NAICU Washington Update

Joint Economic Committee Considers New College Financing Mechanism

October 08, 2015

During a hearing exploring the challenges and potential alternatives to financing a higher education, a new concept emerged that dominated the discussion and witness testimony. During his testimony before the committee, Mitch Daniels, former Indiana governor and current Purdue University President, promoted Income Share Agreements (ISAs) as a way for students to find relief from student loan debt, particularly costly private and PLUS loans.

ISAs are agreements between an “investor” and a student. The investor agrees to pay for the student’s education upfront upon the student’s guarantee of a percentage of the student’s future earnings for a period of time. (Beth Akers of the Brookings Institution, who advocates including ISAs in the array of financing options for college, provides an explanation of ISAs, including the pros and cons of such an agreement.)

In Congress, Reps. Todd Young (R-IN) and Jared Polis (D-CO) have introduced the Investing in Student Success Act of 2015 (H.R. 3432) to test the ISA concept. Additionally, Daniels testified that Purdue affiliates are actively exploring establishing an ISA program on their campuses.

The ISA concept was supported by Andrew Kelly of the American Enterprise Institute, who also testified before the Joint Economic Committee during the September 30 hearing. Committee members asked witnesses if ISAs might tend to favor the students with the greatest potential. In general, the witnesses agreed, but Rohit Chopra, formerly at the Consumer Financial Protection Bureau, and now at the Center for American Progress, cautioned that ISAs would force low-income and at-risk students who participate to borrow less favorable private loans.

The hearing was chaired by Sen. Dan Coats (R-IN) who expressed great concern about rising college costs and limitations on the economic future of borrowers imposed by high debt burden. Ranking Member Carolyn Maloney (D-NY) echoed the chair’s sentiments as she enumerated the often-cited statistic about students’ cumulative debt of $1.3 trillion dollars. She also mentioned the recession, cutbacks in state support for higher education, the increase in borrowing and defaults from 2004-2011 as contributors to the problem.

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