STATE OF NEW YORK
________________________________________________________________________
861
2025-2026 Regular Sessions
IN SENATE(Prefiled)
January 8, 2025
___________
Introduced by Sens. BAILEY, HINCHEY, SEPULVEDA -- 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 Assem-bly, do enact as follows:
1 Section 1. The education law is amended by adding a new section 355-f
2 to read as follows:
3 § 355-f. New York college debt repayment program. 1. A college debt
4 repayment program may be established by any resident of this state. The
5 earnings from the program shall grow federally and state tax-deferred
6 and withdrawals for qualified expenses shall not be subject to state or
7 federal income tax.
8 2. For purposes of this section:
9 (a) The term "college debt repayment program" means a program estab-
10 lished and maintained by this state or agency or instrumentality thereof
11 or by one or more eligible educational institutions under which a
12 person:
13 i. may pay off debt incurred by tuition credits or certificates on
14 behalf of a designated beneficiary which entitle the beneficiary to the
15 waiver or payment of debt incurred from higher education expenses of the
16 beneficiary, or
17 ii. in the case of a program established and maintained by this state
18 or agency or instrumentality thereof, may make contributions to an
19 account which is established for the purpose of meeting the debt
20 incurred by qualified higher education expenses of the designated bene-
21 ficiary of the account.
22 (b) The term "member of the family" means any spouse, child, grand-
23 child or first degree cousin of any designated beneficiary.
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD02072-01-5
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1 (c) The term "designated beneficiary" means:
2 i. the individual designated at the commencement of participation in
3 the college debt repayment program as the beneficiary of amounts paid
4 (or to be paid) to the program; or
5 ii. in the case of a change in beneficiaries, the individual who is
6 the new beneficiary.
7 (d) The term "qualified higher education expenses" means:
8 i. tuition, room and board, fees, books, supplies, and equipment
9 required for the enrollment or attendance of a designated beneficiary at
10 an eligible educational institution;
11 ii. expenses for special needs services in the case of a special needs
12 beneficiary which are incurred in connection with such enrollment or
13 attendance; or
14 iii. expenses paid or incurred in two thousand nine or two thousand
15 ten for the purchase of any computer technology or Internet access and
16 related services, if such technology, equipment, or services are to be
17 used by the beneficiary and the beneficiary's family during any of the
18 years the beneficiary is enrolled at an eligible educational institu-
19 tion.
20 (e) The term "eligible educational institution" means an institution
21 which is described in section 481 of the higher education act of 1965
22 (20 U.S.C. 1088), as in effect on the effective date of this paragraph.
23 (f) A program shall not be treated as a college debt repayment program
24 unless it provides that purchases or contributions may only be made in
25 cash.
26 (g) A program shall not be treated as a college debt repayment program
27 unless it provides separate accounting for each designated beneficiary.
28 (h) A program shall not be treated as a college debt repayment program
29 unless it provides that any contributor to, or designated beneficiary
30 under, such program may, directly or indirectly, direct the investment
31 of any contributions to the program (or any earnings thereon) no more
32 than two times in any calendar year.
33 (i) A program shall not be treated as a college debt repayment program
34 if it allows any interest in the program or any portion thereof to be
35 used as security for a loan.
36 (j) A program shall not be treated as a college debt repayment program
37 unless it provides adequate safeguards to prevent contributions on
38 behalf of a designated beneficiary in excess of those necessary to
39 provide for the debt incurred by the qualified higher education expenses
40 of the beneficiary.
41 3. (a) Except as otherwise provided in this subdivision, no amount
42 shall be includible in gross income of:
43 i. a designated beneficiary under a college debt repayment program; or
44 ii. a contributor to such program on behalf of a designated benefici-
45 ary, with respect to any distribution or earnings under such program.
46 (b) Any contribution to a college debt repayment program on behalf of
47 any designated beneficiary shall:
48 i. be treated as a completed gift to such beneficiary which is not a
49 future interest in property; and
50 ii. not be treated as a qualified transfer under section 2503(e) of
51 the internal revenue code.
52 (c) If the aggregate amount of contributions described in paragraph
53 (b) of this subdivision during the calendar year by a donor exceeds the
54 limitation for such year under section 2503(b) of the internal revenue
55 code, such aggregate amount shall, at the election of the donor, be
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1 taken into account for purposes of such section ratably over the five
2 year period beginning with such calendar year.
