I
106TH CONGRESS
1ST SESSION
H. R. 2755
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
AUGUST 5, 1999
Mr. GRAHAM (for himself and Mr. ACKERMAN) introduced the following bill;
which was referred to the Committee on Education and the Workforce,
and in addition to the Committees on Ways and Means, Commerce, 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 juris-
diction of the committee 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 1999’’.
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
eligible 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 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 amend-
‘‘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
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 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 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 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 1999),’’ 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 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 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 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.’’.
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