The details of the IsA experience of the federal loan, which has not yet been officially announced, remain sparse. Federal officials discussed the idea at a financial aid conference earlier this month, and Inside Higher Ed received a brief department document on the issue. The Trump administration intends to create an experiment in which a limited group of colleges could take over students` federal credit debts and have them repaid through income-participation agreements. “I would prefer that the administration work to incorporate some of the benefits of revenue-involved agreements into the existing credit program to make it more effective,” she said in an email. “For example, the recovery of repayments for student loans is contracted through an income-based plan, based on the principles of income-participation agreements. Switching to a system that recovers repayment in this way and does not require borrowers to sign up for confusing repayment plans would be an effective way to innovate in the provision of federal credit without increasing complexity. Given the growing popularity and political support of these agreements, which could affect millions of university students, it is worth asking what could go wrong. While student loans are useful in many cases, they are not suitable for everyone. Students who are reluctant to pay for debt or prefer to pay for their training because of their school, which offers them clear value, are not best served by the existing system. Income-participation agreements, promoted by Betsy DeVos and Silicon Valley, can simply be used to shift the payment burden from some students to others. Repayment is also more complicated than a regular student loan, as students must provide regular tax returns, pay slips or other proof of the money they earn. If this information is not provided in a manner consistent with the specific terms of the agreement, the contract could be defaulted and turned into a debt subject to castization, foreclosure and everything else.
In other words, all the problems that new credit products are supposed to avoid. It goes without saying that the consumer protection provisions of existing credit programs under consideration pose particular problems. At first, income-participation agreements are very similar to loans. In both cases, a bank gives a certain amount to pay for tuition, fees and other university fees. As a loan, it is a legally binding contract that requires students to make monthly payments until their commitment is fulfilled. While optimistic about the ability of ISAs to solve the eternal challenges of higher education, such as student inflation, financial risk and information asymmetry, Akers is concerned about the structure of the planned intervention. The model law, sponsored by Republican Senators Todd Young and Marco Rubio and Democratic Senators Mark Warner and Chris Coons, would allow banks and colleges to set much heavier terms than Flatiron, Purdue and others are now proposing.