Ballard Spahr LLP

A bipartisan group of U.S. Senators have introduced the “ISA Student Protection Act of 2019” that would create a legal framework for income share agreements (ISA) offered to students.

The bill would define an ISA as an agreement between an individual and ISA funder under which the funder “credits towards the tuition or other obligations of, or pays amounts to, or on behalf of, such individual for costs associated with a postsecondary training program, or any other program designed to increase the individual’s human capital, employability, or earning potential…and such individual pays to such ISA funder (or the ISA funder’s successor in interest) income-share payments for a defined term; and is not a loan.”  The bill would create a category of “Qualified ISA” that would cover ISAs that meets certain requirements set forth in the bill.  Those requirements include:

  • A limit on the maximum percentage of income an individual would be required to pay over the ISA’s term
  • A limit on what sources of revenue can be considered “income” for purposes of calculating an individual’s payment obligation
  • A zero amount for the percentage of income that may be required to be paid when the individual’s income is below a specified threshold amount tied to the poverty line (but a nominal payment not to exceed $25 may be required)
  • A maximum term of 360 months (excluding periods during which a nominal payment is required) and which may be extended by the number of months in which the percentage of income to be paid was zero
  • Specified written disclosures that must be provided before an individual enters into the ISA, with the CFPB to promulgate model disclosures

The bill provides that a Qualified ISA shall not be considered “credit” and an ISA funder shall not be considered a “creditor” as those terms are defined in TILA.  The bill would make a Qualified ISA enforceable notwithstanding any state law limiting the assignment of future wages or other income and would provide that a Qualified ISA is not subject to state law with respect to (1) “usury, credit, loans, or credit or installment sales” unless the state law expressly states that it is intended to apply to Qualified ISAs, or (2) ability to repay requirements or ISA licensing or registration unless the state law was issued after the date of the bill’s enactment and expressly states that it is intended to apply to Qualified ISAs.

Other notable provisions of the bill include:

  • The ECOA would be amended to (1) provide that it does not constitute discrimination for purposes of the ECOA for an ISA funder to set the terms of an ISA based on the earnings reasonably anticipated by the funder with respect to any program of study or institution of higher learning where a Qualified ISA is offered, and (2) include an ISA and an ISA funder in the definitions of, respectively, “credit” and “creditor.”
  • The EFTA would be amended to prohibit an ISA funder from requiring payments to be made by preauthorized electronic fund transfers.
  • The FCRA would be amended to allow information about ISAs to be included in consumer reports and require the CFPB to promulgate regulations with respect to the furnishing and reporting of information on ISAs.
  • The FDCPA would be amended to include the payment obligation under an ISA and an ISA funder in the definitions of, respectively, “debt” and “debt collector.”
  • The Military Lending Act and the Servicemembers Civil Relief Act would be amended to require the Secretary of Defense to promulgate regulations that address when an ISA would be deemed to meet the rate limitations of those laws.
  • Qualified ISAs would be entitled to specified treatment under federal tax laws and under federal and state securities laws

In June, a group of 20 education organizations and individuals sent a letter to the leaders of the House Financial Services Committee and Senate Finance Committee urging Congress to pass legislation that would provide a legal framework for colleges and universities and other education providers to offer ISAs to students.  Also in June, Democratic lawmakers sent a letter to the Department of Education seeking information about possible ED plans to use ISAs in federal higher education programs and expressing concern that ISAs create the potential for discriminatory practices.

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