shall issue regulations to apply this section to income-share
agreements (as defined in section 2 of the Help Our Graduates Act),
specifically by stating that an income-share agreement shall be
considered to have met the requirements of this section if the
agreement would meet the requirements of section 2(4)(C) of the Kids to
College Act (relating to appropriate risk sharing) but with reference
to the rate specified in subsection (a)(1).''.
SEC. 606. RULEMAKING.
Not later than 180 days after the date of enactment of this Act--
(1) the Director of the Bureau of Consumer Financial
Protection shall issue regulations to carry out the amendments
made by section 601 and 602; and
(2) the Secretary of Defense shall issue regulations to
carry out the amendment made by section 604 and 605.
TITLE VII--TREATMENT UNDER OTHER LAWS
SEC. 701. INSURANCE AND WAGERING.
Income-share agreements shall not be treated as a contract for
insurance or a betting or wagering contract under any Federal or State
law.
SEC. 702. PAYMENTS NOT CONSIDERED PREPAYMENTS.
With respect to an income-share agreement, any requirement that an
individual pay an amount greater than the income-share funding in order
to extinguish the income-share agreement obligation earlier than the
end of the term shall not be considered a prepayment penalty for
purposes of any Federal or State law with respect to prepayment
penalties.
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