article: SECTION 1. SHORT TITLE. This Act may be cited as the ``Student Success Act of 2001''. TITLE I--AUTHORIZATION OF HUMAN CAPITAL INVESTMENT CONTRACTS 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 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 INVESTMENT 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 attendance 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 requirements of this section if the contract complies with each of the following conditions: (1) Specified percentage of earned income.--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 income 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 deferral under paragraph (6), subject to the limitation in paragraph (2). (2) Aggregate limitation on obligation.--No eligible student may enter into any human capital investment contract if the total percentage of such student's future earned income that the student 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 period for deferrals.--A human capital investment 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 deferral 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 institution at least the minimum academic workload set forth in the contract; or (B) ceases to be eligible to meet the deferral requirements set forth in paragraph (6). (5) Deferral for under-employment or unemployment.--A human capital investment contract shall provide that the student may obtain a deferral 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 student agrees to extinguish obligations under the contract by payment of-- (A) the amounts determined in accordance with paragraph (7), and (B) any related administrative costs of collecting 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 contract 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 provide 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 remaining term of such period. (c) Required Disclosures.--A human capital investment contract does not comply with the requirements of this section unless the eligible student is provided, before 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 payments, as specified in the agreement; and (4) the duration of the student's obligations under the agreement (absent such accelerating payments). 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 remunerations earned by the student as an employee, 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 Revenue 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 becoming a citizen or permanent resident, or permanent resident of the Trust Territory of the Pacific Islands, Guam, the Northern Mariana Islands; (B) who is enrolled or accepted for enrollment 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 ``eligible institution'' means an institution of higher education 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 employment 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 employment 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 employment 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 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). (B) 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. TITLE II--TAX TREATMENT OF HUMAN CAPITAL INVESTMENT CONTRACTS SEC. 201. TAX TREATMENT OF HUMAN CAPITAL INVESTMENT CONTRACTS. (a) In General.--Section 7701 of the Internal Revenue 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 section 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 amended by redesignating subsection (h) as subsection (i) and by inserting after subsection (g) the following new subsection: ``(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 taxable 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 INVESTMENT 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 section 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 sections 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 capital 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 CAPITAL INVESTMENT CONTRACTS SEC. 301. POOLING OF HUMAN CAPITAL INVESTMENT CONTRACTS 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 CAPITAL INVESTMENT CONTRACTS. 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 dependents.''. TITLE V--FEDERAL STUDENT ASSISTANCE TREATMENT OF HUMAN CAPITAL INVESTMENT 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.''.
summary: Student Success Act of 2001 - Authorizes individuals to enter into human capital investment contracts (HCICs) to obtain 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. Makes any HCIC that complies with required terms and conditions under this Act a valid, binding, and enforceable contract notwithstanding any State law limiting or otherwise regulating assignments of future wages or other income.Amends the Internal Revenue Code to provide that: (1) an HCIC shall not be treated as a debt instrument for specified purposes; and (2) amounts received by the student for entering into an HCIC shall be includible in such student's gross income for certain tax purposes. Sets forth conditions for allowable depreciation deductions with respect to HCICs. Allows a tax deduction, in determining adjusted gross income, for an individual's obligated payments under an HCIC.Deems income derived from, or gain from the sale or other disposition of, an HCIC as qualifying income which would exempt a publicly traded partnership from treatment as a corporation.Amends the Investment Company Act of 1940 to provide for pooling of HCICs into investment companies.Amends Federal bankruptcy law to except from discharge in bankruptcy, under certain conditions, any payment owed by the debtor as a result of a payment made to or for the benefit of the debtor under an HCIC.Amends the Higher Education Act of 1965 (HEA) to provide that no portion of any amounts received by a student for entering into an HCIC shall be included as income or assets in the computation of expected family contribution for any program funded in whole or in part under HEA.