Young, Colleagues Reintroduce Bill to Strengthen Innovative Higher Ed Financing Tool for Students

Yesterday, U.S. Senators Todd Young (R-Ind.), Mark Warner (D-Va.), Marco Rubio (R-Fla.), and Chris Coons (D-Del.) reintroduced 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 design financial aid best suited to their needs 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 initial amount was paid back to the ISA funder.

“One thing we can all agree on is the importance of a quality and affordable education. As we face record-high inflation, many students and their families continue to face financial hardship and rising student loan debt,” said Senator Young. “With the appropriate safeguards, ISAs can be an innovative, debt-free financing option for students of all backgrounds. Our bipartisan bill works to strengthen the framework for ISAs to help colleges and career and technical schools prepare students for success in the workforce at no cost to the taxpayer.”

“Income-Share Agreements are a promising way to finance postsecondary education and an attractive alternative to private student loans and PLUS loans. ISAs are also proving to be uniquely responsive to the needs of students who are ineligible for existing federal student aid programs,” said Senator 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.”

“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 Senator Rubio.

“With trillions of dollars in U.S. student loan debt burdening the country’s workforce, Income Share Agreements are a useful alternative for some students who need financing for postsecondary education and training, especially where federal student aid is not available. The ISA Student Protection Act of 2022 will create legal certainty for providers who develop these innovative financial offerings while creating guardrails to protect students and workers as they prepare for the jobs that employers are looking to fill today and in the future,” said Senator Coons.

This legislation is supported by Jobs for the Future, the Invest in Student Advancement Alliance, Student Freedom Initiative, the San Diego Workforce Partnership, FreeWorld, Better Future Forward, Purdue University, and more.

The ISA Student Protection Act of 2022 would build on a previously introduced version of this legislation by updating existing consumer protection laws to ensure they are applied properly to ISAs and add new protections to ensure ISAs are affordable and share risk. Specifically, the bill:

• Prohibits ISA providers from entering into agreements with students that require payments higher than 20 percent of income.
• Exempts individuals from making payments towards their ISA when their income falls below an affordability threshold.
• Sets a maximum number of payments and limits payment obligation to the end of a fixed window.
• Sets a minimum number of voluntary payment relief pauses, during which payment obligations may be suspended.
• Requires 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.
• Provides 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.
• Ensures that ISA obligations cease in the event of death or total and permanent disability.
• Applies 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.
• Gives the Consumer Financial Protection Bureau regulatory authority over ISAs.
• Clarifies the tax treatment of ISA contributions for both funders and recipients.