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Outcomes-Based Financing (OBF) for Students Act
Introduced Jun 24, 2026 · Last action Jun 24, 2026 — Read twice and referred to the Committee on Finance.
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Summary
This legislation is called the Outcomes-Based Financing (OBF) for Students Act. It is being reviewed by a committee.
Full bill text
[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[S. 4943 Introduced in Senate (IS)]
<DOC>
119th CONGRESS
2d Session
S. 4943
To provide a consumer protection framework necessary to support the
growth of outcomes-based student financing tools to support workforce
training, postsecondary education, and economic development, and for
other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
June 24, 2026
Mr. Young (for himself, Mr. Warner, and Mr. Coons) introduced the
following bill; which was read twice and referred to the Committee on
Finance
_______________________________________________________________________
A BILL
To provide a consumer protection framework necessary to support the
growth of outcomes-based student financing tools to support workforce
training, postsecondary education, and economic development, 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; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Outcomes-Based
Financing (OBF) for Students Act''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; table of contents.
TITLE I--TAX TREATMENT OF OBF PRODUCTS
Sec. 101. Exclusion of income from discharge of indebtedness.
Sec. 102. Treatment as interest on education loan.
Sec. 103. Amounts treated as educational assistance.
Sec. 104. Treatment of amounts received by OBF provider.
TITLE II--DISCLOSURES APPLICABLE TO OBF PRODUCTS
Sec. 201. Disclosures.
Sec. 202. Advertising of OBF products.
TITLE III--CONSUMER PROTECTIONS FOR OBF PRODUCTS
Sec. 301. Consumer protections.
Sec. 302. Treatment under bankruptcy laws.
TITLE IV--OTHER CLARIFICATIONS TO SUPPORT OBF PRODUCTS
Sec. 401. Consent to continuing release of taxpayer information under
OBF products.
Sec. 402. Amendments to the Higher Education Act of 1965.
Sec. 403. Supporting outcomes-based underwriting.
Sec. 404. Treatment under the Fair Credit Reporting Act.
TITLE I--TAX TREATMENT OF OBF PRODUCTS
SEC. 101. EXCLUSION OF INCOME FROM DISCHARGE OF INDEBTEDNESS.
(a) In General.--Section 108 of the Internal Revenue Code of 1986
is amended by adding at the end the following new subsection:
``(j) Outcomes-Based Financing Products.--In the case of an
individual, gross income does not include any amount which (but for
this subsection) would be includible in gross income by reason of--
``(1) the discharge (in whole or in part) of any outcomes-
based loan (as defined in section 140(h) of the Truth in
Lending Act), or
``(2) the termination or alteration (in whole or in part)
of the individual's payment obligation under an outcomes-based
payment agreement (as so defined).''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after the date of the enactment of this Act.
SEC. 102. TREATMENT AS INTEREST ON EDUCATION LOAN.
(a) In General.--Section 221 of the Internal Revenue Code of 1986
is amended by adding at the end the following new subsection:
``(g) Outcomes-Based Payment Agreements.--For purposes of this
section--
``(1) In general.--In the case of an individual who enters
into an outcomes-based payment agreement for purposes of
financing the qualified higher education expenses of the
individual, the amount described in paragraph (2) shall be
treated in the same manner as interest paid on a qualified
education loan.
``(2) Amount described.--The amount described in this
paragraph is an amount equal to the excess of--
``(A) amounts paid by the taxpayer during the
taxable year under the terms of an outcomes-based
payment agreement described in paragraph (1), over
``(B) the excess of--
``(i) the amount of the financing provided
to the taxpayer under the terms of such
agreement, over
``(ii) the aggregate amounts paid by the
taxpayer under the terms of such agreement in
all preceding taxable years.
``(3) Rules to apply.--Rules similar to the rules of
subparagraphs (A), (B), and (C) of subsection (c)(1) shall
apply for purposes of determining whether an agreement was
entered into for purposes of financing the qualified higher
education expenses of an individual.
``(4) Outcomes-based payment agreement.--The term
`outcomes-based payment agreement' has the meaning given such
term by section 140(h) of the Truth in Lending Act.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after the date of the enactment of this Act.
SEC. 103. AMOUNTS TREATED AS EDUCATIONAL ASSISTANCE.
(a) In General.--Subparagraph (B) of section 127(c)(1) of the
Internal Revenue Code of 1986 is amended by striking ``, and'' and
inserting ``or of any obligation of the employee pursuant to an OBF
product (as defined in section 140(h) of the Truth in Lending Act) used
to finance education of the employee, and''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after the date of the enactment of this Act.
SEC. 104. TREATMENT OF AMOUNTS RECEIVED BY OBF PROVIDER.
(a) In General.--Part III of subchapter B of chapter 1 of the
Internal Revenue Code of 1986 is amended by inserting after section 112
the following new section:
``SEC. 113. AMOUNTS RECEIVED BY OUTCOMES-BASED FINANCING PROVIDER.
``(a) General Rule.--Gross income of an OBF provider does not
include so much of amounts received by such provider from an OBF
recipient during the taxable year as does not exceed an amount equal to
the excess of--
``(1) the amount of the financing provided to the OBF
recipient under the terms of an OBF product, over
``(2) the aggregate amounts received by the OBF provider
under the terms of the product in all preceding taxable years.
``(b) Terms.--For purposes of this section, the terms `OBF
provider', `OBF recipient', and `OBF product' have the respective
meanings given such terms by section 140(h) of the Truth in Lending
Act.''.
(b) Clerical Amendment.--The table of sections for part III of
subchapter B of chapter 1 of the Internal Revenue Code of 1986 is
amended by inserting after the item relating to section 112 the
following new item:
``Sec. 113. Amounts received by outcomes-based financing provider.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
TITLE II--DISCLOSURES APPLICABLE TO OBF PRODUCTS
SEC. 201. DISCLOSURES.
