Student Loan Debt

"The student loan debt crisis cannot be ignored. Addressing it in a reasonable and feasible manner that serves the needs of students, taxpayers, and institutions of higher education alike is absolutely critical."

If we are to create an opportunity society in Pennsylvania where all residents can experience earned success and upward mobility, fostering (1) strong families, (2) great schools, (3) vibrant and healthy communities, and (4) free enterprise are imperative.  As part of that mission, I believe that it is absolutely necessary to address the student loan debt crisis in a way that:

As such, I have introduced two bills that aim to tackle the goals outlined above.  You can find detailed information about these proposals, Income Share Agreements, the student loan debt crisis, and more below.

The Student Loan Debt Crisis

Since 1978, college tuition has increased by over 1,120 percent, four times faster than the consumer price index. Yet, studiesshow that today’s real average wage (that is, the wage after accounting for inflation) has about the same purchasing power it did 40 years ago. This has resulted in younger generations taking on 300 percent more student loan debt than their parent’s generation; leaving long-term effects on the national economy and causing ripple effects in our communities. While many argue that students should forgo post-secondary education altogether due to the astronomical cost, the reality of our current job market is that over 65 percent of job openings through 2020 will require a college degree.

OpEd: Student Debt Crisis is a Crisis for Us All

Read the full op-ed

Additional Information on the Student Loan Debt Crisis:

11 Mind-Blowing Facts that Show Just How Dire the Student-Loan Crisis in America Is (Business Insider)

American Factories Demand White-Collar Education for Blue-Collar Work (Wall Street Journal)

  • Within three years, U.S. manufacturing workers with college degrees will outnumber those without.
  • College-educated workers are taking over the American factory floor.  New manufacturing jobs that require more advanced skills are driving up the education level of factory workers who in past generations could get by without higher education, an analysis of federal data by The Wall Street Journal found.

The Simple Reason College Tuition Costs Have Exploded (Showbiz CheatSheet)

  • College costs are out of control, there’s no denying it. Over the past 30 to 40 years, the price has skyrocketed 1,120%, to the point where higher education is simply unaffordable for many people, and those that do take on the financial burden are now saddled with an average of $35,000 in debt.

Average Student Loan Statistics by School by State 2019 (LendEDU)

Your Parents’ Financial Advice Is (Kind Of) Wrong (Wall Street Journal)

  • The personal-finance playbook followed by past generations doesn’t add up for many people the way it used to. It’s time for some new money rules.

2019 is the Final Class of Millennial College Graduates. Next Stop: The Great American Affordability Crisis (Business Insider)

  • Like many of their generational peers, this year’s grads are walking into an affordability crisis for young Americans. It’s triggered by several factors, including rising living costs, increasing student debt, and the ongoing fallout of the recession.

Cost of College Degree in U.S. Soars 12 Fold: Chart of the Day (Bloomberg)

  • The cost of obtaining a university education in the U.S. has soared 12 fold over the past three decades, a sign the educational system is in need of reform, according to lawmakers in both parties.

Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs (Federal Reserve Bank of New York)

  • We study the link between the student credit expansion of the past fifteen years and the contemporaneous rise in college tuition.

Legislation

The Student Loan Retirement Agreement Program is an ISA program for graduated students that allows them to enter into a contract with the program administrator (PHEAA) where they agree to pay a fixed percentage or “share” of their income for a fixed period of time in exchange for having all or a portion of their student loans paid off.

Read the Student Loan Retirement Agreement Program bill and track it’s progress through the legislative process here.

The Higher Education Income Share Financing Pilot Program is an ISA program for current students that allows them to enter into a contract with their college or university where they agree to pay a fixed percentage or “share” of their future income for a fixed period of time in exchange for having all or a portion of the cost of their education paid off.

Read the Higher Education Income Share Financing Pilot Program bill and track it’s progress through the legislative process here.

Watch Senator Aument describe his student loan debt proposals in a Facebook Live Town Hall from February 5, 2020:

News Releases

Feb

18

2020

February 18, 2020

Senator Ryan P. Aument (R-36) introduced two bills today to ease the strain of the student loan debt crisis on current students and graduates, while emphasizing the importance of personal responsibility and protecting taxpayers. Listen   [Read More]

Feb

04

2020

February 04, 2020

Lancaster County Senators Ryan P. Aument (R-36) and Scott Martin (R-13) voiced concerns about the level of new spending and borrowing in the $36.1 billion budget plan outlined by Governor Wolf today.   [Read More]

What is an Income Share Agreement?

