What's happening
This bill creates a New York college debt repayment program with tax advantages for contributions and withdrawals used for qualified higher education expenses.
Why it matters
Encourages family support for education debt. The bill allows family members—including spouses, children, grandchildren, and first cousins—to contribute to college debt repayment accounts for each other, potentially mobilizing broader family networks to tackle student debt and support higher education attainment.
Limits misuse and ensures funds target education debt. Strict rules prevent over-contribution, require separate accounts per beneficiary, prohibit using the accounts as loan collateral, and penalize non-education withdrawals with a 10% tax—helping ensure the program is used for its intended purpose and not for unrelated financial strategies.
Integrates with estate and gift tax planning. Contributions are treated as completed gifts and are generally excluded from the contributor's taxable estate, offering potential estate planning benefits and encouraging early, significant contributions toward college debt.
Expands access and flexibility. With a relatively low minimum initial contribution ($25) and a high maximum ($375,000), the program is accessible to a wide range of incomes, and allows for age-based investment options similar to 529 plans, making it adaptable to contributors’ and beneficiaries’ financial situations and educational timelines.
Albany, before your first meeting.
Every bill that moved yesterday, summarized in a sentence and ranked by impact. The Albany Scorecard follows on Sundays.
Free. Unsubscribe in one click. Want alerts on specific bills? Create an account.
Who cares
Headline styles
Help Pay Student Debt
Plain English, a few words. Used as the page title.
Sponsors
1 Co-sponsor
History
- Referred to higher education
- Referred to higher education
Companion bill
The same bill in the other chamber. A bill becomes law when one version passes both houses and the governor signs it, so either number can carry it.
Help Pay Off College Debt
In Assembly Committee · Higher Education · Sponsor Marcos Crespo
Full text
4 pagesUnderlined is new[Struck] is removedOfficial text on nysenate.gov ↗
STATE OF NEW YORK
5648
2017-2018 Regular Sessions
IN SENATE
April 24, 2017
Introduced by Sen. BAILEY -- read twice and ordered printed, and when printed to be committed 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 Assembly, do enact as follows:
Section 1. The education law is amended by adding a new section 355-d to read as follows:
§ 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 established 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 beneficiary of the account.
(b) The term "member of the family" means any spouse, child, grandchild 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.
LBD08849-01-7
S. 5648 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 institution.
(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 beneficiary, 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.
S. 5648 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 distributee, 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 beneficiary 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 individual 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 paragraph (c) of subdivision three of this section and who dies before the close of the five year period referred to in such paragraph, notwithstanding 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:
S. 5648 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 distribution 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 designated beneficiary.
8. A contributor shall make an initial investment of at least twentyfive dollars and may contribute up to three hundred seventy-five thousand dollars to a college debt repayment program.
9. Any designated beneficiary who withdraws funds to pay for nonqualified 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.
§ 2. This act shall take effect on the one hundred eightieth day after it shall have become a law.
Reflowed for reading: line numbers and page breaks removed. Cite the official text.
Sponsor's memo
Title of bill
An act to amend the education law, in relation to establishing the New York college debt repayment program
Purpose or general idea of the bill
to amend the education law, in relation to establishing the New York college debt repayment program.
Summary of specific provisions
The education law is amended by adding a new section 355-d which will allow a New York College debt repayment program this will establish:
Read the full memo (1,184 words)
1. A savings program that can be established by any resident of this state in which the earnings from said program shall grow federally and state tax deferred and withdrawals for qualified expenses shall not be subject to state or federal income tax.
2. Terms that are used in 355-d are described under subsection explaining the following:
*College debt repayment program - a program maintained by this state, agency or an eligible educational institution under which a person may pay off debt incurred by tuition credits.
*Member of the family - meaning spouse, child, grand child or first degree cousin.
*Designated beneficiary - individual designated of participation in the college debt repayment program as the beneficiary of amounts paid or to be paid to the program.
*Qualified Higher Education Expenses is described as tuition, room and board, fees, books, supplies and equipment required for the enrollment or attendance of the designated beneficiary.
