Student Success Act of 1999

Summary: TABLE OF CONTENTS: 
     Title I: Authorization of Human Capital Investment Contracts 
     Title II: Tax Treatment of Human Capital Investment 
          Contracts 
     Title III: Securities Law Treatment of Human Capital 
          Investment Contracts 
     Title IV: Bankruptcy Law Treatment of Human Capital 
          Investment Contracts 
     Title V: Federal Student Assistance Treatment of Human 
          Capital Investment Contracts 
Student Success Act of 1999 - 
Title I: Authorization of Human Capital Investment Contracts
 - Authorizes individuals to enter into human capital investment contracts (HCICs) for the purposes of obtaining funds for the payment of tuition and other related expenses of postsecondary education by agreeing to pay to the holder of the contract a specified percentage of the individual's future earned income. 
(Sec. 101) Makes any HCIC that complies with required terms and conditions under this Act a valid, binding, and enforceable contract notwithstanding any State law limiting or otherwise regulating assignments of future wages or other income. 
(Sec. 102) Sets forth terms and conditions of HCICs, including requirements relating to: (1) specification of the percentages of future earned income which the student will be obligated to pay and of the maximum amount of earned income for each year to which such specified percentage shall apply; (2) a schedule of reductions in such percentage if the student's earned income from full-time employment is less than amounts specified in the contract (and an allowable schedule of limited increases in such percentage if the student obtains a deferral); (3) prohibitions against a student's entering into HCICs where payments exceed 20 percent of future earned income; (4) specification of the maximum period of time during which the student will be obligated to pay a portion of the student's future earned income from full-time employment, up to 180 months, with extensions by the number of deferred months; (5) no obligation to commence payments while carrying at least a minimum academic workload or while eligible for deferrals; (6) deferrals during periods of unemployment (as well as allowing certain payments to extinguish obligation after a maximum period of unemployment); (7) deferrals for up to 48 months of graduate education; (8) accelerated repayment; and (9) required disclosures. 
Title II: Tax Treatment of Human Capital Investment Contracts
 - Amends the Internal Revenue Code to provide that: (1) an HCIC shall not be treated as a debt instrument for specified purposes; and (2) amounts received by the student for entering into an HCIC shall be includible in such student's gross income for certain tax purposes. 
(Sec. 201) Sets forth conditions for allowable depreciation deductions with respect to HCICs. 
Allows a tax deduction, in determining adjusted gross income, for an individual's obligated payments under an HCIC. 
Deems income derived from, or gain from the sale or other disposition of, an HCIC as qualifying income which would exempt a publicly traded partnership from treatment as a corporation. 
Title III: Securities Law Treatment of Human Capital Investment Contracts
 - Amends the Investment Company Act of 1940 to provide for pooling of HCICs into investment companies. 
Title IV: Bankruptcy Law Treatment of Human Capital Investment Contracts
 - Amends Federal bankruptcy law to except from discharge in bankruptcy any payment owed by the debtor as a result of a payment made to or for the benefit of the debtor under an HCIC, unless: (1) such payment owed by the debtor first became due more than seven years (exclusive of any applicable suspension of the debtor's payment period) before the date of the filing of the petition for bankruptcy; or (2) excepting such debt from discharge will impose an undue hardship on the debtor and the debtor's dependents. 
Title V: Federal Student Assistance Treatment of Human Capital Investment Contracts
 - Amends the Higher Education Act of 1965 (HEA) to provide that no portion of any amounts received by a student for entering into an HCIC shall be included as income or assets in the computation of expected family contribution for any program funded in whole or in part under HEA.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Student Success Act of 1999''.

      TITLE I--AUTHORIZATION OF HUMAN CAPITAL INVESTMENT CONTRACTS

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 contracts for the purposes of obtaining funds 
for the payment of tuition and other related expenses of postsecondary 
education by agreeing to pay to the holder of the contract a specified 
percentage of the individual's future earned income.
    (b) Lawfulness of Contracts; Preemption.--Any human capital 
investment contract 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 HUMAN CAPITAL INVESTMENT CONTRACTS.

