It is enacted by the General Assembly as follows:

SECTION 1. Sections 16-57-2, 16-57-3 and 16-57-6 of the General Laws in Chapter 16-57 entitled "HIGHER EDUCATION ASSISTANCE AUTHORITY" are hereby amended to read as follows:

16-57-2. Findings. -- The purpose of this chapter is to authorize a system of financial assistance, consisting of loan guaranties{ADD , savings programs ADD} and other aids, for qualified {DEL inhabitants of the state DEL} {ADD students, parents and others responsible for paying the costs of education ADD} to enable them to obtain an education beyond the high school level by attending public or private educational institutions. The general assembly has found and hereby declares that it is in the public interest and essential to the welfare and well being of the inhabitants of the state and to the proper growth and development of the state to foster and provide financial assistance to {DEL inhabitants of the state, properly qualified therefor, DEL} {ADD qualified students, parents and others responsible for paying the costs of education ADD} in order to help {DEL them DEL} {ADD prospective students ADD} to obtain an education beyond the high school level. The general assembly has further found that many inhabitants of the state who are fully qualified to enroll in appropriate educational institutions for furthering their education beyond the high school level lack the financial means and are unable, without financial assistance as authorized under this chapter, to pay the cost of their education, with a consequent irreparable loss to the state of valuable talents vital to its welfare. {ADD The general assembly also recognizes that educational institutions for higher education are in need of appropriate additional means to provide financial assistance to qualified students, parents and others responsible for paying the costs of education. ADD} The general assembly has determined that the establishment of a proper system of financial assistance {DEL for this objective purpose DEL} {ADD , containing eligibility opportunities for students and residents of this state and other states, ADD} serves a public purpose and is fully consistent with the long established policy of the state to encourage, promote, and assist the education of the people of the state.

16-57-3. Definitions. -- As used in this chapter, the following words and terms shall have the following meanings unless the context shall indicate another or different meaning or intent:

(1) "Authority" means the governmental agency and public instrumentality authorized, created, and established pursuant to section 16-57-4.

(2) {DEL "Commissioner" DEL} {ADD"Secretary," DEL} means the United States {DEL commissioner DEL} {ADD secretary ADD} of education.

(3) "Eligible borrower" means a student, or the parent of a student, who is either a resident of the state or, who, under rules promulgated by the authority, is otherwise qualified to make an eligible loan.

(4) "Eligible institution", subject to further particular or more restrictive definition by regulation of the authority, means; (i) an institution of higher learning, (ii) a vocational school, or (iii) with respect to students who are nationals of the United States, an institution outside the United States which is comparable to an institution of higher education or to a vocational school and which has been approved by the authority and by the commissioner for purposes of the guaranteed student loan program.

(5) "Eligible loan" means a loan to a student or to the parent of a student insured or guaranteed by the commissioner, by the authority, or by any other governmental or private agency, corporation, or organization having a reinsurance or guaranty agreement with the commissioner applicable to the student loan.

(6) "Guaranteed student loan program" means the program of federal student loan insurance and reinsurance administered by the commissioner.

(7) "Lender", subject to further particular or more restrictive definition by regulation of the authority, means any governmental or private agency, corporation, organization, or institution designated as an "eligible lender" by federal statute, regulation, or administrative ruling for the purposes of the guaranteed student loan program.

(8) "State" means the state of Rhode Island and Providence Plantations.

(9) "Student", as used with reference to the guaranteed student loan program and the parent loan program, means an individual who, under rules promulgated by the authority, is enrolled or accepted for enrollment at an eligible institution and who is making suitable progress in his or her education toward obtaining a degree or other appropriate certification in accordance with standards acceptable to the authority.

{ADD (10) "Participant" means an individual, firm or corporation who makes contributions to the tuition savings program established pursuant to section 16-57-6.1 for purposes of paying qualified higher education expenses on behalf of a beneficiary. ADD}

{ADD (11) "Participating institution" shall mean an institution for higher education which agrees to participate in a savings program or prepaid tuition program established pursuant to this chapter. ADD}

{ADD (12) "Prepaid tuition program" means a program administered by the authority, in conjunction with the executive director of the Rhode Island Student Loan Authority, and the commissioner of higher education, which provides a means for qualified students, parents and others responsible for paying the costs of education to fix all or a portion of the direct cost of attendance at participating institutions in one (1) or more future years. ADD}

{ADD (13) "Program" shall mean the tuition savings program established pursuant to section 16-57-6.1. ADD}

{ADD (14) "Qualified higher education expenses" means the costs of tuition, fees, books, supplies and equipment required for enrollment or attendance at an institution of higher education, and other education costs as may from time to time be defined by federal law. ADD}

