S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  10607

                          I N  A S S E M B L Y

                              June 8, 2016
                               ___________

Introduced  by  COMMITTEE  ON  RULES  -- (at request of M. of A. Crespo,
  Sepulveda, Ramos, Pichardo,  Rivera,  Davila,  Arroyo,  Moya,  Cancel,
  Rodriguez,  Dilan, Linares) -- read once and referred to the Committee
  on Higher Education

AN ACT to amend the education law, in relation to establishing  the  New
  York college debt repayment program

  THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section 1. The education law is amended by adding a new section  355-d
to read as follows:
  S  355-D.  NEW  YORK COLLEGE DEBT REPAYMENT PROGRAM. 1. A COLLEGE DEBT
REPAYMENT PROGRAM MAY BE ESTABLISHED BY ANY RESIDENT OF THIS STATE.  THE
EARNINGS  FROM  THE  PROGRAM SHALL GROW FEDERALLY AND STATE TAX-DEFERRED
AND WITHDRAWALS FOR QUALIFIED EXPENSES SHALL NOT BE SUBJECT TO STATE  OR
FEDERAL INCOME TAX.
  2. FOR PURPOSES OF THIS SECTION:
  (A)  THE  TERM "COLLEGE DEBT REPAYMENT PROGRAM" MEANS A PROGRAM ESTAB-
LISHED AND MAINTAINED BY THIS STATE OR AGENCY OR INSTRUMENTALITY THEREOF
OR BY ONE OR  MORE  ELIGIBLE  EDUCATIONAL  INSTITUTIONS  UNDER  WHICH  A
PERSON:
  I.  MAY  PAY  OFF  DEBT INCURRED BY TUITION CREDITS OR CERTIFICATES ON
BEHALF OF A DESIGNATED BENEFICIARY WHICH ENTITLE THE BENEFICIARY TO  THE
WAIVER OR PAYMENT OF DEBT INCURRED FROM HIGHER EDUCATION EXPENSES OF THE
BENEFICIARY, OR
  II.  IN THE CASE OF A PROGRAM ESTABLISHED AND MAINTAINED BY THIS STATE
OR AGENCY OR INSTRUMENTALITY  THEREOF,  MAY  MAKE  CONTRIBUTIONS  TO  AN
ACCOUNT  WHICH  IS  ESTABLISHED  FOR  THE  PURPOSE  OF  MEETING THE DEBT
INCURRED BY QUALIFIED HIGHER EDUCATION EXPENSES OF THE DESIGNATED  BENE-
FICIARY OF THE ACCOUNT.
  (B)  THE  TERM  "MEMBER OF THE FAMILY" MEANS ANY SPOUSE, CHILD, GRAND-
CHILD OR FIRST DEGREE COUSIN OF ANY DESIGNATED BENEFICIARY.
  (C) THE TERM "DESIGNATED BENEFICIARY" MEANS:

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD15089-01-6

              

