Kids to College Act

I 116TH CONGRESS 1ST SESSION H. R. 1810 To provide the legal framework and income tax treatment necessary for the growth of innovative private financing options, and for other purposes. IN THE HOUSE OF REPRESENTATIVES MARCH 18, 2019 Mr. GREEN of Tennessee (for himself and Mr. GONZALEZ of Texas) intro- duced the following bill; which was referred to the Committee on Finan- cial Services, and in addition to the Committees on Ways and Means, Education and Labor, Armed Services, and Veterans’ Affairs, for a pe- riod to be subsequently determined by the Speaker, in each case for con- sideration of such provisions as fall within the jurisdiction of the com- mittee concerned A BILL To provide the legal framework and income tax treatment necessary for the growth of innovative private financing options, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 3 (a) SHORT TITLE.—This Act may be cited as the 4 ‘‘Kids to College Act’’. 5 (b) TABLE OF CONTENTS.—The table of contents for 6 this Act is as follows: 7 VerDate Sep 11 2014 22:40 Apr 05, 2019 Jkt 089200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H1810.IH H1810 pbinns on DSK79D2C42PROD with BILLS 2 •HR 1810 IH Sec. 1. Short title; table of contents. Sec. 2. Definitions. TITLE I—TAX TREATMENT OF INCOME-SHARE AGREEMENTS Sec. 101. Tax treatment of proceeds and payments of future income. Sec. 102. Terms and conditions of income-share agreement contracts. Sec. 103. Rulemaking; model disclosure forms. Sec. 104. Truth in Lending Act. Sec. 105. Consent to continuing release of taxpayer information under income share agreement. TITLE II—TREATMENT OF INCOME-SHARE AGREEMENTS UNDER STATE LAW Sec. 201. Lawfulness of contracts; preemption of State law. Sec. 202. Preemption of State law with respect to usury. Sec. 203. Preemption of pre-existing State laws with respect to ability-to-repay and licensing laws. TITLE III—QUALIFIED EDUCATION LOAN Sec. 301. Qualified education loan. TITLE IV—FEDERAL INDIVIDUAL ASSISTANCE TREATMENT OF INCOME-SHARE AGREEMENTS Sec. 401. Proceeds not treated as income in calculation of financial need under the Higher Education Act of 1965. TITLE V—TREATMENT UNDER SECURITIES LAWS Sec. 501. Income-share agreements not treated as securities. Sec. 502. Businesses making income-share agreements excluded from invest- ment company treatment. TITLE VI—TREATMENT UNDER FEDERAL CONSUMER FINANCE LAWS Sec. 601. Income-share agreement anti-discrimination protections. Sec. 602. Prohibition on requiring preauthorized electronic fund transfers. Sec. 603. Treatment under the Fair Credit Reporting Act. Sec. 604. Application of the Military Lending Act. Sec. 605. Application of the Servicemembers Civil Relief Act. Sec. 606. Rulemaking. TITLE VII—TREATMENT UNDER OTHER LAWS Sec. 701. Insurance and wagering. Sec. 702. Payments not considered prepayments. SEC. 2. DEFINITIONS. 1 For purposes of this Act: 2 VerDate Sep 11 2014 22:40 Apr 05, 2019 Jkt 089200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H1810.IH H1810 pbinns on DSK79D2C42PROD with BILLS 3 •HR 1810 IH (1) COMPARABLE LOAN.—The term ‘‘com- 1 parable loan’’ means, with respect to an income- 2 share agreement, a loan that— 3 (A) has an original principal amount such 4 that, after any origination fees on the loan are 5 paid, the amount of loan financing received by 6 the individual is equal to the total amount of 7 funding provided under the income-share agree- 8 ment to or on behalf of the individual subject 9 to the agreement; 10 (B) has the same term to maturity as the 11 duration of the income-share agreement; and 12 (C) is fully amortized over such term with 13 monthly payments of principal and interest. 14 (2) INCOME-SHARE AGREEMENT.—The term 15 ‘‘income-share agreement’’ means an agreement— 16 (A) between an individual and an ISA 17 funder; 18 (B) which meets the requirements of sec- 19 tion 102; and 20 (C) under which— 21 (i) the ISA funder pays amounts to, 22 or on behalf of, such individual for costs 23 associated with a postsecondary training 24 program, or any other program designed to 25 VerDate Sep 11 2014 22:40 Apr 05, 2019 Jkt 089200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H1810.IH H1810 pbinns on DSK79D2C42PROD with BILLS 4 •HR 1810 IH increase the individual’s human capital, 1 employability, or earning potential (and 2 not limited to programs eligible to partici- 3 pate in programs under title IV of the 4 Higher Education Act of 1965), as well as 5 any personal expenses (such as books, sup- 6 plies, transportation, and living costs) in- 7 curred by the individual while enrolled in 8 such a program, or for the refinancing of 9 debt used for these purposes (hereinafter 10 in this Act referred to as ‘‘income-share 11 funding’’); and 12 (ii) such individual pays to such ISA 13 funder (or the ISA funder’s successor in 14 interest) amounts equal to a specified per- 15 centage of the individual’s future income, 16 for a defined term (hereinafter in this Act 17 referred to as ‘‘income-share payments’’). 