(a) Disclosure Guidelines.--Section 105 of the Truth in Lending Act
(15 U.S.C. 1604) is amended by adding at the end the following:
``(j) Regulations Related to OBF Products.--Not later than 270 days
after the date of enactment of the Outcomes-Based Financing (OBF) for
Students Act, the Bureau shall prescribe regulations to carry out the
purposes of this title, which may contain such additional requirements,
classifications, differentiations, or other provisions, and may provide
for such adjustments and exceptions for all or any class of
transactions, as in the judgment of the Bureau are necessary or proper
to effectuate the purposes of this title, to prevent circumvention or
evasion thereof, or to facilitate compliance therewith.
``(k) Model Disclosure Forms and Clauses for OBF Products.--Not
later than 270 days after the date of enactment of the Outcomes-Based
Financing (OBF) for Students Act, the Bureau shall publish a model
integrated disclosure for OBF products in order to facilitate
compliance with the disclosure requirements of this title and aid OBF
recipients in understanding the transaction by utilizing readily
understandable language to simplify the technical nature of the
disclosures.''.
(b) Form of Disclosure; Additional Information.--Section 122(a) of
the Truth in Lending Act (15 U.S.C. 1632(a)) is amended--
(1) in the second sentence, by striking ``The terms'' and
inserting ``For a product that is not an OBF product, the
terms''; and
(2) by inserting after the second sentence ``For an OBF
product, the terms `payment calculation method', `income
threshold', and `completion mechanisms' shall be disclosed more
conspicuously than other terms, data, or information provided
in connection with a transaction, except for information
relating to the identity of the creditor, and information in
the table referenced in section 128(e)(12)(B)(v). The terms
`annual percentage rate' and `finance charge' shall be
disclosed more conspicuously than other terms, data, or
information provided in such table.''.
(c) Transactions Other Than Under an Open End Credit Plan.--Section
128(e) of the Truth in Lending Act (15 U.S.C. 1638(e)) is amended by
adding at the end the following:
``(12) Disclosure requirements for outcomes-based financing
products.--
``(A) In general.--In addition to the disclosures
required under this chapter, and in lieu of the
disclosure requirements in paragraphs (3), (4), (5) and
(6) of subsection (a), subparagraph (C) of paragraph
(2), and paragraphs (1), (2), and (4) of this
subsection, an OBF provider shall disclose the
following:
``(i) Disclosures required in private
education loan applications and
solicitations.--In any application for an OBF
product, or a solicitation for an OBF product
without requiring an application, the OBF
provider shall disclose to the OBF recipient,
clearly and conspicuously--
``(I) the disclosures required
under subclauses (I) and (II) of clause
(ii), including the potential range of
terms applicable to the OBF product for
each disclosure item;
``(II) the disclosures required
under subclauses (III) and (IV) of
clause (ii);
``(III) the comparison table
described in clause (ii)(V), using the
highest dollar amount or percentage
that the OBF provider could set under
the OBF payment calculation method
described in clause (ii)(I) based on an
amount financed of $10,000, or $5,000
if the OBF provider only offers OBF
products of this type for less than
$5,000; and
``(IV) the disclosures required
under--
``(aa) paragraph (1)(J)
(relating to eligibility
requirements);
``(bb) subparagraphs (L)
through (N) and (Q) of
paragraph (1) (relating to the
availability of other potential
sources of information and
aid);
``(cc) paragraph (1)(O)
(relating to the 30-day
approval period); and
``(dd) paragraph (1)(P)
(relating to self-
certification).
``(ii) Disclosures at the time of private
education loan approval.--Contemporaneously
with the approval of an OBF product
application, and before the loan transaction is
consummated, the OBF provider shall disclose to
the borrower, clearly and conspicuously, the
following:
``(I) As relates to the periodic
payment obligation:
``(aa) The term `Payment
Calculation Method' and a
description of the method
through which periodic payments
will be calculated.
``(bb) The term `income
threshold' and the income
threshold for the OBF product,
followed by a description that
states, `The minimum income you
must make to trigger a payment
obligation. If your income is
less than this income
threshold, you will not owe any
amount for that period.'.
``(cc) A statement that
during periods in which the OBF
recipient's income is below the
income threshold--
``(AA) the OBF
recipient will not owe
an OBF payment for that
period of time; and
``(BB) any such
period of non-payment
will not count toward
the OBF maximum number
of payments but will
count toward the OBF
duration.
``(II) As relates to various ways
the OBF recipient can complete the
obligation, which shall include (where
applicable):
``(aa) The term `Maximum
Number of Required Payments'
and the OBF maximum number of
payments, followed by a
description that states, `The
maximum number of payments you
will be required to make when
your income is equal to or
greater than the income
threshold.'.
``(bb) The term `Maximum
Duration' and the OBF duration,
followed by a description that
states, `The maximum amount of
time that you are required to
make income-determined
payments, excluding any
extensions that you request.'.
``(cc) In the case of an
outcomes-based loan, a
disclosure of--
``(AA) the
applicable rate of
interest in effect on
the date of approval;
``(BB) whether the
rate of interest
applicable to the
private education loan
is fixed or variable;
``(CC) any
limitations on interest
rate adjustments, both
in terms of frequency
and amount, or the lack
thereof, if applicable;
and
``(DD) if the rate
of interest is
variable, a statement
that the varying rate
of interest will affect
how much the OBF
recipient must pay to
complete the outcomes-
based loan early.
``(dd) In the case of an
outcomes-based payment
agreement, any payment cap,
which may be a fixed number,
fixed multiple, effective
annual percentage rate, or
other mechanism.
``(III) The Annual Percentage Rate,
with a description stating that the
Annual Percentage Rate will vary based
on the consumer's income after
completing school and that the consumer
should refer to the table described in
subclause (V) to see the range of
Annual Percentage Rates based on
different after-school income
scenarios.
``(IV) As relates to other
disclosure items:
``(aa) A statement that the
obligations of the OBF
recipient under the OBF product
would be dischargeable in a
case under title 11, United
States Code, in the same manner
as a loan that is not described
in section 523(a)(8) of title
11, United States Code.
``(bb) The disclosure
required under paragraph
(2)(J), relating to available
payment deferral options.
