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Young, Polis introduce bill to provide innovative way to finance higher education
Income-share agreements an alternative to burdensome student loans
Rep. Jared Polis (D-CO) and Rep. Todd Young (R-IN) today introduced a bipartisan bill that would help provide more affordable student loan options. The Investing in Student Success Act of 2015 provides the legal certainty for an innovative type of funding mechanism, called Income Share Agreements (ISAs), that can help students more easily finance a college degree, while including important consumer protections.
Under an ISA, a student receives private funds in exchange for agreeing to pay an affordable percentage of his or her income for a set period of time after school. And, unlike a loan, an ISA has no principal or interest; instead, an ISA bases a student’s payments on income, and funders only recoup their money when students are successful.
“A college degree is one of the best investments a student can make,” Polis said. “Unfortunately, many students are burdened with record levels of debt because of it, often forcing them to delay other important investments in their future, like saving for retirement or purchasing a home. Income share agreements are an innovative, alternative way to finance an education. Our bill provides the necessary legal certainty for students to take advantage of this option, while at the same time giving students the consumer protections they deserve.”
“The class of 2015 will graduate with the most student loan debt in United States’ history,” Young said. “Many fear that student loan debt will be the next bubble to burst yet not enough is being done to address the affordability problem. This bill is the culmination of a years-long effort working with universities like Purdue, on a real market-driven solution that’s not only good for students, but good for American taxpayers whose tax-dollars aren’t involved and at risk. ”
A small group of companies and nonprofits have attempted to offer ISAs but have struggled to grow because of legal and regulatory uncertainty. The Polis-Young bill would provide a much-needed framework to support these loan options.
The Investing in Student Access Act of 2015 creates a legal framework for ISAs used to pay for postsecondary education. It doesn’t spend any money or remove existing aid options. The goal is simply to clarify the legal treatment of these contracts, allowing more students to have access to this funding option.
Most importantly, the Investing in Student Access Act of 2015 includes robust consumer protections that would be implemented by the Consumer Financial Protection Bureau:
· students only have to make payments if they are making more than $18,000 per-year (adjusted for inflation)
· students cannot agree to payments higher than 15 percent of income for shorter-term contracts (15 years or less), with the cap decreasing to 7.5 percent for the longest contracts allowed (30 years);
· funders must disclose to students how their monthly payments would compare under the ISA (at various hypothetical afterschool income levels) to payments on a loan for the same amount of money and the same length of time; and
· a minimum standard to prevent unfair contracts—ones where the ISA provider is not appropriately sharing risk with the student.
Polis is a member of the House Education and Workforce Committee and a former Chairman of the Colorado State Board of Education. With two flagship universities in his district – the University of Colorado at Boulder and Colorado State University – Polis is committed to making sure higher education is affordable and accessible to all. Last week he introduced a bill to simplify the process by which students apply for financial aid, and he’s currently working on a measure to provide college credit for competency-based education programs.