    (a) Definition of Human Capital Investment Contract.--For purposes 
of this title, the term ``human capital investment contract'' means an 
agreement between an eligible student and any other person under which 
the eligible student sells and assigns specified percentages of the 
eligible student's future income, for a specified period of time, in 
exchange for payments to or on behalf of such student for--
            (1) the tuition and related expenses of attendance by the 
        student at an eligible institution, and
            (2) any income taxes owed by the student as a consequence 
        of the receipt of such payments.
    (b) Terms and Conditions of Agreements.--A human capital investment 
contract complies with the requirements of this section if the contract 
complies with each of the following conditions:
            (1) Specified percentage of earned income.--A human capital 
        investment contract shall specify the percentages of future 
        earned income which the student will be obligated to pay, 
        except that the contract--
                    (A) shall specify the maximum amount of earned 
                income for each year to which such specified percentage 
                shall apply;
                    (B) shall provide a schedule of reductions in such 
                percentage if the student's earned income from full-
                time employment is less than amounts specified in the 
                contract; and
                    (C) may specify a schedule of increases in such 
                percentage if the student obtains a deferral under 
                paragraph (6), subject to the limitation in paragraph 
                (2).
            (2) Aggregate limitation on obligation.--No eligible 
        student may enter into any human capital investment contract if 
        the total percentage of such student's future earned income 
        that the student agrees to pay under that contract, and any 
        other human capital investment contracts of such student, 
        exceeds 20 percent of such future earned income.
            (3) Specified duration; extension of period for 
        deferrals.--A human capital investment contract shall specify 
        the maximum period of time during which the student will be 
        obligated to pay a portion of the student's future earned 
        income from full-time employment, except that--
                    (A) except as provided in subparagraph (B), such 
                period may not exceed 180 months; and
                    (B) such contract may provide that such period may 
                be extended by the number of months during which the 
                student obtains a deferral of payments under paragraph 
                (5) or (6).
            (4) Commencement of repayment.--A human capital investment 
        contract shall provide that the student is not obligated to 
        commence payments, and that the deferral period in paragraph 
        (5) does not begin to toll, until the student--
                    (A) ceases to carry at an eligible institution at 
                least the minimum academic workload set forth in the 
                contract; or
                    (B) ceases to be eligible to meet the deferral 
                requirements set forth in paragraph (6).
            (5) Deferral for under-employment or unemployment.--A human 
        capital investment contract shall provide that the student may 
        obtain a deferral of the obligation to make payments under the 
        contract during any period in which the student is unemployed, 
        except that the contract may provide that, if the student is 
        unemployed for longer than a maximum period specified in the 
        contract, the student agrees to extinguish obligations under 
        the contract by payment of--
                    (A) the amounts determined in accordance with 
                paragraph (7), and
                    (B) any related administrative costs of collecting 
                such amounts, including attorney's fees.
            (6) Deferral during periods of graduate study.--A human 
        capital investment contract shall provide that a student who is 
        enrolled or accepted for enrollment in a postgraduate degree 
program is not obligated to commence payments under the contract until 
the student ceases to carry a full-time academic workload leading to 
such a degree at an eligible institution, except that the contract may 
provide that the maximum period for which payments may be deferred 
pursuant to this paragraph shall not exceed 48 months.
            (7) Accelerated repayment.--A human capital investment 
        contract shall specify the terms and conditions by which the 
        student may extinguish the student's obligations under the 
        contract before the end of the payment period specified in the 
        human capital investment contract, based on the remaining term 
        of such period.
    (c) Required Disclosures.--A human capital investment contract does 
not comply with the requirements of this section unless the eligible 
student is provided, before entry into agreement, a disclosure document 
that clearly and simply discloses that--
            (1) the agreement is not a debt instrument, and that the 
        amount the student will be required to pay under the 
        agreement--
                    (A) may be more or less than the amount provided to 
                the student; and
                    (B) will vary in proportion to the student's future 
                earned income;
            (2) the obligations of the student under the agreement are 
        not dischargeable under bankruptcy law;
            (3) the obligations of the student under the agreement may 
        be extinguished by accelerating payments, as specified in the 
        agreement; and
            (4) the duration of the student's obligations under the 
        agreement (absent such accelerating payments).