18 (3) ISA FUNDER.—With respect to an income- 19 share agreement, the term ‘‘ISA funder’’ means the 20 party to such agreement who— 21 (A) pays amounts to, or on behalf of, an 22 individual solely for the purposes specified in 23 paragraph (2)(C)(i); and 24 VerDate Sep 11 2014 22:40 Apr 05, 2019 Jkt 089200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H1810.IH H1810 pbinns on DSK79D2C42PROD with BILLS 5 •HR 1810 IH (B) has the right to receive a specified per- 1 centage of the individual’s future income. 2 (4) QUALIFIED ISA.—The term ‘‘Qualified ISA’’ 3 means an income-share agreement that complies 4 with the following: 5 (A) AFFORDABILITY FOR LOW AFTER- 6 SCHOOL INCOME.—The income-share agreement 7 provides that when an individual subject to the 8 agreement has an income that is equal to or 9 below the amount that is 150 percent of the 10 poverty line for a single person (as defined in 11 section 673 of the Community Services Block 12 Grant Act (42 U.S.C. 9902)), the percentage of 13 income obligation for the individual is zero. The 14 preceding sentence may not be interpreted to 15 preclude the charging of fees or nominal pay- 16 ments (as described under section 102(a)(5)) 17 during this period. 18 (B) LIMIT ON PERCENTAGE OF INCOME.— 19 The maximum percentage of income an indi- 20 vidual would be required to pay under the 21 agreement does not exceed 20 percent, and the 22 product of such percentage and the number of 23 years of the agreement does not exceed 2.25 24 (which figure is the product of 7.5 percent and 25 VerDate Sep 11 2014 22:40 Apr 05, 2019 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H1810.IH H1810 pbinns on DSK79D2C42PROD with BILLS 6 •HR 1810 IH the number of years in the longest allowable 1 contract under section 102(a)(3)). 2 (C) APPROPRIATE RISK SHARING.—The 3 payments required under such agreement for an 4 individual with income during the payment 5 term equal to 175 percent of the poverty line 6 for a single person (as defined in section 673 7 of the Community Services Block Grant Act 8 (42 U.S.C. 9902)) would not exceed the pay- 9 ments on a comparable loan that bears interest 10 at a rate equal to the annual percentage rate of 11 interest limitation under section 987(b) of title 12 10, United States Code. 13 (5) STATE.—The term ‘‘State’’ means the sev- 14 eral States of the Union, the Commonwealth of 15 Puerto Rico, the District of Columbia, Guam, Amer- 16 ican Samoa, the Virgin Islands, the Government of 17 the Northern Mariana Islands, and the Trust Terri- 18 tory of the Pacific Islands. 19 (6) STATE LAW.—The term ‘‘State law’’ means 20 any law, decision, rule, regulation, or other action 21 having the effect of a law of any State or any polit- 22 ical subdivision of a State, or any agency or instru- 23 mentality of a State or political subdivision of a 24 State, except that a law of the United States appli- 25 VerDate Sep 11 2014 22:40 Apr 05, 2019 Jkt 089200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H1810.IH H1810 pbinns on DSK79D2C42PROD with BILLS 7 •HR 1810 IH cable only to the District of Columbia shall be treat- 1 ed as a State law (rather than a law of the United 2 States). 3 TITLE I—TAX TREATMENT OF 4 INCOME-SHARE AGREEMENTS 5 SEC. 101. TAX TREATMENT OF PROCEEDS AND PAYMENTS 6 OF FUTURE INCOME. 7 For purposes of the Internal Revenue Code of 8 1986— 9 (1) FUNDING EXCLUDED FROM GROSS IN- 10 COME.—In the case of an individual, gross income 11 shall not include the amount of any income-share 12 funding which is paid to or on behalf of such indi- 13 vidual under an income-share agreement. 14 (2) DIFFERENCE IN REPAYMENT NOT IN- 15 CLUDED AS GROSS INCOME.—In the case of an in- 16 come-share agreement under which the income-share 17 funding exceeds the total income-share payments (in 18 any period over the life of the contract), the individ- 19 ual’s gross income shall not include the amount of 20 such excess. 21 (3) TREATMENT OF PAYMENTS OF FUTURE IN- 22 COME.—The amount of any income-share payments 23 under an income-share agreement shall be treated— 24 VerDate Sep 11 2014 22:40 Apr 05, 2019 Jkt 089200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H1810.IH H1810 pbinns on DSK79D2C42PROD with BILLS 8 •HR 1810 IH (A) first, with respect to so much of such 1 amount as does not exceed the income-share 2 funding under such agreement, as a recovery of 3 investment (with a corresponding reduction in 4 basis) in the contract; and 5 (B) second, as income on the contract 6 which is includible in gross income. 7 SEC. 102. TERMS AND CONDITIONS OF INCOME-SHARE 8 AGREEMENT CONTRACTS. 9 (a) TERMS AND CONDITIONS.—An income-share 10 agreement shall not be treated as meeting the require- 11 ments of this section unless: 12 (1) SPECIFIED PERCENTAGE OF INCOME.