Woodstock Institute and other consumer advocates are opposed to HB 1519, a bill backed by the Income Share Agreement (ISA) industry that would codify some of the industry’s worst practices — practices that saddle graduates with a mountain of high-interest debt.
ISAs are a form of private student loan. Under an ISA, the loan is made in exchange for the student’s agreement to pay the lender a certain portion of their future income for a certain length of time.
Devine Sims’ ISA experience
Devine Sims, a resident of Garfield Park in Chicago, wanted to pursue the education necessary to become a web developer. She obtained an ISA from Entity Academy, a for-profit school that offers “virtual bootcamps” for women.
“I had many conversations with school administrators, selling me on getting an ISA to not have to pay for my education up front.
“Now looking back, I feel deceived. I will pay up to $30,000 on a $15,000 program. At no point did Entity disclose to me an interest rate. In fact, I still don’t know my interest rate. Each paycheck, 15% of my gross income is paid to Entity.
“I wouldn’t wish my experience on anyone, which is why I have chosen to share my story to educate lawmakers and the public about how ISAs cause more financial struggles on consumers.”
Advocates’ concerns with HB 1519 (you can also download the fact sheet here)
No state has adopted a law giving ISAs their own regulatory framework
- ISAs are simply a type of private student loan. States that have addressed ISAs, such as Colorado and California, have developed rules placing ISAs within existing state consumer finance or student loan laws. Similarly, Illinois could develop rules under the Consumer Installment Loan Act and/or the Student Loan Servicing Rights Act.
- The Legislative Black Caucus Economic Access Pillar elevated the State’s national status as a consumer protection state. See American Banker, How racial justice push sparked new CRA law in Illinois. HB 1519 would represent a setback.
- HB 1519 would not make ISA providers compliant with federal law. The bill would allow prepayment penalties, which are prohibited by the Truth in Lending Act.
ISAS have sparked racial equity concerns
- ISAs are most prevalent among for-profit vocational schools that target marginalized populations who have historically been excluded from economic opportunities.1Dan Cohen, Emily Rosenman, Tom Baker, “Income Share Agreements: Predatory Inclusion into a Deeply Unequal Education System,” Student Borrower Protection Center, Aug. 23, 2022.
- An investigation by the Student Borrower Protection Center found that one ISA provider quoted higher rates to borrowers attending minority-serving institutions like Historically Black Colleges and Universities (HBCUs) as compared to nearby non-MSI peer schools.
HB1519 would license predatory lending
- The bill would create a complex formula for setting interest rates. Under this formula, interest rates could exceed 20% APR. The current rate on a federal student loan is 4.99% APR. Even more expensive private student loans rarely go over 12% APR.
- The bill would allow ISA and other student loan debt to consume up to 20% of a borrower’s income. “Income Driven Repayment” for federal student loans generally allows student loan debt to consume only 10% of a borrower’s discretionary income.
- The obligation to repay an ISA is triggered when the borrower begins to earn at least 200% of the Federal Poverty Level, which is only $29,160 for a single person with no dependents. That amount is not even a living wage in any county in Illinois.2For example, a living wage in Cook County is $19.23/hour ($39,998/year) and in Marion County it’s $15.01/hour ($31,221/year). Data source: Massachusetts Institute of Technology Living Wage Calculator, 2023, livingwage.mit.edu.
Additional Information on ISAs and HB 1519
Side-by-side comparison highlighting sample ISA terms in HB1519, consumer advocates’ proposal, and Better Future Forward (the lead proponent of HB1519)
Slides from a backgrounder on Income Share Agreements hosted by Student Borrower Protection Center and Woodstock Institute April 12.
Letter to members of the Illinois State Senate from coalition of advocates opposing HB1519 in its current form.
Letter to Illinois State Rep. Maurice West from advocates including Citizen Action/Illinois, Jewish Free Loan Chicago, Legal Action Chicago, Student Borrower Protection Center and Woodstock Institute
Legislative Bill Consumer Redline 4-12-23
Fact sheet on the Consumer Financial Protection Bureau’s (CFPB) disciplinary action against Better Future Forward (BFF), the only ISA provider to have been disciplined by a federal regulatory agency and the leading proponent of HB 1519.