SEC. 103. DEFINITIONS.

    As used in this title--
            (1) Earned income.--
                    (A) The term ``earned income'' means compensation 
                and self-employment income.
                    (B) The term ``compensation'' means the gross 
                amount of salaries, wages, and other remunerations 
                earned by the student as an employee, not taking into 
                account any deferred compensation arrangements or any 
                payments to any retirement, pension, or other benefit 
                plan.
                    (C) The term ``self-employment income'' means the 
                net earnings from self-employment, as defined in 
                section 1402 of the Internal Revenue Code of 1986, and 
                regulations prescribed thereunder.
            (2) Eligible student.--The term ``eligible student'' means 
        any person--
                    (A) who is a citizen or national of the United 
                States, a permanent resident of the United States, able 
                to provide evidence from the Immigration and 
                Naturalization Service that he or she is in the United 
                States for other than a temporary purpose with the 
                intention of becoming a citizen or permanent resident, 
                or permanent resident of the Trust Territory of the 
                Pacific Islands, Guam, the Northern Mariana Islands;
                    (B) who is enrolled or accepted for enrollment in a 
                degree, certificate, or other program (including a 
                program of study abroad approved for credit by the 
                eligible institution at which such student is enrolled) 
                leading to a recognized educational credential at an 
                eligible institution of higher education; and
                    (C) who is not enrolled in an elementary or 
                secondary school.
            (3) Eligible institution.--The term ``eligible 
        institution'' means an institution of higher education as such 
        term is defined in section 481(a) of the Higher Education Act 
        of 1965 (20 U.S.C. 1088(a)).
            (4) Full-time employment; period of no employment.--
        Determinations of full-time employment in a given calendar year 
        shall be based on an average employment of 35 hours (or more) 
        per week during such year (a total of 1,820 hours or more for 
        the year). Determinations of period of no employment of a 
        student shall be determined separately for each calendar year 
        and expressed as a whole number of weeks and shall be based on 
        the excess, if any, of 1,820 over the total number of hours of 
        employment of the student during the year, divided by 35, and 
        rounded down to the nearest whole number.
            (5) State law.--
                    (A) 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).
                    (B) 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.

     TITLE II--TAX TREATMENT OF HUMAN CAPITAL INVESTMENT CONTRACTS

SEC. 201. TAX TREATMENT OF HUMAN CAPITAL INVESTMENT CONTRACTS.

    (a) In General.--Section 7701 of the Internal Revenue Code of 1986 
is amended by redesignating subsection (m) as subsection (n) and by 
inserting after subsection (l) the following new subsection:
    ``(m) Human Capital Investment Contracts.--A human capital 
investment contract (as defined in section 102 of the Student Success 
Act of 1999) shall not be treated as a debt instrument for purposes of 
this title, and amounts received by the student for entering into such 
a contract shall be includible in such student's gross income for 
purposes of subtitle A.''
    (b) Depreciation.--Section 167 of the Internal Revenue Code of 1986 
(relating to depreciation) is amended by redesignating subsection (h) 
as subsection (i) and by inserting after subsection (g) the following 
new subsection:
    ``(h) Human Capital Investment Contracts.--If a depreciation 
deduction is allowable under subsection (a) with respect to any human 
capital investment contract (as defined in section 102 of the Student 
Success Act of 1999), such deduction--
            ``(1) shall be allowable beginning with the taxable year 
        during which the student is first obligated to begin payments 
        under the contract, and
            ``(2) shall be computed by using the straight-line method 
        and a useful life equal to the shorter of--
                    ``(A) 15 years, or
                    ``(B) the maximum period the student is obligated 
                to make payments under the contract (determined without 
                regard to any extension of such period by reason of a 
                deferral).''
    (c) Deduction for Payments.--
            (1) In general.--Part VII of subchapter B of chapter 1 of 
        such Code is amended by redesignating section 221 as section 
        222 and by inserting after section 220 the following new 
        section:

``SEC. 221. PAYMENTS UNDER HUMAN CAPITAL INVESTMENT CONTRACTS.