{ADD (15) "Tuition savings program" or "Savings program" means a program approved and administered by the authority, in conjunction with the executive director of the Rhode Island Student Loan Authority, and the commissioner of higher education, designed to facilitate and encourage savings by or on behalf of students, future students and parents for the purpose of paying the costs of attending institutions of higher education. ADD}

{ADD (16) "Commissioner of higher education" means the commissioner appointed by the Rhode Island Board of Governors for Higher Education or his or her designee. ADD}

16-57-6. Additional general powers. -- (a) In addition to the powers enumerated in section 16-57-5, the authority shall have power:

(1) To guaranty one hundred percent (100%) of the unpaid principal and accrued interest of any eligible loan made by a lender to any eligible borrower for the purpose of assisting the students in obtaining an education in an eligible institution.

(2) To procure insurance of every nature to protect the authority against losses which may be incurred in connection with its property, assets, activities, or the exercise of the powers granted under this chapter.

(3) To provide advisory, consultative, training, and educational services, technical assistance and advice to any person, firm, partnership, or corporation, whether the advisee is public or private, in order to carry out the purposes of this chapter.

(4) When the authority deems it necessary or desirable, to consent to the modification, with respect to security, rate of interest, time of payment of interest or principal, or any other term of a bond or note, contract, or agreement between the authority and the recipient or maker of a loan, bond or note holder, or agency or institution guaranteeing the repayment of, purchasing, or selling an eligible loan.

(5) To engage the services of consultants on a contract basis for rendering professional and technical assistance and advice, and to employ attorneys, accountants, financial experts, and such other advisers, consultants, and agents as may be necessary in its judgment, and to fix their compensation.

(6) To contract for and to accept any gifts, grants, loans, funds, property, real or personal, or financial or other assistance in any form from the United States or any agency or instrumentality thereof or from the state or any agency or instrumentality thereof or from any other source, and to comply, subject to the provisions of this chapter, with the terms and conditions thereof. Loans provided pursuant to subsection (b) of this section shall be repaid to the authority and deposited as general revenues of the state.

(7) To prescribe rules and regulations deemed necessary or desirable to carry out the purposes of this chapter, including without limitation rules and regulations:

(i) to insure compliance by the authority with the requirements imposed by statutes or regulation governing the guaranty, insurance, purchase, or other dealing in eligible loans by federal agencies, instrumentalities, or corporations,

(ii) to set standards of eligibility for educational institutions, students, and lenders and to define residency and all other such terms as the authority deems necessary to carry out the purposes of this chapter, and

(iii) to set standards for the administration of programs of postsecondary student financial assistance assigned by law to the authority{DEL . DEL} {ADD , including but not limited to savings programs. Administrative rules governing savings programs shall authorize the authority, in conjunction with the executive director of the Rhode Island Student Loan Authority, and the commissioner of higher education, to negotiate reciprocal agreements with institutions in other states offering similar savings programs for the purpose of maximizing educational benefits to residents, students and institutions in this state. ADD}

(8) To establish penalties for violations of any order, rule, or regulation of the authority, and a method for enforcing same.

(9) To set and collect fees and charges in connection with its guaranties and servicing, including without limitation reimbursement of the costs of financing by the authority, service charges, {DEL and DEL} insurance premiums{DEL . DEL} {ADD and fees and costs associated with implementing and administering savings programs established pursuant to this chapter. ADD} Fees collected due to the Rhode Island work study program or due to unclaimed checks shall be deposited as general revenues of the state.

(10) To enter into an agreement with any university to secure positions for Rhode Island applicants in a complete course of study in its school of veterinary medicine, medicine, dentistry, optometry, and three (3) positions in osteopathic medicine and to guarantee and pay the university for each position.

(11) To enter into agreements with loan applicants providing preferential rates and terms relative to other applicants; provided, that the loan applicants agree to work in a licensed child care facility in Rhode Island for at least two (2) years upon completion or graduation in a course of study in early childhood education or child care.

(b) The authority shall enter into agreements with the prospective students to the university for the repayment by the students of the money advanced under such terms and conditions as are reasonable. The authority may charge students interest on the money advanced hereunder at a fixed or variable rate not exceeding the greater of seven and one-half percent (7.5%) per annum or the maximum rate allowable under 42 U.S.C. section 292 et seq. and the regulations promulgated thereunder by the United State office of education.

