Industry-backed bill HB1519 would codify some of the lending industry’s worst practices – establishing interest rates exceeding 20% for private student loans

Woodstock Institute
Citizen Action Illinois

For Immediate Release:

April 26, 2023


Brent Adams | | (773) 844-5544

Anusha Thotakura | | (847) 790-2423

SPRINGFIELD, ILL. – HB 1519, written and backed by the Income Share Agreement (ISA) industry, was not called for a vote in the Senate Executive Committee today. The bill would have made Illinois the first state to give the ISA industry its own law – a law that would have codified the industry’s worst practices. ISAs are a type of private student loan where the loan is made in exchange for the student’s agreement to pay the lender a percentage of their future income for up to 20 years. 

The ISA industry has become notorious for misleading students. The leading proponent of the bill, an ISA provider called Better Future Forward, was subject to a consent order with the Consumer Financial Protection Bureau (CFPB) in 2021, which found that BFF was deceiving students and charging illegal prepayment penalties.

ISAs are prevalent among for-profit schools that have a history of charging high dollars for an inadequate education. Like for-profit schools, ISAs target marginalized populations who may struggle to access higher education due to economic barriers.

One student who shared her testimony recently, Devine Sims, was contemplating acquiring a computer science degree at a four-year university but instead pursued a coding bootcamp to become a web developer because the price was advertised to her as $15,000. But because of the structure of her ISA agreement, she expects to end up paying as much as $30,000. At no point did her lender disclose an interest rate to her, and the word “loan” is nowhere to be found in her ISA agreement. 

“I wouldn’t wish my experience on anyone, and I hope sharing my story educates lawmakers and the public about how ISAs do more harm than good to consumers by creating financial struggles for young adults right out of school,” Devine Sims said. “Given my experience, I believe a bill to regulate the ISA industry should be based on protecting students, not legalizing the industry’s predatory practices.”

“If HB 1519 passes, Illinois would be the only state in the country to cater so profoundly to the ISA industry as to create a new regulatory regime for these student loans,” said Winston Berkman-Breen, policy counsel and deputy director for advocacy at the Student Borrower Protection Center. “ISAs are forms of credit that should operate within the state’s existing financial oversight and consumer protection frameworks. Companies offering these agreements also have a track record of consumer abuses and discriminatory lending, which should give policymakers pause before creating a friendlier environment for them in Illinois.”

HB 1519 would permit ISAs to consume up to 20% of a student’s income and codify interest rates in excess of 20% APR. By comparison, the current rate on a federal student loan is 4.99% APR. For private student loans, the highest known interest rate is around 15%. Experts have not seen private student loans with rates as high at 20%.

State Senator Elgie Sims, who holds HB 1519 in the Senate, decided the bill was not ready to advance to the full Senate. “Consumers, and consumer advocates, owe a debt of gratitude to Senator Sims,” said Brent Adams, Senior Vice President of Policy & Advocacy at Woodstock Institute. “We are confident that his leadership will ensure any legislation to govern this questionable industry will put consumer protection at the forefront.”

One so-called “selling point” for ISAs is that a borrower doesn’t have to start repaying the loan until they reach a certain income threshold. In the case of the bill being proposed in Illinois, that threshold for 2023 is earning only $29,160 a year for a single-person household. That amount isn’t even a living wage in any county in Illinois. The lowest living wage in the state is $15.01 per hour or $31,221 per year, according to a living wage calculator developed by the Massachusetts Institute of Technology.

“Creative ways to put students in debt is not the answer,” said William McNary, Co-Director, Citizen Action/Illinois. “We want higher education to be an option for all students and we want to make sure that when students leave our institutions they aren’t stuck paying insurmountable debt. We are trying to break cycles of poverty, not perpetuate them.”