``(cc) The following
statement: `IMPORTANT NOTICE
REQUIRED BY LAW: Students are
cautioned to consider carefully
entering into this outcomes-
based financing product if
their total future payment
commitment, including any other
forms of education finance, may
exceed 20 percent of their
expected future income. Your
total future obligation may
exceed this percentage if you
have received additional
education financing, including
other outcomes-based financing
products, Department of
Education Direct or FFEL Loans,
or private education loans.'.
``(dd) Applicable finance
charges, late fees, penalties,
and adjustments to principal
(as applicable), based on
borrower defaults or late
payments applicable to the OBF
product.
``(ee) Fees, or the range
of fees, applicable to the OBF
product.
``(ff) The definition of
income to be used for purposes
of calculating the OBF
recipient's obligation under
the OBF product.
``(gg) A statement
regarding whether the OBF
provider intends to engage in a
process of reconciliation to
determine if the amount paid by
the OBF recipient for the
preceding year is more than,
equal to, or less than the OBF
payments owed under the OBF
product, including--
``(AA) a
description of the
process in which the
OBF recipient must
participate for the OBF
provider to verify the
OBF recipient's income;
and
``(BB) a
description of any tax
records or forms that
the OBF recipient must
execute or that the OBF
provider intends to
submit to the Internal
Revenue Service.
``(V) A comparison table that--
``(aa) calculated for the
range of income scenarios
described in item (bb) and
assuming the OBF recipient
earns at that income level for
the duration of the contract,
discloses--
``(AA) the total
dollar amount of
payments;
``(BB) the number
of OBF payments;
``(CC) the finance
charge; and
``(DD) the annual
percentage rate, with
the scenario where an
OBF recipient never
makes any payments
shown as `-100% (no
payments)';
``(bb) with respect to the
disclosures required under item
(aa), includes, at a minimum,
the obligations for the OBF
recipient--
``(AA) with no
income;
``(BB) with income
at the income
threshold; and
``(CC) for various
income scenarios,
including, at a
minimum, calculations
at annual incomes of
$40,000, $60,000,
$80,000, $100,000,
$125,000, $150,000,
$175,000, and $200,000
(or in lieu of these
income scenarios, other
income scenarios that
the Bureau specifies by
rule); and
``(cc) includes the
following statement: `This
table assumes you have the same
income over the entire duration
of your OBF product. It does
not take into account changes
in income. Your income will
likely change over time.'.
``(VI) The disclosures required
under paragraph (2)(L) (relating to the
30-day approval period) and
subparagraphs (M) and (N) of paragraph
(2) (relating to the availability of
other potential sources of aid).
``(iii) Disclosures at the time of private
education loan consummation.--Contemporaneously
with the consummation of an OBF product, an OBF
provider shall make to the OBF recipient each
of the disclosures described in--
``(I) subclauses (I) through (IV)
of clause (ii) (and in the case of an
outcomes-based loan with a variable
rate of interest, adjusted, as
necessary, for the rate of interest in
effect on the date of consummation,
based on the index used);
``(II) subparagraphs (M) and (N) of
paragraph (2) (relating to the
availability of other potential sources
of aid); and
``(III) paragraph (7) (relating to
right to cancel).
``(B) Rulemaking.--The Bureau may prescribe, by
rule, such other information as necessary or
appropriate that shall be disclosed for consumers to
make informed borrowing decisions related to OBF
products.''.
SEC. 202. ADVERTISING OF OBF PRODUCTS.
(a) Advertising of Downpayments and Installments.--Section 142 of
the Truth in Lending Act (15 U.S.C. 1662) is amended--
(1) in the matter preceding paragraph (1), by striking
``state'' and inserting ``state--'';
(2) in paragraph (1), by striking the period and inserting
a semicolon;
(3) in paragraph (2), by striking the period and inserting
``; and''; and
(4) by adding at the end the following:
``(3) with respect to an OBF product, that a specific OBF
payment calculation method, OBF duration, OBF maximum number of
payments, or income threshold can be arranged, unless the OBF
provider usually and customarily arranges OBF products pursuant
to the terms so advertised.''.
(b) Advertising of a Credit Other Than Open End Plans.--Section 144
of the Truth in Lending Act (15 U.S.C. 1664) is amended by adding at
the end the following:
``(f) Outcomes-Based Financing Products.--
``(1) Definitions.--In this subsection, the terms `OBF
product', `income threshold', `OBF duration', `OBF maximum
number of payments', and `OBF payment calculation method' have
the meanings given those terms in subsection 1650(h).
``(2) Application.--This subsection shall apply to any
advertisement of any OBF product subject to the provisions of
this chapter.
``(3) Disclosure of key terms.--If any advertisement to
which this section applies states the OBF payment calculation
method, OBF duration, OBF maximum number of payments, income
threshold, or amounts of payments under an OBF product, the
advertisement shall include each of the following:
``(A) The OBF payment calculation method.
``(B) The OBF duration.
``(C) The OBF maximum number of payments.
``(D) The income threshold.''.
TITLE III--CONSUMER PROTECTIONS FOR OBF PRODUCTS
SEC. 301. CONSUMER PROTECTIONS.
(a) Preventing Unfair and Deceptive Private Educational Lending
Practices and Eliminating Conflicts of Interest.--Section 140 of the
Truth in Lending Act (15 U.S.C. 1650) is amended--
(1) in subsection (a)(8)--
(A) in subparagraph (A)(ii), by striking ``and'' at
the end; and
(B) by adding at the end the following:
``(C) includes an Outcomes-Based Financing Product
as defined in subsection (h); and''; and
(2) by adding at the end the following:
``(h) Definitions Relating to Outcomes-Based Financing Products.--
In this chapter:
``(1) Amount financed.--The term `amount financed' means,
with respect to an OBF product, the amount financed as
calculated pursuant to section 1026.18(b) of title 12, Code of
Federal Regulations.
``(2) Income threshold.--The term `income threshold' means
a fixed dollar amount that is the minimum income that an OBF
recipient is required to earn in a payment period before the
OBF recipient is required to make a payment on an OBF product
for such payment period.