3. Except as otherwise provided in this subdivision, no amount shall be includible in gross income of:
*Designated beneficiary under a college debt repayment program or contributor to such a program on behalf of a designated beneficiary with respect to any earning under such programs.
*Any contributions to this program on behalf of any designated beneficiary shall be treated as a completed gift to any designate beneficiary and shall not be treated as a qualified transfer under section 2503 (e) of the internal revenue code.
4. Any distribution under a college debt repayment program shall be includible in the gross income of the distributee in accordance with section 72 of the internal revenue code. In the case of distributions not described in this section it
5. All college debt repayment programs of which an individual is beneficiary shall be treated as one program as well as all distributions during a taxable year will be considered as one distribution.
6. No amount shall be includible in the gross estate of any individual purposes of chapter 11 of the internal revenue code by reason of interest in a college debt repayment program , this shall not apply to amounts distributed on account of the death of the beneficiary. In no event shall a distribution from a college debt repayment program be treated as a taxable gift. 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 from a Coverdell educations savings account.
8. A contributor can make an initial investment of at least 25 dollars and may contribute up to three hundred seventy five thousand dollars to a college debt program.
9. If funds are withdrawn to pay for non-qualifying expenses the beneficiary 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 this participants in this program.
11. Individual taxpayers may deduct the contributions they make to a college debt repayment program with a limit of five thousand annually; if it is a married individual taxpayer can deduct ten thousand dollars annually.
Justification
College students in New York and throughout the United States are sent out into the world upon graduating from colleges and universities with an immense financial burden. Currently, college debt is larger than all consumer debt and stands at an astronomical $1.2 trillion
To address this issue, this bill expands New York State 529 College Savings Program to pay for college debt once a student enters and leaves an institution of higher learning. Currently the 529 Program can be used to save for future college expenses while attending college or higher education related activities. This new proposal will allow friends, family or student to pay into the program after leaving college as a way to help offset college debt.
Over the past few years, New York State has put forward new resources to help students pay for college and there are options available to consolidate loans. But these are small in scale considering the needs of the 1.2 million New Yorkers enrolled in colleges each year. At current enrollment, over 101,000 New Yorkers will borrow more than $40,000 and over 500,000 students will borrow more than $13,000.
This debt accumulated over the years for each student is hindering to their future personal financial security as well as negatively impacting the state's overall economy as income that can go to stimulate economic activity is absorbed by banks in other states holding NYS students debt. To address the college debt crisis, this legislation will utilize the existing bureaucratic structures of our state to fully assist those impacted by this problem.
This bill authorizes the 529 Program to expand to assist in the savings plans that will facilitate payment of college debt after leaving college. Analysis of the 529 College Savings Program tells us that few families making under $100,000 utilize the program, thereby not saving enough or at all for their children's college education. The expansion of the program will allow for a late investment to begin with a focus on paying for college debt after college career has ended but until the participant sees the financial benefit of this tax deferred investment reach its maximum utility.
While it is best to start saving for college very early in a child's life, for most families living under current economic hardships this is not practical. Allowing the 529 Program to be used longer than allowed will provide the debt holder with additional resources to pay off their college debt while allowing the tax deferred savings at the same time. In an economy where many college graduates are either unemployed or underemployed, the double positive impact of this expansion is evident.
In 2008 the average student debt was $24,842. In 2015, that number has grown to $36,000 on average. Nationally up to 1 million borrowers are defaulting on their student loans. Black and Latino students have the highest rates of delinquent payments and default rates. This is due to the fact that the job market has traditionally not been very welcoming to them and this has been worsened by the tough economic times facing our country and labor market. This legislation addresses such issues in a manner which five other states have already opted for in the absence of federal leadership on this issue.
Prior legislative history
2015-16: A10607(Crespo)- Referred to Higher Education
Fiscal implications for state and local government
None
Effective date
Shall take effect on the one hundred eightieth day after it shall become a law.
Summaries, headlines and scores are AI-generated from the official bill text. How we score bills. Source: NYS Open Legislation.