Bill to Regulate Income-Share Agreements Moves Through the California...

Policy and Government

Bill to Regulate Income-Share Agreements Moves Through the California Legislature, Again

By Sydney Johnson     Mar 20, 2019

Bill to Regulate Income-Share Agreements Moves Through the California Legislature, Again

University students in California could soon be able to delay paying college tuition until after they graduate and land a job.

California’s Assembly Committee on Higher Education approved a bill on Tuesday to pilot income-share agreements at the California State University and University of California systems. The legislation passed with a 12-0 vote and now heads to the Assembly Appropriations Committee.

Proposed by Assemblyman Randy Voepel (R-Santee), the bill would provide funds to enable students and their universities to enter income-share agreements, which require students to pay back a portion of their salary after graduating instead of paying tuition up-front. The two-year pilot program would begin in the 2021-22 academic year, and the university systems would be required to report back about the pilot to the California Legislature in 2023 and 2026.

Advocates of the income-share model say it provides an alternative to traditional student loans and the sticker shock of college. The bill states that the “agreement is not a debt instrument and “the repayment obligation of the student under the agreement may not be dischargeable under bankruptcy law.”

On Tuesday, Voepel said that “ISAs provide another financing option to alleviate the monetary burden on students earning their bachelor’s degrees,” adding that the pilot would serve to “examine the effectiveness” of the model.

Critics, however, say income-share agreements could favor students who are projected to make higher earnings by not offering the option to students in lower-paying fields, that students could pay back much more than standard tuition, and that allowing private investors to fund ISAs can create new risks to students and institutions.

The California Faculty Association is against the bill, saying it would be better to provide more financial aid to students, and that it risks learning on private industry. “This is innovative in the idea given there is no interest on it, but if the university will experiment to provide additional assistance to students, that better be done with public resources and not tools backed by private investors,” a representative from CFA said on Tuesday.

Lawmakers have tried in the past to regulate the ISA model, albeit many of those efforts have fallen flat. Voepel proposed a similar ISA bill in the 2018 legislative season. That bill also passed unanimously in the Assembly but did not pass the Senate Appropriations Committee.

Meanwhile, New York prevents schools from charging different amounts for the same program, which would hinder income-share agreement providers from collecting different amounts from students after graduating.

And at the federal level, senators Marco Rubio (R-FL) and Todd Young (R-IN) introduced the Investing in Student Success Act, S. 268 in 2017, with the aim of providing legal structure for income-share agreements. The proposed legislation has yet to move forward in the Senate.

The income-share agreement model has become a popular pitch among for-profit coding bootcamps, which seek to train students in tech skills over a short period. (A recent study, however, shows only around 1 percent of bootcamps offer ISAs.)

Lack of regulation hasn’t stopped several non-profit institutions from giving the income-share model a try. In 2016, Purdue University launched its Back-A-Boiler program, which offers students $10,000 per year to cover the cost of tuition before they pay back a portion of their income after graduating. Colorado Mountain College offers ISAs for undocumented studnets, who can take out $3,000 per year and do not pay back more than the ISA amount they take out.

The California pilot would require students to pay back a percentage of their income for a maximum of 10 years, and payments would not begin until a student makes at least $20,000. If a student makes less than $20,000 during that period say, to go back to school or take time off, the payment period pauses.

Voepel’s 2018 ISA bill attempted to allocate $600,000 for CSUs and $250,000 for UCs, according to a legislative assistant for the assemblyman. The amount funded for the bill will be determined in the Appropriations Committee, and those funds would be distributed among California universities that choose to participate.

Private investors and companies would be allowed to inject more funding into particular programs if the pilot is deemed successful. “I anticipate corporations funding this in the future,” Voepel said.

Casey Jennings, COO of nonprofit 13th Avenue funding, which advised Purdue’s ISA program, pointed out on Tuesday that nothing currently prevents higher-ed institutions from offering ISAs, and that the bill would regulate a model that already exists. Students in California already take out ISAs at coding bootcamps, or in public programs such as UC San Diego Extension and at the two-year Allan Hancock College in Santa Maria, Calif.

“ISAs offer the potential to move some of that [student debt] risk from the students to a party better able to bear that risk,” said Jennings. But “there’s no oversight, there’s no regulation.”

Students in their sophomore, junior or senior year would be eligible to participate in the pilot program. To discourage universities from prioritizing majors that could lead to higher-paying salaries, the bill states that “students approved to participate in the pilot program be enrolled in a wide variety of baccalaureate degree programs.”

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