``(3) OBF duration.--
``(A) In general.--The term `OBF duration'--
``(i) means the maximum time during which a
consumer could remain obligated on the OBF
product, except for any past due amounts owed
to the OBF provider; and
``(ii) does not include--
``(I) any period of in-school
deferment;
``(II) any grace or transition
period; and
``(III) any period for which the
OBF recipient's income is equal to or
above the income threshold but the
obligation is suspended at the request
of the consumer (including a period of
payment relief pause, deferment, or
forbearance).
``(B) Reconciliation process.--If an OBF product
requires a reconciliation process under section
128(e)(12)(A)(ii)(IV)(gg), any payment period that has
not yet been reconciled shall provisionally be applied
to the OBF duration until such time as the payment
period is reconciled, provided that if the OBF
recipient has reached the OBF duration, including any
provisional payment periods, the OBF recipient shall
not accrue any additional obligations except those that
come from any remaining reconciliation processes.
``(4) OBF product.--The term `OBF product' means a
financial product--
``(A) under which--
``(i) the OBF provider credits or advances
financing to the OBF recipient or to a third
party on behalf of the OBF recipient; or
``(ii) if the OBF provider is a merchant
financing the sale of goods or services to the
OBF recipient via the financial product, the
OBF provider credits the amount financed toward
the purchase of such goods or services;
``(B) under which the OBF recipient is obligated to
make periodic OBF payments (if any become due) to the
OBF provider in the future, calculated based upon the
OBF recipient's future income (using the Payment
Calculation Method defined in this subsection, as
specified in the contract);
``(C) under which the OBF recipient's obligation to
make payments (if any become due) to the OBF provider
is conditional on the OBF recipient's income exceeding
the income threshold set in the OBF product;
``(D) under which there is an OBF duration after
which the obligation is complete regardless of how much
has been paid, as long as the consumer has paid any
prior amounts due;
``(E) under which the OBF provider and the OBF
recipient enter into an agreement that, as of the date
of the product, includes each element described in
subparagraphs (A) through (D);
``(F) that is not made, insured, or guaranteed
under title IV of the Higher Education Act of 1965 (20
U.S.C. 1070 et seq.);
``(G) that is not open end credit or any loan that
is secured by real property or a dwelling; and
``(H) under which the amounts advanced under
subparagraph (A) are for--
``(i) costs associated with a postsecondary
training program or any other program designed
to increase the human capital, employability,
or earning potential of the OBF recipient (not
limited to programs eligible to participate
under title IV of the Higher Education Act of
1965 (20 U.S.C. 1070 et seq.));
``(ii) any personal expenses (such as
books, supplies, transportation, and living
costs) incurred by the OBF recipient while
enrolled in a program described in clause (i);
``(iii) any other cost or expense that is a
qualified higher education expense, as defined
in section 529(e)(3)(A) of the Internal Revenue
Code of 1986; and
``(iv) the refinancing of loans or OBF
products used for the purposes described in
clauses (i), (ii), or (iii), and without
respect to whether the OBF product is provided
by the educational institution that the OBF
recipient attends.
``(5) OBF maximum number of payments.--The term `OBF
maximum number of payments'--
``(A) means the maximum number of OBF payments that
an OBF recipient could be required to make under the
terms of the OBF product; and
``(B) does not include periods of payment relief
pause.
``(6) OBF payment.--The term `OBF payment'--
``(A) means the amount of an OBF recipient's
periodic payment obligation, under the terms of the OBF
product, incurred during any payment period for which
the OBF recipient's income is greater than the income
threshold; and
``(B) is calculated using the OBF payment
calculation method.
``(7) OBF payment calculation method.--`OBF payment
calculation method' means the mechanism, formula, percentage,
dollar figure, or other means of calculating an OBF recipient's
payment obligation, based on the OBF recipient's income, under
the terms of the OBF product.
``(8) OBF provider.--The term `OBF provider' means a person
that provides financing to an OBF recipient pursuant to the
terms of an OBF product, or, in the case of a person who is a
merchant financing the sale of goods or services to the OBF
recipient, the merchant.
``(9) OBF recipient.--The term `OBF recipient' means a
consumer that receives financing from an OBF provider under an
OBF product.
``(10) Outcomes-based loan.--The term `outcomes-based loan'
means an OBF product that uses promissory notes, loan
agreements, or an installment sales contract to effectuate the
loan and provide for the repayment of a principal balance with
a fixed or variable interest rate, with such additional terms
as necessary (such as forgiveness of outstanding balance after
a defined period) to meet the requirements of an OBF product.
``(11) Outcomes-based payment agreement.--An `outcomes-
based payment agreement' includes all OBF products that are not
outcomes-based loans.
``(12) Payment relief pause.--The term `payment relief
pause' means a period of time that--
``(A) is requested by the OBF recipient during
which any payment obligation the OBF recipient would
have is suspended; and
``(B) does not count toward an OBF recipient's OBF
duration or maximum number of payments.
``(13) Poverty line.--The term `poverty line' has the
meaning given the term in section 673 of the Community Services
Block Grant Act (42 U.S.C. 9902).
``(14) Consumer.--The term `consumer' means a natural
person to whom an OBF product is offered or extended for
personal, family, or household purposes.
``(i) Additional Consumer Protections Relating to OBF Products.--
``(1) Prohibition on acceleration; treatment of early
completion mechanisms.--
``(A) Limits on acceleration.--
``(i) Outcomes-based payment agreement
products.--An OBF provider shall not include
any mechanism in an outcomes-based payment
agreement product that accelerates an amount
against an OBF recipient (or otherwise
liquidates a future payment stream) in the
event of a delinquency or default under the OBF
product.
``(ii) Outcomes-based loan products.--An
OBF provider shall not accelerate (or otherwise
liquidate a future payment stream) an outcomes-
based loan product in the event of a
delinquency or default under the outcomes-based
loan, except the OBF provider may accelerate an
outcomes-based loan in cases where the OBF
recipient has failed to make a required payment
for a continuous period of not less than 180
days.
``(B) No impact on early completion mechanisms.--
Nothing in this subsection shall be interpreted to
prevent an OBF recipient from using any available
completion mechanisms of an OBF product so long as the
mechanism is optional and within the OBF recipient's
control.
