A bipartisan team of congressmen on Wednesday introduced a bill for what they say will be a more innovative and affordable way for students to pay for college.
The Investing in Student Success Act of 2015 – co-authored by Rep. Jared Polis (D-CO) and Rep. Todd Young (R-IN) – would allow for the creation of income-share agreements. Under such a proposal, students would receive private funds to finance their education, rather than paying out-of-pocket, or taking out student loans. In return, the students would pay their investors a percentage of their income for a set period of time after graduating, with no interest.
“A college degree is one of the best investments a student can make,” Polis said in a statement. “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.”
The bill would create the legal framework necessary to implement income-share agreements that are used to pay for college, and doesn’t require any new funds or remove existing aid options, Polis and Young said in a release. The bill would also require a set of consumer protections to be implemented and overseen by the Consumer Financial Protection Bureau, including limits on making payments (students only pay if they make more than $18,000 per year), and an income percentage cap of 15 percent for short-term contracts and 7.5 percent for longer contracts.
The funders would also be required to give students a comparison of their monthly payments under an income-share agreement at a range of income levels, versus what their monthly payments would be on a comparable loan of the same amount, paid over the same amount of time.
“Many fear that student loan debt will be the next bubble to burst yet not enough is being done to address the affordability problem,” Young said in a statement. “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.”
Last year, Sen. Marco Rubio (R-FL) and Sen. Tom Petri (R-WI) introduced similar legislation that Rubio said would encourage a “free enterprise system” that would expand opportunities created through a free market. Individual companies provide similar services, and more than a dozen states have introduced legislation for similar “pay it forward” higher education finance models. In July 2013, Oregon became the first state to pass legislation allowing for a pilot program of the funding model.
Still, some higher education advocates are wary of these types of proposals, saying they don’t address the root causes of the high cost of college, or tuition levels.
In a July 2014 policy paper, the American Association of State Colleges and Universities (AASCU) called the “pay it forward” model a “radical” proposal with uncertain long-term ramifications. AASCU and other higher education organizations have voiced concerns that students could end up paying more through an income-share agreement than they would through another financing method, due to the terms of repayment. The model is also a risk for both students and investors – neither would know the student’s future income at the time of the agreement, and the investors would only regain their money if a student succeeds in finding steady employment.
“[Pay It Forward] is a sweeping policy concept that would address none of the underlying factors associated with leaving students with deep debt burdens,” AASCU said in the paper. “It would create considerable financial uncertainty for public colleges, and may spiral into an administrative nightmare that would leave graduates, campuses and states worse off over the long term. In sum, it would create an extraordinarily long tax on a public college undergraduate education that would make college much more expensive for most graduates.”
Publication Date: 7/30/2015