Investing in Student Success Act of 2014

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Investing in Student Success Act of 
2014''.

           TITLE I--AUTHORIZATION OF INCOME SHARE AGREEMENTS

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 income share agreements for the purposes of 
obtaining funds in exchange for agreeing to pay to the holder of the 
contract a specified percentage of the individual's future income.
    (b) Lawfulness of Contracts; Preemption.--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. 102. TERMS AND CONDITIONS OF INCOME SHARE AGREEMENT CONTRACTS.

    (a) 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 postsecondary education, workforce development, or 
other purposes.
    (b) Terms and Conditions of Agreements.--An income share agreement 
complies with the requirements of this section if the contract complies 
with each of the following conditions:
            (1) Specified percentage of income.--An income share 
        agreement shall specify the percentage of future income which 
        the individual will be obligated to pay, except that the 
        contract shall exempt, at a minimum, the first $10,000 
        (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) of an 
        individual's income when determining the individual's 
        obligation for a given year.
            (2) Definition of income.--An income share agreement shall 
        specify the definition of income to be used for purposes of 
        calculating an individual's obligation under the contract.
            (3) Aggregate limitation on obligation.--No eligible 
        individual may enter into any income share agreement if the 
        total percentage of such individual's future income that the 
        individual agrees to pay under that contract, and any other 
        income share agreements of such individual, exceeds 15 percent 
        of such future income.
            (4) Specified duration; extension of period.--An 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, except that--
                    (A) except as provided in subparagraph (B), such 
                period may not exceed 360 months; and
                    (B) such contract may provide that such period may 
                be extended by the number of years during which the 
                individual's income is below the exemption amount 
                specified in the agreement under paragraph (1).
            (5) Early termination.--An income share agreement shall 
        specify the terms and conditions by which the individual may 
        extinguish the individual's obligations under the contract 
        before the end of the payment period specified in the 
        agreement, based on the remaining term of such period.
    (c) Required Disclosures.--An income share agreement does not 
comply with the requirements of this section unless the individual who 
is committing to pay future income is provided, before entry into such 
agreement, a disclosure document that clearly and simply discloses 
that--
            (1) 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; and
                    (B) will vary in proportion to the individual's 
                future income;
            (2) the obligations of the individual under the agreement 
        are not dischargeable under bankruptcy law;
            (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 contract would be extended;
            (5) the percentage of income the individual is committing 
        to pay and the amount of income that is exempt from the 
        calculation of the individual's obligation; and
            (6) the definition of income to be used for purposes of 
        calculating the individual's obligation.
    (d) Noninterference.--An income share agreement shall not be 
construed to give the contract holder any rights over an individual's 
actions--it simply represents an obligation by the individual to pay 
the specific percentage of future income.

SEC. 103. 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).

SEC. 104. PREEMPTION OF STATE LAW WITH RESPECT TO USURY.

    Income share agreements shall not be subject to State usury laws.

           TITLE II--TAX TREATMENT OF INCOME SHARE AGREEMENTS

SEC. 201. TAX TREATMENT OF INCOME SHARE AGREEMENTS.

    (a) Exclusion From Gross Income of Income Share Agreement 
Proceeds.--Payments made under an income share agreement 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 
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 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 interest which is includible in gross 
        income.
    (c) Income Share Agreement.--For purposes of this title, the term 
``income share agreement'' has the meaning given such term under title 
I.

                  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 defined in section 
102 of the Investing in Student Success Act of 2014), 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. AMOUNTS RECEIVED 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 title I) 
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.

                 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 defined 
        under section 102 of the Investing in Student Success Act of 
        2014),''; and
            (2) in paragraph (5), by inserting ``, including income 
        share agreements'' after ``services'' each place such term 
        appears.

Summary: Investing in Student Success Act of 2014 - Declares that income share agreements that meet this Act's requirements are valid, binding, and enforceable contracts that are not subject to state usury laws or state laws regulating assignments of future income. Defines an &quot;income share agreement&quot; as 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 postsecondary education, workforce development, or other purposes. Requires such an agreement to:   specify the percentage of future income the individual will be obligated to pay, but it must exempt, at a minimum, the first $10,000 (adjusted annually for inflation) of income each year;   specify what will be considered the individual's income;   prevent the individual from obligating more than 15% of the individual's future income toward such agreement;   specify the maximum period that an individual will be obligated to make payments, not to exceed 360 months (excluding any period during which an individual's income was below the agreement's exempt amount); and   specify the terms and conditions for early termination of an individual's payment period.  Requires individuals, before entering into such an agreement, to be provided with a document that clearly and simply discloses: (1) the terms of the agreement, (2) that the agreement is not a debt instrument, (3) that such individual may be required to pay more or less than the amount received, and (4) that an individual's obligations under the agreement are not dischargeable in bankruptcy. Prohibits such agreements from being construed as giving the contract holder any rights over an individual's actions. Excludes payments that are made under an income share agreement from the individual's gross income for tax purposes. Amends the Internal Revenue Code to include income share agreements as qualified education loans, but denies the deduction for interest paid on such loans. Prohibits amounts individuals receive for entering into an income share agreement from being included as income or assets in the computation of the expected family contribution for any program funded under the Higher Education Act of 1965. Amends the Investment Company Act of 1940 to exclude any person from being treated as an investment company if substantially all of that person's business is confined to making income share agreements.