A. 10607                            2

  I. THE INDIVIDUAL DESIGNATED AT THE COMMENCEMENT OF  PARTICIPATION  IN
THE  COLLEGE  DEBT  REPAYMENT PROGRAM AS THE BENEFICIARY OF AMOUNTS PAID
(OR TO BE PAID) TO THE PROGRAM; OR
  II.  IN  THE  CASE OF A CHANGE IN BENEFICIARIES, THE INDIVIDUAL WHO IS
THE NEW BENEFICIARY.
  (D) THE TERM "QUALIFIED HIGHER EDUCATION EXPENSES" MEANS:
  I. TUITION, ROOM AND  BOARD,  FEES,  BOOKS,  SUPPLIES,  AND  EQUIPMENT
REQUIRED FOR THE ENROLLMENT OR ATTENDANCE OF A DESIGNATED BENEFICIARY AT
AN ELIGIBLE EDUCATIONAL INSTITUTION;
  II. EXPENSES FOR SPECIAL NEEDS SERVICES IN THE CASE OF A SPECIAL NEEDS
BENEFICIARY  WHICH  ARE  INCURRED  IN CONNECTION WITH SUCH ENROLLMENT OR
ATTENDANCE; OR
  III. EXPENSES PAID OR INCURRED IN TWO THOUSAND NINE  OR  TWO  THOUSAND
TEN  FOR  THE PURCHASE OF ANY COMPUTER TECHNOLOGY OR INTERNET ACCESS AND
RELATED SERVICES, IF SUCH TECHNOLOGY, EQUIPMENT, OR SERVICES ARE  TO  BE
USED  BY  THE BENEFICIARY AND THE BENEFICIARY'S FAMILY DURING ANY OF THE
YEARS THE BENEFICIARY IS ENROLLED AT AN  ELIGIBLE  EDUCATIONAL  INSTITU-
TION.
  (E)  THE  TERM "ELIGIBLE EDUCATIONAL INSTITUTION" MEANS AN INSTITUTION
WHICH IS DESCRIBED IN SECTION 481 OF THE HIGHER EDUCATION  ACT  OF  1965
(20 U.S.C. 1088), AS IN EFFECT ON THE EFFECTIVE DATE OF THIS PARAGRAPH.
  (F) A PROGRAM SHALL NOT BE TREATED AS A COLLEGE DEBT REPAYMENT PROGRAM
UNLESS  IT  PROVIDES THAT PURCHASES OR CONTRIBUTIONS MAY ONLY BE MADE IN
CASH.
  (G) A PROGRAM SHALL NOT BE TREATED AS A COLLEGE DEBT REPAYMENT PROGRAM
UNLESS IT PROVIDES SEPARATE ACCOUNTING FOR EACH DESIGNATED BENEFICIARY.
  (H) A PROGRAM SHALL NOT BE TREATED AS A COLLEGE DEBT REPAYMENT PROGRAM
UNLESS IT PROVIDES THAT ANY CONTRIBUTOR TO,  OR  DESIGNATED  BENEFICIARY
UNDER,  SUCH  PROGRAM MAY, DIRECTLY OR INDIRECTLY, DIRECT THE INVESTMENT
OF ANY CONTRIBUTIONS TO THE PROGRAM (OR ANY EARNINGS  THEREON)  NO  MORE
THAN TWO TIMES IN ANY CALENDAR YEAR.
  (I) A PROGRAM SHALL NOT BE TREATED AS A COLLEGE DEBT REPAYMENT PROGRAM
IF  IT  ALLOWS  ANY INTEREST IN THE PROGRAM OR ANY PORTION THEREOF TO BE
USED AS SECURITY FOR A LOAN.
  (J) A PROGRAM SHALL NOT BE TREATED AS A COLLEGE DEBT REPAYMENT PROGRAM
UNLESS IT PROVIDES  ADEQUATE  SAFEGUARDS  TO  PREVENT  CONTRIBUTIONS  ON
BEHALF  OF  A  DESIGNATED  BENEFICIARY  IN  EXCESS OF THOSE NECESSARY TO
PROVIDE FOR THE DEBT INCURRED BY THE QUALIFIED HIGHER EDUCATION EXPENSES
OF THE BENEFICIARY.
  3. (A) EXCEPT AS OTHERWISE PROVIDED IN  THIS  SUBDIVISION,  NO  AMOUNT
SHALL BE INCLUDIBLE IN GROSS INCOME OF:
  I. A DESIGNATED BENEFICIARY UNDER A COLLEGE DEBT REPAYMENT PROGRAM; OR
  II.  A CONTRIBUTOR TO SUCH PROGRAM ON BEHALF OF A DESIGNATED BENEFICI-
ARY, WITH RESPECT TO ANY DISTRIBUTION OR EARNINGS UNDER SUCH PROGRAM.
  (B) ANY CONTRIBUTION TO A COLLEGE DEBT REPAYMENT PROGRAM ON BEHALF  OF
ANY DESIGNATED BENEFICIARY SHALL:
  I.  BE  TREATED AS A COMPLETED GIFT TO SUCH BENEFICIARY WHICH IS NOT A
FUTURE INTEREST IN PROPERTY; AND
  II. NOT BE TREATED AS A QUALIFIED TRANSFER UNDER  SECTION  2503(E)  OF
THE INTERNAL REVENUE CODE.
  (C)  IF  THE  AGGREGATE AMOUNT OF CONTRIBUTIONS DESCRIBED IN PARAGRAPH
(B) OF THIS SUBDIVISION DURING THE CALENDAR YEAR BY A DONOR EXCEEDS  THE
LIMITATION  FOR  SUCH YEAR UNDER SECTION 2503(B) OF THE INTERNAL REVENUE
CODE, SUCH AGGREGATE AMOUNT SHALL, AT THE  ELECTION  OF  THE  DONOR,  BE
TAKEN  INTO  ACCOUNT  FOR PURPOSES OF SUCH SECTION RATABLY OVER THE FIVE
YEAR PERIOD BEGINNING WITH SUCH CALENDAR YEAR.