{ADD (12) To develop and administer, in conjunction with the executive director of the Rhode Island Student Loan Authority, and the commissioner of higher education, savings programs on behalf of itself, the state, students, parents or any other private parties, all in cooperation with such other public and private parties and in accordance with such criteria or guidelines as the authority shall deem appropriate to effectuate the purposes of this chapter. To the extent practicable, such savings programs shall provide students, parents and others an opportunity to participate conveniently and shall enable them to set aside relatively small amounts of money at a time and shall incorporate or be available in conjunction with, directly or indirectly, tuition agreements from as many eligible institutions as feasible. ADD}

{ADD (13) In connection with any savings program, the authority may accept, hold and invest funds of students, parents, institutions of higher education and others and may establish special accounts for carrying out the purposes of this chapter. ADD}

{ADD (14) To enter into contracts with institutions of higher education, financial institutions, financial consultants and attorneys for the purpose of establishing and maintaining savings programs authorized pursuant to this chapter. ADD}

{ADD (15) To create and supervise a marketing plan dedicated to the promotion of savings programs created pursuant to this chapter and to hire professional consultants and attorneys for such purposes. ADD}

{ADD(16) To assist the general treasurer in the implementation of the college and university savings bond program established under chapter 35-15.ADD}

SECTION 2. Chapter 16-57 of the General Laws entitled "HIGHER EDUCATION ASSISTANCE AUTHORITY" is hereby amended by adding thereto the following section:

{ADD 16-57-6.1. Tuition savings program.. -- ADD} {ADD (a) The authority shall, in conjunction with the executive director of the Rhode Island Student Loan Authority, and the commissioner of higher education, establish in such form as it deems appropriate, a tuition savings program to allow persons to save moneys for the sole purpose of meeting qualified higher education expenses. ADD}

{ADD (b) All moneys received in connection with the tuition savings program shall be segregated from all other funds of the authority into two (2) funds, a program fund and an administrative fund. No more than two percent (2%) of moneys in a program fund may be transferred annually to an administrative fund for the purpose of paying operating costs of administering the tuition savings program. Moneys accrued by participants in a program fund may be used for payments to an eligible institution. ADD}

{ADD (c) The state investment ccmmission shall invest monies within the program fund in any investments which are authorized by the general laws, including equities and fixed income securities. The composition of investments shall be determined by the state investment commission, subject to the approval of the authority. The state investment commission shall consider the recommendations of the commissioner of higher education and the executive director of the Rhode Island Student Loan Authority with respect to the appropriate composition of investments within the program fund.ADD}

{ADD (d) A participant may withdraw funds from the tuition savings program once the participant's account has been in effect for two (2) years. The participant shall be entitled to the return of the principal amount of all contributions made by participants plus actual investment earnings or minus actual investment losses on the contributions less an administrative fee to be levied by the authority which shall be sufficient to reasonably compensate the authority for its administrative costs incident to the participant's account. ADD}

{ADD (e) A participant may withdraw funds from the tuition savings program prior to the expiration of two (2) years from the effective date of the participant's account and receive one hundred percent (100%) of the principal amount of all contributions made by the participant; provided however that investment earnings which have been credited to the participant's account shall be retained in the program to pay for administration expenses and provided further that investment losses shall be deducted from the principal amount of the contributions. In addition, an administrative fee may be levied by the authority which shall be sufficient to reasonably compensate the authority for its administrative costs in connection with the participant's account. ADD}

{ADD (f) Notwithstanding any of the foregoing provisions, upon the occurrence of any of the following circumstances, no administrative fee may be levied by the authority in the event that a participant requests withdrawal of funds from the tuition savings program: ADD}

{ADD (i) death of the beneficiary; ADD}

{ADD (ii) permanent disability or mental incapacity of the beneficiary; or ADD}

{ADD (iii) scholarship, allowance or payment received by the beneficiary to the extent that the amount of the refund does not exceed the amount of the scholarship, allowance or payment in accordance with federal law. ADD}

{ADD In the event that a participant requests a withdrawal or refund of funds contributed to the tuition savings program for any cause other than those listed above, then the authority shall impose on the participant a more than de minimus penalty in accordance with federal law. ADD}

{ADD (g) Resources of the authority and the Rhode Island Student Loan Authority shall be employed to effect implementation of the tuition savings program. ADD}

{ADD 16-57-6.2. Repayment and ownership of contributions and investment earnings and losses -- Transfer of ownership rights. -- ADD} {ADD (1)(a) The participant retains ownership of all contributions made to the tuition savings program up to the date of distribution to pay qualified higher education expenses for the beneficiary. ADD}

{ADD (b) All earnings derived from the investment of the contributions made by the participant shall be considered to be held in trust for the benefit of the beneficiary; however, as required by the Internal Revenue Code, no investment earnings or portion thereof may be used as security for a loan. ADD}

{ADD (c) The institution of higher education shall own payments made for qualified higher education expenses at the time each payment is made to the institution. ADD}

