Student Loan News: ISAs Under Fire; Navient in Boardroom Struggle

Welcome to Student Loan News, a weekly summary of developments and events affecting college debt in the U.S. Join us each Friday for a look at goings-on that could impact your own student loan situation.

Lawmakers spark debate over income-share agreements

Income-share agreements (ISAs) offer to give you money for your education in exchange for a set portion of your income once you meet a certain earning level. Although still relatively rare, ISAs are becoming more common, and the Trump administration has expressed interest in using federal funds to experiment with the model.

But the possibility of using ISAs in federal programs was met with sharp pushback from a group of lawmakers Tuesday, who questioned whether these products were a good idea to begin with. Three members of Congress — Sen. Elizabeth Warren and Reps. Ayanna Pressley and Katie Porter — wrote the Department of Education with hard criticism against income-share agreements.

“ISAs … include some of the most exploitative terms in the private student loan industry, including mandatory arbitration agreements and class-action bans,” they wrote. “Unlike private student loans, however, these risky contracts have virtually no transparency and have experienced little to no oversight from federal regulators.”

They specifically argued that Purdue University’s ISA program was potentially harmful for borrowers if they meet the income threshold that triggers repayment but still have trouble making their bills.

So far, efforts to regulate ISAs (such as this one) have yet to pass Congress, and Manhattan Institute senior fellow Beth Akers told Inside Higher Ed that the market for ISAs is in need of regulation.

“Putting guardrails on this emerging market will help with fundraising efforts and obviously ensure that students don’t fall victim to unfair contracts,” said Akers, who supports the use of ISAs in some cases.

How it affects YOU: ISAs can’t match federal student loans when it comes to borrower protections — with federal loans, you can use an income-driven repayment plan to make sure your monthly bill is never more than you can afford, for example.

Then again, there are times when an ISA might make sense, such as if your school isn’t eligible for federal loans (though make sure you find out why it’s not!) or if you’ve maxed out your available federal loans and have a specific situation that could benefit from an ISA. Some students might even be interested on religious grounds, as we noted last week.

But caution is definitely warranted, especially with the lack of regulation in this space. Before you sign up for an ISA, make sure you know what would happen if you can’t meet your end of the deal, and reach out for advice if you’re not sure whether the program is right for you.

Also in the news …

  • The Virginia Tobacco Region Revitalization Commission is rolling out a new student loan repayment assistance program for certain professionals willing to work in certain parts of the state, The Roanoke Times reported Sunday. Check the commission’s website “for future announcements about the new program.”
  • A group of bipartisan lawmakers in Congress introduced a bill to change the structure of federal student loans by eliminating origination fees.
  • Student loan servicer Navient’s management is reportedly under fire from an activist hedge fund, and the fallout could be mixed for borrowers, The Philadelphia Inquirer reported Sunday. We’ll keep an eye out for developments on this one.
  • More than a decade after the start of the Great Recession, public colleges still face funding struggles, a report in Inside Higher Ed says.

News can be useful, but if you want some deeper advice, take a moment to sign up for the Student Loan Hero weekly digest email and get valuable financial knowledge sent straight to your inbox … for free!

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