``(2) Monthly payment affordability for obf products.--
``(A) Maximum monthly payment obligation.--Each OBF
product shall specify the OBF payment calculation
method applicable to the OBF product. An OBF provider
shall not enter into an OBF product with an OBF
recipient if the OBF recipient would be committing to
pay more than 20 percent of the OBF recipient's income
at any time during the OBF duration, based on
information available to the OBF provider at the time
of the projection, inclusive of any payment obligations
that the OBF provider knows will arise in the future
for other OBF products upon which the consumer is
obligated at the time of the projection. The OBF
provider shall confirm a recipient's OBF liabilities
through a verifiable third-party source. At a minimum,
the OBF provider shall confirm such liabilities using
information maintained by a nationwide consumer
reporting agency, as defined in section 603(f) of the
Fair Credit Reporting Act (15 U.S.C. 1681a(f)). While
doing so is sufficient for meeting the requirement
under this subparagraph, nothing in this subparagraph
shall prohibit an OBF provider from using other sources
to provide additional verification.
``(B) Calculation methodology and requirements.--
``(i) In general.--For the purposes of
calculating the portion of an OBF recipient's
future income that would be consumed by the OBF
product for which the OBF recipient has applied
and all other OBF products of the OBF recipient
as of the date of the agreement, the OBF
provider shall calculate the aggregate future
burden--
``(I) in any case where the income
threshold of the OBF product is less
than the maximum described in clause
(ii), at hypothetical future income
levels ranging from such income
threshold to such maximum, in
increments of $10,000; and
``(II) in any case where the income
threshold of the OBF product is equal
to or greater than such maximum, at
such income threshold.
``(ii) Maximum.--The maximum described in
this clause shall be the greater of--
``(I)(aa) for fiscal year 2025,
$70,000; or
``(bb) for fiscal year 2026 and
each subsequent fiscal year, the
maximum for the preceding fiscal year--
``(AA) increased by the
percentage increase in the
Consumer Price Index for All
Urban Consumers published by
the Department of Labor; and
``(BB) rounded to the
nearest $1,000; or
``(II) in the case of an OBF
recipient who has (as of the date of
the outcomes-based payment agreement),
or has applied for, an OBF product that
uses a schedule of income percentages
or a schedule of fixed amounts as the
OBF payment calculation method, the
highest income level referenced by a
schedule for any such OBF product.
``(iii) Calculation.--
``(I) In general.--The terms of an
OBF product for which a consumer has
applied cannot cause the OBF
recipient's aggregate future burden
(defined as the total amounts expected
to be due under all OBF products of the
OBF recipient as of the date of the
agreement, and all OBF products for
which the consumer is applying) to
exceed the limit described in
subparagraph (A) at any of the income
increments described in clause (ii).
``(II) Calculation method.--For the
purpose of calculating the percentage
burden of an OBF product at a given
future income level, the OBF provider
shall calculate the annual payment
obligation the OBF recipient would
incur at that income level (using the
most affordable option that would yield
the lowest monthly payments that would
be available to the OBF recipient at
such income level under that OBF
product) and divide that annual payment
obligation by that income level.
``(C) Protections during periods of low earnings.--
``(i) In general.--The OBF product shall
provide that when an OBF recipient has an
income that is below the income threshold of
the OBF product, the OBF periodic payment
obligation is $0.
``(ii) Threshold amount.--The income
threshold for an OBF product (expressed as an
annual amount) shall be not less than 250
percent of the Federal poverty guidelines for a
single person in the continental U.S. (for the
year in which the calculation is performed).
``(3) Ensuring appropriate risk sharing for obf products.--
``(A) In general.--An OBF provider may not contract
for terms of an OBF product that would result in the
OBF recipient having income that is less than or equal
to 350 percent of the Federal poverty guidelines for a
single person in the continental United States for the
OBF duration being required to make a stream of OBF
payments that would yield an effective annual
percentage rate of more than 8 percent, plus the high
yield of the 10-year United States Constant Maturity
Treasury Notes auctioned at the final auction held
before the current calendar year in which an OBF
product offering is made.
``(B) Calculation.--An OBF provider shall calculate
for an OBF recipient the effective annual percentage
rate under subparagraph (A) by determining the poverty
line at the time of origination of the OBF product and
assuming such amount is fixed through the OBF duration.
``(C) Duration.--For the purposes of determining
OBF duration under subparagraph (A), an OBF provider
shall assume the OBF duration started after a period
equal to the expected length of the program for which a
consumer is enrolling.
``(4) Limits on duration of an obf product obligation.--
``(A) OBF maximum number of payments.--The OBF
maximum number of payments shall not exceed 240 monthly
payments.
``(B) OBF duration.--The OBF duration shall not
exceed 360 months (except in the case of an extension
requested by the OBF recipient).
``(5) Non-interference.--An OBF product shall not be
construed to give the contract holder any rights over an
individual's actions other than as provided in this Act.
``(6) Discharge protections for obf recipients.--
``(A) Permanent and total disability.--In any case
where an OBF recipient would be deemed totally and
permanently disabled for purposes of benefits
administered by the Department of Veterans Affairs or
the Social Security Administration (determined without
regard to whether the recipient receives such
benefits), all further obligations of the OBF recipient
under the OBF product shall terminate, except those
accruing before the date such a determination would
apply.
``(B) Death.--Upon the death of an OBF recipient,
all further obligations of the OBF recipient under the
OBF product shall terminate, except those obligations
accruing before the OBF recipient's date of death.
``(7) Limitation on amounts treated as income under obf
products.--
``(A) In general.--For purposes of calculating the
obligation of an OBF recipient to make OBF payments
under an OBF product, the income of the OBF recipient
shall not include--
``(i) the income of any child or dependent
of the OBF recipient;
``(ii) any item of income which is not
included in the gross income (as defined in
section 61(a) of the Internal Revenue Code of
1986) of the OBF recipient;
``(iii) any amount received from an
individual retirement plan (as defined in
section 7701 of the Internal Revenue Code of
1986), a pension, or an annuity; or
``(iv) any Social Security benefit (as
defined in section 86 of the Internal Revenue
Code of 1986).