Additional Information on the Income Share Agreements:

Start-ups Want to Turn Your Tuition Into the Next Asset Class. What Could Go Wrong? (Quartz)

  • One person’s tuition is another’s investment. With US students mired in over $1.3 trillion of student debt, income-share agreements (ISA) are looking like a growth business. These contracts cover students’ tuition in exchange for a cut of their future income.

Student & Parent Perspectives on Higher Education Financing:  Findings from a Nationally Representative Survey on Income-Share Agreements (American Enterprise Institute)

  • Income-share agreements (ISAs) are a new higher education financing tool meant to supplement or replace student loans. With an ISA, students agree to pay a set percentage of their future income for a set number of years in return for financing for their college educations.

Should College Come With a Money-Back Guarantee? (Manhattan Institute)

  • Today, costs loom large in public discussions about the problems in higher education. Tuition at four-year private colleges has grown at an average annual rate of 2.3% above inflation over the past 10 years.

Income Share Agreements:  How They Work & Their Place in the Federal Regulatory Regime (Reed Smith)

  • Income Share Agreements (ISAs) are a unique and innovative alternative to finance higher education. As student loan debt continues to grow, colleges and universities are offering ISAs to students in exchange for a share of the student’s future earned income.

FAQ's

What is an ISA?

An ISA is a contract whereby a person receives an upfront payment that provides the person with funds to help pay for the cost of their education in exchange for a fixed percentage or “share” of their income for a predetermined amount of time.

Who is eligible for the ISA program?

Student Loan Retirement Agreement Program:

  • Live in Pennsylvania
  • Graduate from an accredited college or university
  • Have student loan debt or parent debt used to finance the applicant’s cost of college education
  • Be making timely payments on their loans
  • Meet other criteria as established by the program administrator (PHEAA)

Higher Education Income Share Financing Pilot Program:

  • Attends an accredited college or university
  • Meets criteria established by the program administrator (PHEAA) in the program guidelines
  • Meets any other institution-specific criteria required by the participating college or university that he / she attends

How is the program paid for?

Student Loan Retirement Agreement Program:

To fund the ISAs, the Pennsylvania Higher Education Assistance Agency (PHEAA) as the program administrator, would aggregate ISAs for sale to institutional and other investors.  The Pennsylvania Treasurer would extend a revolving line of credit to PHEAA to originate the ISAs that will be repaid through the sale of those ISAs to institutional and other investors. The initial line of credit for this program will be capped and the program would NOT be funded by the issuance of General Obligation Debt or by tax revenue.  The program administrator would collect payments made under the ISA by the participants and use the payments to pay investors.

Higher Education Income Share Financing Pilot Program:

The participating college or university agrees to offer the ISAs to their students and sell them to the program administrator (PHEAA) or designee in exchange for cash and a portion of the ISAs or related securities.  By giving a portion of the ISAs or related securities back to the institutions, this will establish a financial interest in the post-graduate success of their students.

What terms and conditions are included in an ISA?

  • The amount of student loan debt to be repaid by the participant with ISA proceeds
  • The percentage or “share” of the participant’s income due
  • The beginning date and frequency of payments to be made by the participant
  • The total number of payments to be made by the participant
  • The duration of the ISA
  • Any cap on the total number of payments and/or on the total dollar amount that can be repaid
  • Any payment deferral and extension periods
  • Any ability to buy out the obligation
  • Any other provisions required by the program administrator or required by law

 

Who administers the program?

Student Loan Retirement Agreement Program:

The Pennsylvania Higher Education Assistance Agency (PHEAA) in consultation with the Student Loan Retirement Agreement Advisory Committee administers and oversees the program, including developing program guidelines, educational materials, and servicing the ISAs.

