Ed Dept reminds colleges ISAs are private loans, subject to disclosure requirements

Higher Ed Dive 

Jeremy Bauer-Wolf

March 2, 2022

Dive Brief:

• The U.S. Department of Education on Wednesday reminded colleges of their legal obligation to inform students of the costs and conditions of taking out private loans, including income-share agreements.

• In an online notice, the department highlighted a recent finding by the Consumer Financial Protection Bureau that laws and regulations concerning private loans apply to ISAs, a controversial arrangement in which college graduates pay back expenses like tuition and fees through a portion of their income over a set timeframe.

• The Education Department also said it intends to work with federal agencies to provide colleges later this year with more information on how to improve reporting related to preferred lender arrangements. Under these deals, colleges endorse or promote private lenders’ loan products often in exchange for incentives, such as paying for financial aid brochures and other materials.

Dive Insight:

ISAs have been an oft-debated way for students to use money from outside of the federal student loan program to help pay for the cost of college.

A contingent of higher education experts back such arrangements, saying they can ease students’ financial burdens by offering income-based repayments. Often, graduates are exempt from monthly payments if they fall below a certain income level.

But the deals have also come under fire. Critics charge ISAs do not offer students a sense of the true cost of paying for college and may amount to more debt.

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