``(B) Estimating income.--
``(i) In general.--An OBF provider may
reasonably require that an OBF recipient
provide documentation of income, including
through pay stubs, tax transcripts, or the
signing of relevant IRS forms that provide the
OBF provider with access to the OBF recipient's
tax transcripts. In the event that an OBF
recipient fails to provide income documentation
as reasonably required by the OBF product, an
OBF provider may assign an amount of income to
the OBF recipient and compute the monthly
payment amount for the OBF recipient by any of
the following methods, to the extent disclosed
in the OBF product:
``(I) Assigning an income amount
obtained from a reasonably reliable
third party or a consumer reporting
agency, as defined in section 603(f) of
the Fair Credit Reporting Act (15
U.S.C. 1681a(f)).
``(II) If the OBF recipient
previously provided income
documentation or has had an income
assigned in the preceding 1-year
period, assuming that such income has
increased by not more than 10 percent,
provided such increase is not applied
more than once per 1-year period.
``(III) Contacting the applicable
State revenue department or the
Internal Revenue Service to obtain the
most recent information available about
the income of the OBF recipient.
``(IV) If the OBF recipient has not
previously provided income
documentation, assigning a reasonable
qualified income based on--
``(aa) the median income
for individuals working in the
profession for which the
educational program of the OBF
recipient was intended to
prepare the OBF recipient, as
determined by information
published by the Bureau of
Labor Statistics or other
reasonably reliable publicly
available data sources; or
``(bb) the median income of
individuals who attended the
same or a reasonably comparable
covered educational program or
course of study, as determined
by information published by the
Bureau of Labor Statistics or
other reasonably reliable
publicly available data
sources.
``(V) Assigning an income equal to
the income threshold of the OBF product
(and adjusting as needed if the
threshold adjusts over time).
``(ii) Notification.--If an OBF provider
assigns an income to an OBF recipient, pursuant
to clause (i), the OBF provider--
``(I) shall notify the OBF
recipient in the monthly billing
statement, and in each billing
statement thereafter while the assigned
income remains applicable to the OBF
recipient--
``(aa) that income has been
assigned; and
``(bb) of the rights of the
OBF recipient under this
section;
``(II) in any tax year for which
the OBF provider has made an assumption
about an OBF recipient's income using
any of the methods described in clause
(i) and if the OBF recipient has
authorized ongoing access to the OBF
recipient's return information under
section 401, shall request such
information in each year of the payment
term;
``(III) if the OBF recipient does
provide income information as
reasonably required by the OBF product
within 1 year of the date on which the
OBF provider notified the OBF recipient
that assigned income shall be applied
to the OBF product or if the OBF
provider receives updated income
information through return information
authorized under section 401, then, not
later than the date that is 15 days
after the date on which the OBF
provider receives such information,
shall--
``(aa) update each prior
instance in which assigned
income was applied, using such
new income information; and
``(bb) reconcile any
difference in amounts owed by
the OBF recipient based on
those updates to prior income;
and
``(IV) if the OBF recipient
provides income information more than 1
year after the OBF provider first
assigned income to the OBF recipient,
may, but shall not be obligated to,
update each prior instance in which
assigned income was applied using the
income information provided by the OBF
recipient.
``(iii) Records retention.--An OBF provider
that assigns income to an OBF recipient shall
retain all applicable records relating to the
method and data sources used to make such
estimation for a period of 3 years after the
date by which there no longer exists a
contractual relationship between the OBF
provider and the OBF recipient for that OBF
product.
``(8) No assignment of wages.--
``(A) In general.--An OBF provider may not take an
assignment of earnings or wages of the OBF recipient as
payment or as security for payment of a debt arising
out of an OBF product. An assignment of earnings in
violation of this paragraph is unenforceable by the
assignee of the earnings and revocable by the consumer.
This paragraph does not limit the ability of the OBF
recipient to voluntarily elect to use a revocable
payroll deduction mechanism, such as one offered by an
employer or payroll provider, provided that the OBF
recipient is not assigning the OBF recipient's earnings
or wages.
``(B) Deemed loan.--A sale of unpaid earnings made
in consideration of the payment of money to or for the
account of the seller of the earnings is deemed to be a
loan to the seller secured by an assignment of
earnings.
``(j) Treatment of Outcomes-Based Financing Products Under Other
Laws.--
``(1) Definition.--In this subsection, the term `State
law'--
``(A) means--
``(i) 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; and
``(ii) any law of the United States
applicable only to the District of Columbia;
and
``(B) does not impact the use of such term in
section 1026.28 of title 12, Code of Federal
Regulations.
``(2) Insurance and wagering.--An OBF product shall not be
treated as a contract for insurance, or as a betting or
wagering contract, under any Federal or State law or State
constitutional provision.
``(3) Assignment of future wages for obf products.--An OBF
product shall be a valid, binding, and enforceable contract,
notwithstanding any State law or State constitutional provision
limiting or otherwise regulating assignments of future wages or
other income.
``(4) Preemption of state laws with respect to
substantially equal payments.--A State law or State
constitutional provision requiring that payments on a debt,
credit, loan, installment sale, or other financial instrument
be in equal or substantially equal amounts shall not apply to
an OBF product.
``(5) Preemption of state laws with respect to ability to
repay.--
``(A) In general.--A State law or State
constitutional provision imposing requirements relating
to assessing whether a consumer has the ability to
repay a loan, credit, debt, installment sale, or other
financial obligation shall not apply to an OBF product.
``(B) Exceptions.--
``(i) Legislation that references this
section.--For purposes of the affordability
protections specified in subparagraph (C),
State legislation that specifically and
explicitly addresses OBF products by reference
to this section and imposes limits that would
apply to OBF products issued in the
jurisdiction of that State shall not be subject
to preemption under subparagraph (A).
``(ii) Prior enacted legislation.--If, as
of the date of enactment of this section, a
State has previously enacted legislation or
issued a rule specifically referencing `income
share agreements' and specifying limits for
income share agreements consistent with clauses
(i) and (ii) of subparagraph (C), such limits
are not subject to preemption under
subparagraph (A).