A. 10607                            3

  4. (A) ANY DISTRIBUTION UNDER A COLLEGE DEBT REPAYMENT  PROGRAM  SHALL
BE  INCLUDIBLE  IN  THE GROSS INCOME OF THE DISTRIBUTEE IN THE MANNER AS
PROVIDED UNDER SECTION 72 OF THE INTERNAL REVENUE CODE.
  (B)  NO AMOUNT SHALL BE INCLUDIBLE IN GROSS INCOME UNDER PARAGRAPH (A)
OF THIS SUBDIVISION BY  REASON  OF  A  DISTRIBUTION  WHICH  CONSISTS  OF
PROVIDING A BENEFIT TO THE DISTRIBUTEE WHICH, IF PAID FOR BY THE DISTRI-
BUTEE, WOULD CONSTITUTE PAYMENT OF A QUALIFIED HIGHER EDUCATION EXPENSE.
  (C)  IN  THE  CASE  OF DISTRIBUTIONS NOT DESCRIBED IN PARAGRAPH (B) OF
THIS SUBDIVISION, IF:
  I. SUCH DISTRIBUTIONS DO NOT EXCEED THE DEBT INCURRED BY THE QUALIFIED
HIGHER EDUCATION EXPENSES (REDUCED BY EXPENSES  DESCRIBED  IN  PARAGRAPH
(B) OF THIS SUBDIVISION), NO AMOUNT SHALL BE INCLUDIBLE IN GROSS INCOME;
AND
  II. IN ANY OTHER CASE, THE AMOUNT OTHERWISE INCLUDIBLE IN GROSS INCOME
SHALL  BE REDUCED BY AN AMOUNT WHICH BEARS THE SAME RATIO TO SUCH AMOUNT
AS SUCH EXPENSES BEAR TO SUCH DISTRIBUTIONS.
  (D) ANY BENEFIT FURNISHED TO A DESIGNATED BENEFICIARY UNDER A  COLLEGE
DEBT REPAYMENT PROGRAM SHALL BE TREATED AS A DISTRIBUTION TO THE BENEFI-
CIARY FOR PURPOSES OF THIS SUBDIVISION.
  (E)  PARAGRAPH (A) OF THIS SUBDIVISION SHALL NOT APPLY TO THAT PORTION
OF ANY DISTRIBUTION WHICH, WITHIN SIXTY DAYS OF  SUCH  DISTRIBUTION,  IS
TRANSFERRED:
  I.  TO  ANOTHER  COLLEGE DEBT REPAYMENT PROGRAM FOR THE BENEFIT OF THE
DESIGNATED BENEFICIARY; OR
  II. TO THE CREDIT OF ANOTHER DESIGNATED BENEFICIARY  UNDER  A  COLLEGE
DEBT  REPAYMENT  PROGRAM WHO IS A MEMBER OF THE FAMILY OF THE DESIGNATED
BENEFICIARY WITH RESPECT TO WHICH THE DISTRIBUTION WAS MADE.
  (F) ANY CHANGE IN THE DESIGNATED  BENEFICIARY  OF  AN  INTEREST  IN  A
COLLEGE  DEBT  REPAYMENT  PROGRAM SHALL NOT BE TREATED AS A DISTRIBUTION
FOR PURPOSES OF PARAGRAPH (A) OF THIS SUBDIVISION IF THE NEW BENEFICIARY
IS A MEMBER OF THE FAMILY OF THE OLD BENEFICIARY.
  5. (A) ALL COLLEGE DEBT REPAYMENT PROGRAMS OF WHICH AN INDIVIDUAL IS A
DESIGNATED BENEFICIARY SHALL BE TREATED AS ONE PROGRAM;
  (B) ALL DISTRIBUTIONS DURING A TAXABLE YEAR SHALL BE  TREATED  AS  ONE
DISTRIBUTION; AND
  (C)  THE VALUE OF THE CONTRACT, INCOME ON THE CONTRACT, AND INVESTMENT
IN THE CONTRACT SHALL BE COMPUTED AS OF THE CLOSE OF THE  CALENDAR  YEAR
IN WHICH THE TAXABLE YEAR BEGINS.
  6.  (A) NO AMOUNT SHALL BE INCLUDIBLE IN THE GROSS ESTATE OF ANY INDI-
VIDUAL FOR PURPOSES OF CHAPTER 11 OF THE INTERNAL REVENUE CODE BY REASON
OF AN INTEREST IN A COLLEGE DEBT REPAYMENT PROGRAM.
  (B) PARAGRAPH (A) OF THIS  SUBDIVISION  SHALL  NOT  APPLY  TO  AMOUNTS
DISTRIBUTED ON ACCOUNT OF THE DEATH OF A BENEFICIARY.
  (C)  IN  THE CASE OF A DONOR WHO MAKES THE ELECTION DESCRIBED IN PARA-
GRAPH (C) OF SUBDIVISION THREE OF THIS SECTION AND WHO DIES  BEFORE  THE
CLOSE  OF  THE  FIVE YEAR PERIOD REFERRED TO IN SUCH PARAGRAPH, NOTWITH-
STANDING PARAGRAPH (A) OF THIS SUBDIVISION,  THE  GROSS  ESTATE  OF  THE
DONOR SHALL INCLUDE THE PORTION OF SUCH CONTRIBUTIONS PROPERLY ALLOCABLE
TO PERIODS AFTER THE DATE OF DEATH OF THE DONOR.
  (D)  EXCEPT  AS  PROVIDED  IN PARAGRAPH (E) OF THIS SUBDIVISION, IN NO
EVENT SHALL A DISTRIBUTION FROM A  COLLEGE  DEBT  REPAYMENT  PROGRAM  BE
TREATED AS A TAXABLE GIFT.
  (E)  THE  TAXES  IMPOSED BY CHAPTERS 12 AND 13 OF THE INTERNAL REVENUE
CODE SHALL APPLY TO A TRANSFER BY REASON OF A CHANGE IN  THE  DESIGNATED
BENEFICIARY  UNDER  THE  PROGRAM  (OR A ROLLOVER TO THE ACCOUNT OF A NEW
BENEFICIARY) UNLESS THE NEW BENEFICIARY IS:

