Education Department Clarifies Rules on Income-Share Agreements
Scott Jaschik
March 4, 2022
The programs are loans, the department says. And the companies that offer them—and colleges—have obligations.
The Education Department clarified this week that income-share agreements in higher education are private loans. As loan providers, the companies that provide these agreements are regulated in different ways than before the clarification, and colleges have specific requirements in terms of how they promote the arrangements.
Income-share agreements (or ISAs) offer students up-front financial support and, in exchange, require them to pay back a portion of their future income for a set number of years. They are offered in some cases through colleges and in other cases by companies. Some providers of ISAs have argued that they are not loans.
The Education Department acted after the Consumer Financial Protection Bureau in September issued a consent order against a student loan originator for misleading borrowers about ISAs, failing to provide required disclosures and violating the prohibition against prepayment penalties for private education loans. The CFPB concluded in its order that a student loan originator’s ISAs are private education loans. Additionally, in January, the CFPB updated its examination procedures for private student lending to explicitly reference ISAs. The Education Department’s action this week essentially applies that ruling to all providers of ISAs in higher education.