    ``In the case of an individual who is obligated to make payments 
under a human capital investment contract (as defined in section 102 of 
the Student Success Act of 1999), there shall be allowed as a deduction 
the amount of such payments made during the taxable year.''
            (2) Deduction allowable in determining adjusted gross 
        income.--Subsection (a) of section 62 of such Code is amended 
        by inserting after paragraph (16) the following new paragraph:
            ``(17) Human capital investment contract payments.--The 
        deduction allowed by section 221.''
            (3) Clerical amendment.--The table of sections for part VII 
        of subchapter B of chapter 1 of such Code is amended by 
        striking the last item and inserting the following new items:

                              ``Sec. 221. Payments under human capital 
                                        investment contracts.
                              ``Sec. 222. Cross reference.''
    (d) Qualifying Income of Publicly Traded Partnerships.--Paragraph 
(1) of section 7704(d) of such Code is amended by striking ``and'' at 
the end of subparagraph (F), by striking the period at the end of 
subparagraph (G) and inserting ``, and'', and by inserting after 
subparagraph (G) the following new subparagraph:
                    ``(H) income derived from, or gain from the sale or 
                other disposition of any human capital investment 
                contract (as defined in section 102 of the Student 
                Success Act of 1999).''
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.

    TITLE III--SECURITIES LAW TREATMENT OF HUMAN CAPITAL INVESTMENT 
                               CONTRACTS

SEC. 301. POOLING OF HUMAN CAPITAL INVESTMENT CONTRACTS INTO INVESTMENT 
              COMPANIES.

    Section 2(a)(36) of the Investment Company Act of 1940 (15 U.S.C. 
80a-2) is amended by inserting ``human capital investment contracts (as 
such term is defined in section 102 of the Student Success Act of 
1999),'' after ``relating to foreign currency,''.

    TITLE IV--BANKRUPTCY LAW TREATMENT OF HUMAN CAPITAL INVESTMENT 
                               CONTRACTS

SEC. 401. EXCEPTION TO DISCHARGE.

    Section 523(a) of title 11, United States Code, is amended--
            (1) in paragraph (17) by striking ``and'' at the end,
            (2) in paragraph (18) by striking the period at the end and 
        inserting ``; and'', and
            (3) by adding at the end the following:
            ``(19) for a payment owed by the debtor as a result of a 
        payment made to or for the benefit of the debtor, under a human 
        capital investment contract (as defined in section 102 of the 
        Student Success Act of 1999 unless--
                    ``(A) such payment owed by the debtor first became 
                due more than 7 years (exclusive of any applicable 
                suspension of the debtor's payment period) before the 
                date of the filing of the petition; or
                    ``(B) excepting such debt from discharge under this 
                paragraph will impose an undue hardship on the debtor 
                and the debtor's dependents.''.

    TITLE V--FEDERAL STUDENT ASSISTANCE TREATMENT OF HUMAN CAPITAL 
                          INVESTMENT CONTRACTS

SEC. 501. AMOUNTS RECEIVED NOT TREATED AS INCOME IN CALCULATION OF 
              FINANCIAL NEED.

    Section 480(a) of the Higher Education Act of 1965 (20 U.S.C. 
1087vv(a)) is amended--
            (1) in paragraph (1), by striking ``paragraph (2)'' and 
        inserting ``paragraphs (2) and (3)''; and
            (2) by adding at the end the following new paragraph:
    ``(3) No portion of any amounts received by a student for entering 
into a human capital investment contract (as defined in section 102 of 
the Student Success Act of 1997) shall be included as income or assets 
in the computation of expected family contribution for any program 
funded in whole or in part under this Act.''.