Warner, Young, Colleagues Reintroduce Legislation to Strengthen Innovative Higher Ed Financing Tool for Students
Jan 31 2023
WASHINGTON –– Today, U.S. Sens. Mark Warner (D-VA) and Todd Young (R-IN) were joined by Sens. Marco Rubio (R-FL), and Chris Coons (D-DE) in reintroducing the ISA Student Protection Act to support an innovative financing tool for students pursuing postsecondary education. The bipartisan bill would protect students by applying strong consumer protections to Income Share Agreements (ISAs).
ISAs provide opportunities for students to make plans for financing higher education based on their future income and job success. Under an ISA, a student agrees to pay a percentage of their income over a given time period in exchange for tuition payments from nongovernmental sources. When the agreed timeframe ends, the student stops payments regardless of whether the full amount has been paid back.
“Income-Share Agreements are a promising way to finance postsecondary education and an attractive alternative to high-interest student loans,” said Sen. Warner. “There are students across the country who are already benefitting from ISAs and deserve the safeguards and certainty the ISA Student Protection Act of 2022 would provide.”
“Hoosiers should not be forced to make a choice between a quality education and an affordable one. In the midst of record-high inflation, many students and families continue to face financial hardship and an increase in student loan debt,” said Sen. Young. “With the appropriate safeguards, ISAs can be an innovative, debt-free financing option for Hoosier students. Our bipartisan bill works to strengthen the framework for ISAs, enabling both colleges and career and technical schools to prepare students for success in the workforce without burdening taxpayers.”
“Everything is more expensive these days, especially the cost of a college degree. This common sense bill creates a debt-free financing option for students,” said Sen. Rubio.
“Income Share Agreements are a useful alternative for some students who need financing for postsecondary education and training, especially when federal student aid is not available. The ISA Student Protection Act of 2023 would establish guardrails to protect these students as they begin their careers while creating legal certainty for providers who develop these innovative financial offerings,” said Sen. Coons. “With trillions of dollars in U.S. student loan debt burdening the country’s workforce, I’m glad to move forward on bipartisan legislation to strengthen additional financing options for students who are preparing for success.”
Specifically, The ISA Student Protection Act of 2023 would:
- Prohibit ISA providers from entering into agreements with students that require payments higher than 20 percent of income.
- Exempt individuals from making payments towards their ISA when their income falls below an affordability threshold.
- Set a maximum number of payments and limits payment obligation to the end of a fixed window.
- Set a minimum number of voluntary payment relief pauses, during which payment obligations may be suspended.
- Require detailed disclosures to students who are considering entering into an ISA, including the amount financed, the payment calculation method, the number of payments expected, the length of the agreement, and how their payments under the ISA would compare to payments under a comparable loan.
- Provide strong bankruptcy protection for ISA recipients by omitting the higher “undue hardship” standard for discharge required under private loans.
- Prevents funders from accelerating an ISA in default.
- Ensure that ISA obligations cease in the event of death or total and permanent disability.
- Apply federal consumer protection laws (e.g., Fair Credit Reporting Act, Fair Debt Collection Practices Act, Military Lending Act, Servicemembers Civil Relief Act, Equal Credit Opportunity Act) to ISAs.
- Give the Consumer Financial Protection Bureau regulatory authority over ISAs.
- Clarify the tax treatment of ISA contributions for both funders and recipients.
“Without legislative and regulatory certainty, Income Share Agreements will not be widely available at scale as an alternative to high interest rate parent plus or personal loans,” said Mung Chiang, President of Purdue University. “We commend Sen. Young and the bipartisan Senate sponsors introducing legislation today and encourage prompt consideration to provide the framework necessary to expand this student-friendly option as soon as possible."
“The cost of higher education and workforce training has skyrocketed and has become a significant obstacle to economic advancement,” said Maria Flynn, CEO of Jobs for the Future. “JFF applauds Senators Warner and Young for introducing the ISA Student Protection Act, which would support the exploration of income share agreements (ISAs) as an alternative model for financing higher education and training. JFF recognizes the need to protect against any possible risks with ISAs, which is why we are pleased to see that this legislation would provide clear definitions, parameters, and consumer protections for students.”
“Student Freedom Initiative has issued 176 Income Contingent Alternatives to Parent PLUS and private loans to junior and senior STEM students at Historical Black Colleges and Universities (HBCU) and over 300 students have applied,” said Mark Brown, Executive Director of Student Freedom Initiative. “Disbursements total just over $1.75M with an average disbursement of $13,672 per student. Sixty-three percent of HBCU students use Parent PLUS loans which default at five times the rate as similar instruments and the debt is held twice as long. We must invest in these students and not strap their parents with debt they cannot reasonably pay. Issuing conventional loans to families of limited means, some already in poverty, is unethical. Student Freedom Initiative strongly supports providing students, especially those living at or below the poverty level, with innovative solutions to financing their higher education, and we hope Congress will provide sensible regulations and legal certainty to those engaged in this effort.”
“The ISA Student Protection Act is a significant step forward in shaping the promising ISA model into a safe, sustainable, student-centric source of funding for workforce training,” said Peter Callstrom, President and CEO of the San Diego Workforce Partnership. “This legislation will empower entrepreneurial and innovative agencies like ours to continue exploring how ISAs can expand the reach and impact of talent development strategies.”
“The ISA Student Protection Act of 2023, introduced by Senators Warner and Young, will help create more accessible, affordable and accountable financing options for postsecondary education and training,” said Taylor Maag, Director of Workforce Development Policy for Progressive Policy Institute. “PPI has long supported Income-Share Agreements as a bold and innovative model for higher education financing and we applaud this effort to expand postsecondary opportunities for today’s students, while ensuring the necessary protections for their success.”
“Well-designed ISA programs open up support for student underserved in the current system, and they do so in a way that is affordable and aligned to students' educational and career success,” said Kevin James, Founder and CEO of Better Future Forward. “To ensure all students are protected and can benefit from these options, we need a strong, well-designed consumer protection framework built around the risk-sharing nature of ISAs. This bipartisan legislation is a strong step forward in that regard, and we commend Sens. Young, Warner, Coons, and Rubio for their work on it.”
“Stride Funding was built to improve educational access, career success, and economic mobility for all Americans. As tuition costs continue to rise, the cost of the American Dream has become inaccessible for millions of students, with economically disadvantaged students particularly handicapped due to standard student loan borrowing requirements tied to family economic status and credit background,” said Tess Michaels, Founder and CEP of Stride Funding. “Without innovation, all students have been left with limited access to affordable and flexible education funding and our most vulnerable students have been altogether denied pathways to educational programs that deliver real career value. We congratulate and thank Senators Young, Warner, Coons, and Rubio for their leadership in crossing party lines to sponsor the ISA Student Protection Act of 2023 – ensuring that future generations gain access to more transparent, equitable, and accessible education funding through Income Share Agreements.”
Full text of the legislation is available here.