I
107TH CONGRESS
1ST SESSION
H. R. 3451
To enable the use of human capital investment contracts for the purposes
of financing postsecondary education, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
DECEMBER 11, 2001
Mr. GRAHAM introduced the following bill; which was referred to the Com-
mittee on Education and the Workforce, and in addition to the Commit-
tees on Ways and Means, Financial Services, and the Judiciary, 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 com-
mittee concerned
A BILL
To enable the use of human capital investment contracts
for the purposes of financing postsecondary education,
and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Student Success Act
of 2001’’.
TITLE 
I—AUTHORIZATION 
OF
HUMAN 
CAPITAL 
INVEST-
MENT CONTRACTS
SEC. 101. PURPOSE; LAWFULNESS OF INSTRUMENTS; PRE-
EMPTION OF STATE LAW.
(a) PURPOSE.—It is the purpose of this title to au-
thorize 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 IN-
VESTMENT 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 attend-
ance 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 re-
quirements of this section if the contract complies with
each of the following conditions:
(1) SPECIFIED
PERCENTAGE
OF
EARNED
IN-
COME.—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 in-
come 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 defer-
ral under paragraph (6), subject to the limita-
tion in paragraph (2).
(2) AGGREGATE LIMITATION ON OBLIGATION.—
No eligible student may enter into any human cap-
ital investment contract if the total percentage of
such student’s future earned income that the stu-
dent 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 PE-
RIOD
FOR
DEFERRALS.—A human capital invest-
ment 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 de-
ferral 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 institu-
tion at least the minimum academic workload
set forth in the contract; or
(B) ceases to be eligible to meet the defer-
ral requirements set forth in paragraph (6).
(5) DEFERRAL
FOR
UNDER-EMPLOYMENT
OR
UNEMPLOYMENT.—A human capital investment con-
tract shall provide that the student may obtain a de-
ferral 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 stu-
dent agrees to extinguish obligations under the con-
tract by payment of—
(A) the amounts determined in accordance
with paragraph (7), and
(B) any related administrative costs of col-
lecting 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 con-
tract until the student ceases to carry a full-time
academic workload leading to such a degree at an el-
igible institution, except that the contract may pro-
vide 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 re-
maining term of such period.
(c) REQUIRED DISCLOSURES.—A human capital in-
vestment contract does not comply with the requirements
of this section unless the eligible student is provided, be-
fore 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 pay-
ments, as specified in the agreement; and
(4) the duration of the student’s obligations
under the agreement (absent such accelerating pay-
ments).
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 re-
munerations earned by the student as an em-
ployee, 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 Rev-
enue 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 becom-
ing a citizen or permanent resident, or perma-
nent resident of the Trust Territory of the Pa-
cific Islands, Guam, the Northern Mariana Is-
lands;
(B) who is enrolled or accepted for enroll-
ment 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 ‘‘eligi-
ble institution’’ means an institution of higher edu-
cation 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 employ-
ment 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 employ-
ment 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 employ-
ment 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 instru-
mentality 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 Com-
monwealth of Puerto Rico, the District of Co-
lumbia, Guam, American Samoa, the Virgin Is-
lands, the government of the Northern Mariana
Islands, and the Trust Territory of the Pacific
Islands.
TITLE II—TAX TREATMENT OF
HUMAN 
CAPITAL 
INVEST-
MENT CONTRACTS
SEC. 201. TAX TREATMENT OF HUMAN CAPITAL INVEST-
MENT CONTRACTS.
(a) IN GENERAL.—Section 7701 of the Internal Rev-
enue 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 sec-
tion 102 of the Student Success Act of 2001) 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 amend-
ed by redesignating subsection (h) as subsection (i) and
by inserting after subsection (g) the following new sub-
section:
‘‘(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
2001), such deduction—
‘‘(1) shall be allowable beginning with the tax-
able 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 INVEST-
MENT 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
2001), 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 sec-
tion 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 sec-
tions 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 cap-
ital investment contract (as defined in section
102 of the Student Success Act of 2001).’’
(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 CAP-
ITAL 
INVESTMENT 
CON-
TRACTS
SEC. 301. POOLING OF HUMAN CAPITAL INVESTMENT CON-
TRACTS 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 2001),’’ after
‘‘relating to foreign currency,’’.
TITLE 
IV—BANKRUPTCY 
LAW
TREATMENT OF HUMAN CAP-
ITAL 
INVESTMENT 
CON-
TRACTS.
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 2001 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 de-
pendents.’’.
TITLE V—FEDERAL STUDENT AS-
SISTANCE 
TREATMENT 
OF
HUMAN 
CAPITAL 
INVEST-
MENT 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 2001)
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.’’.
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