Student Loan Debt

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.

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

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.

• 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

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

• 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

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.

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.   

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.

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.

Yes.

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.

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.