—The 13 agreement specifies the percentage of future income 14 required to be paid. 15 (2) DEFINITION OF INCOME.—The income- 16 share agreement specifies the definition of income to 17 be used for purposes of calculating an individual’s 18 obligation to pay under the agreement, which shall 19 not in any case include the income of the individ- 20 ual’s children. 21 (3) SPECIFIED DURATION; EXTENSION OF PE- 22 RIOD.— 23 (A) DURATION.—The agreement specifies 24 the maximum period of time during which the 25 VerDate Sep 11 2014 22:40 Apr 05, 2019 Jkt 089200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H1810.IH H1810 pbinns on DSK79D2C42PROD with BILLS 9 •HR 1810 IH individual will be obligated to pay a percentage 1 of the individual’s future income (excluding pe- 2 riods when just a nominal payment (as de- 3 scribed under paragraph (5)) is required), 4 which may not (except as provided in subpara- 5 graph (B)) exceed 360 months. 6 (B) EXTENSION OF PERIOD.—The agree- 7 ment may provide for the extension of such pe- 8 riod by a number of months during which the 9 individual’s percentage of income obligation (ex- 10 cluding nominal payments and fees) was zero, 11 either because of further enrollment in edu- 12 cation or training or the individual’s income 13 was below the level at which payments are re- 14 quired in the agreement. 15 (4) EARLY TERMINATION.—The agreement 16 specifies the terms and conditions under which the 17 individual subject to the agreement may terminate 18 the agreement. 19 (5) NOMINAL PAYMENTS.—The agreement 20 specifies any nominal monthly payment that is re- 21 quired during periods when the individual subject to 22 the agreement has no percentage of income obliga- 23 tion, except that such nominal monthly payment 24 shall not exceed twenty-five dollars per month (ad- 25 VerDate Sep 11 2014 22:40 Apr 05, 2019 Jkt 089200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H1810.IH H1810 pbinns on DSK79D2C42PROD with BILLS 10 •HR 1810 IH justed each year to reflect changes in the Consumer 1 Price Index for All Urban Consumers published by 2 the Bureau of Labor Statistics of the Department of 3 Labor for the most recent 12-month period for 4 which the data are available). 5 (b) REQUIRED DISCLOSURES.—An income-share 6 agreement does not comply with the requirements of this 7 section unless the individual who is committing under the 8 agreement to pay future income is provided, before enter- 9 ing into such agreement, a written document that clearly 10 and simply discloses— 11 (1) that the agreement is not a debt instru- 12 ment, and that the amount the individual will be re- 13 quired to pay under the agreement— 14 (A) may be more or less than the amount 15 provided to the individual pursuant to the 16 agreement; and 17 (B) will vary in proportion to the individ- 18 ual’s future income; 19 (2) that the obligations of the individual under 20 the agreement are not dischargeable under bank- 21 ruptcy law, except in a case that would impose an 22 undue hardship on the debtor and the debtor’s de- 23 pendents; 24 VerDate Sep 11 2014 22:40 Apr 05, 2019 Jkt 089200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H1810.IH H1810 pbinns on DSK79D2C42PROD with BILLS 11 •HR 1810 IH (3) whether the obligations of the individual 1 under the agreement may be extinguished through 2 prepayment and, if so, under what terms; 3 (4) the duration of the individual’s obligations 4 under the agreement (absent such prepayments), in- 5 cluding any circumstances under which the duration 6 of the agreement would be extended or discharged; 7 (5) the percentage of income the individual is 8 committing to pay under the agreement, including 9 whether the percentage of income is fixed or variable 10 under the agreement, and the minimum amount of 11 annual income that triggers the individual’s obliga- 12 tion under the agreement to make payments for 13 such year; 14 (6) the definition of income to be used for pur- 15 poses of calculating the individual’s obligation under 16 the agreement; 17 (7) a comparison of— 18 (A) the amounts an individual would be re- 19 quired to pay under the income-share agree- 20 ment at a range of annual income levels, which 21 income levels shall correspond to the levels the 22 individual might reasonably be expected to 23 make given the intended use of the funds pro- 24 vided under the agreement, as determined in 25 VerDate Sep 11 2014 22:40 Apr 05, 2019 Jkt 089200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\H1810.IH H1810 pbinns on DSK79D2C42PROD with BILLS 12 •HR 1810 IH accordance with guidance issued by the Direc- 1 tor of the Bureau of Consumer Financial Pro- 2 tection; to 3 (B) the amounts required to be paid under 4 one or more comparable loans, including a loan 5 at an interest rate determined by the Director 6 of the Bureau [Text truncated for display. Full text available on Congress.gov.]