``(C) Affordability protections.--The affordability
protections subject to State specification under
subparagraph (A) include:
``(i) the percentage specified in
subsection (i)(2)(A) setting the maximum
percentage of income required for monthly
payments under OBF products, including what
types of obligations are included in such limit
(but not altering the methodology used to apply
such limit);
``(ii) the percentage specified in
subsection (i)(2)(C) providing an alternative
minimum required income threshold (but not
altering other aspects of the calculation used
to determine the minimum income threshold).
``(6) Preemption of state laws with respect to amount of
financing, timing of payments, and length of term.--
``(A) In general.--A State law or State
constitutional provision imposing requirements relating
to limits on amount of financing, timing of payments,
or when payments must start for a loan, credit, debt,
installment sale, or other financial obligation shall
not apply to an OBF product.
``(B) Exceptions.--
``(i) Legislation that references this
section.--For purposes of the payment and
duration protections specified in subparagraph
(C), State legislation that specifically and
explicitly addresses OBF products by reference
to this section and imposes limits that would
apply to OBF products issued in the
jurisdiction of that State shall not be subject
to preemption under subparagraph (A).
``(ii) Prior enacted legislation.--If, as
of the date of enactment of this section, a
State has previously enacted legislation or
issued a rule specifically referencing `income
share agreements' and specifying limits for
income share agreements consistent with clauses
(i) and (ii) of subparagraph (C), such limits
are not subject to preemption under
subparagraph (A).
``(C) Payment and duration protections.--The
payment and duration protections subject to State
specification under subparagraph (A) include:
``(i) the number specified in subsection
(i)(4)(A) setting the maximum number of OBF
payments for an OBF product (but not altering
the definitions of OBF payment);
``(ii) the number specified in subsection
(i)(4)(B) setting the maximum OBF duration for
an OBF product (but not altering the definition
of an OBF duration).
``(7) Prepayment.--
``(A) In general.--A Federal law or State law or
State constitutional provision imposing requirements or
limitations relating to prepayment or fees or charges
related to prepayment, including as described in
subsection (e), shall not apply to an outcomes-based
payment agreement.
``(B) Exceptions.--
``(i) Legislation that references this
section.--State legislation shall not be
subject to preemption under subparagraph (A) if
the legislation--
``(I) specifically and explicitly
addresses OBF products by reference to
this section; and
``(II) requires that outcomes-based
payment agreement products include a
means through which an outcomes-based
payment agreement recipient can
complete the outcomes-based payment
agreement obligation by paying an
amount equal to the amount financed and
an earned finance charge, with the
earned finance charge equal to the
finance charge that would have been
earned by the outcomes-based payment
agreement provider applying a maximum
annual percentage rate (which shall be
disclosed by the outcomes-based payment
agreement provider pursuant to section
128(e)(12)(A)(ii)(III)) to the amount
financed, and calculated as of the
current date.
``(ii) Prior enacted legislation.--If, as
of the date of enactment of this section, a
State has previously enacted legislation or
issued a rule specifically referencing `income
share agreements' and specifying limits for
income share agreements consistent with those
described in this paragraph, such limits are
not subject to preemption under subparagraph
(A).
``(8) Application of usury limits.--
``(A) In general.--A State law or State
constitutional provision imposing requirements or
limitations relating to the rate or amount of interest,
finance charges, or other charges which may be charged,
taken, received, or reserved, shall not apply to an OBF
product.
``(B) Exceptions.--
``(i) Legislation that references this
section.--State legislation shall not be
subject to preemption under subparagraph (A) if
the legislation--
``(I) specifically and explicitly
addresses OBF products by reference to
this section; and
``(II) imposes its own limits with
respect to the rate or amount of
interest, finance charges, or other
charges that may be charged, taken,
received, or reserved that would apply
to OBF products issued in the
jurisdiction of that State.
``(ii) Prior enacted legislation.--If, as
of the date of enactment of this section, a
State has previously enacted legislation or
issued a rule specifically referencing `income
share agreements' and specifying limits for
income share agreements consistent with those
described in this paragraph, such limits are
not subject to preemption under subparagraph
(A).
``(9) State specification of risk sharing limits.--For the
protections relating to risk sharing specified in subparagraph
(B), a State may enact legislation that specifically and
explicitly addresses OBF products and imposes its own limits
that would apply to OBF products issued in the jurisdiction of
that State that include the income level and associated annual
percentage rate limit specified in paragraph (i)(3), including
specifying additional tiers of income levels and limits as
desired (but not altering the methodology used to apply such
limits under this section).''.
SEC. 302. TREATMENT UNDER BANKRUPTCY LAWS.
Section 523(a)(8) of title 11, United States Code, is amended, in
the matter preceding subparagraph (A), by striking ``for--'' and
inserting ``for, other than funds provided as part of an OBF product
(as defined in section 140(h) of the Truth in Lending Act (15 U.S.C.
1650(h))--''.
TITLE IV--OTHER CLARIFICATIONS TO SUPPORT OBF PRODUCTS
SEC. 401. CONSENT TO CONTINUING RELEASE OF TAXPAYER INFORMATION UNDER
OBF PRODUCTS.
(a) In General.--Not later than 180 days after the date of
enactment of this Act, the Secretary of the Treasury shall modify
Treasury regulations and guidance to provide for continuing consent
(via hand signature and electronic signature) to disclosure of an
individual's tax return information to an OBF provider (or the OBF
provider's successor in interest) under an OBF product, but only for
periods relevant to, and only to the extent the Secretary determines is
necessary and appropriate in carrying out the terms of, such OBF
product.
(b) Definitions.--In this section, the terms ``OBF product'' and
``OBF provider'' have the meanings given such terms in subsection (h)
of section 140 of the Truth in Lending Act (15 U.S.C. 1650(h)), as
added by this Act.
SEC. 402. AMENDMENTS TO THE HIGHER EDUCATION ACT OF 1965.