{ADD (d) Any amounts which may be paid to an administration fund of the tuition savings program which are not listed in this section are owned by the authority. Such amounts may be included, but are not limited to, appropriation of state funds. ADD}

{ADD (2) If a beneficiary graduated from an institution of higher education and a balance remains in the participant's account, then the authority shall pay the balance to the participant. ADD}

{ADD (3) A participant may transfer ownership rights in the tuition savings program to another eligible participant or designate a new beneficiary under such conditions as the authority deems appropriate. ADD}

{ADD 16-57-6.3. Tax exempt earnings. -- ADD} {ADD(a) For state tax purposes, annual earnings on the tuition savings program shall not be includible in the gross income of either beneficiaries or participants until such time as distributions are made. At that time, annual earnings of the tuition savings program and the prepaid tuition program shall be included in the gross income of the beneficiary. If a participation agreement is canceled, the amount distributed to the participant shall be income for Rhode Island state tax purposes in the year of such cancellation to the extent such distribution exceeds contributions made by such participant.ADD}

{ADD (b) The tax administrator, in consultation with the authority and the executive director of the Rhode Island Student Loan Authority, and the commissioner of higher education may adopt rules necessary to monitor and implement the tax provisions referred to in subsection (a) relating to the property of the program and the income of participants and beneficiaries of the program. ADD}

{ADD 16-57-6.4. Prepaid tuition plan. -- ADD} {ADD (a) The authority shall, in conjunction with the executive director of the Rhode Island Student Loan Authority, the commissioner of higher education and the Advanced Tuition Payment Plan Commission, develop and present to the general assembly no later than December 1, 1997 a plan for the establishment of a prepaid tuition program. ADD}

{ADD 16-57-6.5. Annual audited financial report to governor and general assembly. -- ADD} {ADD (a) The authority, in conjunction with the general treasurer and the executive director of the Rhode Island Student Loan Authority, shall submit to the governor and the general assembly an annual audited financial report, prepared in accordance with generally accepted accounting principles, on the operations of the tuition savings program by November 1 of each year. The annual audit shall be made either by the auditor general or by an independent certified public accountant approved by the auditor general and shall include direct and indirect costs attributable to the use of outside consultants, independent contractors and any other persons who are not state employees. The annual audit shall be supplemented by the following information: ADD}

{ADD (i) any studies or evaluations prepared in the subject year; ADD}

{ADD (ii) a summary of the benefits provided by the tuition savings program including the number of participants and beneficiaries; and ADD}

{ADD (c) any other information which is relevant in order to make a full, fair and effective disclosure of the assets and operations of the program. ADD}

{ADD 16-57-6.6. Exclusion from financial aid needs test. -- ADD} {ADD (a) Notwithstanding any other provision of this chapter or chapter 56 of this title, no moneys invested in the tuition savings program shall be considered to be an asset for purposes of determining an individual's eligibility for a need based grant, need based scholarship or need based work opportunity offered by this state or an educational institution in this state. ADD}

{ADD 16-57-6.7. Construction. -- ADD} {ADD (a) This chapter shall be liberally construed in order to effectuate the purposes and intent of this chapter. Furthermore, it is intended that the tuition savings program established pursuant to this chapter qualify as a "qualified state tuition program" pursuant to section 529 of the Internal Revenue Code. As such, the provisions of this chapter, shall be construed wherever possible to effectuate this intent. ADD}

SECTION 3. Section 35-10-4 of the General Laws in Chapter 35-10 entitled "STATE INVESTMENT COMMISSION" is hereby amended to read as follows:

35-10-4. State college funds not subject to investment. -- The commission shall not invest moneys in funds which are subject to the control of the board of governors for higher education{DEL . DEL} {ADD ; provided, however, that the commission shall not be prohibited from investing moneys in the college savings program created by section 16-57-6.1 and administered by the Rhode Island Higher Education Assistance Authority in conjunction with the executive director of the Rhode Island Student Loan Authority and the commissioner of higher education. ADD}

SECTION 4. {ADD Appropriation ADD}. That there is hereby appropriated, out of any money in the treasury not otherwise appropriated for the fiscal year 1997-1998, the sum of two hundred thousand dollars ($200,000) for the development of the Tuition Savings Program and Prepaid Tuition Program; and the state controller is hereby authorized and directed to draw his orders upon the general treasurer for the payment of said sum, or so much thereof as may be from time to time required, upon receipt by him of properly authenticated vouchers.

SECTION 5. {ADD Severability ADD}. If any provision of this act or any application thereof to any person or circumstances is held invalid, such invalidity shall not affect other provisions or applications of this act, which can be given effect without the invalid provisions or applications, and to this end the provisions of this act are declared to be severable.

SECTION 6. This act shall take effect upon passage.