Mitch Daniels Income Share Agreements

Some Kenzie students have bachelor`s degrees that have not helped them in the job market. Nick Howell is one of them. Howell, 35, graduated from Purdue with an associate degree in Professional Flight and a bachelor`s degree in business. But he could only find low-paid store and office jobs, he said, and he went to the collection on the $50,000 more he owed in student credit. He is now in a federal income-based repayment plan, which requires him to pay 3% of his income to the government, up from 7 percent after Howell`s recent renegotiation, but interest is still rising. This week, Indiana`s consumer credit code will be amended to exempt public universities from complying with key consumer protection measures. The change is so subtle that it hasn`t attracted much attention, but it has a huge impact on Indiana students who sign up for “income-sharing agreements” (ISAs). These contracts require a student to mortgage a portion of future income in exchange for money to pay for the university. Schools such as Purdue University and private lenders and the investors they work with will no longer be required to comply with many of the rules that apply to other Indiana lenders. “It`s part of the concept of `risk sharing` and the idea that colleges should be on the bait, [which] is becoming popular in the federal debate,” Smith said. “Risk sharing is a concept that is supported in a bipartisan way.” Smith noted that ISAs, supported by banks or traditional, investor-backed, “have no connection” and are “even more transactional.” Funding relationships directly between investors and students lack value that can be added when schools participate and share responsibility for student outcomes. The Senate bill, introduced last year, would treat income participation agreements as a new category, with the exception of credit, and exempt laws from usury and other safeguards for borrowers.

Supporters say that legislation is necessary to regulate ISAs and that ISAs are different from debt. But consumer advocates say the legislation offers a backdoor to credit rules and could make students vulnerable. “It`s not clear how these products – especially large-scale products, across schools, between programs – expect to code with basic fair credit laws that have been on the books for decades,” said Seth Frotman, a former official with the Consumer Financial Protection Bureau, which now runs the Nonprofit Borrower Protection Center. The best test for innovation is its acceptance and performance in the market. Whether strangled or entwined to death, a young innovation trying to grow is always threatened with suffocation. The hope here is that both enemies and enemies will keep their hands full and that income-participation agreements, and perhaps even better ideas, will improve the funding of higher education. So far, the injection of money has been good for students: it has allowed Kenzie to reduce the share of graduates in income from 17.5% to 13%. Republican Senators Marco Rubio and Todd Young recently proposed legislation that would designate a federal regulator and impose certain consumer protection rules on ISAs to qualify for a safe haven or protect against certain consumer protection actions.