In this paper, we consider whether educational income share agreements (“ISAs”) are subject to federal and state equal access and anti-discrimination laws. When an ISA provider (“Provider”) sets the terms of an ISA, the Provider generally will consider the expected earnings of participants (“Participant”) in the Program (“Program”) as determined by the Participant’s course of study. Based on these considerations, some Providers will vary the income share percentage or the maximum number of monthly payments the Participant may be required to make; however, Providers do not underwrite individual Participants. The maximum payment amount (“Payment Cap”) also will remain the same for all Participants without regard to the course of study.
Federal fair lending laws, including the Equal Credit Opportunity Act (“ECOA”), prohibit discrimination in credit transactions. Courts have not yet considered whether ISAs constitute “credit” for purposes of the ECOA and, therefore, whether a Provider or others involved in an ISA transaction would be “creditors” subject to rules prohibiting discrimination or the procedural safeguards of the ECOA. While we believe that ISAs should not be considered “credit” under the ECOA because there is no unconditional legal obligation to pay any definitive amount under the ISA terms, federal financial regulators have focused more broadly on equitable access in student lending, and education providers are subject to equitable access and antidiscrimination requirements under federal and state laws regulating educational institutions. Accordingly, Providers and Program administrators should take care to ensure that access and eligibility criteria, as well as payment terms and servicing practices, are designed to promote equitable access and to mitigate any potential disparate impact.
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