Senator Warren, Reps. Pressley and Porter Investigate Reports that Education Department Seeks to Develop Income Share Agreements in Risky New Student Debt Experiments
Lawmakers Also Send Letters to Colleges Using ISAs, Requesting Details of ISA Terms and Contracts with Students
Washington, DC - United States Senator Elizabeth Warren (D-Mass.), member of the Senate HELP and Banking Committees, and Representatives Ayanna Pressley (D-Mass.) and Katie Porter (D-Calif.), both members of the House Financial Services Committee, today sent a letter to the Department of Education expressing concern about reports that the Department is exploring an experiment with Income Share Agreements (ISAs) in federal higher education programs, and seeking to learn more about the Department's plans in order to evaluate whether these plans are in the best interest of students and within the Department's authority under the law. The lawmakers also sent letters to the presidents of seven colleges and universities that have ISA programs and participate in the federal student aid program, inquiring about their institutions' ISA programs and any evaluations they have undertaken to determine whether ISAs are in the best interest of their students. The oversight letters to the colleges and universities requested copies of all of the institutions' ISA contracts with students.
ISAs are contracts between students struggling to afford college and a funder -- sometimes a college or other organization, but often private investors -- that require students to commit to pay a portion of their income to the funder for a number of years after the students leave school in exchange for higher education financing. ISAs are a type of student debt that must be repaid, structured to provide an attractive return on the investment of funders or private investors. They carry many common pitfalls of traditional private student loans -- with the added danger of deceptive rhetoric and marketing that can obscure their terms.
Like private student loans and many other types of debt, the terms of an ISA contract can be predatory and dangerous for students. ISAs include some of the most exploitative terms in the private student loan industry, including mandatory arbitration agreements and class action bans. Unlike private student loans, however, these risky contracts have virtually no transparency and have experienced little to no oversight from federal regulators. ISA funders may not be in compliance with existing federal consumer protection and anti-discrimination laws and regulations.
Last month, Diane Auer Jones, Principal Deputy Under Secretary at the Department of Education, reportedly suggested that the Department is "thinking about how we use the federal programs to do an experiment with income share agreements," raising concerns that the Department plans to use taxpayer dollars to expand the use of risky ISAs.
"At a time when student debt stands at more than $1.5 trillion, it is deeply disturbing to see a Department official boosting novel forms of student debt instead of trying to stem the tide of indebtedness -- and even more disturbing to hear the official propose using federal taxpayer dollars to do so," wrote the lawmakers. "...The Department should instead focus on pursuing real solutions to the student debt crisis that help student borrowers avoid and escape debt."
They requested documents -- including ISA contracts -- and more information about steps the Department and colleges have taken to evaluate whether ISAs are in the best interest of students, and about whether the Department has properly explored its legal authorities under the law, by June 24, 2019.
Senator Warren has made strong oversight of the U.S. Education Department a top priority, and she has continued this oversight through DeVos Watch -- her initiative to hold Secretary DeVos accountable.
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