Investing in Student Success Act of 2015

Summary: Investing in Student Success Act of 2015 This bill authorizes an individual (i.e., a student) and another person (i.e., an investor) to enter an income-share agreement (ISA) in which the student agrees to pay a percentage of future income, for a specified period of time, in exchange for funds to pay for postsecondary educational expenses.  An ISA that complies with specified terms and conditions and meets certain disclosure requirements is a valid, binding, and enforceable contract and is not subject to state laws that limit interest rates or regulate assignments of future income.  The bill amends the Internal Revenue Code to include an ISA as a qualified education loan (a qualified education loan is not dischargeable in bankruptcy), but it prohibits a tax deduction for interest paid on an ISA (interest paid on a qualified education loan is tax deductible).  Payments to a student under an ISA are not includible as: (1) gross income for tax purposes, or (2) income or assets for federal financial aid eligibility purposes under the Higher Education Act of 1965.  The bill amends the Investment Company Act of 1940 to exclude as an investment company any person whose business substantially consists of making ISAs.

SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Investing in 
Student Success Act of 2015''.
    (b) Table of Contents.--

Sec. 1. Short title and table of contents.
           TITLE I--TAX TREATMENT OF INCOME-SHARE AGREEMENTS

Sec. 101. Definition of ``income-share agreement''.
Sec. 102. Tax treatment of proceeds and payments of future income.
Sec. 103. Terms and conditions of income-share agreement contracts.
Sec. 104. Rulemaking; model disclosure forms.
     TITLE II--TREATMENT OF INCOME-SHARE AGREEMENTS UNDER STATE LAW

Sec. 201. Purpose; lawfulness of contracts; preemption of State law.
Sec. 202. Preemption of State law with respect to usury.
Sec. 203. Definitions.
                  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--INVESTMENT COMPANY TREATMENT

Sec. 501. Businesses making income-share agreements excluded from 
                            investment company treatment.

           TITLE I--TAX TREATMENT OF INCOME-SHARE AGREEMENTS

SEC. 101. 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 use only for costs 
associated with postsecondary education, as the regulations issued 
pursuant to section 104(a) shall provide and which shall include the 
costs of any items and expenses included as costs of attendance under 
section 472 of the Higher Education Act of 1965 (20 U.S.C. 1087ll).

SEC. 102. TAX TREATMENT OF PROCEEDS AND PAYMENTS OF FUTURE INCOME.

    (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 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 that 
complies with the requirements of section 103 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.

SEC. 103. TERMS AND CONDITIONS OF INCOME-SHARE AGREEMENT CONTRACTS.

    (a) Terms and Conditions.--An income-share agreement complies with 
the requirements of this section only 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 that for any year 
        covered by such agreement during which the individual has an 
        income that is less than $18,000 (as such amount is adjusted 
        pursuant to paragraph (8)) the individual shall not be required 
        to pay for such year any portion of the individual's income.
            (2) Definition of income.--The income-share agreement shall 
        specify the definition of income to be used for purposes of 
        calculating an individual's obligation to pay under the 
        agreement.
            (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 (as such 
        amount is adjusted pursuant to paragraph (8)), 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.--The income-share 
        agreement may not provide for the individual subject to the 
        agreement to pay under the agreement an amount of the future 
        income of such individual that, when added to any other amounts 
        of future income that such individual has agreed to pay under 
        any other income-share agreements to which such individual is 
        subject, equals a sum that at any time exceeds 15 percent of 
        the future income of such individual.
            (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) Specified duration; extension of period.--
                    (A) Duration.--The income-share agreement shall 
                specify the maximum period of time during which the 
                individual will be obligated to pay a portion of the 
                individual's future income which may not, except as 
                provided in subparagraph (B), exceed 360 months.
                    (B) 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 (3)(A) (as such amount is 
                adjusted pursuant to paragraph (8)).
            (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).
            (8) Adjustment for inflation.--A dollar amount adjusted in 
        accordance with this paragraph shall be 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.
    (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 by accelerating payments, and, if 
        so, under what terms;
            (4) the duration of the individual's obligations under the 
        agreement (absent such accelerating payments), including any 
        circumstances under which the duration of the agreement would 
        be extended;
            (5) 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;
            (6) the definition of income to be used for purposes of 
        calculating the individual's obligation under the agreement; 
        and
            (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 
                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.
    (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) Comparable Loan.--For purposes of this section, the term 
``comparable loan'' means, with respect to an income-share agreement, a 
loan that--
            (1) has the same original principal amount as the total 
        amount of the payment or payments made under the income-share 
        agreement to or on behalf the individual subject to the 
        agreement;
            (2) has the same term to maturity as the duration of the 
        income-share agreement; and
            (3) is fully amortized over such term with monthly payments 
        of principal and interest.

SEC. 104. 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 103(b).
            (2) Safe harbor.--Any person who uses the model disclosure 
        form promulgated pursuant to paragraph (1) and includes 
        accurate information required under section 103(b) to be 
        disclosed shall be deemed to have satisfied the requirements of 
        section 103(b).

     TITLE II--TREATMENT OF INCOME-SHARE AGREEMENTS UNDER STATE LAW

SEC. 201. PURPOSE; LAWFULNESS OF CONTRACTS; 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 for a specified period of time.
    (b) Lawfulness of Contracts; Preemption of State Law.--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. 202. PREEMPTION OF STATE LAW WITH RESPECT TO USURY.

    An income-share agreement that complies with the requirements of 
section 103 shall not be subject to State usury laws.

SEC. 203. 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).

                  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 101 of the Investing in Student Success Act of 2015) 
that complies with the requirements of section 103 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 (as such term is defined in section 101 
of this Act) that complies with the requirements of section 103 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--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 such 
        term is defined in section 101 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.