text: 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.''.
target: 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.
feat_title: To enable the use of human capital investment contracts for the purposes of financing postsecondary education, and for other purposes.