A. 10607                            4

  I. ASSIGNED TO THE SAME GENERATION AS (OR A  HIGHER  GENERATION  THAN)
THE  OLD  BENEFICIARY (DETERMINED IN ACCORDANCE WITH SECTION 2651 OF THE
INTERNAL REVENUE CODE); AND
  II. A MEMBER OF THE FAMILY OF THE OLD BENEFICIARY.
  7.  THE  TAX IMPOSED BY SECTION 530(D)(4) OF THE INTERNAL REVENUE CODE
SHALL APPLY TO ANY PAYMENT OR DISTRIBUTION FROM A COLLEGE DEBT REPAYMENT
PROGRAM IN THE SAME MANNER AS SUCH TAX APPLIES TO A PAYMENT OR  DISTRIB-
UTION FROM A COVERDELL EDUCATION SAVINGS ACCOUNT. THIS SUBDIVISION SHALL
NOT  APPLY  TO ANY PAYMENT OR DISTRIBUTION IN ANY TAXABLE YEAR BEGINNING
BEFORE JANUARY FIRST, TWO THOUSAND FOUR, WHICH IS  INCLUDIBLE  IN  GROSS
INCOME  BUT  USED  FOR QUALIFIED HIGHER EDUCATION EXPENSES OF THE DESIG-
NATED BENEFICIARY.
  8. A CONTRIBUTOR SHALL MAKE AN INITIAL INVESTMENT OF AT LEAST  TWENTY-
FIVE  DOLLARS  AND MAY CONTRIBUTE UP TO THREE HUNDRED SEVENTY-FIVE THOU-
SAND DOLLARS TO A COLLEGE DEBT REPAYMENT PROGRAM.
  9. ANY DESIGNATED BENEFICIARY WHO WITHDRAWS FUNDS TO PAY FOR NONQUALI-
FIED EXPENSES SHALL PAY A TEN PERCENT PENALTY TAX ON EARNINGS AS WELL AS
FEDERAL AND STATE INCOME TAX.
  10. THE COMPTROLLER SHALL BE AUTHORIZED TO OFFER AGE-BASED OPTIONS FOR
PARTICIPANTS OF THE PROGRAM SIMILAR TO THOSE OFFERED IN THIS STATE'S 529
COLLEGE SAVINGS PROGRAM.
  11. (A) INDIVIDUAL TAXPAYERS MAY DEDUCT THE CONTRIBUTIONS THEY MAKE TO
A COLLEGE DEBT REPAYMENT PROGRAM, UP TO FIVE THOUSAND DOLLARS ANNUALLY.
  (B) MARRIED INDIVIDUAL TAXPAYERS THAT  FILE  JOINTLY  MAY  DEDUCT  THE
CONTRIBUTIONS  THEY  MAKE TO A COLLEGE DEBT REPAYMENT PROGRAM, UP TO TEN
THOUSAND DOLLARS ANNUALLY.
  S 2. This act shall take effect on the one hundred eightieth day after
it shall have become a law.