3 4. (a) Any distribution under a college debt repayment program shall
4 be includible in the gross income of the distributee in the manner as
5 provided under section 72 of the internal revenue code.
6 (b) No amount shall be includible in gross income under paragraph (a)
7 of this subdivision by reason of a distribution which consists of
8 providing a benefit to the distributee which, if paid for by the distri-
9 butee, would constitute payment of a qualified higher education expense.
10 (c) In the case of distributions not described in paragraph (b) of
11 this subdivision, if:
12 i. such distributions do not exceed the debt incurred by the qualified
13 higher education expenses (reduced by expenses described in paragraph
14 (b) of this subdivision), no amount shall be includible in gross income;
15 and
16 ii. in any other case, the amount otherwise includible in gross income
17 shall be reduced by an amount which bears the same ratio to such amount
18 as such expenses bear to such distributions.
19 (d) Any benefit furnished to a designated beneficiary under a college
20 debt repayment program shall be treated as a distribution to the benefi-
21 ciary for purposes of this subdivision.
22 (e) Paragraph (a) of this subdivision shall not apply to that portion
23 of any distribution which, within sixty days of such distribution, is
24 transferred:
25 i. to another college debt repayment program for the benefit of the
26 designated beneficiary; or
27 ii. to the credit of another designated beneficiary under a college
28 debt repayment program who is a member of the family of the designated
29 beneficiary with respect to which the distribution was made.
30 (f) Any change in the designated beneficiary of an interest in a
31 college debt repayment program shall not be treated as a distribution
32 for purposes of paragraph (a) of this subdivision if the new beneficiary
33 is a member of the family of the old beneficiary.
34 5. (a) All college debt repayment programs of which an individual is a
35 designated beneficiary shall be treated as one program;
36 (b) all distributions during a taxable year shall be treated as one
37 distribution; and
38 (c) the value of the contract, income on the contract, and investment
39 in the contract shall be computed as of the close of the calendar year
40 in which the taxable year begins.
41 6. (a) No amount shall be includible in the gross estate of any indi-
42 vidual for purposes of chapter 11 of the internal revenue code by reason
43 of an interest in a college debt repayment program.
44 (b) Paragraph (a) of this subdivision shall not apply to amounts
45 distributed on account of the death of a beneficiary.
46 (c) In the case of a donor who makes the election described in para-
47 graph (c) of subdivision three of this section and who dies before the
48 close of the five year period referred to in such paragraph, notwith-
49 standing paragraph (a) of this subdivision, the gross estate of the
50 donor shall include the portion of such contributions properly allocable
51 to periods after the date of death of the donor.
52 (d) Except as provided in paragraph (e) of this subdivision, in no
53 event shall a distribution from a college debt repayment program be
54 treated as a taxable gift.
55 (e) The taxes imposed by chapters 12 and 13 of the internal revenue
56 code shall apply to a transfer by reason of a change in the designated
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1 beneficiary under the program (or a rollover to the account of a new
2 beneficiary) unless the new beneficiary is:
3 i. assigned to the same generation as (or a higher generation than)
4 the old beneficiary (determined in accordance with section 2651 of the
5 internal revenue code); and
6 ii. a member of the family of the old beneficiary.
7 7. The tax imposed by section 530(d)(4) of the internal revenue code
8 shall apply to any payment or distribution from a college debt repayment
9 program in the same manner as such tax applies to a payment or distrib-
10 ution from a Coverdell education savings account. This subdivision shall
11 not apply to any payment or distribution in any taxable year beginning
12 before January first, two thousand four, which is includible in gross
13 income but used for qualified higher education expenses of the desig-
14 nated beneficiary.
15 8. A contributor shall make an initial investment of at least twenty-
16 five dollars and may contribute up to three hundred seventy-five thou-
17 sand dollars to a college debt repayment program.
18 9. Any designated beneficiary who withdraws funds to pay for nonquali-
19 fied expenses shall pay a ten percent penalty tax on earnings as well as
20 federal and state income tax.
21 10. The comptroller shall be authorized to offer age-based options for
22 participants of the program similar to those offered in this state's 529
23 college savings program.
24 11. (a) Individual taxpayers may deduct the contributions they make to
25 a college debt repayment program, up to five thousand dollars annually.
26 (b) Married individual taxpayers that file jointly may deduct the
27 contributions they make to a college debt repayment program, up to ten
28 thousand dollars annually.
29 § 2. This act shall take effect on the one hundred eightieth day after
30 it shall have become a law.
