What you need to know about ISAs image with graduates in blue gowns

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.¹
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.²

Woodstock_FactSheet1_ISAs_p9 Download

Additional Information on ISAs and HB 1519

Side-by-side-ISA-proposals-updated Download

Side-by-side comparison highlighting sample ISA terms in HB1519, consumer advocates’ proposal, and Better Future Forward (the lead proponent of HB1519)