Title: Investing in Student Success Act of 2017
Policy area: Education

Summary:
Investing in Student Success Act of 2017
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 education, workforce development, or other purposes.
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.

[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[S. 268 Introduced in Senate (IS)]

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115th CONGRESS
  1st Session
                                 S. 268

 To provide the legal framework necessary for the growth of innovative 
private financing options for students to fund postsecondary education, 
                        and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            February 1, 2017

 Mr. Young (for himself and Mr. Rubio) introduced the following bill; 
     which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
 To provide the legal framework necessary for the growth of innovative 
private financing options for students to fund postsecondary education, 
                        and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Investing in Student Success Act of 
2017''.

SEC. 2. DEFINITION.

    In this Act, 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 future income of the 
individual, for a specified period of time, in exchange for payments to 
or on behalf of the individual for postsecondary education, workforce 
development, or other purposes.

           TITLE I--AUTHORIZATION OF INCOME SHARE AGREEMENTS

SEC. 101. DEFINITIONS.

    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. 102. PURPOSE; LAWFULNESS OF INSTRUMENTS; PREEMPTION OF STATE LAW.

    (a) Purpose.--The purpose of this title is 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 future income 
of the individual.
    (b) Lawfulness of Contracts; Preemption.--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. 103. TERMS AND CONDITIONS OF INCOME SHARE AGREEMENT CONTRACTS.

    (a) 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.--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 for that any year 
        covered by the agreement during which the individual has an 
        income that is less than $15,000 (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 the data 
        are available) the individual shall not be required to pay for 
        that year any portion of the income of the individual.
            (2) Definition of income.--An income share agreement shall 
        specify the definition of income to be used for purposes of 
        calculating the obligation of the individual under the 
        contract.
            (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, 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.--No eligible 
        individual may enter into any income share agreement if the 
        total percentage of the future income of the individual that 
        the individual agrees to pay under that contract, and any other 
        income share agreements of the individual, exceeds 15 percent 
        of the future income.
            (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 
                the 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 the future income required to be paid during 
                        the period covered by the income share 
                        agreement; 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)).
            (6) Extension of period.--The income share agreement may 
        provide that the period covered by the income share agreement 
        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 annual income of the individual is below the dollar 
        amount specified in paragraph (1).
            (7) Early termination.--The income share agreement shall 
        specify the terms and conditions by which the individual 
        subject to the agreement may extinguish the obligations of the 
        individual 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) 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 the 
agreement, a disclosure document that clearly and simply discloses--
            (1) that--
                    (A) the agreement is not a debt instrument, and 
                that the amount the individual will be required to pay 
                under the agreement--
                            (i) may be more or less than the amount 
                        provided to the individual; and
                            (ii) will vary in proportion to the future 
                        income of the individual;
                    (B) 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 dependents of the 
                debtor;
                    (C) whether the obligations of the individual under 
                the agreement may be extinguished by accelerating 
                payments, and, if so, under what terms;
                    (D) the duration of the obligations of the 
                individual under the agreement (absent such 
                accelerating payments), including any circumstances 
                under which the contract would be extended;
                    (E) the percentage of income the individual is 
                committing to pay under the agreement and the minimum 
                amount of annual income that, pursuant to subsection 
                (a)(1), triggers the obligation of the individual under 
                the agreement to make payments for such year; and
                    (F) the definition of income to be used for 
                purposes of calculating the obligation of the 
                individual; and
            (2) 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; and
                    (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--
            (1) represents an obligation by the individual to pay the 
        specific percentage of future income; and
            (2) shall not be construed to give the contract holder any 
        rights over the actions of an individual.

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

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

SEC. 105. 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 180 days after the date of 
        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 to be disclosed under section 
        103(c) shall be deemed to have satisfied the requirements of 
        section 103(b).

           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 that complies 
with the requirements of section 103 to or on behalf of the individual 
who commits to pay a specified percentage of the future income of the 
individual 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 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 the agreement, as a repayment of 
        investment in the contract which reduces the basis of the 
        holder in the agreement; and
            (2) second, as income on the contract which is includible 
        in gross income.

                  TITLE III--QUALIFIED EDUCATION LOAN

SEC. 301. QUALIFIED EDUCATION LOAN.

    (a) In General.--Section 221(d)(1) 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 2 of the 
Investing in Student Success Act of 2017), 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.--Section 6050S(e) 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 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 ``income share 
        agreements (as defined in section 2 of the Investing in Student 
        Success Act of 2017),'' after ``industrial banking,''; and
            (2) in paragraph (5), by inserting ``, including income 
        share agreements (as defined in section 2 of the Investing in 
        Student Success Act of 2017)'' after ``services'' each place 
        that term appears.
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