09 Feb HB 1029 Allows Mississippi’s IHL Board to Create New Questionable Student Debt Product

The current language may allow private companies to take a cut of students’ future income for an undetermined amount of time and without protections against unfair lending practices.

Overview

• HB 1029 authorizes the Board of Institution for Higher Learning (IHL) to set the rules of the road for an additional student loan in Mississippi.
• Specifically, the loan is called an “income share agreement” or ISA. This is because the loan is a contract in which the student promises to pay a percentage of their future income for years.
• These income share agreements would be in addition to other student loan debt people already have outstanding, and they do not have the benefits of federal student loans, such as affordable repayment programs and other protections.

Risks are Stacked against Students

ISAs exist in only a few other states, and based on those experiences, there are very clear risks that are stacked against students. Often ISA providers claim that these loans are not subject to protections that apply to other types of loans, such as protections against discriminatory lending, complicated pricing, or abusive debt collection practices.

While the bill says that the ISAs would be made by the universities, if IHL approves it, nothing in the language of the bill prohibits universities from seeking other sources of investment funding, or partnering with for-profit companies to administer and collect the loans. This is how many ISAs in other states are run. So, the student’s contract to pay a share of their future income would be essentially a contract to benefit private investors for an uncertain amount of time.

Too Many Unanswered Questions

HB 1029 simply states that IHL shall have the authority to approve and set the rules for ISA programs at Mississippi universities within the IHL system.  It provides nothing more to address the potential risks.

These are just some of the many unanswered questions:

1. What will be the interest rate on these income share agreements?
2. How much will it cost to repay them? How long will it take to repay?
3. Is there transparent pricing? Or is it difficult to figure out pricing?
4. Does the ISA provider disclose payment pricing based different majors? For example, will an engineering major have a different interest rate than an English major?
5. What protections are in place to protect against unfair lending practices?
6. If a student becomes ill or loses their job such that that have a reduced income, how will the ISA provider collect payments?
7. When the ISA is made, what will be done to make sure the student will be able to afford it in the future, especially if they lose their jobs?
8. Do ISAs have same protections as federal student loans, like repayment programs?
9. Since this is debt that is on top of federal student loan debt, even when already maxed out, will those existing debts be taken into account when determining payment amount on this new debt?
10. What process would IHL use to determine to approve these ISAs? Will it be open to the public?