The Higher Education Act of 1965 (20 U.S.C. 1001 et seq.) is
amended as follows:
(1) Section 487(d)(1)(D) (20 U.S.C. 1094(d)(1)(D)) is
amended--
(A) in clause (ii), by striking ``and'' at the end;
(B) in clause (iii), by inserting ``and'' after the
semicolon; and
(C) by adding at the end the following:
``(iv) in the case of an OBF product (as
such term is defined in subsection (h) of
section 140 of the Truth in Lending Act (15
U.S.C. 1650(h))) made by a proprietary
institution of higher education, only the
amount of OBF payments (as defined in such
subsection) received during the applicable
institutional fiscal year, to the extent the
amount of such payments on the OBF product does
not exceed the amount financed under such OBF
product;''.
(2) Section 153(a) (20 U.S.C. 1019b(a)) is amended--
(A) in paragraph (1), by adding at the end the
following:
``(C) Additional information for obf products.--
``(i) In general.--By not later than 180
days after the date of enactment of the
Outcomes-Based Financing (OBF) for Students
Act, the Secretary, in coordination with the
Bureau of Consumer Financial Protection, shall
determine the minimum information that OBF
providers, covered institutions, and
institution-affiliated organizations of such
covered institutions, participating in
preferred lender arrangements shall make
available regarding OBF products.
``(ii) Consultation and content of minimum
disclosures.--In carrying out clause (i), the
Secretary shall--
``(I) consult with students, the
families of such students,
representatives of covered institutions
(including financial aid
administrators, admission officers, and
business officers), representatives of
institution-affiliated organizations,
secondary school guidance counselors,
and OBF providers;
``(II) include, in the minimum
information under clause (i) that is
required to be made available, the
information required to be disclosed
under section 128(e)(12) of the Truth
in Lending Act (15 U.S.C. 1638(e)(12));
and
``(III) consider the merits of
requiring each covered institution, and
each institution-affiliated
organization of such covered
institution, with a preferred lender
arrangement to provide prospective OBF
recipients and the families of such
recipients the following information
for each type of OBF product offered
pursuant to such preferred lender
arrangement:
``(aa) The terms and
conditions of the OBF product
for the next award year.
``(bb) An itemization of
the fees or range of fees
required to obtain the OBF
product.
``(cc) The annual or
aggregate maximum financed
amounts.
``(dd) The average financed
amounts provided by the OBF
provider to students who--
``(AA) graduated
from such institution
in the preceding year
with certificates,
undergraduate degrees,
graduate degrees, and
professional degrees,
as applicable; and
``(BB) obtained an
OBF product of such
type from the OBF
provider for the
preceding year.
``(ee) The consequences for
the OBF recipient for
defaulting on an OBF product.
``(ff) Contact information
for the OBF provider.
``(gg) Other information
suggested by the persons and
entities with whom the
Secretary has consulted under
subclause (I).
``(iii) Definitions.--In this subparagraph
the terms `OBF product' and `OBF provider' have
the meanings given such terms in subsection (h)
of section 140 of the Truth in Lending Act (15
U.S.C. 1650(h)).''; and
(B) in paragraph (2)--
(i) in subparagraph (A)(ii), by striking
``the'' and inserting ``a'' before ``model
disclosure form'';
(ii) in subparagraph (B)--
(I) in the matter preceding clause
(i)--
(aa) by striking ``a''
before ``model disclosure'';
and
(bb) by striking ``form
that'' and inserting ``forms
that''; and
(II) in clause (ii), by inserting
``(or in the case of an OBF product (as
defined in subsection (h) of section
140 of the Truth in Lending Act (15
U.S.C. 1650(h)), sections 128(e)(12)(A)
and 105(k) of such Act)'' after
``section 128(e)''; and
(iii) in subparagraph (C), by striking
``form'' and inserting ``forms''.
(3) Section 154 (20 U.S.C. 1019c) is amended--
(A) in subsection (a), by striking ``development of
the'' and inserting ``development of a''; and
(B) in subsection (b)(2)--
(i) by inserting ``one of'' before ``the
model disclosure''; and
(ii) by striking ``form developed'' and
inserting ``forms developed''.
SEC. 403. SUPPORTING OUTCOMES-BASED UNDERWRITING.
Section 701(b) of the Equal Credit Opportunity Act (15 U.S.C.
1691(b)) is amended--
(1) by redesignating paragraphs (4) and (5) as paragraphs
(5) and (6); and
(2) by inserting after paragraph (3) the following:
``(4) to use any empirically derived credit system to
determine whether to approve an application or establish the
financial or other terms of an OBF product, if that empirically
derived system--
``(A) considers--
``(i) the historical graduation rates,
debt-to-income ratios, income or earnings of
consumers who were previously enrolled at the
institution, major, or program of study that
the applicant is attending or will attend (or a
reasonably comparable institution, major, or
program of study); or
``(ii) the historical income or earnings of
workers in the field or profession for which
the program is preparing students; and
``(B) is demonstrably and statistically sound in
accordance with regulations of the Bureau;''.
SEC. 404. TREATMENT UNDER THE FAIR CREDIT REPORTING ACT.
(a) Amendment.--Section 605 of the Fair Credit Reporting Act (15
U.S.C. 1681c) is amended by adding at the end the following:
``(i) OBF Product Information.--
``(1) In general.--With respect to an OBF product (as that
term is defined in subsection (h) of section 140 of the Truth
in Lending Act (15 U.S.C. 1650(h))), a consumer report made by
a consumer reporting agency--
``(A) may include a description of the contract
terms of the OBF product and, subject to subsection
(a), information with respect to amounts that are owed
under the OBF product; and
``(B) with respect to an outcomes-based payment
agreement, may not include any speculation about future
amounts that may be owed under the outcomes-based
payment agreement, including the reporting of any
payment caps or early termination amounts.
``(2) Regulations.--The Bureau shall promulgate regulations
with respect to the manner in which OBF providers may furnish,
and consumer reporting agencies may report, information
relating to OBF products.''.
<all>Official legislative text sourced from the public record (cached on CivicsHQ).
Official source
View the original bill, actions, and full legislative record on Congress.gov.
Status
In Committee
- 1Introduced
- 2Committee
- 3Floor
- 4Passed
- 5Signed
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Sponsors
- Sen. Young, Todd [R-IN]RSenateIN
Votes
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