Higher Education Income Share Financing Pilot Program:

The advisory committees for both of these programs will be composed of:

  • The Governor (or an appointee)
  • Secretary of the Budget
  • Secretary of Education
  • Three residents appointed by the Governor
  • The State Treasurer
  • Senator appointed by the President Pro Tempore
  • Senator appointed by the Minority Leader of the Senate
  • Representative appointed by the Speaker of the House
  • Representative appointed by the Minority Leader of the House
  • Chair and Minority chair of the Senate Appropriations Committee
  • Chair and Minority Chair of the House Appropriations Committee

What are the potential benefits of an ISA?

  • No interest payable
  • Favorable impact on credit
  • Increased disposable income
  • Public AND private loans are eligible under the Student Loan Retirement Program
  • No collateral
  • Lower monthly payments, especially with employment interruption and / or underemployment and possible deferral
  • Loans held by parents and benefactors on behalf of a student / graduate are eligible under the Student Loan Retirement Agreement Program
  • Consumer protections are built in to the program

How do ISAs compare to traditional loan repayment options?

Whether or not an ISA is preferable to a traditional loan repayment option will vary greatly, as each individual participant’s balance, type of loan(s), income volatility, and ability to repay will be different.  The goal of creating an ISA program in Pennsylvania is to provide students and graduates with another tool to repay their debt under potentially more manageable terms.  Especially for students with private loans for which there are very limited (if any) refinance options that are based on income, ISAs will allow participants to repay these oftentimes high-interest loans under more reasonable terms that leave them more disposable income than they may have had access to under traditional loan repayment options.  Again, while the benefits of an ISA will vary from person to person, for some applicants they will be the right fit that allows them to responsibly repay and manage their debt.  Note that ISAs do not involve fixed repayment obligations, regardless of income volatility, collateral requirements, and parent guarantees, and usually involve favorable payment deferral and extension provisions, compared to traditional loans.

Shouldn't we be making college more affordable in the first place instead of putting effort towards repayment plans?

While I believe that addressing the student loan debt crisis must be done using a multi-faceted approach that cuts costs on the frontend while easing the repayment process for graduates on the backend, ISAs administered by participating colleges and universities (like those proposed in the Higher Education Income Share Financing Pilot Program) can actually have the effect of driving down the cost of education by aligning the interests of colleges, students, and investors with each other.  By reason of the requirement that colleges continue to hold a portion of the ISAs attributable to their students, they will likely work to increase the return on investment, thereby reducing the cost of an education to students.   

Can I use an ISA to repay a portion of my student loan debt while using other repayment options for the remainder of the balance?

Yes. Some participants will only be approved to have a portion of their student loan debt serviced through an ISA.  In those cases, the participants are free to pursue other traditional repayment options, whether through the private market or the federal government.

How does an ISA affect a participant's credit score?

Upon entering into an ISA, all or a portion of a participant’s student loan balance is paid off using funds provided by the program administrator; therefore, the participant’s credit may be positively impacted because their student loan debt is no longer reflected in their credit score or the balance is significantly reduced thereby improving their debt-to-income ratio.  Unlike traditional loan repayment options, the debt is not merely transferred to a new servicer, but paid off in part or in full (according to the terms of their individual contract), removed from their credit report, and converted into an ISA to be repaid.

To be clear, an ISA is not considered a loan and is not currently subject to federal regulation.  Future changes in regulations and / or industry standards may impact how ISAs are reported to credit bureaus.

Are private loans eligible for the ISA program?

Yes.

How much outstanding student loan debt is serviced by the federal government vs. by private institutions in Pennsylvania?

Based on financial modeling of publicly-available data from the Federal Reserve Bank of New York and the Federal Student Aid website from 2017, it is estimated that there is approximately:

  • $9.12 billion of outstanding student loan debt that is serviced on the commercial (private) market, compared to approximately
  • $55.4 billion of outstanding student loan debt that is serviced by the Federal government.

Additionally, it is important to note that some graduates hold debt that is serviced by both parties – partially by private institutions and partially by the Federal government.

Does this program forgive or erase a participant's personal responsibility to repay their loans?

No.  While an ISA permits a student to “retire” the loan by paying it off in part or in full (according to the terms of the participant’s contract), the participant’s personal responsibility to repay that debt remains.  An ISA simply allows participants to repay their debt through more manageable terms leaving them more disposable income than traditional loan repayment options might.

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This webpage last updated on: January 7, 2019